SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-23605
CAVALRY BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 62-1721072
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) I.D. Number)
114 West College Street, Murfreesboro, Tennessee 37130
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 893-1234
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Securities registered pursuant to Section None
12(b) of the Act: ------------------------
Securities registered pursuant to Section Common Stock, no par
12(g) of the Act: value per share
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(Title of Class)
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES X NO
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Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-K contained herein, and no disclosure will be contained, to
the best of the Registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. X
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The aggregate market value of the voting stock held by nonaffiliates of
the Registrant, based on the closing sales price of the registrant's Common
Stock as quoted on the Nasdaq National Market System under the symbol "CAVB"
on March 17, 1998, was $155,005,266 (7,538,250 shares at $20.56 per share).
It is assumed for purposes of this calculation that none of the Registrant's
officers, directors and 5% stockholders (including the Cavalry Banking
Employee Stock Ownership Plan) are affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. Business
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General
Cavalry Bancorp, Inc. ("Company"), a Tennessee corporation, was organized
on November 5, 1997 for the purpose of becoming the holding company for
Cavalry Banking ("Bank") upon the Bank's conversion from a federally-chartered
mutual to a federally-chartered stock savings bank ("Conversion"). The
Conversion was completed on March 16, 1998. The Company has not engaged in
any significant activity other than holding the stock of the Bank.
Accordingly, the information set forth in this report, including financial
statement and related data, relates primarily to the Bank.
The Bank is regulated by the Office of Thrift Supervision ("OTS"), its
primary regulator, and by the Federal Deposit Insurance Corporation ("FDIC"),
the insurer of its deposits. The Bank's deposits have been federally-insured
since 1936 and are currently insured by the FDIC under the Savings Association
Insurance Fund ("SAIF"). The Bank has been a member of the Federal Home Loan
Bank ("FHLB") System since 1936.
The Bank is a community-oriented financial institution whose primary
business is attracting deposits from the general public and using those funds
to originate a variety of loans to individuals residing within its primary
market area, and to businesses owned and operated by such individuals. The
Bank originates both adjustable rate mortgage ("ARM") loans and fixed-rate
mortgage loans. Generally, ARM loans are retained in the Bank's portfolio and
long-term fixed-rate mortgage loans are originated for sale in the secondary
market. In addition, the Bank actively originates construction and
acquisition and development loans. The Bank also originates commercial real
estate, commercial business, and consumer and other non-real estate loans.
Market Area
The Bank considers Rutherford, Bedford and Williamson Counties in Central
Tennessee to be its primary market area. A large number of the Bank's
depositors reside, and a substantial portion of its loan portfolio is secured
by properties located, in Rutherford and Bedford Counties.
The economy of Rutherford and Bedford Counties are diverse and generally
stable. According to the Rutherford and Bedford Area Chambers of Commerce,
major employers include Nissan Motor Manufacturing Corp. USA, Rutherford
County Government, Whirlpool Corp., Bridgestone/Firestone Inc., Middle
Tennessee State University, Alvin C. York Veterans Administration Medical
Center and Ingram Book Co., among others.
Selected Financial Data
See Item 6, "Selected Financial Data," included herein.
Lending Activities
General. At December 31, 1997, the Bank's total loans receivable
portfolio amounted to $217.8 million, or 77.2% of total assets at that date.
The Bank has traditionally concentrated its lending activities on conventional
first mortgage loans secured by one- to- four family properties, with such
loans amounting to $82.9 million, or 33.0% of the total loans receivable
portfolio at December 31, 1997. In addition, the Bank originates construction
loans, commercial real estate loans, land loans, consumer loans and commercial
business loans. A substantial portion of the Bank's loan portfolio is secured
by real estate, either as primary or secondary collateral, located in its
primary market area.
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Loan Portfolio Analysis. The following table sets forth the composition of the Bank's loan
portfolio by type of loan as of the dates indicated.
At December 31,
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- -------------- --------------- -------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
One- to- four
family(1).........$ 82,930 32.9% $ 81,279 33.1% $ 72,302 36.4% $ 82,793 43.5% $ 76,687 42.2%
Multi-family....... 1,338 0.5 2,847 1.2 1,705 0.9 2,285 1.2 8,546 4.7
Commercial......... 39,690 15.8 30,099 12.3 22,140 11.1 16,808 8.8 17,617 9.7
Construction....... 54,666 21.7 61,032 24.9 47,416 23.9 40,261 21.1 35,969 19.8
Acquisition and
development..... 17,011 6.8 18,799 7.7 13,816 6.8 9,962 5.3 7,500 4.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total mortgage
loans............ 195,635 77.7 194,056 79.2 157,379 79.1 152,109 79.9 146,319 80.4
-------- -------- -------- -------- --------
Consumer Loans:
Home equity lines
of credit......... 2,783 1.1 1,964 0.8 941 0.5 228 0.1 3 --
Automobile......... 5,028 2.0 3,716 1.5 2,735 1.4 2,144 1.1 2,131 1.2
Unsecured.......... 1,684 0.7 1,779 0.7 1,996 1.0 2,129 1.1 2,051 1.1
Other secured...... 23,852 9.5 23,037 9.4 20,982 10.6 22,409 11.8 22,574 12.4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total consumer
loans........... 33,347 13.3 30,496 12.4 26,654 13.5 26,910 14.1 26,759 14.7
Commercial business
loans.............. 22,544 9.0 20,698 8.4 14,771 7.4 11,451 6.0 8,834 4.9
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans...... 251,526 100.0% 245,250 100.0% 198,804 100.0% 190,470 100.0% 181,912 100.0%
-------- ===== -------- ===== -------- ===== -------- ===== -------- =====
Less:
Undisbursed portion of
loans in process.. 30,178 36,573 32,615 21,228 20,699
Net deferred loan
fees.............. 710 701 560 533 589
Allowance for
loan losses....... 2,804 2,123 1,997 1,776 1,681
-------- -------- -------- -------- --------
Total loans
receivable, net..$217,834 $205,853 $163,632 $166,933 $158,943
======== ======== ======== ======== ========
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(1) Includes loans held-for-sale.
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One- to- Four Family Real Estate Lending. Historically, the Bank has
concentrated its lending activities on the origination of loans secured by
first mortgage loans on existing one- to- four family residences located in
its primary market area. At December 31, 1997, $82.9 million, or 33.0% of the
Bank's total loan portfolio, consisted of such loans. The Bank originated
$80.0 million, $73.1 million and $63.2 million of one- to- four family
residential mortgage loans during the years ended December 31, 1997, 1996 and
1995, respectively.
Generally, the Bank's fixed-rate one- to- four family mortgage loans have
maturities ranging from 15 to 30 years and are fully amortizing with monthly
payments sufficient to repay the total amount of the loan with interest by the
end of the loan term. Generally, they are originated under terms, conditions
and documentation which permit them to be sold to U.S. Government sponsored
agencies such as Federal Home Loan Mortgage Corporation ("FHLMC"). The Bank's
fixed-rate loans customarily include "due on sale" clauses, which give the
Bank the right to declare a loan immediately due and payable in the event the
borrower sells or otherwise disposes of the real property subject to the
mortgage and the loan is not paid.
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The Bank also originates ARM loans at rates and terms competitive with
market conditions. At December 31, 1997, $71.0 million, or 28.2% of the
Bank's gross loan portfolio, were subject to periodic interest rate
adjustments. The Bank originates for its portfolio ARM loans which provide
for an interest rate which adjusts every year or which is fixed for one, three
or five years and then adjusts every year after the initial period. Most of
the Bank's one-year, three-year and five-year ARMs adjust every year after the
initial fixed rate period based on the one year Treasury constant maturity
index. The Bank's ARMs are typically based on a 30-year amortization
schedule. The Bank qualifies the borrowers on its nonconforming ARM loans
(i.e., loans not originated in conformity with standards that would permit the
loans to be sold in the secondary market) based on the initial rate. The Bank
qualifies the borrowers on its conforming ARM loans based on the maximum note
interest rate during the second year of the loan. A one-year ARM loan that is
originated according to FHLMC secondary market standards may be converted to a
fixed-rate loan within five years of the origination date. ARM loans that are
not saleable to the FHLMC are not permitted to be converted to fixed rate
loans. The Bank does not offer deep discount or "teaser" rates. The Bank's
current ARM loans do not provide for negative amortization. The Bank's ARM
loans generally provide for annual and lifetime interest rate adjustment
limits of 2% and 5% to 6%, respectively.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.
The retention of ARM loans in the Bank's loan portfolio helps reduce the
Bank's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs
due to changed rates to be paid by the customer. It is possible that during
periods of rising interest rates the risk of default on ARM loans may increase
as a result of repricing and the increased payments required by the borrower.
In addition, although ARM loans allow the Bank to increase the sensitivity of
its asset base to changes in the interest rates, the extent of this interest
sensitivity is limited by the annual and lifetime interest rate adjustment
limits. Because of these considerations, the Bank has no assurance that
yields on ARM loans will be sufficient to offset increases in the Bank's cost
of funds. The Bank believes these risks, which have not had a material
adverse effect on the Bank to date, generally are less than the risks
associated with holding fixed-rate loans in portfolio during a rising interest
rate environment.
The Bank also originates one- to- four family mortgage loans under
Federal Housing Administration ("FHA") and Veterans Administration ("VA")
programs and the Tennessee Housing and Development Agency ("THDA"), an
affordable housing program. FHA and VA loans are generally sold to private
investors, servicing released (i.e., the right to collect principal and
interest payments and forward it to the purchaser of the loan, maintain escrow
accounts for payment of taxes and insurance and perform other loan
administration functions is sold with the loan). THDA loans are sold with
servicing rights retained. See "-- Loan Originations, Sales and Purchases."
The Bank generally requires title insurance insuring the status of its
lien or an acceptable attorney's opinion on all loans where real estate is the
primary source of security. The Bank also requires that fire and casualty
insurance (and, if appropriate, flood insurance) be maintained in an amount at
least equal to the outstanding loan balance.
The Bank's one- to- four family residential mortgage loans typically do
not exceed 80% of the appraised value of the security property. Pursuant to
underwriting guidelines adopted by the Bank's Board of Directors, the Bank can
lend up to 95% of the appraised value of the property securing a one- to- four
family residential loan; however, the Bank generally obtains private mortgage
insurance on the portion of the principal amount that exceeds 80% to 95% of
the appraised value of the security property.
Construction Lending. The Bank actively originates three types of
residential construction loans: (i) speculative construction loans, (ii)
pre-sold construction loans and (iii) construction/permanent loans. To a
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substantially lesser extent, the Bank also originates construction loans for
the development of multi-family and commercial properties.
At December 31, 1997, the composition of the Bank's construction loan
portfolio was as follows:
Outstanding Percent of
Balance(1) Total
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(In thousands)
Residential:
Speculative
construction............... $26,070 36.37%
Pre-sold construction....... 19,954 27.84
Construction/permanent...... 9,021 12.59
Commercial and multi-family.. 16,632 23.20
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Total....................... $71,677 100.00%
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(1) Includes loans in process.
Speculative construction loans are made to home builders and are termed
"speculative" because the home builder does not have, at the time of loan
origination, a signed contract with a home buyer who has a commitment for
permanent financing with either the Bank or another lender for the finished
home. The home buyer may be identified either during or after the
construction period, with the risk that the builder will have to debt service
the speculative construction loan and finance real estate taxes and other
carrying costs of the completed home for a significant time after the
completion of construction until the home buyer is identified. The Bank lends
to approximately 110 local builders, many of whom may have only one or two
speculative loans outstanding from the Bank. The Bank considers approximately
25 builders as core borrowers with several speculative loans outstanding at
any one time. Rather than originating lines of credit to home builders to
construct several homes at once, the Bank originates and underwrites a
separate loan for each home. Speculative construction loans are originated
for a term of 12 months, with interest rates ranging from 0.5% to 2.0% above
the prime lending rate, and with a loan-to-value ratio of no more than 80% of
the appraised estimated value of the completed property. At December 31,
1997, the Bank had 11 borrowers each with aggregate outstanding speculative
loan balances of more than $500,000, all of which were performing according to
their respective terms and the largest of which amounted to $1.2 million.
Unlike speculative construction loans, pre-sold construction loans are
made to home builders who, at the time of construction, have a signed contract
with a home buyer who has a commitment for permanent financing for the
finished home with the Bank or another lender. Pre-sold construction loans
are generally originated for a term of 12 months, with adjustable interest
rates ranging from 0.5% to 1.0% above the prime lending rate, and with
loan-to-value ratios of 80% of the appraised estimated value of the completed
property or cost, whichever is less. At December 31, 1997, the largest
outstanding pre-sold construction loan had an outstanding balance of $250,000
and was performing according to its terms.
Construction/permanent loans are originated to the home owner rather than
the home builder. The construction phase of a construction/permanent loan
generally lasts 12 months and the interest rate charged is generally 8.5% to
9.5%, fixed, and with loan-to-value ratios of 80% (or up to 95% with private
mortgage insurance) of the appraised estimated value of the completed property
or cost, whichever is less. At the completion of construction, the Bank may
either originate a fixed-rate mortgage loan or an ARM loan. See "-- Lending
Activities -- One- to- Four Family Real Estate Lending." At December 31,
1997, the largest outstanding construction/ permanent loan had an outstanding
balance of $673,000 and was performing according to its terms.
To a lesser extent, the Bank also provides construction financing for
non-residential properties (i.e., multi-family and commercial properties). At
December 31, 1997, such construction loans amounted to $5.9 million, $3.5
million of which was repaid subsequent to December 31, 1997.
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Construction loans up to $500,000 may be approved by any two members of
the Bank's seven member Loan Committee. All construction loans over $500,000
must be approved by the Board of Directors. See "-- Lending Activities --
Loan Solicitation and Processing." Prior to preliminary approval of any
construction loan application, an appraiser approved by the Board of Directors
inspects the site and the Bank reviews the existing or proposed improvements,
identifies the market for the proposed project, analyzes the pro forma data
and assumptions on the project. In the case of a speculative or pre-sold
construction loan, the Bank reviews the experience and expertise of the
builder. After preliminary approval has been given, the application is
processed, which includes obtaining credit reports, financial statements and
tax returns on the borrowers and guarantors, an independent appraisal of the
project, and any other expert reports necessary to evaluate the proposed
project. In the event of cost overruns, the Bank requires that the borrower
use its own funds to maintain the original loan-to-value ratio.
The construction loan documents require that construction loan proceeds
be disbursed in increments as construction progresses. Disbursements are
based on periodic on-site inspections by an appraiser and/or Bank personnel
approved by the Board of Directors. The Bank regularly monitors the
construction loan portfolio and the economic conditions and housing inventory.
Property inspections are performed by the Bank's property inspector. The Bank
believes that the internal monitoring system helps reduce many of the risks
inherent in its construction lending.
Construction lending affords the Bank the opportunity to achieve higher
interest rates and fees with shorter terms to maturity than does its
single-family permanent mortgage lending. Construction lending, however, is
generally considered to involve a higher degree of risk than single-family
permanent mortgage lending because of the inherent difficulty in estimating
both a property's value at completion of the project and the estimated cost of
the project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost
proves to be inaccurate, the Bank may be required to advance funds beyond the
amount originally committed to permit completion of the project. If the
estimate of value upon completion proves to be inaccurate, the Bank may be
confronted with a project whose value is insufficient to assure full
repayment. Projects may also be jeopardized by disagreements between
borrowers and builders and by the failure of builders to pay subcontractors.
Loans to builders to construct homes for which no purchaser has been
identified carry more risk because the payoff for the loan depends on the
builder's ability to sell the property prior to the time that the construction
loan is due. The Bank has sought to address these risks by adhering to strict
underwriting policies, disbursement procedures, and monitoring practices. In
addition, because the Bank's construction lending is in its primary market
area, changes in the local economy and real estate market could adversely
affect the Bank's construction loan portfolio.
Acquisition and Development Lending. The Bank originates acquisition and
development loans for the purpose of developing the land (i.e., installing
roads, sewers, water and other utilities) for sale for residential housing
construction. At December 31, 1997, the Bank had land A&D loans with
aggregate approved commitments of $15.7 million, of which an aggregate of
$10.0 million was outstanding. At December 31, 1997, the largest land A&D
loan had an outstanding balance of $1.0 million and was performing according
to its terms. All of the land A&D loans are secured by properties located in
the Bank's primary market area.
Land A&D loans are usually repaid through the sale of the developed land.
However, the Bank believes that its land A&D loans are made to individuals
with, or to corporations the principals of which possess, sufficient personal
financial resources out of which the loans could be repaid, if necessary.
Land A&D loans are secured by a lien on the property, made for a two year
term, and with an interest rate that adjusts with the prime rate. The Bank
requires monthly interest payments during the term of the land A&D loan.
After the expiration of the two year term, the loan is reevaluated, adjusted
and/or extended as a fixed or adjustable rate loan. In addition, the Bank
obtains personal guarantees from the principals of its corporate borrowers.
At December 31, 1997, the Bank did not have any nonaccruing land A&D loans.
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Loans secured by undeveloped land or improved lots involve greater risks
than one- to- four family residential mortgage loans because such loans are
more difficult to monitor and foreclose as the Bank may be confronted with a
property the value of which is insufficient to assure full repayment.
Furthermore, if the borrower defaults the Bank may have to expend its own
funds to complete development and also incur costs associated with marketing
and holding the building lots pending sale. Land A&D loans are generally
considered to involve a higher degree of risk than single-family permanent
mortgage loans because of the concentration of principal among relatively few
borrowers and development projects, the increased difficulty at the time the
loan is originated of estimating the development building costs, the increased
difficulty and costs of monitoring the loan, the higher degree of sensitivity
to increases in market rates of interest, and the increased difficulty of
working out problem loans. A concentration of loans secured by properties in
any single area presents the risk that any adverse change in regional economic
or employment conditions may result in increased delinquencies and loan
losses. The Bank attempts to minimize this risk by limiting the maximum
loan-to-value ratio on acquisition and development loans to 75%, although the
Board of Directors has the authority to approve acquisition and development
loans with loan-to-value ratios of up to 80%.
Commercial Real Estate Lending. The Bank originates mortgage loans for
the acquisition and refinancing of commercial real estate properties. At
December 31, 1997, $39.7 million, or 15.8% of the Bank's total loan portfolio,
consisted of loans secured by existing commercial real estate properties. The
majority of the Bank's commercial real estate properties are secured by small
businesses, retail properties and churches located in the Bank's primary
market area.
The Bank requires an evaluation of all properties securing commercial
real estate loans which are $250,000 and less. Evaluations are performed by
the Bank's commercial loan officers or in-house appraiser, an outside fee
appraiser, or an employee of the Bank designated by the Board of Directors.
Appraisals are required for all properties securing commercial real estate
loans in excess of $250,000. Appraisals are performed by an independent
appraiser designated by the Bank and are reviewed by management. The Bank
considers the quality and location of the real estate, the credit of the
borrower, the cash flow of the project and the quality of management involved
with the property.
The average size of a commercial real estate loan in the Bank's portfolio
is approximately $100,000 to $200,000. Commercial real estate loans are
generally structured with fixed rates of interest and terms of three to five
years based on amortization schedules of 15 to 20 years. At December 31,
1997, the largest commercial real estate loan had an outstanding balance of
$2.4 million.
Loan-to-value ratios on the Bank's commercial real estate loans are
generally limited to 80%. As part of the criteria for underwriting commercial
real estate loans, the Bank generally imposes a debt coverage ratio (the ratio
of net cash from operations before payment of debt service to debt service) of
not less than 1.2 times. It is also the Bank's policy to obtain personal
guarantees from the principals of its corporate borrowers on its commercial
real estate loans.
Commercial real estate lending affords the Bank an opportunity to receive
interest at rates higher than those generally available from one- to- four
family residential lending. However, loans secured by such properties usually
are greater in amount, more difficult to evaluate and monitor and, therefore,
involve a greater degree of risk than one-to- four family residential mortgage
loans. Because payments on loans secured by multi-family and commercial
properties are often dependent on the successful operation and management of
the properties, repayment of such loans may be affected by adverse conditions
in the real estate market or the economy. The Bank seeks to minimize these
risks by limiting the maximum loan-to-value ratio to 80% and strictly
scrutinizing the financial condition of the borrower, the quality of the
collateral and the management of the property securing the loan. The Bank
also obtains loan guarantees from financially capable parties based on a
review of personal financial statements.
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Commercial Business Lending. The Bank's commercial business lending
activities focuses primarily on small to medium size businesses owned by
individuals well known to the Bank and who reside in the Bank's primary market
area. At December 31, 1997, commercial business loans amounted to $22.5
million, or 9.0% of total loans.
Commercial business loans may be unsecured loans, but generally are
secured by various types of business collateral other than real estate (i.e.,
inventory, equipment, etc.). In many instances, however, such loans are often
also secured by junior liens on real estate. Commercial business loans are
generally made in amounts between $50,000 to $75,000 and may be either lines
of credit or term loans. Lines of credit are generally renewable and made for
a one-year term. Lines of credit are generally variable rate loans indexed to
the prime rate. Term loans are generally originated with three to five year
maturities, with a maximum of seven years, on a fully amortizing basis. As
with commercial real estate loans, the Bank generally requires annual
financial statements from its commercial business borrowers and, if the
borrower is a corporation, personal guarantees from the principals.
At December 31, 1997, the largest commercial business loan to an
unaffiliated borrower was a $2.0 million line of credit secured by marketable
investment securities, with no outstanding balance at that date. At December
31, 1997, the largest commercial business loan with an outstanding balance had
a balance of $364,000 and was secured by inventory and equipment. Such loan
was performing according to its terms at December 31, 1997.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family real estate lending.
Real estate lending is generally considered to be collateral based lending
with loan amounts based on predetermined loan to collateral values and
liquidation of the underlying real estate collateral is viewed as the primary
source of repayment in the event of borrower default. Although commercial
business loans are often collateralized by equipment, inventory, accounts
receivable or other business assets, the liquidation of collateral in the
event of a borrower default is often not a sufficient source of repayment
because accounts receivable may be uncollectible and inventories and equipment
may be obsolete or of limited use, among other things. Accordingly, the
repayment of a commercial business loan depends primarily on the
creditworthiness of the borrower (and any guarantors), while liquidation of
collateral is a secondary and often insufficient source of repayment.
As part of its commercial business lending activities, the Bank issues
standby letters of credit or performance bonds as an accommodation to its
borrowers. See "-- Loan Commitments and Letters of Credit."
Consumer Lending. The Bank originates a variety of consumer loans that
generally have shorter terms to maturity and higher interest rates than
residential mortgage loans. At December 31, 1997, the Bank's consumer loans
totaled $33.3 million, or 13.3%, of the Bank's loans receivable, net. The
Bank's consumer loans consist primarily of home equity lines of credit,
automobile loans, and a variety of other secured loans, a substantial portion
of which are secured by junior mortgages on real estate. To a substantially
lesser extent, the Bank also originates unsecured consumer loans.
The Bank anticipates that it will continue to be an active originator of
consumer loans. Factors that may affect the ability of the Bank to increase
its originations in this area include the demand for such loans, interest
rates and the state of the local and national economy. Consumer loans
accounted for 11.9%, 9.5% and 8.9% of the Bank's total loan originations in
the fiscal years ended December 31, 1997, 1996 and 1995, respectively.
The Bank offers open-ended home equity lines of credit secured by a
second mortgage on the borrower's primary residence. These lines of credit
have an interest rate that is one to two percentage points above the prime
lending rate, as published in The Wall Street Journal, which adjusts monthly.
The majority of the approved lines of credit at December 31, 1997 were less
than $50,000. At December 31, 1997, approved lines of credit totaled $5.9
million, of which $2.8 million was outstanding.
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At December 31, 1997, the Bank's automobile loan portfolio amounted to
$5.0 million, or 2.0%, of total loans at such date, a substantial portion of
which were secured by used automobiles. The maximum term for the Bank's
automobile loans is 60 months. The Bank generally lends up to 80% to 90% of
the purchase price of the automobile. The Bank requires all borrowers to
maintain automobile insurance, including collision, fire and theft, with a
maximum allowable deductible and with the Bank listed as loss payee. The Bank
does not engage in indirect automobile lending.
The Bank's consumer loan portfolio also includes other consumer loans
secured by a variety of collateral, such as recreational vehicles, boats,
motorcycles, deposit accounts and, in many instances, junior mortgages on real
estate. Such other secured consumer loans were $23.9 million, or 9.5% of
total loans, at December 31, 1997.
At December 31, 1997, unsecured consumer loans amounted to $1.7 million,
or 0.7% of total loans. Unsecured loans are made for a term up to 24 months
with fixed rates of interest and are offered primarily to existing customers
of the Bank. Included in the unsecured consumer loan portfolio are credit
card loans with an aggregate outstanding balance of $216,000 at December 31,
1997. Approved credit card lines totaled $1.0 million at December 31, 1997.
The Bank is a VISA and MASTERCARD card issuer. The Bank does not actively
solicit credit card business beyond its customer base and market area and has
not engaged in mailing of pre-approved credit cards. The rate currently
charged by the Bank on its credit card loans is the prime rate, as published
in The Wall Street Journal, plus 6.9%, and the Bank is permitted to change the
interest rate quarterly.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles and other vehicles. In such cases,
any repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts
against the borrower beyond obtaining a deficiency judgment. In addition,
consumer loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount that can be recovered on such loans. At
December 31, 1997, the Bank had $9,000 of consumer loans accounted for on a
nonaccrual basis.
Maturity of Loan Portfolio. The following table sets forth certain
information at December 31, 1997 regarding the dollar amount of loans maturing
in the Bank's portfolio based on their contractual terms to maturity, but does
not include scheduled payments or potential prepayments. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less. Loan balances do not include
undisbursed loan proceeds and do not reflect the deduction for unearned
discounts, unearned income and allowance for loan losses.
After After
One Year 3 Years 5 Years
Within Through Through Through After
One Year 3 Years 5 Years 10 Years 10 Years Total
-------- ------- ------- -------- -------- -----
(In thousands)
Mortgage loans:
Residential....... $ 6,357 $10,610 $12,706 $13,987 $56,687 $100,347
Construction...... 38,658 2,840 -- -- -- 41,498
Commercial........ 14,530 8,444 13,313 1,451 140 37,878
Consumer and
other loans...... 9,679 6,753 4,435 129 -- 20,996
Commercial
business loans... 12,321 5,437 2,101 389 381 20,629
------- ------- ------- ------- ------- --------
Total........... $81,545 $34,084 $32,555 $15,956 $57,208 $221,348
====== ======= ======= ======= ======= ========
8
<PAGE>
<PAGE>
The following table sets forth the dollar amount of all loans due after
December 31, 1998, which have fixed interest rates and have floating or
adjustable interest rates.
Fixed Floating or
Rates Adjustable Rates
----- ----------------
(In thousands)
Mortgage loans:
Residential............................ $23,318 $70,672
Construction........................... -- 2,840
Commercial............................. 22,538 810
Consumer and other loans............... 8,008 3,309
Commercial business loans.............. 8,284 24
------- -------
Total................................ $62,148 $77,655
======= =======
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Bank the right to declare loans
immediately due and payable in the event, among other things, that the
borrower sells the real property subject to the mortgage and the loan is not
repaid. The average life of mortgage loans tends to increase, however, when
current mortgage loan market rates are substantially higher than rates on
existing mortgage loans and, conversely, decrease when rates on existing
mortgage loans are substantially higher than current mortgage loan market
rates. Furthermore, management believes that a significant number of the
Bank's residential mortgage loans are outstanding for a period less than their
contractual terms because of the transitory nature of many of the borrowers
who reside in its primary market area.
Loan Solicitation and Processing. The Bank's lending activities are
subject to the written, non-discriminatory, underwriting standards and loan
origination procedures established by the Bank's Board of Directors and
management. Loan originations come from a number of sources. The customary
sources of loan originations are realtors, walk-in customers, referrals and
existing customers. A business development program has been implemented where
loan officers and sales personnel make sales calls on building contractors and
realtors. The Bank also advertises its loan products.
In marketing its products and services, the Bank emphasizes its community
ties, customized personal service and an efficient underwriting and approval
process. The Bank uses professional fee appraisers for most residential real
estate loans and construction loans and all commercial real estate and land
loans. The Bank requires hazard, title and, to the extent applicable, flood
insurance on all security property.
Loan approval authority varies based on loan type. Construction loans
and acquisition and development loans up to $500,000 may be approved by any
two members of the Bank's seven member Loan Committee, while loans over
$500,000 must be approved by the Board of Directors. One- to- four family
residential mortgage loans up to $500,000 originated to be held in portfolio
may be approved by any two members of the Loan Committee, while loans over
$500,000 must be approved by the Board of Directors. One- to- four family
residential mortgage loans that are originated for sale to investors and that
are underwritten to the investor's specifications may be approved by any
member of the Loan Committee up to FHLMC loan limits. Consumer and commercial
business loans may be approved by loan officers individually or in combination
with other loan officers within dollar limits specified by the Loan Committee.
These dollar limits range from $2,500 to $25,000 for unsecured loans and from
$25,000 to $500,000 for secured loans. The maximum approval authority for an
individual loan officer is $125,000 for unsecured loans and $250,000 for
secured loans. All unsecured consumer and commercial business loans over
$250,000, and all secured consumer and commercial business loans over
$500,000, must be approved by the Board of Directors. Each approved loan,
regardless of type, is reviewed by the Bank's quality control personnel to
insure that proper approval was received.
9
<PAGE>
<PAGE>
Loan Originations, Sales and Purchases. While the Bank originates both
adjustable-rate and fixed-rate loans, its ability to generate each type of
loan depends upon relative customer demand for loans in its primary market
area.
The Bank sells all loans originated under FHA and VA programs, including
related servicing rights, except for those originated for the THDA. The Bank
periodically sells conventional one- to- four family loans (i.e., non-FHA/VA
loans) with servicing retained and without recourse. These sales generally
involve fixed-rate loans which help to reduce the Bank's exposure to interest
rate risk, and the proceeds of sale are used to fund continuing operations.
However, the Bank occasionally may sell ARM loans to satisfy liquidity needs.
Sellers of loans are exposed to various degrees of "pipeline risk," which
is the risk that the value of the loan will decline during the period between
the time the loan is originated and the time of sale because of changes in
market interest rates. The Bank is exposed to a relatively low degree of
pipeline risk because it generally does not fix the loan interest rate until
shortly before or on the closing date and loans are generally closed against a
mandatory purchase commitment by the FHLMC or other purchaser.
When conventional loans are sold, the Bank retains the responsibility for
servicing the loans, including collection and remitting mortgage loans
payments, accounting for principal and interest and holding and disbursing
escrow or impound funds for real estate taxes and insurance premiums. The
Bank receives a servicing fee for performing these services for others. The
Bank's servicing portfolio amounted to $116.0 million at December 31, 1997.
The Bank is generally paid a fee equal to 0.25% of the outstanding principal
balance for servicing sold loans. Loan servicing income totalled $387,000,
$447,000 and $561,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. The Bank earns late charges collected from delinquent customers
whose loans are serviced by the Bank. The Bank is allowed to invest escrow
impounds (funds collected from mortgage customers for the payment of property
taxes and insurance premiums on mortgaged real estate) until they are
disbursed on behalf of mortgage customers, but is not required to pay interest
on these funds. At December 31, 1997, borrowers' escrow funds amounted to
$295,000.
Historically, the Bank has not been an active purchaser of loans or
participation interests in loans.
10
<PAGE>
<PAGE>
The following table sets forth total loans originated, purchased, sold
and repaid during the periods indicated.
Year Ended December 31,
-------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Loans originated:
Mortgage loans:
One- to- four family............ $ 80,021 $ 73,075 $ 63,175
Multi-family ................... -- -- --
Commercial...................... 9,086 9,700 7,200
Construction.................... 74,122 78,901 66,798
Land............................ 3,091 10,341 10,114
Consumer......................... 28,649 22,625 15,842
Commercial business loans........ 46,436 41,222 14,875
-------- -------- --------
Total loans originated.......... 241,405 235,864 178,004
Loans purchased:
One- to- four family............ -- 3,947 --
-------- -------- --------
Total loans originated and
purchased.................... 241,405 239,811 178,004
Loans sold:
Whole loans sold................. (70,511) (71,235) (67,136)
-------- -------- --------
Total loans sold................. (70,511) (71,235) (67,136)
Mortgage loan principal
repayments....................... (92,500) (81,711) (72,743)
Other loan principal repayments... (70,388) (50,101) (38,363)
Increase (decrease) in other
items, net....................... 3,975 5,457 (3,060)
-------- -------- --------
Net increase (decrease) in
loans receivable, net............ $ 11,981 $ 42,221 $ (3,298)
======== ======== ========
Loan Commitments and Letters of Credit. The Bank issues commitments for
mortgage loans conditioned upon the occurrence of certain events. Such
commitments are made in writing on specified terms and conditions and are
honored for up to 45 days from approval, depending on the type of transaction.
At December 31, 1997, the Bank had loan commitments (excluding undisbursed
portions of interim construction loans of $30.2 million) of $42.3 million and
unused lines of credit of $25.3 million. See Note 15 of Notes to the
Consolidated Financial Statements.
As an accommodation to its commercial business borrowers, the Bank issues
standby letters of credit or performance bonds in favor of entities, usually
municipalities, for whom the Bank's borrowers are performing work or other
services. At December 31, 1997, the Bank had an outstanding standby letter of
credit of $7.3 million that was issued primarily to municipalities as
performance bonds. See Note 15 of Notes to the Consolidated Financial
Statements.
Loan Fees. In addition to interest earned on loans, the Bank receives
income from fees in connection with loan originations, loan modification, late
payments and for miscellaneous service related to its loan. Income from these
activities varies from period to period depending upon the volume and type of
loans made and competitive conditions.
The Bank charges loan origination fees which are calculated as a
percentage of the amount borrowed. In accordance with applicable accounting
procedures, loan origination fees and discount points in excess of loan
11
<PAGE>
<PAGE>
origination costs are deferred and recognized over the contractual remaining
lives of the related loans on a level yield basis. Discounts and premiums on
loans purchased are accreted and amortized in the same manner. The Bank
recognized $1.1 million, $1.2 million and $918,000 of deferred loan fees
during the years ended December 31, 1997, 1996 and 1995, respectively, in
connection with loan refinancings, payoffs, sales and ongoing amortization of
outstanding loans.
The Bank also earns fee income on loans serviced for others. Loan
servicing fees for the year ended December 31, 1997 and 1996 amounted to
$387,000 and $447,000, respectively. At December 31, 1997, the Bank serviced
loans for others totalling $116.0 million. See Note 5 of Notes to the
Consolidated Financial Statements contained in Item 8 hereof.
Nonperforming Assets and Delinquencies. When a borrowers fails to make a
required payment on a loan, the Bank attempts to cure the deficiency by
contacting the borrower and seeking the payment. Contacts are generally made
ten days after a payment is due. In most cases, deficiencies are cured
promptly. If a delinquency continues, additional contact is made either
through a notice or other means and the Bank will attempt to work out a
payment schedule. While the Bank generally prefers to work with borrowers to
resolve such problems, the Bank will institute foreclosure or other
proceedings, as necessary, to minimize any potential loss.
Loans are placed on nonaccrual status generally if, in the opinion of
management, principal or interest payments are not likely in accordance with
the terms of the loan agreement, or when principal or interest is past due 90
days or more. Interest accrued but not collected at the date the loan is
placed on nonaccrual status is reversed against income in the current period.
Loans may be reinstated to accrual status when payments are under 90 days past
due and, in the opinion of management, collection of the remaining past due
balances can be reasonably expected.
The Bank's Board of Directors is informed monthly of the status of all
loans delinquent more than 60 days, all loans in foreclosure and all
foreclosed and repossessed property owned by the Bank.
12
<PAGE>
<PAGE>
The following table sets forth information with respect to the Bank's
non-performing assets at the dates indicated.
At December 31,
-----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on a
nonaccrual basis:
Mortgage loans:
One- to- four family....... $ 73 $ 9 $ 37 $204 $657
Construction............... 68 -- -- -- --
Commercial................. -- -- -- 61 4
Consumer loans (automobile)... 9 42 70 108 113
---- ---- ---- ---- ------
Total.................... 150 51 107 373 774
Accruing loans which are
contractually
past due 90 days or more..... 98 -- -- -- --
Total of nonaccrual and 90
days past
due loans.................... 248 51 107 373 774
---- ---- ---- ---- ------
Real estate owned.............. -- -- -- 95 711
---- ---- ---- ---- ------
Total nonperforming
assets................... $248 $ 51 $107 $468 $1,485
==== ==== ==== ==== ======
Restructured loans............. $ -- $ -- $ -- $ 95 $ 711
==== ==== ==== ==== ======
Nonaccrual and 90 days or
more past due loans as a
percentage of loans
receivable, net.............. 0.11% 0.02% 0.07% 0.22% 0.49%
Nonaccrual and 90 days or
more past due loans as a
percentage of total assets.... 0.09% 0.02% 0.05% 0.18% 0.38%
Nonperforming assets as a
percentage of total assets.... 0.09% 0.02% 0.05% 0.22% 0.72%
Interest income that would have been recorded for the year ended December
31, 1997 had nonaccruing loans been current in accordance with their original
terms would have amounted to $9,500. No interest was included in interest
income on such loans for the year ended December 31, 1997.
Real Estate Owned. See Note 1 of Notes to the Consolidated Financial
Statements contained in Item 8 hereof for a discussion of the accounting
treatment of real estate owned. At December 31, 1997, the Bank had not
acquired any real estate in settlement of loans.
Restructured Loans. Under GAAP, the Bank is required to account for
certain loan modifications or restructuring as a "troubled debt
restructuring." In general, the modification or restructuring of a debt
constitutes a troubled debt restructuring if the Bank for economic or legal
reasons related to the borrower's financial difficulties grants a concession
to the borrowers that the Bank would not otherwise consider. Debt
restructurings or loan modifications for a borrower do not necessarily always
constitute troubled debt restructurings, however, and troubled debt
restructurings do not necessarily result in nonaccrual loans. The Bank did
not have any restructured loans at December 31, 1997.
13
<PAGE>
<PAGE>
Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS
examiners have authority to identify problem assets and, if appropriate,
require them to be classified. There are three classifications for problem
assets: substandard, doubtful and loss. Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation
in full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified as
loss is considered uncollectible and of such little value that continuance as
an asset of the institution is not warranted. If an asset or portion thereof
is classified as loss, the insured institution establishes specific allowances
for loan losses for the full amount of the portion of the asset classified as
loss. All or a portion of general loan loss allowances established to cover
possible losses related to assets classified substandard or doubtful can be
included in determining an institution's regulatory capital, while specific
valuation allowances for loan losses generally do not qualify as regulatory
capital. Assets that do not currently expose the insured institution to
sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are designated "special mention" and
monitored by the Bank.
The aggregate amounts of the Bank's classified and special mention
assets, and of the Bank's general and specific loss allowances at the dates
indicated, were as follows:
At December 31,
-----------------
1997 1996
---- ----
(In thousands)
Loss.......................... $ -- $ --
Doubtful...................... 11 --
Substandard assets............ 1,347 735
Special mention............... -- 245
General loss allowances....... 2,804 2,123
Specific loss allowances...... -- --
At December 31, 1997, substandard assets consisted of nine one- to- four
family mortgage loans totalling $568,000 and 36 consumer loans totalling
$394,000, and one $385,000 commercial loan. Doubtful loans consisted of one
consumer loan of $11,000.
Allowance for Loan Losses. The Bank has established a systematic
methodology for the determination of provisions for loan losses. The
methodology is set forth in a formal policy and takes into consideration the
need for an overall general valuation allowance as well as specific allowances
that are tied to individual loans.
In originating loans, the Bank recognizes that losses will be experienced
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan,
general economic conditions and, in the case of a secured loan, the quality of
the security for the loan. The Bank increases its allowance for loan losses
by charging provisions for loan losses against the Bank's income.
The general valuation allowance is maintained to cover losses inherent in
the loan portfolio. Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and
current economic conditions. Specific valuation allowances are established to
absorb losses on loans for which full collectibility cannot be reasonably
assured. The amount of the allowance is based on the estimated value of the
collateral securing the loan and other analyses pertinent to each situation.
Generally, a provision for losses is charged against income quarterly to
maintain the allowances.
14
<PAGE>
<PAGE>
At December 31, 1997, the Bank had an allowance for loan losses of $2.8
million. Management believes that the amount maintained in the allowances at
December 31, 1997 will be adequate to absorb losses inherent in the portfolio.
Although management believes that it uses the best information available to
make such determinations, future adjustments to the allowance for loan losses
may be necessary and results of operations could be significantly and
adversely affected if circumstances differ substantially from the assumptions
used in making the determinations. Furthermore, while the Bank believes it
has established its existing allowance for loan losses in accordance with
GAAP, there can be no assurance that regulators, in reviewing the Bank's loan
portfolio, will not request the Bank to increase significantly its allowance
for loan losses. In addition, because future events affecting borrowers and
collateral cannot be predicted with certainty, there can be no assurance that
the existing allowance for loan losses is adequate or that substantial
increases will not be necessary should the quality of any loans deteriorate as
a result of the factors discussed above. Any material increase in the
allowance for loan losses may adversely affect the Bank's financial condition
and results of operations.
The following table sets forth an analysis of the Bank's gross allowance
for possible loan losses for the periods indicated.
Year Ended December 31,
----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
Allowance at beginning of
period........................ $2,123 $1,997 $1,776 $1,681 $1,520
Provision for loan losses...... 700 120 80 113 690
Recoveries:
Mortgage loans:
One- to- four family......... -- 14 8 8 6
Multi-family................. -- -- 68 26 --
Commercial................... -- 1 101 7 --
Construction................. -- -- 3 -- --
Consumer loans:
Automobiles.................. 23 -- -- -- --
Unsecured.................... 5 191 -- -- --
Other........................ 1 12 12 17 12
Commercial business loans..... 1 -- -- 1 --
------ ------ ------ ------ ------
Total recoveries............ 30 218 192 59 18
Charge-offs:
Mortgage loans:
One- to- four family......... -- 10 -- 54 --
Construction................. -- -- 6 -- --
Consumer loans:
Home equity lines of
credit........................ -- -- -- -- --
Automobile................... 40 -- 4 -- --
Credit card.................. 1 -- -- -- --
Unsecured.................... 196 -- -- --
Other........................ 5 6 34 23 547
Commercial business loans..... 3 -- 7 -- --
------ ------ ------ ------ ------
Total charge-offs........... 49 212 51 77 547
------ ------ ------ ------ ------
Net recoveries (charge-
offs)...................... (19) 6 141 (18) (529)
------ ------ ------ ------ ------
Allowance at end of
period.................... $2,804 $2,123 $1,997 $1,776 $1,681
====== ====== ====== ====== ======
(table continued on following page)
15
<PAGE>
<PAGE>
Year Ended December 31,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
Allowance for loan losses
as a percentage of total
loans outstanding at the
end of the period........ 1.11% 0.87% 1.00% 0.93% 0.92%
Net (charge-offs) recoveries
as a percentage of average
loans outstanding during
the period............. (0.01) --% 0.09% (0.01)% (0.31)%
Allowance for loan losses
as a percentage of
nonperforming loans at
end of period............ 1,130.65% 4,162.75% 1,866.36% 476.14% 217.18%
16
PAGE
<PAGE>
<TABLE>
The following table sets forth the breakdown of the allowance for loan losses by loan category
at the dates indicated. Management believes that the allowance can be allocated by category only on an
approximate basis. The allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in any other category.
At December 31,
---------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Cate- in Cate- in Cate- in Cate- in Cate-
gory gory gory gory gory
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage
loans:
One- to-
four
family.. $ 415 32.9% $ 122 33.1% $ 108 36.4% $ 124 43.5% $ 115 42.2%
Multi-
family.. 20 6.5 4 1.2 3 0.9 3 1.2 13 4.7
Commer-
cial. 595 15.8 301 12.3 221 11.1 168 8.8 176 9.7
Construc-
tion... 367 21.7 245 24.9 148 23.9 190 21.1 153 19.8
Land.... 255 6.8 188 7.7 138 6.8 100 5.3 75 4.0
Consumer
loans:
Home equity
lines of
credit.. 42 1.1 25 0.8 9 0.5 2 0.1 -- --
Auto-
mobile. 75 2.0 46 1.5 27 1.4 21 1.1 21 1.2
Credit
cards.. 3 0.1 -- -- -- -- -- -- -- --
Loans
secured
by
deposit
accounts. -- -- -- -- 1 -- 1 0.2 6 0.3
Unsecured. 22 0.6 22 0.7 20 1.0 20 1.1 21 1.1
Other
secured. 358 9.5 288 9.4 209 10.6 209 11.6 220 12.1
Commercial
business
loans.... 338 9.0 259 8.4 148 7.4 148 6.0 88 4.9
Unallo-
cated... 314 N/A 623 N/A 965 N/A 790 N/A 793 N/A
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
allow-
ance
for
loan
losses $2,804 100.0% $2,123 100.0% $1,997 100.0% $1,776 100.0% $1,681 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
17
</TABLE>
<PAGE>
<PAGE>
Investment Activities
The Bank is permitted under federal law to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the
FHLB-Cincinnati, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds. Subject to various
restrictions, the Bank may also invest a portion of its assets in commercial
paper and corporate debt securities. Savings institutions like the Bank are
also required to maintain an investment in FHLB stock. The Bank is required
under federal regulations to maintain a minimum amount of liquid assets. See
"Regulation" and Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Liquidity and Capital Resources,"
contained herein.
The Bank purchases investment securities with excess liquidity arising
when investable funds exceed loan demand. The Bank's investment securities
purchases generally have been limited to U.S. Government and agency securities
with contractual maturities of between one and five years.
The Bank's investment policies generally limit investments to U.S.
Government and agency securities, municipal bonds, certificates of deposits,
marketable corporate debt obligations, mortgage-backed securities. The Bank's
investment policy does not permit hedging activities or the purchase of high
risk mortgage derivative products or non-investment grade corporate bonds.
Investments are made based on certain considerations, which include the
interest rate, yield, settlement date and maturity of the investment, the
Bank's liquidity position, and anticipated cash needs and sources (which in
turn include outstanding commitments, upcoming maturities, estimated deposits
and anticipated loan amortization and repayments). The effect that the
proposed investment would have on the Bank's credit and interest rate risk and
risk-based capital is also considered.
The following table sets forth the amortized cost and fair value of the
Bank's debt and mortgage-based and related securities, by accounting
classification and by type of security, at the dates indicated.
At December 31,
---------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
Amor- Percent Amor- Percent Amor- Percent
tized of tized of tized of
Cost(1) Total Cost(1) Total Cost(1) Total
------ ------- ------- ------- ------- -------
(In thousands)
Held to Maturity:
Debt Securities:
U.S. Treasury
obligations......... $ 1,000 6.8% $ 7,005 65.82% $12,062 31.33%
U.S. Government
agency obligations.. 700 4.76 700 6.58 23,488 60.99
Mortgage-backed
securities........... 1,301 8.84 1,419 13.33 1,541 4.00
FHLB stock............ 1,631 11.09 1,519 14.27 1,418 3.68
------- ------ ------- ------ ------- ------
Total held to
maturity securities.. 4,632 31.49 10,643 100.00 38,509 100.00
------- ------ ------- ------ ------- ------
Available for Sale:
Debt Securities:
U.S. Treasury
obligations......... 3,039 20.66 -- -- -- --
U.S. Government
agency obligations.. 7,038 47.85 -- -- -- --
------- ------ ------- ------ ------- ------
Total available
for sale
securities......... 10,077 68.51 -- -- -- --
------- ------ ------- ------ ------- ------
Total portfolio....... $14,709 100.00% $10,643 100.00% $38,509 100.00%
======= ====== ======= ====== ======= ======
(footnotes on following page)
18
PAGE
<PAGE>
- -----------------
(1) The market value of the investment portfolio amounted to $14.7 Million,
$10.6 million and $38.6 million at December 31, 1997, 1996 and 1995,
respectively. At December 31, 1997, the market value of the principal
components of the Bank's investment securities portfolio was as
follows: U.S. Government securities, $11.8 million; mortgage-backed
securities, $1.3 million; and FHLB, $1.6 million.
The following table sets forth the maturities and weighted average
yields of the debt and mortgage-backed securities in the Bank's investment
securities portfolio at December 31, 1997.
Less Than One to Over Five to Over Ten
One Year Five Years Ten years Years
------------- -------------- -------------- -------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
Held to Maturity:
Debt Securities:
U.S.
Government
agency
obli-
gations.. $ 1,000 5.95% $ 700 5.53% $ -- --% $ -- --%
Mortgage-
backed
securi-
ties..... -- -- -- -- -- -- 1,301 6.57
FHLB stock.. 1,631 7.25 -- -- -- -- -- --
------- ---- ------ ---- ------ -- ------ ----
Total
held to
maturity
securi-
ties..... 2,631 6.76 700 5.53 -- -- 1,301 6.57
------- ---- ------ ---- ------ -- ------ ----
Available for Sale:
Debt Securities:
U.S.
Government
agency
obliga-
tions .... 8,057 5.54 2,020 5.78 -- -- -- --
------- ---- ------ ---- ------ -- ------ ----
Total
available-
for-sale
securities. 8,057 5.54 2,020 5.78 -- -- -- --
------- ---- ------ ---- ------ -- ------ ----
Total
portfolio...$10,688 5.84% $2,720 5.72% $ -- --% $1,301 6.57%
======= ==== ===== ==== ====== == ====== ====
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for the Bank's
lending and other investment activities. In addition, the Bank also generates
funds internally from loan principal repayments and prepayments and maturing
investment securities. Scheduled loan repayments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are
influenced significantly by general interest rates and money market
conditions. Borrowings from the FHLB-Cincinnati may be used on a short-term
basis to compensate for reductions in the availability of funds from other
sources. At December 31, 1997, the Bank had no other borrowing arrangements.
Deposit Accounts. Most of the Bank's depositors reside in Tennessee.
The Bank's deposit products include a broad selection of deposit instruments,
including NOW accounts, demand deposit accounts, money market accounts,
regular passbook savings, statement savings accounts and term certificate
accounts. Deposit account terms vary with the principal difference being the
minimum balance deposit, early withdrawal penalties and the interest rate.
The Bank reviews its deposit mix and pricing weekly. The Bank does not
utilize brokered deposits, nor has it aggressively sought jumbo certificates
of deposit.
19
<PAGE>
<PAGE>
The Bank believes it is competitive in the type of accounts and interest
rates it offers on its deposit products. The Bank does not seek to pay the
highest deposit rates but a competitive rate. The Bank determines the rates
paid based on a number of conditions, including rates paid by competitors,
rates on U.S. Treasury securities, rates offered on various FHLB-Cincinnati
lending programs, and the deposit growth rate the Bank is seeking to achieve.
The following table sets forth information concerning the Bank's time
deposits and other interest-bearing deposits at December 31, 1997.
Weighted Percen-
Average tage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
---- ---- -------- ------ ------- --------
(In thousands)
1.67% -- NOW Accounts $1,000 $31,553 14.19%
1.99 -- Savings Accounts 100 15,239 6.85
4.19 -- Money Market Accounts 5,000 42,743 19.22
Certificates of Deposit
-----------------------
3.05 32 to 89 Days Fixed-term, Fixed Rate 1,000 38 0.02
4.75 90 to 181 Days Fixed-term, Fixed Rate 1,000 1,426 0.64
5.20 182 to 364 Days Fixed-term, Fixed Rate 1,000 26,362 1.85
6.00 12 Months Fixed-term, Fixed Rate 1,000 40 0.02
6.00 12 Months Fixed-term, Adjustable Rate 1,000 2,045 0.92
8.00 15 Months Fixed-term, Fixed Rate 1,000 13 0.01
4.95 18 Months Floating Rate IRA 250 550 0.25
5.48 12 to 18 Months Fixed-term, Fixed Rate 1,000 33,147 14.90
5.30 18 to 23 Months Fixed-term, Fixed Rate 1,000 685 0.31
-- 18 to 59 Months Fixed-term, Fixed Rate 1,000 -- --
5.10 18 Months Fixed Rate IRA 250 8,199 3.69
7.75 21 Months Fixed-term, Fixed Rate 1,000 4 --
5.64 24 Months Fixed-term, Fixed Rate 1,000 3,146 1.41
7.75 4 Years Fixed-term, Fixed Rate 1,000 10 --
5.64 24 to 35 Months Fixed-term, Fixed Rate 1,000 13,039 5.86
5.55 36 to 47 Months Fixed-term, Fixed Rate 1,000 1,858 0.84
5.66 48 to 59 Months Fixed-term, Fixed Rate 1,000 154 0.07
5.87 60+ Months Fixed-term, Fixed Rate 1,000 13,216 5.94
5.50 2 Years Fixed-term, Adjustable Rate 1,000 10 --
5.80% 3 to 60 Months Fixed-term, Fixed Rate 100,000 28,939 13.01
20
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<PAGE>
The following table indicates the amount of the Bank's jumbo certificates
of deposit by time remaining until maturity as of December 31, 1997. Jumbo
certificates of deposit have principal balances of $100,000 or more and the
rates paid on such accounts are generally negotiable.
Maturity Period Amount
- --------------- --------
(In thousands)
Three months or less... $ 7,504
Over three through six
months................ 10,319
Over six through twelve
months................ 7,731
Over twelve months..... 3,385
-------
Total.............. $28,939
=======
Deposit Flow
The following table sets forth the balances of savings deposits in the
various types of savings accounts offered by the Bank at the dates indicated.
<PAGE>
<TABLE>
At December 31,
------------------------------------------------------------------------------
1997 1996 1995
----------------------- ------------------------ -----------------------
Per- In- Per- In- Per- In-
cent crease cent crease cent crease
of (de- of (de- of (de-
Amount Total crease) Amount Total crease) Amount Total crease)
------ ----- ------- ------ ----- ------- ------ ----- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-
bearing.........$ 25,851 10.41% $ 6,007 $ 19,844 9.25% $ (31) $ 19,875 10.10% $ 5,141
NOW checking..... 31,553 12.71 3,817 27,736 12.93 3,410 24,326 12.36 1,838
Passbook savings
accounts........ 15,239 6.14 (567) 15,806 7.37 (1,422) 17,228 8.76 (2,552)
Money market
deposit......... 42,743 17.22 14,244 28,499 13.28 8,054 20,445 10.39 6,553
Fixed-rate
certificates
which mature
in the year
ending:
Within 1 year... 109,481 44.10 17,377 92,104 42.93 4,453 87,651 44.55 11,434
After 1 year,
but within 2
years .......... 16,538 6.66 (5,948) 22,486 10.48 8,654 13,832 7.03 (3,365)
After 2 years,
but with in 5
years........... 6,862 2.76 ( 1,192) 8,054 3.75 (5,290) 13,344 6.78 (2,540)
Thereafter ..... -- -- (4) 4 0.01 (29) 33 0.03 (58)
-------- ------ ------- -------- ------ ------- -------- ------ -------
Total............$248,267 100.00% $33,734 $214,533 100.00% $17,799 $196,734 100.00% $16,451
======== ====== ======= ======== ====== ======= ======== ====== =======
</TABLE>
<PAGE>
Time Deposits by Rates. The following table sets forth the amount of
time deposits in the Bank categorized by rates at the dates indicated.
At December 31,
---------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
0.00 - 1.99% . . . . . . $ -- $ 673 $ 377
2.00 - 3.99% . . . . . . 65 93 277
4.00 - 4.99% . . . . . . 3,097 28,995 10,925
5.00 - 5.99% . . . . . . 86,058 59,373 74,193
6.00 - 6.99% . . . . . . 43,305 32,937 26,738
7.00% and over . . . . . . . 356 578 2,349
-------- -------- --------
Total. . . . . . . . . . $132,881 $122,649 $114,859
======== ======== ========
21
<PAGE>
<PAGE>
Time Deposits by Maturities. The following table sets forth the amount
of time deposits in the Bank categorized by maturities at December 31, 1997.
Amount Due
-----------------------------------------------------
After After
One to Two to Three
Less Than Two Three to Four After
One Year Years Years Years 4 Years Total
--------- ----- ----- ------- ------- -----
(Dollars in thousands)
0.00 - 1.99%........ $ -- $ -- $ -- $ -- $ -- $ --
2.00 - 3.99%........ 65 -- -- -- -- 65
4.00 - 4.99%........ 2,844 253 -- -- -- 3,097
5.00 - 5.99%........ 71,781 11,756 714 640 1,167 86,058
6.00 - 6.99%........ 34,773 4,330 1,802 176 2,224 43,305
7.00% and over...... 20 199 137 -- -- 356
-------- ------- ------ ---- ------ --------
Total............... $109,483 $16,538 $2,653 $816 $3,391 $132,881
======== ======= ====== ==== ====== ========
Deposit Activity. The following table set forth the savings activity of
the Bank for the periods indicated.
Year Ended December 31,
------------------------------------------
1997 1996 1995
---- ---- ----
(In thousands)
Beginning balance.......... $214,533 $196,734 $180,283
Net deposits (withdrawals)
before interest credited. 30,832 15,025 14,018
Interest credited.......... 2,902 2,774 2,433
Net increase (decrease)
in deposits............... 33,734 17,799 16,451
-------- -------- --------
Ending balance............. $248,267 $214,533 $196,734
======== ======== ========
Borrowings. Savings deposits are the primary source of funds for the
Bank's lending and investment activities and for its general business
purposes. The Bank has the ability to use advances from the FHLB-Cincinnati
to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Cincinnati functions as a central reserve bank
providing credit for savings associations and certain other member financial
institutions. As a member of the FHLB-Cincinnati, the Bank is required to own
capital stock in the FHLB-Cincinnati and is authorized to apply for advances
on the security of such stock and certain of its mortgage loans and other
assets (principally securities that are obligations of, or guaranteed by, the
U.S. Government) provided certain creditworthiness standards have been met.
Advances are made pursuant to several different credit programs. Each credit
program has its own interest rate and range of maturities. Depending on the
program, limitations on the amount of advances are based on the financial
condition of the member institution and the adequacy of collateral pledged to
secure the credit. At December 31, 1997, the Bank did not have any advances
outstanding from the FHLB-Cincinnati.
The following table sets forth certain information regarding short-term
borrowings by the Bank at the end of and during the periods indicated:
22
<PAGE>
<PAGE>
At or For the
Year Ended December 31,
----------------------------------
1997 1996 1995
---- ---- ----
(Dollars in thousands)
Maximum amount of FHLB advance
outstanding at any month end..... $ -- $5,000 $5,000
Approximate average FHLB advance
outstanding...................... -- 5,000 5,000
Approximate weighted average
rate paid on FHLB advances........ --% 5.67% 5.55%
Trust Department
The OTS granted trust powers to the Bank on December 13, 1991. The Bank
is one of the few banks in the Bank's primary market area providing a broad
range of trust services. These services include acting as trustee under a
living trust, a Standby Trust or Testamentary Trust; acting as personal
representative; agency services, including custody accounts, agent for the
trustee, and agent for the personal representative; and trustee and agent
services for accounts subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). In addition to providing
fiduciary and investment advisory services, the Bank provides employee benefit
services, such as Self-Directed Individual Retirement Accounts ("IRAs"). At
December 31, 1997, trust assets under management totalled approximately $182.8
million.
REGULATION
General
The Bank is subject to extensive regulation, examination and supervision
by the OTS as its chartering agency, and the FDIC, as the insurer of its
deposits. The activities of federal savings institutions are governed by the
Home Owners' Loan Act, as amended ("HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS
and the FDIC to implement these statutes. These laws and regulations
delineate the nature and extent of the activities in which federal savings
associations may engage. Lending activities and other investments must comply
with various statutory and regulatory capital requirements. In addition, the
Bank's relationship with its depositors and borrowers is also regulated to a
great extent, especially in such matters as the ownership of deposit accounts
and the form and content of the Bank's mortgage documents. The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to
review the Bank's compliance with various regulatory requirements. The
regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in such policies, whether by the OTS, the FDIC or
Congress, could have a material adverse impact on the Company, the Bank and
their operations. The Company, as a savings and loan holding company, is also
required to file certain reports with, and otherwise comply with the rules and
regulations of, the OTS and the SEC.
23
<PAGE>
<PAGE>
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the
Treasury. The OTS generally possesses the supervisory and regulatory duties
and responsibilities formerly vested in the Federal Home Loan Bank Board.
Among other functions, the OTS issues and enforces regulations affecting
federally insured savings associations and regularly examines these
institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12 FHLBs,
is under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to: supervise the FHLBs; ensure that the
FHLBs carry out their housing finance mission; ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets; and
ensure that the FHLBs operate in a safe and sound manner. The Bank, as a
member of the FHLB-Cincinnati, is required to acquire and hold shares of
capital stock in the FHLB-Cincinnati in an amount equal to the greater of (i)
1.0% of the aggregate outstanding principal amount of residential mortgage
loans, home purchase contracts and similar obligations at the beginning of
each year, or (ii) 1/20 of its advances (borrowings) from the FHLB-Cincinnati.
The Bank is in compliance with this requirement with an investment in
FHLB-Cincinnati stock of $1.6 million at December 31, 1997. Among other
benefits, the FHLB-Cincinnati provides a central credit facility primarily for
member institutions. It is funded primarily from proceeds derived from the
sale of consolidated obligations of the FHLB System. It makes advances to
members in accordance with policies and procedures established by the FHFB and
the Board of Directors of the FHLB-Cincinnati.
Federal Deposit Insurance Corporation. The FDIC is an independent
federal agency established originally to insure the deposits, up to prescribed
statutory limits, of federally insured banks and to preserve the safety and
soundness of the banking industry. The FDIC maintains two separate insurance
funds: the Bank Insurance Fund ("BIF") and the SAIF. As insurer of the Bank's
deposits, the FDIC has examination, supervisory and enforcement authority over
all savings associations.
The Bank's deposit accounts are insured by the FDIC under the SAIF to the
maximum extent permitted by law. The Bank pays deposit insurance premiums to
the FDIC based on a risk-based assessment system established by the FDIC for
all SAIF-member institutions. Under applicable regulations, institutions are
assigned to one of three capital groups that are based solely on the level of
an institution's capital ("well capitalized," "adequately capitalized" or
"undercapitalized"), which are defined in the same manner as the regulations
establishing the prompt corrective action system under the FDIA as discussed
below. The matrix so created results in nine assessment risk classifications,
with rates that until September 30, 1996 ranged from 0.23% for well
capitalized, financially sound institutions with only a few minor weaknesses
to 0.31% for undercapitalized institutions that pose a substantial risk of
loss to the SAIF unless effective corrective action is taken. The Bank's
assessments expensed for the year ended December 31, 1997 equaled $112,000.
Pursuant to the Deposit Insurance Fund Act ("DIF Act"), which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each
depository institution with SAIF-assessable deposits which resulted in the
SAIF achieving its designated reserve ratio. In connection therewith, the
FDIC reduced the assessment schedule for SAIF members, effective January 1,
1997, to a range of 0% to 0.27%, with most institutions, including the Bank,
paying 0%. This assessment schedule is the same as that for the BIF, which
reached its designated reserve ratio in 1995. In addition, since January 1,
1997, SAIF members are charged an assessment of 0.065% of SAIF-assessable
deposits for the purpose of paying interest on the obligations issued by the
Financing Corporation ("FICO") in the 1980's to help fund the thrift industry
cleanup. BIF-assessable deposits will be charged an assessment to help pay
interest on the FICO bonds at a rate of approximately .013% until the earlier
of December 31, 1999 or the date upon which the last savings association
ceases to exist, after which time the assessment will be the same for all
insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates
24
<PAGE>
<PAGE>
the development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter
may take and what effect, if any, the adoption of a new charter would have on
the operation of the Bank.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged
or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law,
regulation, order or any condition imposed by an agreement with the FDIC. It
also may suspend deposit insurance temporarily during the hearing process for
the permanent termination of insurance, if the institution has no tangible
capital. If insurance of accounts is terminated, the accounts at the
institution at the time of termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined
by the FDIC. Management is aware of no existing circumstances that could
result in termination of the deposit insurance of the Bank.
Liquidity Requirements. Under OTS regulations, each savings institution
is required to maintain an average daily balance of liquid assets (cash,
certain time deposits and savings accounts, bankers' acceptances, and
specified U.S. Government, state or federal agency obligations and certain
other investments) equal to a monthly average of not less than a specified
percentage (currently 4.0%) of its net withdrawable accounts plus short-term
borrowings. Monetary penalties may be imposed for failure to meet liquidity
requirements. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources
- --Liquidity and Capital Resources" contained herein.
Prompt Corrective Action. Under the FDIA, as added by the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), each federal
banking agency is required to implement a system of prompt corrective action
for institutions that it regulates. The federal banking agencies have
promulgated substantially similar regulations to implement this system of
prompt corrective action. Under the regulations, an institution shall be
deemed to be (i) "well capitalized" if it has a total risk-based capital ratio
of 10.0% or more, has a Tier I risk-based capital ratio of 6.0% or more, has a
leverage ratio of 5.0% or more and is not subject to specified requirements to
meet and maintain a specific capital level for any capital measure; (ii)
"adequately capitalized" if it has a total risk-based capital ratio of 8.0% or
more, a Tier I risk-based capital ratio of 4.0% or more and a leverage ratio
of 4.0% or more (3.0% under certain circumstances) and does not meet the
definition of "well capitalized;" (iii) "undercapitalized" if it has a total
risk-based capital ratio that is less than 8.0%, a Tier I risk-based capital
ratio that is less than 4.0% or a leverage ratio that is less than 4.0% (3.0%
under certain circumstances); (iv) "significantly undercapitalized" if it has
a total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a leverage ratio that is less than
3.0%; and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized
and may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has
received in its most recent examination, and has not corrected, a less than
satisfactory rating for asset quality, management, earnings or liquidity. The
OTS may not, however, reclassify a significantly undercapitalized institution
as critically undercapitalized.
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to various mandatory and
discretionary restrictions on its operations.
At December 31, 1997, the Bank was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.
25
<PAGE>
<PAGE>
Standards for Safety and Soundness. The FDIA requires the federal
banking regulatory agencies to prescribe, by regulation, standards for all
insured depository institutions relating to: (i) internal controls,
information systems and internal audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate risk exposure; (v) asset growth; and
(vi) compensation, fees and benefits. The federal banking agencies recently
adopted final regulations and Interagency Guidelines Prescribing Standards for
Safety and Soundness ("Guidelines"). The Guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. If the OTS determines that the Bank fails to meet any standard
prescribed by the Guidelines, the agency may require the Bank to submit to the
agency an acceptable plan to achieve compliance with the standard. OTS
regulations establish deadlines for the submission and review of such safety
and soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either become a national bank or be subject to the following
restrictions on its operations: (i) the association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the association may not establish any new branch office where a
national bank located in the savings institution's home state would not be
able to establish a branch office; (iii) the association shall be ineligible
to obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to the statutory and regulatory dividend
restrictions applicable to national banks. Also, beginning three years after
the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in
any activity not permissible for a national bank and would be required to
repay any outstanding advances to any FHLB. In addition, within one year of
the date on which a savings association controlled by a company ceases to be a
QTL, the company must register as a bank holding company and become subject to
the rules applicable to such companies. A savings institution may requalify
as a QTL if it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Code or that 65% of an
institution's "portfolio assets" (as defined) consist of certain housing and
consumer-related assets on a monthly average basis in nine out of every 12
months. Assets that qualify without limit for inclusion as part of the 65%
requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity
loans; mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an
overall limit of 20% of the savings institution's portfolio assets: 50% of
residential mortgage loans originated and sold within 90 days of origination;
100% of consumer loans; and stock issued by FHLMC or FNMA. Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to conduct its business,
and (iii) liquid assets up to 20% of the institution's total assets. At
December 31, 1997, the qualified thrift investments of the Bank were
approximately 70.1% of its portfolio assets.
Capital Requirements. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements. The Company is not subject to
any minimum capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion
of certain assets from capital and to
26
<PAGE>
<PAGE>
account appropriately for the investments in and assets of both includable and
nonincludable subsidiaries. An institution that fails to meet the core
capital requirement would be required to file with the OTS a capital plan that
details the steps they will take to reach compliance. In addition, the OTS's
prompt corrective action regulation provides that a savings institution that
has a leverage ratio of less than 4% (3% for institutions receiving the
highest CAMEL examination rating) will be deemed to be "undercapitalized" and
may be subject to certain restrictions. See "-- Federal Regulation of Savings
Associations -- Prompt Corrective Action."
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only those savings associations
rated a composite one (the highest rating) under the CAMEL rating system for
savings associations will be permitted to operate at or near the regulatory
minimum leverage ratio of 3%. All other savings associations will be required
to maintain a minimum leverage ratio of 4% to 5%. The OTS will assess each
individual savings association through the supervisory process on a
case-by-case basis to determine the applicable requirement. No assurance can
be given as to the final form of any such regulation, the date of its
effectiveness or the requirement applicable to the Bank.
Savings associations also must maintain "tangible capital" not less than
1.5% of the Bank's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal to
at least 8% of risk-weighted assets. Total risk-based capital consists of the
sum of core and supplementary capital, provided that supplementary capital
cannot exceed core capital, as previously defined. Supplementary capital
includes (i) permanent capital instruments such as cumulative perpetual
preferred stock, perpetual subordinated debt and mandatory convertible
subordinated debt, (ii) maturing capital instruments such as subordinated
debt, intermediate-term preferred stock and mandatory convertible subordinated
debt, subject to an amortization schedule, and (iii) general valuation loan
and lease loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities
that are backed by the full faith and credit of the U.S. Government to 100%
for repossessed assets or assets more than 90 days past due. Qualifying
residential mortgage loans (including multi-family mortgage loans) are
assigned a 50% risk weight. Consumer, commercial, home equity and residential
construction loans are assigned a 100% risk weight, as are nonqualifying
residential mortgage loans and that portion of land loans and nonresidential
construction loans that do not exceed an 80% loan-to-value ratio. The book
value of assets in each category is multiplied by the weighing factor (from 0%
to 100%) assigned to that category. These products are then totalled to
arrive at total risk-weighted assets. Off-balance sheet items are included in
risk-weighted assets by converting them to an approximate balance sheet
"credit equivalent amount" based on a conversion schedule. These credit
equivalent amounts are then assigned to risk categories in the same manner as
balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of
the association's assets, as calculated in accordance with guidelines set
forth by the OTS. A savings association whose measured interest rate risk
exposure exceeds 2% must deduct an interest rate risk component in calculating
its total capital under the risk-based capital rule. The interest rate risk
component is an amount equal to one-half of the difference between the
institution's measured interest rate risk and 2%, multiplied by the estimated
economic value of the association's assets. That dollar amount is deducted
from an association's total capital in calculating compliance with its risk-
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based capital requirement. Under the rule, there is a two quarter lag between
the reporting date of an institution's financial data and the effective date
for the new capital requirement based on that data. A savings association
with assets of less than $300 million and risk-based capital ratios in excess
of 12% is not subject to the interest rate risk component, unless the OTS
determines otherwise. The rule also provides that the Director of the OTS may
waive or defer an association's interest rate risk component on a case-by-case
basis. Under certain circumstances, a savings association may request an
adjustment to its interest rate risk component if it believes that the
OTS-calculated interest rate risk component overstates its interest rate risk
exposure. In addition, certain "well-capitalized" institutions may obtain
authorization to use their own interest rate risk model to calculate their
interest rate risk component in lieu of the OTS-calculated amount. The OTS
has postponed the date that the component will first be deducted from an
institution's total capital.
The following table presents the Bank's regulatory capital compliance as
of December 31, 1997.
Percent of
Adjusted Total
Amount Assets(1)
------ ---------
(Dollars in thousands)
Tangible capital..................... $30,452 10.88%
Minimum required
tangible capital.................... 4,200 1.50
------- -----
Excess............................... $26,252 9.38%
======= =====
Core capital......................... $30,452 10.88%
Minimum required core
capital(2).......................... 8,400 3.00
------- -----
Excess............................... $22,052 7.88%
======= =====
Risk-based capital(3)................ $33,256 13.55%
Minimum risk-based
capital requirement................. 19,639 8.00
------- -----
Excess............................... $13,617 5.55%
======= =====
- --------------
(1) Based on adjusted total assets of $280.0 million for purposes of the
tangible and core capital requirements, and risk-weighted assets of
$245.5 million for purposes of the risk-based capital requirement.
(2) The current OTS core capital requirement for savings associations is
3% of total adjusted assets. The OTS has proposed core capital
requirements that would require a core capital ratio of 3% of total
adjusted assets for thrifts that receive the highest supervisory
rating for safety and soundness and a core capital ratio of 4% to 5%
for all other thrifts.
(3) Percentage represents total core and supplementary capital divided by
total risk-weighted assets.
Limitations on Capital Distributions. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Bank to give the OTS 30
days' advance notice of any proposed declaration of dividends, and the OTS has
the authority under its supervisory powers to prohibit the payment of
dividends. The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings association's
capital level.
A Tier 1 savings association has capital in excess of its fully phased-in
capital requirement (both before and after the proposed capital distribution).
A Tier 1 savings association may make (without application but upon prior
notice to, and no objection made by, the OTS) capital distributions during a
calendar year up to 100% of its
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net income to date during the calendar year plus one-half its surplus capital
ratio (i.e., the amount of capital in excess of its fully phased-in
requirement) at the beginning of the calendar year or the amount authorized
for a Tier 2 association. Capital distributions in excess of such amount
require advance notice to the OTS. A Tier 2 savings association has capital
equal to or in excess of its minimum capital requirement but below its fully
phased-in capital requirement (both before and after the proposed capital
distribution). Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the
previous four quarters depending on how close the association is to meeting
its fully phased-in capital requirement. Capital distributions exceeding this
amount require prior OTS approval. A Tier 3 savings association has capital
below the minimum capital requirement (either before or after the proposed
capital distribution). A Tier 3 savings association may not make any capital
distributions without prior approval from the OTS.
The Bank currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of
the calendar year less any distributions previously paid during the year.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of the Bank's unimpaired capital and surplus,
plus an additional 10% of unimpaired capital and surplus, if such loan is
secured by readily-marketable collateral, which is defined to include certain
financial instruments and bullion. The OTS by regulation has amended the
loans to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower
in additional amounts under circumstances limited essentially to loans to
develop or complete residential housing units. At December 31, 1997, the
Bank's limit on loans to one borrower was $10.0 million. At December 31,
1997, the Bank's largest aggregate amount of loans to one borrower was $6.5
million, all of which were performing according to their terms.
Activities of Associations and their Subsidiaries. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide
the information each agency may, by regulation, require. Savings associations
also must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The
FDIC also may determine by regulation or order that any specific activity
poses a serious threat to the SAIF. If so, it may require that no SAIF member
engage in that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to
which the insured association or its subsidiaries may engage in certain
covered transactions with an affiliate to an amount equal to 10% of such
institution's capital and surplus and place an aggregate limit on all such
transactions with affiliates to an amount equal to 20% of such capital and
surplus, and (ii) require that all such transactions be on terms substantially
the same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term "covered transaction" includes the
making of loans, the purchase of assets, the issuance of a guarantee and
similar types of transactions. Any loan or extension of credit by the Bank to
an affiliate must be secured by collateral in accordance with Section 23A.
29
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Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank
holding companies; (ii) a savings association may not purchase or invest in
securities issued by an affiliate (other than securities of a subsidiary); and
(iii) the OTS may, for reasons of safety and soundness, impose more stringent
restrictions on savings associations but may not exempt transactions from or
otherwise abridge Section 23A or 23B. Exemptions from Section 23A or 23B may
be granted only by the Federal Reserve Board, as is currently the case with
respect to all FDIC-insured banks. The Bank has not been significantly
affected by the rules regarding transactions with affiliates.
The Bank's authority to extend credit to executive officers, directors
and 10% shareholders, as well as entities controlled by such persons, is
governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and
Regulation O thereunder. Among other things, these regulations generally
require that such loans be made on terms and conditions substantially the same
as those offered to unaffiliated individuals and not involve more than the
normal risk of repayment. Generally, Regulation O also places individual and
aggregate limits on the amount of loans the Bank may make to such persons
based, in part, on the Bank's capital position, and requires certain board
approval procedures to be followed. The OTS regulations, with certain minor
variances, apply Regulation O to savings institutions.
Community Reinvestment Act. Under the federal CRA, all federally-insured
financial institutions have a continuing and affirmative obligation consistent
with safe and sound operations to help meet all the credit needs of its
delineated community. The CRA does not establish specific lending
requirements or programs nor does it limit an institution's discretion to
develop the types of products and services that it believes are best suited to
meet all the credit needs of its delineated community. The CRA requires the
federal banking agencies, in connection with regulatory examinations, to
assess an institution's record of meeting the credit needs of its delineated
community and to take such record into account in evaluating regulatory
applications to establish a new branch office that will accept deposits,
relocate an existing office, or merge or consolidate with, or acquire the
assets or assume the liabilities of, a federally regulated financial
institution, among others. The CRA requires public disclosure of an
institution's CRA rating. The Bank received a "satisfactory" rating as a
result of its latest evaluation.
Regulatory and Criminal Enforcement Provisions. The OTS has primary
enforcement responsibility over savings institutions and has the authority to
bring action against all "institution-affiliated parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on
an insured institution. Formal enforcement action may range from the issuance
of a capital directive or cease and desist order to removal of officers or
directors, receivership, conservatorship or termination of deposit insurance.
Civil penalties cover a wide range of violations and can amount to $27,500 per
day, or $1.1 million per day in especially egregious cases. Under the FDIA,
the FDIC has the authority to recommend to the Director of the OTS that
enforcement action be taken with respect to a particular savings institution.
If action is not taken by the Director, the FDIC has authority to take such
action under certain circumstances. Federal law also establishes criminal
penalties for certain violations.
Savings and Loan Holding Company Regulations
Holding Company Acquisitions. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without
prior OTS approval, from acquiring more than 5% of the voting stock of any
other savings association or savings and loan holding company or controlling
the assets thereof. They also prohibit, among other things, any director or
officer of a savings and loan holding company, or any individual who owns or
controls more than 25% of the voting shares of such holding company, from
acquiring control of any savings association not a subsidiary of such savings
and loan holding company, unless the acquisition is approved by the OTS.
Holding Company Activities. As a unitary savings and loan holding
company, the Company generally is not subject to activity restrictions under
the HOLA. If the Company acquires control of another savings
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association as a separate subsidiary other than in a supervisory acquisition,
it would become a multiple savings and loan holding company. There generally
are more restrictions on the activities of a multiple savings and loan holding
company than on those of a unitary savings and loan holding company. The HOLA
provides that, among other things, no multiple savings and loan holding
company or subsidiary thereof which is not an insured association shall
commence or continue for more than two years after becoming a multiple savings
and loan association holding company or subsidiary thereof, any business
activity other than: (i) furnishing or performing management services for a
subsidiary insured institution, (ii) conducting an insurance agency or escrow
business, (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary insured institution, (iv) holding or managing properties
used or occupied by a subsidiary insured institution, (v) acting as trustee
under deeds of trust, (vi) those activities previously directly authorized by
regulation as of March 5, 1987 to be engaged in by multiple holding companies
or (vii) those activities authorized by the Federal Reserve Board as
permissible for bank holding companies, unless the OTS by regulation,
prohibits or limits such activities for savings and loan holding companies.
Those activities described in (vii) above also must be approved by the OTS
prior to being engaged in by a multiple savings and loan holding company.
Qualified Thrift Lender Test. The HOLA provides that any savings and
loan holding company that controls a savings association that fails the QTL
test, as explained under "-- Federal Regulation of Savings Associations --
Qualified Thrift Lender Test," must, within one year after the date on which
the association ceases to be a QTL, register as and be deemed a bank holding
company subject to all applicable laws and regulations.
TAXATION
Federal Taxation
General. The Company and the Bank report their income on a fiscal year
basis using the accrual method of accounting and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company.
Bad Debt Reserve. Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrift") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have
been deducted in arriving at their taxable income. The Bank's deductions with
respect to "qualifying real property loans," which are generally loans secured
by certain interest in real property, were computed using an amount based on
the Bank's actual loss experience, or a percentage equal to 8% of the Bank's
taxable income, computed with certain modifications and reduced by the amount
of any permitted additions to the non-qualifying reserve. Due to the Bank's
loss experience, the Bank generally recognized a bad debt deduction equal to
8% of taxable income.
The provisions repealing the current thrift bad debt rules were passed by
Congress as part of "The Small Business Job Protection Act of 1996." The new
rules eliminate the 8% of taxable income method for deducting additions to the
tax bad debt reserves for all thrifts for tax years beginning after December
31, 1995. These rules also require that all institutions recapture all or a
portion of their bad debt reserves added since the base year (last taxable
year beginning before January 1, 1988). The Bank has previously recorded a
deferred tax liability equal to the bad debt recapture and as such the new
rules will have no effect on the net income or federal income tax expense.
For taxable years beginning after December 31, 1995, the Bank's bad debt
deduction will be determined under the experience method using a formula based
on actual bad debt experience over a period of years or, if the Bank is a
"large" association (assets in excess of $500 million) on the basis of net
charge-offs during the taxable year. The new rules allow an institution to
suspend bad debt reserve recapture for the 1996 and 1997 tax years if the
institution's lending activity for those years is equal to or greater than the
institutions average mortgage lending activity for the six taxable years
preceding 1996 adjusted for inflation. For this purpose, only home purchase
or home improvement loans are included and the institution can elect to have
the tax years with the highest and lowest
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lending activity removed from the average calculation. If an institution is
permitted to postpone the reserve recapture, it must begin its six year
recapture no later than the 1998 tax year. The unrecaptured base year
reserves will not be subject to recapture as long as the institution continues
to carry on the business of banking. In addition, the balance of the pre-1988
bad debt reserves continue to be subject to provisions of present law referred
to below that require recapture in the case of certain excess distributions to
shareholders.
Distributions. To the extent that the Bank makes "nondividend
distributions" to the Company, such distributions will be considered to result
in distributions from the balance of its bad debt reserve as of December 31,
1987 (or a lesser amount if the Bank's loan portfolio decreased since December
31, 1987) and then from the supplemental reserve for losses on loans ("Excess
Distributions"), and an amount based on the Excess Distributions will be
included in the Bank's taxable income. Nondividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax
purposes, will not be considered to result in a distribution from the Bank's
bad debt reserve. The amount of additional taxable income created from an
Excess Distribution is an amount that, when reduced by the tax attributable to
the income, is equal to the amount of the distribution. Thus, if, the Bank
makes a "nondividend distribution," then approximately one and one-half times
the Excess Distribution would be includable in gross income for federal income
tax purposes, assuming a 34% corporate income tax rate (exclusive of state and
local taxes). See "Regulation" for limits on the payment of dividends by the
Bank. The Bank does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which the Bank's adjusted
current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). For taxable
years beginning after December 31, 1986, and before January 1, 1996, an
environmental tax of 0.12% of the excess of AMTI (with certain modification)
over $2.0 million is imposed on corporations, including the Bank, whether or
not an Alternative Minimum Tax is paid.
Dividends-Received Deduction. The Company may exclude from its income
100% of dividends received from the Bank as a member of the same affiliated
group of corporations. The corporate dividends-received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company or the Bank owns more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
deducted.
Audits. The Bank's federal income tax returns have not been audited
within the past five years.
State Taxation
Tennessee imposes franchise and excise taxes. The franchise tax ($0.25
per $100) is applied either to the Bank's apportioned net worth or the value
of property owned and used in Tennessee, whichever is greater, as of the close
of the Bank's fiscal year. The excise tax (6%) is applied to net earnings
derived from business done in Tennessee. Under Tennessee regulations, bad
debt deductions are deductible from the excise tax. There have not been any
audits of the Bank's state tax returns during the past five years.
Any cash dividends, in excess of a certain exempt amount, that are paid
with respect to the Common Stock to a shareholder (including a partnership and
certain other entities) who is a resident of the State of Tennessee will be
subject to the Tennessee income tax which is levied at a rate of six percent.
Any distribution by a corporation from earnings according to percentage
ownership is considered a dividend, and the definition of a dividend for
Tennessee income tax purposes may not be the same as the definition of a
dividend for federal income tax purposes.
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A corporate distribution may be treated as a dividend for Tennessee tax
purposes if it is made from funds that exceed the corporation's earned surplus
and profits under certain circumstances.
Competition
The Bank faces intense competition in its primary market area for the
attraction of savings deposits (its primary source of lendable funds) and in
the origination of loans. Its most direct competition for savings deposits
has historically come from commercial banks, credit unions, other thrifts
operating in its market area, and other financial institutions such as
brokerage firms and insurance companies. As of December 31, 1997, there were
12 commercial banks and no other thrifts operating in Rutherford and Bedford
Counties, Tennessee. Particularly in times of high interest rates, the Bank
has faced additional significant competition for investors' funds from
short-term money market securities and other corporate and government
securities. The Bank's competition for loans comes from commercial banks,
thrift institutions, credit unions and mortgage bankers. Such competition for
deposits and the origination of loans may limit the Bank's growth in the
future.
Subsidiary Activities
Federal savings associations generally may invest up to 3% of their
assets in service corporations, provided that at least one-half of any amount
in excess of 1% is used primarily for community, inner-city and community
development projects.
The Bank had three service corporation subsidiaries that were dissolved
as of December 31, 1997. The subsidiaries were either inactive or engaged in
an insignificant level of activities that the Bank is legally permitted to
engage in directly.
Personnel
As of December 31, 1997, the Bank had 136 full-time employees and 33
part-time employees. The employees are not represented by a collective
bargaining unit and the Bank believes its relationship with its employees is
good.
Item 2. Properties
The following table sets forth certain information regarding the Bank's
offices at December 31, 1997, all of which are owned except as noted.
Approximate
Location Year Opened Square Footage Deposits
- -------- ----------- -------------- --------
(In thousands)
Main Office:
114 W. College Street 1974 32,385 $171,907
Murfreesboro, Tennessee 37130
Branch Offices:
804 S. Tennessee Boulevard (1) 1983 578 --
Murfreesboro, Tennessee 37130
(table continued on following page)
33
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Approximate
Location Year Opened Square Footage Deposits
- -------- ----------- -------------- --------
(In thousands)
1745 Memorial Boulevard 1984 1,500 17,627
Murfreesboro, Tennessee 37129
1645 N.W. Broad Street 1995 1,500 3,381
Murfreesboro, Tennessee 37130
123 Cason Lane (2) 1997 1,967 11,501
Murfreesboro, Tennessee 37130
604 N. Main Street 1958 1,500 17,627
Shelbyville, Tennessee 37160
269 S. Lowry Street 1972 3,898 22,392
Smyrna, Tennessee 37167
Hazelwood Drive and Nashville 1997 1,100 283
Highway
Smyrna, Tennessee 37167
Almaville Road and Interstate 1997 935 168
24 East (3)
Smyrna, Tennessee 37167
South East Broad 1997 2,038 3,381
2035 SE Broad Street
Murfreesboro, TN 37130
Loan Production Office:
236 Public Square (4)
Franklin, Tennessee 37604 1985 1,200 N/A
- ------------
(1) This office was relocated December 8, 1997 to South East Broad Street.
(2) The Bank relocated this office from 110 John R. Rice Boulevard,
Murfreesboro, Tennessee, effective June 16, 1997.
(3) Lease expires in April 2001 with a 5-year option to renew.
(4) Leased month-to-month.
The Bank owns two commercial building lots for future branch office
development. The lots are located on U.S. Highway 231 South, Murfreesboro,
Tennessee, and State Highway 96 N.E., Murfreesboro, Tennessee. To date, the
Bank has not contracted with an architect or builder and has not filed the
required regulatory notices to establish branch offices at either of these
locations.
The Bank uses the services of an outside service bureau for its
significant data processing applications. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources -- Year 2000 Considerations" contained herein.
At December 31, 1997, the Bank had 15 proprietary automated teller machines.
At December 31, 1997, the net book value of the Bank's office properties and
the Bank's fixtures, furniture and equipment was $8.1 million.
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Item 3. Legal Proceedings
- --------------------------
Periodically, there have been various claims and lawsuits involving the
Bank, such as claims to enforce liens, condemnation proceedings on properties
in which the Bank holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the Bank's
business. The Bank is not a party to any pending legal proceedings that it
believes would have a material adverse effect on the financial condition or
operations of the Bank.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1997.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
- --------------------------------------------------------------------------
The Company had no shares of Common Stock issued and outstanding at
December 31, 1997.
The Board of Directors anticipates paying quarterly cash dividends on the
Common Stock at an annual rate of $0.20 per share, beginning in the first full
quarter following the consummation of the Conversion. Declarations or
payments of dividends will be subject to determination by the Board of
Directors, which will take into account the amount of the net proceeds
retained by the Company, the Company's financial condition, results of
operations, tax considerations, capital requirements, industry standards,
economic conditions and other factors, including the regulatory restrictions
that affect the payment of dividends by the Bank to the Company discussed
below. In addition, from time to time in an effort to manage capital to a
reasonable level, the Board of Directors may determine to pay periodic special
cash dividends in addition to, or in lieu of, regular cash dividends. No
assurances can be given that any dividends, either regular or special, will be
declared or, if declared, what the amount of dividends will be or whether such
dividends, once declared, will continue. In order to pay any cash dividends
(regular and special), however, the Company must have available cash,
dividends received from the Bank or earnings on Company assets.
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Item 6. Selected Financial Data
- --------------------------------
The following tables set forth certain information concerning the
combined financial position and results of operations of the Company at the
dates and for the periods indicated.
At December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
FINANCIAL CONDITION DATA:
Total assets............... $282,129 $244,964 $223,882 $208,844 $206,078
Loans receivable, net...... 212,979 200,600 159,943 165,481 154,139
Loans held-for-sale........ 4,855 5,253 3,689 1,452 4,804
Investment securities
held-to-maturity.......... 1,700 7,705 35,550 19,898 13,535
Investment securities
available-for sale........ 10,077 -- -- -- --
Mortgage-backed
securities held- to-
maturity.................. 1,301 1,419 1,541 1,665 2,108
Cash, federal funds sold
and overnight interest-
bearing deposits.......... 37,658 19,519 13,935 11,978 22,660
Deposit accounts........... 248,267 214,533 196,734 180,283 185,174
Borrowings................. -- -- -- 5,000 --
Total equity,
substantially restricted.. 30,447 27,250 24,436 21,236 18,778
At December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
OPERATING DATA:
Interest income............. $21,939 $19,584 $17,222 $15,394 $14,963
Interest expense............ 9,289 8,268 7,696 6,299 6,317
------- ------ ------ ------ ------
Net interest income......... 12,650 11,316 9,526 9,095 8,646
Provision for loan losses... 700 120 80 113 690
------- ------ ------ ------ ------
Net interest income
after provision for loan
losses..................... 11,950 11,196 9,446 8,982 7,956
------- ------ ------ ------ ------
Gains from sale of loans.... 1,126 890 882 530 1,552
Gains from sale of
securities................. -- -- -- -- --
Other income................ 2,535 2,268 2,082 1,485 1,618
Other expenses.............. 10,498 9,786 7,498 7,001 7,000
------- ------ ------ ------ ------
Earnings before income taxes
and extraordinary item.... 5,113 4,568 4,912 3,996 4,126
Provision for income taxes.. 1,911 1,754 1,711 1,538 1,913
------- ------ ------ ------ ------
Earnings before
extraordinary item......... 3,202 2,814 3,201 2,458 2,213
Cumulative effect of change
in accounting principle.... -- -- -- -- 409
------- ------ ------ ------ ------
Net earnings................ $ 3,202 $2,814 $3,201 $2,458 $2,622
======= ====== ====== ====== ======
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At December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
OTHER DATA:
Number of:
Real estate loans
outstanding................ 4,833 4,693 4,559 4,690 5,912
Deposit accounts........... 23,054 20,687 18,891 17,812 17,610
Full-service offices....... 9 7 7 6 6
At or For the
Year Ended December 31,
--------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
KEY FINANCIAL RATIOS:
Performance Ratios:
Return on average
assets(1)................. 1.22% 1.20% 1.50% 1.17% 1.30%
Return on average
equity(2)................. 11.09 10.94 14.21 11.53 15.01
Interest rate spread(3).... 4.55 4.48 4.14 4.11 4.17
Net interest margin(4)..... 5.21 5.15 4.78 4.59 4.38
Average interest-earning
assets as a percentage
of average interest-
bearing liabilities....... 117.16 117.96 116.64 115.31 106.52
Noninterest expense as a
percent of average total
assets.................... 4.01 4.17 3.52 3.34 3.46
Efficiency ratio(5)........ 64.36 67.61 60.03 63.02 59.24
Asset Quality Ratios:
Nonaccrual and 90 days or
more past due loans as a
percent of total loans,
net....................... 0.11 0.02 0.07 0.22 0.49
Nonperforming assets as a
percent of total assets... 0.09 0.02 0.05 0.22 0.72
Allowance for losses as
a percent of total loans
receivable................ 1.11 0.87 1.00 0.93 0.92
Allowance for losses as
a percent of
nonperforming loans.......1,130.65 4,162.75 1,866.36 476.14 217.18
Net (charge-offs)
recoveries to average
outstanding loans......... (0.01) -- 0.09 (0.01) (0.31)
Capital Ratios:
Total equity-to-assets
ratio..................... 10.79 11.12 10.91 10.17 9.11
Average equity to
average assets(6)......... 11.04 10.97 10.58 10.17 8.63
- ---------------
(1) Net earnings divided by average total assets.
(2) Net earnings divided by average equity.
(3) Difference between weighted average yield on interest-earning assets
and weighted average rate on interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning
assets.
(5) Other expenses divided by the sum of net interest income and other
income.
(6) Average total equity divided by average total assets.
37
<PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
General
Management's discussion and analysis of financial condition and results
of operations is intended to assist in understanding the financial condition
and results of operations of the Bank. The information contained in this
section should be read in conjunction with the Consolidated Financial
Statements and accompanying Notes thereto and the other sections contained in
this Form 10-K.
Operating Strategy
The Bank is a community-oriented financial institution whose primary
business is attracting deposits from the general public and using those funds
to originate a variety of loans to individuals residing within its primary
market area, and to businesses owned and operated by such individuals. The
Bank believes that its operations more closely resemble those of a traditional
commercial bank than a traditional thrift institution. The Bank originates,
in order of magnitude, one- to- four family mortgage loans, construction
loans, commercial real estate loans, consumer loans, commercial business
loans, and land A&D loans. In addition, the Bank invests in U.S. Government
and federal agency obligations. The Bank intends to continue to fund its
assets primarily with retail deposits, although FHLB-Cincinnati advances may
be used as a supplemental source of funds. The Bank also offers trust
services. See Item 1. "Business" herein.
The Bank's profitability depends primarily on its net interest income,
which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits. Net interest income is also affected by the relative amounts of
interest-earning assets and interest-bearing liabilities. When
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The Bank
profitability is also affected by the level of other income and expenses.
Other income, net, includes income associated with the origination and sale of
mortgage loans, loan servicing fees, other deposit related fees and trust
fees. Other expenses include compensation and benefits, occupancy and
equipment expenses, deposit insurance premiums, data servicing expenses and
other operating costs. The Bank's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government legislation and
regulation and monetary and fiscal policies.
Comparison of Financial Condition at December 31, 1997 and December 31, 1996
Total assets of the Bank were $282.1 million at December 31, 1997 and
$245.0 million at December 31, 1996. This growth resulted from an increase in
the loan and investment portfolio funded by increases in deposits and equity
of the Bank with a slight decrease in loans available-for-sale.
Loans receivable net, were $213.0 million at December 31, 1997 compared
to $200.6 million at December 31, 1996, a 6.2% increase. A substantial
portion of the Savings Bank's loan portfolio is secured by real estate, either
as primary or secondary collateral, located in its primary market areas. In
addition, the period between December 31, 1996 and December 31, 1997 saw a
continuing trend in the growth of consumer, commercial and construction loans
as the Bank emphasized the origination of loans with shorter maturities for
asset and liability management purposes.
Loans held-for-sale were $4.9 million at December 31, 1997 compared with
$5.3 million at December 31, 1996. The variances resulted primarily from
timing differences in the funding of loans.
Cash and cash equivalents were $37.7 million at December 31, 1997
compared to $19.5 million at December 31, 1996. The increase between December
31, 1996 an d December 31, 1997 primarily reflects the maturing of
investments, a decrease in loans available-for-sale and deposit growth.
38
<PAGE>
<PAGE>
Held to maturity securities declined to $1.7 million at December 31,
1997 compared to $7.7 million at December 31, 1996. This decline was a result
of investment maturities, with the proceeds used to fund loan growth.
Available-for-sale securities were $10.1 million at December 31, 1997.
There were no available-for-sale securities at December 31, 1996. This
increase between December 31, 1996 and December 31, 1997 reflected the
investment of excess liquidity. Such securities may be sold for lending or
other operating purposes.
Office properties and equipment, net, were $8.1 million at December 31,
1997 compared to $6.2 million at December 31, 1996. The increase resulted
primarily from the acquisition of land and construction of new branch offices
at Cason Lane and Southeast Broad Street and the expansion of the Memorial
Boulevard office. The Bank also purchased two parcels of land for possible
branch locations, and the building and property for the Hazelwood branch.
Deposit accounts totaled $248.3 million and $214.5 million at December
31, 1997 and December 31, 1996, respectively. The increase was the result of
aggressive marketing and promotion of transaction accounts.
Total equity was $30.4 million and $27.3 million at December 31, 1997
and December 31, 1996, respectively. The increase was primarily the result of
retained earnings.
Comparison of Operating Results for the Years Ended December 31, 1997 and 1996
Net Earnings. Net earnings were $3.2 million for the year ended
December 31, 1997 compared to $2.8 million for the year ended December 31,
1996, a 14.3% increase. This increase was a result of increases in net
interest income, net gain on sale of loans available for sale, and other
income. These positive increases were offset by increases in the provision
for loan losses, increased operating expenses and increased provisions for
income taxes.
Net Interest Income. Net interest income increased 12.4% from $11.3
million for the year ended December 31, 1996 to $12.7 million for the same
period in 1997. Total interest income increased 11.7% from $19.6 million for
the year ended December 31, 1996 to $21.9 million for the year ended December
31, 1997. This increase was a result of an increase in average earning assets
from $220.0 million for the year ended December 31, 1996 to $243.0 million for
the same period in 1997 a 10.5% increase. This increase in volume was
accompanied by a slight increase in average yield from 8.92% for the year
ended December 31, 1996 to 9.03% for the same period 1997. Average loans
receivable increased from $186.4 million for the year ended December 31, 1996
to $214.0 million for the same period in 1997 representing a 14.8% increase in
volume. This increase was offset slightly by a decline in average yield from
9.49% for the year ending December 31, 1996 to 9.48% for the year ending
December 31, 1997. Average mortgage-backed securities decline from $1.5
million in fiscal 1996 to $1.4 million for fiscal 1997 offset by a slight
increase in average yields from 6.75% for fiscal 1996 to 6.78% for fiscal
1997. Average investment securities declined from $22.0 million for fiscal
1996 to $8.4 million for fiscal 1997. This decline in volumes was attributed
to investment securities maturing and the proceeds being used for lending,
operations, and other interest-bearing deposits. This decline was partially
offset by an increase in average yield from 5.64% for fiscal 1996 to 5.89% for
fiscal 1997. Investment in FHLB stock increased from $1.5 million for the
year ended December 31, 1996 to $1.6 million for the year ended December 31,
1997 accompanied by an increase in average yield from 7.02% in fiscal 1996 to
7.18% for fiscal 1997. Average investments in federal funds sold and other
deposits increased from $8.3 million for the year ending December 31, 1996 to
$17.7 million for the same period in 1997. This increase in volume was
partially offset by a decline in average yield from 5.60% for 1996 to 5.38%
for 1997. Interest expense increased 12.05% from $8.3 million for the year
ended December 31, 1996 to $9.3 million for the period ended December 31,
1997. This increase was a result of increases in average deposits from $185.5
million for the year ending December 31, 1996 to $207.4 million for the same
period in 1997. The average cost of funds increased from 4.44% for the year
ending December 31, 1996 to 4.48% for the same period in 1997 as a result of
higher certificate of deposit costs. Interest rate spread increased from
4.48% for the year ending December 31, 1996 to 4.55% for the year ending
December 31, 1997 as results of the increase in yield on interest-earning
assets between December 31,
39
<PAGE>
<PAGE>
1996 and December 31, 1997 resulting primarily from increases in loans
outstanding and decreases in investments outstanding.
Provision for Loan Losses. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level considered
by management as adequate to provide for estimated loan losses based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans and economic conditions. In determining
the adequacy of the allowance for loan losses, management periodically reviews
the loan portfolio and considers such factors as delinquency status, past
performance problems, historical loss experience, adverse situations that may
affect the ability of the borrowers to repay, known and inherent risks in the
portfolio, assessments of economic conditions, regulatory policies, and the
estimated value of the underlying collateral. Although the Bank's credit
management systems have resulted in low loss experience, there can be no
assurances that such experience will continue. The allowance for loan losses
is based principally on delinquency status and historical experience. The
Bank gives greater weight to the level of internally identified problem assets
than to the level of nonperforming assets that otherwise exhibit, in
management's judgment, potential credit weaknesses. The required level of the
allowance for loan losses is then calculated based upon the outstanding
balances in each loan category and the risk weight assigned to each category.
The provision for loan losses was $700,000 for the year ended December
31, 1997 compared to $120,000 for the same period in 1996. The Bank believes
that its operations now more closely resemble those of a traditional
commercial bank than a traditional thrift institution. The Bank's one- to-
four family mortgage loan portfolio as a percent of the total loan portfolio,
has decreased from 42.2% at December 31, 1993 to 32.9% at December 31, 1997.
Commercial mortgage loans have increased from 9.7% at December 31, 1993 to
15.8% at December 31, 1997. Construction loans as a percentage of the total
loan portfolio increased from 19.8% to 21.7% from December 31, 1993 to
December 31, 1997. Commercial business loans also have increased from 4.9% at
December 31, 1993 to 9.0% at December 31, 1997. Management deemed the
increase in the provision for loan losses necessary in light of the relative
level of estimated losses inherent in the increased levels of higher risk
loans (construction, commercial real estate, land, commercial business and
consumer loans).
Noninterest Income. Noninterest income increased from $3.2 million for
the year ended December 31, 1996 to $3.7 million for the year ended December
31, 1997, primarily as a result of the increase in service charges, trust
fees, and net gains on sales of loans available for sale offset by declines in
servicing fees and other income. Service charges and fees increased from
$973,000 for the year ended December 31, 1996 to $1.2 million for the year
ended December 31, 1997 as a result of increased income deposit account fees,
particularly on the increased number of transaction accounts. Trust fees
increased from $483,000 for fiscal 1996 to $649,000 in fiscal 1997 as a result
of increases in trust assets under management. Net gain on sale of loans
available increased from $890,000 in fiscal 1996 to $1.1 million in fiscal
1997 as a result of more favorable market conditions especially in the fourth
quarter of fiscal 1997 and increased originated servicing asset. These
increases were partially offset by a decline in servicing income from
$548,000 in fiscal 1996 to $506,000 in fiscal 1997 as a result of increased
amortization of the originated servicing asset.
Noninterest Expenses. Noninterest expenses were $10.5 million for the
year ended December 31, 1997 compared to $9.8 million for the same period in
fiscal 1996. Personnel expenses increased from $4.7 million for the year
ended December 31, 1996 to $5.8 million for the year ended December 31, 1997
as a result of additional expenses associated with the termination of the
defined benefit plan (effective December 31, 1997), opening new branch offices
and increased loan and deposit activity. The branch openings and increased
activity resulted in increased staffing, higher commission and incentive
expenses, increased compensation, overtime and benefits. Occupancy expense
increased from $493,000 for the year ended December 1996 to $550,000 for the
same period in 1997 primarily as a result of branch openings. This increased
activity also contributed to general increases in most other noninterest
expense categories in fiscal 1997 compared to fiscal 1996. These increases
were offset by a decline in federal deposit insurance premiums from $1.7
million for the year ending December 31, 1996 to $112,000 for the year ending
December 31, 1997. This decrease resulted primarily from the FDIC special
assessment on all SAIF-
40
<PAGE>
<PAGE>
insured institutions to recapitalize the SAIF. The Bank's assessment amounted
to $1.2 million. Prior to the SAIF recapitalization, the Bank's total annual
deposit insurance premiums amounted to 0.23% of assessable deposits.
Effective January 1, 1997 the rate decreased to 0.065% of assessable deposits.
Income Tax Expense. Income tax expense was $1.9 million for the year
ended December 31, 1997 compared to $1.8 million for the year ended December
31, 1996 as a result of higher income before taxes. The effective tax rate
for the year ended December 31, 1997 was 37.4% compared to 38.4% for the year
ended December 31, 1996.
Comparison of Operating Results for the Years Ended December 31, 1996 and 1995
Net Earnings. Net earnings were $2.8 million for the year ended
December 31, 1996 compared to $3.2 million a year earlier, a 12.1% decline,
primarily as a result of increases in noninterest expenses, primarily
associated with the one-time FDIC special SAIF assessment, and an increase in
the provision for loan losses.
Net Interest Income. Net interest income was $11.3 million for the year
ended December 31, 1996 compared to $9.5 million for the year ended December
31, 1995, a 18.8% increase. A 13.7% increase in total interest income, from
$17.2 million in 1995 to $19.6 million in 1996, was offset by a 7.4% increase
in interest expense, from $7.7 million in 1995 to $8.3 million in 1996. The
increase in total interest income resulted primarily from an increase in the
average balance of interest-earning assets from $199.3 million in 1995 to
$220.0 million in 1996 and an increase in the average yield on
interest-earning assets from 8.64% in 1995 to 8.92% in 1996 as a result of a
combination of higher market interest rates and an increase in the average
balance of higher yielding consumer and other loans. Interest income on other
loans (consumer loans, commercial real estate loans and commercial business
loans) increased from $4.9 million for the year ended December 31, 1995 to
$6.2 million of the year ended December 31, 1996 as a result of the increased
volume of such loans. Interest income from investment securities decreased
from $1.6 million for the year ended December 31, 1995 to $1.3 million for the
year ended December 31, 1996 as a result of a decrease in the average balance
of investment securities from $29.1 million for the year ended December 31,
1995 to $21.9 million for the year ended December 31, 1996. The increase in
interest expense was primarily the result of an increase in average deposits
from $169.8 million at December 31, 1995 to $185.5 million at December 31,
1996 primarily as a result of marketing and promotions. The increase was
offset by a decrease in the average cost of deposits from 4.50% for 1995 to
4.44% for 1996 as a result of declining market interest rates. Interest rate
spread increased from 4.14% in 1995 to 4.48% in 1996.
Provision for Loan Losses. The provision for loan losses was $120,000
for the year ended December 31, 1996 compared to $80,000 for the year ended
December 31, 1995. Management deemed the increase in the provision for loan
losses necessary in light of the increase in the relative level of estimated
losses inherent in the higher levels of higher risk loans (construction,
commercial real estate, land, commercial business and consumer loans). See
Item 1 "Business -- Lending Activities -- Construction Lending" and "Business
- -- Lending Activities -- Nonperforming Assets and Delinquencies" contained
herein.
Noninterest Income. Noninterest income was $3.2 million for the year
ended December 31, 1996 compared to $3.0 million for the year ended December
31, 1995. Loan fees and servicing income declined from $658,000 in 1995 to
$548,000 in 1996 as a result of a decrease in the servicing portfolio from
$134.4 million at December 31, 1995 to $121.1 million at December 31, 1996.
This decrease was offset by an increase in deposit fees from $796,000 in 1995
to $973,000 in 1996, which was a result of an increase in transaction
accounts. Trust fees also increased from $375,000 in 1995 to $483,000 in 1996
as a result of increased assets under management.
Noninterest Expenses. Noninterest expenses were $9.8 million for the
year ended December 31, 1996 compared to $7.5 million for the year ended
December 31, 1995, an increase of 30.5%, primarily as a result of the FDIC
special assessment on all SAIF-insured institutions. This assessment amounted
to $1.2 million in 1996. As the Bank continued to grow and expand during this
period, compensation and related employee expenses increased from $3.9 million
for the year ended December 31, 1995 to $4.7 million for the same period in
1996, which
41
<PAGE>
<PAGE>
represents a 19.9% increase. Equipment and service bureau expenses increased
from $1.2 million in 1995 to $1.5 million in 1996, an 18.1% increase, as a
result of business expansion.
Income Tax Expense. Income tax expense was $1.8 million for the year
ended December 31, 1996 compared to $1.7 million for the year ended December
31, 1995. The effective income tax rate increased from 34.8% in 1995 to 38.4%
in 1996 as a result of previously unrecognized federal income tax benefits.
Average Balances, Interest and Average Yields/Cost
The following table sets forth certain information for the periods
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets
and interest expense on average interest-bearing liabilities and average
yields and costs. Such yields and costs for the periods indicated are derived
by dividing income or expense by the average balances of assets or
liabilities, respectively, for the periods presented. Average balances are
derived from daily balances for the years ended December 31, 1997, 1996 and
1995.
42
<PAGE>
<PAGE>
<TABLE>
Year Ended December 31,
-------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- --------------------------- ---------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost(3) Balance Dividends Cost(3) Balance Dividends Cost
------- --------- ------- ------- --------- ------- ------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
assets:
Loans receivable,
net (1).......... $214,020 $20,290 9.48% $186,393 $17,681 9.49% $158,043 $14,900 9.43%
Mortgage-backed
securities....... 1,371 93 6.78 1,497 101 6.75 1,626 109 6.70
Investment
securities....... 8,354 492 5.89 21,933 1,236 5.64 29,090 1,550 5.33
FHLB stock........ 1,559 112 7.18 1,454 102 7.02 1,357 93 6.85
Federal funds sold
and overnight
interest-bearing
deposits......... 17,704 952 5.38 8,293 464 5.60 9,160 570 6.22
-------- ------ ------ -------- ------- ------ -------- ------- ------
Total interest-
earning assets. 243,008 21,939 9.03 219,570 19,584 8.92 199,276 17,222 8.64
Non-interest-
earning assets.... 18,518 15,028 13,648
-------- -------- --------
Total assets.... $261,528 $234,598 $212,924
======== ======== ========
Interest-bearing
liabilities:
Deposits:
Passbook
accounts........ $ 15,286 302 1.98 16,581 350 2.11 17,943 399 2.22
Money market
accounts........ 35,250 1,475 4.18 25,851 1,090 4.22 16,352 681 4.16
NOW accounts..... 28,558 480 1.68 26,257 505 1.92 22,052 464 2.10
Certificates of
deposit......... 128,330 7,032 5.48 116,828 6,287 5.38 113,498 6,096 5.37
-------- ------ ------ -------- ------- ------ -------- ------- ------
Total deposits. 207,424 9,289 4.48 185,517 8,232 4.44 169,845 7,640 4.50
-------- ------ ------ -------- ------- ------ -------- ------- ------
Advances from FHLB. -- -- -- 628 36 5.73 1,000 56 5.60
-------- ------ ------ -------- ------- ------ -------- ------- ------
Total interest-
bearing
liabilities..... 207,424 9,289 4.48 186,145 8,268 4.44 170,845 7,696 4.50
Non-interest-
bearing
liabilities(2).... 25,241 22,726 19,556
-------- -------- -------
Total
liabilities.... 232,665 208,871 190,401
Retained earnings.. 28,861 25,727 22,523
-------- -------- --------
Total
liabilities and
retained
earnings....... $261,526 $234,598 $212,924
======== ======== ========
Net interest
income........... $12,650 $11,316 $9,526
======= ======= ======
Interest rate
spread............ 4.55% 4.48% 4.14%
====== ======= ======
Net interest
margin............ 5.21% 5.15% 4.78%
====== ====== ======
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities....... 117.16% 117.96% 116.64%
====== ====== ======
- ---------------------
(1) Excludes interest on loans 90 days or more past due. Includes loans originated for sale.
(2) Includes non-interest bearing demand deposits of and $21.3 million, $18.0 million and
$15.1 million for the years ended December 31, 1997, 1996 and 1995, respectively.
(3) Annualized.
43
</TABLE>
<PAGE>
<PAGE>
Yields Earned and Rates Paid
The following table sets forth for the periods and at the dates indicated
the weighted average yields earned on the Bank's assets and the weighted
average interest rates paid on the Bank's liabilities, together with the
interest rate spread and net interest margin on interest-earning assets.
At
December 31, Year Ended December 31,
----------------------
1997 1997 1996 1995
---- ---- ---- ----
Weighted average yield on:
Loans receivable.................. 8.81% 9.48% 9.49% 9.43%
Mortgage-backed securities ....... 7.18 6.78 6.75 6.70
Investment securities............. 5.61 5.89 5.64 5.33
FHLB stock........................ 7.25 7.18 7.02 6.85
Federal funds sold and overnight
interest-bearing deposits...... 6.0 5.38 5.60 6.22
All interest-earning assets....... 8.36 9.03 8.92 8.64
Weighted average rate paid on:
Passbook savings accounts......... 1.99 1.98 2.11 2.22
NOW accounts...................... 1.67 1.68 1.92 2.10
Money market accounts............. 4.19 4.18 4.22 4.16
Certificate accounts.............. 5.30 5.48 5.38 5.37
FHLB advances..................... -- -- 5.73 5.60
All interest-bearing liabilities.. 4.34 4.48 4.44 4.50
Interest rate spread (spread
between weighted average rate
on all interest-earning assets
and all interest-bearing
liabilities)...................... 4.02 4.48 4.48 4.14
Net interest margin (net interest
income (expense) as a percentage
of average interest-earning
assets)......................... N/A 5.21 5.15 4.78
44
<PAGE>
<PAGE>
<TABLE>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on net interest income of
the Bank. Information is provided with respect to (i) effects on interest income attributable to changes
in volume (changes in volume multiplied by prior rate); and (ii) effects on interest income attributable
to changes in rate (changes in rate multiplied by prior volume). The net change attributable to the
combined impact of volume and rate has been allocated proportionately to the change due to volume and the
change due to rate.
Year Ended December 31, Year Ended December 31, Year Ended December 31,
1997 Compared to Year 1996 Compared to Year 1995 Compared to Year
Ended December 31, 1996 Ended December 31, 1995 Ended December 31, 1994
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
----------------------- ---------------------- -----------------------
Rate Volume Total Rate Volume Total Rate Volume Total
---- ------ ----- ---- ------ ----- ---- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
assets:
Loans receivable (1)..$1,472 $1,137 $2,609 $(1,200) $3,981 $2,781 $ 738 $ 281 $1,019
Mortgage-backed
securities........... -- (8) (8) -- (8) (8) 29 (6) 23
Investment
securities........... (974) 230 (744) 1,212 (1,484) (272) (553) 1,048 495
FHLB stock............ 2 8 10 2 7 9 12 6 18
Federal funds sold
and overnight
interest-bearing
deposits............. (461) 949 488 (366) 218 (148) 116 157 273
----- ----- ----- ------ ----- ------ ------ ----- -----
Total net change in
income on interest-
earning assets........ 40 2,315 2,355 (352) 2,714 2,362 342 1,486 1,828
Interest-bearing
liabilities:
Passbook accounts..... (37) (12) (49) (15) (32) (47) 102 (57) 45
NOW accounts.......... (98) 73 (25) 113 (72) 41 21 37 58
Money market
accounts............. (216) 601 385 74 335 409 (44) 212 168
Certificate accounts.. 195 551 746 (229) 418 189 954 235 1,189
FHLB advances......... -- (36) (36) (20) -- (20) 202 (265) (63)
----- ----- ----- ------ ----- ------ ------ ----- -----
Total net change in
expense on interest-
bearing liabilities... (156) 1,177 1,021 (77) 649 572 1,235 162 1,397
----- ----- ----- ------ ----- ------ ------ ----- -----
Net change in net
interest income.......$ 196 $1,138 $1,334 $(275) $2,065 $1,790 $ (893) $1,324 $ 431
====== ====== ====== ===== ======= ====== ====== ====== ======
- --------------
(1) Excludes interest on loans 90 days or more past due. Includes loans held-for-sale.
45
</TABLE>
<PAGE>
<PAGE>
Asset and Liability Management
In order to encourage institutions to reduce their interest rate risk,
the OTS adopted a rule incorporating an interest rate risk component into the
risk-based capital rules. Using data compiled by the OTS, the Bank receives a
report which measures interest rate risk by modeling the change in NPV over a
variety of interest rate scenarios. This procedure for measuring interest
rate risk was developed by the OTS to replace the "gap" analysis (the
difference between interest-earning assets and interest-bearing liabilities
that mature or reprice within a specific time period). NPV is the present
value of expected cash flows from assets, liabilities and off-balance sheet
contracts. The calculation is intended to illustrate the change in NPV that
will occur in the event of an immediate change in interest rates of at least
200 basis points with no effect given to any steps that management might take
to counter the effect of that interest rate movement. Under proposed OTS
regulations, an institution with a greater than "normal" level of interest
rate risk will be subject to a deduction from total capital for purposes of
calculating its risk-based capital. An institution with a "normal" level of
interest rate risk is defined as one whose "measured interest rate risk" is
less than 2.0%. Institutions with assets of less than $300 million and a
risk-based capital ratio of more than 12.0%, unlike the Bank, are exempt.
Based on the Bank's regulatory capital levels at December 31, 1997, the Bank
believes that, if the proposed regulation was implemented at that date, the
regulation would not have had a material adverse effect on the Bank's
regulatory capital compliance.
The following table is provided by the OTS and sets forth the change in
the Bank's NPV at December 31, 1997, based on OTS assumptions, that would
occur in the event of an immediate change in interest rates, with no effect
given to any steps that management might take to counteract that change.
Basis Point Estimated Change in Board Approved
Change in Rates Net Portfolio Value Limit
--------------- ------------------- --------------
(Dollars in thousands)
Amount Percent Percent
------ ------- -------
400 $(3,732) (10)% (50)%
300 (2,231) (6) (30)
200 (1,019) (3) (20)
100 (217) (1) (10)
-- -- -- --
(100) (314) (1) (10)
(200) (788) (2) (20)
(300) (571) (1) (30)
(400) 402 1 (50)
The above table illustrates, for example, that an instantaneous 200
basis point increase in market interest rates at December 31, 1997 would
reduce the Bank's NPV by approximately $1.0 million, or 3.0%.
Certain assumptions utilized by the OTS in assessing the interest rate
risk of savings associations within its region were utilized in preparing the
preceding table. These assumptions relate to interest rates, loan prepayment
rates, deposit decay rates, and the market values of certain assets under
differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities
or periods to repricing, they may react in different degrees to changes in
market interest rates. Also, the interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the
asset. Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
46
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The following table presents the Bank's interest sensitivity gap analysis
at December 31, 1997.
Six After After
Within Months One to Three Over
Six to One Three to Five Ten
Months Year Years Years Years Total
------ ---- ----- ----- ----- -----
Interest-earning assets:
Loans receivable, net... $46,638 $34,553 $33,374 $31,846 $71,423 $217,834
Mortgage-backed
securities............ 15 15 67 77 1,127 1,301
Other loans............ 163 163 652 653 -- 1,631
Investment securities.. 4,720 5,039 2,018 -- -- 11,777
Federal funds sold
and overnight
interest-bearing
deposits.............. 26,750 -- -- -- -- 26,750
------- ------- ------- ------- ------ --------
Total interest-
earning assets....... 78,286 39,770 36,111 32,576 72,550 259,293
------- ------- ------- ------- ------ --------
Interest-bearing
liabilities:
Deposits:
NOW accounts.......... 3,155 3,155 12,621 12,622 -- 31,553
Passbook savings
accounts............. 1,524 1,524 6,096 6,095 -- 15,239
Money market deposit
accounts............. 4,274 4,274 17,097 17,098 -- 42,743
Certificates of
deposit.............. 73,899 35,584 19,191 4,207 -- 132,881
------- ------- ------- ------- ------ --------
Total interest-
earning liabilities. 82,852 44,537 55,005 40,022 -- 222,416
------- ------- ------- ------- ------ --------
Excess (deficiency)
of interest
sensitivity assets
over interest
sensitivity
liabilities............ (4,566) (4,767) (18,894) (7,446) 72,550 36,877
Cumulative excess
(deficiency) of
interest sensitivity
assets................. (4,566) (9,333) (28,227) (35,673) 36,877 36,877
Cumulative ratio of
interest- earning
assets to interest-
bearing liabilities.... 94.49% 92.67% 84.52% 83.96% 116.58% 116.58%
Interest sensitivity
gap to total assets.... (1.76)% (1.84)% (7.29)% (2.87)% 27.98% 14.22%
Ratio of interest-
earning assets to
interest-bearing
liabilities............ 94.49% 89.30% 65.65% 81.40% --% 116.58%
Ratio of cumulative
gap to total assets.... (1.76)% (3.60)% (10.89)% (13.76)% 14.22% 14.22%
Liquidity and Capital Resources
The Bank's primary sources of funds are customer deposits, proceeds from
principal and interest payments on and the sale of loans, maturing securities
and FHLB advances. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions and
competition.
The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Bank generally maintains sufficient cash and
short-term investments to meet short-term liquidity needs. At December 31,
1997, cash and cash equivalents totalled $37.7 million, or 13.4% of total
assets. At
47
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December 31, 1997, the Bank also maintained an available line of credit of
$12.1 million with the FHLB-Cincinnati that may be used as an additional
source of liquidity.
At December 31, 1997, the Bank's commitments to extend funds consisted
of unused lines of credit of $25.2 million, outstanding letters of credit of
$7.3 million issued primarily to municipalities as performance bonds, and
commitments to originate or purchase loans of $42.3 million. The commitments
to originate or purchase loans at December 31, 1997 consisted of commitments
to originate or purchase variable rate loans of $42.0 million, and commitments
to originate or purchase fixed rate loans of $289,000 at interest rates
ranging from 5.125% to 8.5%.
OTS regulations require savings institutions to maintain an average
daily balance of liquid assets (cash and eligible investments) equal to at
least 4.0% of the average daily balance of its net withdrawable deposits and
short-term borrowings. The Bank's liquidity ratio at December 31, 1997 was
19.4%.
The Bank's primary lending activity is the origination of real estate
mortgage loans. During the years ended December 31, 1997, 1996 and 1995, the
Bank originated $166.3 million, $172.0 million and $147.3 million of such
loans, respectively. At December 31, 1997, the Bank had loan commitments
totalling $42.3 million and undisbursed loans in process totalling $30.2
million. The Bank anticipates that it will have sufficient funds available to
meet current loan commitments. Certificates of deposit that are scheduled to
mature in less than one year from December 31, 1997 totalled $109.5 million.
Historically, the Bank has been able to retain a significant amount of its
deposits as they mature.
OTS regulations require the Bank to maintain specific amounts of
regulatory capital. As of December 31, 1997, the Bank complied with all
regulatory capital requirements as of that date with tangible, core and
risk-based capital ratios of 10.88%, 10.88% and 13.55%, respectively. For a
detailed discussion of regulatory capital requirements, see Item 1, "Business
- -- Regulation -- Federal Regulation of Savings Associations -- Capital
Requirements" contained herein.
Impact of Accounting Pronouncements and Regulatory Policies
Accounting by Creditors for Impairment of a Loan. See Note 1 of Notes
to the Consolidated Financial Statements contained in Item 8 hereof for a
discussion of Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan" and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." The Bank adopted SFAS No. 114 and SFAS No. 118 effective
January 1, 1995, and their adoption did not have a material effect on the
Bank's financial condition or results of operations.
Accounting for Employee Stock Ownership Plans. In November 1993 the
American Institute of Certified Public Accountants issued SOP 93-6, which
requires an employer to record compensation expense in an amount equal to the
fair value of shares committed to be released to employees from an employee
stock ownership plan and to exclude unallocated shares from earnings per share
computations. The effect of SOP 93-6 on net income and book value per share
in future periods cannot be predicted due to the uncertainty of the fair value
of the shares at the time they will be committed to be released.
Disclosure of Certain Significant Risks and Uncertainties. In December
1994 the Accounting Standards Executive Committee issued SOP 94-6, "Disclosure
of Certain Significant Risks and Uncertainties." This SOP applies to
financial statements prepared in conformity with GAAP by all nongovernmental
entities. The disclosure requirements in SOP 94-6 focus primarily on risks
and uncertainties that could significantly affect the amounts reported in the
financial statements in the near-term functioning of the reporting entity.
The risks and uncertainties discussed in SOP 94-6 stem from the nature of the
entity's operations, from the necessary use of estimates in the preparation of
the entity's financial statements and from significant concentrations in
certain aspects of the entity's operations. SOP 94-6 is effective for
financial statements issued for fiscal years ending after December 15, 1995
and did not have a material impact on the financial condition or results of
operations of the Bank.
48
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Accounting for Mortgage Servicing Rights. See Note 1 of Notes to the
Consolidated Financial Statements contained in Item 8 hereof for a discussion
of SFAS No. 122, "Accounting for Mortgage Servicing Rights." The Bank
implemented SFAS No. 122, prospectively, effective January 1, 1996 and its
implementation did not have a material impact on the Bank's financial
condition or results of operations. Effective January 1, 1997, SFAS No. 122
was superseded by SFAS No. 125 discussed below.
Accounting for Stock-Based Compensation. SFAS No. 123, "Accounting for
Stock-Based Compensation," establishes financial accounting and reporting
standards for stock-based employee compensation plans. This statement
encourages all entities to adopt a new method of accounting to measure
compensation cost of all employee stock compensation plans based on the
estimated fair value of the award at the date it is granted. Companies are,
however, allowed to continue to measure compensation cost for those plans
using the intrinsic value based method of accounting, which generally does not
result in compensation expense recognition for most plans. Companies that
elect to remain with the existing accounting method are required to disclose
in a footnote to the financial statements pro forma net income and, if
presented, earnings per share, as if this statement had been adopted. The
accounting requirements of this statement are effective for transactions
entered into in fiscal years that begin after December 15, 1995; however,
companies are required to disclose information for awards granted in their
first fiscal year beginning after December 15, 1994. Management of the Bank
has not completed an analysis of the potential effects of SFAS No. 123 on its
financial condition or results of operations, but expects to use the intrinsic
value method following the consummation of the Conversion.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. See Note 1 of Notes to the Consolidated
Financial Statements contained in Item 8 hereof for a discussion of SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," and of SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No. 127
defers the effective date of the application of certain portions of SFAS No.
125 until January 1, 1998. The adoption of the provisions of SFAS No. 125 and
SFAS No. 127 did not have a material impact on the Bank's financial condition
or results of operations.
Earnings Per Share. SFAS No. 128, "Earnings Per Share," issued in
February 1997, establishes standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly-held common stock or
potential common stock. It replaces the presentation of primary EPS with a
presentation of basic EPS and requires the dual presentation of basic and
diluted EPS on the face of the income statement. This statement is effective
for financial statements issued for periods ending after December 15, 1997
including interim periods; earlier applications not permitted. This statement
requires restatement of all prior period EPS data presented.
Disclosure of Information About Capital Structure. SFAS No. 129,
"Disclosure of Information About Capital Structure," establishes standards for
disclosing information about an entity's capital structure and applies to all
entities. SFAS No. 129 continues the previous requirements to disclose
certain information about an entity's capital structure found in Accounting
Principles Board ("APB") Opinions No. 10, "Omnibus Opinion - 1966," and No.
15, "Earnings Per Share," and SFAS No. 47, "Disclosure of Long-Term
Obligations," for entities that were subject to those standards. SFAS No. 129
is effective for financial statements for periods ending after December 15,
1997. SFAS No. 129 contains no change in disclosure requirements for entities
that were previously subject to the requirements of APB Opinions Nos. 10 and
15 and SFAS No. 47. The adoption of the provisions of SFAS No. 129 is not
expected to have a material impact on the Bank.
Comprehensive Income. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. It requires
that all items that are required to be recognized under accounting standards
as components of comprehensive income be reported in a financial statement
that is presented with the same prominence as other financial statements.
SFAS No. 130 requires that companies (i) classify items of other comprehensive
income by their nature in a financial statement and (ii) display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in
49
<PAGE>
<PAGE>
capital in the equity section of the statement of financial condition. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comprehensive purposes is required.
Disclosure About Segments. SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," issued in June 1997, establishes
standards for disclosure about operating segments in annual financial
statements and selected information in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
becomes effective for the Bank's fiscal year ending December 31, 1998, and
requires that comparative information from earlier years be restated to
conform to its requirements. The adoption of the provisions of SFAS No. 131
is not expected to have a material impact on the Bank.
Year 2000 Considerations
Many existing computer programs use only two digits to identify a year
in the date datum field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If uncorrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects virtually all companies and
organizations.
The Bank uses the services of an outside service bureau for its
significant data processing applications. Based on discussions with its
service bureau, the Bank does not expect that the cost of addressing any Year
2000 issue will be a material event or uncertainty that would cause its
reported financial information not to be necessarily indicative of future
operating results or future financial condition, or that the costs or
consequences of incomplete or untimely resolution of any Year 2000 issue
represent a known material event or uncertainty that is reasonably likely to
affect the its future financial results, or cause its reported financial
information not to be necessarily indicative of future operating results or
future financial condition. Every financial institution will be posed with
the Year 2000 challenge. It is the Bank's desire to make the transition to
the Year 2000 as effortless as possible. Cavalry Banking has developed an
intensive Action Plan for addressing the concerns and risks associated with
the coming millennium. The comprehensive plan was written based on guidelines
established by the Federal Financial Institutions Examination Council's
Interagency Statement entitled "Year 2000 Project Management Awareness." The
year 2000 Action Plan includes defined phases for Awareness, Assessment,
Renovation, Validation and Implementation. As part of the awareness phase, a
Special Projects Team composed of individuals from every operational sector of
the Bank was utilized to assess all vendors, customers, and correspondents.
All computer hardware was upgraded in the last quarter of fiscal 1996 and the
first quarter of fiscal 1997. All vendors and applications have been
identified and Cavalry Banking has set December 31, 1998 as the target date
for full compliance to Year 2000.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with GAAP, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of
money over time due to inflation. The primary impact of inflation is
reflected in the increased cost of the Bank's operations. Unlike most
industrial companies, virtually all the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally
have a more significant impact on a financial institution's performance than
do general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services.
50
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Quantitative Aspects of Market Risk. The Bank does not maintain a
trading account for any class of financial instrument nor does it engage in
hedging activities or purchase high-risk derivative instruments. Furthermore,
the Bank is not subject to foreign currency exchange rate risk or commodity
price risk. For information regarding the sensitivity to interest rate risk
of the Bank's interest-earning assets and interest-bearing liabilities, see
the tables under Item 1, "Business -- Lending Activities -- Maturity of Loan
Portfolio," "-- Investment Activities" and "-- Deposit Activities and Other
Sources of Funds -- Time Deposits by Maturities" contained herein.
Qualitative Aspects of Market Risk. The Bank's principal financial
objective is to achieve long-term profitability while reducing its exposure to
fluctuating market interest rates. The Bank has sought to reduce the exposure
of its earnings to changes in market interest rates by attempting to manage
the mismatch between asset and liability maturities and interest rates. The
principal element in achieving this objective is to increase the interest-rate
sensitivity of the Bank's interest-earning assets by retaining for its
portfolio loans with interest rates subject to periodic adjustment to market
conditions and the selling of fixed-rate one- to- four family mortgage loans.
In addition, the Bank maintains an investment portfolio of U.S. Government and
agency securities with contractual maturities of between zero and two years.
The Bank relies on retail deposits as its primary source of funds. Management
believes retail deposits, compared to brokered deposits, reduce the effects of
interest rate fluctuations because they generally represent a more stable
source of funds. As part of its interest rate risk management strategy, the
Bank promotes transaction accounts and certificates of deposit with terms up
to four years. For additional information, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained herein.
The following table shows the Bank's financial instruments that are
sensitive to changes in interest rates, categorized by expected maturity, and
the instruments' fair values at December 31, 1997. Market risk sensitive
instruments are generally defined as on- and off- balance sheet derivatives
and other financial instruments.
One After After
Within Year 3 Years 5 Years Beyond
Average One to 3 to 5 to 10 10 Fair
Rate Year Years Years Years Years Total Value
---- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
Interest-
Sensitive
Assets:
Loans
receivable.. 8.81% $81,191 $33,374 $31,846 $14,215 $57,208 $217,834 $220,614
Mortgage-
backed
securities.. 7.18 30 67 77 249 878 1,301 1,312
Investments
and other
interest-
earning
assets...... 5.46 35,721 3,019 -- -- -- 38,740 38,740
FHLB stock... 7.25 326 652 653 -- -- 1,631 1,631
Interest-
Sensitive
Liabilities:
Checking
accounts.... 1.67 6,310 12,621 12,622 31,553 31,553
Savings
accounts.... 1.99 3,048 6,096 6,095 -- -- 15,239 15,239
Money Market. 4.19 8,548 17,097 17,098 42,743 42,743
Certificate
accounts.... 5.30 109,483 19,191 4,207 -- -- 132,881 133,549
Off-Balance
Sheet Items:
Commitments
to extend
credit...... 8.58 42,270 -- -- -- -- -- 42,270
Unused lines
of credit... 9.56 25,287 -- -- -- -- -- 25,287
51
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Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
All schedules have been omitted as the required information is either
inapplicable or included in the Consolidated Financial Statements or related
Notes.
Index To Consolidated Financial Statements
Cavalry Bancorp, Inc. and Subsidiaries
Page
----
Independent Auditors' Report.................................... 53
Consolidated Balance Sheets as of December 31, 1997 and 1996.... 54
Consolidated Statements of Earnings for the
Years Ended December 31, 1997, 1996 and 1995................... 55
Consolidated Statements of Changes in Equity for the Years
Ended December 31, 1997, 1996 and 1995......................... 56
Consolidated Statements of Cash Flows for the
the Years Ended December 31, 1997, 1996 and 1995............... 57
Notes to Consolidated Financial Statements...................... 58
* * *
52
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[Letterhead of Rayburn, Betts & Bates, P.C.]
Independent Auditors' Report
----------------------------
Board of Directors
Cavalry Banking and Subsidiaries
We have audited the consolidated balance sheets of Cavalry Banking and
Subsidiaries (the Bank) as of December 31, 1997 and 1996 and the related
consolidated statements of earnings, changes in equity and cash flows for each
of the years in the three year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cavalry
Banking and Subsidiaries at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/Rayburn, Betts & Bates, P.C.
RAYBURN, BETTS & BATES, P.C.
Nashville, Tennessee
February 13, 1998
(March 16, 1998 as to Note 20)
53
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Cavalry Banking and Subsidiaries
Consolidated Balance Sheets
December 31, 1997 and 1996
(Dollars in Thousands)
Assets 1997 1996
------ ---- ----
Cash (note 2) $ 10,695 9,497
Interest-bearing deposits with other financial institutions 26,963 10,022
-------- -------
Cash and cash equivalents 37,658 19,519
Investment securities available-for-sale (note 3) 10,077 -
Investment securities held to maturity (note 3) 1,700 7,705
Mortgage-backed securities held to maturity (note 4) 1,301 1,419
Loans held for sale, at estimated fair value (note 5) 4,855 5,253
Loans receivable, net (notes 5 and 10) 212,979 200,600
Accrued interest receivable:
Loans, net of allowance for delinquent interest of
$3 and $5 in 1997 and 1996, respectively 1,400 1,280
Investment securities 314 155
Mortgage-backed securities held to maturity 10 11
Office properties and equipment, net (note 6) 8,072 6,203
Required investment in stock of Federal Home Loan Bank,
at cost (note 7) 1,631 1,519
Deferred tax asset, net (note 11) 1,168 755
Other assets (note 12) 964 545
-------- --------
$282,129 244,964
======== ========
Liabilities and Retained Earnings
---------------------------------
Liabilities:
Deposits (note 9) $248,267 214,533
Accrued interest payable 328 264
Advance payments by borrowers for property
taxes and insurance 295 328
Income taxes payable (note 11) 999 1,089
Accrued expenses and other liabilities (note 12) 1,793 1,500
-------- --------
Total liabilities 251,682 217,714
-------- --------
Equity:
Retained earnings, substantially restricted
(notes 13 and 14) 30,452 27,250
Net unrealized loss on investment securities
available-for-sale, net of taxes (5) -
-------- --------
Total equity 30,447 27,250
-------- --------
Total liabilities and equity $282,129 244,964
======== ========
Commitments and contingencies (notes 2, 12 and 18)
See accompanying notes to consolidated financial statements.
54
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Cavalry Banking and Subsidiaries
Consolidated Statements of Earnings
Years Ended December 31, 1997, 1996 and 1995
(Dollars in Thousands)
1997 1996 1995
---- ---- ----
Interest and dividend income:
First mortgage loans $12,429 $11,516 $ 9,996
Other loans 7,861 6,165 4,904
Investment securities 604 1,338 1,601
Deposits with other financial institutions 952 464 612
Mortgage-backed securities held to maturity 93 101 109
------- ------- -------
Total interest and dividend income 21,939 19,584 17,222
------- ------- -------
Interest expense - deposits 9,289 8,232 7,640
Interest expense- advances from Federal
Home Loan Bank - 36 56
------- ------- -------
Total interest expense 9,289 8,268 7,696
------- ------- -------
Net interest income 12,650 11,316 9,526
Provision for loan losses (note 5) 700 120 80
------- ------- -------
Net interest income after provision
for loan losses 11,950 11,196 9,446
------- ------- -------
Noninterest income:
Servicing income 506 548 658
Gain on sale of real estate acquired in
settlement of loans, net 2 11 23
Gain on sale of loans, net 1,126 890 882
Gain on sale of office properties
and equipment - 40 -
Deposit servicing fees and charges 1,173 973 796
Trust service fees 649 483 375
Other operating income 205 213 230
------- ------- -------
Total noninterest income 3,661 3,158 2,964
------- ------- -------
Noninterest expenses:
Compensation, payroll taxes and
fringe benefits (note 12) 5,808 4,661 3,889
Occupancy expense 550 493 459
Supplies, communications and other
office expenses 675 567 615
Federal insurance premiums (note 17) 112 1,654 418
Advertising expense 233 201 166
Equipment and service bureau expense 2,005 1,466 1,241
Other taxes 402 200 180
Other operating expenses 713 544 530
------- ------- -------
Total noninterest expenses 10,498 9,786 7,498
------- ------- -------
Earnings before income tax expense 5,113 4,568 4,912
Income tax expense (note 11) 1,911 1,754 1,711
------- ------- -------
Net earnings $ 3,202 $ 2,814 $ 3,201
======= ======= =======
See accompanying notes to consolidated financial statements.
55
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Cavalry Banking and Subsidiaries
Consolidated Statements of Changes in Equity
Years Ended December 31, 1997, 1996 and 1995
(Dollars in Thousands)
Unrealized
Loss on
Investment
Securities
Retained Available-for
Earnings Sale Total
-------- ------------- -----
Balance at December 31, 1994 $21,235 -- 21,235
Net earnings 3,201 -- 3,201
------- --- -------
Balance at December 31, 1995 24,436 -- 24,436
Net earnings 2,814 -- 2,814
------- --- -------
Balance at December 31, 1996 27,250 -- 27,250
Net earnings 3,202 -- 3,202
Change in valuation allowance
for investment securities
available-for-sale, net of
income taxes of $3 -- (5) (5)
------- --- -------
Balance at December 31, 1997 $30,452 (5) 30,447
======= === =======
See accompanying notes to consolidated financial statements.
56
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Cavalry Banking and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
(Dollars in Thousands)
1997 1996 1995
---- ---- ----
Operating activities:
Net earnings $ 3,202 2,814 3,201
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Provision for loan losses 700 120 80
Gain on sales of real estate acquired
in settlement of loans, net (2) (11) (23)
Gain on sales of loans, net (1,126) 890) (882)
Gain on sale of office properties
and equipment -- (40) --
Depreciation and amortization on
office properties and equipment 1,078 733 538
Net amortization (accretion) of
investment and mortgage-backed
securities premiums, net 42 102 (37)
Amortization of deferred loan
origination fees (1,090) (1,152) (918)
Loan fees collected 1,097 1,294 946
Deferred income tax benefit (413) (231) (40)
Proceeds from sales of loans 70,511 71,235 67,136
Origination of loans held for sale (68,987) 71,909) (68,491)
(Increase) decrease in accrued
interest receivable (278) 167 (255)
Increase in other assets (416) (162) (169)
Increase (decrease) in accrued
interest payable 64 (7) 78
Stock dividends on Federal Home
Loan Bank stock (112) (102) (114)
Increase in accrued expenses
and other liabilities 293 170 301
(Decrease) increase in income
taxes payable (90) 469 151
------ ------ ------
Net cash provided by
operating activities 4,473 2,600 1,502
------ ------ ------
Investing activities:
(Decrease) increase in loans
receivable, net (13,084) (40,962) 5,420
Principal payments on mortgage
backed securities held to maturity 117 116 118
See accompanying notes to consolidated financial statements.
57
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<PAGE>
Cavalry Banking and Subsidiaries
Consolidated Statements of Cash Flows, (Continued)
Years Ended December 31, 1997, 1996 and 1995
(Dollars in Thousands)
1997 1996 1995
---- ---- ----
Investing activities: (Continued)
Proceeds from the sales of branch and
office properties and equipment $ 82 153 3
Purchases of investment securities
available for sale (10,121) -- --
Purchases of investment securities
held to maturity -- (2,002) (32,609)
Proceeds from maturities of investment
securities 6,000 29,750 17,000
Purchases of office properties and
equipment (3,029) (1,763) (913)
Proceeds from sale of real estate
acquired through foreclosure -- 51 129
-------- ------ ------
Net cash used in investing
activities (20,035) (14,657) (10,852)
-------- ------ ------
Financing activities:
Net increase in deposits 33,734 17,800 16,450
Repayment of advance from
Federal Home Loan Bank -- -- (5,000)
Net decrease in advance
payments by borrowers for
property taxes and insurance (33) (159) (143)
-------- ------ ------
Net cash provided by
financing activities 33,701 17,641 11,307
-------- ------ ------
Increase in cash and cash
equivalents 18,139 5,584 1,957
Cash and cash equivalents,
beginning of year 19,519 13,935 11,978
-------- ------ ------
Cash and cash equivalents,
end of year $ 37,658 19,519 13,935
======== ====== ======
Supplemental Disclosures of Cash
Flow Information:
Payments during the period for:
Interest $ 9,225 5,500 5,185
======== ====== ======
Income taxes $ 2,535 1,591 1,771
======== ====== ======
Supplemental Disclosures of Noncash
Investing and Financing Activities:
Foreclosures and in substance
foreclosures of loans during year $ -- 44 22
======== ====== ======
Interest credited to deposits $ 2,902 2,775 2,433
======== ====== ======
Net unrealized losses on investment
securities available for sale $ 8 -- --
======== ====== ======
Increase in deferred tax asset related
to unrealized loss on investments $ 3 -- --
======== ====== ======
See accompanying notes to consolidated financial statements.
58
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(1) Summary of Significant Accounting Policies:
Business
--------
Cavalry Banking and Subsidiaries and its wholly-owned subsidiaries' (the Bank)
primary business activities include attracting deposits from the general
public and originating residential property loans (one-to-four family home
mortgage, cooperative apartment and multi-family property loans). The Bank
also makes commercial real estate loans and consumer loans. The Bank is
subject to competition from other financial institutions. Deposits at the
Bank are insured up to applicable limits by the Federal Deposit Insurance
Corporation (FDIC). The Bank is a federally chartered savings bank and is
subject to comprehensive regulation, examination and supervision by the OTS
and the FDIC. During December, 1997, all subsidiaries of the Bank were
dissolved. The subsidiaries, individually or in the aggregate, had immaterial
activity and balances in relation to the financial statements.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the consolidated balance sheet and revenues and expenses for the year. Actual
results could differ significantly from those estimates. Material estimates
that are particularly susceptible to significant change relate to the
determination of the allowance for loan losses and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of loans.
In connection with the determination of the allowances for loan losses and
foreclosed real estate, management obtains independent appraisals for
significant properties.
A substantial portion of the Bank's loans are secured by real estate in the
Middle Tennessee market. In addition, foreclosed real estate is located in
this same market. Accordingly, the ultimate collectibility of a substantial
portion of the Bank's loan portfolio and the recovery of a substantial portion
of the carrying amount of foreclosed real estate is susceptible to changes in
local market conditions.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's allowances for losses on loans and foreclosed real estate.
Such agencies may require the Bank to recognize additions to the allowances
based on their judgments about information available to them at the time of
their examination.
As more fully discussed in note 19, the Bank plans to convert from a mutual to
capital stock form of ownership. As a stock institution and as a result of
the public offering of the stock of the holding company intended to be formed
by the Bank, the Bank will be subject to the financial reporting requirements
of the Securities Exchange Act of 1934, as amended. Accordingly, in
connection with the conversion, the Bank has implemented procedures to meet
the increased level of reporting required. The procedures include methods to
accumulate and analyze, consistently with past practice, information necessary
for reporting in an efficient and timely
59
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Business (Continued)
--------
manner. These procedures relate principally to the analysis of the adequacy
of the allowance for loan losses.
Cash Equivalents
- ----------------
Cash equivalents include cash and demand and time deposits at other financial
institutions with remaining maturities of three months or less.
Investment Securities
- ---------------------
In accordance with Statement of Financial Accounting Standards No. (SFAS) 115,
Accounting for Certain Investments in Debt and Equity Securities, which the
Bank adopted effective January 1, 1994, the Bank is required to report debt,
readily-marketable equity, mortgage-backed and mortgage related securities in
one of the following categories: (i) "held-to-maturity" (management has a
positive intent and ability to hold to maturity) which are to be reported at
amortized cost adjusted, in the case of debt securities, for the amortization
of premiums and accretion of discounts; (ii) "trading" (held for current
resale) which are to be reported at fair value, with unrealized gains and
losses included in earnings; and (iii) "available for-sale" (all other debt,
equity, mortgage-backed and mortgage related securities) which are to be
reported at fair value, with unrealized gains and losses reported net of tax
as a separate component of equity. The Bank classified all of its holdings of
debt, readily-marketable equity, mortgage-backed and mortgage related
securities at January 1, 1994 as either "held-to-maturity" or
"available-for-sale," thereafter, at the time of new securities purchases, a
determination is made as to the appropriate classification. Realized and
unrealized gains and losses on trading securities are included in net income.
Unrealized gains and losses on securities available-for-sale are recognized as
direct increases or decreases in equity, net of any tax effect. Cost of
securities sold is recognized using the specific identification method.
Mortgage-backed Securities Held at Maturity
- -------------------------------------------
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at the unpaid principal
balances, adjusted for unamortized premiums and unearned discounts. Premiums
and discounts are amortized using methods approximating the interest method
over the remaining period to contractual maturity, adjusted for anticipated
prepayments. Management intends and has the ability to hold such securities
to maturity. The Bank has classified all mortgage-backed securities in its
portfolio as held to maturity. Should any be sold, cost of securities sold is
determined using the specific identification method.
60
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Loans Receivable
----------------
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts. Unearned discounts
on installment loans are recognized as income over the term of the loans using
the interest method.
Loan origination and commitment fees, as well as certain origination costs,
are deferred and amortized as a yield adjustment over the lives of the related
loans adjusted for estimated prepayments based on the Bank's historical
prepayment experience, using the interest method. Loans are placed on
nonaccrual when a loan is specifically determined to be impaired or when
principal or interest is delinquent for 90 days or more. Any unpaid interest
previously accrued on these loans is reversed from income and an allowance for
accrued interest is recorded.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb losses inherent in the loan portfolio. The
amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense, and reduced by charge-offs, net of recoveries. Changes in
the allowance relating to impaired loans are charged or credited to the
provision for loan losses.
In May 1993, SFAS 114, Accounting by Creditors for Impairment of a Loan was
issued. The statement is effective for financial statements for fiscal years
beginning after December 15, 1994. According to SFAS 114, impairment is
measured based upon the present value of expected future cash flows or fair
value of the loan's collateral, if collateral dependent.
In October 1994, SFAS 118, Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures was issued. SFAS 118 is also
effective for fiscal years beginning after December 15, 1994 and amends SFAS
114 to allow a creditor to use existing methods for recognizing interest
income on an impaired loan. This statement also amends the disclosure
requirements of SFAS 114 to require information about the recorded investment
in certain impaired loans and about how a creditor recognizes interest income
related to those impaired loans. The Bank adopted SFAS 114 and SFAS 118 on
January 1, 1995. The adoption of SFAS 114 and SFAS 118 did not have a
significant effect on the Bank's consolidated financial statements.
61
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Loans Held for Sale
-------------------
Mortgage loans originated and held for sale in the secondary market are
carried at the lower of cost or market value determined on an aggregate basis.
Net unrealized losses are recognized in a valuation allowance through charges
to income. Gains and losses on the sale of loans held for sale are determined
using the specific identification method.
Real Estate Acquired in Settlement of Loans
- -------------------------------------------
Real estate acquired in settlement of loans includes property acquired through
foreclosure and deeds in lieu of foreclosure. Property acquired by deed in
lieu of foreclosure results when a borrower voluntarily transfers title to the
Bank in full settlement of the related debt in an attempt to avoid
foreclosure. Real estate acquired in settlement of loans is valued at the
date of acquisition and thereafter at the lower of fair value less costs to
sell or the Bank's net investment in the loan and subsequent improvements to
the property. Certain costs relating to holding the properties, and gains or
losses resulting from the disposition of properties are recognized in the
current period's operations.
Office Properties and Equipment
- -------------------------------
Depreciation and amortization are provided over the estimated useful lives of
the respective assets which range from 3 to 40 years. All office properties
and equipment are recorded at cost and are depreciated on the straight-line
method.
Income Taxes
- ------------
Under the asset and liability method of SFAS 109, Accounting for Income Taxes,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. To the extent that current available evidence about the future raises
doubt about the realization of a deferred tax asset, a valuation allowance
must be established. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
The Bank files a consolidated federal income and combined state franchise and
excise tax returns. Each of the members of the consolidated group accrues tax
expense on a separate entity basis.
Pension and Savings Plan
- ------------------------
The Bank has a noncontributory, defined benefit employee pension plan and a
401(k) savings plan covering substantially all employees upon attainment of
age 21 and completion of one year of service. The Bank contributes
actuarially determined amounts necessary to fund defined plan benefits of at
least the minimum amount required by the Employee Retirement Income Security
Act of 1974, as amended.
62
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Fair Values of Financial Instruments
------------------------------------
SFAS 107, Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or
not recognized in the consolidated balance sheets for which it is practicable
to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instruments. Fair value
estimates are made at a point in time, based on relevant market information
and information about the financial instrument. Accordingly, such estimates
involve uncertainties and matters of judgment and therefore cannot be
determined with precision. SFAS 107 excludes certain financial instruments
and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The following are the more significant methods and assumptions used by the
Bank in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the statement of
financial condition for cash and cash equivalents approximate those assets'
fair values, because they mature within 90 days or less and do not present
credit risk concerns.
Investment securities and mortgage-backed securities: Fair values for
investment securities and mortgage-backed securities are based on quoted
market prices, where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments.
Loans receivable: The fair values for loans receivable are estimated using
discounted cash flow analysis which considers future repricing dates and
estimated repayment dates, and further using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
Loan fair value estimates include judgments regarding future expected loss
experience and risk characteristics.
Loans held for sale: Fair value is based on investor commitments, or in the
absence of such commitments, on current investor yield requirements.
Accrued interest receivable: Fair value is estimated to approximate the
carrying amount because such amounts are expected to be received within 90
days or less and any credit concerns have been previously considered in the
carrying value.
63
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Fair Values of Financial Instruments (Continued)
------------------------------------
Deposits: The fair values disclosed for deposits with no stated maturity such
as demand deposits, interest-bearing checking accounts and passbook savings
accounts are, by definition, equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The fair values for
certificates of deposit and other fixed maturity time deposits are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on such type accounts to a schedule of aggregated contractual
maturities on such time deposits.
Accrued interest payable: The carrying amount will approximate fair value as
the majority of such interest will be paid within 90 days or less.
Commitments to extend credit: Commitments to extend credit were evaluated and
fair value was estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels
of interest rates and the committed rates.
Sale and Servicing of Mortgage Loans
- ------------------------------------
The Bank sells mortgage loans for cash proceeds equal to the principal amount
of the loans sold but with yield rates which reflect the current market rate.
Gain or loss is recorded at the time of sale in an amount reflecting the
difference between the contractual interest rates of the loans sold and the
current market rate. Certain loans are sold with the servicing retained by
the Bank. Servicing income is recognized as collected and is based on the
normal agency servicing fee as defined by GNMA, FNMA, or FHLMC. In May 1994,
SFAS 122, Accounting for Mortgage Servicing Rights was issued. SFAS 122 is
effective for fiscal years beginning after December 15, 1995, with earlier
adoption permitted. The statement amends SFAS 65, Accounting for Certain
Mortgage Banking Activities, to require that a mortgage banking enterprise
recognize, as separate assets, rights to service mortgage loans for others,
however acquired. For mortgage servicing rights that are created through the
origination of mortgage loans, and where the loans are subsequently sold or
securitized with servicing rights retained, the statement requires that the
total cost of the mortgage loans should be allocated to the mortgage servicing
rights and the loans based on their relative fair values. The statement also
requires the assessment of capitalized mortgage servicing rights for
impairment to be based on the current fair value of those rights and
recognized through a valuation allowance. The Bank adopted SFAS 122 effective
January 1, 1996, the impact of which was not material to its financial
statements.
64
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Sale and Servicing of Mortgage Loans (Continued)
------------------------------------
Fees earned for servicing loans are reported as income when the related
mortgage loan payments are collected. Mortgage servicing rights (MSRs) are
amortized, as a reduction to loan service fee income, using the interest
method over the estimated remaining life of the underlying mortgage loans.
MSR assets are carried at fair value and impairment, if any, is recognized
through a valuation allowance. The Bank primarily sells its mortgage loans on
a non-recourse basis.
Effect of New Accounting Pronouncements
- ---------------------------------------
In June 1996, the FASB issued SFAS 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities. This statement
supersedes SFAS 122, Accounting for Mortgage Servicing Rights. The statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. After a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished.
This statement requires that liabilities and derivatives incurred or obtained
by transferors as part of a transfer of financial assets be initially measured
at fair value, if practicable. It also requires that servicing assets and
other retained interests in the transferred assets be measured by allocating
the previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values at the date of the
transfer. This statement requires that servicing assets and liabilities be
subsequently measured by (a) amortization in proportion to and over the period
of estimated net servicing income or loss and (b) assessment for asset
impairment or increased obligation based on their fair values. This statement
requires that debtors reclassify financial assets pledged as collateral and
that secured parties recognize those assets and their obligation to return
them in certain circumstances in which the secured party has taken control of
those assets.
This statement requires that a liability be derecognized if and only if either
(a) the debtor pays the creditor and is relieved of its obligation for the
liability or (b) the debtor is legally released from being the primary obligor
under the liability either judicially or by the creditor. Therefore, a
liability is not considered extinguished by an in-substance defeasance.
This statement is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after January 1, 1998 as deferred
by SFAS 127, Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125, and is to be applied prospectively. The impact on the
financial statements for implementation of the statement is not expected to be
material.
65
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Effect of New Accounting Pronouncements (Continued)
---------------------------------------
In February 1997, the FASB issued SFAS 128, Earnings Per Share. The statement
establishes standards for computing and presenting earnings per share ("EPS")
and applies to entities with publicly-held common stock or potential common
stock. It replaces the presentation of primary EPS with a presentation of
basic EPS and requires the dual presentation of basic and diluted EPS on the
face of the income statement. This statement is effective for financial
statements issued for periods ending after December 15, 1997 including interim
periods; earlier applications not permitted. This statement requires
restatement of all prior period EPS data presented.
In February 1997, the FASB issued SFAS 129, Disclosure of Information about
Capital Structure. The statement establishes standards for disclosing
information about an entity's capital structure and applies to all entities.
This statement continues the previous requirements to disclose certain
information about an entity's capital structure found in Accounting Principles
Board ("APB") Opinions 10, Omnibus Opinion - 1966, and 15, Earnings Per Share,
and SFAS 47, Disclosure of Long-Term Obligations, for entities that were
subject to those standards. This statement is effective for financial
statements for periods ending after December 15, 1997. This statement
contains no change in disclosure requirements for entities that were
previously subject to the requirements of APB Opinions 10 and 15 and SFAS 47.
The adoption of the provisions of this statement is not expected to have a
material impact on the Bank.
In July 1997, the FASB issued SFAS 130, Comprehensive Income. The statement
establishes standards for reporting and presentation of comprehensive income
and its components (revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. It requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is presented
with the same prominence as other financial statements. This statement
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
This statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided
for comprehensive purposes is required.
66
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
Effect of New Accounting Pronouncements (Continued)
---------------------------------------
In June 1997, the FASB issued SFAS 131, Disclosure about Segments of an
Enterprise and Related Information. The statement establishes standards for
disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. This statement supersedes SFAS 14, Financial
Reporting for Segments of a Business Enterprise. This statement becomes
effective for the Bank's fiscal year ending December 31, 1998, and requires
that comparative information from earlier years be restated to conform to its
requirements. The adoption of the provisions of this statement is not
expected to have a material impact on the Bank.
Reclassification
- ----------------
Certain amounts in the December 31, 1995 consolidated financial statements
have been reclassified to conform with December 31, 1997 and 1996 consolidated
financial statement presentation.
(2) Cash:
----
The Bank is required to maintain cash on hand or in the Federal Reserve Bank
account for various regulatory purposes. During 1997 and 1996, such required
cash averaged approximately $2,100,000 and $2,000,000, respectively.
The Bank had $139,000 on deposit with another financial institution, of which
$39,000 was not insured by the Federal Deposit Insurance Corporation.
(3) Investment Securities Held to Maturity and Investment Securities
Available-for-Sale:
----------------------------------------------------------------
The amortized cost and estimated fair values of investment securities held to
maturity and available-for-sale at December 31, 1997 and 1996, are as follows:
Investment securities held to maturity:
December 31, 1997
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury securities
and obligations of U.S.
Government agencies $ 1,700 1 1 1,700
======== ===== ===== =====
67
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(3) Investment Securities Held to Maturity and Available-for-Sale: (Continued)
-------------------------------------------------------------
Investment securities held to maturity: (Continued)
December 31, 1996
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury securities
and obligations of U.S.
Government agencies $ 7,705 12 15 7,702
======== ===== ===== =====
Investment securities available-for-sale:
December 31, 1997
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury securities
and obligations of U.S.
Government agencies $10,085 - 8 10,077
======= ===== ==== ======
The amortized cost and estimated fair value of investment securities held to
maturity and available-for-sale at December 31, 1997, by contractual maturity,
are shown below.
Investment securities held to maturity:
Estimated
Amortized Fair
Cost Value
---- -----
U.S. Treasury securities and obligations
of U.S. Government agencies:
Maturing within one year $ 1,000 1,002
Maturing from one to five years 700 698
------- -----
$ 1,700 1,700
======= =====
68
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(3) Investment Securities Held to Maturity and Available-for-Sale: (Continued)
-------------------------------------------------------------
Investment securities available-for-sale:
Estimated
Amortized Fair
Cost Value
---- -----
U.S. Treasury securities and obligations
of U.S. Government agencies:
Maturing within one year $ 8,063 8,057
Maturing from one to five years 2,022 2,020
------- ------
$10,085 10,077
======= ======
The amortized cost and estimated fair value of investment securities held to
maturity at December 31, 1996, by contractual maturity, are shown below.
Estimated
Amortized Fair
Cost Value
---- -----
U.S. Treasury securities and obligations
of U.S. Government agencies:
Maturing within one year $6,004 6,011
Maturing from one to five years 1,701 1,691
------ -----
$7,705 7,702
====== =====
At December 31, 1997 and 1996, investment securities with amortized cost
values of $2,027,000 and $2,000,000, respectively, were pledged as collateral
as permitted or required by law.
There were no sales of investment securities available-for-sale in the years
ended December 31, 1997, 1996, and 1995.
(4) Mortgage-backed Securities Held to Maturity:
-------------------------------------------
The amortized cost and estimated fair values of mortgage-backed securities
held to maturity at December 31, 1997 and 1996, are as follows:
December 31, 1997
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Mortgage-backed securities:
FHLMC $ 420 6 - 426
FNMA 881 9 4 886
------ ---- ---- -----
Total mortgage-backed
securities held to
maturity $ 1,301 15 4 1,312
======= ==== ==== =====
69
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(4) Mortgage-backed Securities Held to Maturity: (Continued)
-------------------------------------------
December 31, 1996
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Mortgage-backed securities:
FHLMC $ 459 3 2 460
FNMA 960 4 7 957
------ ---- ---- -----
Total mortgage-backed
securities held to
maturity $1,419 7 9 1,417
====== ==== ==== =====
There were no sales of mortgage-backed securities held to maturity in the
years ended December 31, 1997, 1996, and 1995.
(5) Loans Held-for-Sale, Net and Loans Receivable, Net:
--------------------------------------------------
Loans held for sale, net are summarized as follows:
1997 1996
---- ----
One-to-four family loans $4,855 5,253
------ -----
Total loans held for sale, net $4,855 5,253
====== =====
The Bank originates most fixed rate loans for immediate sale to the Federal
Home Loan Mortgage Corporation (FHLMC) or other investors. Generally, the
sale of such loans is arranged at the time the loan application is received
through commitments.
Loans receivable at December 31, 1997 and 1996, consisted of the following:
1997 1996
---- ----
Loans secured by first mortgages on real estate:
One-to-four family $ 82,930 81,279
Multi-family 1,338 2,847
Land 17,011 18,799
Commercial real estate 39,690 30,099
Construction and development 54,666 61,032
-------- --------
Total first mortgage loans 195,635 194,056
Second mortgage loans 2,783 1,964
Commercial loans 22,544 20,698
Consumer loans 30,564 28,533
-------- --------
251,526 245,251
70
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(5) Loans Held-for-Sale, Net and Loans Receivable, Net: (Continued)
--------------------------------------------------
Loans receivable at December 31, 1997 and 1996: (Continued)
Less:
Loans in process 30,178 36,573
Allowance for loan losses 2,804 2,123
Deferred loan fees, net 710 702
Loans held for sale 4,855 5,253
-------- --------
Loans receivable, net $212,979 200,600
======== ========
Loans are presented net of loans serviced for the benefit of others totaling
approximately $116.0 million, $123.3 million and $132.8 million at December
31, 1997, 1996 and 1995, respectively. Servicing loans for others generally
consists of collecting mortgage payments, maintaining escrow amounts,
disbursing payments to investors and foreclosure processing.
Impaired loans and related allowances for loan losses have been identified and
calculated in accordance with the provisions of SFAS 114. The total allowance
for loan losses has been determined in accordance with the provisions of SFAS
5, Accounting for Contingencies. As such, the Bank has provided amounts for
anticipated losses that exceed the immediately identified losses associated
with loans that have been deemed impaired. Provisions have been made and
established accordingly, based upon experience and expectations, for losses
associated with the general population of loans, specific industry and loan
types, including residential and consumer loans which are not subject to the
provisions of SFAS 114.
No loans were considered impaired at December 31, 1997 and 1996.
Activity in the allowance for loan losses, consisted of the following:
1997 1996 1995
---- ---- ----
Balance at beginning of period $2,123 1,997 1,776
Provision for loan losses 700 120 80
Recoveries 30 218 192
Charge-offs (49) (212) (51)
------ ----- -----
Balance at end of period $2,804 2,123 1,997
====== ===== =====
Nonaccrual loans totaled approximately $150,000 and $51,000 at December 31,
1997 and 1996, respectively. Interest income foregone on such loans was
approximately $9,500, $10,300 and $21,100 during the years ended December 31,
1997, 1996 and 1995, respectively. The Bank is not committed to lend
additional funds to borrowers whose loans have been placed on a nonaccrual
basis.
71
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(5) Loans Held-for-Sale, Net and Loans Receivable, Net: (Continued)
--------------------------------------------------
Loans in arrears three months or more were as follows:
Amount % of loans
------ ----------
December 31, 1997 $ 98 0.05%
===== ====
December 31, 1996 $ 25 0.01%
===== ====
The Bank's policy is to make consumer and mortgage loans to directors,
officers, and employees pursuant to board of directors' approval.
The following summarizes the activity of these loans:
1997 1996
---- ----
Balance at beginning of period $542 104
New loans 738 645
Principal repayments (819) (207)
---- ----
Balance at end of period $461 542
==== ====
In the opinion of management, such loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other borrowers and did not involve more
than the normal risk of collectibility or present other unfavorable features.
(6) Office Properties and Equipment, Net:
------------------------------------
Office properties and equipment, less accumulated depreciation and
amortization, consisted of the following at December 31, 1997 and 1996:
1997 1996
---- ----
Land $ 2,525 2,088
Office buildings 4,190 3,363
Furniture, fixtures, and equipment 5,918 4,422
Leasehold improvements 224 150
Automobiles 107 96
Construction in process 1 8
------- ------
12,965 10,127
Less accumulated depreciation and amortization 4,893 3,924
------- ------
Office properties and equipment, net $ 8,072 6,203
======= ======
72
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(7) Required Investment in Stock of Federal Home Loan Bank:
------------------------------------------------------
The Bank is a member of the Federal Home Loan Bank (FHLB). As a member of
this system, the Bank is required to maintain an investment in capital stock
of the Federal Home Loan Bank of Cincinnati in an amount equal to the greater
of 1% of residential mortgage loans and mortgage-backed securities, or .3% of
total assets of the Bank. At December 31, 1997, no additional investments are
required. No ready market exists for the stock, and it has no quoted market
value, but may be redeemed for face value by the FHLB if the Bank withdraws
its membership. Accordingly, this investment is carried at the Bank's
historical cost.
(8) Mortgage Servicing Rights:
--------------------------
An analysis of the activity for originated mortgage servicing rights is as
follows:
Balance of adoption of Statement of
SFAS 122 on January 1, 1996 $ -
Originations 29
Amortization (6)
------
Balance, December 31, 1996 23
Originations 257
Amortization (68)
------
Balance, December 31, 1997 $ 212
======
(9) Deposits:
---------
Savings, demand, and time deposit account balances are summarized as follows:
December 31, 1997
---------------------------------
Weighted
Type of Account Average Rate Amount
--------------- ------------ ------
Personal accounts -- % $ 25,851
NOW accounts 1.67 31,553
Savings accounts 1.99 15,239
Certificates of deposit 5.30 132,881
Money market accounts 4.19 42,743
--------
$248,267
========
73
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(9) Deposits: (Continued)
---------
Savings, demand, and time deposit account balances: (Continued)
December 31, 1996
--------------------------------
Weighted
Type of Account Average Rate Amount
--------------- ------------ ------
Personal accounts -- % $ 19,844
NOW accounts 1.69 27,735
Savings accounts 1.99 15,806
Certificates of deposit 5.38 122,649
Money market accounts 4.32 28,499
--------
$214,533
========
Scheduled maturities of certificates of deposit are as follows:
December 31, 1997
--------------------------------------
Weighted
Type of Account Average Rate Amount Percent
--------------- ------------ ------ -------
1 year or less 5.48% $109,481 82.39%
Greater than 1 year through 2 years 5.63 16,538 12.45
Greater than 2 years through 3 years 6.17 2,654 2.00
Greater than 3 years through 4 years 5.57 816 0.61
Greater than 4 years through 5 years 5.88 3,392 2.55
-------- ------
$132,881 100.00%
======== ======
December 31, 1996
--------------------------------------
Weighted
Type of Account Average Rate Amount Percent
--------------- ------------ ------ -------
1 year or less 3.77% $ 92,104 75.10%
Greater than 1 year through 2 years 5.58 22,487 18.33
Greater than 2 years through 3 years 5.82 4,902 4.00
Greater than 3 years through 4 years 6.06 3,153 2.57
Greater than 4 years through 5 years 6.24 3 --
-------- ------
$122,649 100.00%
======== ======
74
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(9) Deposits: (Continued)
---------
Certificates of deposit in excess of $100,000 were approximately $28.9 million
and $20.9 million at December 31, 1997 and 1996, respectively.
The FDIC insures deposits of account holders up to $100,000 per insured
depositor. To provide for this insurance, the Bank must pay a risk-based
annual assessment which considers the financial soundness of the institution
and capitalization level (note 17). At December 31, 1997, the Bank was
assessed at the FDIC's lowest assessment level, as a well capitalized
institution.
Interest expense on deposit balances for the years ended is summarized as
follows:
1997 1996 1995
---- ---- ----
Savings accounts $ 302 350 399
Money market and NOW accounts 1,955 1,595 1,145
Certificates of deposit 7,032 6,287 6,096
------ ------ ------
$9,289 8,232 7,640
====== ====== ======
(10) Advance from the Federal Home Loan Bank:
----------------------------------------
As of December 31, 1997 and 1996, no funds are owed to the Federal Home Loan
Bank of Cincinnati (FHLB). Available advances were $12,100,000 and
$10,000,000 at December 31, 1997 and 1996, respectively, and are secured by a
blanket agreement to maintain residential first mortgage loans with a
principal value of 150% of the outstanding advances and has a variable
interest rate.
By pledging additional residential first mortgage loans, the Bank can increase
its borrowings from the FHLB to $47,622,000 at December 31, 1997.
(11) Income Taxes:
-------------
The components of income tax expense (benefit) are as follows:
1997 1996 1995
---- ---- ----
Current income tax expense:
Federal $1,991 1,775 1,541
State 333 210 210
------ ----- -----
Total current income tax
expense 2,324 1,985 1,751
------ ----- -----
Deferred income tax expense (benefit):
Federal (392) (215) (35)
State (21) (16) (5)
------ ----- -----
Total deferred income tax
benefit (413) (231) (40)
------ ----- -----
Income tax expense $1,911 1,754 1,711
====== ===== =====
75
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(11) Income Taxes: (Continued)
-------------
The following table presents a reconciliation of the provision for income
taxes as shown in the consolidated statements of earnings with that which
would be computed by applying the statutory federal income tax rate of 34% to
earnings before income taxes.
1997 1996 1995
------------- ----------- -----------
Tax expense at statutory rates $1,738 34.0% 1,553 34.0 1,670 34.0
Increases (decrease) in taxes
resulting from:
State income tax, net of
federal effect 206 4.0 128 2.8 136 2.8
Other, net (33) (.6) 73 1.6 (95) (2.0)
------ ----- ------ ----- ------ -----
Total income tax expense $1,911 37.4% 1,754 38.4 1,711 34.8
====== ===== ====== ===== ====== =====
During 1996, legislation was passed which repealed the percentage of taxable
income reserve method of accounting for bad debts being utilized by the Bank,
effective for tax years beginning after 1995. The new law required that,
prospectively, the Bank account for bad debts utilizing the experience reserve
method beginning in tax year 1996.
The law also required that the Bank would be taxed on "applicable excess
reserves" which is determined by calculating the difference between the
balance of reserves as of the tax year ended 1995 and pre-1988 reserves.
These "applicable excess reserves" will be taxed over a six-taxable year
period beginning in 1996 unless a residential loan requirement is met. If the
residential loan requirement is met in 1996 and 1997, the payment of the tax
will commence in 1998. The Bank met the requirement in 1997 and 1996.
The Bank's computed "applicable excess reserves" totaled $1,956,670 and, based
on an effective tax rate of 34%, would render additional tax of $665,268.
This computed tax is recorded as income taxes payable as of December 31, 1997
and 1996.
The tax effects of temporary differences that give rise to the significant
portions of deferred tax asset and liabilities at December 31, 1997 and 1996,
are as follows:
76
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(11) Income Taxes: (Continued)
-------------
1997 1996
---- ----
Deferred tax assets:
Loans receivable, allowance for loan losses $1,065 806
Deferred loan fees 266 266
Office properties and equipment 201 --
Other 40 20
------ ----
Total deferred tax asset 1,572 1,092
------ ----
Deferred tax liabilities:
FHLB stock 317 275
Other 87 62
------ ----
Total deferred tax liability 404 337
------ ----
Net deferred tax asset $1,168 755
====== ====
SFAS 109, Accounting for Income Taxes, requires that the tax benefit of
deductible temporary differences be recorded as an asset to the extent that
management assesses the utilization of such temporary differences to be "more
likely than not." In accordance with SFAS 109, the realization of tax
benefits of deductible temporary differences depends on whether the Bank has
sufficient taxable income within the carryback and carryforward period
permitted by tax law to allow for utilization of the deductible amounts.
Taxable income in the carryback period and estimates of taxable income in the
carryforward period were expected to be sufficient to utilize such
differences. As such, no valuation allowance was established at December 31,
1997 or 1996.
(12) Pension Plan:
-------------
The Bank sponsors a defined benefit pension plan and a 401(k) savings plan to
provide employees income at retirement. All employees of the Bank are
eligible to participate in both plans upon attainment of age 21 and completion
of one year of service. Both plans are administered by a pension committee
appointed by the Board of Directors of the Bank.
Under the defined benefit pension plan, the Bank contributes actuarially
determined amounts necessary to fund plan benefits of at least the minimum
amount required by the Employee Retirement Income Security Act of 1974, as
amended. No contributions are required or allowed by employees.
77
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(12) Pension Plan: (Continued)
-------------
Net pension expense included the following components for the years ended
December 31, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Service cost for benefits earned during the
period $167 151 111
Interest cost on projected benefit obligation 121 104 86
Actual net return on plan assets (170) (84) (169)
Net amortization and deferrals 66 (1) 99
---- --- ---
Net periodic pension expense before plan
curtailment 184 170 127
Loss due to plan curtailment 36 -- --
Minimum liability adjustment 348 -- --
---- --- ---
Net periodic pension expense $568 170 127
==== === ===
The following table sets forth the defined benefit pension plan's funded
status and amounts recognized in the Bank's consolidated balance sheets for
December 31, 1997 and 1996.
1997 1996
---- ----
Plan assets at fair value, primarily bonds $1,726 1,312
====== =====
Actuarial present value of benefit for service
rendered to date:
Accumulated benefit obligation, including vested
benefits of $1,905,036 and $714,198, respectively $1,905 812
Additional benefits based on projected future
compensation -- 832
------ -----
Projected benefit obligation $1,905 1,644
====== =====
Plan assets less than projected benefit obligation $ (179) (332)
Unrecognized prior service cost -- 39
Unrecognized net loss from past experience,
different from that assumed and effects of changes
in assumptions 447 521
Unrecognized net transition asset at January 1, 1989 (99) (109)
Minimum liability adjustment (348) --
------ -----
(Accrued) prepaid pension expense $ (179) 119
====== =====
78
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(12) Pension Plan: (Continued)
-------------
The weighted average discount rate used in determining the actuarial present
value was 7.25% and 7% for the years ended December 31, 1997 and 1996,
respectively. The rate of increase in future compensation levels used in
determining the actuarial present value was 5% for the year ended December 31,
1996. The expected long-term rate of return on plan assets was 8% in 1997 and
1996.
On October 9, 1997, the Board of Directors of the Bank elected to terminate
the defined benefit pension plan, effective December 31, 1997. The
termination of the plan resulted in the Bank realizing a pre-tax curtailment
loss of $36,000 and a minimum liability adjustment of $348,000 during the last
quarter of 1997.
On January 1, 1993, management adopted the 401(k) savings plan (the Plan) for
employees of the Bank. Employees may enter the plan on January 1 or July 1,
whichever occurs first, after completion of eligibility requirements.
Management has contributed 2% of employees' earnings to the Plan on the
employees' behalf. Employees are allowed to contribute up to 15% of earnings
and, in addition, management will match employee contributions up to 3%. The
expense incurred by the Plan for the years ended December 31, 1997, 1996 and
1995 was $90,549, $142,584 and $141,523, respectively.
(13) Retained Earnings:
------------------
The Bank has been allowed a special bad debt deduction for Federal income tax
purposes, limited generally to 8% of otherwise taxable income and subject to
certain limitations based on aggregate loans and savings account balances at
the end of the year. The Bank could use each year for Federal income tax
purposes the greater of this percentage deduction or actual charge-offs of
loans. If the amounts that qualify as deductions under the percentage method
for Federal income tax purposes are later used for purposes other than for bad
debt losses, they would be subject to Federal income tax at the then current
corporate rate. During 1996, legislation was passed prohibiting the
utilization of percentage of taxable income reserve method (see note 11).
Retained earnings at December 31, 1997 and 1996, include approximately
$2,800,000, for which Federal income tax has not been provided.
(14) Regulatory Matters:
-------------------
The amounts for retained earnings and net earnings reported to the Office of
Thrift Supervision (OTS) agree to the amounts per the accompanying
consolidated financial statements at December 31, 1997 and 1996, and for the
years then ended.
79
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(14) Regulatory Matters: (Continued)
-------------------
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established a capital based supervisory system of Prompt Corrective Action
(PCA) for all insured depository institutions. The regulations adopted
pursuant to FDICIA and effective December 19, 1992, established capital
categories that determine the degree of supervisory PCA to which a depository
institution could be subjected. The categories consist of "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
and "critically undercapitalized". An institution is deemed to be "well
capitalized" if (a) its risk-based capital ratio is 10% or greater, (b) its
Tier 1 risk-based capital ratio is 6% or greater, and (c) its leverage ratio
is 5% or greater. At December 31, 1997, the Bank was "well-capitalized."
When an insured depository institution's capital ratios fall below the
"well-capitalized" level it becomes subject to a series of increasingly
restrictive supervisory actions, to the point where a conservator or receiver
must be designated for a "critically undercapitalized" institution unless
certain certifications are made by the appropriate regulatory agencies. An
institution is deemed to be "critically undercapitalized" if its ratio of Tier
1 capital to total assets is 2% or less.
The following table presents the Bank's retained earnings (equity capital) and
regulatory capital ratios as of December 31, 1997 and December 31, 1996:
December 31, 1997
---------------------------------------------------------
Tier 1 Total
Core 1 risk- risk-
Equity Tangible Tangible leverage based based
capital capital equity capital capital capital
------- ------- ------ ------- ------- -------
Equity capital $ 30,447 30,447 30,447 30,447 30,447 30,447
Nonincludable
subsidiaries -- -- -- -- -- --
Unrealized loss on
investment
securities
available-for-
sale -- 5 5 5 5 5
General valuation
allowances -- -- -- -- -- 2,804
-------- ------- ------- ------- ------- -------
Regulatory capital
measure $ 30,447 30,452 30,452 30,452 30,452 33,256
======== ======= ======= ======= ======= =======
Total assets $282,129
========
Adjusted total
assets $282,129 279,985 279,985
======== ======== ========
Risk-weighted assets $245,482 245,482
======== ========
Capital ratio 10.79% 10.79% 10.88% 10.88% 12.40% 13.55%
====== ====== ====== ====== ====== ======
80
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(14) Regulatory Matters: (Continued)
-------------------
December 31, 1996
---------------------------------------------------------
Tier 1 Total
Core 1 risk- risk-
Equity Tangible Tangible leverage based based
capital capital equity capital capital capital
------- ------- ------ ------- ------- -------
Equity capital $ 27,250 27,250 27,250 27,250 27,250 27,250
Nonincludable
subsidiaries -- (2) (2) (2) (2) (4)
General valuation
allowances -- -- -- -- -- 2,123
-------- ------- ------- -------- -------- ------
Regulatory capital
measure $ 27,250 27,248 27,248 27,248 27,248 29,369
======== ======== ======= ======== ======== ======
Total assets $244,964
========
Adjusted total assets $244,962 242,748 242,748
======== ======== ========
Risk-weighted assets $227,556 227,748
======== =======
Capital ratio 11.12% 11.12% 11.22% 11.22% 11.97% 12.91%
===== ===== ===== ===== ===== =====
The Bank's management believes that at December 31, 1997, that the Bank meets
all capital requirements to which it is subject.
(15) Financial Instruments with Off-Balance-Sheet Risk:
--------------------------------------------------
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit,
and financial guarantees. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized
in the consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Bank has in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit and financial guarantees written is represented by the
contractual notional amount of those instruments. The Bank uses the same
credit policies in making these commitments and conditional obligations as it
does for on-balance-sheet instruments.
At December 31, 1997 and 1996, unused lines of credit were approximately
$25,287,000 and $16,770,000, respectively, with the majority having terms of
one year for commercial and two to five years for consumer; outstanding letter
of credit balances were approximately $7,345,000 and $8,804,000, respectively;
and commitments to originate or purchase loans
81
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(15) Financial Instruments with Off-Balance-Sheet Risk: (Continued)
--------------------------------------------------
were approximately $42,270,000 and $44,715,000, respectively. The commitments
to originate loans at December 31, 1997 were composed of variable rate loans
of approximately $41,981,000 and fixed rate loans of approximately $289,000.
The fixed rate loans had interest rates ranging from 5.125% to 8.50%. The
commitments to originate loans at December 31, 1996 were composed of variable
rate loans of approximately $36,850,000 and fixed rate loans of approximately
$7,865,000. The fixed rate loans had interest rates ranging from 7.92% to
9.33%.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based
on management's credit evaluation of the counter-party. Collateral held
varies but may include property, plant, and equipment and income-producing
commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond financing,
and similar transactions. Most guarantees extend from one to two years. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
(16) Fair Value of Financial Instruments:
------------------------------------
Information about the fair value of the financial instruments in the
consolidated balance sheets, which should be read in conjunction with note 1
and certain other notes to the consolidated financial statements presented
elsewhere herein, is set forth as follows :
1997 1996
------------------- --------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets:
Cash and cash equivalents $37,658 37,658 19,519 19,519
Investment securities available-
for-sale 10,077 10,077 -- --
Investment securities held to
maturity 1,700 1,700 7,705 7,702
Mortgage-backed securities held
to maturity 1,301 1,312 1,419 1,417
82
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(16) Fair Value of Financial Instruments: (Continued)
------------------------------------
1997 1996
------------------- --------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Financial assets: (Continued)
Loans receivable, net 212,979 215,759 200,600 202,792
Loans available for sale 4,855 4,855 5,253 5,253
Accrued interest receivable 1,724 1,724 1,446 1,446
Required investment in stock of
the Federal Home Loan Bank 1,631 1,631 1,519 1,519
Financial liabilities:
Deposits with no stated maturity 115,386 115,386 91,884 91,884
Certificates of deposits 132,881 133,549 122,649 112,808
Off-balance sheet assets
(liabilities):
Unused lines of credit -- --
Standby letters of credit -- --
Commitments to extend credit -- --
(17) Federal Insurance Premiums:
---------------------------
During 1996, all Savings Association Insurance Fund (SAIF) members were
required to pay a one-time special assessment to the FDIC on SAIF-assessable
deposits to capitalize the SAIF at its target Designated Reserve Ratio of
1.25% of insured deposits effective October 1, 1996. The assessment was
required to be applied against SAIF-assessable deposits as of March 31, 1995
with an assessment rate of 67.5 basis points. The expense incurred by the
Bank for the years ended December 31, 1997, 1996 and 1995 was $111,603,
$1,653,727 and $417,731, respectively.
Commitments and Contingencies:
- ------------------------------
In the normal course of the Bank's business, there are outstanding various
commitments and contingent liabilities that have not been reflected in the
consolidated statements. In the opinion of management, the financial position
of the Bank will not be affected materially as a result of such commitments
and contingent liabilities.
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, after consultation with legal
counsel, the financial position of the Bank will not be affected materially by
the outcome of such legal proceedings.
83
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(18) Commitments and Contingencies: (Continued)
------------------------------
The Bank's profitability depends to a large extent on its net interest income,
which is the difference between interest income on loans and investments and
interest expense on deposits. Like most financial institutions, the Bank's
interest income and interest expense are significantly affected by changes in
market interest rates and other economic factors beyond its control. The
Bank's interest earning assets consist primarily of mortgage loans and
investments which adjust more slowly to changes in interest rates than its
interest-bearing deposits. Accordingly, the Bank's earnings would be
adversely affected during periods of rising interest rates.
(19) Conversion to Capital Stock Form of Ownership:
----------------------------------------------
On August 7, 1997, the Board of Directors of the Bank adopted a Plan of
Conversion (Plan), to convert from a federally chartered mutual savings bank
to a federally chartered capital stock savings bank with the concurrent
formation of a holding company, Cavalry Bancorp, Inc. (Company), subject to
the approval by regulatory authorities and depositors of the Bank. The
conversion is expected to be accomplished through amendment of the Bank's
state charter and the sale of the holding company's common stock in an amount
equal to the consolidated pro forma market value of the holding company and
the Bank after giving effect to the conversion. A subscription offering of
the shares of common stock will be offered initially to eligible account
holders, employee benefit plans of the Bank, supplemental eligible account
holders and other members of the Bank. Any shares of common stock not sold in
the offering are expected to be sold to the general public in a community
offering.
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its capital as of the date of the latest consolidated
statement of financial condition appearing in the final prospectus. The
liquidation account will be maintained for the benefit of eligible account
holders who continue to maintain their accounts at the Bank after the
conversion. The liquidation account will be reduced annually to the extent
that eligible account holders have reduced their qualifying deposits as of
each anniversary date. Subsequent increases will not restore an eligible
account holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible account holder will be entitled to receive
balances for accounts then held.
Subsequent to the conversion, the Bank may not declare or pay cash dividends
on or repurchase any of its shares of common stock if the effect thereof would
cause stockholder's equity to be reduced below applicable regulatory capital
maintenance requirements or if such declaration and payment would otherwise
violate regulatory requirements.
84
<PAGE>
<PAGE>
Cavalry Banking and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
December 31, 1997, 1996 and 1995
(Table Amounts in Thousands)
(19) Conversion to Capital Stock Form of Ownership: (Continued)
----------------------------------------------
Conversion costs will be deferred and reduce the proceeds from the shares sold
in conversion. If the conversion is not completed, all costs will be charged
as expense. As of December 31, 1997, conversion costs of $191,773 have been
incurred.
(20) Subsequent Event (Unaudited)
----------------
On March 16, 1998, Cavalry Bancorp, Inc. completed its initial common stock
offering with the issuance of 7,538,250 shares at $10.00 per share.
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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- ------------------------------------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The Board of Directors of the Company is presently composed of nine
members, who are elected for terms of three years, one-third of whom are
elected annually in accordance with the Bylaws of the Company. The executive
officers of the Company are elected annually by the Board of Directors and
serve at the Board's discretion. The following table sets forth information
with respect to the Directors and executive officers of the Company. Each
Director of the Company is also a Director of the Bank.
Age at Current
December Director Term
Name 31, 1997 Since (1) Expires
---- -------- --------- -------
William H. Huddleston, III 68 1967 2000
Gary Brown 55 1984 2000
Ed C. Loughry, Jr. 55 1982 1998
Ronald F. Knight 47 1990 1999
Frank E. Crosslin, Jr. 61 1985 1998
Tim J. Durham 44 1986 1999
Ed Elam 57 1977 1999
James C. Cope 48 1992 1998
Terry G. Haynes 40 1997 2000
------------
(1) Includes prior service on Board of Directors of the Bank.
Executive Officers of the Company and the Bank
Age at Position
December --------------------------------------------
Name 31, 1997 Company Bank
- ---- -------- ------- ----
William H.
Huddleston, III 68 Chairman of the Board Chairman of the Board
Gary Brown 55 Vice Chairman of the Vice Chairman of the
Board Board
Ed C. Loughry, Jr. 55 President and Chief President and Chief
Executive Officer Executive Officer
Ronald F. Knight 47 Executive Vice Executive Vice President
President and Chief and Chief Operating
Operating Officer Officer
Hillard C. "Bud"
Gardner 49 Senior Vice President Senior Vice President and
and Chief Financial Chief Financial Officer
Officer
(table continued on following page)
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Age at Position
December --------------------------------------------
Name 31, 1997 Company Bank
- ---- -------- ------- ----
William S. Jones 37 Senior Vice President Senior Vice President
and Trust Officer/
Investor Relations
Ira B. Lewis, Jr. 51 Vice President/CRA Vice President/CRA
Compliance Officer Compliance Officer
and Secretary and Secretary
R. Dale Floyd 47 -- Senior Vice President
M. Glenn Layne 43 -- Vice President
Joy B. Jobe 53 -- Vice President
Biographical Information
Set forth below is certain information regarding the Directors and
executive officers of the Company and the Bank. Unless otherwise stated, each
Director and executive officer has held his current occupation for the last
five years. There are no family relationships among or between the Directors
or executive officers.
William H. Huddleston, III is a Civil Engineer and has been a part-time
employee of Huddleston-Steele Engineering, Inc., an engineering company,
Murfreesboro, Tennessee, since 1994. Prior to that time, Mr. Huddleston was
President and Chief Executive Officer of Huddleston Engineering, Inc. from
1955 until 1993. Mr. Huddleston is Chairman of the Public Building Authority
of Rutherford County and is a director of the Christy/Houston Foundation.
Gary Brown is the owner and manager of Roscoe Brown, Inc., a heating and
air conditioning company, Murfreesboro, Tennessee. Mr. Brown is a member of
the Murfreesboro Water Sewer Department Board, the Electrical Examining Board
and the Middle Tennessee State University Foundation Board.
Ed C. Loughry, Jr. joined the Bank in 1968 and has served as President
and Chief Executive Officer of the Bank since 1982. Mr. Loughry has served on
the Boards of Directors of the Rutherford County Chamber of Commerce, United
Way and Heart Fund, and currently serves as a director of the FHLB of
Cincinnati, Tennessee Bankers Association, Rutherford County 20/20 and the
Murfreesboro Conference Center Authority. He was selected Business Person of
the Year in 1993 by the Chamber of Commerce.
Ronald F. Knight joined the Bank in 1972 and has served as Executive
Vice President and Chief Operating Officer since 1982. Mr. Knight serves on
the Board of Directors of the Rutherford County Chamber of Commerce, the
Tennessee Housing Development Agency, and is a committee member of the United
Way and is co-founder of a local charity, "Christmas For The Children." Mr.
Knight has also served as a director of the Tennessee Bankers Association.
Frank E. Crosslin, Jr. is President and Chairman of the Board of
Crosslin Supply Company, Inc., a building supply company, Smyrna, Tennessee.
Mr. Crosslin is a member of the Rutherford County Industrial Bond Board, the
Public Building Authority of Rutherford County and the Smyrna Economic
Development Board. Mr. Crosslin is also a past director of the Tennessee
Housing Development Agency.
Tim J. Durham is the owner of Durham Realty & Auction, Inc., a real
estate and auction service company, Murfreesboro, Tennessee. Mr. Durham is
also a partner in D&H Development Co., commercial and residential developers.
He is a member of the Murfreesboro Water and Sewer Board. He served on the
Murfreesboro Planning
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Commission for eight years and is a former member of the Board of Zoning
Appeals. Mr. Durham is past President and Director of the Rutherford County
Board of Realtors.
Ed Elam is the Rutherford County Clerk, Murfreesboro, Tennessee, a
position he has held since 1973. Mr. Elam is a member of the Christy/Houston
Foundation Board and the Evergreen Cemetery Board.
James C. Cope is a partner in the law firm, Murfree, Cope, Hudson &
Scarlett, Murfreesboro, Tennessee. Mr. Cope serves as attorney for Rutherford
County, Tennessee, Middle Tennessee Electric Membership Corporation, the
Murfreesboro Housing Authority, the Smyrna/Rutherford County Airport Authority
and otherwise engages in a general civil practice of law. He was past
President of the Middle Tennessee State University Foundation and the
Murfreesboro Rotary Club.
Terry G. Haynes is the Chief Executive Officer, General Manager and
Chief Operating Officer of Haynes Bros. Lumber Co., a retail building supply
dealer located in Murfreesboro, Tennessee. Mr. Haynes is the Chairman of the
Rutherford County Chamber of Commerce.
Hillard C. "Bud" Gardner joined the Bank in 1981 and has been Senior
Vice President and Chief Financial Officer since 1982. Mr. Gardner is a
member of the Tennessee Society of Certified Public Accountants, the Security
for Public Deposit Task Force, the American Institute of Certified Public
Accountants and the Optimist International.
David W. Hopper joined the Bank in 1992 and has been Senior Vice
President and Trust Officer since that time. Mr. Hopper is a member of the
Murfreesboro Rotary Club, the Hospice of Murfreesboro, and the Murfreesboro
School Board.
William S. Jones joined the Bank in 1992 and has been Senior Vice
President since January 1997. Prior to that time, Mr. Jones was Vice
President/Senior Vice President and Trust Officer of the Bank. Mr. Jones is
an executive officer and a member of the Board of Trustees of the Middle
Tennessee State University Foundation and a member of the Board of Trustees of
the Middle Tennessee Medical Center Foundation.
Ira B. Lewis, Jr. joined the Bank in 1993 and has been Vice
President/CRA Compliance Officer and Secretary since January 1996. Before
joining the Bank, Mr. Lewis was a Field Examiner and Field Manager of the
OTS's Nashville Area Office, an affiliate office of the OTS Central Regional
Office, Chicago, Illinois.
R. Dale Floyd joined the Bank in September 1987 and has been Senior Vice
President since October 1988. As Senior Vice President, he supervises the
Bank's mortgage lending activities, including originations, construction and
land development lending and mortgage loan servicing. Mr. Floyd's civic
activities include participation in Leadership Rutherford, Habitat for
Humanity, Stones River Ducks Unlimited and Kids Castle Volunteers. Mr. Floyd
is also a member of the Affordable Housing Advisory Council of the City of
Murfreesboro.
M. Glenn Layne joined the Bank in August 1994 with over 17 years of
banking experience and has served as Vice President and Manager of Commercial
and Consumer Lending since that time. Before joining the Bank Mr. Layne
served as Vice President and Manager of a Commercial Lending Group with Sun
Trust Bank. Mr Layne is an active member of the Murfreesboro Downtown Lions
Club and the Belle Aire Baptist Church.
Joy B. Jobe joined the Bank in May 1995 with over 24 years of banking
experience and serves as Vice President of Retail Banking and Business
Development. Before joining the Bank Ms. Jobe was a Commercial Loan Officer,
Relationship Manager and Assistant Vice President with Sun Trust Bank. Ms.
Jobe is a member of the Rotary Club and the American Red Cross.
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Item 11. Executive Compensation
- ----------------------------------
Summary Compensation Table. The following information is furnished for
Messrs. Loughry and Knight. No other executive officer of Company received
salary and bonus in excess of $100,000 during the year ended December 31,
1997.
Annual Compensation(1)
---------------------------------------
Other Annual All Other
Name and Compensa- Compensa-
Position Year Salary Bonus tion(2) tion(3)
- -------- ---- ------ ----- ------- -------
Ed C. Loughry, Jr. 1997 $162,000 $45,360 -- $29,143
President and Chief
Executive Officer 1996 140,000 43,120 -- 18,432
Ronald F. Knight 1997 $135,000 $37,800 -- $25,143
Executive Vice
President and Chief 1996 120,000 36,960 -- 16,332
Operating Officer
- ----------------------
(1) Compensation information for the year ended December 31, 1995 has
been omitted as the Company was not a public company nor a subsidiary
thereof at such times.
(2) The aggregate amount of perquisites and other personal benefits was
less than 10% of the total annual salary and bonus reported.
(3) Includes employer paid medical, dental, group term life and
disability insurance premiums and employer 401(k) and pension plan
contributions.
Employment Agreements. The Company and the Bank (collectively, the
"Employers") have entered into three-year employment agreements ("Employment
Agreements") with Messrs. Loughry and Knight (individually, the "Executive").
Under the Employment Agreements, the initial salary levels for Messrs. Loughry
and Knight are $162,000 and $135,000, respectively, which amounts are paid by
the Bank and may be increased at the discretion of the Board of Directors or
an authorized committee of the Board. On each anniversary of the commencement
date of the Employment Agreements, the term of each agreement may be extended
for an additional year at the discretion of the Board. The agreement is
terminable by the Employers at any time, by the Executive if the Executive is
assigned duties inconsistent with his initial position, duties,
responsibilities and status, or upon the occurrence of certain events
specified by federal regulations. In the event that an Executive's employment
is terminated without cause or upon the Executive's voluntary termination
following the occurrence of an event described in the preceding sentence, the
Bank would be required to honor the terms of the agreement through the
expiration of the current term, including payment of current cash compensation
and continuation of employee benefits.
The Employment Agreements also provide for severance payments and other
benefits in the event of involuntary termination of employment in connection
with any change in control of the Employers. Severance payments also will be
provided on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, an Executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person other than the Company purchases shares of Common Stock pursuant to a
tender or exchange offer for such shares, (b) any person (as such term is used
in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities, (c) the membership of the Board of Directors changes
as the result of a contested election, or (d) shareholders of the Company
approve a merger, consolidation, sale or disposition of all or substantially
all of the Company's assets, or a plan of partial or complete liquidation.
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The maximum value of the severance benefits under the Employment
Agreements is 2.99 times the Executive's average annual compensation during
the five-year period preceding the effective date of the change in control
(the "base amount"). The Employment Agreements provide that the value of the
maximum benefit may be distributed, at the Executive's election, (i) in the
form of a lump sum cash payment equal to 2.99 times the Executive's base
amount or (ii) a combination of a cash payment and continued coverage under
the Employers' health, life and disability programs for a 36-month period
following the change in control, the total value of which does not exceed 2.99
times the Executive's base amount. Assuming that a change in control had
occurred at September 30, 1997 and that each Executive elected to receive a
lump sum cash payment, Messrs. Loughry and Knight would be entitled to
payments of approximately $566,000 and $491,000, respectively. Section 280G
of the Internal Revenue Code of 1986, as amended ("Code"), provides that
severance payments that equal or exceed three times the individual's base
amount are deemed to be "excess parachute payments" if they are contingent
upon a change in control. Individuals receiving excess parachute payments are
subject to a 20% excise tax on the amount of such excess payments, and the
Employers would not be entitled to deduct the amount of such excess payments.
The Employment Agreements restrict each Executive's right to compete
against the Employers for a period of one year from the date of termination of
the agreement if an Executive voluntarily terminates employment, except in the
event of a change in control.
Directors' Compensation
All directors, other than the Chairman of the Board and the
Vice-Chairman of the Board, receive a monthly fee of $1,000. The Chairman of
the Board receives a monthly fee of $1,200 and the Vice-Chairman of the Board
receives a monthly fee of $1,050. Outside directors receive an additional fee
of $200 per Executive Committee, Audit Committee and Trust Committee meeting
attended. Directors' fees totalled $95,750 for the year ended December 31,
1997. Directors' fees are paid by the Bank and, no separate fees are paid for
service on the Company's Board of Directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------------------
Persons and groups who beneficially own in excess of 5% of the Company's
Common Stock are required to file certain reports disclosing such ownership
pursuant to the Exchange Act. Based on such reports, the following table sets
forth, as of March 18, 1998, certain information as to those persons who were
beneficial owners of more than 5% of the outstanding shares of Common Stock.
Management knows of no persons other than those set forth below who
beneficially owned more than 5% of the outstanding shares of Common Stock at
March 18, 1998. The following table also sets forth, as of March 18, 1998,
information as to the shares of Common Stock beneficially owned by each
director, by the named executive officers of the Company, and by all executive
officers and directors of the Corporation as a group.
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<PAGE>
Number of Shares Percent of Shares
Name Beneficially Owned (1) Outstanding
- ---- ---------------------- -----------------
Beneficial Owners of More Than 5%
Cavalry Banking Employee Stock
Stock Ownership Plan Trust 603,060 8.0%
Directors
William H. Huddleston, III 70,689 0.94
Gary Brown 91,104 1.21
Frank E. Crosslin, Jr. 65,550 0.87
Tim J. Durham 76,329 1.01
Ed Elam 31,497 0.42
James C. Cope 32,519 0.43
Terry G. Haynes 91,249 1.21
Named Executive Officers(2)
Ed C. Loughry, Jr. 42,355 0.56
Ronald F. Knight 43,495 0.58
All Executive Officers and
Directors as a Group (16 persons) 732,207 9.71
- ---------------
* Less than 1 percent of shares outstanding.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner, for purposes of this table, of any shares of
Common Stock if he or she has voting or investment power with respect to
such security. The table includes shares owned by spouses, other
immediate family members in trust, shares held in retirement accounts or
funds for the benefit of the named individuals, and other forms of
ownership, over which shares the persons named in the table may possess
voting and/or investment power.
(2) Under SEC regulation, the term "named executive officer" is defined to
include the chief executive officer, regardless of compensation level, and
the four most highly compensated executive officers, other than the chief
executive officer, whose total annual salary and bonus for the last
completed fiscal year exceeded $100,000. Messrs. Ed C. Loughry, Jr. and
Ronald F. Knight were the Company's only "named executive officers" for
the year ended December 31, 1997. Messrs. Loughry and Knight also are
directors of the Company.
(c) Changes In Control
The Company is not aware of any arrangements, including any pledge by any
person of securities of the Company, the operation of which may at a
subsequent date result in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions
- ----------------------------------------------------------
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons (unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee) and must not involve more than the normal risk of repayment or
present other unfavorable features. The Bank's policy is not to make any new
loans or extensions of credit to the Bank's executive officers and directors
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<PAGE>
at different rates or terms than those offered to the general public. In
addition, loans made to a director or executive officer in an amount that,
when aggregated with the amount of all other loans to such person and his
related interests, are in excess of the greater of $25,000 or 5% of the Bank's
capital and surplus (up to a maximum of $500,000) must be approved in advance
by a majority of the disinterested members of the Board of Directors. See
Item 1, "Business -- Regulation -- Federal Regulation of Savings Associations
- -- Transactions with Affiliates" contained herein. The aggregate amount of
loans by the Bank to its executive officers and directors was approximately
$461,000 at December 31, 1997.
President and Chief Executive Officer Ed C. Loughry, Jr.'s wife is a
principal partner in an insurance agency from which the Bank purchases some of
its insurance coverage. Mr. Loughry has no ownership interest in the
insurance agency and does not participate in its business affairs. Mrs.
Loughry is not paid any direct commissions on sales to the Bank. Premiums
paid to the insurance agency by the Bank amounted to approximately $75,500 for
the year ended December 31, 1997.
Director Cope's law firm provides periodic routine legal services to the
Bank. The Bank paid legal fees to the firm of approximately $18,500 for the
year ended December 31, 1997. This amount did not represent more than 5% of
the law firm's gross revenues for the law firm's last full fiscal year.
Periodically, the Bank has used the services of Director Brown's heating
and air conditioning company for maintenance and repair work to the Bank's
office facilities. The Bank paid to Mr. Brown's company approximately $7,000
during the year ended December 31, 1997 for work performed.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) Exhibits
3.1 Charter of the Registrant*
3.2 Bylaws of the Registrant*
10.1 Employment Agreement with Ed C. Loughry, Jr.
10.2 Employment Agreement with Ronald F. Knight
10.3 Severance Agreement with Hillard C. Gardner
10.4 Severance Agreement with Ira B. Lewis
10.5 Severance Agreement with R. Dale Floyd
10.6 Severance Agreement with M. Glenn Layne
10.7 Severance Agreement with Joy B. Jobe
10.8 Severance Agreement with William S. Jones
10.9 Severance Agreement with David W. Hopper
10.10 Cavalry Banking Key Personnel Severance Compensation Plan
10.11 Cavalry Banking Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23 Consent of Rayburn, Betts & Bates, P.C.
27 Financial Data Schedule
- --------------------------
* Incorporated herein by reference to the Registrant's Registration
Statement on Form S-1, as amended (333-40057).
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the quarter ended December
31, 1997.
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SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CAVALRY BANCORP, INC.
Date: March 30, 1998 By:/s/Ed C. Loughry, Jr.
----------------------------------------
Ed C. Loughry, Jr.
President and Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/Ed C. Loughry, Jr.
- --------------------------- Chief Executive Officer, March 30, 1998
Ed C. Loughry, Jr. President and Director
(Principal Executive Officer)
/s/Hillard C. "Bud" Gardner
- --------------------------- Senior Vice President and March 30, 1998
Hillard C. "Bud" Chief Financial Officer
Gardner (Principal Financial and
Accounting Officer)
/s/William H. Huddleston, III
- --------------------------- Chairman of the Board March 30, 1998
William H. Huddleston, III
/s/Gary Brown
- --------------------------- Vice Chairman of the Board March 30, 1998
Gary Brown
/s/Ronald F. Knight
- -------------------------- Director, Executive Vice March 30, 1998
Ronald F. Knight President and Chief Operating
Officer
/s/Frank E. Crosslin, Jr.
- --------------------------- Director March 30, 1998
Frank E. Crosslin, Jr.
/s/Tim J. Durham
- --------------------------- Director March 30, 1998
Tim J. Durham
/s/Ed Elam
- --------------------------- Director March 30, 1998
Ed Elam
/s/James C. Cope
- --------------------------- Director March 30, 1998
James C. Cope
/s/Terry G. Haynes
- --------------------------- Director March 30, 1998
Terry G. Haynes
<PAGE>
<PAGE>
Exhibit 10.1
Employment Agreement with Ed C. Loughry, Jr.
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of March 2, 1998, by and between
CAVALRY BANKING (the "BANK"), CAVALRY BANCORP, INC. (the "COMPANY"), a
Tennessee corporation; and ED C. LOUGHRY, JR. ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE
for the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve
as President and Chief Executive Officer of the BANK. During said period,
EXECUTIVE also agrees to serve, if elected, as an officer and director of the
COMPANY or any subsidiary or affiliate of the COMPANY or the BANK. Executive
shall render administrative and management duties to the BANK such as are
customarily performed by persons situated in a similar executive capacity.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of thirty-six
(36) full calendar months thereafter. Commencing on the first anniversary
date, and continuing at each anniversary date thereafter, the Board of
Directors of the BANK (the "Board") may extend the Agreement for an additional
year. Prior to the extension of the Agreement as provided herein, the Board
of Directors of the BANK will conduct a formal performance evaluation of
EXECUTIVE for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the BANK; provided, however, that, with the
approval of the Board, as evidenced by a resolution of such Board, from time
to time, EXECUTIVE may serve, or continue to serve, on the boards of directors
of, and hold any other offices or positions in, companies or organizations,
which, in such Board's judgment, will not present any conflict of interest
with the BANK, or materially affect the performance of EXECUTIVE's duties
pursuant to this Agreement.
<PAGE>
<PAGE>
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The
BANK shall pay EXECUTIVE as compensation a salary of $162,000 per year ("Base
Salary"). Such Base Salary shall be payable in accordance with the customary
payroll practices of the BANK. During the period of this Agreement,
EXECUTIVE's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement.
Such review shall be conducted by a Committee designated by the Board, and the
Board may increase EXECUTIVE's Base Salary. In addition to the Base Salary
provided in this Section 3(a), the BANK shall provide EXECUTIVE at no cost to
EXECUTIVE with all such other benefits as are provided uniformly to permanent
full-time employees of the BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the BANK will not,
without EXECUTIVE's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect EXECUTIVE's rights or
benefits thereunder. Without limiting the generality of the foregoing
provisions of this Subsection (b), EXECUTIVE will be entitled to participate
in or receive benefits under any employee benefit plans including, but not
limited to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plan, medical coverage or any other
employee benefit plan or arrangement made available by the BANK in the future
to its senior executives and key management employees, subject to, and on a
basis consistent with, the terms, conditions and overall administration of
such plans and arrangements. EXECUTIVE will be entitled to incentive
compensation and bonuses as provided in any plan, or pursuant to any
arrangement of the BANK, in which EXECUTIVE is eligible to participate.
Nothing paid to EXECUTIVE under any such plan or arrangement will be deemed to
be in lieu of other compensation to which EXECUTIVE is entitled under this
Agreement, except as provided under Section 5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the BANK of EXECUTIVE's full-time employment hereunder for any
reason other than a Change in Control, as defined in Section 5(a) hereof;
disability, as defined in Section 6(a) hereof; death; retirement, as defined
in Section 7 hereof; or Termination for Cause, as defined in Section 8 hereof;
(ii) EXECUTIVE's resignation
2
<PAGE>
<PAGE>
from the BANK's employ, upon (A) unless consented to by EXECUTIVE, a material
change in EXECUTIVE's function, duties, or responsibilities, which change
would cause EXECUTIVE's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Sections 1 and 2, above (any such material change shall be deemed a continuing
breach of this Agreement), (B) a relocation of EXECUTIVE's principal place of
employment by more than 25 miles from its location at the effective date of
this Agreement, or a material reduction in the benefits and perquisites to
EXECUTIVE from those being provided as of the effective date of this
Agreement, (C) the liquidation or dissolution of the BANK, or (D) any material
breach of this Agreement by the BANK. Upon the occurrence of any event
described in clauses (A), (B), (C) or (D), above, EXECUTIVE shall have the
right to elect to terminate his employment under this Agreement by resignation
upon not less than sixty (60) days prior written notice given within a
reasonable period of time not to exceed, except in case of a continuing
breach, four (4) calendar months after the event giving rise to said right to
elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal to the payments due to EXECUTIVE for
the remaining term of the Agreement, including Base Salary, bonuses, and any
other cash or deferred compensation paid or to be paid (including the value of
employer contributions that would have been made on EXECUTIVE's behalf over
the remaining term of the agreement to any tax-qualified retirement plan
sponsored by the BANK as of the Date of Termination), to EXECUTIVE for the
term of the Agreement provided, however, that if the BANK is not in compliance
with its minimum capital requirements or if such payments would cause the
BANK's capital to be reduced below its minimum capital requirements, such
payments shall be deferred until such time as the BANK is in capital
compliance. All payments made pursuant to this Section 4(b) shall be paid in
substantially equal monthly installments over the remaining term of this
Agreement following EXECUTIVE's termination; provided, however, that if the
remaining term of the Agreement is less than one (1) year (determined as of
EXECUTIVE's Date of Termination), such payments and benefits shall be paid to
EXECUTIVE in a lump sum within thirty (30) days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the BANK will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall
have occurred a Change in Control of the COMPANY or the BANK. For purposes of
this Agreement, a "Change in Control" of the COMPANY or the BANK shall be
deemed to occur if and when (a) there occurs a change in control of the BANK
or the COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12
C.F.R. Part 574, (b) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner, directly
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or indirectly, of securities of the COMPANY or the BANK representing
twenty-five percent (25%) or more of the combined voting power of the
COMPANY's or the BANK's then outstanding securities, (c) the membership of the
board of directors of the COMPANY or the BANK changes as the result of a
contested election, such that individuals who were directors at the beginning
of any twenty-four (24) month period (whether commencing before or after the
date of adoption of this Agreement) do not constitute a majority of the Board
at the end of such period, or (d) shareholders of the COMPANY or the BANK
approve a merger, consolidation, sale or disposition of all or substantially
all of the COMPANY's or the BANK's assets, or a plan of partial or complete
liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the BANK or the COMPANY has
reasonably determined that a Change in Control (as defined herein) has
occurred, EXECUTIVE shall be entitled to the benefits provided in paragraphs
(c), (d) and (e) of this Section 5 upon his subsequent involuntary termination
following the effective date of a Change in Control (or voluntary termination
within twelve (12) months of the effective date of a Change in Control
following any material demotion, loss of title, office or significant
authority, material reduction in his annual compensation or benefits (other
than a reduction affecting the BANK's personnel generally), or the relocation
of his principal place of employment by more than 25 miles from its location
immediately prior to the Change in Control), unless such termination is
because of his death, retirement as provided in Section 7, termination for
Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK shall pay EXECUTIVE, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to
2.99 times EXECUTIVE's "base amount," within the meaning of Section
280G(b)(3) of the Internal Revenue Code of 1986 ("Code"), as amended. Such
payment shall be made in a lump sum paid within ten (10) days of EXECUTIVE's
Date of Termination.
(d) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. In addition,
EXECUTIVE shall be entitled to receive the value of employer contributions
that would have been made on EXECUTIVE's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the BANK as of the
Date of Termination. Such coverage and payments shall cease upon the
expiration of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, EXECUTIVE shall be
entitled to receive benefits due him under, or contributed by the COMPANY or
the BANK on his behalf, pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by
the BANK or the COMPANY on EXECUTIVE's behalf to the extent that such benefits
are not otherwise paid to EXECUTIVE upon a Change in Control.
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(f) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in
Control, would be deemed to include an "excess parachute payment" under
Section 280G of the Code, then, at the election of EXECUTIVE, (i) such
payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under Section 280G(b)(3) of the Code or (ii) the
payments or benefits to be provided under this Section 5 shall be reduced to
the extent necessary to avoid treatment as an excess parachute payment with
the allocation of the reduction among such payments and benefits to be
determined by EXECUTIVE.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE
is permanently and totally disabled within the meaning of Section 22(e)(3) of
the Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to
three-quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the
effective date of such termination. These disability payments shall commence
on the effective date of EXECUTIVE's termination and will end on the earlier
of (i) the date EXECUTIVE returns to the full-time employment of the BANK in
the same capacity as he was employed prior to his termination for Disability
and pursuant to an employment agreement between EXECUTIVE and the BANK; (ii)
EXECUTIVE's full-time employment by another employer; (iii) EXECUTIVE
attaining the age of sixty-five (65); or (iv) EXECUTIVE's death; or (v) the
expiration of the term of this Agreement. The disability pay shall be reduced
by the amount, if any, paid to EXECUTIVE under any plan of the BANK providing
disability benefits to EXECUTIVE.
(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed
prior to his termination for Disability and pursuant to an employment
agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time
employment by another employer; (iii) EXECUTIVE's attaining the age of
sixty-five (65); (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of
temporary disability.
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7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established with EXECUTIVE's consent with respect to
him. Upon termination of EXECUTIVE upon Retirement, EXECUTIVE shall be
entitled to all benefits under any retirement plan of the BANK or the COMPANY
and other plans to which EXECUTIVE is a party. Upon the death of EXECUTIVE
during the term of this Agreement, the BANK shall pay to EXECUTIVE's estate
the compensation due to EXECUTIVE through the last day of the calendar month
in which his death occurred. Upon the voluntary resignation of EXECUTIVE
during the term of this Agreement, other than in connection with an Event of
Termination, the BANK shall pay to EXECUTIVE the compensation due to EXECUTIVE
through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the members of the Board at a meeting of the Board
called and held for that purpose (after reasonable notice to EXECUTIVE and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, EXECUTIVE was guilty of
conduct justifying termination for Cause and specifying the reasons thereof.
EXECUTIVE shall not have the right to receive compensation or other benefits
for any period after termination for Cause. Any stock options granted to
EXECUTIVE under any stock option plan or any unvested awards granted under any
other stock benefit plan of the BANK, the COMPANY, or any subsidiary or
affiliate thereof, shall become null and void effective upon EXECUTIVE's
receipt of Notice of Termination for Cause pursuant to Section 10 hereof, and
shall not be exercisable by EXECUTIVE at any time subsequent to such
Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not
prejudice EXECUTIVE's right to compensation or other benefits under this
Agreement. EXECUTIVE shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal
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Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(3) and (g)(1)), the BANK's
obligations under the Agreement shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the BANK may, in its discretion, (i) pay EXECUTIVE all or part of
the compensation withheld while its contract obligations were suspended and
(ii) reinstate (in whole or in part) any of its obligations that were
suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK under the authority contained in Section 13(c) of the FDIA
or (ii) by the Director, or his designee at the time the Director or such
designee approves a supervisory merger to resolve problems related to
operation of the BANK or when the BANK is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of EXECUTIVE's employment under the
provision so indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period), and (B) if
his employment is terminated for any other reason, other than Termination for
Cause, the date specified in the Notice of Termination . In the event of
EXECUTIVE's
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Termination for Cause, the Date of Termination shall be the same as the date
of the Notice of Termination.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence
of a Change in Control and voluntary termination by EXECUTIVE in which case
the Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal there from having expired and no appeal
having been perfected) and provided further that the Date of Termination shall
be extended by a notice of dispute only if such notice is given in good faith
and the party giving such notice pursues the resolution of such dispute with
reasonable diligence.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to
an Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not
to compete with the BANK and/or the COMPANY for a period of one (1) year
following such termination in any city, town or county in which the BANK
and/or the COMPANY has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of such
termination. EXECUTIVE agrees that during such period and within said cities,
towns and counties, EXECUTIVE shall not work for or advise, consult or
otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities
of the BANK and/or the COMPANY. The parties hereto, recognizing that
irreparable injury will result to the BANK and/or the COMPANY, its business
and property in the event of EXECUTIVE's breach of this Subsection 11(a) agree
that in the event of any such breach by EXECUTIVE, the BANK and/or the COMPANY
will be entitled, in addition to any other remedies and damages available, to
an injunction to restrain the violation hereof by EXECUTIVE, EXECUTIVE's
partners, agents, servants, employers, employees and all persons acting for or
with EXECUTIVE. EXECUTIVE represents and admits that in the event of the
termination of his employment pursuant to Section 4 hereof, EXECUTIVE's
experience and capabilities are such that EXECUTIVE can obtain employment in a
business engaged in other lines and/or of a different nature than the BANK
and/or the COMPANY, and that the enforcement of a remedy by way of injunction
will not prevent EXECUTIVE from earning a livelihood. Nothing herein will be
construed as prohibiting the BANK and/or the COMPANY from pursuing any other
remedies available to the BANK and/or the COMPANY for such breach or
threatened breach, including the recovery of damages from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the BANK. EXECUTIVE will not, during or
after the term of his employment, disclose any knowledge of the past, present,
planned or considered business activities of the BANK or affiliates thereof to
any person, firm,
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corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, EXECUTIVE may disclose any knowledge of
banking, financial and/or economic principles, concepts or ideas which are not
solely and exclusively derived from the business plans and activities of the
BANK. In the event of a breach or threatened breach by EXECUTIVE of the
provisions of this Section, the BANK will be entitled to an injunction
restraining EXECUTIVE from disclosing, in whole or in part, the knowledge of
the past, present, planned or considered business activities of the BANK or
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the BANK from pursuing any other remedies available
to the BANK for such breach or threatened breach, including the recovery of
damages from EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that EXECUTIVE is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
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(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act
other than that specifically waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Tennessee,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or
state law or regulation, the provisions of such law or regulation shall
prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within fifty miles from the location of the BANK, in accordance with the rules
of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that EXECUTIVE shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK, if EXECUTIVE is successful pursuant to a legal
judgment, arbitration or settlement.
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21. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred
by him in connection with or arising out of any action, suit or proceeding in
which he may be involved by reason of his having been a director or officer of
the BANK (whether or not he continues to be a directors or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements. The provisions of 12 C.F.R. 545.121 shall
apply to the BANK's obligations under this Section 21.
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent
that the BANK or the COMPANY would be required to perform if no such
succession or assignment had taken place.
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IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement
to be executed and their seal to be affixed hereunto by a duly authorized
officer, and EXECUTIVE has signed this Agreement, all on the 2 day of March,
1998.
ATTEST: CAVALRY BANKING
/S/IRA B. LEWIS, JR. /S/WILLIAM H. HUDDLESTON, III
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. WILLIAM H. HUDDLESTON, III
[SEAL]
ATTEST: CAVALRY BANCORP, INC.
/S/IRA B. LEWIS, JR. /S/WILLIAM H. HUDDLESTON, III
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. WILLIAM H. HUDDLESTON, III
[SEAL]
WITNESS:
/S/BETHANY K. COLE /S/ED C. LOUGHRY, JR.
- ------------------------------- ------------------------------------
BETHANY K. COLE ED C. LOUGHRY, JR.
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Exhibit 10.2
Employment Agreement with Ronald F. Knight
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of March 1, 1998, by and between
CAVALRY BANKING (the "BANK"), CAVALRY BANCORP, INC. (the "COMPANY"), a
Tennessee corporation; and RONALD F. KNIGHT ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE
for the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a
full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve
as Executive Vice President and Chief Operating Officer of the BANK. During
said period, EXECUTIVE also agrees to serve, if elected, as an officer and
director of the COMPANY or any subsidiary or affiliate of the COMPANY or the
BANK. Executive shall render administrative and management duties to the BANK
such as are customarily performed by persons situated in a similar executive
capacity.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of thirty-six
(36) full calendar months thereafter. Commencing on the first anniversary
date, and continuing at each anniversary date thereafter, the Board of
Directors of the BANK (the "Board") may extend the Agreement for an additional
year. Prior to the extension of the Agreement as provided herein, the Board
of Directors of the BANK will conduct a formal performance evaluation of
EXECUTIVE for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the BANK; provided, however, that, with the
approval of the Board, as evidenced by a resolution of such Board, from time
to time, EXECUTIVE may serve, or continue to serve, on the boards of directors
of, and hold any other offices or positions in, companies or organizations,
which, in such Board's judgment, will not
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present any conflict of interest with the BANK, or materially affect the
performance of EXECUTIVE's duties pursuant to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The
BANK shall pay EXECUTIVE as compensation a salary of $135,000 per year ("Base
Salary"). Such Base Salary shall be payable in accordance with the customary
payroll practices of the BANK. During the period of this Agreement,
EXECUTIVE's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement.
Such review shall be conducted by a Committee designated by the Board, and the
Board may increase EXECUTIVE's Base Salary. In addition to the Base Salary
provided in this Section 3(a), the BANK shall provide EXECUTIVE at no cost to
EXECUTIVE with all such other benefits as are provided uniformly to permanent
full- time employees of the BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the BANK will not,
without EXECUTIVE's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect EXECUTIVE's rights or
benefits thereunder. Without limiting the generality of the foregoing
provisions of this Subsection (b), EXECUTIVE will be entitled to participate
in or receive benefits under any employee benefit plans including, but not
limited to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, health-and-accident plan, medical coverage or any other
employee benefit plan or arrangement made available by the BANK in the future
to its senior executives and key management employees, subject to, and on a
basis consistent with, the terms, conditions and overall administration of
such plans and arrangements. EXECUTIVE will be entitled to incentive
compensation and bonuses as provided in any plan, or pursuant to any
arrangement of the BANK, in which EXECUTIVE is eligible to participate.
Nothing paid to EXECUTIVE under any such plan or arrangement will be deemed to
be in lieu of other compensation to which EXECUTIVE is entitled under this
Agreement, except as provided under Section 5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the BANK of EXECUTIVE's full-time
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employment hereunder for any reason other than a Change in Control, as defined
in Section 5(a) hereof; disability, as defined in Section 6(a) hereof; death;
retirement, as defined in Section 7 hereof; or Termination for Cause, as
defined in Section 8 hereof; (ii) EXECUTIVE's resignation from the BANK's
employ, upon (A) unless consented to by EXECUTIVE, a material change in
EXECUTIVE's function, duties, or responsibilities, which change would cause
EXECUTIVE's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Sections 1 and 2,
above (any such material change shall be deemed a continuing breach of this
Agreement), (B) a relocation of EXECUTIVE's principal place of employment by
more than 25 miles from its location at the effective date of this Agreement,
or a material reduction in the benefits and perquisites to EXECUTIVE from
those being provided as of the effective date of this Agreement, (C) the
liquidation or dissolution of the BANK, or (D) any material breach of this
Agreement by the BANK. Upon the occurrence of any event described in clauses
(A), (B), (C) or (D), above, EXECUTIVE shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less
than sixty (60) days prior written notice given within a reasonable period of
time not to exceed, except in case of a continuing breach, four (4) calendar
months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal to the payments due to EXECUTIVE for
the remaining term of the Agreement, including Base Salary, bonuses, and any
other cash or deferred compensation paid or to be paid (including the value of
employer contributions that would have been made on EXECUTIVE's behalf over
the remaining term of the agreement to any tax-qualified retirement plan
sponsored by the BANK as of the Date of Termination), to EXECUTIVE for the
term of the Agreement provided, however, that if the BANK is not in compliance
with its minimum capital requirements or if such payments would cause the
BANK's capital to be reduced below its minimum capital requirements, such
payments shall be deferred until such time as the BANK is in capital
compliance. All payments made pursuant to this Section 4(b) shall be paid in
substantially equal monthly installments over the remaining term of this
Agreement following EXECUTIVE's termination; provided, however, that if the
remaining term if the Agreement is less than one (1) year (determined as of
EXECUTIVE's Date of Termination), such payments and benefits shall be paid to
EXECUTIVE in a lump sum within thirty (30) days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the BANK will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall
have occurred a Change in Control of the COMPANY or the BANK. For purposes of
this Agreement, a 'Change in Control" of the COMPANY or the BANK shall be
deemed to occur if and when (a) there
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occurs a change in control of the BANK or the COMPANY within the meaning of
the Home Owners Loan Act of 1933 and 12 C.F.R. Part 574, (b) any person (as
such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or
becomes the beneficial owner, directly or indirectly, of securities of the
COMPANY or the BANK representing twenty-five percent (25%) or more of the
combined voting power of the COMPANY's or the BANK's then outstanding
securities, (c) the membership of the board of directors of the COMPANY or the
BANK changes as the result of a contested election, such that individuals who
were directors at the beginning of any twenty-four (24) month period (whether
commencing before or after the date of adoption of this Agreement) do not
constitute a majority of the Board at the end of such period, or (d)
shareholders of the COMPANY or the BANK approve a merger, consolidation, sale
or disposition of all or substantially all of the COMPANY's or the BANK's
assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the BANK or the COMPANY has
reasonably determined that a Change in Control (as defined herein) has
occurred, EXECUTIVE shall be entitled to the benefits provided in paragraphs
(c), (d) and (e) of this Section 5 upon his subsequent involuntary termination
following the effective date of a Change in Control (or voluntary termination
within twelve (12) months of the effective date of a Change in Control
following any material demotion, loss of title, office or significant
authority, material reduction in his annual compensation or benefits (other
than a reduction affecting the BANK's personnel generally), or the relocation
of his principal place of employment by more than 25 miles from its location
immediately prior to the Change in Control), unless such termination is
because of his death, retirement as provided in Section 7, termination for
Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK shall pay EXECUTIVE, or in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to
2.99 times EXECUTIVE's "base amount," within the meaning of Section
280G(b)(3) of the Internal Revenue Code of 1986 ("Code"), as amended. Such
payment shall be made in a lump sum paid within ten (10) days of EXECUTIVE's
Date of Termination.
(d) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. In addition,
EXECUTIVE shall be entitled to receive the value of employer contributions
that would have been made on EXECUTIVE's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the BANK as of the
Date of Termination. Such coverage and payments shall cease upon the
expiration of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, EXECUTIVE shall be
entitled to receive benefits due him under, or contributed by the COMPANY or
the BANK on his behalf,
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pursuant to any retirement, incentive, profit sharing, bonus, performance,
disability or other employee benefit plan maintained by the BANK or the
COMPANY on EXECUTIVE's behalf to the extent that such benefits are not
otherwise paid to EXECUTIVE upon a Change in Control.
(f) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in
Control, would be deemed to include an "excess parachute payment" under
Section 280G of the Code, then, at the election of EXECUTIVE, (i) such
payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under Section 280G(b)(3) of the Code or (ii) the
payments or benefits to be provided under this Section 5 shall be reduced to
the extent necessary to avoid treatment as an excess parachute payment with
the allocation of the reduction among such payments and benefits to be
determined by EXECUTIVE.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE
is permanently and totally disabled within the meaning of Section 22(e)(3) of
the Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to
three-quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the
effective date of such termination. These disability payments shall commence
on the effective date of EXECUTIVE's termination and will end on the earlier
of (i) the date EXECUTIVE returns to the full-time employment of the BANK in
the same capacity as he was employed prior to his termination for Disability
and pursuant to an employment agreement between EXECUTIVE and the BANK; (ii)
EXECUTIVE's full-time employment by another employer; (iii) EXECUTIVE
attaining the age of sixty-five (65); or (iv) EXECUTIVE's death; or (v) the
expiration of the term of this Agreement. The disability pay shall be reduced
by the amount, if any, paid to EXECUTIVE under any plan of the BANK providing
disability benefits to EXECUTIVE.
(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed
prior to his termination for Disability and pursuant to an employment
agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time
employment by another employer; (iii) EXECUTIVE's attaining the age of
sixty-five (65); (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement.
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(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of
temporary disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established with EXECUTIVE's consent with respect to
him. Upon termination of EXECUTIVE upon Retirement, EXECUTIVE shall be
entitled to all benefits under any retirement plan of the BANK or the COMPANY
and other plans to which EXECUTIVE is a party. Upon the death of EXECUTIVE
during the term of this Agreement, the BANK shall pay to EXECUTIVE's estate
the compensation due to EXECUTIVE through the last day of the calendar month
in which his death occurred. Upon the voluntary resignation of EXECUTIVE
during the term of this Agreement, other than in connection with an Event of
Termination, the BANK shall pay to EXECUTIVE the compensation due to EXECUTIVE
through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the members of the Board at a meeting of the Board
called and held for that purpose (after reasonable notice to EXECUTIVE and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, EXECUTIVE was guilty of
conduct justifying termination for Cause and specifying the reasons thereof.
EXECUTIVE shall not have the right to receive compensation or other benefits
for any period after termination for Cause. Any stock options granted to
EXECUTIVE under any stock option plan or any unvested awards granted under any
other stock benefit plan of the BANK, the COMPANY, or any subsidiary or
affiliate thereof, shall become null and void effective upon EXECUTIVE's
receipt of Notice of Termination for Cause pursuant to Section 10 hereof, and
shall not be exercisable by EXECUTIVE at any time subsequent to such
Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not
prejudice EXECUTIVE's right to compensation or other benefits under this
Agreement. EXECUTIVE shall not have the
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right to receive compensation or other benefits for any period after
Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in
part) any of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK under the authority contained in Section 13(c) of the FDIA
or (ii) by the Director, or his designee at the time the Director or such
designee approves a supervisory merger to resolve problems related to
operation of the BANK or when the BANK is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of EXECUTIVE's employment under the
provision so indicated.
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(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his
duties on a full-time basis during such thirty (30) day period), and (B) if
his employment is terminated for any other reason, other than Termination for
Cause, the date specified in the Notice of Termination . In the event of
EXECUTIVE's Termination for Cause, the Date of Termination shall be the same
as the date of the Notice of Termination.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence
of a Change in Control and voluntary termination by EXECUTIVE in which case
the Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal there from having expired and no appeal
having been perfected) and provided further that the Date of Termination shall
be extended by a notice of dispute only if such notice is given in good faith
and the party giving such notice pursues the resolution of such dispute with
reasonable diligence.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant
to an Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees
not to compete with the BANK and/or the COMPANY for a period of one (1) year
following such termination in any city, town or county in which the BANK
and/or the COMPANY has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of such
termination. EXECUTIVE agrees that during such period and within said
cities, towns and counties, EXECUTIVE shall not work for or advise, consult or
otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities
of the BANK and/or the COMPANY. The parties hereto, recognizing that
irreparable injury will result to the BANK and/or the COMPANY, its business
and property in the event of EXECUTIVE's breach of this Subsection 11(a) agree
that in the event of any such breach by EXECUTIVE, the BANK and/or the
COMPANY will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by EXECUTIVE,
EXECUTIVE's partners, agents, servants, employers, employees and all persons
acting for or with EXECUTIVE. EXECUTIVE represents and admits that in the
event of the termination of his employment pursuant to Section 4 hereof,
EXECUTIVE's experience and capabilities are such that EXECUTIVE can obtain
employment in a business engaged in other lines and/or of a different nature
than the BANK and/or the COMPANY, and that the enforcement of a remedy by way
of injunction will not prevent EXECUTIVE from earning a livelihood. Nothing
herein will be construed as prohibiting the BANK and/or the COMPANY from
pursuing any other remedies available to the BANK and/or the COMPANY for such
breach or threatened breach, including the recovery of damages from EXECUTIVE.
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(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the BANK. EXECUTIVE will not, during or
after the term of his employment, disclose any knowledge of the past, present,
planned or considered business activities of the BANK or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever. Notwithstanding the foregoing, EXECUTIVE may disclose any
knowledge of banking, financial and/or economic principles, concepts or ideas
which are not solely and exclusively derived from the business plans and
activities of the BANK. In the event of a breach or threatened breach by
EXECUTIVE of the provisions of this Section, the BANK will be entitled to an
injunction restraining EXECUTIVE from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of
the BANK or affiliates thereof, or from rendering any services to any person,
firm, corporation, other entity to whom such knowledge, in whole or in part,
has been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the BANK from pursuing any other remedies available
to the BANK for such breach or threatened breach, including the recovery of
damages from EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that EXECUTIVE is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
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15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act
other than that specifically waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Tennessee,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or
state law or regulation, the provisions of such law or regulation shall
prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within fifty miles from the location of the BANK, in accordance with the rules
of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that EXECUTIVE shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
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All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK, if EXECUTIVE is successful pursuant to a legal
judgment, arbitration or settlement.
21. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred
by him in connection with or arising out of any action, suit or proceeding in
which he may be involved by reason of his having been a director or officer of
the BANK (whether or not he continues to be a directors or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements. The provisions of 12 C.F.R. 545.121 shall
apply to the BANK's obligations under this Section 21.
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise,
to all or substantially all the business or assets of the BANK or the COMPANY,
expressly and unconditionally to assume and agree to perform the BANK's or the
COMPANY's obligations under this Agreement, in the same manner and to the same
extent that the BANK or the COMPANY would be required to perform if no such
succession or assignment had taken place.
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IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement
to be executed and their seal to be affixed hereunto by a duly authorized
officer, and EXECUTIVE has signed this Agreement, all on the 2 day of March,
1998.
ATTEST: CAVALRY BANKING
/S/IRA B. LEWIS, JR. /S/WILLIAM H. HUDDLESTON, III
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. WILLIAM H. HUDDLESTON, III
[SEAL]
ATTEST: CAVALRY BANCORP, INC.
/S/IRA B. LEWIS, JR. /S/WILLIAM H. HUDDLESTON, III
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. WILLIAM H. HUDDLESTON, III
[SEAL]
WITNESS:
/S/BETHANY K. COLE /S/RONALD F. KNIGHT
- ------------------------------- ------------------------------------
BETHANY K. COLE RONALD F. KNIGHT
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Exhibit 10.3
Severance Agreement with Hillard C. Gardner
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AGREEMENT
This AGREEMENT is made effective as of February 26, 1998 by and between
CAVALRY BANKING (the "BANK"); CAVALRY BANCORP, INC. ("COMPANY"), a Tennessee
corporation; and HILLARD C. GARDNER ("EXECUTIVE").
WHEREAS, the BANK recognizes the substantial contribution EXECUTIVE has
made to the BANK and wishes to protect his position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
NOW, THEREFORE, in consideration of the foregoing and upon the other
terms and conditions hereinafter provided, the parties hereto agree as
follows:
1. Term Of Agreement
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement and continuing at each anniversary date thereafter, the Board
of Directors of the BANK ("Board") may extend the Agreement for an additional
year. The Board will conduct a performance evaluation of EXECUTIVE for
purposes of determining whether to extend the Agreement, and the results
thereof shall be included in the minutes of the Board's meeting.
2. Payments To EXECUTIVE Upon Change In Control.
(a) Upon the occurrence of a Change in Control (as herein defined)
followed within twelve (12) months of the effective date of the Change in
Control by the voluntary or involuntary termination of EXECUTIVE's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. For purposes of this Agreement, "voluntary
termination" shall be limited to the circumstances in which EXECUTIVE elects
to voluntarily terminate his employment within twelve (12) months of the
effective date of a Change in Control following any material demotion, loss of
title, office or significant authority, material reduction in his annual
compensation or benefits (other than a reduction affecting the Bank's
personnel generally), or the relocation of his principal place of employment
by more than 25 miles from its location immediately prior to the Change in
Control.
(b) A "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the COMPANY or the BANK representing twenty-five
percent (25%) or more of the combined voting power of the COMPANY's or the
BANK's then outstanding securities, (c) the membership of the board of
directors of the COMPANY or the BANK changes as the result of a contested
election, such that individuals who were directors
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at the beginning of any twenty-four (24) month period (whether commencing
before or after the date of adoption of this Agreement) do not constitute a
majority of the Board at the end of such period, or (d) shareholders of the
COMPANY or the BANK approve a merger, consolidation, sale or disposition of
all or substantially all of the COMPANY's or the BANK's assets, or a plan of
partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of EXECUTIVE's
intentional failure to perform stated duties, personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
any material breach of any material provision of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institution industry.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to EXECUTIVE and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, EXECUTIVE was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. EXECUTIVE shall not have the right to receive compensation or other
benefits for any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control, followed within twelve
(12) months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay, a sum equal to the greater of (i) one-twelfth of
Executive's annual compensation times Executive's years of employment with the
Bank (including partial years rounded up to the nearest whole month) as of the
effective date of the Change in Control or (ii) Executive's annual
compensation. For purposes of this Agreement, "annual compensation" shall
mean and include all wages, salary, bonus, and other compensation, if any,
paid (including accrued amounts) by the Company or the Bank as consideration
for EXECUTIVE's service during the twelve (12) month period ending on the last
day of the month preceding the effective date of a Change in Control, which is
or would be includable in the gross income of the EXECUTIVE receiving the same
for federal income tax purposes. Such amount shall be paid to EXECUTIVE in a
lump sum no later than thirty (30) days after the date of his termination.
(b) Upon the occurrence of a Change in Control of the BANK followed
within twelve (12) months of the effective date of a Change in Control by
EXECUTIVE's voluntary or involuntary termination of employment, other than
Termination for Cause, the BANK shall cause
2
<PAGE>
<PAGE>
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
severance. Such coverage and payments shall cease upon expiration of twelve
(12) months from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in
Control, would be deemed to include an "excess parachute payment" under
Section 280G of the Code, then, at the election of EXECUTIVE, (i) such
payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under Section 280G(b)(3) of the Code or (ii) the
payments or benefits to be provided under this Section 3 shall be reduced to
the extent necessary to avoid treatment as an excess parachute payment with
the allocation of the reduction among such payments and benefits to be
determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
4. Effect On Prior Agreements And Existing Benefit Plans
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the BANK and EXECUTIVE,
except that this Agreement shall not affect or operate to reduce any benefit
or compensation inuring to EXECUTIVE of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that EXECUTIVE is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the BANK and their respective successors and assigns.
3
<PAGE>
<PAGE>
6. Modification And Waiver
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
7. Required Provisions
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not
prejudice EXECUTIVE's right to compensation or other benefits under this
Agreement. EXECUTIVE shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 2(c) herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in
part) any of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance
to or on behalf of the BANK under the authority contained in Section 13(c)
4
<PAGE>
<PAGE>
of the FDIA and (ii) by the Director, or his or her designee at the time the
Director or such designee approves a supervisory merger to resolve problems
related to operation of the BANK or when the BANK is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
8. Severability
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
9. Headings For Reference Only
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Tennessee, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within fifty (50) miles from the location of the BANK, in accordance with the
rules of the American Arbitration Association then in effect.
11. Source of Payments
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
12. Payment Of Legal Fees
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to
a legal judgment, arbitration or settlement.
3
<PAGE>
<PAGE>
13. Successor To The BANK or the COMPANY
The BANK and the COMPANY shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation or otherwise,
to all or substantially all the business or assets of the BANK or the COMPANY,
expressly and unconditionally to assume and agree to perform the BANK's or the
COMPANY's obligations under this Agreement, in the same manner and to the same
extent that the BANK or the COMPANY would be required to perform if no such
succession or assignment had taken place.
14. Signatures
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement
to be executed and their seal to be affixed hereunto by a duly authorized
officer, and EXECUTIVE has signed this Agreement, all on the 26 day of
February, 1998.
ATTEST: CAVALRY BANKING
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
ATTEST: CAVALRY BANCORP, INC.
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
WITNESS:
/S/IRA B. LEWIS, JR. /S/HILLARD C. GARDNER
- ------------------------------- ------------------------------------
IRA B. LEWIS, JR. HILLARD C. GARDNER
6
<PAGE>
<PAGE>
Exhibit 10.4
Severance Agreement with Ira B. Lewis
<PAGE>
<PAGE>
AGREEMENT
This AGREEMENT is made effective as of February 26, 1998 by and between
CAVALRY BANKING (the "BANK"); CAVALRY BANCORP, INC. ("COMPANY"), a Tennessee
corporation; and IRA B. LEWIS, JR. ("EXECUTIVE").
WHEREAS, the BANK recognizes the substantial contribution EXECUTIVE has
made to the BANK and wishes to protect his position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
NOW, THEREFORE, in consideration of the foregoing and upon the other
terms and conditions hereinafter provided, the parties hereto agree as
follows:
1. Term Of Agreement
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement and continuing at each anniversary date thereafter, the Board
of Directors of the BANK ("Board") may extend the Agreement for an additional
year. The Board will conduct a performance evaluation of EXECUTIVE for
purposes of determining whether to extend the Agreement, and the results
thereof shall be included in the minutes of the Board's meeting.
2. Payments To EXECUTIVE Upon Change In Control.
(a) Upon the occurrence of a Change in Control (as herein defined)
followed within twelve (12) months of the effective date of the Change in
Control by the voluntary or involuntary termination of EXECUTIVE's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. For purposes of this Agreement, "voluntary
termination" shall be limited to the circumstances in which EXECUTIVE elects
to voluntarily terminate his employment within twelve (12) months of the
effective date of a Change in Control following any material demotion, loss of
title, office or significant authority, material reduction in his annual
compensation or benefits (other than a reduction affecting the Bank's
personnel generally), or the relocation of his principal place of employment
by more than 25 miles from its location immediately prior to the Change in
Control.
(b) A "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the COMPANY or the BANK representing twenty-five
percent (25%) or more of the combined voting power of the COMPANY's or the
BANK's then outstanding securities, (c) the membership of the board of
directors of the COMPANY or the BANK changes as the result of a contested
election, such that individuals who were directors
<PAGE>
<PAGE>
at the beginning of any twenty-four (24) month period (whether commencing
before or after the date of adoption of this Agreement) do not constitute a
majority of the Board at the end of such period, or (d) shareholders of the
COMPANY or the BANK approve a merger, consolidation, sale or disposition of
all or substantially all of the COMPANY's or the BANK's assets, or a plan of
partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of EXECUTIVE's
intentional failure to perform stated duties, personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
any material breach of any material provision of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institution industry.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to EXECUTIVE and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, EXECUTIVE was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. EXECUTIVE shall not have the right to receive compensation or other
benefits for any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control, followed within twelve
(12) months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay, a sum equal to the greater of (i) one-twelfth of
Executive's annual compensation times Executive's years of employment with the
Bank (including partial years rounded up to the nearest whole month) as of the
effective date of the Change in Control or (ii) Executive's annual
compensation. For purposes of this Agreement, "annual compensation" shall
mean and include all wages, salary, bonus, and other compensation, if any,
paid (including accrued amounts) by the Company or the Bank as consideration
for EXECUTIVE's service during the twelve (12) month period ending on the last
day of the month preceding the effective date of a Change in Control, which is
or would be includable in the gross income of the EXECUTIVE receiving the same
for federal income tax purposes. Such amount shall be paid to EXECUTIVE in a
lump sum no later than thirty (30) days after the date of his termination.
(b) Upon the occurrence of a Change in Control of the BANK followed
within twelve (12) months of the effective date of a Change in Control by
EXECUTIVE's voluntary or involuntary termination of employment, other than
Termination for Cause, the BANK shall cause
2
<PAGE>
<PAGE>
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
severance. Such coverage and payments shall cease upon expiration of twelve
(12) months from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in
Control, would be deemed to include an "excess parachute payment" under
Section 280G of the Code, then, at the election of EXECUTIVE, (i) such
payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under Section 280G(b)(3) of the Code or (ii) the
payments or benefits to be provided under this Section 3 shall be reduced to
the extent necessary to avoid treatment as an excess parachute payment with
the allocation of the reduction among such payments and benefits to be
determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
4. Effect On Prior Agreements And Existing Benefit Plans
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the BANK and EXECUTIVE,
except that this Agreement shall not affect or operate to reduce any benefit
or compensation inuring to EXECUTIVE of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that EXECUTIVE is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the BANK and their respective successors and assigns.
3
<PAGE>
<PAGE>
6. Modification And Waiver
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
7. Required Provisions
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not
prejudice EXECUTIVE's right to compensation or other benefits under this
Agreement. EXECUTIVE shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 2(c) herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in
part) any of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance
to or on behalf of the BANK under the authority contained in Section 13(c)
4
<PAGE>
<PAGE>
of the FDIA and (ii) by the Director, or his or her designee at the time the
Director or such designee approves a supervisory merger to resolve problems
related to operation of the BANK or when the BANK is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
8. Severability
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
9. Headings For Reference Only
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Tennessee, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within fifty (50) miles from the location of the BANK, in accordance with the
rules of the American Arbitration Association then in effect.
11. Source of Payments
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
12. Payment Of Legal Fees
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to
a legal judgment, arbitration or settlement.
5
<PAGE>
<PAGE>
13. Successor To The BANK or the COMPANY
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent
that the BANK or the COMPANY would be required to perform if no such
succession or assignment had taken place.
14. Signatures
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement
to be executed and their seal to be affixed hereunto by a duly authorized
officer, and EXECUTIVE has signed this Agreement, all on the 26 day of
February, 1998.
ATTEST: CAVALRY BANKING
/S/HILLARD C. GARDNER /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
HILLARD C. GARDNER ED C. LOUGHRY, JR.
[SEAL]
ATTEST: CAVALRY BANCORP, INC.
/S/HILLARD C. GARDNER /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
HILLARD C. GARDNER ED C. LOUGHRY, JR.
[SEAL]
WITNESS:
/S/HILLARD C. GARDNER /S/IRA B. LEWIS, JR.
- ------------------------------- ------------------------------------
HILLARD C. GARDNER IRA B. LEWIS, JR.
6
<PAGE>
<PAGE>
Exhibit 10.5
Severance Agreement with R. Dale Floyd
<PAGE>
<PAGE>
AGREEMENT
This AGREEMENT is made effective as of February 26, 1998 by and between
CAVALRY BANKING (the "BANK"); CAVALRY BANCORP, INC. ("COMPANY"), a Tennessee
corporation; and RICHARD D. FLOYD ("EXECUTIVE").
WHEREAS, the BANK recognizes the substantial contribution EXECUTIVE has
made to the BANK and wishes to protect his position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
NOW, THEREFORE, in consideration of the foregoing and upon the other
terms and conditions hereinafter provided, the parties hereto agree as
follows:
1. Term Of Agreement
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement and continuing at each anniversary date thereafter, the Board
of Directors of the BANK ("Board") may extend the Agreement for an additional
year. The Board will conduct a performance evaluation of EXECUTIVE for
purposes of determining whether to extend the Agreement, and the results
thereof shall be included in the minutes of the Board's meeting.
2. Payments To EXECUTIVE Upon Change In Control.
(a) Upon the occurrence of a Change in Control (as herein defined)
followed within twelve (12) months of the effective date of the Change in
Control by the voluntary or involuntary termination of EXECUTIVE's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. For purposes of this Agreement, "voluntary
termination" shall be limited to the circumstances in which EXECUTIVE elects
to voluntarily terminate his employment within twelve (12) months of the
effective date of a Change in Control following any material demotion, loss of
title, office or significant authority, material reduction in his annual
compensation or benefits (other than a reduction affecting the Bank's
personnel generally), or the relocation of his principal place of employment
by more than 25 miles from its location immediately prior to the Change in
Control.
(b) A "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the COMPANY or the BANK representing twenty-five
percent (25%) or more of the combined voting power of the COMPANY's or the
BANK's then outstanding securities, (c) the membership of the board of
directors of the COMPANY or the BANK changes as the result of a contested
election, such that individuals who were directors
<PAGE>
<PAGE>
at the beginning of any twenty-four (24) month period (whether commencing
before or after the date of adoption of this Agreement) do not constitute a
majority of the Board at the end of such period, or (d) shareholders of the
COMPANY or the BANK approve a merger, consolidation, sale or disposition of
all or substantially all of the COMPANY's or the BANK's assets, or a plan of
partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of EXECUTIVE's
intentional failure to perform stated duties, personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
any material breach of any material provision of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institution industry.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to EXECUTIVE and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, EXECUTIVE was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. EXECUTIVE shall not have the right to receive compensation or other
benefits for any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control, followed within twelve
(12) months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay, a sum equal to the greater of (i) one-twelfth of
Executive's annual compensation times Executive's years of employment with the
Bank (including partial years rounded up to the nearest whole month) as of the
effective date of the Change in Control or (ii) Executive's annual
compensation. For purposes of this Agreement, "annual compensation" shall
mean and include all wages, salary, bonus, and other compensation, if any,
paid (including accrued amounts) by the Company or the Bank as consideration
for EXECUTIVE's service during the twelve (12) month period ending on the last
day of the month preceding the effective date of a Change in Control, which is
or would be includable in the gross income of the EXECUTIVE receiving the same
for federal income tax purposes. Such amount shall be paid to EXECUTIVE in a
lump sum no later than thirty (30) days after the date of his termination.
(b) Upon the occurrence of a Change in Control of the BANK followed
within twelve (12) months of the effective date of a Change in Control by
EXECUTIVE's voluntary or involuntary termination of employment, other than
Termination for Cause, the BANK shall cause
2
<PAGE>
<PAGE>
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
severance. Such coverage and payments shall cease upon expiration of twelve
(12) months from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in
Control, would be deemed to include an "excess parachute payment" under
Section 280G of the Code, then, at the election of EXECUTIVE, (i) such
payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under Section 280G(b)(3) of the Code or (ii) the
payments or benefits to be provided under this Section 3 shall be reduced to
the extent necessary to avoid treatment as an excess parachute payment with
the allocation of the reduction among such payments and benefits to be
determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
4. Effect On Prior Agreements And Existing Benefit Plans
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the BANK and EXECUTIVE,
except that this Agreement shall not affect or operate to reduce any benefit
or compensation inuring to EXECUTIVE of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that EXECUTIVE is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the BANK and their respective successors and assigns.
3
<PAGE>
<PAGE>
6. Modification And Waiver
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
7. Required Provisions
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not
prejudice EXECUTIVE's right to compensation or other benefits under this
Agreement. EXECUTIVE shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 2(c) herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in
part) any of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance
to or on behalf of the BANK under the authority contained in Section 13(c)
4
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<PAGE>
of the FDIA and (ii) by the Director, or his or her designee at the time the
Director or such designee approves a supervisory merger to resolve problems
related to operation of the BANK or when the BANK is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
8. Severability
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
9. Headings For Reference Only
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Tennessee, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within fifty (50) miles from the location of the BANK, in accordance with the
rules of the American Arbitration Association then in effect.
11. Source of Payments
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
12. Payment Of Legal Fees
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to
a legal judgment, arbitration or settlement.
5
<PAGE>
<PAGE>
13. Successor To The BANK or the COMPANY
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent
that the BANK or the COMPANY would be required to perform if no such
succession or assignment had taken place.
14. Signatures
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement
to be executed and their seal to be affixed hereunto by a duly authorized
officer, and EXECUTIVE has signed this Agreement, all on the 26 day of
February, 1998.
ATTEST: CAVALRY BANKING
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
CAVALRY BANCORP, INC.
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
WITNESS:
/S/IRA B. LEWIS, JR. /S/R. Dale FLOYD
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. R. Dale FLOYD
6
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<PAGE>
Exhibit 10.6
Severance Agreement with M. Glenn Layne
<PAGE>
<PAGE>
AGREEMENT
This AGREEMENT is made effective as of February 26, 1998 by and between
CAVALRY BANKING (the "BANK"); CAVALRY BANCORP, INC. ("COMPANY"), a Tennessee
corporation; and MYRON G. LAYNE ("EXECUTIVE").
WHEREAS, the BANK recognizes the substantial contribution EXECUTIVE has
made to the BANK and wishes to protect his position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
NOW, THEREFORE, in consideration of the foregoing and upon the other
terms and conditions hereinafter provided, the parties hereto agree as
follows:
1. Term Of Agreement
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement and continuing at each anniversary date thereafter, the Board
of Directors of the BANK ("Board") may extend the Agreement for an additional
year. The Board will conduct a performance evaluation of EXECUTIVE for
purposes of determining whether to extend the Agreement, and the results
thereof shall be included in the minutes of the Board's meeting.
2. Payments To EXECUTIVE Upon Change In Control.
(a) Upon the occurrence of a Change in Control (as herein defined)
followed within twelve (12) months of the effective date of the Change in
Control by the voluntary or involuntary termination of EXECUTIVE's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. For purposes of this Agreement, "voluntary
termination" shall be limited to the circumstances in which EXECUTIVE elects
to voluntarily terminate his employment within twelve (12) months of the
effective date of a Change in Control following any material demotion, loss of
title, office or significant authority, material reduction in his annual
compensation or benefits (other than a reduction affecting the Bank's
personnel generally), or the relocation of his principal place of employment
by more than 25 miles from its location immediately prior to the Change in
Control.
(b) A "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the COMPANY or the BANK representing twenty-five
percent (25%) or more of the combined voting power of the COMPANY's or the
BANK's then outstanding securities, (c) the membership of the board of
directors of the COMPANY or the BANK changes as the result of a contested
election, such that individuals who were directors
<PAGE>
<PAGE>
at the beginning of any twenty-four (24) month period (whether commencing
before or after the date of adoption of this Agreement) do not constitute a
majority of the Board at the end of such period, or (d) shareholders of the
COMPANY or the BANK approve a merger, consolidation, sale or disposition of
all or substantially all of the COMPANY's or the BANK's assets, or a plan of
partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of EXECUTIVE's
intentional failure to perform stated duties, personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
any material breach of any material provision of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institution industry.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to EXECUTIVE and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, EXECUTIVE was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. EXECUTIVE shall not have the right to receive compensation or other
benefits for any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control, followed within twelve
(12) months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay, a sum equal to the greater of (i) one-twelfth of
Executive's annual compensation times Executive's years of employment with the
Bank (including partial years rounded up to the nearest whole month) as of the
effective date of the Change in Control or (ii) Executive's annual
compensation. For purposes of this Agreement, "annual compensation" shall
mean and include all wages, salary, bonus, and other compensation, if any,
paid (including accrued amounts) by the Company or the Bank as consideration
for EXECUTIVE's service during the twelve (12) month period ending on the last
day of the month preceding the effective date of a Change in Control, which is
or would be includable in the gross income of the EXECUTIVE receiving the same
for federal income tax purposes. Such amount shall be paid to EXECUTIVE in a
lump sum no later than thirty (30) days after the date of his termination.
(b) Upon the occurrence of a Change in Control of the BANK followed
within twelve (12) months of the effective date of a Change in Control by
EXECUTIVE's voluntary or involuntary termination of employment, other than
Termination for Cause, the BANK shall cause
2
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<PAGE>
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
severance. Such coverage and payments shall cease upon expiration of twelve
(12) months from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in
Control, would be deemed to include an "excess parachute payment" under
Section 280G of the Code, then, at the election of EXECUTIVE, (i) such
payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under Section 280G(b)(3) of the Code or (ii) the
payments or benefits to be provided under this Section 3 shall be reduced to
the extent necessary to avoid treatment as an excess parachute payment with
the allocation of the reduction among such payments and benefits to be
determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
4. Effect On Prior Agreements And Existing Benefit Plans
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the BANK and EXECUTIVE,
except that this Agreement shall not affect or operate to reduce any benefit
or compensation inuring to EXECUTIVE of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that EXECUTIVE is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the BANK and their respective successors and assigns.
3
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<PAGE>
6. Modification And Waiver
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
7. Required Provisions
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not
prejudice EXECUTIVE's right to compensation or other benefits under this
Agreement. EXECUTIVE shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 2(c) herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in
part) any of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance
to or on behalf of the BANK under the authority contained in Section 13(c)
4
<PAGE>
<PAGE>
of the FDIA and (ii) by the Director, or his or her designee at the time the
Director or such designee approves a supervisory merger to resolve problems
related to operation of the BANK or when the BANK is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
8. Severability
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
9. Headings For Reference Only
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Tennessee, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within fifty (50) miles from the location of the BANK, in accordance with the
rules of the American Arbitration Association then in effect.
11. Source of Payments
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
12. Payment Of Legal Fees
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to
a legal judgment, arbitration or settlement.
5
<PAGE>
<PAGE>
13. Successor To The BANK or the COMPANY
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent
that the BANK or the COMPANY would be required to perform if no such
succession or assignment had taken place.
14. Signatures
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement
to be executed and their seal to be affixed hereunto by a duly authorized
officer, and EXECUTIVE has signed this Agreement, all on the 26 day of
February, 1998.
ATTEST: CAVALRY BANKING
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
CAVALRY BANCORP, INC.
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
WITNESS:
/S/IRA B. LEWIS, JR. /S/MYRON G. LAYNE
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. MYRON G. LAYNE
6
<PAGE>
<PAGE>
Exhibit 10.7
Severance Agreement with Joy B. Jobe
<PAGE>
<PAGE>
AGREEMENT
This AGREEMENT is made effective as of February 26, 1998 by and between
CAVALRY BANKING (the "BANK"); CAVALRY BANCORP, INC. ("COMPANY"), a Tennessee
corporation; and JOY B. JOBE ("EXECUTIVE").
WHEREAS, the BANK recognizes the substantial contribution EXECUTIVE has
made to the BANK and wishes to protect her position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
NOW, THEREFORE, in consideration of the foregoing and upon the other
terms and conditions hereinafter provided, the parties hereto agree as
follows:
1. Term Of Agreement
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement and continuing at each anniversary date thereafter, the Board
of Directors of the BANK ("Board") may extend the Agreement for an additional
year. The Board will conduct a performance evaluation of EXECUTIVE for
purposes of determining whether to extend the Agreement, and the results
thereof shall be included in the minutes of the Board's meeting.
2. Payments To EXECUTIVE Upon Change In Control.
(a) Upon the occurrence of a Change in Control (as herein defined)
followed within twelve (12) months of the effective date of the Change in
Control by the voluntary or involuntary termination of EXECUTIVE's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. For purposes of this Agreement, "voluntary
termination" shall be limited to the circumstances in which EXECUTIVE elects
to voluntarily terminate her employment within twelve (12) months of the
effective date of a Change in Control following any material demotion, loss of
title, office or significant authority, material reduction in her annual
compensation or benefits (other than a reduction affecting the Bank's
personnel generally), or the relocation of her principal place of employment
by more than 25 miles from its location immediately prior to the Change in
Control.
(b) A "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the COMPANY or the BANK representing twenty-five
percent (25%) or more of the combined voting power of the COMPANY's or the
BANK's then outstanding securities, (c) the membership of the board of
directors of the COMPANY or the BANK changes as the result of a contested
election, such that individuals who were directors
<PAGE>
<PAGE>
at the beginning of any twenty-four (24) month period (whether commencing
before or after the date of adoption of this Agreement) do not constitute a
majority of the Board at the end of such period, or (d) shareholders of the
COMPANY or the BANK approve a merger, consolidation, sale or disposition of
all or substantially all of the COMPANY's or the BANK's assets, or a plan of
partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of EXECUTIVE's
intentional failure to perform stated duties, personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
any material breach of any material provision of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institution industry.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to her a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to EXECUTIVE and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, EXECUTIVE was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. EXECUTIVE shall not have the right to receive compensation or other
benefits for any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control, followed within twelve
(12) months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of her
subsequent death, her beneficiary or beneficiaries, or her estate, as the case
may be, as severance pay, a sum equal to the greater of (i) one-twelfth of
Executive's annual compensation times Executive's years of employment with the
Bank (including partial years rounded up to the nearest whole month) as of the
effective date of the Change in Control or (ii) Executive's annual
compensation. For purposes of this Agreement, "annual compensation" shall
mean and include all wages, salary, bonus, and other compensation, if any,
paid (including accrued amounts) by the Company or the Bank as consideration
for EXECUTIVE's service during the twelve (12) month period ending on the last
day of the month preceding the effective date of a Change in Control, which is
or would be includable in the gross income of the EXECUTIVE receiving the same
for federal income tax purposes. Such amount shall be paid to EXECUTIVE in a
lump sum no later than thirty (30) days after the date of her termination.
(b) Upon the occurrence of a Change in Control of the BANK followed
within twelve (12) months of the effective date of a Change in Control by
EXECUTIVE's voluntary or involuntary termination of employment, other than
Termination for Cause, the BANK shall cause
2
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<PAGE>
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to her
severance. Such coverage and payments shall cease upon expiration of twelve
(12) months from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in
Control, would be deemed to include an "excess parachute payment" under
Section 280G of the Code, then, at the election of EXECUTIVE, (i) such
payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under Section 280G(b)(3) of the Code or (ii) the
payments or benefits to be provided under this Section 3 shall be reduced to
the extent necessary to avoid treatment as an excess parachute payment with
the allocation of the reduction among such payments and benefits to be
determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
4. Effect On Prior Agreements And Existing Benefit Plans
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the BANK and EXECUTIVE,
except that this Agreement shall not affect or operate to reduce any benefit
or compensation inuring to EXECUTIVE of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that EXECUTIVE is
subject to receiving fewer benefits than those available to her without
reference to this Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the BANK and their respective successors and assigns.
3
<PAGE>
<PAGE>
6. Modification And Waiver
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
7. Required Provisions
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not
prejudice EXECUTIVE's right to compensation or other benefits under this
Agreement. EXECUTIVE shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 2(c) herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in
part) any of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance
to or on behalf of the BANK under the authority contained in Section 13(c)
4
<PAGE>
<PAGE>
of the FDIA and (ii) by the Director, or his or her designee at the time the
Director or such designee approves a supervisory merger to resolve problems
related to operation of the BANK or when the BANK is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
8. Severability
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
9. Headings For Reference Only
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Tennessee, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within fifty (50) miles from the location of the BANK, in accordance with the
rules of the American Arbitration Association then in effect.
11. Source of Payments
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
12. Payment Of Legal Fees
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to
a legal judgment, arbitration or settlement.
5
<PAGE>
<PAGE>
13. Successor To The BANK or the COMPANY
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent
that the BANK or the COMPANY would be required to perform if no such
succession or assignment had taken place.
14. Signatures
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement
to be executed and their seal to be affixed hereunto by a duly authorized
officer, and EXECUTIVE has signed this Agreement, all on the 26 day of
February, 1998.
ATTEST: CAVALRY BANKING
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
CAVALRY BANCORP, INC.
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
WITNESS:
/S/IRA B. LEWIS, JR. /S/JOY B. JOBE
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. JOY B. JOBE
6
<PAGE>
<PAGE>
Exhibit 10.8
Severance Agreement with William S. Jones
<PAGE>
<PAGE>
AGREEMENT
This AGREEMENT is made effective as of February 26, 1998 by and between
CAVALRY BANKING (the "BANK"); CAVALRY BANCORP, INC. ("COMPANY"), a Tennessee
corporation; and WILLIAM S. JONES ("EXECUTIVE").
WHEREAS, the BANK recognizes the substantial contribution EXECUTIVE has
made to the BANK and wishes to protect his position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
NOW, THEREFORE, in consideration of the foregoing and upon the other
terms and conditions hereinafter provided, the parties hereto agree as
follows:
1. Term Of Agreement
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement and continuing at each anniversary date thereafter, the Board
of Directors of the BANK ("Board") may extend the Agreement for an additional
year. The Board will conduct a performance evaluation of EXECUTIVE for
purposes of determining whether to extend the Agreement, and the results
thereof shall be included in the minutes of the Board's meeting.
2. Payments To EXECUTIVE Upon Change In Control.
(a) Upon the occurrence of a Change in Control (as herein defined)
followed within twelve (12) months of the effective date of the Change in
Control by the voluntary or involuntary termination of EXECUTIVE's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. For purposes of this Agreement, "voluntary
termination" shall be limited to the circumstances in which EXECUTIVE elects
to voluntarily terminate his employment within twelve (12) months of the
effective date of a Change in Control following any material demotion, loss of
title, office or significant authority, material reduction in his annual
compensation or benefits (other than a reduction affecting the Bank's
personnel generally), or the relocation of his principal place of employment
by more than 25 miles from its location immediately prior to the Change in
Control.
(b) A "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the COMPANY or the BANK representing twenty-five
percent (25%) or more of the combined voting power of the COMPANY's or the
BANK's then outstanding securities, (c) the membership of the board of
directors of the COMPANY or the BANK changes as the result of a contested
election, such that individuals who were directors
<PAGE>
<PAGE>
at the beginning of any twenty-four (24) month period (whether commencing
before or after the date of adoption of this Agreement) do not constitute a
majority of the Board at the end of such period, or (d) shareholders of the
COMPANY or the BANK approve a merger, consolidation, sale or disposition of
all or substantially all of the COMPANY's or the BANK's assets, or a plan of
partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of EXECUTIVE's
intentional failure to perform stated duties, personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
any material breach of any material provision of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institution industry.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to EXECUTIVE and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, EXECUTIVE was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. EXECUTIVE shall not have the right to receive compensation or other
benefits for any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control, followed within twelve
(12) months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay, a sum equal to the greater of (i) one-twelfth of
Executive's annual compensation times Executive's years of employment with the
Bank (including partial years rounded up to the nearest whole month) as of the
effective date of the Change in Control or (ii) Executive's annual
compensation. For purposes of this Agreement, "annual compensation" shall
mean and include all wages, salary, bonus, and other compensation, if any,
paid (including accrued amounts) by the Company or the Bank as consideration
for EXECUTIVE's service during the twelve (12) month period ending on the last
day of the month preceding the effective date of a Change in Control, which is
or would be includable in the gross income of the EXECUTIVE receiving the same
for federal income tax purposes. Such amount shall be paid to EXECUTIVE in a
lump sum no later than thirty (30) days after the date of his termination.
(b) Upon the occurrence of a Change in Control of the BANK followed
within twelve (12) months of the effective date of a Change in Control by
EXECUTIVE's voluntary or involuntary termination of employment, other than
Termination for Cause, the BANK shall cause
2
<PAGE>
<PAGE>
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
severance. Such coverage and payments shall cease upon expiration of twelve
(12) months from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in
Control, would be deemed to include an "excess parachute payment" under
Section 280G of the Code, then, at the election of EXECUTIVE, (i) such
payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under Section 280G(b)(3) of the Code or (ii) the
payments or benefits to be provided under this Section 3 shall be reduced to
the extent necessary to avoid treatment as an excess parachute payment with
the allocation of the reduction among such payments and benefits to be
determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
4. Effect On Prior Agreements And Existing Benefit Plans
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the BANK and EXECUTIVE,
except that this Agreement shall not affect or operate to reduce any benefit
or compensation inuring to EXECUTIVE of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that EXECUTIVE is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the BANK and their respective successors and assigns.
3
<PAGE>
<PAGE>
6. Modification And Waiver
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
7. Required Provisions
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not
prejudice EXECUTIVE's right to compensation or other benefits under this
Agreement. EXECUTIVE shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 2(c) herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in
part) any of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance
to or on behalf of the BANK under the authority contained in Section 13(c)
4
<PAGE>
<PAGE>
of the FDIA and (ii) by the Director, or his or her designee at the time the
Director or such designee approves a supervisory merger to resolve problems
related to operation of the BANK or when the BANK is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
8. Severability
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
9. Headings For Reference Only
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Tennessee, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within fifty (50) miles from the location of the BANK, in accordance with
the rules of the American Arbitration Association then in effect.
11. Source of Payments
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
12. Payment Of Legal Fees
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to
a legal judgment, arbitration or settlement.
5
<PAGE>
<PAGE>
13. Successor To The BANK or the COMPANY
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent
that the BANK or the COMPANY would be required to perform if no such
succession or assignment had taken place.
14. Signatures
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement
to be executed and their seal to be affixed hereunto by a duly authorized
officer, and EXECUTIVE has signed this Agreement, all on the 26 day of
February, 1998.
ATTEST: CAVALRY BANKING
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
CAVALRY BANCORP, INC.
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
WITNESS:
/S/IRA B. LEWIS, JR. /S/WILLIAM S. JONES
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. WILLIAM S. JONES
<PAGE>
Exhibit 10.9
Severance Agreement with David W. Hopper
<PAGE>
<PAGE>
AGREEMENT
This AGREEMENT is made effective as of February 26, 1998 by and between
CAVALRY BANKING (the "BANK"); CAVALRY BANCORP, INC. ("COMPANY"), a Tennessee
corporation; and DAVID W. HOPPER ("EXECUTIVE").
WHEREAS, the BANK recognizes the substantial contribution EXECUTIVE has
made to the BANK and wishes to protect his position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
NOW, THEREFORE, in consideration of the foregoing and upon the other
terms and conditions hereinafter provided, the parties hereto agree as
follows:
1. Term Of Agreement
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the first anniversary date of
this Agreement and continuing at each anniversary date thereafter, the Board
of Directors of the BANK ("Board") may extend the Agreement for an additional
year. The Board will conduct a performance evaluation of EXECUTIVE for
purposes of determining whether to extend the Agreement, and the results
thereof shall be included in the minutes of the Board's meeting.
2. Payments To EXECUTIVE Upon Change In Control.
(a) Upon the occurrence of a Change in Control (as herein defined)
followed within twelve (12) months of the effective date of the Change in
Control by the voluntary or involuntary termination of EXECUTIVE's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. For purposes of this Agreement, "voluntary
termination" shall be limited to the circumstances in which EXECUTIVE elects
to voluntarily terminate his employment within twelve (12) months of the
effective date of a Change in Control following any material demotion, loss of
title, office or significant authority, material reduction in his annual
compensation or benefits (other than a reduction affecting the Bank's
personnel generally), or the relocation of his principal place of employment
by more than 25 miles from its location immediately prior to the Change in
Control.
(b) A "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the COMPANY or the BANK representing twenty-five
percent (25%) or more of the combined voting power of the COMPANY's or the
BANK's then outstanding securities, (c) the membership of the board of
directors of the COMPANY or the BANK changes as the result of a contested
election, such that individuals who were directors
<PAGE>
<PAGE>
at the beginning of any twenty-four (24) month period (whether commencing
before or after the date of adoption of this Agreement) do not constitute a
majority of the Board at the end of such period, or (d) shareholders of the
COMPANY or the BANK approve a merger, consolidation, sale or disposition of
all or substantially all of the COMPANY's or the BANK's assets, or a plan of
partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of EXECUTIVE's
intentional failure to perform stated duties, personal dishonesty,
incompetence, willful misconduct, any breach of fiduciary duty involving
personal profit, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
any material breach of any material provision of this Agreement. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institution industry.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to EXECUTIVE and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, EXECUTIVE was guilty of conduct
justifying Termination for Cause and specifying the particulars thereof in
detail. EXECUTIVE shall not have the right to receive compensation or other
benefits for any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control, followed within twelve
(12) months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay, a sum equal to the greater of (i) one-twelfth of
Executive's annual compensation times Executive's years of employment with the
Bank (including partial years rounded up to the nearest whole month) as of the
effective date of the Change in Control or (ii) Executive's annual
compensation. For purposes of this Agreement, "annual compensation" shall
mean and include all wages, salary, bonus, and other compensation, if any,
paid (including accrued amounts) by the Company or the Bank as consideration
for EXECUTIVE's service during the twelve (12) month period ending on the last
day of the month preceding the effective date of a Change in Control, which is
or would be includable in the gross income of the EXECUTIVE receiving the same
for federal income tax purposes. Such amount shall be paid to EXECUTIVE in a
lump sum no later than thirty (30) days after the date of his termination.
(b) Upon the occurrence of a Change in Control of the BANK followed
within twelve (12) months of the effective date of a Change in Control by
EXECUTIVE's voluntary or involuntary termination of employment, other than
Termination for Cause, the BANK shall cause
2
<PAGE>
<PAGE>
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
severance. Such coverage and payments shall cease upon expiration of twelve
(12) months from the date of EXECUTIVE's termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in
Control, would be deemed to include an "excess parachute payment" under
Section 280G of the Code, then, at the election of EXECUTIVE, (i) such
payments or benefits shall be payable or provided to EXECUTIVE over the
minimum period necessary to reduce the present value of such payments or
benefits to an amount which is one dollar ($1.00) less than three (3) times
EXECUTIVE's "base amount" under Section 280G(b)(3) of the Code or (ii) the
payments or benefits to be provided under this Section 3 shall be reduced to
the extent necessary to avoid treatment as an excess parachute payment with
the allocation of the reduction among such payments and benefits to be
determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
4. Effect On Prior Agreements And Existing Benefit Plans
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the BANK and EXECUTIVE,
except that this Agreement shall not affect or operate to reduce any benefit
or compensation inuring to EXECUTIVE of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that EXECUTIVE is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect any such action shall be
null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the BANK and their respective successors and assigns.
3
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6. Modification And Waiver
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
7. Required Provisions
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not
prejudice EXECUTIVE's right to compensation or other benefits under this
Agreement. EXECUTIVE shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in
Section 2(c) herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in
part) any of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties
shall not be affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the
FDIA), all obligations under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his or her designee at the time the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance
to or on behalf of the BANK under the authority contained in Section 13(c)
4
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<PAGE>
of the FDIA and (ii) by the Director, or his or her designee at the time the
Director or such designee approves a supervisory merger to resolve problems
related to operation of the BANK or when the BANK is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
8. Severability
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so invalid,
and each such other provision and part thereof shall to the full extent
consistent with law continue in full force and effect.
9. Headings For Reference Only
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation
of any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Tennessee, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the employee
within fifty (50) miles from the location of the BANK, in accordance with the
rules of the American Arbitration Association then in effect.
11. Source of Payments
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees
all payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
12. Payment Of Legal Fees
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to
a legal judgment, arbitration or settlement.
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13. Successor To The BANK or the COMPANY
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent
that the BANK or the COMPANY would be required to perform if no such
succession or assignment had taken place.
14. Signatures
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement
to be executed and their seal to be affixed hereunto by a duly authorized
officer, and EXECUTIVE has signed this Agreement, all on the 26 day of
February, 1998.
ATTEST: CAVALRY BANKING
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
CAVALRY BANCORP, INC.
/S/IRA B. LEWIS, JR. /S/ED C. LOUGHRY, JR.
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. ED C. LOUGHRY, JR.
[SEAL]
WITNESS:
/S/IRA B. LEWIS, JR. /S/DAVID W. HOPPER
- ------------------------------- BY:--------------------------------
IRA B. LEWIS, JR. DAVID W. HOPPER
6
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<PAGE>
Exhibit 10.10
Cavalry Banking Key Personnel Severance Compensation Plan
<PAGE>
<PAGE>
CAVALRY BANKING
SEVERANCE COMPENSATION PLAN FOR KEY PERSONNEL
PLAN PURPOSE
The purpose of this Cavalry Banking Severance Compensation Plan for Key
Personnel is to assure the services of key personnel of the Bank in the event
of a Change in Control. The benefits contemplated by the Plan recognize the
value to the Bank of the services and contributions of such key personnel of
the Bank and the effect upon the Bank resulting from the uncertainties of
continued employment, reduced employee benefits, management changes and
relocations that may arise in the event of a Change in Control. The Board
believes that the Plan will also aid the Bank in attracting and retaining the
highly qualified individuals who are essential to its success and that the
Plan's assurance of fair treatment of the Bank's key personnel will reduce the
distractions and other adverse effects on their performance in the event of a
Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank hereby
establishes a severance compensation plan to be known as the "Cavalry Banking
Severance Compensation Plan for Key Personnel." The purposes of the Plan are
as set forth above.
1.2 Application of Plan
-------------------
The benefits provided by this Plan shall be available to all officers of
the Bank, who, at or after the Effective Date, meet the eligibility
requirements of Article III, except for those officers of the Bank who have
entered into, or who enter into in the future, and continue to be subject to,
an employment, severance or change in control agreement with the Employer.
1.3 Contractual Right to Benefits
-----------------------------
This plan establishes and vests in each Participant a contractual right
to the benefits to which each Participant is entitled hereunder in the event
of a Change in Control, enforceable by the Participant against the Employer,
the Bank, or both. The Plan does not provide, and should not be construed as
providing, benefits of any kind to any officer, except in the event of a
Change in Control and, in the event of a Change in Control, only upon the
involuntary or voluntary termination of an officer in the manner contemplated
herein.
1
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ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings
set forth below.
"Annual Compensation" of a Participant means and includes all wages,
salary, bonus, and cash compensation, if any, paid (including accrued amounts)
by an Employer as consideration for the Participant's service during the
12-month period ending on the last day of the month preceding the date of a
Participant's termination pursuant to Section 4.2. For purposes of this Plan,
a Participant's "Monthly Compensation" shall equal one-twelfth of a
Participant's Annual Compensation as determined in accordance with this
paragraph.
"Bank" means Cavalry Banking, Murfreesboro, Tennessee, or any successor
as provided in Article VII hereof.
"Board" means the Board of Directors of the Bank.
"Change in Control" shall mean an event deemed to occur if and when (a)
there occurs a change in control of the Bank or the Company within the meaning
of the Home Owners Loan Act of 1933 and 12 C.F.R. Part 574, (b) any person (as
such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company or the Bank representing twenty-five percent (25%) or more of the
combined voting power of the Company's or the BANK's then outstanding
securities, (c) the membership of the board of directors of the Company or the
Bank changes as the result of a contested election, such that individuals who
were directors at the beginning of any twenty-four (24) month period (whether
commencing before or after the date of adoption of this Plan) do not
constitute a majority of the Board at the end of such period, or (d)
shareholders of the Company or the Bank approve a merger, consolidation, sale
or disposition of all or substantially all of the Company's or the BANK's
assets, or a plan of partial or complete liquidation.
"Company" means Cavalry Bancorp, Inc., a Tennessee corporation, the
holding company of the Bank.
"Disability" means the permanent and total inability by reason of mental
or physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board must advise the Board that it is either not possible to determine if or
when such Disability will terminate or that it appears probable that such
Disability will be permanent during the remainder of said employee's lifetime.
"Effective Date" means the date the Plan is approved by the Board of the
Bank, or such other date as the Board shall designate in its resolution
approving the Plan.
2
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"Employer" means (i) the Bank or (ii) a subsidiary of the Bank or a
parent company of the Bank which has adopted the plan pursuant to Article VI
hereof.
"Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
"Just Cause" shall means termination because of Participant's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule or regulation (other than traffic
violations or other similar offenses) or any final cease-and desist order, or
any material breach of any provision of this Plan.
"Payment" means the payment of severance compensation as provided in
Article IV hereof.
"Participant" means an officer of the Bank who meets the eligibility
requirements of Article III.
"Plan" means this Cavalry Banking Severance Compensation Plan for Key
Personnel.
2.2 Applicable Law
--------------
The laws of the State of Tennessee shall be controlling law in all
matters relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term "Participant" shall be limited to any officer of an Employer who
has completed at least one (1) year of service with the Employer at the time
of any termination pursuant to Section 4.2 herein. Notwithstanding the
foregoing, officers who have entered into and continue to be covered by an
individual employment contract, severance agreement, or change in control
agreement with an Employer shall not be entitled to participate in this Plan.
3
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3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an employee of an Employer, unless such Participant
is entitled to a Payment as provided in the Plan. A Participant entitled to
receipt of a Payment shall remain a Participant in this Plan until the full
amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from his or her Employer a
Payment in the amount provided in Section 4.3 if a Change in Control occurs
and if, within one (1) year thereafter, the Participant's employment by an
Employer shall terminate for any reason specified in Section 4.2. A
Participant shall not be entitled to a Payment if termination occurs by reason
of death, voluntary retirement, voluntary termination other than for the
reasons specified in Section 4.2, Disability or for Just Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a
Payment in accordance with Section 4.3 if employment by an Employer is
terminated, voluntary or involuntary, for any one or more of the following
reasons:
(a) The Employer materially reduces the Participant's base salary
or rate of compensation as in effect immediately prior to the Change in
Control, or as the same may have been increased thereafter.
(b) The Employer materially changes the Participant's function,
duties or responsibilities which would cause the Participant's position to be
one of lesser responsibility, importance or scope with the Employer than
immediately prior to the Change in Control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than twenty-five (25) miles from the location of the
Participant's job or office immediately prior to the Change in Control
provided that such new location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control;
provided, however, that a material reduction in benefits and perquisites
generally provided to all employees of the Bank on a nondiscriminatory basis
shall not trigger a Payment pursuant to this Plan.
4
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(e) A successor to the Employer fails or refuses to assume the
Employer's obligations under this Plan, as required by Article VII.
(f) The Employer, or any successor to the Employer, breaches any
other provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
-----------------
Each Participant entitled to a Payment under this Plan shall receive
from the Employer a lump sum cash payment equal to the product of the
Participant's Monthly Compensation and the Participant's years of service
(including partial years rounded up to the nearest full month) from the
employee's date of hire through the date of termination. Notwithstanding
anything herein to the contrary, the maximum payment to a Participant under
the Plan shall not exceed three (3) times a Participant's Monthly
Compensation.
The Participant shall not be required to mitigate damages on the amount
of the Payment by seeking other employment or otherwise, nor shall the amount
of such Payment be reduced by any compensation earned by the Participant as a
result of employment after termination of employment hereunder.
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than thirty (30) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts
shall be paid to the Participant's named beneficiary, if living, otherwise to
the personal representative of behalf of or for the benefit of the
Participant's estate.
4.5 Suspension of Payment
---------------------
Notwithstanding the foregoing, no payments or portions thereof shall be
made under this Plan, if such payment or portion would result in the Bank
failing to meet its minimum regulatory capital requirements as required by 12
C.F.R. Section 567.2. Any payments or portions thereof not paid shall be
suspended until such time as their payment would not result in a failure to
meet the Bank's minimum regulatory capital requirements. Any portion of
benefit payments which have not been suspended will be paid on an equitable
basis, pro rata based upon amounts due each Participant, among all eligible
Participants.
5
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ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for
hereunder shall reduce any amounts otherwise payable, or in any way diminish
the Participant's rights as an employee of an Employer, whether existing now
or hereafter, under any benefit, incentive, retirement, stock option, stock
bonus, stock ownership or any employment agreement or other plan or
arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on the
Participant's Employer any obligation to retain the Participant, to maintain
the status of the Participant's employment, or to change the Employer's
policies regarding termination of employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of the Bank, this Plan may be adopted by
any subsidiary of the Bank or by the Company. Upon such adoption, the
subsidiary or the Company shall become an Employer hereunder and the
provisions of the Plan shall be fully applicable to the employees of that
subsidiary or the Company. The term "subsidiary" means any corporation in
which the Bank, directly or indirectly, holds a majority of the voting power
of its outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under
this plan, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2, or
unless extended for an additional period or periods by resolution adopted by
the Board of the Bank.
6
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Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire
until such date as all Participants who become entitled to Payments hereunder
shall have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution
adopted by a majority of the Board of the Bank, unless a Change in Control has
previously occurred. If a Change in Control occurs, the Plan no longer shall
be subject to amendment, change, substitution, deletion, revocation or
termination in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the
Bank, certifying that the amendment or termination has been approved by the
Board. A proper termination of the Plan automatically shall effect a
termination of all Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under this
Plan shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and
any attempt, voluntary or involuntary, to affect such action shall be null,
void, and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of, each
employee, the Employer and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the employee's employment at any time, but
any termination by the Bank, other than Termination for Cause, shall not
prejudice employee's right to compensation or other benefits under this
Agreement if the employee is otherwise entitled to a benefit. The employee
shall not have the right to receive compensation or other benefits for any
period after termination for Just Cause as defined in Section 2.1 hereinabove.
7
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10.2 If the employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(3) or (g)(1), the Bank's obligations under this Plan to such
employee shall be suspended as of the date of service, unless stated by
appropriate proceedings. If the charges in the notice are dismissed, the
Bank may in its discretion (i) pay the employee all or part of the compensa-
tion withheld while their contract obligations were suspended and (ii) rein-
state (in whole or in part) any of the obligation which were suspended.
10.3 If the employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
Section 1818(e)(4) or (g)(1), all obligations of the Bank under this Plan to the
employee shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1818(x)(1), all obligations
of the Bank under this Plan shall terminate as of the date of default, but
this paragraph shall not affect any vested rights of the contracting parties.
10.5 All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution, (i) by the Director of the OTS
(or his designee) or (ii) the Federal Deposit Insurance Corporation ("FDIC")
at the time FDIC enters into an agreement to provide assistance to or on
behalf of the Bank under the authority contained in Section 13(c) of the
Federal Deposits Insurance Act, 12 U.S.C. Section 1823(c); or (ii) by the
Director of the OTS (or his designee) at the time the Director (or his
designee) approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the Director to be
in an unsafe or unsound condition. Any rights of the parties that have
already vested, however, shall not be affected by such action.
10.6 Any payments made to an employee pursuant to this Plan or otherwise
shall be conditioned upon compliance under 12 U.S.C. Section 1828(k) and any
regulations promulgated thereunder.
ARTICLE XI
ADMINISTRATION OF THE PLAN
11.1 The Plan shall be administered by the Board. Subject to the other
provisions of the Plan, the Board shall have authority to adopt, amend, alter
and repeal such administrative rules, guidelines and practices governing the
operation of the Plan as it shall from time to time consider advisable, to
interpret the provisions of the Plan and to decide all disputes arising in
connection with the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan in the manner and to the
extent it shall deem appropriate to carry the Plan into effect, in its sole
and absolute discretion. The Board's decision and interpretations
8
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<PAGE>
shall be final and binding. Any action of the Board with respect to the
administration of the Plan shall be taken pursuant to a majority vote or by
the unanimous written consent of its members.
Having been adopted by its Board on February 26, 1998, this Plan is
executed by duly authorized officer of the Bank this 26th day of February,
1998.
Attest
/s/Ira B. Lewis, Jr. /s/Ed C. Loughry, Jr.
- ----------------------------- --------------------------------
Ira B. Lewis, Jr. Ed C. Loughry, Jr.
Secretary President and Chief Executive Officer
9
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<PAGE>
Exhibit 10.11
Cavalry Banking Employee Stock Ownership Plan
<PAGE>
<PAGE>
CAVALRY BANKING
EMPLOYEE STOCK OWNERSHIP PLAN
(Effective as of January 1, 1998)
<PAGE>
<PAGE>
CAVALRY BANKING
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
Page
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Plurals and Gender . . . . . . . . . . . . . . . . . . . . 7
1.3 Incorporation of Trust Agreement . .. . . . . . . . . . . . 7
1.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.5 Severability . . . . . . . . . . . . . . . . . . . . . . . 7
1.6 References to Governmental Regulations . . . . . . . . . . 8
ARTICLE II
PARTICIPATION
2.1 Commencement of Participation. . . . . . . . . . . . . . . 9
2.2 Termination of Participation . .. . . . . . . . . . . . . . 9
2.3 Resumption of Participation. . . . . . . . . . . . . . . . 9
2.4 Determination of Eligibility . .. . . . . . . . . . . . . .10
ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes . . . . . . . . .11
3.2 Service Counted for Vesting Purposes . .. . . . . . . . . .11
3.3 Credit for Pre-Break Service . . . . . . . . . . . . . . .11
3.4 Service Credit During Authorized Leaves. . . . . . . . . .11
3.5 Service Credit During Maternity or Paternity Leave .. . . .12
3.6 Ineligible Employees .. . . . . . . . . . . . . . . . . . .12
ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions . . . . . . . . . .13
4.2 Time and Manner of Employee Stock Ownership Contributions .13
i
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4.3 Records of Contributions . . . . . . . . . . . . . . . . .14
4.4 Erroneous Contributions . . . . . . . . . . . . . . . . . .14
ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts . . . . . .16
5.2 Establishment of Suspense Account . . . . . . . . . . . . .16
5.3 Allocation of Earnings, Losses and Expenses . . . . . . . .17
5.4 Allocation of Forfeitures . . . . . . . . . . . . . . . . .17
5.5 Allocation of Annual Employee Stock
Ownership Contributions. . . . . . . . . . . . . . . . . ..17
5.6 Limitation on Annual Additions . . . . . . . . . . . . . .18
5.7 Erroneous Allocations.. . . . . . . . . . . . . . . . . . .21
5.8 Value of Participant's Interest in Fund . . . . . . . . . .22
5.9 Investment of Account Balances . . . . . . . . . . . . . .22
ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement. . . . . . . . . . . . . . . . . . . . .23
6.2 Early Retirement . . . . . . . . . . . . . . . . . . . . .23
6.3 Disability Retirement . . . . . . . . . . . . . . . . . . .23
6.4 Death Benefits . . . . . . . . . . . . . . . . . . . . . .23
6.5 Designation of Death Beneficiary and Manner of Payment. . .24
ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Retirement,
Change in Control. . . . . . . . . . . . . . . . . . . . . 25
7.2 Vesting on Termination of Participation . . . . . . . . . .25
7.3 Disposition of Forfeitures. . . . . . . . . . . . . . . . .26
ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP RULES
8.1 Right to Demand Employer Securities . . . . . . . . . . . .27
8.2 Voting Rights . . . . . . . . . . . . . . . . . . . . . . .27
8.3 Nondiscrimination in Employee Stock
Ownership Contributions. . . . . . . . . . . . . . . . . . 27
8.4 Dividends. . . . . . . . . . . . . . . . . . . . . . . . ..28
8.5 Exempt Loans . . . . . . . . . . . . . . . . . . . . . . . 28
8.6 Exempt Loan Payments .. . . . . . . . . . . . . . . . . . .29
8.7 Put Option . . . . . . . . . . . . . . . . . . . . . . . .30
8.8 Diversification Requirements . . . . . . . . . . . . . . .31
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8.9 Independent Appraiser . . . . . . . . . . . . . . . . . . .31
8.10 Limitation on Allocation. . . . . . . . . . . . . . . . . .31
ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service -- In General. . . . . .33
9.2 Commencement of Payments . . . . . . . . . . . . . . . . .33
9.3 Mandatory Commencement of Benefits . . . . . . . . . . . .33
9.4 Required Beginning Date . . . . . . . . . . . . . . . . . .36
9.5 Form of Payment . . . . . . . . . . . . . . . . . . . . . .36
9.6 Payments Upon Termination of Plan . . . . . . . . . . . . .36
9.7 Distribution Pursuant to Qualified Domestic
Relations Orders . . . . . . . . . . . . . . . . . . . . . 37
9.8 Cash-Out Distributions . . . . . . . . . . . . . . . . . .37
9.9 ESOP Distribution Rule. . . . . . . . . . . . . . . . . . .38
9.10 Withholding . . . . . . . . . . . . . . . . . . . . . . . .38
9.11 Waiver of 30-day Notice . . . . . . . . . . . . . . . . . .39
ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control . . . . . . . . . . . . . . . .40
10.2 Top-Heavy Plan Definitions . . . . . . . . . . . . . . . .40
10.3 Calculation of Accrued Benefits . . . . . . . . . . . . . .42
10.4 Determination of Top-Heavy Status . . . . . . . . . . . . .43
10.5 Determination of Super Top-Heavy Status . . . . . . . . . .44
10.6 Minimum Contribution. . . . . . . . . . . . . . . . . . . .44
10.7 Maximum Benefit Limitation . . . . . . . . . . . . . . . .45
ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator . . . . . . . . . . . . . . .46
11.2 Resignation or Removal of Administrator . . . . . . . . . .46
11.3 Appointment of Successors: Terms of Office, Etc.. . . . . .46
11.4 Powers and Duties of Administrator. . . . . . . . . . . . .46
11.5 Action by Administrator . . . . . . . . . . . . . . . . . .47
11.6 Participation by Administrators . . . . . . . . . . . . . .48
11.7 Agents. . . . . . . . . . . . . . . . . . . . . . . . . . .48
11.8 Allocation of Duties. . . . . . . . . . . . . . . . . . . .48
11.9 Delegation of Duties . . . . . . . . . . . . . . . . . . .48
11.10 Administrator's Action Conclusive.. . . . . . . . . . . . .48
11.11 Compensation and Expenses of Administrator . . . . . . . .49
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11.12 Records and Reports . . . . . . . . . . . . . . . . . . . .49
11.13 Reports of Fund Open to Participants . . . . . . . . . . .49
11.14 Named Fiduciary . . . . . . . . . . . . . . . . . . . . . .49
11.15 Information from Employer . . . . . . . . . . . . . . . . .49
11.16 Reservation of Rights by Employer . . . . . . . . . . . . .50
11.17 Liability and Indemnification . . . . . . . . . . . . . . .50
11.18 Service as Trustee and Administrator . . . . . . . . . . .50
ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial. . . . . . . . . . . . . . . . . . . . . .51
12.2 Right to Reconsideration. . . . . . . . . . . . . . . . . .51
12.3 Review of Documents . . . . . . . . . . . . . . . . . . . .51
12.4 Decision by Administrator . . . . . . . . . . . . . . . . .51
12.5 Notice by Administrator . . . . . . . . . . . . . . . . . .51
ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments. . . . . . . . . . . . . . . . . . . . . . . . .52
13.2 Consolidation, Merger or Other Transactions of Employer . .52
13.3 Consolidation or Merger of Trust. . . . . . . . . . . . . .53
13.4 Bankruptcy or Insolvency of Employer. . . . . . . . . . . .53
13.5 Voluntary Termination . . . . . . . . . . . . . . . . . . .54
13.6 Partial Termination of Plan or Permanent
Discontinuance of Contributions . . . . . . . . . . . . . .54
ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds . . . . . . . . . . . . . . . . . . .55
14.2 Liability Limited . . . . . . . . . . . . . . . . . . . . .55
14.3 Incapacity. . . . . . . . . . . . . . . . . . . . . . . . .55
14.4 Spendthrift Clause. . . . . . . . . . . . . . . . . . . . .55
14.5 Benefits Limited to Fund. . . . . . . . . . . . . . . . . .56
14.6 Cooperation of Parties. . . . . . . . . . . . . . . . . . .56
14.7 Payments Due Missing Persons. . . . . . . . . . . . . . . .56
14.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . .56
14.9 Nonguarantee of Employment. . . . . . . . . . . . . . . . .57
14.10 Counsel . . . . . . . . . . . . . . . . . . . . . . . . . .58
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CAVALRY BANKING
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of January 1, 1998, Cavalry Banking (the "Sponsor"), a
federally chartered stock savings bank (the "Sponsor"), has adopted the
Cavalry Banking Employee Stock Ownership Plan in order to enable Participants
to share in the growth and prosperity of the Sponsor, and to provide
Participants with an opportunity to accumulate capital for their future
economic security by accumulating funds to provide retirement, death and
disability benefits. The Plan is a stock bonus plan designed to meet the
requirements of an employee stock ownership plan as described at Section
4975(e)(7) of the Code and Section 407(d)(6) of ERISA. The primary purpose of
the employee stock ownership plan is to invest in employer securities. The
Sponsor intends that the Plan will qualify under Sections 401(a) and 501(a) of
the Code and will comply with the provisions of ERISA.
The terms of this Plan shall apply only with respect to Employees of the
Employer on and after January 1, 1998.
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ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Plan shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, or any successor statute.
(b) "Administrator" shall mean the administrative committee provided for
in Article XI.
(c) "Annual Additions" shall mean, with respect to each Participant, the
sum of those amounts allocated to the Participant's accounts under this Plan
and under any other qualified defined contribution plan to which the Employer
contributes for any Limitation Year, consisting of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Voluntary contributions (if any).
(d) "Authorized Leave of Absence" shall mean an absence from Service with
respect to which the Employee may or may not be entitled to Compensation and
which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States for up
to 36 months, provided that the Employee resumes Service
within 90 days after discharge, or such longer period of time
during which such Employee's employment rights are protected
by law; or
(2) Any other absence or leave expressly approved and granted by
the Employer which does not exceed 24 months, provided that
the Employee resumes Service at or before the end of such
approved leave period. In approving such leaves of absence,
the Employer shall treat all Employees on a uniform and
nondiscriminatory basis.
(e) "Beneficiary" shall mean such persons as may be designated by the
Participant to receive benefits after the death of the Participant, or such
persons designated by the Administrator to receive benefits after the death of
the Participant, all as provided in Section 6.5.
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(f) "Board of Directors" shall mean the Board of Directors of the
Sponsor.
(g) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute.
(i) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year,
including base salary, bonuses, overtime and commissions, and any amount of
compensation contributed pursuant to a salary reduction election under Code
Section 401(k) and any amount of compensation contributed to a cafeteria plan
described at Section 125 of the Code, but excluding amounts paid by the
Employer or accrued with respect to this Plan or any other qualified or
non-qualified unfunded plan of deferred compensation or other employee welfare
plan to which the Employer contributes, payments for group insurance, medical
benefits, reimbursement for expenses, and other forms of extraordinary pay,
and excluding amounts accrued for a prior year. Notwithstanding anything
herein to the contrary, the annual Compensation of each Participant taken into
account under the Plan (including for purposes of Section 5.6(b)) for any Plan
Year shall not exceed $160,000, as adjusted from time to time in accordance
with Section 401(a)(17) of the Code. If a determination period consists of
fewer than 12 months, the limitation referred to in the preceding sentence
shall be prorated accordingly.
(j) "Date of Hire" shall mean the date on which a person shall perform
his first Hour of Service. Notwithstanding the foregoing, in the event a
person incurs one or more consecutive Breaks after his initial Date of Hire
which results in the forfeiture of his pre-Break Service pursuant to Section
3.3, his "Date of Hire" shall thereafter be the date on which he completes his
first Hour of Service after such Break or Breaks.
(k) "Disability" shall mean a physical or mental impairment which
prohibits a Participant from engaging in any occupation for wages or profit
and which has caused the Social Security Administration to classify the
individual as "disabled" for purposes of Social Security.
(l) "Disability Retirement Date" shall mean the first day of the month
after which a Participant incurs a Disability.
(m) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Participant attains age
55 and completes ten Years of Service.
(n) "Effective Date" shall mean January 1, 1998.
(o) "Eligibility Period" shall mean the period of 12 consecutive months
commencing on an Employee's Date of Hire. Succeeding eligibility computation
periods after the initial eligibility
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computation period shall be based on Plan Years which include the first
anniversary of an Employee's Date of Hire.
(p) "Employee" shall mean any person employed by the Employer, including
officers but excluding directors in their capacity as such; provided, however,
that the term "Employee" shall not include leased employees, employees
regularly employed outside the employer's own offices in connection with the
operation and maintenance of buildings or other properties acquired through
foreclosure or deed, and any employee included in a unit of employees covered
by a collective-bargaining agreement with the Employer that does not expressly
provide for participation of such employees in this Plan, where there has been
good-faith bargaining between the Employer and employees' representatives on
the subject of retirement benefits.
(q) "Employer" shall mean Cavalry Banking, a federally chartered stock
savings bank, or any successors to the aforesaid by merger, consolidation or
otherwise, which may agree to continue this Plan, or any affiliated or
subsidiary corporation or business organization of any Employer which, with
the consent of the Sponsor, shall agree to become a party to this Plan.
(r) "Employer Securities" shall mean the common stock issued by Cavalry
Bancorp, Inc., a Tennessee corporation, or any employer security within the
meaning of Section 4975(c)(8) of the Code and Section 407(d)(1) of ERISA.
(s) "Entry Date" shall mean each January 1 and July 1, so long as this
Plan shall remain in effect.
(t) "Exempt Loan" shall mean a loan described at Section 4975(d)(1) of
the Code to the Trustee to purchase Employer Securities for the Plan, made or
guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the
Code, including, but not limited to, a direct loan of cash, a purchase money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of such disqualified person as collateral for
such a loan.
(u) "Former Participant" shall mean any previous Participant whose
participation has terminated but who has a vested interest in the Plan which
has not been distributed in full.
(v) "Fund" shall mean the Fund maintained by the Trustee pursuant to the
Trust Agreement in order to provide for the payment of the benefits specified
in the Plan.
(w) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by an Employer for the
performance of duties or for reasons other than the performance of duties
(such as vacation time, holidays, sickness, disability, paid lay-offs, jury
duty and similar periods of paid nonworking time). To the extent not
otherwise included, Hours of Service shall also include each hour for which
back pay, irrespective of mitigation of damages, is either awarded or agreed
to by the Employer. Hours of working time shall be credited on the basis of
actual hours worked, even though compensated at a premium rate for overtime or
other reasons.
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In computing and crediting Hours of Service for an Employee under this Plan,
the rules set forth in Sections 2530.200b-2(b) and (c) of the Department of
Labor Regulations shall apply, said Sections being herein incorporated by
reference. Hours of Service shall be credited to the Plan Year or other
relevant period during which the services were performed or the nonworking
time occurred, regardless of the time when Compensation therefor may be paid.
Any Employee for whom no hourly employment records are kept by the Employer
shall be credited with 45 Hours of Service for each calendar week in which he
would have been credited with a least one Hour or Service under the foregoing
provisions, if hourly records were available. Solely for purposes of
determining whether a Break for participation and vesting purposes has
occurred in an Eligibility Period or Plan Year, an individual who is absent
from work for maternity or paternity reasons shall receive credit for the
Hours of Service which would otherwise have been credited to such individual
but for such absence, or in any case in which such hours cannot be determined,
eight Hours of Service per day of such absence. For purposes of this Section
1.1(w), an absence from work for maternity or paternity reasons means an
absence (1) by reason of the pregnancy of the individual, (2) by reason of a
birth of a child of the individual, (3) by reason of the placement of a child
with the individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a period
beginning immediately following such birth or placement. The Hours of Service
credited under this provision shall be credited (1) in the computation period
in which the absence begins if the crediting is necessary to prevent a Break
in that period, or (2) in all other cases, in the following computation
period.
(x) "Investment Adjustments" shall mean the increases and/or decreases in
the value of a Participant's accounts attributable to earnings, gains, losses
and expenses of the Fund, as set forth in Section 5.3.
(y) "Limitation Year" shall mean the Plan Year.
(z) "Normal Retirement Date" shall mean the first day of the month
coincident with or during which a Participant attains age 65.
(aa) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof.
(bb) "Plan" shall mean the Cavalry Banking Employee Stock Ownership Plan,
as described herein or as hereafter amended from time to time.
(cc) "Plan Year" shall mean any 12 consecutive month period commencing on
January 1 and ending on December 31.
(dd) "Qualified Domestic Relations Order" shall mean any judgment, decree
or order (including approval of a property settlement agreement) that relates
to the provision of child support, alimony, marital property rights to a
spouse, former spouse, child or other dependent of the Participant (all such
persons hereinafter termed "alternate payee") and is made pursuant to a State
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domestic relations law (including community property law) and, further, that
creates or recognizes the existence of an alternate payee's right to, or
assigns to an alternate payee the right to receive all or a portion of the
benefits payable with respect to a Participant and that clearly specifies the
following:
(1) the name and last known mailing address (if available) of the
Participant and the name and mailing address of each alternate payee
to which the order relates;
(2) the amount or percentage of the Participant's benefits to be paid to
an alternate payee or the manner in which the amount is to be
determined; and
(3) the number of payments or period for which payments are required.
A domestic relations order is not a Qualified Domestic Relations Order if
it:
(1) requires the Plan to provide any type or form of benefit or any
option not otherwise provided under the Plan; or,
(2) requires the Plan to provide increased benefits; or
(3) requires payment of benefits to an alternate payee that is required
to be paid to another alternate payee under a previously existing
Qualified Domestic Relations Order.
(ee) "Retirement" shall mean termination of employment which qualifies as
early, normal or Disability retirement as described in Article VI.
(ff) "Service" shall mean employment with the Employer.
(gg) "Sponsor" shall mean Cavalry Banking, a federally chartered stock
savings bank.
(hh) "Trust Agreement" shall mean the agreement, the Sponsor and the
Trustee (or any successor Trustee governing the administration of the Trust as
it may be amended from time to time.
(ii) "Trustee" shall mean the Trustee or Trustees by whom the assets of
the Plan are held, as provided in the Trust Agreement, or his or their
successors.
(jj) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the instruction of the
Administrator, but in no event may the Administrator request additional
valuations by the Trustee more frequently than quarterly. Whenever such date
falls on a Saturday, Sunday or holiday, the preceding business day shall be
the Valuation Date.
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(kk) "Year of Service" shall mean any Plan Year during which an Employee
has completed at least 1,000 Hours of Service. Except as otherwise specified
in Article III, in the determination of Years of Service for eligibility and
vesting purposes under this Plan, the term "Year of Service" shall also mean
any Plan Year during which an Employee has completed at least 1,000 Hours of
Service with an entity that is:
(1) a member of a controlled group including the Employer, while it is a
member of such controlled group (within the meaning of Section 414(b)
of the Code);
(2) in a group of trades or businesses under common control with the
Employer, while it is under common control (within the meaning of
Section 414(c) of the Code);
(3) a member of an affiliated service group including the Employer, while
it is a member of such affiliated service group (within the meaning
of Section 414(m) of the Code); or
(4) a leasing organization, under the circumstances described in Section
414(n) of the Code.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine gender
shall include the feminine and neuter genders, and the singular shall include
the plural, and vice versa, unless the context clearly indicates a different
meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan and for
all purposes shall be deemed a part of the Plan.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the
convenience of reference only and are to be ignored in any construction of the
provisions hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this
Plan, but shall be fully severable, and the Plan shall be construed and
enforced as if said illegal or invalid provisions had never been inserted
herein.
7
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1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall include
all regulations, rulings, procedures, releases and other position statements
issued by any such agency.
8
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ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) Any Employee who completes at least 1,000 Hours of Service during his
Eligibility Period or during any Plan Year beginning after his Date of Hire
shall initially become a Participant on the Entry Date coincident with or next
following the later of the following dates, provided he is employed by the
Employer on that Entry Date:
(1) The date which is 12 months after his Date of Hire; and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in Section
2.1(a) during the 12-month period prior to the Effective Date shall become a
Participant on the Effective Date, provided he was still employed by the
Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee shall
remain a Participant during each consecutive Plan Year thereafter until the
earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation
(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date he
is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes
a Year of Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service,
but whose pre-Break Service is not reinstated to his credit pursuant to
Section 3.3, shall be treated as a new Employee and shall again be required to
satisfy the eligibility requirements contained in Section 2.1 before resuming
participation on the appropriate Entry Date, as specified in Section 2.1.
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2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the
Employer shall furnish the Administrator a list of all Employees, indicating
the original date of their reemployment with the Employer and any Breaks they
may have incurred.
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ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Service completed by an
Employee shall be counted in determining his eligibility to become a
Participant on and after the Effective Date, whether such Service was
completed before or after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Service completed by an Employee (including Years of Service
completed prior to the Effective Date) shall be counted in determining his
vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section 3.3; and
(b) Service prior to the Effective Date of this Plan if such Service
would have been disregarded under the "break in service" rules (within the
meaning of Section 1.411(a)-5(b)(6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for all purposes of this Plan only if either:
(a) He was vested in any portion of his accrued benefit at the time the
Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed the
greater of five or the number of his Years of Service credited to him before
the Breaks began.
Except as provided in the foregoing, none of an Employee's Service prior
to one or a series of consecutive Breaks shall be counted for any purpose in
connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or 3.2
during any Authorized Leave of Absence. However, solely for the purpose of
determining whether he has incurred a Break during any Plan Year in which he
is absent from Service for one or more Authorized Leaves of Absence, he shall
be credited with 45 Hours of Service for each week during any such leave
period.
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Notwithstanding the foregoing, if an Employee fails to return to Service on or
before the end of a leave period, he shall be deemed to have terminated
Service as of the first day of such leave period and his credit for Hours of
Service, determined under this Section 3.4, shall be revoked. Notwithstanding
any provision of this Plan to the contrary, contributions, benefits and
service credit with respect to qualified military service will be provided in
accordance with Section 414(u) of the Code.
3.5 Service Credit During Maternity or Paternity Leave.
For purposes of determining whether a Break has occurred for
participation and vesting purposes, an individual who is on maternity or
paternity leave as described in Section 1.1(w), shall be deemed to have
completed Hours of Service during such period of absence, all in accordance
with Section 1.1(w). Notwithstanding the foregoing, no credit shall be given
for such Hours of Service unless the individual furnishes to the Administrator
such timely information as the Administrator may reasonably require to
determine:
(a) that the absence from Service was attributable to one of the
maternity or paternity reasons enumerated in Section 1.1(w); and
(b) the number of days for which such absence lasted.
In no event, however, shall any credit be given for such leave other than
for determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any person
who is employed by the Employer, but who is ineligible to participate in this
Plan, either because of his failure:
(a) To meet the eligibility requirements contained in Article II; or
(b) To be an Employee, as defined in Section 1.1(p), shall, nevertheless,
earn Years of Service for eligibility and vesting purposes pursuant to the
rules contained in this Article III. However, such a person shall not be
entitled to receive any contributions hereunder unless and until he becomes a
Participant in this Plan, and then, only during his period of participation.
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ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions.
(a) Subject to all of the provisions of this Article IV, for each Plan
Year commencing on or after the Effective Date, the Employer shall make an
Employee Stock Ownership contribution to the Fund, in such amount as may be
determined by the Board of Directors in its discretion. Such contribution
shall be in the form of cash or Employer Securities. In determining the value
of Employer Securities transferred to the Fund as an Employee Stock Ownership
contribution, the Administrator may determine the average of closing prices of
such securities for a period of up to 90 consecutive days immediately
preceding the date on which the securities are contributed to the Fund. In
the event that the Employer Securities are not readily tradable on an
established securities market, the value of the Employer Securities
transferred to the Fund shall be determined by an independent appraiser in
accordance with Section 8.9.
(b) In no event shall such contribution by the Employer exceed for any
Plan Year the maximum amount that may be deducted by the Employer under
Section 404 of the Code, nor shall such contribution cause the Employer to
violate its regulatory capital requirements. Each Employee Stock Ownership
contribution by the Employer shall be deemed to be made on the express
condition that the Plan, as then in effect, shall be qualified under Sections
401 and 501 of the Code and that the amount of such contribution shall be
deductible from the Employer's income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contributions.
(a) The Employee Stock Ownership contribution (if any) for each Plan Year
shall be paid to the Trustee in one lump sum or installments at any time on or
before the expiration of the time prescribed by law (including any extensions)
for filing of the Employer's federal income tax return for its fiscal year
ending concurrent with or during such Plan Year. Any portion of the Employee
Stock Ownership contribution for each Plan Year that may be made prior to the
last day of the Plan Year shall be maintained by the Trustee in the Employee
Stock Ownership suspense account described in Section 5.2 until the last day
of such Plan Year.
(b) If an Employee Stock Ownership contribution for a Plan Year is paid
after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any
extensions) for filing of the Employer's federal income tax return for such
fiscal year, it shall be considered, for allocation purposes, as an Employee
Stock Ownership contribution to the Fund for the Plan Year for which it was
computed and accrued, unless such contribution is accompanied by a statement
to the Trustee, signed by a representative of the Employer, which specifies
that the Employee Stock Ownership contribution is made with respect to the
Plan Year in which it is received by the Trustee. Any Employee Stock
Ownership
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contribution paid by the Employer during any Plan Year but after the due date
(including any extensions) for filing of its federal income tax return for the
fiscal year of the Employer ending on or before the last day of the preceding
Plan Year shall be treated, for allocation purposes, as an Employee Stock
Ownership contribution to the Fund for the Plan Year in which the contribution
is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no
Employee Stock Ownership contribution shall be made for any year during which
a "limitations account" created pursuant to Section 5.6(c)(2) is in existence
until the balance of such limitations account has been reallocated in
accordance with Section 5.6(c)(2).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with respect
to the contributions contemplated in Section 4.1, a certificate of the
Administrator, in such form as the Trustee shall approve, setting forth:
(a) The aggregate amount of contributions, if any, to the Fund for such
Plan Year;
(b) The names, Internal Revenue Service identifying numbers and current
residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to each such
Participant; and
(d) Any other information reasonably required for the proper operation of
the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the Employer's
request, a contribution which was made by a mistake of fact, or conditioned
upon the initial qualification of the Plan, under Code Section 401, or upon
the deductibility of the contribution under Section 404 of the Code, shall be
returned to the Employer by the Trustee within one year after the payment of
the contribution, the denial of the qualification or the disallowance of the
deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of the initial qualification of the Plan,
a contribution shall not be returned unless an Application for Determination
has been timely filed with the Internal Revenue Service. Any portion of a
contribution returned pursuant to this Section 4.4 shall be adjusted to
reflect its proportionate share of the losses of the fund, but shall not be
adjusted to reflect any earnings or gains. Notwithstanding any provisions of
this Plan to the contrary, the right or claim of any Participant or
Beneficiary to any asset of the Fund or any benefit under this Plan shall be
subject to and limited by this Section 4.4.
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(b) In no event shall voluntary Employee contributions be accepted. Any
such voluntary Employee contributions (and any earnings attributable thereto)
mistakenly received by the Trustee shall promptly be returned to the
Participant.
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ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain separate individual
accounts for Participants in the Plan and for each Former Participant in
accordance with the provisions of this Article V. Such separate accounts
shall be for accounting purposes only and shall not require a segregation of
the Fund, and no Participant, Former Participant or Beneficiary shall acquire
any right to or interest in any specific assets of the Fund as a result of the
allocations provided for under this Plan, except where segregation is
expressly provided for in this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock Ownership
Account in the Fund for each Participant. The account shall be credited as of
the last day of each Plan Year with the amounts allocated to the Participant
under Sections 5.4 and 5.5. The Administrator may establish subaccounts
hereunder, including an Employer Stock Account reflecting a Participant's
interest in Employer Securities held by the Trust and an Other Investments
Account reflecting the Participant's interest in his Employee Stock Ownership
Account other than Employer Securities.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's vested
interest in the Plan is to be deferred, the Administrator shall establish a
separate, nonforfeitable account in the Fund to which the balance in his
Employee Stock Ownership Account in the Plan shall be transferred after such
Participant incurs a Break. Unless the Former Participant's distribution
accounts are segregated for investment purposes pursuant to section 9.4, they
shall share in Investment Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts for each
Participant as may be necessary or desirable for the convenient administration
of the Fund.
5.2 Establishment of Suspense Accounts.
The Administrator shall establish separate accounts to be known as
"suspense accounts." There shall be credited to such appropriate suspense
accounts any Employee Stock Ownership contributions that may be made prior to
the last day of the Plan Year, as provided in Section 4.2. The suspense
accounts shall share proportionately as to time and amount in any Investment
Adjustments. As of the last day of each Plan Year, the balance of the
Employee Stock Ownership suspense account shall be added to the Employee Stock
Ownership contribution and allocated to the Employee Stock
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Ownership Accounts of Participants as provided in Section 5.5, except as
provided herein. In the event that the Plan takes an Exempt Loan, the
Employer Securities purchased thereby shall be allocated to a separate Exempt
Loan Suspense Account, from which allocations shall be made in accordance with
Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of
the aggregate Employee Stock Ownership Accounts held in the Fund attributable
to earnings, losses, expenses and unrealized appreciation or depreciation in
each such aggregate Account, as determined by the Trustee pursuant to the
Trust Agreement, shall be credited to or deducted from the appropriate
suspense accounts and all Participants' Employee Stock Ownership Accounts
(except segregated distribution accounts described in Section 5.1(b) and the
"limitations account" described in Section 5.6(c)(4)) in the proportion that
the value of each such Account (determined immediately prior to such
allocation and before crediting any Employee Stock Ownership contributions and
forfeitures for the current Plan Year but after adjustment for any transfer to
or from such Accounts and for the time such funds were in such Accounts) bears
to the value of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to the
Employee Stock Ownership Accounts which are then available for reallocation
shall be, as appropriate, added to the Employee Stock Ownership contribution
(if any) for such year and allocated among the Participants' Employee Stock
Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and
5.6.
5.5 Allocation of Annual Employee Stock Ownership Contributions.
As of the last day of each Plan Year for which the Employer shall make an
Employee Stock Ownership contribution, the Administrator shall allocate the
Employee Stock Ownership contribution (including reallocable forfeitures) for
such Plan Year to the Employee Stock Ownership account of each Participant who
completed at least 1,000 Hours of Service during that Plan Year, provided that
he is still employed by the Employer on the last day of the Plan Year. Such
allocation shall be made in the same proportion that each such Participant's
Compensation for such Plan Year bears to the total Compensation of all such
Participants for such Plan Year, subject to Section 5.6; provided, however,
that, for purposes of this Section 5.5, a Participant's Compensation shall not
be considered for any part of a Plan Year prior to the date the Participant
commenced participation in the Plan. Notwithstanding the foregoing, if a
Participant attains his Normal or Early Retirement Date and terminates Service
prior to the last day of the Plan Year but after completing 1,000 Hours of
Service, or terminates service by reason of death or Disability, he shall be
entitled to an allocation based on his Compensation earned prior to his
termination and during the Plan Year. Furthermore, if a Participant completes
1,000 Hours of Service and is on a Leave of Absence on the last day of
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the Plan Year because of pregnancy or other medical reason, such a Participant
shall be entitled to an allocation based on his Compensation earned during
such Plan Year.
5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the
total Annual Additions credited to a Participant's accounts under this Plan
(and under any other defined contribution plan to which the Employer
contributes) for any Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation for such Limitation Year; or
(2) $30,000. Whenever otherwise allowed by law, the maximum amount of
$30,000 shall be automatically adjusted annually for cost-of-living
increases in accordance with Section 415(d) of the Code and the
highest such increase effective at any time during the Limitation
Year shall be effective for the entire Limitation Year, without any
amendment to this Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation"
is defined as wages, salaries, and fees for professional services and other
amounts received (without regard to whether or not an amount is paid in cash)
for personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includable in
gross income (including, but not limited to, commissions paid to salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Treas.
Regs. Section 1.62-2(c)), and excluding the following:
(1) Amounts realized from the exercise of a non-qualified stock option,
or when restricted stock (or property) held by the employee either
becomes freely transferable or is no longer subject to a substantial
risk of forfeiture;
(2) Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(3) Other amounts which received special tax benefits, or contributions
made by the employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity contract described in
section 403(b) of the Code (whether or not the contributions are
actually excludable from the gross income of the Employee).
Notwithstanding anything in this Section 5.6(b) to the contrary, for Plan
Years beginning after December 31, 1997, "compensation" for purposes of
Section 5.6(b) shall include any elective deferrals under Code Sections
402(g)(3), 457 or 125.
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(c) In the event that the limitations on Annual Additions described in
this Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
year shall be reduced to the minimum extent required by such limitations in
the following order of priority:
(1) The Administrator shall determine to what extent the Annual Additions
to any Participant's Employee Stock Ownership Account must be reduced
in each Limitation Year. The Administrator shall reduce the Annual
Additions to all other tax-qualified retirement plans maintained by
the Employer in accordance with the terms contained therein for
required reductions or reallocations mandated by Section 415 of the
Code before reducing any Annual Additions in this Plan.
(2) If any further reductions in Annual Additions are necessary, then the
Employee Stock Ownership contributions and forfeitures allocated
during such Limitation Year to the Participant's Employee Stock
Ownership Account shall be reduced. The amount of any such
reductions in the Employee Stock Ownership contributions and
forfeitures shall be reallocated to all other Participants in the
same manner as set forth under Sections 5.4 and 5.5.
(3) Any amounts which cannot be reallocated to other Participants in a
current Limitation Year in accordance with Section 5.6(c)(2) above
because of the limitations contained in Sections 5.6(a) and (d) shall
be credited to an account designated as the "limitations account" and
carried forward to the next and subsequent Limitation Years until it
can be reallocated to all Participants as set forth in Sections 5.4,
and 5.5, as appropriate. No Investment Adjustments shall be
allocated to this limitations account. In the next and subsequent
Limitation Years, all amounts in the limitations account must be
allocated in the manner described in Sections 5.4 and 5.5, as
appropriate, before any Employee Stock Ownership contributions may be
made to this Plan for that Limitation Year.
(4) In the event this Plan is voluntarily terminated by the Employer
under Section 13.5, any amounts credited to the limitations account
described in Section 5.6(c)(2) above which have not be reallocated as
set forth herein shall be distributed to the Participants who are
still employed by the Employer on the date of termination, in the
proportion that each Participant's Compensation bears to the
Compensation of all Participants.
(d) The Annual Additions credited to a Participant's accounts for each
Limitation Year beginning before January 1, 2000 are further limited so that
in the case of an Employee who is a
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Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer, the sum of (1)
and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit of a Participant
under the pension plan, divided by
(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar limitation in
effect under Section 415(b)(1)(A) of the Code for such
Limitation Year; or
(ii) The product of 1.4 multiplied by the amount of compensation
which may be taken into account under Section 415(b)(1)(B)
of the Code for the Participant for such Limitation Year;
plus
(2) (A) The sum of Annual Additions credited to the Participant under
this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts determined for such
Limitation Year and for each prior year of service with the Employer:
(i) The product of 1.25 multiplied by the dollar limitation in
effect under Section 415(b)(1)(A) of the Code for such
Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year. The Administrator may, in calculating the
defined contribution plan fraction described in Section
5.6(d)(2), elect to use the transitional rule pursuant to
Section 415(e)(6) of the Code, if applicable. If the sum
of the fractions produced above will exceed 1.0, even after
the use of the "fresh start" rule contained in Section 235
of the Tax Equity and Fiscal Responsibility Act of 1982
("TEFRA"), if applicable, then the same
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provisions as stated in Section 5.6(c) above shall apply.
If, even after the reductions provided for in Section
5.6(c), the sum of the fractions still exceed 1.0, then the
benefits of the Participant provided under the pension plan
shall be reduced to the extent necessary, in accordance
with Treasury Regulations issued under the Code. Solely
for the purposes of this Section 5.6(d), the term "years of
service" shall mean all years of service defined by
Treasury Regulations issued under Section 415 of the Code.
(e) In the event that the Employer is a member of (1) a controlled group
of corporations or a group of trades or businesses under common control (as
described in Section 414(b) or (c) of the Code, as modified by Section 415(h)
thereof), or (2) an affiliated service group (as described in Section 414(m)
of the Code), the Annual Additions credited to any Participant's accounts in
any such Limitation Year shall be further limited by reason of the existence
of all other qualified retirement plans maintained by such affiliated
corporations, other entities under common control or other members of the
affiliated service group, to the extent such reduction is required by Section
415 of the Code and the regulations promulgated thereunder. The Administrator
shall determine if any such reduction in the Annual Additions to a
Participant's accounts is required for this reason, and if so, the same
provisions as stated in 5.6(c) and (d) above shall apply.
(f) Annual Additions shall not include any Employer contributions which
are used by the Trust to pay interest on an Exempt Loan nor any forfeitures of
Employer Securities purchased with the proceeds of an Exempt Loan, provided
that not more than one-third of the Employer contributions are allocated to
Participants who are among the group of employees deemed "highly compensated
employees" within the meaning of Code Section 414(q).
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his accounts in excess of those permitted under Sections 5.3,
5.4, 5.5, and 5.6. If it is determined at anytime that the Administrator
and/or Trustees have erred in accepting and allocating any contributions or
forfeitures under this Plan, or in allocating Investment Adjustments, or in
excluding or including any person as a Participant, then the Administrator, in
a uniform and nondiscriminatory manner, shall determine the manner in which
such error shall be corrected and shall promptly advise the Trustee in writing
of such error and of the method for correcting such error. The accounts of
any or all Participants may be revised, if necessary, in order to correct such
error.
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5.8 Value of Participant's Interest in Fund
At any time, the value of a Participant's interest in the Fund shall
consist of the aggregate value of his Employee Stock Ownership Account and his
distribution account, if any, determined as of the next-preceding Valuation
Date. The Administrator shall maintain adequate records of the cost basis of
Employer Securities allocated to each Participant's Employer Stock Ownership
Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. All sales of Employer Securities by the Trustee
attributable to the Employee Stock Ownership Accounts of all Participants
shall be charged pro rata to the Employee Stock Ownership Accounts of all
Participants.
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ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall retire
at that time shall thereupon be entitled to retirement benefits based on the
value of his interest in the Fund, payable pursuant to the provisions of
Section 9.1. A Participant who remains in Service after his Normal Retirement
Date shall not be entitled to any retirement benefits until his actual
termination of Service thereafter (except as provided in Section 9.3(g)) and
he shall meanwhile continue to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such
time (or, at his election, as of the first day of any month thereafter prior
to his Normal Retirement Date) and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to
the provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to
the provisions of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his interest in the Fund shall be payable
pursuant to the provisions of Section 9.1. The Administrator shall direct the
Trustee to distribute his interest in the Fund to any surviving Beneficiary
designated by the Participant or, if none, to such persons designated by the
Administrator pursuant to Section 6.5.
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee to distribute any undistributed balance of his interest in
the Fund to any surviving Beneficiary designated by him or, if none, to such
persons designated by the Administrator pursuant to Section 6.5.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive the interest in the Fund of a
deceased Participant or Former Participant as the Administrator may deem
desirable. The Administrator's determination of death and of the right of any
person to receive payment shall be conclusive.
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6.5 Designation of Death Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive the sum or sums to which he may be entitled upon his
death. The Participant may also designate the manner in which any death
benefits under this Plan shall be payable to his Beneficiary, provided that
such designation is in accordance with Section 9.4. Such designation of
Beneficiary and manner of payment shall be in writing and delivered to the
Administrator, and shall be effective when received by the Administrator. The
Participant shall have the right to change such designation by notice in
writing to the Administrator. Such change of Beneficiary or the manner of
payment shall become effective upon its receipt by the Administrator. Any
such change shall be deemed to revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary or if
no designated Beneficiary survives the Participant, his interest in the Fund
shall be paid to the person or persons in the first of the following classes
of successive preference Beneficiaries surviving at the death of the
Participant: the Participant's (1) widow or widower, (2) children, (3)
parents, and (4) estate. The Administrator shall decide what Beneficiaries,
if any, shall have been validly designated, and its decision shall be binding
and conclusive on all persons.
(c) Notwithstanding the foregoing, if a Participant has been married
throughout the 12 month period preceding the date of his death, the sum or
sums to which he may be entitled under this Plan upon his death shall be paid
to his spouse, unless the Participant's spouse shall have consented to the
election of another Beneficiary. Such a spousal consent shall be in writing
and shall be witnessed either by a representative of the Plan or a notary
public. If it is established to the satisfaction of the Administrator that
such spousal consent cannot be obtained because there is no spouse, because
the spouse cannot be located, or other reasons prescribed by governmental
regulations, the consent of the spouse may be waived, and the Participant may
designate a Beneficiary or Beneficiaries other than his spouse.
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ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Retirement and Change in Control.
Unless his participation in this Plan shall have terminated prior
thereto, upon a Participant's death, Disability, Early Retirement, or upon his
attainment of Normal Retirement Date (whether or not he actually retires at
that time) while he is still employed by the Employer, the Participant's
entire interest in the Fund shall be fully vested and nonforfeitable. In
addition, a Participant's interest shall be fully vested and nonforfeitable
upon a Change in Control. For purposes of this Plan, a "Change in Control"
shall mean an event deemed to occur if and when (1) an offeror other than the
Cavalry Bancorp, Inc. purchases shares of the stock of Cavalry Bancorp, Inc.
or the Sponsor pursuant to a tender or exchange offer for such shares, (2) any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange
Act) is or becomes the beneficial owner, directly or indirectly, of securities
of Cavalry Bancorp, Inc. or the Sponsor representing 25% or more of the
combined voting power of Cavalry Bancorp, Inc.'s or the Sponsor's then
outstanding securities, (3) the membership of the board of directors of
Cavalry Bancorp, Inc. or the Sponsor changes as the result of a contested
election, such that individuals who were directors at the beginning of any 24
month period (whether commencing before or after the date of adoption of this
Plan) do not constitute a majority of the Board at the end of such period, or
(4) shareholders of Cavalry Bancorp, Inc. or the Sponsor approve a merger,
consolidation, sale or disposition of all or substantially all of Cavalry
Bancorp, Inc.'s or the Sponsor's assets, or a plan of partial or complete
liquidation.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal or Early Retirement, a Participant shall be
vested in a percentage of his Employee Stock Ownership Account, such vested
percentages to be determined under the following table, based on the Years of
Service (including Years of Service prior to the Effective Date) credited to
him for vesting purposes at the time of his termination of participation:
Years of Service Completed Percentage Vested
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
Any portion of the Participant's Employee Stock Ownership Account which
is not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3.
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Distribution of the vested portion of a terminated Participant's interest in
the Plan may be authorized by the Administrator in any manner permitted under
Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes
both his Service and his participation in the Plan prior to incurring at least
five Breaks, the forfeitable portion of his Employee Stock Ownership Account
shall be reinstated to the credit of the Participant as of the date he resumes
participation.
(b) In the event a Participant terminates Service and subsequently incurs
a Break and receives a distribution, or in the event a Participant does not
terminate Service, but incurs at least five Breaks, or in the event that a
Participant terminates Service and incurs at least five Breaks but has not
received a distribution, then the forfeitable portion of his Employer Account,
including Investment Adjustments, shall be reallocated to other Participants,
pursuant to Section 5.4 as of the date the Participant incurs such Break or
Breaks, as the case may be.
(c) In the event a former Participant who had received a distribution
from the Plan is rehired, he shall repay the amount of his distribution before
the earlier of five years after the date of his rehire by the Employer, or the
close of the first period of five consecutive Breaks commencing after the
withdrawal in order for any forfeited amounts to be restored to him.
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ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Employee Stock
Ownership Account shall be entitled to demand that his interest in the Account
be distributed to him in the form of Employer Securities, all subject to
Section 9.9. In the event that the Employer Securities are not readily
tradable on an established market, the Participant shall be entitled to
require that the Employer repurchase the Employer Securities under a fair
valuation formula, as provided by governmental regulations. The Participant
or Beneficiary shall be entitled to exercise the put option described in the
preceding sentence for a period of not more than 60 days following the date of
distribution of Employer Securities to him. If the put option is not
exercised within such 60-day period, the Participant or Beneficiary may
exercise the put option during an additional period of not more than 60 days
after the beginning of the first day of the first Plan Year following the Plan
Year in which the first put option period occurred, all as provided in
regulations promulgated by the Secretary of the Treasury.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be
entitled to direct the Trustee as to the manner in which the Employer
Securities in such Account are to be voted. Employer Securities held in the
Employee Stock Ownership Suspense Account or the Exempt Loan Suspense Account
shall be voted by the Trustee on each issue with respect to which shareholders
are entitled to vote in the manner directed by the majority of the
Participants who directed the Trustee as to the manner of voting their shares
in the Employee Stock Ownership Accounts with respect to such issue. Prior to
the initial allocation of shares, the Trustee shall be entitled to vote the
shares in the Suspense Account without prior direction from the Participants
or the Administrator. In the event that a Participant fails to give timely
voting instructions to the Trustee with respect to the voting of his allocated
Employer Securities, the Trustee shall be entitled to vote such shares in its
discretion.
8.3 Nondiscrimination in Employee Stock Ownership Contributions.
In the event that the amount of the Employee Stock Ownership
contributions that would be required in any Plan Year to make the scheduled
payments on an Exempt Loan would exceed the amount that would otherwise be
deductible by the Employer for such Plan Year under Code Section 404, then no
more than one-third of the Employee Stock Ownership contributions for the Plan
Year, which is also the Employer's taxable year, shall be allocated to the
group of Employees who:
(a) During the Plan Year or the preceding Plan Year was at any time a
more than 5% owner of the Employer; or
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(b) During the preceding Plan Year, received compensation from the
Employer in excess of $80,000, as adjusted under Code Section 414(q) and, if
elected by the Employer, was in the top paid group of Employees for such Plan
Year.
8.4 Dividends.
Any cash dividends or other cash contributions received by the Trustee of
Employer Securities allocated to the Employee Stock Account of Participants
shall be credited to the applicable Participants' Ownership Accounts unless
the Sponsor, in its sole discretion, elects to pay the cash dividends directly
to the applicable Participants or directs the Trustee to pay the cash
dividends to the Participants (or, if applicable, their Beneficiaries) within
90 calendar days of the close of the Plan Year in which the cash dividend were
paid to the Fund. Notwithstanding anything contained in this Section to the
contrary, the Sponsor may direct cash dividends, including dividends on
non-allocated shares, be applied to repay an Exempt Loan, but only to the
extent shares of Employer Securities with an aggregate fair market value equal
to the amount of dividends so applied are allocated to the Employee Stock
Ownership Account of the applicable Participants and to the extent the cash
dividends are deductible under Section 404(k) of the Code. To the extent cash
dividends on allocated shares are applied to repay an Exempt Loan, shares
released from encumbrance the value equal to the amount of the dividends
which, but for the repayment of the Exempt Loan, would have been allocated to
Participants' Employee Stock Ownership Accounts shall be allocated to the
Employee Stock Ownership Accounts of the affected Participants, and the
remaining shares to be allocated shall be allocated among the Participants in
accordance with Section 5.5. Dividends on Employer Securities obtained
pursuant to an Exempt Loan and not yet allocated may be used to make payments
on an Exempt Loan, as described in Section 8.5.
8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The
Exempt Loan may take the form of (i) a loan from a bank or other commercial
lender to purchase Employer Securities (ii) a loan from the Employer or
affiliated corporation, to the Plan; or (iii) an installment sale of Employer
Securities to the Plan. The proceeds of any such Exempt Loan shall be used,
within a reasonable time after the Exempt Loan is obtained, only to purchase
Employer Securities, repay the Exempt Loan, or repay any prior Exempt Loan.
Any such Exempt Loan shall provide for no more than a reasonable rate of
interest and shall be without recourse against the Plan. The number of years
to maturity under the Exempt Loan must be definitely ascertainable at all
times. The only assets of the Plan that may be given as collateral for an
Exempt Loan are Employer Securities acquired with the proceeds of the Exempt
Loan and Employer Securities that were used as collateral for a prior Exempt
Loan repaid with the proceeds of the current Exempt Loan. Such Employer
Securities so pledged shall be placed in an Exempt Loan Suspense Account. No
person or institution entitled to payment under an Exempt Loan shall have
recourse against Trust assets other than the aforesaid collateral, Employer
Stock Ownership contributions (other than contributions of Employer
Securities) that are available under the Plan to meet obligations under the
Exempt Loan and earnings attributable to such collateral and the investment of
such contributions. All Employee Stock Ownership contributions paid during
the Plan Year in which an Exempt Loan is made (whether before or after the
date the proceeds of the Exempt Loan are received), all Employee Stock
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Ownership contributions paid thereafter until the Exempt Loan has been repaid
in full, and all earnings from investment of such Employee Stock Ownership
contributions, without regard to whether any such Employee Stock Ownership
contributions and earnings have been allocated to Participants' Employee Stock
Ownership Accounts, shall be available to meet obligations under the Exempt
Loan as such obligations accrue, or prior to the time such obligations accrue,
unless otherwise provided by the Employer at the time any such contribution is
made. Any pledge of Employer Securities shall provide for the release of
shares so pledged upon the payment of any portion of the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the number
of shares of Employer Securities released from such pledge shall equal the
number of encumbered shares held immediately before release for the current
Plan Year multiplied by a fraction. The numerator of the fraction is the sum
of principal and interest paid in such Plan Year. The denominator of the
fraction is the sum of the numerator plus the principal and interest to be
paid for all future years. Such years will be determined without taking into
account any possible extension or renewal periods. If interest on any Exempt
Loan is variable, the interest to be paid in future years under the Exempt
Loan shall be computed by using the interest rate applicable as of the end of
the Plan Year.
(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt Loan
pursuant to the terms of which the number of Employer Securities to be
released from encumbrance may, at the election of the Sponsor or otherwise, be
determined solely with reference to principal payments. In the event that
such an Exempt Loan is obtained, annual payments of principal and interest
shall be at a cumulative rate that is not less rapid at any time than level
payments of such amounts for not more than 10 years. The amount of interest
in any such annual loan repayment shall be disregarded only to the extent that
it would be determined to be interest under standard loan amortization tables.
The requirement set forth in the preceding sentence shall not be applicable
from the time that, by reason of a renewal, extension, or refinancing, the sum
of the expired duration of the Exempt Loan, the renewal period, the extension
period, and the duration of a new Exempt Loan exceeds 10 years.
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan during a Plan
Year shall be made by the Trustee (as directed by the Administrator) only from
(1) Employee Stock Ownership contributions to the Trust made to meet the
Plan's obligation under an Exempt Loan (other than contributions of Employer
Securities) and from any earnings attributable to Employer Securities held as
collateral for an Exempt Loan and investments of such contributions (both
received during or prior to the Plan Year); (2) the proceeds of a subsequent
Exempt Loan made to repay a prior Exempt Loan; and (3) the proceeds of the
sale of any Employer Securities held as collateral for an Exempt Loan. Such
contribution and earnings shall be accounted for separately by the Plan until
the Exempt Loan is repaid.
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(b) Employer Securities released by reason of the payment of principal or
interest on an Exempt Loan from amounts allocated to Participants' Employee
Stock Ownership Accounts shall be allocated as set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts to
enable the Trust to pay principal and interest on any such Exempt Loans as
they are due, provided however that no such contribution shall exceed the
limitations in Section 5.6. In the event that such contributions by reason of
the limitations in Section 5.6 are insufficient to enable the Trust to pay
principal and interest on such Exempt Loan as it is due, then upon the
Trustee's request the Employer or an affiliated corporation shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts to meet
such principal and interest payments. Such new Exempt Loan shall
be subordinated to the prior Exempt Loan. Securities released
from the pledge of the prior Exempt Loan shall be pledged as
collateral to secure the new Exempt Loan. Such Employer Securities
will be released from this new pledge and allocated to the
Employee Stock Ownership Accounts of the Participants in
accordance with applicable provisions of the Plan;
(2) Purchase any Employer Securities pledged as collateral in an
amount necessary to provide the Trustee with sufficient funds to
meet the principal and interest repayments. Any such sale by the
Plan shall meet the requirements of Section 408(e) of ERISA; or
(3) Any combination of the foregoing. However, the Employer shall
not, pursuant to the provisions of this subsection, do, fail to do
or cause to be done any act or thing which would result in a
disqualification of the Plan as an Employee Stock Ownership Plan
under the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify as
an Employee Stock Ownership plan within the meaning of Section 4975(e)(7) of
the Code, or any repayment of an Exempt Loan, no shares of Employer Securities
acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase
Employer Securities may be subject to a put, call or other option, or buy-sell
or similar arrangement while such shares are held by the Plan or when such
Shares are distributed from the Plan.
8.7 Put Option.
If a Participant exercises a put option (as set forth in Section 8.1)
with respect to Employer Securities that were distributed as part of a total
distribution pursuant to which a Participant's Employee Stock Ownership
Account is distributed to him in a single taxable year, the Employer or the
Plan may elect to pay the purchase price of the Employer Securities over a
period not to exceed
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five years. Such payments shall be made in substantially equal installments
not less frequently than annually over a period beginning not later than 30
days after the exercise of the put option. Reasonable interest shall be paid
to the Participant with respect to the unpaid balance of the purchase price
and adequate security shall be provided with respect thereto. In the event
that a Participant exercises a put option with respect to Employer Securities
that are distributed as part of an installment distribution, the amount to be
paid for such securities shall be paid not later than 30 days after the
exercise of the put option.
8.8 Diversification Requirements
Each Participant who has completed at least 10 years of participation in
the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his "qualified election period" to direct the Plan as to
the investment of at least 25% of his Employee Stock Ownership Account (to the
extent such percentage exceeds the amount to which a prior election under this
Section 8.8 had been made). For purposes of this Section 8.8, the term
"qualified election period" shall mean the six-Plan Year period beginning with
the Plan Year after the Plan Year in which the Participant attains age 55 (or,
if later, beginning with the Plan Year after the first Plan Year in which the
Employee first completes at least 10 years of participation in the Plan). In
the case of the Employee who has attained age 60 and completed 10 years of
participation in the prior Plan Year and in the case of the election year in
which any other Participant who has met the minimum age and service
requirements for diversification can make his last election hereunder, he
shall be entitled to direct the Plan as to the investment of at least 50% of
his Employee Stock Ownership Account (to the extent such percentage exceeds
the amount to which a prior election under this Section 8.8 had been made).
The Plan shall make available at least three investment options (not
inconsistent with regulations prescribed by the Department of Treasury) to
each Participant making an election hereunder. The Plan shall be deemed to
have met the requirements of this Section if the portion of the Participant's
Employee Stock Ownership Account covered by the election hereunder is
distributed to the Participant or his designated Beneficiary within 90 days
after the period during which the election may be made. In the absence of
such a distribution, the Trustee shall implement the Participant's election
within 90 days following the expiration of the qualified election period.
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of Code 170(a)(1) shall
value the Employer Securities in those Plan Years when such securities are not
readily tradable on an established securities market.
8.10 Limitation on Allocations.
In the event that the Trustee acquires shares of Employer Securities in a
transaction to which section 1042 of the Code applies, such Shares shall not
be allocated, directly or indirectly, to any Participant described in Section
409(n)(1) of the Code for the duration of the "nonallocation period" (as
defined in Section 409(n)(3)(C) of the Code). Where any shares of Employer
Securities are
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prevented from being allocated due to the prohibition contained in this
section the allocation of contributions otherwise provided under Section 5.5
shall be adjusted to reflect such result.
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ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service -- In General.
All benefits provided under this Plan shall be funded by the value of a
Participant's vested interest in the Fund. As soon as practicable after a
Participant's Retirement, death or termination of Service, the Administrator
shall ascertain the value of his vested interest in the Fund, as provided in
Article V, and the Administrator shall hold or dispose of the same in
accordance with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement or Death. Upon a Participant's
Retirement or Death, payment of benefits under this Plan shall, unless the
Participant otherwise elects (in accordance with Section 9.3), commence no
later than six months after the close of the Plan Year in which occurs the
date of the Participant's Retirement or death.
(b) Distribution following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement or
death, he shall be accorded an opportunity to commence receipt of
distributions from his Accounts within six months after the Valuation Date
next following the date of his termination of service. A Participant who
terminates Service with a deferred vested benefit shall be entitled to receive
from the Administrator a statement of his benefits. In the event that a
Participant elects not to commence receipt of distributions from his Accounts
in accordance with this Section 9.2(b), after the Participant incurs a Break,
the Administrator shall transfer his deferred vested interest to a
distribution account. If a Participant's vested Employer Account does not
exceed (or at the time of any prior distribution did not exceed) $5,000, the
Plan Administrator may distribute the vested portion of his Employer Account
as soon as administratively feasible without the consent of the Participant or
his spouse.
(c) Distribution of Accounts Greater Than $5,000. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $5,000, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such
Account balance. The Plan Administrator shall notify the Participant of the
right to defer any distribution until the Participant's Account balance is no
longer immediately distributable. The consent of the Participant shall not be
required to the extent that a distribution is required to satisfy Code Section
401(a)(9) or Code Section 415.
9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest of the close
of the Plan Year in which (i) the Participant attains
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age 65, (ii) occurs the tenth anniversary of the year in which the Participant
commenced participation in the Plan Year, or (iii) the Participant terminates
Service with the Employer.
(b) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, as of the first distribution
calendar year, distributions, if not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated beneficiary,
(iii) a period certain not extending beyond the life expectancy of the
Participant, or
(iv) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, if the participant's
interest is to be distributed in other than a lump sum, the following minimum
distribution rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a period
not extending beyond the life expectancy of the Participant or the
joint life and last survivor expectancy of the Participant and the
Participant's designated beneficiary or (2) a period not extending
beyond the life expectancy of the designated beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the first distribution calendar year, must at
least equal the quotient obtained by dividing the Participant's
benefit by the applicable life expectancy.
(ii) The amount to be distributed each year, beginning with distributions
for the first distribution calendar year shall not be less than the
quotient obtained by dividing the Participant's benefit by the
lesser of (1) the applicable life expectancy or (2) if the
Participant's spouse is not the designated beneficiary, the
applicable divisor determined from the table set forth in Q&A-4 of
section 1.401(a)(9)-2 of the Proposed Regulations. Distributions
after the death of the participant shall be distributed using the
applicable life expectancy in sub-section (iii) above as the
relevant divisor without regard to Proposed Regulations
1.401(a)(9)-2.
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(iii) The minimum distribution required for the Participant's first
distribution calendar year must be made on or before the
Participant's required beginning date. The minimum distribution
for other calendar years, including the minimum distribution for
the distribution calendar year in which the employee's required
beginning date occurs, must be made on or before December 31 of the
distribution calendar year.
(d) If a Participant dies after a distribution has commenced in
accordance with Section 8.3(b) but before his entire interest has been
distributed to him, the remaining portion of such interest shall be
distributed to his Beneficiary at least as rapidly as under the method of
distribution in effect as of the date of his death.
(e) If a Participant shall die before the distribution of his interest in
the Plan has begun, the entire interest of the Participant shall be
distributed by December 31 of the calendar year containing the fifth
anniversary of the death of the Participant, except in the following events:
(i) If any portion of the Participant's interest is payable to (or
for the benefit of) a designated beneficiary over a period not
extending beyond the life expectancy of such beneficiary and
such distributions begin not later than December 31 of the
calendar year immediately following the calendar year in which
the Participant died.
(ii) If any portion of the Participant's interest is payable to (or
for the benefit of) the Participant's spouse over a period not
extending beyond the life expectancy of such spouse and such
distributions begin no later than December 31 of the calendar
year in which the Participant would have attained age 70-1/2.
If the Participant has not made a distribution election by the time
of his death, the Participant's designated beneficiary shall elect
the method of distribution no later than the earlier of (1) December
31 of the calendar year in which distributions would be required to
begin under this Article or (2) December 31 of the calendar year
which contains the fifth anniversary of the date of death of the
Participant. If the Participant has no designated beneficiary, or
if the designated beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest
shall be completed by December 31 of the calendar year containing
the fifth anniversary of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant
and his spouse may be redetermined but not more frequently than annually. The
life expectancy (or joint and last survivor expectancy) shall be calculated
using the attained age of the Participant (or designated beneficiary) as of
the Participant's (or designated beneficiary's) birthday in the applicable
calendar year reduced
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by one for each calendar year which has elapsed since the date life expectancy
was first calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so recalculated.
The applicable calendar year shall be the first distribution calendar year,
and if life expectancy is being recalculated, such succeeding calendar year.
Unless otherwise elected by the Participant (or his spouse, if applicable) by
the time distributions are required to begin, life expectancies shall be
recalculated annually. Any such election not to recalculate shall be
irrevocable and shall apply to all subsequent years. The life expectancy of a
nonspouse beneficiary may not be recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a child
shall be treated as if it had been paid to a surviving spouse if such amount
will become payable to the surviving spouse upon such child reaching majority
(or other designated event permitted under regulations).
(h) For distributions beginning before the Participant's death, the first
distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to
begin pursuant to this Article.
9.4 Required Beginning Dates.
The required beginning date of a Participant is the first day of April of
the calendar year following the later of (1) calendar year in which the
participant attains age 70-1/2 or (2) the calendar year in which the
Participant terminated his employment, unless he is a 5% owner (as defined in
Section 416) with respect to the Plan Year ending in the calendar year in
which he attains age 70-1/2, in which case clause (2) shall not apply.
9.5 Form of Payment.
Each Participant's vested interest shall be distributed in a lump sum
payment. Notwithstanding the preceding sentence, but subject to Section 9.3,
the Administrator may not distribute a lump sum when the present value of a
Participant's total Account balances is in excess of $5,000 without the
Participant's consent. This form of payment shall be the normal form of
distribution provided, however, that in the event that the Administrator must
commence distributions with respect to an Employee who has attained age 70-1/2
and is still employed by the Employer, if the Employee does not elect a lump
sum distribution, payments shall be made in installments in such amounts as
shall satisfy the minimum distribution rules of Section 9.3.
9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13. 6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions:
All interests of Participants shall immediately become fully vested;
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the value of the interests of all Participants shall be determined as soon as
administratively praticable after such termination, and the Administrator
shall have the same powers to direct the Trustee in making payments as
contained in Sections 9.1 and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall
notify promptly the Participant and any alternate payee of receipt of the
order and the Plan's procedure for determining whether the order is a
Qualified Domestic Relations Order. While the issue of whether a domestic
relations order is a Qualified Domestic Relations Order is being determined,
if the benefits would otherwise be paid, the Administrator shall segregate in
a separate account in the Plan the amounts that would be payable to the
alternate payee during such period if the order were a Qualified Domestic
Relations Order. If within 18 months the order is determined to be a
Qualified Domestic Relations Order, the amounts so segregated, along with the
interest or investment earnings attributable thereto shall be paid to the
alternate payee. Alternatively, if within 18 months, it is determined that
the order is not a Qualified Domestic Relations Order or if the issue is still
unresolved, the amounts segregated under this Section 9.6, with the earnings
attributable thereto, shall be paid to the Participant or Beneficiary who
would have been entitled to such amounts if there had been no order. The
determination as to whether the order is qualified shall be applied
prospectively. Thus, if the Administrator determines that the order is a
Qualified Domestic Relations Order after the 18-month period, the Plan shall
not be liable for payments to the alternative payee for the period before the
order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions
If a Participant receives a distribution of the entire present value of
his vested Account balances under this Plan because of the termination of his
participation in the Plan, the Plan shall disregard a Participant's Service
with respect to which such cash-out distribution shall have been made, in
computing his accrued benefit under the Plan in the event that a Former
Participant shall again become an Employee and become eligible to participate
in the Plan. Such a distribution shall be deemed to be made on termination of
participation in the Plan if it is made not later than the close of the second
Plan Year following the Plan Year in which such termination occurs. The
forfeitable portion of a Participant's accrued benefit shall be restored upon
repayment to the Plan by such former Participant of the full amount of the
cash-out distribution, provided that the former Participant again becomes an
Employee. Such repayment must be made by the Employee not later than the end
of the five-year period beginning with the date of the distribution.
Forfeitures required to be restored by virtue of such repayment shall be
restored from the following sources in the following order of preference: (i)
current forfeitures; (ii) additional employee stock ownership contributions,
as appropriate and as subject to Section 5.6; and (iii) investment earnings of
the Fund. In the event that a Participant's interest in the Plan is totally
forfeitable, a Participant shall be deemed to have received a distribution of
zero upon his termination of Service. In the event of a return to Service
within five years of the date of his deemed distribution, the Participant
shall be deemed to have repaid his distribution in accordance with the rules
of this Section 9.8.
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9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing), shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or
next following his death, disability or termination of Service, but not later
than one year after the close of the Plan Year in which the Participant
separates from Service by reason of the attainment of his Normal Retirement
Date, disability, death or separation from Service. In addition, all
distributions hereunder shall, to the extent that the Participant's Account is
invested in Employer Securities, be made in the form of Employer Securities.
Fractional shares, however, may be distributed in the form of cash.
9.10 Withholding.
(a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Article IX, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an "eligible rollover distribution" paid directly to an
"eligible retirement plan" specified by the distributee in a "direct
rollover."
(b) For purposes of this Section 9.10, an "eligible rollover
distribution" is any distribution of all or any portion of the balance to the
credit of the distributee, except that an "eligible rollover distribution"
does not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated beneficiary,
or for a specified period of 10 years or more; any distribution to the extent
such distribution is required under section 401(a)(9) of the Code; and the
portion of any distribution that is not includable in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect
to Employer Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is
an individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a
Participant or former Participant. In addition, the Participant's or former
Participant's surviving spouse and the Participant's or former Participant's
spouse or former spouse who is the alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, are "distributees"
with regard to the interest of the spouse or former spouse.
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(e) For purposes of this Section 9.10, a "direct rollover" is a payment
by the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which sections 401(a)(11) and 417 of the Code
do not apply, such distribution may commence less than 30 days after the
notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is
given, provided that: (1) the Plan Administrator clearly informs the
Participant that the Participant has a right to a period of at least 30 days
after receiving the notice to consider the decision of whether or not to elect
a distribution (and, if applicable, a particular distribution option), and (2)
the Participant, after receiving the notice, affirmatively elects a
distribution.
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ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for
any Plan Year the Plan is a top-heavy plan, as determined pursuant to Section
416 of the Code, then the Plan must meet the requirements of this Article X
for such Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued benefits
of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular Plan
Year of this Plan, the last day of the preceding Plan Year (or, in the case of
the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the
Determination Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q)) and
any entity which is (1) a member of a controlled group including such
Employer, while it is a member of such controlled group (within the meaning of
Section 414(b) of the Code), (2) in a group of trades or businesses under
common control with such Employer, while it is under common control (within
the meaning of Section 414(c) of the Code), and (3) a member of an affiliated
service group including such Employer, while it is a member of such affiliated
service group (within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at
any time during the Plan Year or during the four immediately preceding Plan
Years is one of the following:
(1) An officer of the Employer who has compensation greater than 50% of
the amount in effect under Code 415(b)(1)(A) for the Plan Year;
provided, however, that no more than 50 Employees (or, if lesser,
the greater of three or 10% of the Employees) shall be deemed
officers;
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(2) One of the 10 Employees having annual compensation (as defined in
Section 415 of the Code) in excess of the limitation in effect under
Section 415(c)(1)(A) of the Code, and owning (or considered as
owning, within the meaning of Section 318 of the Code) the largest
interests in the Employer;
(3) Any Employee owning (or considered as owning, within the meaning of
Section 318 of the Code) more than 5% of the outstanding stock of
the Employer or stock possessing more than 5% of the total combined
voting power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in Section 415
of the Code) of more than $150,000 and who would be described in
Section 10.2(d)(3) if "1%" were substituted for "5%" wherever the
latter percentage appears.
For purposes of applying Section 318 of the Code to the provisions
of this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be
applied by substituting "5%" for "50%" wherever the latter
percentage appears. In addition, for purposes of this Section
10.2(d), the provisions of Section 414(b), (c) and (m) shall not
apply in determining ownership interests in the Employer. However,
for purposes of determining whether an individual has compensation
in excess of $150,000, or whether an individual is a Key Employee
under Section 10.2(d)(1) and (2), compensation from each entity
required to be aggregated under Sections 414(b), (c) and (m) of the
Code shall be taken into account. Notwithstanding anything contained
herein to the contrary, all determinations as to whether a person is
or is not a Key Employee shall be resolved by reference to Section
416 of the Code and any rules and regulations promulgated
thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who is
not considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which satisfy
Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case of
a terminated plan, had been) a Participant in the Plan Year containing the
Determination Date or any of the four preceding Plan Years, and each other
plan of the Employer which enables any plan of the Employer in which a Key
Employee is a Participant to meet the requirement of Sections 401(a)(4) and
410 of the Code.
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10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) With respect to this Plan or any other defined contribution plan
(other than a defined contribution pension plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the Employee's
account balances under the respective plan, determined as of the
most recent plan valuation date within a 12-month period ending on
the Determination Date, including contributions actually made after
the valuation date but before the Determination Date (and, in the
first plan year of a plan, also including any contributions made
after the Determination Date which are allocated as of a date in the
first plan year).
(2) With respect to any defined contribution pension plan in a Required
Aggregation Group or a Permissive Aggregation Group, the Employee's
account balances under the plan, determined as of the most recent
plan valuation date within a 12-month period ending on the
Determination Date, including contributions which have not actually
been made, but which are due to be made as of the Determination
Date.
(3) With respect to any defined benefit plan in a Required Aggregation
Group or a Permissive Aggregation Group, the present value of the
Employee's accrued benefits under the plan, determined as of the
most recent plan valuation date within a 12-month period ending on
the Determination Date, pursuant to the actuarial assumptions used
by such plan, and calculated as if the Employee terminated Service
under such plan as of the valuation date (except that, in the first
plan year of a plan, a current Participant's estimated Accrued
Benefit Plan as of the Determination Date shall be taken into
account).
(4) If any individual has not performed services for the Employer
maintaining the Plan at any time during the five-year period ending
on the Determination Date, any Accrued Benefit for such individual
shall not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as
follows:
(1) The Accrued Benefit shall be calculated to include all amounts
attributable to both Employer and Employee contributions, but shall
exclude amounts attributable to voluntary deductible Employee
contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate
distributions made with respect to an Employee under the plan or
plans, as the case may be, during the five-year period ending on the
Determination Date.
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(3) Rollover and direct plan-to-plan transfers shall be taken into
account as follows:
(A) If the transfer is initiated by the Employee and made from a
plan maintained by one employer to a plan maintained by another
unrelated employer, the transferring plan shall continue to
count the amount transferred; the receiving plan shall not
count the amount transferred.
(B) If the transfer is not initiated by the Employee or is made
between plans maintained by related employers, the transferring
plan shall no longer count the amount transferred; the receiving
plan shall count the amount transferred.
(c) If any individual has not performed services for the Employer at any
time during the five-year period ending on the Determination Date, any accrued
benefit for such individual (and the account of such individual) shall not be
taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year
if, as of the Determination Date, the value of the Accrued Benefits of Key
Employees exceeds 60% of the value of the Accrued Benefits of all eligible
Employees under the Plan. Notwithstanding the foregoing, if the Employer
maintains any other qualified plan, the determination of whether this Plan is
top-heavy shall be made after aggregating all other plans of the Employer in
the Required Aggregation Group and, if desired by the Employer as a means of
avoiding top-heavy status, after aggregating any other plan of the Employer in
the Permissive Aggregation Group. If the required Aggregation Group is
top-heavy, then each plan contained in such group shall be deemed to be
top-heavy, notwithstanding that any particular plan in such group would not
otherwise be deemed to be top-heavy. Conversely, if the Permissive
Aggregation Group is not top-heavy, then no plan contained in such group shall
be deemed to be top-heavy, notwithstanding that any particular plan in such
group would otherwise be deemed to be top-heavy. In no event shall a plan
included in a top-heavy Permissive Aggregation Group be deemed a top-heavy
plan unless such plan is also included in a top-heavy Required Aggregation
Group.
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10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4
above for classification as a top-heavy plan, except that "90%" shall be
substituted for "60%" whenever the latter percentage appears.
10.6 Minimum Contribution.
(a) For any year in which the Plan is top-heavy, each Non-Key Employee
who has met the age and service requirements, if any, contained in the Plan,
shall be entitled to a minimum contribution (which may include forfeitures
otherwise allocable) equal to a percentage of such Non-Key Employee's
compensation (as defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined benefit plan
maintained by the Employer, then the minimum contribution under this
Plan shall be 3% of such Non-Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit plan
maintained by the Employer, then the minimum contribution under this
Plan shall be 5% of such Non-Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
(1) The percentage minimum contribution required under this Plan shall
in no event exceed the percentage contribution made for the Key
Employee for whom such percentage is the highest for the Plan Year
after taking into account contributions under other defined
contribution plans in this Plan's Required Aggregation Group;
provided, however, that this Section 10.7(b)(1) shall not apply if
this Plan is included in a Required Aggregation Group and this Plan
enables a defined benefit plan in such Required Aggregation Group to
meet the requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum
contribution shall be reduced, as the case may be) for a Non-Key
Employee under this Plan for any Plan Year if the Employer maintains
another qualified plan under which a minimum benefit or contribution
is being accrued or made on account of such Plan Year, in whole or
in part, on behalf of the Non-Key Employee, in accordance with
Section 416(c) of the Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1) any
Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer
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contributions to or any benefits under Chapter 21 of the Code (relating to the
Federal Insurance Contributions Act), Title II of the Social Security Act, or
any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the
Plan Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
10.7 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i)shall be read by substituting "1.0"
for "1.25" wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the plan year in which this
Section 10.8 becomes applicable.
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ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to five
persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor
may require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator"
as used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Employer and to the Trustee.
Any Administrator who was an employee of the Employer at the time of his
appointment shall be deemed to have resigned as an Administrator upon his
termination of Service. The Board of Directors may, in its discretion, remove
any Administrator with or without cause, by giving notice in writing, mailed
or delivered to the Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the Employer
may appoint, by Board of Directors' resolution, a successor or successors.
Notice of termination of an Administrator and notice of appointment of a
successor shall be made by the Employer in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities in
connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of the Plan, such rules,
regulations and procedures to apply uniformly to all Employees, Participants
and Beneficiaries;
(b) To determine all questions arising in the administration,
interpretation and application of the Plan, including questions of eligibility
and of the status and rights of Participants, Beneficiaries and any other
persons hereunder;
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(c) To decide any dispute arising hereunder strictly in accordance with
the terms of the Plan; provided, however, that no Administrator shall
participate in any matter involving any questions relating solely to his own
participation or benefits under this Plan;
(d) To advise the Employer and the Trustee regarding the known future
needs for funds to be available for distribution in order that the Trustee may
establish investments accordingly;
(e) To correct defects, supply omissions and reconcile inconsistencies to
the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution to the
Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which shall be made out
of the Fund pursuant to the provisions of this Plan;
(h) To advise the Trustee on all terminations of Service by Participants,
unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims against the
Fund;
(j) To make recommendations to the Board of Directors with respect to
proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and other
parties as may be required by law, whether such reports are initially the
obligation of the Employer, the Plan or the Trustee; and
(l) To have all such other powers as may be necessary to discharge its
duties hereunder.
Reasonable discretion is granted to the Administrator to affect the
benefits, rights and privileges of Participants, Beneficiaries or other
persons affected by this Plan. The Administrator shall exercise reasonable
discretion under the terms of this Plan and shall administer the Plan strictly
in accordance with its terms, such administration to be exercised uniformly so
that all persons similarly situated shall be similarly treated.
11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its
members and may adopt rules for the conduct of its business. A majority of
the members then serving shall constitute a quorum for the transaction of
business. All resolutions or other action taken by the Administrator shall be
by vote of a majority of those present at such meeting and entitled to vote.
Resolutions may be adopted or other action taken without a meeting upon
written consent signed by at least a majority
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of the members. All documents, instruments, orders, requests, directions,
instructions and other papers shall be executed on behalf of the Administrator
by either the Chairman or the Secretary of the Administrator, if any, or by
any member or agent of the Administrator duly authorized to act on the
Administrator's behalf.
11.6 Participation by Administrators.
No Administrator shall be precluded from becoming a Participant in the
Plan if he would be otherwise eligible, but he shall not be entitled to vote
or act upon matters or to sign any documents relating specifically to his own
participation under the Plan, except when such matters or documents relate to
benefits generally. If this disqualification results in the lack of a quorum,
then the Board of Directors shall appoint a sufficient number of temporary
Administrators who shall serve for the sole purpose of determining such a
question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical, legal,
actuarial, accounting, medical, advisory or other services as it deems
necessary to perform its duties under this Plan. The cost of such services
and all other expenses incurred by the Administrator in connection with the
administration of the Plan shall be paid from the Fund, unless paid by the
Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator may
be allocated among its members so long as such allocation is pursuant to
written procedures adopted by the Administrator, in which case, except as may
be required by the Act, no Administrator shall have any liability, with
respect to any duties, powers or responsibilities not allocated to him, for
the acts of omissions of any other Administrator.
11.9 Delegation of Duties.
The Administrator may delegate any of its duties to other employees of
the Employer, to the Trustee with its consent, or to any other person or firm,
provided that the Administrator shall prudently choose such agents and rely in
good faith on their actions.
11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall be
final and conclusive except as provided in Article XII.
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11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a
full-time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator shall
be entitled to receive such reasonable compensation for his services as an
Administrator hereunder as may be mutually agreed upon between the Employer
and such Administrator. Any such compensation shall be paid from the Fund,
unless paid by the Employer. Each Administrator shall be entitled to
reimbursement by the Employer for any reasonable and necessary expenditures
incurred in the discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take all
other actions as it deems appropriate in order to comply with the Act, the
Code and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund
and the statement of his own interest in the Fund, as well as a complete copy
of the Plan and the Trust Agreement and copies of annual reports to the
Internal Revenue Service, shall be made available by the Administrator to the
Employer for examination by each Participant during reasonable hours at the
office of the Employer, provided, however, that the statement of a
Participant's interest shall not be made available for examination by any
other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of the Act and
shall be the designated agent for receipt of service of process on behalf of
the Plan. It shall use ordinary care and diligence in the performance of its
duties under this Plan. Nothing in this Plan shall preclude the Employer from
indemnifying the Administrator for all actions under this Plan, or from
purchasing liability insurance to protect it with respect to its duties under
this Plan.
11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should
have known that such information is erroneous.
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11.16 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights shall
be exercised only by action of the Board of Directors, except where the Board
of Directors, by written resolution, delegates any such rights to one or more
officers of the Employer or to the Administrator. Subject to the rights
reserved to the Board of Directors acting on behalf of the Employer as set
forth in this Plan, no member of the Board of Directors shall have any duties
or responsibilities under this Plan, except to the extent he shall be acting
in the capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) The Administrator shall perform all duties required of it under this
Plan in a prudent manner. To the extent not prohibited by the Act, the
Administrator shall not be responsible in any way for any action or omission
of the Employer, the Trustee or any other fiduciaries in the performance of
their duties and obligations set forth in this Plan and in the Trust
Agreement. To the extent not prohibited by the Act, the Administrator shall
also not be responsible for any act or omission of any of its agents, or with
respect to reliance upon advice of its counsel (whether or not such counsel is
also counsel to the Employer or the Trustee), provided that such agents or
counsel were prudently chosen by the Administrator and that the Administrator
relied in good faith upon the action of such agent or the advice of such
counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under
this Plan or under the Act. Except for its own gross negligence, willful
misconduct or willful breach of the terms of this Plan, the Administrator
shall be indemnified and held harmless by the Employer against liability or
losses occurring by reason of any act or omission of the Administrator to the
extent that such indemnification does not violate the Act or any other federal
or state laws.
11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from serving as
Administrator under this Plan.
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ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this
Plan, either in whole or in part, the Administrator shall advise the claimant
in writing of the amount of his benefit, if any, and the specific reasons for
the denial. The Administrator shall also furnish the claimant at that time
with a written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information necessary for
the claimant to perfect his claim, if possible, and an explanation of why such
material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above, the
claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the
60-day period described in Section 12.2 above), the claimant or his duly
authorized representative may review pertinent Plan documents and the Trust
Agreement (and any pertinent related documents) and may submit issues and
comments in writing to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within 60
days of the filing by the claimant of his request for reconsideration;
provided, however, that if the Administrator feels that a hearing with the
claimant or his representative present is necessary or desirable, this period
shall be extended an additional 60 days.
12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in writing
and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
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ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Employer reserves the right at any time and from time to time, and
retroactively if deemed necessary or appropriate by it, to the extent
permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be
used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries under the Trust Agreement, except to the
extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion
of any Participant's interest as of the effective date of the amendment or
change the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with three or more
Years of Service with the Employer is permitted to elect to have the vesting
schedule in effect before the amendment used to determine his vested benefit;
(c) No amendment may eliminate an optional form of benefit;
(d) No amendment may increase the duties of the Trustee without its
consent; and
(e) No amendment that shall change any of the following types of
provisions shall be made more than once every six months, other than to
comport with changes in the Code, the Act or the regulations thereunder: (i)
any provision stating the amount and price of Employer Securities to be
awarded to designated officers and directors or categories of officers and
directors; (ii) any provisions specifying the timing of awards or allocations
to officers and directors; (iii) any provision setting forth a formula that
determines the amount, price and timing of allocations or awards, using
objective criteria such as earnings of the issuer, value of the Employer
Securities, Years of Service, job classification and Compensation levels.
Amendments may be made in the form of Board of Directors' resolutions or
separate written document. Copies of all amendments shall be delivered to the
Trustee.
13.2 Consolidation, Merger or Other Transactions of Employer.
Nothing in this Plan shall prevent the consolidation, merger,
reorganization or liquidation of the Employer, or prevent the sale by Employer
of any or all of its property. Any successor corporation or other entity
formed and resulting from any such transaction shall have the right to become
a party to this Plan by adopting the same by resolution and by appointing a
new Trustee as
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though the Trustee had resigned in accordance with the Trust Agreement, and by
executing a proper supplemental agreement with the Trustee. If, within 180
days from the effective date of such transaction, such new entity does not
become a party to this Plan as above provided, this Plan shall automatically
be terminated and the Trustee shall make payments to the persons entitled
thereto in accordance with Section 9.5.
13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or transfer
in whole or in part of the assets and liabilities of the Fund to, another
trust fund held under any other plan of deferred compensation maintained or to
be established for the benefit of all or some of the Participants of this
Plan, the assets of the Fund applicable to such Participants shall be
transferred to the other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust
fund immediately after the merger, consolidation or transfer which is equal to
or greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (determined as if this Plan and
such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors under this Plan, or of any new
or successor employer of the affected Participants, shall authorize such
transfer of assets, and, in the case of the new or successor employer of the
affected Participants, its resolutions shall include an assumption of
liabilities with respect to such Participants' inclusion in the new employer's
plan; and
(c) Such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by
any procedure other than a consolidation or merger, (b) the Employer's
receivership, insolvency, or cessation of its business as a going concern, or
(c) the commencement of any proceeding by or against the Employer under the
federal bankruptcy laws, and similar federal or state statute, or any federal
or state statute or rule providing for the relief of debtors, compensation of
creditors, arrangement, receivership, liquidation or any similar event which
is not dismissed within 30 days, this Plan shall terminate automatically on
such date (provided, however, that if a proceeding is brought against the
Employer for reorganization under Chapter 11 of the United States Bankruptcy
Code or any similar federal or state statute, then this Plan shall terminate
automatically if and when said proceeding results in a liquidation of the
Employer, or the approval of any Plan providing therefor, or the proceeding is
converted to a case under Chapter 7 of the Bankruptcy Code or any similar
conversion to a liquidation proceeding under federal or state law including,
but not limited to, a receivership proceeding). In the event of any such
termination as provided in the foregoing sentence, the Trustee shall make
payments to the persons entitled thereto in accordance with Section 9.5
hereof.
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13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any
time by giving to the Trustee and the Administrator notice in writing of such
desire to terminate. The Plan shall terminate upon the date of receipt of
such notice, the interests of all Participants shall become fully vested, and
the Trustee shall make payments to each Participant or Beneficiary in
accordance with Section 9.5. Alternatively, the Employer, in its discretion,
may determine to continue the Trust Agreement and to continue the maintenance
of the Fund, in which event distributions shall be made upon the contingencies
and in all the circumstances which would have been entitled such distributions
on a fully vested basis, had there been no termination of the Plan.
13.6 Partial Termination of Plan or Permanent Discontinuance of
Contributions.
In the event that a partial termination of the Plan shall be deemed to
have occurred, or if the Employer shall discontinue completely its
contributions hereunder, the right of each affected Participant to his
interest in the Fund shall be fully vested. The Employer, in its discretion,
shall decide whether to direct the Trustee to make immediate distribution of
such portion of the Fund assets to the persons entitled thereto or to make
distribution in the circumstances and contingencies which would have
controlled such distributions if there had been no partial termination or
discontinuance of contributions.
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ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to extent that a return of the Employer's contribution
is permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Incapacity.
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan is,
at the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary, and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall
have been duly appointed, the Administrator may direct the Trustee to make
payment of such benefit otherwise payable to such Participant or Beneficiary,
to such other person or institution, including a custodian under a Uniform
Gifts to Minor Act, or corresponding legislation (who shall be an adult, a
guardian of the minor or a trust company), and the release of such other
person or institution shall be a valid and complete discharge for the payment
of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, no benefits or other amounts
payable under the Plan shall be subject in any manner to anticipation, sale,
transfer, assignment, pledge, encumbrance, charge or alienation. If the
Administrator determines that any person entitled to any payments under the
Plan has become insolvent or bankrupt or has attempted to anticipate, sell,
transfer, assign, pledge, encumber, charge or otherwise in any manner alienate
any benefit or other amount payable to him under the Plan or that there is any
danger of any levy or attachment or other court process or encumbrance on the
part of any creditor of such person entitled to payments under the Plan
against any benefit or other accounts payable to such person, the
Administrator may, at any time, in its discretion, direct the Trustee to
withhold any or all payments to such person under the Plan and apply the same
for the benefit of such person, in such manner and in such proportion as the
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Administrator may deem proper. Notwithstanding anything in this Section 14.4
to the contrary, distributions pursuant to a Qualified Domestic Relations
Order may be made without regard to the age or employment status of the
Participant.
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and the
Employer shall be under no legal liability to make any such contributions. The
benefits of this Plan shall be only as can be provided by the assets of the
Fund, and no liability for the payment of benefits under the Plan or for any
loss of assets due to any action or inaction of the Trustee shall be imposed
upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder agree
to perform any and all acts and execute any and all documents and papers which
are necessary and desirable for carrying out this Plan or any of its
provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort to
locate all persons entitled to benefits under the Plan; however,
notwithstanding any provision in the Plan to the contrary, if, after a period
of five years from the date such benefit shall be due, any such persons
entitled to benefits have not been located, their rights under the Plan shall
stand suspended. Before this provision becomes operative, the Trustee shall
send a certified letter to all such persons at their last known address
advising them that their interest in benefits under the Plan shall be
suspended. Any such suspended amounts shall be held by the Trustee for a
period of three additional years (or a total of eight years from the time the
benefits first became payable), and thereafter such amounts shall be
reallocated among current Participants in the same manner that a current
contribution would be allocated. However, if a person subsequently makes a
valid claim with respect to such reallocated amounts and any earnings thereon,
the Plan earnings or the Employer's contribution to be allocated for the year
in which the claim shall be paid shall be reduced by the amount of such
payment. Any such suspended amounts shall be handled in a manner not
inconsistent with regulations issued by the Internal Revenue Service and
Department of Labor.
14.8 Governing Law.
This Plan has been executed in the State of Tennessee and all questions
pertaining to its validity, construction and administration shall be
determined in accordance with the laws of that State, except to the extent
superseded by the Act.
56
<PAGE>
<PAGE>
14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any
Employee to be continued in the employment of the Employer, or as a limitation
of the right of the Employer to discharge any of its Employees, with or
without cause.
57
<PAGE>
<PAGE>
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who may
be counsel for the Employer and for the Administrator or the Trustee (as the
case may be), with respect to the meaning or construction of this Plan and the
Trust Agreement, their respective obligations or duties hereunder or with
respect to any action or proceeding or any question of law, and they shall be
fully protected with respect to any action taken or omitted by them in good
faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be executed
by its duly authorized officers and its corporate seal to be affixed on this
16 day of March, 1998.
Attest: CAVALRY BANKING
/s/Ira B. Lewis, Jr. By:/s/Ed C. Loughry, Jr.
- ------------------------------ ---------------------------
Ira B. Lewis, Jr. Ed C. Loughry, Jr.
Secretary President
58
<PAGE>
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Parent
- ------
Cavalry Bancorp, Inc.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
Cavalry Banking 100% United States
a) The operation of the Company's wholly owned subsidiaries are included
in the Company's Financial Statements contained in Item 8 of this Form
10-K.
<PAGE>
<PAGE>
Exhibit 23
Consent of Rayburn, Betts & Bates, P.C.
<PAGE>
<PAGE>
[Letterhead of Rayburn, Betts & Bates, P.C.]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-48007) of Cavalry Bancorp, Inc. ("Company"), of
our report dated February 13, 1998 (March 16, 1998 as to Note 20) appearing
under Part II, Item 8 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
/s/Rayburn, Betts & Bates, P.C.
Rayburn, Betts & Bates, P.C.
Nashville, Tennessee
March 25, 1998
<PAGE>
<PAGE>
Exhibit 27
Financial Data Schedule (in thousands)
This schedule contains financial information extracted from the consolidated
financial statements of Cavalry Bancorp, Inc. for the year ended December 31,
1997 and is qualified in its entirety by reference to such financial
statements.
Financial Data
as of or
for the year
ended December
Item Number 31, 1997 Item Description
- ----------- -------- ----------------
9-03 (1) 10,695 Cash and Due from Banks
9-03 (2) 26,963 Interest - bearing deposits
9-03 (3) 0 Federal funds sold - purchased
securities for resale
9-03 (4) 0 Trading account assets
9-03 (6) 10,077 Investment and mortgage backed
securities held for sale
9-03 (6) 3,001 Investment and mortgage backed
securities held to
maturity - carrying value
9-03 (6) 3,012 Investment and mortgage backed
securities held to maturity - market
value
9-03 (7) 217,834 Loans
9-03 (7)(2) 2,804 Allowance for loan losses
9-03 (11) 282,129 Total assets
9-03 (12) 248,267 Deposits
9-03 (13) 0 Short - term borrowings
9-03 (15) 3,415 Other liabilities
9-03 (16) 0 Long - term debt
9-03 (19) 0 Preferred stock - mandatory redemption
9-03 (20) 0 Preferred stock - no mandatory
redemption
9-03 (21) 0 Common stocks
9-03 (22) 30,447 Other stockholders' equity
9-03 (23) 282,129 Total liabilities and stockholders'
equity
9-04 (1) 20,290 Interest and fees on loans
9-04 (2) 697 Interest and dividends on investments
9-04 (4) 952 Other interest income
9-04 (5) 21,939 Total interest income
9-04 (6) 9,289 Interest on deposits
9-04 (9) 9,289 Total interest expense
9-04 (10) 12,650 Net interest income
9-04 (11) 700 Provision for loan losses
9-04 (13)(h) 0 Investment securities gains/(losses)
9-04 (14) 10,498 Other expenses
9-04 (15) 5,113 Income/loss before income tax
9-04 (17) 5,113 Income/loss before extraordinary items
9-04 (18) 0 Extraordinary items, less tax
9-04 (19) 0 Cumulative change in accounting
principles
9-04 (20) 3,202 Net income or loss
9-04 (21) 0 Earnings per share - primary
9-04 (21) 0 Earnings per share - fully diluted
I.B. 5 5.21% Net yield - interest earnings - actual
III.C.1. (a) 150 Loans on non - accrual
III.C.1. (b) 98 Accruing loans past due 90 days or more
III.C.2. (c) 0 Troubled debt restructuring
III.C.2 0 Potential problem loans
IV.A.1 2,123 Allowance for loan loss - beginning of
period
IV.A.2 49 Total chargeoffs
IV.A.3 30 Total recoveries
IV.A.4 2,804 Allowance for loan loss - end of period
IV.B.1 2,490 Loan loss allowance allocated to
domestic loans
IV.B.2 0 Loan loss allowance allocated to
foreign loans
IV.B.3 314 Loan loss allowance - unallocated
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 10695
<INT-BEARING-DEPOSITS> 26963
<FED-FUNDS-SOLD> 0
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<INVESTMENTS-MARKET> 3012
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<ALLOWANCE> 2804
<TOTAL-ASSETS> 282129
<DEPOSITS> 248267
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3415
<LONG-TERM> 0
0
0
<COMMON> 0
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<INTEREST-INCOME-NET> 12650
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<EXPENSE-OTHER> 10498
<INCOME-PRETAX> 5113
<INCOME-PRE-EXTRAORDINARY> 5113
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3202
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.21
<LOANS-NON> 150
<LOANS-PAST> 98
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2123
<CHARGE-OFFS> 49
<RECOVERIES> 30
<ALLOWANCE-CLOSE> 2804
<ALLOWANCE-DOMESTIC> 2490
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