U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 0-24791
MASSACHUSETTS FINCORP, INC
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(Name of small business issuer in its charter)
Delaware 04-3431804
- ---------------------------------------------- ------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1442 Dorchester Avenue, Boston, Massachusetts 02122
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (617) 825-5555
---------------
Securities registered under Section 12(b) of the Exchange Act: None
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Securities registered under Common Stock, par value $.01 per share
Section 12(g) of the Exchange Act: --------------------------------------
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
----- -----
YES NO X
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Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
-----
The Issuer's revenues for the fiscal year under report were $71,000.
As of March 19, 1999, there were issued and outstanding 545,481 shares
of the Registrant's Common Stock. Based on the average of the bid and ask
prices, the aggregate market value of the Common Stock outstanding held by the
nonaffiliates of the Registrant on March 19,1999, was $4,669,357 (485,128
shares at $9.625 per share).
INDEX
Page No.
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PART I 3
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTY 25
ITEM 3. LEGAL PROCEEDINGS 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 26
PART II 26
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 27
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 27
ITEM 7. FINANCIAL STATEMENTS 40
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 62
PART III 63
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT 63
ITEM 10. EXECUTIVE COMPENSATION 65
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 67
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 68
PART IV 69
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K 69
SIGNATURES 70
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
Massachusetts Fincorp, Inc. (the "Company") was incorporated under
Delaware law on July 10, 1998. On December 21, 1998, the Company acquired The
Massachusetts Co-operative Bank (the "Bank") as a part of the Bank's
conversion from a mutual to a stock Massachusetts-chartered co-operative Bank
(the "Conversion"). The Company is a savings and loan holding company and is
subject to regulation by the Office of Thrift Supervision (the "OTS").
Currently, the Company does not transact any material business other than
through the Bank. Prior to December 21, 1998, the Company had no operations.
The Company retained 50% of the net conversion proceeds amounting to $4.9
million which it used for general business activities and to form and
capitalize the Employee Stock Ownership Plan ("ESOP") Loan Subsidiary (MCB
Funding), which loaned funds to the ESOP to purchase 8% of the stock issued in
the Conversion. At December 31, 1998, the Company had total assets of $71.6
million and stockholders' equity of $9.5 million.
The Bank is a community-oriented co-operative bank which was originally
organized in 1908 as The Massachusetts Co-operative Bank, a Massachusetts-
chartered mutual co-operative bank. The Bank's principal business consists of
the acceptance of retail deposits from the general public in the areas
surrounding its two full-service banking offices and the investment of those
deposits, together with funds generated from operations and borrowings,
primarily in mortgage loans secured by one-to four-family residences and, to
a lesser extent, multi-family and commercial real estate loans, construction
loans, home equity lines of credit and consumer loans. However, in the
future, the Bank intends to increase its emphasis on multi-family, commercial
real estate and construction lending. The Bank operates through its two full-
service banking offices and its two loan origination offices, all of which are
located in the greater Boston metropolitan area. The Bank originates loans
for investment and loans for sale in the secondary market, generally releasing
the servicing rights to all loans sold. The Bank also invests in mortgage-
backed securities, securities issued by the U.S. Government and other
investments permitted by applicable laws and regulations. The Bank's revenues
are derived principally from the generation of interest and fees on loans
originated and, to a lesser extent, interest and dividends on investment
securities. The Bank's primary sources of funds are retail savings deposits
and, to a lesser extent, principal and interest payments on loans and
investment securities, advances from the FHLB-Boston and proceeds from the
sale of loans.
The following discussion refers to the Bank's operation as it makes up
the vast majority of the Company's assets.
Market Area and Competition
The Bank's main office is headquartered in the Dorchester section of
Boston, Massachusetts. The Bank's primary deposit gathering area is
concentrated in the communities surrounding its main office located in
Dorchester and other full-service banking office located in East Milton,
Massachusetts. The Bank also maintains two loan origination offices located
in the Boston suburban communities of Wakefield and Norwell, Massachusetts.
All of the Bank's banking and loan origination offices are located within 30
miles of Boston. Although the Bank originates loans throughout Massachusetts
and New Hampshire, the Bank's primary lending area is the greater Boston
metropolitan area.
The Dorchester section of Boston, Massachusetts is a fully-developed and
densely populated urban area located south of downtown Boston. The major
traffic roadways running through Dorchester, including U.S. Interstate Highway
93, are heavily traveled and lined with commercial and retail business
operations. The greater Boston metropolitan area benefits from the presence
of numerous institutions of higher education, medical care and research
facilities and the corporate headquarters of several significant investment
and technology companies employing individuals with specialized skills. These
firms and businesses, along with tourism, form the backbone of the economy of
the greater Boston metropolitan area.
The Bank faces significant competition both in generating loans and in
attracting deposits. The Bank's primary market area is highly competitive and
the Bank faces direct competition from a significant number of financial
institutions, many with a state-wide or regional presence and, in some cases,
a national presence. Many of these financial institutions are significantly
larger and have greater financial resources than the Bank. The Bank's
competition for loans comes principally from commercial banks, savings banks,
co-operative banks, credit unions, mortgage brokers, mortgage banking
companies and insurance companies. Its most direct competition for deposits
has historically come from savings, co-operative and commercial banks and
credit unions. In addition, the Bank faces significant competition for
deposits from non-bank institutions such as brokerage firms and insurance
companies in such instruments as short-term money market funds, corporate and
government securities funds, mutual funds and annuities. Competition may also
increase as a result of the lifting of restrictions on the interstate
operations of financial institutions. The Bank has also experienced
significant competition from credit unions which have a competitive advantage
as they do not pay state or federal income taxes. Such competitive advantage
has placed increased pressure on the Bank with respect to its loan and deposit
pricing.
Lending Activities
Loan Portfolio Composition. The types of loans that the Bank may
originate are subject to federal and state laws and regulations. Interest
rates charged by the Bank on loans are affected principally by the demand for
such loans, the supply of money available for lending purposes and the rates
offered by its competitors. These factors are, in turn, affected by general
and economic conditions, monetary policies of the federal government,
including the Federal Reserve Board ("FRB"), legislative tax policies and
governmental budgetary matters.
The Bank's loan portfolio primarily consists of first mortgage loans
secured by one-to four-family residences most of which are located in the
Bank's primary market area. At December 31, 1998, the Bank's gross loan
portfolio totaled $58.3 million, of which $44.9 million were one-to four-
family residential mortgage loans, or 77.0% of total loans. At such date, the
remainder of the loan portfolio consisted of $3.3 million of multi-family
loans, or 5.6% of total loans; $1.6 million of commercial real estate loans,
or 2.7% of total loans; $8.0 million of construction loans, or 13.8% of total
loans; $404,000 of home equity lines of credit, or 0.7% of total loans;
$121,000 of consumer loans, or 0.2% of total loans, consisting of $38,000 of
loans on savings accounts and $83,000 of automobile loans; and $36,000 of
other loans consisting of unsecured personal loans.
The following table sets forth the composition of the Bank's loan
portfolio in dollar amounts and in percentages of the respective portfolios
at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to four-family $44,887 77.02% $37,953 84.61% $33,248 82.26%
Multi-family 3,267 5.61% 2,460 5.48% 2,754 6.81%
Commercial real estate 1,557 2.67% 1,485 3.31% 1,898 4.70%
Construction, net of due mortgagor 8,011 13.75% 2,169 4.84% 1,480 3.66%
Home equity lines 404 0.69% 560 1.25% 720 1.78%
----------------------------------------------------------------
Total mortgage loans 58,126 99.73% 44,627 99.49% $40,100 99.21%
----------------------------------------------------------------
Consumer loans:
Auto loans 83 0.14% 119 0.27% 100 0.25%
Loans on savings accounts 38 0.07% 76 0.17% 132 0.33%
Total consumer loans 121 0.20% 195 0.44% 232 0.58%
----------------------------------------------------------------
Other loans 36 0.06% 35 0.07% 86 0.21%
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Total loans 58,283 100.00% 44,857 100.00% 40,418 100.00%
====== ====== ======
Less:
Deferred loan fees (146) (57) (32)
Allowance for possible loan losses (525) (349) (322)
Loans, net $57,612 $44,451 $40,064
======= ======= =======
</TABLE>
Origination, Sale and Servicing of Loans. The Bank's mortgage lending
activities are conducted primarily by its commissioned loan personnel
operating at its two full service banking offices and two loan origination
offices. All loans originated by the Bank are underwritten by the Bank
pursuant to the Bank's policies and procedures. The Bank originates both
adjustable-rate and fixed-rate mortgage loans. The Bank's ability to
originate fixed-or adjustable-rate loans is dependent upon the relative
customer demand for such loans, which is affected by the current and expected
future level of interest rates.
Generally, all adjustable-rate mortgage loans originated by the Bank are
originated for investment. While the Bank has historically originated all
fixed-rate one-to four-family mortgage loans for sale in the secondary market
to either Fannie Mae or private investors, the Bank intends to begin to retain
certain one-to four-family fixed-rate loans for its portfolio, based on
various factors, including its asset/liability position and market interest
rates. The one-to four-family mortgage loan products currently originated for
sale by the Bank include a variety of loans which conform to the underwriting
standards specified by Fannie Mae ("conforming loans") and, to a lesser
extent, loans which do not conform to Fannie Mae standards due to loan amounts
("jumbo loans"). The Bank also originates mortgage loans insured by the
Federal Housing Authority ("FHA") and Veterans Administration ("VA"). All
one-to four-family mortgage loans sold by the Bank are sold pursuant to master
commitments negotiated with Fannie Mae and other investors to purchase loans
meeting such investors' defined criteria. Although the Bank has entered into
such master commitment contracts, such contracts generally do not require the
purchasers to buy or the Bank to deliver a specific amount of mortgage loans.
All conforming loans currently sold by the Bank are sold to Fannie Mae and
private investors and all non-conforming loans which are sold are generally
sold to private investors. Sales of loans are made without recourse to the
Bank in the event of default by the borrower. The Bank generally retains the
servicing rights on the mortgage loans sold to Fannie Mae and releases the
servicing rights on the mortgage loans sold to private investors.
At December 31,1998, the Bank was servicing $4.6 million of loans for
others, primarily consisting of conforming fixed-rate mortgage loans sold by
the Bank. Loan servicing includes collecting and remitting loan payments,
accounting for principal and interest, contacting delinquent mortgagors,
supervising foreclosures and property dispositions in the event of unremedied
defaults, making certain insurance and tax payments on behalf of the borrowers
and generally administering the loans. Substantially all of the loans
currently being serviced for others are loans which have been sold by the
Bank.
During the years ended December 31, 1998 and December 31, 1997, the Bank
originated $66.7 million and $30.4 million of fixed-rate and adjustable-rate
one-to four-family loans, respectively, of which $21.3 million and $4.8
million, respectively, were retained by the Bank. The Bank recognizes, at the
time of sale, the cash gain or loss on the sale of the loans based on the
difference between the net cash proceeds received and the carrying value of
the loans sold. On January 1, 1996, the Bank implemented SFAS No. 122 pursuant
to which the value of servicing rights may be recognized as an asset of the
Bank. In the two years ended December 31, 1998, the fair market value of
servicing rights under SFAS No. 122 and SFAS No. 125 were not material and
were not recognized in the financial statements for those periods.
The following table set forth the Bank's loan originations, sales and
principal repayments for the periods indicated.
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------------
1998 1997 1996
-----------------------------
<S> <C> <C> <C>
Gross loans:
Balance outstanding at beginning of period $41,672 $40,418 $33,083
Loans originated:
One-to four-family 66,714 30,371 31,420
Multi-family 746 453 715
Commercial real estate 1,218 - 82
Construction 12,094 6,284 2,158
Home equity lines 79 43 303
Auto loans 46 93 96
Loans on savings accounts 72 51 274
Other loans 34 1 68
-----------------------------
Total loans originated 81,003 37,296 35,116
Less:
Principal repayments 21,760 11,326 8,117
Sales of loans 42,631 21,520 19,234
Transfers to real estate owned - - 257
Principal charged off 1 11 173
-----------------------------
Total loans 58,283 44,857 40,418
Less:
Loans held for sale, net 6,336 3,185 1,398
-----------------------------
Loans receivable held for investment at end
of period $51,947 $41,672 $39,020
=============================
</TABLE>
Loan Maturity. The following table shows the remaining contractual
maturity of the Bank's loan portfolio at December 31, 1998. The table does
not include prepayments or scheduled principal amortization. Prepayments and
scheduled principal amortization on mortgage loans totaled $20.4 million,
$11.4 million and $8.1 million for the years ended December 31, 1998, 1997 and
1996, respectively.
<TABLE>
<CAPTION>
At December 31, 1998
--------------------------------------------------------------------------------------------------------
One-to Loans on Total
Four- Multi- Commercial Construction Home Auto Savings Loans
Family Family Real Estate and Land Equity Commercial Loans Accounts Other Receivable
--------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
Within one year $ 1,139 $ 238 $ 284 $6,527 $ 16 $ - $ - $28 $ 5 $ 8,237
------------------------------------------------------------------------------------------------------
After one year:
More than one year
to three years 809 848 522 1,025 61 - 59 - 25 3,349
More than three years
to five years 581 672 174 - - - 24 - 6 1,457
More than five years
to 10 years 1,284 714 54 104 - - - - - 2,156
More than 10 years
to 20 years 5,558 544 523 63 - - - - - 6,688
More than 20 years 35,516 251 - 292 327 - - 10 - 36,396
------------------------------------------------------------------------------------------------------
Total due after
May 31, 1999 43,748 3,029 1,273 1,484 388 0 83 10 31 50,046
------------------------------------------------------------------------------------------------------
Total amount due
(gross) 44,887 3,267 1,557 8,011 404 0 83 38 36 58,283
======================================================================================================
Less:
Deferred loan fees, net (146)
Allowance for possible
loan losses (525)
-------
Total loans, net $57,612
=======
- --------------------
<F1> Included in amounts due more than 20 years are mortgage loans held for
sale totaling $6.3 million. Although these loans have a maturity date
of more than 20 years, they are typically sold within 90 days.
</TABLE>
The following table sets forth at December 31, 1998, the dollar amount
of gross loans receivable contractually due after December 31, 1999, and
whether such loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 1999
----------------------------------
Fixed Adjustable Total
----------------------------------
(In thousands)
<S> <C> <C> <C>
Mortgage loans:
One-to four-family $21,346 $22,402 $43,748
Multi-family 291 2,738 3,029
Commercial real estate 54 1,219 1,273
Construction 1,125 359 1,484
Home equity lines 0 388 388
----------------------------------
Total mortgage loans 22,816 27,106 49,922
----------------------------------
Consumer loans:
Auto loans 83 - 83
Loans on savings accounts 10 - 10
----------------------------------
Total consumer loans 93 - 93
----------------------------------
Other loans 31 - 31
----------------------------------
Total loans $22,940 $27,106 $50,046
==================================
</TABLE>
One- to Four-Family Lending. The Bank currently offers both fixed-rate
and adjustable-rate mortgage ("ARM") loans with maturities of up to 30 years
secured by one-to four-family residences substantially all of which are
located in the Bank's primary market area. At December 31, 1998, the Bank's
one-to four-family mortgage loans totaled $44.9 million, or 77.0% of total
loans. Of the one-to four-family mortgage loans outstanding at that date,
48.1% were fixed-rate mortgage loans and 51.9% were ARM loans.
The Bank currently offers fixed-rate one-to-four family mortgage loans
with terms from 15 to 30 years. While the Bank has historically sold
substantially all of the fixed-rate mortgage loans which it has originated, on
a going forward basis, the Bank intends to selectively retain certain fixed-
rate loans for its portfolio, based on the asset quality and coupon rates of
such loans. Generally, the Bank releases servicing rights on loans sold to
private investors and retains servicing rights on loans sold to Fannie Mae.
The Bank currently offers a number of ARM loans with terms of up to 30 years
and interest rates which adjust every one or three years from the outset of
the loan or which adjust annually after a five year initial fixed period. The
interest rates for the Bank's ARM loans are indexed to the applicable Constant
Maturity Treasury ("CMT") Index. The Bank's ARM loans generally provide for
periodic (not more than 2%) and overall (not more than 6%) caps on the
increase or decrease in the interest rate at any adjustment date and over the
life of the loan.
The origination of adjustable-rate residential mortgage loans, as
opposed to fixed-rate residential mortgage loans, helps reduce the Bank's
exposure to increases in interest rates. However, adjustable-rate loans
generally pose credit risks not inherent in fixed-rate loans, primarily
because as interest rates rise, the underlying payments of the borrower rise,
thereby increasing the potential for default. Periodic and lifetime caps on
interest rate increases help to reduce the risks associated with adjustable-
rate loans but also limit the interest rate sensitivity of such loans.
Generally, the Bank originates one-to four-family residential mortgage
loans in amounts of up to 95% of the appraised value or selling price of the
property securing the loan, whichever is lower, with the exception of certain
loans in the Bank's "First-Time Home Buyer" program, which allows for a 97%
loan-to-value ("LTV") ratio. Private Mortgage Insurance ("PMI") may be
required for loans with a LTV ratio of greater than 80%. Mortgage loans
originated by the Bank generally include due-on-sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable
in the event the borrower transfers ownership of the property without the
Bank's consent. Due-on-sale clauses are an important means of adjusting the
yields on the Bank's fixed-rate mortgage loan portfolio and the Bank has
generally exercised its rights under these clauses. The Bank requires fire,
casualty, title and, in certain cases, flood insurance on all properties
securing real estate loans made by the Bank.
In an effort to provide financing for moderate income and first-time
home buyers, the Bank offers FHA and VA loans and has its own First-Time Home
Buyer loan program. These programs offer residential mortgage loans to
qualified individuals. These loans are offered with adjustable-and fixed-
rates of interest and terms of up to 30 years. Such loans may be secured by
a one-to four-family residential property, in the case of FHA and VA loans,
and must be secured by a single family owner-occupied unit in the case of
First-Time Home Buyer loans. These loans are originated using modified
underwriting guidelines, in the case of FHA and VA loans, and the same
underwriting guidelines as are the Bank's other one-to four-family mortgage
loans, in the case of First-Time Home Buyer loans. All such loans are
originated in amounts of up to 97% of the lower of the property's appraised
value or the sale price. Private mortgage insurance is required on all such
loans.
The Bank also originates "investor rehab loans" to local contractors and
investors for the improvement and remodeling of existing non-owner occupied
one-to four-family residential properties. Such first mortgage loans are
originated with a maximum LTV ratio of 80% of the purchase price of the
property plus up to 80% of the cost of the improvements, as confirmed by an
independent appraiser. Investor rehab loans are offered with terms of one-
year and fixed-rates of interest, generally 1.5% above the prime rate of
interest as reported in The Wall Street Journal. During the term of the loan,
the borrower is required to remit monthly payments of interest only. The
principal balance of such loan is due at the end of the one-year term. The
Bank primarily relies on the borrower's income statements and tax returns when
underwriting such loans. The Bank generally requires personal and/or
corporate guarantees on such loans. At December 31, 1998, investor rehab
loans totaled $3.7 million, or8.2% of one-to four-family loans, and 6.3% of
the Bank's total loans.
In March 1998, the Bank also began to offer a limited documentation
mortgage loan product ("Low Doc" loans). Such loans are secured by owner-
occupied one-to four-family properties and are offered with both fixed and
adjustable rates of interest. The terms and interest rate caps of Low Doc
loans are generally the same as those of the Bank's other fixed and
adjustable-rate one-to four-family loan products; however, borrowers pay a
premium in the form of higher interest rates and loan fees and provide larger
down payments (75% maximum LTV ratio) in exchange for more expedient loan
processing by virtue of less income and asset information as compared to loans
underwritten in conformance with Fannie Mae standards. When underwriting a
Low Doc loan, the Bank requires executed income tax returns and a satisfactory
credit report but does not verify employment status. At December 31, 1998,
Low Doc loans totaled $3.2 million, or 7.1% of one-to four-family loans, and
5.5% of the Bank's total loans.
Multi-Family and Commercial Real Estate Lending. The Bank originates
multi-family and commercial real estate loans that are generally secured by
five or more unit apartment buildings and properties used for business
purposes such as small office buildings, restaurants or retail facilities
primarily located in the Bank's primary market area. The Bank's multi-family
and commercial real estate underwriting policies provide that such real estate
loans may be made in amounts of up to 80% of the appraised value of the
property, subject to the Bank's current loans-to-one-borrower limit, which at
December 31, 1998 was $1.9 million. The Bank's multi-family and commercial
real estate loans may be made with terms of up to 10 years and are offered
with interest rates that adjust periodically. In reaching its decision on
whether to make a multi-family or commercial real estate loan, the Bank
considers the net operating income of the property, the borrower's expertise,
credit history and profitability and the value of the underlying property.
The Bank has generally required that the properties securing these real estate
loans have debt service coverage ratios (the ratio of earnings before debt
service to debt service) of at least 1.30x. Environmental impact surveys are
generally required for all commercial real estate loans. Generally, all
multi-family and commercial real estate loans made to corporations,
partnerships and other business entities require personal guarantees by the
principals. On an exception basis, the Bank may not require a personal
guarantee on such loans depending on the creditworthiness of the borrower and
the amount of the down payment and other mitigating circumstances. The Bank's
multi-family real estate loan portfolio at December 31, 1998 was $3.3 million,
or 5.6% of total loans, and the Bank's commercial real estate loan portfolio
at such date was $1.6 million, or 2.7% of total loans.
Loans secured by multi-family and commercial real estate properties
generally involve larger principal amounts and a greater degree of risk than
one-to four-family residential mortgage loans. Because payments on loans
secured by multi-family and commercial real estate properties are often
dependent on successful operation or management of the properties, repayment
of such loans may be subject to adverse conditions in the real estate market
or the economy. The Bank seeks to minimize these risks through its
underwriting standards.
Construction Lending. The Bank originates fixed-rate construction loans
for the development of one-to four-family residential properties primarily
located in the Bank's primary market area. Although the Bank does not
generally make loans secured by raw land, the Bank's policies permit the
origination of such loans. Construction loans are generally offered to
experienced local developers operating in the Bank's primary market area and,
to a lesser extent, to individuals for the construction of their primary
residence. Construction loans are generally offered with terms of up to 12
months and may be made in amounts of up to 70% of the appraised value of the
property, as improved, in the case of construction loans to developers, up to
90% of the appraisal value of the property, as improved, in the case of
construction loans to individuals for the construction of their primary
residence and up to 50% of the appraised value of the property in the case of
land loans. Construction loan proceeds are disbursed periodically in
increments as construction progresses and as inspections by the Bank's lending
officers warrant. Generally, if the borrower is a corporation, partnership or
other business entity, personal guarantees by the principals are required for
all construction loans.
At December 31, 1998, the Bank had $8.0 million of advanced
construction loans which amounted to 13.8% of the Bank's total loans.
Construction financing is generally considered to involve a higher
degree of credit risk than long-term financing on improved, owner-occupied
real estate. Risk of loss on a construction loan is dependent largely upon
the accuracy of the initial estimate of the property's value at completion of
construction compared to the estimated cost (including interest) of
construction and other assumptions, including the estimated time to sell
residential properties. If the estimate of value proves to be inaccurate, the
Bank may be confronted with a project, when completed, having a value which is
insufficient to assure full repayment.
Home Equity Lines of Credit. Substantially all of the Bank's home
equity lines of credit are secured by second mortgages on owner-occupied one-
to four-family residences located in the Bank's primary market area. At
December 31, 1998, these loans totaled $404,000, or7% of the Bank's total
loans. Home equity lines of credit generally have adjustable-rates of
interest which adjust on a monthly basis. The adjustable-rate of interest
charged on such loans is indexed to the prime rate as reported in The Wall
Street Journal. Home equity lines of credit generally have an 18% lifetime
limit on interest rates. Generally, the maximum combined LTV ratio on home
equity lines of credit is 70%. The underwriting standards employed by the
Bank for home equity lines of credit include a determination of the
applicant's credit history and an assessment of the applicant's ability to
meet existing obligations and payments on the proposed loan and the value of
the collateral securing the loan. The stability of the applicant's monthly
income may be determined by verification of gross monthly income from primary
employment and, additionally, from any verifiable secondary income.
Creditworthiness of the applicant is of primary consideration.
Consumer Lending. Consumer loans at December 31, 1998 amounted to
$121,000, or 0.2% of the Bank's total loans, and consisted primarily of new
and used automobile loans and passbook loans. Such loans are generally
originated in the Bank's primary market area and generally are secured by
automobiles and deposit accounts.
Loans on savings accounts are generally secured by deposit accounts.
Automobile loans have a maximum borrowing limitation of 80% of the sale price
of the automobile or average value in the National Automobile Dealer's
Association price guide (the "bluebook"), whichever is lower. At December 31,
1998, automobile loans totaled $83,000, or 68.6% of consumer loans and 0.1% of
the Bank's total loans; and loans on savings accounts totaled $38,000, or
31.4% of consumer loans and 0.1% of the Bank's total loans.
Loans secured by rapidly depreciable assets such as automobiles entail
greater risks than one-to four-family residential mortgage loans. In such
cases, repossessed collateral for a defaulted loan may not provide an adequate
source of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections on these loans are dependent on the
borrower's continuing financial stability and, therefore, are more likely to
be adversely affected by job loss, divorce, illness or personal bankruptcy.
Finally, the application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans in the event of a default.
Loan Approval Procedures and Authority. The Board of Directors
establishes the lending policies and loan approval limits of the Bank. The
Board of Directors has established the Security Committee (the "Committee") of
the Board which considers and approves all loans within its designated
authority as established by the Board. In addition, the Board of Directors
has authorized certain officers of the Bank (the "designated officers") to
consider and approve all loans within their designated authority as
established by the Board.
Delinquent Loans, Classified Assets and Real Estate Owned
Delinquencies, Classified Assets and Real Estate Owned. Reports listing
all delinquent accounts are generated and reviewed by management on a monthly
basis and the Board of Directors performs a monthly review of all loans or
lending relationships delinquent 60 days or more. The procedures taken by the
Bank with respect to delinquencies vary depending on the nature of the loan,
period and cause of delinquency and whether the borrower is habitually
delinquent. When a borrower fails to make a required payment on a loan, the
Bank takes a number of steps to have the borrower cure the delinquency and
restore the loan to current status. The Bank generally sends the borrower a
written notice of non-payment after the loan is first past due. The Bank's
guidelines provide that telephone and written correspondence will be attempted
to ascertain the reasons for delinquency and the prospects of repayment. When
contact is made with the borrower at any time prior to foreclosure, the Bank
will attempt to obtain full payment, offer to work out a repayment schedule
with the borrower to avoid foreclosure or, in some instances, accept a deed in
lieu of foreclosure. In the event payment is not then received or the loan
not otherwise satisfied, additional letters and telephone calls generally are
made. If the loan is still not brought current or satisfied and it becomes
necessary for the Bank to take legal action, which typically occurs after a
loan is 90 days or more delinquent, the Bank will commence foreclosure
proceedings against any real property that secured the loan. If a foreclosure
action is instituted and the loan is not brought current, paid in full, or
refinanced before the foreclosure sale, the property securing the loan
generally is sold at foreclosure and, if purchased by the Bank, becomes real
estate owned.
Federal regulations and the Bank's internal policies require that the
Bank utilize an internal asset classification system as a means of reporting
problem and potential problem assets. The Bank currently classifies problem
and potential problem assets as "Substandard," "Doubtful" or "Loss" assets.
An asset is considered Substandard if it is inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral
pledged, if any. Substandard assets include those characterized by the
distinct possibility that the Bank will sustain some loss if the deficiencies
are not corrected. Assets classified as Doubtful have all of the weaknesses
inherent in those classified Substandard with the added characteristic that
the weaknesses present make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly questionable and
improbable. Assets classified as Loss are those considered uncollectible and
of such little value that their continuance as assets, without the
establishment of a specific loss reserve, is not warranted. Assets which do
not currently expose the Bank to a sufficient degree of risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."
When the Bank classifies one or more assets, or portions thereof, as
Substandard or Doubtful, it is required to establish an allowance for possible
loan losses in an amount deemed prudent by management unless the loss of
principal appears to be remote. When the Bank classifies one or more assets,
or portions thereof, as Loss, it is required either to establish a specific
allowance for losses equal to 100% of the amount of the assets so classified
or to charge off such amount.
The Bank's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the FDIC and
Commissioner, which can order the establishment of additional general or
specific loss allowances. The FDIC, in conjunction with the other federal
banking agencies, recently adopted an interagency policy statement on the
allowance for loan and lease losses. The policy statement provides guidance
for financial institutions on both the responsibilities of management for the
assessment and establishment of adequate allowances and guidance for banking
agency examiners to use in determining the adequacy of general valuation
guidelines. Generally, the policy statement recommends that institutions have
effective systems and controls to identify, monitor and address asset quality
problems; that management has analyzed all significant factors that affect the
collectibility of the portfolio in a reasonable manner; and that management
has established acceptable allowance evaluation processes that meet the
objectives set forth in the policy statement. While the Bank believes that
it has established an adequate allowance for possible loan losses, there can
be no assurance that regulators, in reviewing the Bank's loan portfolio, will
not request the Bank to materially increase at that time its allowance for
possible loan losses, thereby negatively affecting the Bank's financial
condition and earnings at that time. Although management believes that
adequate specific and general loan loss allowances have been established,
future provisions are dependent upon future events such as loan growth and
portfolio diversification and, as such, further additions to the level of
specific and general loan loss allowances may become necessary.
Management of the Bank reviews and classifies its assets on a quarterly
basis, and the Board of Directors reviews the results of the reports on a
quarterly basis. The Bank classifies its assets in accordance with the
management guidelines described above. At December 31, 1998, the Bank had
$1.1 million, or 1.5%, of assets designated as Substandard, consisting of nine
one-to four-family mortgage loans and two multi-family mortgage loans. At
such date, the Bank had no loans classified as Special Mention, Doubtful or
Loss At December 31, 1998, these classified assets represented 2.1% of loans
receivable.
Non-performing Assets. The following table sets forth information
regarding non-performing loans and REO. At December 31, 1998, the Bank had no
REO in its portfolio. It is the general policy of the Bank to cease accruing
interest on loans 90 days or more past due and to fully reserve for all
previously accrued interest. If interest payments on all non-accrual loans
for the years ended December 31, 1998, 1997 and 1996 had been made in
accordance with original loan agreements, interest income of $8,000,$9,000 and
$38,000, respectively, would have been recognized.
<TABLE>
<CAPTION>
At December 31,
-------------------------
1998 1997 1996
-------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Non-accrual loans:
One-to four-family $173 $115 $392
Real estate owned, net(1) - - 540
------------------------
Total non-performing assets $173 $115 $932
========================
Non-performing loans as a percent of loans(2)(3) 0.33% 0.28% 1.01%
Non-performing assets as a percent of total assets(3) 0.24% 0.21% 1.84%
- --------------------
<F1> Real Estate owned balances are shown net of related loss allowances.
<F2> Loans include loans receivable held for investment, net, excluding the
allowance for possible loan losses.
<F3> Non-performing assets consist of non-performing loans and REO. Non-
performing loans consist of non-accruing loans and all loans 90 days or
more past due and other loans which have been identified by the Bank as
presenting uncertainty with respect to the collectibility of interest or
principal.
<F4> There are no loans over 90 days that are accruing interest.
</TABLE>
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained through provisions
for loan losses based on management's on-going evaluation of the risks
inherent in its loan portfolio in consideration of the trends in its loan
portfolio, the national and regional economies and the real estate market in
the Bank's primary lending area. The allowance for possible loan losses is
maintained at an amount management considers adequate to cover estimated
losses in its loan portfolio which are deemed probable and estimable based on
information currently known to management. The Bank's loan loss allowance
determinations also incorporate factors and analyses which consider the
potential principal loss associated with the loan, costs of acquiring the
property securing the loan through foreclosure or deed in lieu thereof, the
periods of time involved with the acquisition and sale of such property, and
costs and expenses associated with maintaining and holding the property until
sale and the costs associated with the Bank's inability to utilize funds for
other income producing activities during the estimated holding period of the
property.
Management periodically calculates a loan loss allowance sufficiency
analysis based upon the loan portfolio composition, asset classifications,
loan-to-value ratios, potential impairments in the loan portfolio and other
factors. The analysis is compared to actual losses, peer group comparisons
and economic conditions. The Bank will continue to monitor and modify its
allowance for possible loan losses as conditions dictate. Management believes
that, based on information available at December 31, 1998, the Bank's
allowance for possible loan losses was sufficient to cover losses inherent in
its loan portfolio at that time. However, no assurances can be given that the
Bank's level of allowance for possible loan losses will be sufficient to cover
future loan losses incurred by the Bank or that further future adjustments to
the allowance for possible loan losses will not be necessary if economic and
other conditions differ substantially from the economic and other conditions
used by management to determine the current level of the allowance for
possible loan losses. In addition, the FDIC and the Commissioner, as an
integral part of their examination processes, periodically review the Bank's
allowance for possible loan losses. Such agencies may require the Bank to
make additional provisions for estimated loans losses based upon judgements
different from those of management.
The following table sets forth activity in the Bank's allowance for
possible loan losses for each period set forth.
<TABLE>
<CAPTION>
At or For the
Years ended December 31,
---------------------------
1998 1997 1996
---------------------------
<S> <C> <C> <C>
Balance at beginning of period $349 $ 322 $300
Provision for possible loan losses 87 (90) 14
Charge-offs:
One-to four-family 11 173
Auto loans 1 - -
-------------------------
Total charge-offs 1 11 173
Recoveries:
One-to four-family 90 128 179
Auto loans - - 2
Total recoveries 90 128 181
-------------------------
Net charge-offs (recoveries) (89) (117) (8)
-------------------------
Balance at end of period $525 $349 $322
=========================
Allowance for possible loan losses as
a percent of loans(1) 0.90% 0.84% 0.83%
Allowance for possible loan losses as
a percent of nonperforming loans 303.47% 303.50% 82.10%
</TABLE>
The following table sets forth a breakdown of the allowance for possible
loan losses by loan category at the dates indicated. Management believes that
the allowance can be allocated by category only on an approximate basis.
These allocations are not necessarily indicative of future losses and do not
restrict the use of the allowance to absorb losses in any other loan category.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------
1998 1997 1996
---------------------- ---------------------- ----------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Each Each Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One-to four family $295 77.02% $160 84.61% $178 82.26%
Multi-family 49 5.61% 57 5.48% 95 6.81%
Commercial real estate 23 2.67% 15 3.31% 19 4.70%
Construction and land 119 13.75% 22 4.84% 15 3.66%
Consumer Loans 2 0.89% 3 1.69% 5 2.36%
Other 1 0.06% - 0.07% - 0.21%
Unallocated 36 0.00% 92 0.00% 10 0.00%
-------------------------------------------------------------------------
Total allowance for possible
loan losses $525 100.00% $349 100.00% $322 100.00%
=========================================================================
</TABLE>
Real Estate Owned. At December 31, 1998, the Bank had no REO in its
portfolio. When the Bank does acquire property through foreclosure or deed in
lieu of foreclosure, it is initially recorded at the lower of the recorded
investment in the corresponding loan or the fair value of the related assets
at the date of foreclosure, less costs to sell. Thereafter, if there is a
further deterioration in value, the Bank provides for a specific valuation
allowance and charges operations for the diminution in value.
Investment Activities
The Board of Directors sets the investment policy and procedures of the
Bank. This policy generally provides that investment decisions will be made
based on the safety of the investment, liquidity requirements of the Bank and,
to a lesser extent, potential return on the investments. In pursuing these
objectives, the Bank considers the ability of an investment to provide
earnings consistent with factors of quality, maturity, marketability and risk
diversification. While the Board of Directors has final authority and
responsibility for the securities investment portfolio, the Board has
delegated day-to-day oversight of the Bank's investments to the President of
the Bank On a monthly basis, the Board reviews and evaluates all investment
activities for safety and soundness, adherence to the Bank's investment policy
and assurance that authority levels are maintained.
As required by SFAS No. 115, the Bank has established an investment
portfolio of securities that are categorized as held-to-maturity, available-
for-sale or held for trading. The Bank generally invests in securities as a
method of utilizing funds not utilized for loan origination activity and as a
method of maintaining liquidity at levels deemed appropriate by management.
The Bank does not currently maintain a portfolio of securities categorized as
held for trading. At December 31, 1998, the available-for-sale securities
portfolio totaled $7.4 million, or 10.3% of assets and the held-to-maturity
portfolio totaled $1.3 million, or 1.8% of assets.
The Bank currently does not participate in hedging programs, interest
rate swaps, or other activities involving the use of off-balance sheet
derivative financial instruments. Similarly, the Bank does not invest in
mortgage-related securities which are deemed to be "high risk," or purchase
bonds which are not rated investment grade.
Mortgage-Backed Securities. The Bank currently invests in mortgage-
backed securities insured or guaranteed by Fannie Mae, Freddie Mac and Ginnie
Mae. At December 31, 1998, mortgage-backed securities totaled $1.0 million,
or 1.4%, of total assets and 1.6% of total interest earning assets, all of
which were classified as available-for-sale. At December 31, 1998, all of the
mortgage-backed securities were backed by adjustable-rate loans. The
mortgage-backed securities portfolio had a stated rate of 6.4% at December 31,
1998. The estimated fair value of the Bank's mortgage-backed securities at
December 31, 1998, was $1.0 million, which is $12,000 more than the amortized
cost of $988,000. Investments in mortgage-backed securities involve a risk
that actual prepayments may differ from estimate prepayments over the life of
the security, which may require adjustments to the amortization of any premium
or accretion of any discount relating to such instruments thereby changing the
net yield on such securities. There is also reinvestment risk associated with
the cash flows from such securities or in the event such securities are
redeemed by the issuer. In addition, the market value of such securities may
be adversely affected by changes in interest rates.
U.S. Government and Federal Agency Obligations. At December 31, 1998,
the Bank's U.S. Government and federal agency obligations securities portfolio
totaled $1.9 million, all of which were classified as available-for-sale.
Such portfolio at December 31, 1998 primarily consisted of short-to medium-
term (maturities of one to five years) securities issued by federal agencies.
Corporate Equity Securities and Debt Obligations. The Bank currently
invests in the equity securities and debt obligations of United States
corporations. At December 31, 1998, the Bank's equity securities portfolio
totaled $1.0 million, or 1.4% of total assets, all of which were classified as
available-for-sale. Such portfolio consisted of $250,000 of common stock and
$772,000 in preferred stock issued by corporate issuers. The Bank's current
policies generally provide that the maximum equity investment in any one
corporation shall not exceed 3% of the Bank's surplus and reserves and the
maximum aggregate investment in any one industry shall not exceed 15% of the
Bank's surplus and reserves. At December 31, 1998, the Bank had $4.8 million,
or 6.7% of total assets, of corporate debt obligations, all of which were
investment grade, with maturities of two years or less. The Bank's current
policies generally provide that the average maturity of the Bank's portfolio
of corporate debt securities may not exceed 5 years and 80% of such
obligations shall mature in 3 years or less. The Bank's policies further
provide that the Bank's total portfolio of corporate debt, commercial paper
and consumer loans may not exceed 30% of total assets.
Investments in corporate equity securities and debt obligations involve
risk as they are not insured or guaranteed by the U.S. government or any
agency thereof, generally not secured by collateral and generally rely upon
future income from the operations of the issuer for repayment of principal and
interest.
The following table sets forth at the dates indicated certain
information regarding the amortized cost and market values of the Bank's
investment securities.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment securities(1):
Held to maturity:
U.S. Government and federal
agency $ - $ - $1,499 $1,500 $ - $ -
Corporate debt 1,308 1,314 1,480 1,483
----------------------------------------------------------------------
Total investment securities held
to maturity 1,308 1,314 2,979 2,983 - -
----------------------------------------------------------------------
Available for sale:
U.S. Government and federal
agency 1,842 1,861 1,340 1,353 1,512 1,482
Corporate debt 3,557 3,494 0 0 1,580 1,599
Mortgage-backed securities 988 1,027 1,015 1,044 1,475 1,503
Marketable equity securities 1,013 1,022 575 626 238 257
----------------------------------------------------------------------
Total securities available for sale 7,400 7,404 2,930 3,023 4,805 4,841
----------------------------------------------------------------------
Total securities $8,708 $8,718 $5,909 $6,006 $4,805 $4,841
======================================================================
</TABLE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
securities portfolio as of December 31, 1998.
<TABLE>
<CAPTION>
At December 31, 1998
-----------------------------------------------------------------------------------------------
More than One More than Five More than
One Year or Less Year to Five Years Years to Ten Years Ten Years Total
----------------- ------------------ ------------------ ----------------- -----------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-----------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
Corporate debt $ 773 8.04% $ 535 8.50% $ - - $ - - $1,308 8.23%
--------------------------------------------------------------------------------------------
Total held-to-maturity 773 8.04% 535 8.50% - - - - 1,308 8.23%
Available for sale:
Mortgage-backed securities - - - - - - 1,027 6.69% 1,027 6.69%
U.S. Government and
federal agency - - 1,003 5.83% 858 6.62% - - 1,861 6.20%
Corporate debt 551 8.72% 374 6.77% 200 5.45% 2,369 6.09% 3,494 6.54%
Marketable equity securities - - - - - - - - 1,022 -
--------------------------------------------------------------------------------------------
Total available-for-sale 551 8.72% 1,377 6.09% 1,058 6.40% 3,396 6.27% 7,404 5.57%
--------------------------------------------------------------------------------------------
Total securities $1,324 8.33% $1,912 6.76% $1,058 6.40% $3,396 6.27% $8,712 5.97%
============================================================================================
</TABLE>
Sources of Funds
General. Deposits, repayments and prepayments of loans, cash flows
generated from operations and FHLB advances are the primary sources of the
Bank's funds for use in lending, investing and for other general purposes.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings,
retail checking/NOW accounts, commercial checking accounts, money market
accounts, club accounts and certificate of deposit accounts. The Bank offers
certificate of deposit accounts with balances in excess of $100,000 at
preferential rates (jumbo certificates) and also offers Individual Retirement
Accounts ("IRAs") and other qualified plan accounts.
At December 31, 1998, the Bank's deposits totaled $57.0 million, or
91.8%, of total liabilities. For the year ended December 31, 1998, the
average balance of core deposits (savings, NOW, money market and noninterest-
bearing checking accounts) totaled $26.9 million, or 50.3% of total average
deposits. At December 31, 1998, the Bank had a total of $28.6 million in
certificates of deposit, of which $24.5 million had maturities of one year or
less. For the year ended December 31, 1998, the average balance of core
deposits represented approximately 47.2% of total deposits and certificate
accounts represented 50.2%. Although the Bank has a significant portion of
its deposits in core deposits, management monitors activity on the Bank's core
deposits and, based on historical experience and the Bank's current pricing
strategy, believes it will continue to retain a large portion of such
accounts. The Bank is not limited with respect to the rates it may offer on
deposit products.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. The Bank's deposits are obtained predominantly from the areas in
which its banking offices are located. The Bank relies primarily on customer
service and long-standing relationships with customers to attract and retain
these deposits; however, market interest rates and rates offered by competing
financial institutions affect the Bank's ability to attract and retain
deposits. The Bank uses traditional means of advertising its deposit
products, including radio and print media and generally does not solicit
deposits from outside its market area. While certificate accounts in excess
of $100,000 are accepted by the Bank, and may be subject to preferential
rates, the Bank does not actively solicit such deposits as such deposits are
more difficult to retain than core deposits. Although the Bank's policies do
permit the use of brokered deposits, the Bank does not currently accept
brokered deposits.
The following table presents the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
For the Years ended December 31,
--------------------------------
1998 1997 1996
--------------------------------
(In thousands)
<S> <C> <C> <C>
Net deposits $12,266 $7,124 $ 715
Interest credited on deposit accounts 2,181 1,583 1,248
-------------------------------
Total increase in deposit accounts $14,447 $8,707 $1,963
===============================
</TABLE>
At December 31, 1998, the Bank had outstanding $8,555 million in
certificate of deposits accounts in amounts of $100,000 or more, maturing as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Maturity Period Amount Rate
----------------------
(Dollars in thousands)
<S> <C> <C>
Three months or less $3,043 5.81%
Over three through six months 1,007 5.69%
Over six through 12 months 2,771 5.15%
Over 12 months 1,734 5.62%
Total 8,555 5.54%
</TABLE>
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
Percent Weighted Percent Weighted
Average of Total Average Average of Total Average
Balance Deposits Rate Balance Deposits Rate
------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Money market deposits $ 808 1.51% 2.62% $ 1,079 2.73% 2.59%
Demand accounts 4,486 8.38% - 2,255 5.71% -
NOW accounts 11,963 22.35% 4.08% 5,377 13.61% 3.20%
Regular and other savings 9,685 18.09% 1.97% 10,328 26.14% 2.35%
Total certificates of deposit 26,585 49.67% 5.57% 20,471 51.81% 5.57%
----------------------------------------------------------------
Total $53,527 100.00% 4.08% $39,510 100.00% 4.25%
================================================================
</TABLE>
Borrowed Funds. As part of its operating strategy, the Bank utilizes
advances from the FHLB as an alternative to retail deposits to fund its
operations. By utilizing FHLB advances, which possess varying stated
maturities, the Bank can meet its liquidity needs without otherwise being
dependent upon retail deposits, which have no stated maturities (except for
certificates of deposit), which are interest rate sensitive and which are
subject to withdrawal from the Bank at any time. These FHLB advances are
collateralized primarily by certain of the Bank's mortgage loans and mortgage-
backed securities and secondarily by the Bank's investment in capital stock of
the FHLB. FHLB advances are made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities.
The maximum amount that the FHLB will advance to member institutions,
including the Bank, fluctuates from time-to-time in accordance with the
policies of the FHLB.
The following table sets forth certain information regarding the bank's
borrowed funds at or for the periods ended on the dates indicated:
<TABLE>
<CAPTION>
At or For the Years Ended
December 31,
----------------------------
1998 1997 1996
----------------------------
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding $4,267 $6,402 $10,406
Maximum amount outstanding at any
month-end during the period 6,093 9,251 13,493
Balance outstanding at end of period 4,211 6,436 11,605
Weighted average interest rate during
the period 5.80% 5.87% 5.70%
Weighted average interest rate at end
of period 6.11% 6.11% 5.80%
</TABLE>
Subsidiary Activities
Mass Securities Corporation ("MSC") was organized in March 1998 for the
sole purpose of acquiring and holding investment securities of a type that are
permissible for banks to hold under applicable law. MSC was established to
qualify as a "securities corporation" for Massachusetts tax purposes. The
Bank recently established a second subsidiary ("Mass SEC Corp II") for the
similar purpose. The Bank recently established a Massachusetts limited
liability company for the purpose of holding property. The results of
operations of these subsidiaries will be consolidated in the results and
operations of the Company
Personnel
As of December 31, 1998, the Bank had 42 full-time employees and no
part-time employees. The employees are not represented by a collective
bargaining unit and the Bank considers its relationship with its employees to
be good.
REGULATION AND SUPERVISION
General
As a co-operative bank chartered by the Commonwealth of Massachusetts,
the Bank is subject to extensive regulation under state law with respect to
many aspects of its banking activities; this state regulation is administered
by the Commissioner. In addition, as a bank whose deposits are insured by the
FDIC under the Bank Insurance Fund, the Bank is subject to deposit insurance
assessments by the FDIC, the FDIC has examination and supervisory authority
over the Bank, with a broad range of enforcement powers and the FDIC regulates
the Bank's activities and operations. Finally, the Bank is required to
maintain reserves against deposits according to a schedule established by the
Federal Reserve System. These laws and regulations have been established
primarily for the protection of depositors, customers and borrowers of the
Bank, not bank stockholders.
The following discussion of the laws and regulations material to the
operations of the Company and Bank are brief summaries. The summaries do not
purport to be complete and are qualified in their entirety by reference to the
applicable laws and regulations. The Holding Company will also be required to
file certain reports with, and otherwise comply with the rules and
regulations, of the OTS, the Commissioner and of the Securities and Exchange
Commission ("SEC") under the federal securities laws. Certain of the
regulatory requirements applicable to the Bank and to the Holding Company are
referred to below or elsewhere herein.
Massachusetts Banking Laws and Supervision
The powers of a Massachusetts co-operative bank are established by
Massachusetts law, as qualified by applicable federal law and regulation.
Massachusetts co-operative banks are regulated and supervised by the
Commissioner. The Commissioner is required to regularly examine each state-
chartered bank. The approval of the Commissioner is required to establish or
close branches, to merge with another bank, to form a holding company, to
issue stock or to undertake many other activities. Any Massachusetts bank that
does not operate in accordance with the regulations, policies and directives
of the Commissioner is subject to sanctions. The Commissioner may under
certain circumstances suspend or remove directors or officers of a bank who
have violated the law, conducted a bank's business in a manner which is
unsafe, unsound or contrary to the depositors' interests, or been negligent in
the performance of their duties.
All Massachusetts-chartered co-operative banks are required to be
members of the Co-operative Central Bank and are subject to its assessments.
The Co-operative Central Bank maintains the Share Insurance Fund, a private
deposit insurer, which insures all deposits in member banks in excess of FDIC
deposit insurance limits. In addition, the Co-operative Central Bank acts as
a source of liquidity to its members in supplying them with low-cost funds,
and purchasing certain qualifying obligations from them.
A co-operative bank may only pay dividends on its capital stock if such
payment would not impair the bank's capital stock and surplus account. No
dividends may be paid to stockholders of a bank if such dividends would reduce
stockholders' equity of the bank below the amount of the liquidation account
required by Massachusetts conversion regulations.
Federal Regulations
Capital Requirements. Under FDIC regulations, federally insured state-
chartered banks that are not members of the Federal Reserve System ("state
non-member banks"), such as the Bank, are required to comply with minimum
leverage capital requirements. For an institution determined by the FDIC to
not be anticipating or experiencing significant growth and to be in general a
strong banking organization, rated composite 1 under the Uniform Financial
Institutions Ranking System, the minimum capital leverage requirement is a
ratio of Tier 1 capital to total assets of 3%. For all other institutions, the
minimum leverage capital ratio is 3% plus an additional "cushion" amount of at
least 100 to 200 basis points. Tier 1 capital is the sum of common
stockholders' equity, noncumulative perpetual preferred stock including any
related surplus and minority investments in certain subsidiaries, less
intangible assets except for servicing rights and credit card relationships.
The FDIC has also adopted risk-based capital guidelines to which the
Bank is subject. The FDIC guidelines require state non-member banks to
maintain certain levels of regulatory capital in relation to regulatory risk-
weighted assets. Risk-based capital ratios are determined by allocating assets
and specified off-balance sheet items to four risk-weighted categories ranging
from 0% to 100%, with higher levels of capital being required for the
categories perceived as representing greater risk.
State non-member banks must maintain a minimum ratio of qualifying
capital to risk-weighted assets of at least 8%, of which at least one-half be
Tier 1 capital. Qualifying total capital consists of Tier 1 capital plus Tier
2 or supplementary capital items, which include allowances for loan losses in
an amount of up to 1.25% of risk-weighted assets, cumulative preferred stock,
preferred stock with a maturity of over 20 years, and certain other capital
instruments.
The following is a summary of the Bank's regulatory capital at December
31, 1998:
<TABLE>
<S> <C>
GAAP Capital to Total Assets 13.3%
Total Capital to Risk-Weighted Assets 17.0%
Tier I Leverage Ratio 11.7%
Tier I to Risk-Weighted Assets 15.9%
</TABLE>
The federal banking agencies have also adopted a regulation providing
that the agencies will take account of the exposure of a bank's capital and
economic value to changes in interest rate risk in assessing a bank's capital
adequacy.
Standards for Safety and Soundness. The federal banking agencies have
adopted regulations and Interagency Guidelines Establishing Standards for
Safety and Soundness to implement safety and soundness standards. 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 appropriate federal
banking agency determines that an institution fails to meet any standard
prescribed by the Guidelines, the agency may require the institution to submit
to the agency an acceptable plan to achieve compliance with the standard.
Investment Activities
All state-chartered FDIC insured banks, including co-operative banks,
are generally limited to activities as principal and equity investments of the
type and in the amount authorized for national banks, notwithstanding state
law. Applicable regulations permit certain exceptions to these limitations.
For example, certain state chartered banks, such as the Bank, may, with FDIC
approval, continue to exercise state authority to invest in common or
preferred stocks listed on a national securities exchange or the Nasdaq
National Market and in the shares of an investment company registered under
the Investment Company Act of 1940, as amended. Such banks may also continue
to sell savings bank life insurance. In addition, the FDIC is authorized to
permit such institutions to engage in state authorized activities or
investments that do not meet this standard (other than non-subsidiary equity
investments) for institutions that meet all applicable capital requirements if
it is determined that such activities or investments do not pose a significant
risk to the Bank Insurance Fund. The Bank received grandfathering authority
from the FDIC in February, 1993 to invest in listed stocks and/or registered
shares subject to the maximum permissible investment of 100% of Tier 1
capital, as specified by the FDIC's regulations, or the maximum amount
permitted by Massachusetts Commonwealth Banking Law, whichever is less. Such
grandfathering authority is subject to termination upon the FDIC's
determination that such investments pose a safety and soundness risk to the
Bank or in the event the Bank converts its charter, other than a mutual to
stock conversion, or undergoes a change in control. As of December 31, 1998,
the Bank had $1.0 million of securities which were subject to such
grandfathering authority.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. An institution is deemed to be
"undercapitalized" if it has a total risk-based capital ratio of less than 8%,
a Tier I risk-based capital ratio of less than 4%, or generally a leverage
ratio of less than 4%. An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%,
a Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it
has a ratio of tangible equity (as defined in the regulations) to total assets
that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a
capital restoration plan. A bank's compliance with such plan is required to
be guaranteed by any company that controls the undercapitalized institutions.
If an "undercapitalized" bank fails to submit an acceptable plan, it is
treated as if it is "significantly undercapitalized." "Significantly
undercapitalized" banks are subject to one or more of a number of additional
restrictions, including but not limited to an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to
reduce total assets and cease receipt of deposits from correspondent banks or
dismiss directors or officers, and restrictions on interest rates paid on
deposits, compensation of executive officers and capital distributions by the
parent holding company. Generally, subject to a narrow exception, the
appointment of a receiver or conservator is required for a "critically
undercapitalized" institution within 270 days after it obtains such status.
Transactions with Affiliates
Transactions between depository institutions and their affiliates are
governed by federal law. An affiliate of an institution is any company that
controls, is controlled by, or is under common control with the institution,
other than a subsidiary. In a holding company context, at a minimum, the
parent holding company of an institution and any companies which are
controlled by such parent holding company are affiliates of the institution.
Generally, federal law limits the extent to which the institution and its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus, and
contains an aggregate limit on such transactions with all affiliates of 20% of
capital stock and surplus. The law also establishes specific collateral
requirements for loans or extensions of credit to, or guarantees, acceptances
on letters of credit issued on behalf of an affiliate and requires that
affiliate transactions generally be on terms substantially the same, or no
less favorable, to the institution or its subsidiary as similar transactions
with nonaffiliates.
Further, federal law restricts an institution with respect to loans to
directors, executive officers, and principal stockholders. Loans to
directors, executive officers and stockholders who control, directly or
indirectly, 10% or more of voting securities of the institution, and certain
related interests of any of the foregoing, may not exceed, together with all
other outstanding loans to such persons and affiliated entities, the
institution's total capital and surplus. Further, loans to directors,
executive officers and principal shareholders must be made on terms
substantially the same as offered in comparable transactions to other persons,
except that such insiders may receive preferential loans made pursuant to a
benefit or compensation program that is widely available to the Bank's
employees and does not give preference to the insider over the other
employees. The law also establishes board of director approval requirements
for specified insider loans. Federal law places additional limitations on
loans to executive officers.
Enforcement
The FDIC has extensive enforcement authority over insured co-operative
banks, including the Bank. This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue cease and desist
orders and to remove directors and officers. In general, these enforcement
actions may be initiated in response to violations of laws and regulations and
unsafe or unsound practices. The FDIC has authority under Federal law to
appoint a conservator or receiver for an insured bank under certain
circumstances.
Insurance of Deposit Accounts
The FDIC has adopted a risk-based insurance assessment system. An
institution is assigned to one of three capital categories based on the
institution's capital position, and one of three supervisory subcategories
within each capital group. The supervisory subgroup to which an institution
is assigned is based on an evaluation by the FDIC of information which the
FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance funds. An institution's assessment
rate depends on the capital category and supervisory category to which it is
assigned. Assessment rates are determined by FDIC semi-annually and currently
range from zero basis points for the healthiest institution to 27 basis points
for the riskiest. In addition, Bank Insurance Fund institutions are required
to make certain payments toward bonds issued in the late 1980s by the
financing Corporation to recapitalize the insurance fund for savings and loan
association. The Bank paid $5,686 in deposit insurance assessments for fiscal
1998. The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the
past and may raise insurance premiums in the future. If such action is taken
by the FDIC, it could have an adverse effect on the earnings of the Bank.
Insurance of deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC. The management of
the Bank does not know of any practice, condition or violation that might lead
to termination of deposit insurance.
Federal Reserve System
Federal Reserve Board regulations require depository institutions to
maintain non-interest-earning reserves against their transaction accounts.
The regulations generally require that reserves be maintained against
aggregate transaction accounts as follows: for that portion of transaction
accounts aggregating $46.5 million or less (subject to adjustment by the
Federal Reserve Board) the reserve requirement is 3%; and for accounts greater
than $46.5 million, the reserve requirement is $1.395 million plus 10%
(subject to adjustment by the Federal Reserve Board between 8% and 14%)
against that portion of total transaction accounts in excess of $46.5 million
The first $4.9 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. The Bank is in compliance with the foregoing requirements.
Federal Home Loan Bank System
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB, is required to acquire and
hold shares of capital stock in the FHLB in an amount at least equal to 1% of
the aggregate principal amount of its unpaid residential mortgage loans and
similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB, whichever is greater. The Bank was in compliance
with this requirement with an investment in FHLB stock at December 31, 1998 of
$763,000.
Holding Company Regulation
Federal law allows a state co-operative bank that qualifies as a
"qualified thrift to elect to be treated as a "savings association" for
purposes of the savings and loan holding company provisions of federal law.
Such election results in its holding company being regulated as a savings and
loan holding company by the OTS rather than as a bank holding company by the
Federal Reserve Board. The Bank has made such an election. The Company is
subject to OTS regulations, examinations, supervision and reporting
requirements. Among other things, this authority permits the OTS to restrict
or prohibit activities that are determined to be a serious risk to the
subsidiary savings institution. Additionally, the Bank is required to notify
the OTS at least 30 days before declaring any dividend to the Company.
As a unitary savings and loan holding company, the Company is generally
not restricted as to the types of business activities in which it may engage.
Upon any non-supervisory acquisition by the Company of another savings
association as a separate subsidiary, the Company would become a multiple
savings and loan holding company subject to extensive limitations on the types
of business activities in which it could engage. Federal law limits the
activities of a multiple savings and loan holding company and its non-insured
institution subsidiaries primarily to activities permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company Act, as amended,
subject to the prior approval of the OTS, and to other activities authorized
by OTS regulation. Multiple savings and loan holding companies are prohibited
from acquiring or retaining, with certain exceptions, more than 5% of a non-
subsidiary company engaged in activities other than those permitted by federal
law.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
association or savings and loan holding company or from acquiring such an
institution or company by merger, consolidation or purchase of its assets,
without prior written approval of the OTS. In evaluating applications by
holding companies to acquire savings associations, the OTS must consider the
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the
insurance funds, the convenience and needs of the community and competitive
factors.
The OTS is prohibited from approving any acquisition that would result
in a multiple savings and loan holding company controlling savings
institutions in more than one state, except: (i) interstate supervisory
acquisitions by savings and loan holding companies; and (ii) the acquisition
of a savings institution in another state if the laws of the state of the
target savings institution specifically permit such acquisitions. The states
vary in the extent to which they permit interstate savings and loan holding
company acquisitions. In a savings and loan holding company structure, the
Bank is prohibited from extending credit to affiliates not engaged exclusively
in activities permissible for a bank holding company and may not invest in the
securities of an affiliate, except a subsidiary.
In order to elect and continue to be regulated as a savings and loan
holding company by the OTS (rather than as a bank holding company by the
Federal Reserve Board), the Bank must continue to be a qualified thrift
lender. This requires the Bank either to maintain compliance with the test
for a "domestic building and loan association," as defined in the Internal
Revenue Code, or with a qualified thrift lender test. Under the qualified
thrift lender test, a savings institution is required to maintain at least 65%
of its "portfolio assets" (total assets less: (i) specified liquid assets up
to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the
value of property used to conduct business) in certain "qualified thrift
investments" (primarily residential mortgages and related investments,
including certain mortgage-backed and related securities) in at least 9 months
out of each 12 month period. A holding company of a savings institution that
fails to qualify as a qualified thrift lender must either convert to a bank
holding company and thereby become subject to the regulation and supervision
of the Federal Reserve Board or operate under certain restrictions. As of
December 31, 1998, the Bank maintained in excess of 65% of its portfolio
assets in qualified thrift investments. The Bank also met the qualified
thrift lender test in each of the prior 12 months and, therefore, met the QTL
test. Recent legislative amendments have broadened the scope of "qualified
thrift investments" that go toward meeting the QTL test to fully include
credit card loans, student loans and small business loans.
Massachusetts Holding Company Regulation. In addition to the federal
holding company regulations, a bank holding company organized or doing
business in Massachusetts may be also subject to regulation under the
Massachusetts law. The term "bank holding company," for the purposes of
Massachusetts law, is defined generally to include any company which, directly
or indirectly, owns, controls or holds with power to vote more than 25% of the
voting stock of each of two or more banking institutions, including commercial
banks and state savings banks, co-operative banks and savings and loan
associations and national banks, federal savings banks and federal savings and
loan associations. In general, a holding company controlling only one banking
institution will not be deemed to be a bank holding company for the purposes
of Massachusetts law. Under Massachusetts law, the prior approval of the
Board of Bank Incorporation is required before a company may become a bank
holding company and before an existing bank holding company may acquire
additional institutions.
Thrift Rechartering
Both the Bank and the Company are subject to extensive regulations and
supervision. Such regulation, which affects the Bank on a daily basis, may be
changed at any time, and the interpretation of the relevant law and
regulations is also subject to change by the authorities who examine the Bank
and interpret those laws and regulations. Any change in the regulatory
structure or the applicable statutes or regulations, whether by the
Commissioner, the OTS, the FDIC or the Congress, could have a material impact
on the Company, the Bank, and their operations.
Legislation enacted in 1996 provides that the Bank Insurance Fund and
the Savings Association Insurance Fund would merge on January 1, 1999 if there
are no more savings associations as of that date. Several bills where
introduced in Congress that would have eliminated the federal thrift charter,
created a uniform federal financial institutions charter abolished OTS and
restricted the activities of savings and loan holding companies. The Bank is
unable to predict whether the legislation will be enacted or, given such
uncertainty, determine the extent to which the legislation, if enacted, would
affect its business. The Bank is also unable to predict whether the Bank
Insurance Fund and the Savings Association Insurance Fund will eventually be
merged.
Federal Securities Laws
The Company has filed with the SEC a registration statement under the
Securities Act for the registration of the Common Stock to be issued pursuant
to the Conversion (the "Registration Statement"). Upon completion of the
Conversion, the Company's Common Stock will be registered with the SEC under
the Exchange Act. The Company will then be subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the
Exchange Act.
The registration under the Securities Act of shares of the Common Stock
to be issued in the Conversion does not cover the resale of such shares.
Shares of the Common Stock purchased by persons who are not affiliates of the
Company may be resold without registration. Shares purchased by an affiliate
of the Company will be subject to the resale restrictions of Rule 144 under
the Securities Act. If the Company meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of the
Company who complies with the other conditions of Rule 144 (including those
that require the affiliate's sale to be aggregated with those of certain other
persons) would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of (i)
1% of the outstanding shares of the Company or (ii) the average weekly volume
of trading in such shares during the preceding four calendar weeks. Provision
may be made in the future by the Company to permit affiliates to have their
shares registered for sale under the Securities Act under certain
circumstances.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Bank will report their income on a
consolidated basis, using a calendar year and the accrual method of accounting
and will be subject to federal income taxation in the same manner as other
corporations with some exceptions, including particularly the Bank's treatment
of its reserve for bad debts discussed below. The following discussion of tax
matters is intended only as a summary and does not purport to be a
comprehensive description of the tax rules applicable to the Bank or the
Company. The Bank had been last audited by the IRS for the five-year period
ended 1984. The Bank was also audited by the State of Illinois for the three-
year period ended 1994. Both audits resulted in adjustments which were
immaterial to the Bank's financial statements.
Bad Debt Reserves. The Small Business Job Protection Act of 1996 (the
"1996 Act"), which was enacted on August 20, 1996, made significant changes to
provisions of the Code relating to a savings institution's use of bad debt
reserves for federal income tax purposes and requires such institutions to
recapture (i.e. take into income) certain portions of their accumulated bad
debt reserves. The effect of the 1996 Act on the Bank is discussed below.
Prior to the enactment of the 1996 Act, the Bank was permitted to establish
tax reserves for bad debts and to make annual additions thereto, which
additions, within specified formula limits, were deducted in arriving at the
Bank's taxable income. The Bank's deduction with respect to "qualifying
loans," which are generally loans secured by certain interests in real
property, could be computed using an amount based on a six-year moving average
of the Bank's actual loss experience (the "Experience Method"), or a
percentage equal to 8% of the Bank's taxable income (the "PTI Method"),
computed without regard to this deduction and with additional modifications
and reduced by the amount of any permitted addition to the non-qualifying
reserve. The Bank's deduction with respect to non-qualifying loans was
required to be computed under the Experience Method.
The 1996 Act. Under the 1996 Act, for its current and future taxable
years, as a "Small Bank" the Bank is permitted to make additions to its tax
bad debt reserves under an Experience Method based on total loans. However,
the Bank is required to recapture (i.e. take into income) over a six year
period the excess of the balance of its tax bad debt reserves as of December
31, 1995 over the balance of such reserves as of December 31, 1987. The
recapture was suspended for 1996 because the Bank met certain residential loan
requirements. If the Bank continues to meet the residential loan requirements
in 1997, the six-year recapture period will begin in 1998. As of December 31,
1995, the Bank's tax bad debt reserve exceeded the balance of such reserve as
of December 31, 1987 by $2.2 million. However, the Bank will not incur an
additional tax liability related to its tax bad debt reserves as the Bank has
previously provided deferred taxes on the recapture amount.
Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and an
amount based on the amount distributed (but not in excess of the amount of
such reserves) will be included in the Bank's income. The term "non-dividend
distributions" is defined as distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax
purposes, distributions in redemption of stock, and distributions in partial
or complete liquidation. Dividends paid out of the Bank's current or
accumulated earnings and profits will not cause this pre-1988 reserve to be
included in the Bank's income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Bank makes a non-dividend distribution to the Company,
approximately one and one-half times the amount of such distribution (but not
in excess of the amount of such reserves) would be includable in income for
federal income tax purposes, assuming a 35% federal corporate income tax rate.
The Bank does not intend to pay dividends that would result in a recapture of
any portion of its tax bad debt reserves.
Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of
AMTI can be offset by net operating loss carryforwards. The adjustment to
AMTI based on book income will be an amount equal to 75% of the amount by
which a corporation's adjusted current earnings exceeds its AMTI (determined
without regard to this adjustment and prior to reduction for net operating
losses). In addition, for taxable years beginning after December 31, 1986 and
before January 1, 1996, an environmental tax of12% of the excess of AMTI (with
certain modifications) over $2 million, is imposed on corporations, including
the Bank, whether or not an Alternative Minimum Tax ("AMT") is paid. The Bank
does not expect to be subject to the AMT.
Dividends Received Deduction and Other Matters. 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 and the Bank own more than 20% of the
stock of a corporation distributing a dividend, then 80% of any dividends
received may be excluded.
State Taxation
Massachusetts Commonwealth Taxation. Prior to July, 1995, the Bank was
subject to an annual Massachusetts excise (income) tax equal to 12.54% of its
pre-tax income. In 1995, legislation was enacted to reduce the Massachusetts
bank excise (income) tax rate and to allow Massachusetts-based financial
institutions to apportion income earned in other states. Further, this
legislation expands the applicability of the tax to non-bank entities and out-
of-state financial institutions. The Massachusetts excise tax rate for co-
operative banks is currently 10.91% of federal taxable income, adjusted for
certain items. This rate will be reduced over the next year so that the Bank's
tax rate will become 10.5% by December 31, 1999. Taxable income includes gross
income as defined under the Code, plus interest from bonds, notes and
evidences of indebtedness of any state, including Massachusetts, less
deductions, but not the credits, allowable under the provisions of the Code.
No deductions, however, are allowed for dividends received until July 1, 1999.
In addition, carry forwards and carrybacks of net operating losses are not
allowed.
A financial institution or business corporation is generally entitled to
special tax treatment as a "security corporation," provided that: (a) its
activities are limited to buying, selling, dealing in or holding securities on
its own behalf and not as a broker; and, (b) it has applied for, and received,
classification as a "security corporation" by the Commissioner of the
Massachusetts DOR. A security corporation that is also a bank holding company
under the Code is subject to a tax equal to 0.33% of its gross income. A
security corporation that is not a bank holding company under the Code is
subject to a tax equal to 1.32% of its gross income.
The Bank's subsidiary, MSC, was established solely for the purpose of
acquiring and holding investments which are permissible for banks to hold
under Massachusetts law. MSC is classified with the Massachusetts DOR as a
"security corporation" under Massachusetts law, qualifying it to take
advantage of the 1.32% income tax rate on Massachusetts securities
corporations.
Delaware State Taxation. As a Delaware holding company not earning
income in Delaware, the Company is exempted from Delaware Corporate income tax
but is required to file an annual report with and pay an annual franchise tax
to the State of Delaware.
ITEM 2. DESCRIPTION OF PROPERTY.
The Bank currently conducts its business through its main office located
in the Dorchester section of Boston, Massachusetts and one other full-service
banking office and two loan origination centers, all of which are located in
the greater Boston metropolitan area. Consistent with its expansion strategy,
the Bank is actively pursuing establishing a de novo branch location. Upon
the establishment of the new branch office, the Bank intends to relocate its
administrative functions to the new location. The Bank expects to incur
capital expenditures of up to $2 million in connection with the establishment
of a de novo branch office and relocation of its administrative offices. The
Bank has purchased a building for $975,000 for this purpose and expects to
open the facility in the Fall of 1999. This building is currently held by the
limited liability company which the branch is leasing. Once such branch is
established, the Company believes that the Bank's facilities will be adequate
to meet the then present and immediately foreseeable needs of the Bank and the
Company. It is the opinion of management that all the properties are
adequately covered by insurance.
<TABLE>
<CAPTION>
Net Book Value
of Property
or Leasehold
Improvements
Leased Original Year at
or Leased or Date of Lease December 31,
Location Owned Acquired Expiration 1998
- -----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Main Office:
1442 Dorchester Avenue
Boston, MA 02122 (1) (1) (1) $211
Banking Offices:
561 Adams Street
East Milton, MA 02186 Owned 1996 746
70 Quincy Ave (3)
Quincy, MA 02169 Owned 1999 975
Loan Origination Centers:
607 North Avenue, D-12
Wakefield, MA 01880 Leased 1997 February 2000 --
200 Cordwainer Drive
Norwell, MA 02061 Leased 1998 January 2000(2) --
------
Total $1,932
======
- --------------------
<F1> This property is comprised of two adjacent parcels of land. The Bank
owns one of the parcels, which it obtained in 1908, and leases the
other, which lease began in June 1986. With respect to the leased
parcel, the Bank is currently in the first year of the second of three
five-year renewal options. The current option period will expire in May
2003.
<F2> The Bank has an option to renew this lease for an additional three-year
period.
<F3> The Bank anticipates moving into the property and beginning retail
operations in the fall of 1999.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the financial condition and results of operations of the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Massachusetts Fincorp, Inc.'s Common Stock is traded over-the-counter
through the National Daily Quotation Service "Pink Sheet" published by the
National Quotation Bureau, Inc. The stock began trading on December 23, 1998.
The high and low bid for the common stock for the quarter ended December 31,
1998 were $10.56 and $10.00, respectively. The quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions. Massachusetts Fincorp, Inc. has approximately
413 holders of record as of December 31, 1998.
Use of Proceeds
The following information is provided in connection with the Company's
sale of its common stock as part of the Bank's conversion:
(a) The effective date of the Registration Statement on Form SB-2
(File No. 333-60237) was October 9, 1999.
(b) The offering was consummated on December 22, 1998 with the sale of
545,481 securities registered pursuant to the Registration
Statement. Trident Securities Inc. acted as marketing agent for
the offering.
(c) The class of securities registered was common stock, par value
$.01 per share. The aggregate amount of such securities
registered was 545,481 shares which represented an aggregate
amount of $5,454,481. That amount included 519,506 shares (or
$5,195,060) sold in the offering and 25,975 shares (or $259,750)
issued to the Massachusetts Co-operative Charitable Foundation.
(d) A reasonable estimate of the expenses incurred in connection with
the conversion and offering was $586,000, including expenses paid
to or for underwriters of $153,000, attorney and accounting fees
of $275,000 and other expenses of $158,000 The net proceeds
resulting from the offering after deducting expenses was
$4,600,000
(e) The net proceeds are temporarily invested in an interest-bearing
deposit account at The Massachusetts Co-operative Bank. The
Company intends to use these funds to invest in loans, federal
funds and mortgage-backed securities and to repay Federal Home
Loan Bank borrowings.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Statements contained in this document, which are not historical facts,
are forward-looking statements as that term is defined in the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
subject to risk and uncertainties, which could cause actual results to differ
materially from those currently anticipated due to a number of factors. Such
factors include, but are not limited to, factors discussed in documents filed
by the Bank with the Securities and Exchange Commission from time to time.
General
The Company became operational on December 21, 1998 and, accordingly,
had no significant operations during 1998. The Company's results of
operations primarily depend on its investment of net conversion proceeds in
securities and interests on deposits of the Bank and dividends from the Bank.
The Bank's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on the
Bank's interest-earning assets, such as loans and investments, and the
interest expense on its interest-bearing liabilities, such as deposits and
borrowings. The Bank also generates non-interest income such as service
charges and other fees. The Bank's non-interest expenses primarily consist of
employee compensation and benefits, depreciation and repairs, data processing
fees, office building expenses and other operating expenses. The Bank's
results of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory agencies. The Bank exceeded all
of its regulatory capital requirements at December 31, 1998.
Management Strategy
The Bank's operating strategy has in the past consisted of maintaining
profitability and managing its interest rate risk mainly by originating fixed-
rate one-to four-family mortgage loans primarily for sale, generally on a
servicing released basis, and originating adjustable-rate one-to four-family
mortgage loans for investment. The Bank has also pursued a growth strategy to
broaden the Bank's lending and deposit base through the establishment of a de
novo branch office in 1996 and two loan origination centers in the greater
Boston metropolitan area in 1997 and 1998. The Bank is actively pursuing the
establishment of another de novo branch office The Bank has purchased a
building for $975,000 for this purpose and expects to open the facility in the
Fall of 1999. The Bank has made substantial infrastructure investments
recently, including staffing, offices and technology, to support future
growth.
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends on the relative amounts of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.
Average Balance Sheet. The following table sets forth certain
information relating to the Bank for the years ended December 31, 1998, 1997
and 1996. The average yields and costs are derived by dividing income or
expense by the average balance of interest-earning assets or interest-bearing
liabilities, respectively, for the periods shown and reflect annualized yields
and costs. Average balances are derived from average monthly balances. The
yields and costs include fees which are considered adjustments to yields.
Loans on non-accrual status are included in the average balances of loans
shown in the table. Interest earned on loans is net of reserves for
uncollected interest.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ---------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
-----------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Federal funds sold and
short term investments $ 1,945 $ 108 5.55% $ 2,299 $ 126 5.48% $ 1,024 $ 41 4.00%
Securities 6,928 430 6.21% 4,624 295 6.38% 5,137 329 6.40%
Mortgage loans, net 50,876 4,057 7.97% 40,507 3,342 8.25% 36,559 3,227 8.83%
Other 924 63 6.82% 925 66 7.14% 761 55 7.23%
-------------------------------------------------------------------------------
Total interest earning asssets 60,673 4,658 7.68% 48,355 3,829 7.92% 43,481 3,652 8.40%
Noninterest-earning assets 2,566 2,625 4,082
------- ------- -------
Equity securities 648 20 3.09% 368 27 7.34% 151 22 14.57%
------- ------ ------- ------ ------- ------
Total assets $63,887 $4,678 $51,348 3,856 $47,714 3,674
======= ------ ======= ------ ======= ------
Liabilities and Surplus:
Deposits:
Savings accounts $ 9,685 $ 191 1.97% $10,328 $ 244 2.36% $ 9,854 $ 240 2.44%
Money market accounts 808 21 2.60% 1,079 28 2.59% 1,290 33 2.56%
Now accounts 11,963 488 4.08% 5,377 173 3.20% 2,612 49 1.88%
Certificates of deposit 26,585 1,481 5.57% 20,471 1,138 5.56% 16,405 926 5.64%
------- ------ ------- ------ ------- ------
Total deposits 49,041 2,181 4.45% 37,255 1,583 4.25% 30,161 1,248 4.14%
FHLB advances 4,267 259 6.07% 6,402 373 5.83% 10,406 640 6.15%
------- ------ ------- ------ ------- ------
Total interest bearing
liabilities 53,308 2,440 4.58% 43,657 1,956 4.48% 40,567 1,888 4.65%
------- ------ ------- ------ ------- ------
Noninterest -bearing demand
checking accounts 4,486 2,255 2,043
Noninterest-bearing liabilities 644 653 620
------- ------- -------
Total liabilities 58,438 46,565 43,230
Total surplus 5,487 4,783 4,484
------- ------- -------
Total liabilities and surplus $63,925 $51,348 $47,714
======= ======= =======
Net interest income $2,238 $1,900 $1,786
====== ====== ======
Net interest income/interest
rate spread 3.10% 3.44% 3.75%
====== ====== ======
Net interest margin as a percent
of interest-earning assets 3.69% 3.93% 4.11%
====== ====== ======
Ratio of interest-earning assets
to interest-bearing liabilities 113.82% 110.76% 107.18%
====== ====== ======
</TABLE>
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in
each category with respect to: (i) changes attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) changes attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) the
net change. The changes attributable to the combined impact of volume and
rate have been allocated proportionately to the changes due to volume and the
changes due to rate.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
Compared to Compared to
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------------ ------------------------
Increase(Decrease) Increase(Decrease)
Due to Due to
----------------- -----------------
Volume Rate Net Volume Rate Net
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold and
short-term investments $ (20) $ 2 $ (18) $ 66 $ 19 $ 85
Investment securities 153 (2) 151 (13) (6) (19)
Mortgage-backed securities, net (12) (4) (16) (21) 6 (15)
Mortgage loans, net 830 (115) 715 334 (219) 115
Other loans - (3) (3) (2) 2 -
FHLB stock - - - 12 (1) 11
----------------------------------------------------
Total interest-earning assets 951 (122) 829 376 (199) 177
----------------------------------------------------
Interest-bearing liabilities:
Savings accounts (15) (38) (53) 10 (6) 4
Money market accounts (7) - (7) (5) - (5)
NOW accounts 258 57 315 74 50 124
Certificates of deposit 341 2 343 227 (15) 212
FHLB advances (129) 15 (114) (235) (32) (267)
----------------------------------------------------
Total interest-bearing liabilities 448 36 484 71 (3) 68
----------------------------------------------------
Net change in net interest income (1) $ 503 $(158) $ 345 $ 305 $(196) $ 109
====================================================
- --------------------
<F1> Net interest income does not include dividends received on equity
securities.
</TABLE>
Comparison of Financial Condition at December 31, 1998 and December 31, 1997
The Bank's total assets increased $17.0 million, to $71.6 million at
December 31, 1998 from $54.6 million at December 31, 1997. The increase in
total assets was primarily attributed to increases in federal funds sold and
in the loan and securities portfolios. Federal funds increased $1.6 million,
or 920.7% to $1.8 million at December 31, 1998 from $173,000 at December 31,
1997. Loans and loans held for sale, net, increased $13.6 million, or 30.6%
to $58.0 million at December 31, 1998 from $44.4 million at December 31, 1997.
The increase in loans resulted from the increase of $6.9 million, or 18.3%,
in fixed rate one-to-four family mortgage loans, a $5.8 million, or 269.3%
increase in advanced construction loans and a $3.2 million, or 98.9% increase
in loans available for sale. The increase in loans primarily reflects the
opening of a new origination office in Norwell, Massachusetts, an increase in
the number of loan originators, increased marketing efforts of the Bank to
generate these types of loans as well as a favorable interest rate
environment. The securities portfolio increased $2.7, or 45%, to $8.7 million
at December 31, 1998 from $6.0 million at December 31, 1997. This increase
was primarily the result of an increase in available for sale corporate bonds.
The increase in assets was funded by a $7.6 million increase in interest
bearing checking and demand deposit accounts and a $6.9 million increase in
certificate of deposit accounts. The Bank's total deposits increased $14.3
million, or 34.0%, to $57.0 million at December 31, 1998 from $42.7 million at
December 31, 1997. The increase in deposit accounts resulted from the
promotion of new competitively priced deposit products as well as continued
deposit growth from the branch office which opened in 1996.
Non-performing assets totaled $173,000 at December 31, 1998 as compared
to $115,000, an increase of $58,000. A portion of the non-performing assets
were part of a workout agreement and $79,000 of the balance was paid off in
January 1999. Surplus increased $4.5 million, or 90.6%, to $9.5 million at
December 31, 1998 compared to $5.0 million at December 31, 1997. This
increase in surplus was the result of net conversion proceeds of $4.9 million
from the conversion of the Bank from a mutual co-operative bank to a capital
stock co-operative bank. Net conversion proceeds were used to fund loan
production and reduce borrowings from FHLB-Boston, which decreased $2.2
million, or 34.4%, to $4.2 million at December 31, 1998 from $6.4 million at
December 31, 1997.
Comparison of Financial Condition at December 31, 1997 and December 31, 1996
The Bank's total assets increased $3.9 million, or 7.6%, to $54.6
million at December 31, 1997 from $50.8 million at December 31, 1996. The
increase in total assets was primarily the result of an increase in the
mortgage loan and securities portfolios. Loans and loans held for sale, net,
increased $4.4 million, or 10.9%, to $44.5 million at December 31, 1997 from
$40.0 million at December 31, 1996. The increase in loans resulted from the
increase of $1.6 million, or 16.7%, in fixed-rate one-to four-family mortgage
loans, a $689,000, or 46.6%, increase in advanced construction loans and a
$1.8 million, or 128%, increase in loans available for sale. The increase in
loans primarily reflects the opening of a new loan origination office in
Wakefield, Massachusetts, an increase in the number of loan originators,
increased marketing efforts, and a favorable interest rate environment.
The increase in total assets was primarily funded by a $4.8 million
increase in interest-bearing checking and demand deposit accounts and a $4.3
million increase in certificate of deposit accounts. The Bank's total
deposits increased $8.7 million, or 25.4%, to $42.9 million at December 31,
1997 from $34.2 at December 31, 1996. The increase in deposits was mainly the
result of opening a new retail branch office in East Milton, Massachusetts in
August 1996. Deposit growth was used to fund loan production and reduce
borrowings from the FHLB-Boston, which decreased $5.2 million, or 44.5%, to
$6.4 million at December 31, 1997 as compared to $11.6 million at December 31,
1996.
Non-performing assets totaled $115,000 at December 31, 1997 compared to
$932,000 at December 31, 1996, a decrease of $817,000, or 87.7%. The decrease
is primarily due to a $277,000, or 70.8%, reduction in non-accrual loans and
a $540,000 decrease in REO to a zero balance resulting from the sale of its
remaining parcel of REO.
Surplus increased $392,000 from $4.6 million, or 9.0% of total assets at
December 31, 1996, to $5.0 million, or 9.1% of total assets at December 31,
1997. The increase in surplus was due to net income during the year ended
December 31, 1997.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
General.
Net income decreased $296,000, or 80.7% to $71,000 for the year ended
December 31, 1998 from $367,000 for the year ended December 31, 1997. The
decrease in net income was primarily attributed to non-interest expense
increasing $800,000, or 41.2% to $2.8 million for the year ended December 31,
1998 as compared to $2.0 million for the year ended December 31, 1997. The
increase in non-interest expense was primarily the result of addition to staff
based on growth and a one-time non-occurring expense due to the formation of
the Massachusetts Co-operative Charitable Foundation. Not including these
one-time expenses, net income would have been $253,000.
Interest Income.
Interest income for the year ended December 31, 1998 increased $800,000,
or 21.3%, to $4.7 million as compared to $3.9 million for the year ended
December 31, 1997. The increase in interest income was primarily the result
of a $13.6 million increase in loans, due to increased originations in fixed
one-to-four family mortgage loans, construction loans and mortgage loans held
for sale, as well as,a $144,000 increase in interest and dividend income on
investments. The effect of higher average balances in interest earning assets
was offset, in part, by lower average yield on interest earning assets. The
average yield on interest earning assets decreased 20 basis points to 7.7%
during the year ended December 31, 1998 as compared to an average yield of
7.9% for the year ended December 31, 1997. The decline was caused by falling
interest rates which stimulated consumer mortgage refinancing activity.
Interest Expense.
Interest expense for the year ended December 31, 1998 was $2.5 million
compared to $2.0 million for the same period in 1997, an increase of $500,000
or 25%. The increase reflects both an increase in average interest bearing
liabilities of $9.6 million and an increase in average rates paid. The
increase in average interest bearing liabilities was primarily due to an
increase in interest bearing checking accounts and term certificates of
deposit. Average interest bearing checking accounts increased $6.6 million,
or 122.2%, to $12.0 million for the year ended December 31, 1998 as compared
to $5.4 for year ended December 31, 1997. Average term certificates of
deposit increased $6.1 million, or 29.8%, to $26.6 million for the year ended
December 31, 1998 as compared to $20.5 million for the same period in 1997.
The increase in interest bearing checking accounts was primarily the result
of the Bank's promotion of a tiered interest bearing checking accounts for
retail customers to attract new deposit relationships. These increases were
partially offeset by a lower expense on borrowed funds.
Net Interest Income.
Net interest income increased $200,000, or 15.8%, to $2.2 million for
the year ended December 31, 1998 from $2.0 million for the same period in
1997. The increase was due to a combination of an increase in average
interest earning assets in excess of interest bearing liabilities of $7.4
million, offset by the effect of a 34 basis point decline in interest rate
spread which decreased to 3.10% from 3.44%.
Provision (Credit) for Possible Loan Losses.
The Bank's provision for possible loan losses increased $177,000 to
$87,000 for the year ended December 31, 1998 compared to a credit of $90,000
for the same period in 1997. The increase in the provision primarily
reflected the increase in the Bank's overall loan portfolio weighted by loan
product and management's ongoing review and analysis of the general loan loss
reserve. The allowance for possible loan losses as a percent of loans was
0.89% for year ended December 31, 1998 as compared to 0.79% for the same
period in 1997. Non-performing loans increased $58,000 to $173,000 for year
ended December 31, 1998 compared to $115,000 for year ended December 31, 1997.
The increase was attributable to a workout agreement under which $79,000 of
these loans were paid in January 1999. The workout agreement required no
additional reserve.
Non-Interest Income.
Non-interest income increased $200,000, to $700,000, for the year ended
December 31, 1998 from $500,000 for the year ended December 31, 1997. The
increase was primarily attributed to a $211,000 increase in the gain on sale
of loans for the year ended December 31, 1998, due to the increased
originations of fixed rate loans originated for sale. Additionally, the Bank
recognized an increase of $65,000 in miscellaneous income.
Non-Interest Expense.
Non-interest expense increased $800,000, or 40%, to $2.8 million for the
year ended December 31, 1998 from $2.0 million for the year ended December 31,
1997. The increase was primarily due to an increase in salaries and benefits
of $300,000 of which $224,000 was the result of addition to staff based on
growth and $76,000 was the result of discretionary payments to ESOP and
bonuses. A $259,000 one time non-recurring expense related to the funding of
the Massachusetts Co-operative Charitable Foundation and an additional $44,000
increase in advertising and marketing costs as the result of expenses
associated with the Bank's promotional activities regarding its deposit
products, contributed to the increase in non-interest expense.
Income Tax Expense.
Income tax expense decreased $107,000, or 78.1%, to $30,000 for the year
ended December 31, 1998 from $137,000 for the year ended December 31, 1997.
This decrease was primarily due to the decrease of $400,000 in pre-tax income.
The effective tax rates for years ended December 31, 1998 and 1997 were 30.0%
and 27.2%, respectively, which are below the statutory rate due to the
utilization of capital loss carry forwards and tax credits which are estimated
to be fully utilized by the Bank. The Bank also formed a securities
corporation for investments which resulted in a lower state tax rate.
Comparison of Operating Results for the Years Ended December 31, 1997 and 1996
General. Net income increased $175,000, or 91.1%, to $367,000 for the
year ended December 31, 1997 from $192,000 for the year ended December 31,
1996. The increase was primarily attributable to increased interest income
due to increased loan origination activity and a $104,000 decrease in the
Bank's loan loss provision due to a reduction in non-accrual loans and
classified assets. Other income increased $261,000, or 117%, which was
primarily the result of gains on the sale of loans available for sale. These
increases in income were partially offset by an increase in non-interest
expense of $218,000, or 12.4 %, which was primarily attributable to increases
in salaries and benefits, due to additional staffing for the Bank's new retail
branch office which opened in August 1996 and a new loan origination office
which opened in January 1996.
Interest Income. Interest income for the year ended December 31, 1997
increased $182,000, or 5.0%, to $3.9 million as compared to $3.7 million for
the year ended December 31, 1996. The increase in interest income during 1997
was primarily attributable to an increase in the average balances of interest-
earning assets, due primarily to an increase in the average balance of
mortgage loans, net, which increased by $3.9 million, or 10.8%, to $40.5
million for the year ended December 31, 1997 from $36.6 million for the year
ended December 31, 1996. The increase was partially offset by a 48 basis
point decrease in the weighted average yield on interest-earning assets to
7.92% for the year ended December 31, 1997 from 8.40% for the year ended
December 31, 1996, which decrease was primarily due to a lower market interest
rate environment. The increase in loans reflects an increase in one-to-four
family loans of $4.7 million and an increase in available for sale loans of
$1.8 million. As a result, interest income on loans increased $115,000, or
3.5%, to $3.4 million for the year ended December 31, 1997 as compared to $3.2
million for the year ended December 31, 1996.
Interest Expense. Interest expense increased $68,000, or 3.6%, to $2.0
million for year ended December 31, 1997 from $1.9 million for year ended
December 31, 1996. This increase was primarily due to the growth in the
Bank's deposit base as the result of the Bank's new branch office and was
offset with a decrease in the average balance of borrowings from the FHLB-
Boston. The growth in the deposit base consisted of a $2.8 million increase in
average balances of interest-bearing checking accounts, and a $4.1 million
increase in average balances of certificate of deposit accounts. These
increases were partially offset by a decrease in the average cost of funds due
to a $4.0 million decrease in FHLB advances, and a 32 basis point decrease in
the average cost of FHLB advances to 5.83% for year ended December 31, 1997
from 6.15% for the year ended December 31, 1996.
Net Interest Income. Net interest income increased $114,000, or 6.4%,
to $1.9 million for the year ended December 31, 1997 from $1.8 million for the
same period in 1996. The increase was due to a combination of an increase in
average interest-earning assets in excess of interest-bearing liabilities of
$1.8 million, offset by the effect of a 31 basis point decline in the interest
rate spread which decreased to 3.44% from 3.75%.
Provision (Credit) for Possible Loan Losses. The Bank experienced a
credit to income of $90,000 from a reduction in the Bank's allowance for loan
losses for the year ended December 31, 1997 resulting in a decrease in the
provision for possible loan losses of $104,000 from the prior year's level of
$14,000. The reduction in the allowance was based on management's evaluation
of existing real estate market conditions, improvement in the level of charge-
offs, classified assets and recoveries of $128,000 in charged-off loans for
the year ended December 31, 1997 as well as the relative stabilization of
general economic conditions in the Bank's primary market area. The increased
values in properties also resulted in increased collateral margins. Non-
performing loans decreased $277,000, or 70.7%, to $115,000 for the year ended
December 31, 1997 from $392,000 for the year ended December 31, 1996, as the
result of prepayment of certain loans on a non-accrual status.
Non-Interest Income. Non-interest income increased $261,000, or 117%,
to $485,000 for the year ended December 31, 1997 from $224,000 for the year
ended December 31, 1996. This increase was primarily due to a $192,000
increase on the sale of loans available-for-sale due to improved product
pricing, operating efficiency and improved quality control. Additionally, the
Bank realized losses of $35,000 on unlocked loans due to a decline in interest
rates. The increase was also due to a $33,000 increase in customer service
fees due to an increased volume of checking accounts and fee increases, and a
$19,000 gain on the sale of available-for-sale securities.
Non-Interest Expense. Non-interest expense for the year ended
December 31, 1997 increased $218,000, or 12.4%, to $2.0 million from $1.8
million for the year ended December 31, 1996. This increase was primarily due
to a $231,000 increase in salaries and employee benefits as a result of a full
years expense relating to increased personnel for the Bank's new branch
office and new loan origination office which opened during 1996. Occupancy
and equipment increased $14,000, or 5.1%, as the result of depreciation and
general operating costs resulting from the opening of the new branch office.
Income Tax Expense. Income tax expense increased $86,000, or 169%, to
$137,000 for the year ended December 31, 1997 from $51,000 for the year ended
December 31, 1996. The effective tax rates for the years ended December 31,
1997 and 1996 were 27.2% and 21.0%, respectively, which are below the
statutory rate due to the utilization of the valuation reserve.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, principal and interest
payments on loans and proceeds from maturing securities and borrowings from
FHLB-Boston. While maturities and scheduled amortization of loans and
securities are predictable sources of funds, deposit outflows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
The primary investing activities of the Bank are the origination of
primarily residential one-to four-family mortgage loans and, to a lesser
extent, multi-family and commercial real estate loans, construction loans,
home equity lines of credit and consumer loans and the investment in mortgage-
backed securities, U.S. Government and agency obligations and corporate equity
securities and debt obligations. These activities are funded primarily by
principal and interest payments on loans, maturing of investment securities,
deposit growth and the utilization of FHLB advances. During the years ended
December 31, 1998 and 1997, the Bank's loan originations totaled $81.0
million, and $37.3 million, respectively. For the years ended December 31,
1998 and 1997, the Bank's investments in U.S. Government and agency
obligations and corporate equity securities and debt obligations totaled $7.7
million and $5.0 million, respectively. The Bank experienced a net increase
in total deposits of $14.0 million and $8.7 million for the years ended
December 31, 1998 and 1997, respectively. Deposit flows are affected by the
overall level of interest rates, the interest rates and products offered by
the Bank and its local competitors and other factors. The Bank closely
monitors its liquidity position on a daily basis. In the event the Bank
should require funds beyond its ability to generate them internally,
additional sources of funds are available through FHLB advances. At
December 31, 1998, the Bank had $4.2 million of outstanding FHLB borrowings.
Outstanding commitments for all loans totaled $8.8 million at
December 31, 1998. Management of the Bank anticipates that it will have
sufficient funds available to meet its current loan commitments. Certificates
of deposit which are scheduled to mature in one year or less from December 31,
1998 totaled $6.8 million. From December 31, 1997 to December 31, 1998, the
Bank experienced a 75.3% retention rate of funds maturing from certificates of
deposit. It has been and will continue to be a priority of management to
retain time deposits. The Bank relies primarily on competitive rates,
customer service, and long-standing relationships with customers to retain
deposits. From time to time, the Bank will also offer competitive special
products to its customers to increase retention. Based upon the Bank's
experience with deposit retention and current retention strategies, management
believes that, although it is not possible to predict future terms and
conditions upon renewal, a significant portion of such deposits will remain
with the Bank.
At December 31, 1998, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $7.5 million, or 15.9% of
adjusted assets, which is above the required level of $1.8 million, or 4.00%,
and risk-based capital of $8.0 million, or 17.0% of adjusted assets, which is
above the required level of $3.7 million, or 8.00%.
The capital injection from the Conversion significantly increased
liquidity and capital resources. Over time, the initial level of liquidity
will be reduced as net proceeds are utilized for general corporate purposes,
including the funding of lending activities and the expansion of facilities.
Specifically, the Bank expects to incur capital expenditures of approximately
$2.0 million in connection with the establishment of a de novo branch office
and relocation of its administrative offices, and approximately $180,000 in
connection with achieving Year 2000 compliance and upgrading its related
technology systems.
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications and systems could fail or create erroneous results by or at the
year 2000. In addressing the year 2000, the Bank has adopted a "Year 2000
Policy" and has broken down the process into six steps: awareness, inventory,
assessment, conversion and implementation, testing and contingency.
The Bank has substantially completed its awareness phase with the
exception of its ongoing task of notifying its customers and shareholders of
its preparedness. The Bank has also completed its inventory phase. During the
inventory phase the Bank identified all hardware and software applications as
well as vendor and service providers. The various systems identified were
then prioritized in consideration of their overall importance of use to the
Bank. During the conversion and implementation phase, the Bank has replaced
all internal systems which were deemed critical or necessary to the Bank's
operation.
While the Bank maintains an internal computer system for certain
operating functions, the substantial majority of the Bank's data processing is
out-sourced to a third party. The Bank has reviewed the Year 2000 compliance
of its third party data processing vendor. In connection with such review,
the Bank determined that its current third party data processing vendor is not
Year 2000 compliant and, accordingly, has formally agreed to engage a new
third party data processing vendor. Such new third party vendor has provided
the Bank with written assurances that the system and the software which it is
licensed to use are Year 2000 compliant. The Bank's new third party data
processor has begun to test the integration of the system with its licensed
software to ensure that the integrated system will be Year 2000 compliant,
together, and expects to achieve such compliance by March 31, 1999. The Bank
began utilizing such third party vendor's services on March 22, 1999.
The Bank has completed the internal portion of its testing phase. The
Bank expects to complete the external portion of the testing plan by March 31,
1999. During the contingency phase, the Bank will identify alternative
systems for all critical and necessary systems, which are not compliant and
tested by March 31, 1999. The Bank expects to identify appropriate business
responses to all critical core processes by June 30,1999.
The Bank's operations may also be affected by the Year 2000 compliance
of its significant customers, suppliers and other vendors. The Bank's loan
portfolio consists primarily of loans on residential and mixed use properties
whose cash flows depended on payments of leases by tenants that are unlikely
to be materially affected by Year 2000 issues. The Bank has reviewed its
loan relationships and has determined that it does not have any material
amount of loans to individuals or entities that are susceptible to Year 2000
issues such that their noncompliance with Year 2000 issues will materially
affect their ability to repay such loans. New loan relationships are
reviewed for potential year 2000 implications during the underwriting process
Although the Bank has contacted each of its significant suppliers and
vendors it continues to monitor their progress, the Bank does not currently
have complete information concerning the compliance status of its significant
suppliers and other vendors. The Bank's business or operations could be
adversely affected if any of the Bank's significant customers and suppliers do
not successfully achieve Year 2000 compliance in a timely manner. However,
management believes that the Bank's own internal system, networks and
resources would allow the Bank to effectively operate and service its
customers in the event its significant vendors do not achieve satisfactory
year 2000 compliance. In addition, If significant suppliers fail to meet Year
2000 operating requirements, the Bank intends to engage alternative suppliers.
In the event that the Bank's progress towards becoming Year 2000 complaint is
deemed inadequate, regulatory action may be undertaken.
The Bank is currently engaging in an upgrade of its technology systems
in addition to implementing its Year 2000 policy. To date, the Bank has
expended approximately $80,000 on Year 2000 issues and related technology
updates. In addition, the Bank has estimated that it will spend another
$100,000 in connection with the future costs associated with achieving Year
2000 compliance and its related technology systems upgrade. Approximately
$69,000 of the past and $95,000 of the future expenses represent upgrades to
the Bank's general ledger and data processing systems. The cost of these
systems will be capitalized and depreciated over their expected useful life.
While the Bank cannot estimate the costs and expenses associated with hiring
new vendors and suppliers, management believes that such costs would not have
a material impact on the Bank's earnings or results of operations.
Impact of Inflation and Changing Prices
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with GAAP, which generally require the measurement of
financial position and operating results in terms of historical dollar amounts
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Bank's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Bank are monetary in nature. As a result,
interest rates have a greater impact on the Bank's performance than do the
effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods and
services.
Impact of Accounting Standards
The Bank will be required to account for the ESOP under SOP 93-6. SOP
93-6 measures compensation expense recorded by employers for leveraged ESOPs
using the fair value of ESOP shares. Under SOP 93-6, the Company will
recognize compensation cost equal to the fair value of the ESOP shares during
the periods in which they become committed to be released. To the extent that
the fair value of the Bank's ESOP shares differ from the cost of such shares,
this differential will be charged or credited to equity. Employers with
internally leveraged ESOPs will not report the loan receivable from the ESOP
as an asset and will not report the ESOP debt as a liability. See "Management
of the Bank--Other Benefit Plans--Employee Stock Ownership Plan."
In November 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123, "Accounting for Stock Based Compensation" ("SFAS No.
123"). This statement establishes financial accounting standards for stock-
based employee compensation plans. SFAS No. 123 permits the Company to choose
either the new fair value based method, or the current accounting prescribed
by Accounting Principles Board ("APB") Opinion 25, using the intrinsic value
based method of accounting for its stock-based compensation arrangements.
SFAS No. 123 requires pro forma disclosures of net earnings and earnings per
share computed as if the fair value based method had been applied in APB
Opinion 25. SFAS No. 123 applies to all stock-based employee compensation
plans in which an employer grants shares of its stock or other equity
instruments to employees except for employee stock ownership plans. SFAS No.
123 also applies to plans in which the employer incurs liabilities to
employees in amounts based on the price of the employer's stock, (e.g., stock
option plans, stock purchase plans, restricted stock plans, and stock
appreciation rights). SFAS No. 123 also specifies the accounting for
transactions in which a company issues stock options or other equity
instruments for services provided by nonemployees or to acquire goods or
services from outside suppliers or vendors. The recognition provisions of
SFAS No. 123 for companies choosing to adopt the new fair value based method
of accounting for stock-based compensation arrangements may be adopted
immediately and will apply to all transactions entered into in fiscal years
then beginning after December 15, 1995. The disclosure provisions of SFAS No.
123 are effective for fiscal years beginning after December 15, 1995, however,
disclosure of the pro forma net earnings and earnings per share, as if the
fair value method of accounting for stock-based compensation had been elected
is required for all awards granted in fiscal years beginning after
December 31, 1994. The Company expects to account for its stock-based
compensation arrangements as prescribed in APB Opinion 25 upon the
consummation of the Conversion.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
No. 125"), which supersedes FASB Statements No. 76, "Extinguishments of Debt,"
and No. 77, "Reporting by Transferors for Transfers of Receivables with
Recourse." This statement amends FASB Statement No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," and amends and extends to
all servicing assets and liabilities, the accounting standards for mortgage
servicing rights not set forth in SFAS No. 65, and supersedes SFAS No. 122.
SFAS No. 125 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. SFAS No. 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. A transfer of financial assets in which the transferor surrenders
control over those assets is accounted for as a sale to the extent that
consideration other than beneficial interests in the transferred assets is
received in exchange. SFAS No. 125 further 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 interest, if any, based on their relative
fair values on the date of the transfer. SFAS No. 125 also 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. SFAS No. 125 requires that debtors reclassify financial assets
pledged as collateral and that secured parties recognize those assets and
their obligation to return them to certain circumstances in which the secured
party has taken control of those assets. SFAS No. 125 requires that a
liability be derecognized if and only if either (i) the debtor pays the
creditor and is relieved of its obligation or the liability of (ii) 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. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1997, and was adopted by the Bank on January 1,
1997. Such adoption was not material to the Bank.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure," which establishes standards for
disclosing information about an entity's capital structure. This Statement
continues the previous disclosure requirements found in APB Opinions No. 10,
"Omnibus Opinion -1996," and No. 15, "Earnings Per Share," and FASB Statement
No. 47, "Disclosure of Long-Term Obligations" and eliminates the exemption of
nonpublic entities from certain disclosure requirements of Opinion 15.
Additionally, this Statement consolidates capital disclosure requirements for
ease of retrieval and greater visibility to nonpublic entities. This
Statement is effective for financial statements for periods ending after
December 15, 1997 and is not expected to have a material impact on the
Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and displaying
comprehensive income and its components within the financial statements.
Comprehensive income is defined in FASB Concepts Statement 6 as the "change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners." The Statement is effective for fiscal years
beginning after December 15, 1997 and was adopted on January 1, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which establishes standards for the
way that public business enterprises report information about operating
segments in annual financial statements. This Statement requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. This Statement supersedes FASB
Statement No. 14, "Financial Reporting for Segments of a Business Enterprise."
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. This Statement is effective for financial statements
for periods beginning after December 15, 1997 and is not expected to have a
material impact on the Company.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardizes the
disclosure requirements for pensions and other postretirement benefits. This
Statement supersedes FASB Statements No. 87, "Employers' Accounting for
Pensions," No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits," and No. 106,
"Employers' Accounting for Postretirement Benefits other than Pensions." This
Statement is effective for fiscal years beginning after December 15, 1997 and
is not expected to have a material impact on the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which addresses the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. This Statement amends FASB Statement
No. 52, "Foreign Currency Translation" to permit special accounting for a
hedge of a foreign currency forecasted transaction with a derivative. It
supersedes FASB Statements No. 80, "Accounting for Futures Contracts,"
No. 105, "Disclosure of Information about Financial Instruments with Off-
Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk," and No. 119, "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments." It amends Statement No. 107,
"Disclosures about Fair Value of Financial Instruments" to include in
Statement 107 the disclosure provisions about concentrations of credit risk
from Statement 105. This Statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999.
Form of accountant letterhead
- -----------------------------
Report of Independent Certified Public Accountants
- --------------------------------------------------
Board of Directors
Massachusetts Fincorp, Inc. and Subsidiaries
We have audited the consolidated balance sheet of Massachusetts
Fincorp, Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of income and comprehensive income, stockholders'
equity, and cash flows for the year then ended. These financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of Massachusetts Co-operative Bank as of December 31,
1997 and for the years ended December 31, 1997 and 1996, were audited by
other auditors whose report dated March 6, 1998, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Massachusetts Fincorp, Inc. and Subsidiaries as of December 31,
1998, and the consolidated results of their operations and their
consolidated cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Grant Thornton LLP
Boston, Massachusetts
February 12, 1999
INDEPENDENT AUDITORS' REPORT
The Finance Committee
Massachusetts Co-operative Bank
Dorchester, Massachusetts
We have audited the accompanying balance sheet of Massachusetts Co-
operative Bank as of December 31, 1997, and the related statements of
income and comprehensive income, changes in surplus and cash flows for each
of the years in the two year period ended December 31, 1997. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Massachusetts Co-
operative Bank as of December 31, 1997, and the results of its operations
and its cash flows for each of the years in the two year period ended
December 31, 1997 in conformity with generally accepted accounting
principles.
/s/WOLF & COMPANY, P.C.
Boston, Massachusetts
March 6, 1998
ITEM 7. FINANCIAL STATEMENTS
Massachusetts Fincorp, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
--------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 708,827 $ 1,320,315
Federal funds sold 1,760,909 172,518
--------------------------
Total cash and cash equivalents 2,469,736 1,492,833
Securities available for sale 7,403,857 3,022,890
Securities held to maturity 1,308,286 2,979,113
Federal Home Loan Bank Stock, at cost 762,800 762,800
Mortgages loans held for sale 6,335,665 3,185,120
Loans 51,801,597 41,614,930
Less: allowance for possible loan losses (524,924) (349,404)
--------------------------
Loans, net 51,276,673 41,265,526
Banking premises and equipment, net. 1,206,459 1,200,551
Accrued interest recievable 350,054 322,257
Due from Co-operative Central Bank 242,850 242,850
Other assets 276,740 156,549
--------------------------
$71,633,120 $54,630,489
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $56,992,800 $42,667,742
Federal Home Loan Bank borrowings 4,210,889 6,435,707
Mortgagor's escrow accounts 292,944 263,368
Accrued expenses and other liabilities 633,277 277,154
--------------------------
Total liabilities 62,129,910 49,643,971
--------------------------
Commitments and contingencies
Preferred stock, par value $.01 per share,
500,000 shares authorized - -
Common stock par value $.01 per share,
2,500,000 shares authorized;
545,481 shares issued and outstanding 5,455 -
Additional paid in capital 4,885,076 -
Unallocated ESOP shares (392,742) -
Retained earnings 5,003,347 4,932,838
Accumulated other comprehensive income 2,074 53,680
--------------------------
Total Shareholders' equity 9,503,210 4,986,518
--------------------------
$71,633,120 $54,630,489
==========================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Massachusetts Fincorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $4,070,807 $3,359,390 $3,243,577
Interest on investments 445,330 311,261 347,558
Dividends on investments 69,222 59,379 42,080
Interest on short-term investments 20,367 81,666 6,699
Interest on federal funds sold 72,704 44,585 34,228
--------------------------------------
Total interest and dividend income 4,678,430 3,856,281 3,674,142
--------------------------------------
Interest expense:
Interest on deposit accounts 2,181,351 1,583,437 1,248,032
Interest on borrowed funds 259,189 372,583 640,201
--------------------------------------
Total interest expense 2,440,540 1,956,020 1,888,233
--------------------------------------
Net interest income 2,237,890 1,900,261 1,785,909
Provision (credit) for possible loan lossses 87,413 (90,000) 14,148
--------------------------------------
Net interest income, after provision (credit)
for possible loan losses 2,150,477 1,990,261 1,771,761
--------------------------------------
Other income:
Customer service fees 155,275 176,794 143,693
Loan fees and gain on sale of loans
and loan servicing rights 422,539 211,724 20,475
Net gain on sales of securities available for sale 35,446 42,439 23,798
Co-operative Central Bank Share Insurance Fund
special dividend 36,075 34,816 31,801
Miscellaneous 83,557 19,316 4,747
--------------------------------------
Total other income 732,892 485,089 224,514
--------------------------------------
Operating expenses:
Salaries and employee benefits 1,435,175 1,115,585 884,717
Occupancy and equipment 320,715 286,250 272,417
Data processing 148,595 135,727 133,196
Foreclosed real estate, net - (24,991) (35,491)
Contributions. 268,436 6,475 5,837
Other general and administrative 610,222 451,770 492,441
--------------------------------------
Total operating expenses 2,783,143 1,970,816 1,753,117
--------------------------------------
Income before income tax provision 100,226 504,534 243,158
Income tax provision 29,719 137,000 51,000
--------------------------------------
Net income 70,507 367,534 192,158
======================================
Other comprehensive income (loss), net of tax:
Unrealized gains (loss) on securities:
Unrealized holding gains (loss) arising
during the period (26,651) 49,842 18,443
Less: reclassification adjustment for (gains)
losses included in net income (24,954) (25,463) (14,279)
--------------------------------------
Other comprehensive income (loss), net of tax (51,605) 24,379 4,164
--------------------------------------
Comprehensive income $ 18,902 $ 391,913 $ 196,322
======================================
Basic and diluted earnings per share NM
Weighted average common shares outstanding - basic
and diluted NM
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Massachusetts Fincorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Unallocated Other
Common Paid-in Retained ESOP Comprehensive
Stock Capital Earnings Shares Income(Loss) Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ - $ - $4,373,146 $ - $25,137 $4,398,283
Net income for the year ended
December 31, 1996 - - 192,158 - - 192,158
Other comprehensive income, net of tax - - - - 4,164 4,164
-------------------------------------------------------------------------------
Balance at December 31, 1996 - - 4,565,304 - 29,301 4,594,605
Net income for the year ended
December 31, 1997 - - 367,534 - - 367,534
Other comprehensive income, net of tax - - - - 24,379 24,379
-------------------------------------------------------------------------------
Balance at December 31, 1997 - - 4,932,838 - 53,680 4,986,518
Stock issued pursant to initial common
stock offering 4,759 4,753,921 - - - 4,758,680
Issuance of 25,975 shares of common stock
to the Massachusetts Charitable Foundation 260 259,490 - - - 259,750
Common Stock accquired by ESOP 436 435,944 - - - 436,380
Unallocated ESOP shares - - - (392,742) - (392,742)
Expenses incurred for initial public offering - (564,278) - - - (564,278)
Net income for the year ended
December 31, 1998 - - 70,507 - - 70,507
Other comprehensive income, net of tax - - - - (51,605) (51,605)
-------------------------------------------------------------------------------
Balance at December 31, 1998 $5,455 $4,885,077 $5,003,345 $(392,742) $ 2,075 $9,503,210
===============================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Massachusetts Fincorp, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Cash flow activities:
Net income $ 70,507 $ 367,534 $ 192,158
Adjustment to reconcile net income to net cash
(used)provided by operating activities
Provision (credit) for possible loan losses 87,413 (90,000) 14,148
Depreciation and amortization expense 133,847 139,357 131,146
Net gain on sales of securities available
for sale (35,446) (42,439) (23,798)
Net gain on sale of foreclosed real estate - (41,366) (40,315)
Loans originated for sale (45,782,028) (23,307,569) (20,272,272)
Principal balance on loans sold 45,877,138 21,520,021 19,234,391
Amortization of deferred loan (fee) costs (36,127) (21,244) 9,847
Amortization of investment securities,
net of accretion 27,547 13,977 17,866
Increase in accrued interest receivable (27,798) (35,384) (1,323)
Decrease (increase) in other assets (120,191) (11,116) 362,632
Deferred tax (benefit) (102,000) (34,000) (44,000)
Increase (decrease) in accrued expenses
and other liabilities (356,123) (76,607) 203,818
-----------------------------------------
Net cash (used) provided by operating
activities (263,261) (1,618,836) (215,702)
-----------------------------------------
Cash flows from investing activities:
Purchase of securities available for sale (7,452,433) (1,307,210) (198,952)
Purchase of securities held to maturity (860,041) (3,989,706) -
Proceeds from maturities of securities
available for sale 500,000 2,077,469 750,000
Proceeds from maturities of securities
held to maturity 1,504,749 1,000,938 -
Proceeds from sales and calls of securities
Available for sale 2,480,076 1,048,085 114,997
Proceeds from calls of securities held
to maturity 1,000,000 - -
Purchase of Federal Home Loan Bank stock - - (376,600)
Principal payments received on mortgage-backed
securities - 94,910 165,048
Loan (originations)/ principal payments, net (6,941,651) (2,487,633) (6,580,283)
Proceeds from sales of foreclosed real estate - 581,330 1,020,876
Rent payments (disbursements) on real estate
In possession, net - - (1,336)
Purchase of banking premises and equipment (146,215) (57,549) (1,010,628)
-----------------------------------------
Net cash used by investing
activities (9,915,515) (3,039,366) (6,116,878)
-----------------------------------------
Cash flows from financing activities:
Proceeds from sale of stock, net of expenses 4,890,532 - -
Net increase in deposits 14,325,058 8,793,273 1,856,049
Net increase (decrease) in Federal Home
Loan Bank advances with maturities less
than three months 619,000 837,000 (191,263)
Federal Home Loan Bank advances with maturities
in excess of three months 1,592,483 2,500,000 10,000,000
Repayment of Federal Home Loan Bank advances
with maturities in excess of three months (10,241,818) (8,506,559) (4,450,000)
Net increase (decrease) in mortgagor's
escrow accounts (29,576) (86,293) 106,680
-----------------------------------------
Net cash provided by financing activities 11,155,679 3,537,421 7,321,466
-----------------------------------------
Net change in cash and cash equivalents 976,903 (1,120,781) 988,886
Cash and cash equivalents at beginning of period 1,492,833 2,613,614 1,624,728
-----------------------------------------
Cash and cash equivalents at end of period $ 2,469,736 $ 1,492,833 $ 2,613,614
=========================================
Supplementary Information
Interest paid on deposit accounts $ 2,181,351 $ 1,583,437 $ 1,248,032
Interest paid on borrowed funds 256,721 409,133 613,614
Income tax payments (refunds), net 153,542 91,269 (76,194)
Transfer from loans to foreclosed real estate - - 256,698
</TABLE>
The accompanying statements are an integral part of these consolidated
financial statements.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Conversion to Stock Form of Ownership
- --------------------------------------------------
Massachusetts Fincorp, Inc. (the "Company") was incorporated under Delaware
law on July 10, 1998 for the purpose of acquiring the stock of
Massachusetts Co-operative Bank (the "Bank") upon the Bank's conversion
from a cooperative savings bank to a stock Massachusetts-chartered co-
operative Bank (the "Conversion") on December 22, 1998. Prior to that date
the company had minimal assets and liabilities. The Company also has an
ESOP funding subsidiary, MCB Funding.
The Bank is a community-oriented co-operative bank organized in 1908 as The
Massachusetts Co-operative Bank. The Bank's principal business consists
accepting deposits from the general public in the areas surrounding its two
full-service banking offices and generating mortgage loans secured by one-
to four-family residences and multi-family and commercial real estate. The
bank also originates fixed rate residential mortgage loans for sale on the
secondary market. The Bank operates through two full-service banking
offices and two loan origination offices located in the greater Boston
metropolitan area.
In connection with the conversion, the Company established a charitable
foundation ("Foundation") with a contribution of 5% of the common stock of
the company sold in the conversion. The Foundation will be dedicated to
charitable purposes within the company's local community, including
community development activities
Basis of Presentation and Consolidation
- ---------------------------------------
The consolidated financial statements include the accounts of Massachusetts
Fincorp, Inc., and its wholly owned subsidiaries, Massachusetts Co-
operative Bank and MCB Funding. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
- ----------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Material estimates that are particularly susceptible to
significant change in the near term relate to the determination of the
allowance for loan losses, the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans and the deferred
tax asset valuation reserve.
Reclassifications
- -----------------
Certain amounts have in the 1997 and 1996 consolidated financial statements
have been reclassified to conform to the 1998 presentation.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include amounts due from banks and Federal funds
sold.
Securities
- ----------
Securities that management has the positive intent and ability to hold to
maturity are classified as "held to maturity" and reflected at amortized
cost. Securities classified as "available for sale" are reflected at fair
value, with unrealized gains and losses excluded from earnings and reported
in determining comprehensive income and accumulated other comprehensive
income/(loss) as a component of stockholders equity, net of tax effects.
Federal Home Loan Bank stock is reflected at cost.
Purchase premiums and discounts are recognized in interest income using a
method that approximates the interest method over the terms of the
investments. Declines in the value of held to maturity and available for
sale securities that are deemed to be other than temporary are reflected in
earnings when identified. Gains and losses on the sale of securities are
recorded on the trade date and determined using the specific identification
method.
Mortgage Loans Held for Sale
- ----------------------------
Mortgage loans originated for sale are carried at the lower of cost or
aggregate fair value. Changes in valuation are charged against gain or
loss on sale of mortgage loans. Gains or losses on sale of mortgage loans
are recognized at time of sale.
Loans
- -----
The loan portfolio consists of mortgage and other loans to the Company's
customers located primarily in eastern Massachusetts. The ability of the
Company's debtors to honor their contracts is dependent upon the economy in
general and the real estate and construction economic sectors.
Loans are reported at the amount of unpaid principal less net deferred loan
fees, unadvanced loan funds, and the allowance for loan losses.
Interest on loans is included in income as earned based on rates applied to
the principal amounts outstanding. Interest is not accrued on loans that
are identified as impaired or loans that are ninety days or more past due.
Interest income previously accrued on such loans is reversed against
current period interest income. Interest income on all non-accrual loans is
recognized only to the extent of interest payments received.
Loan origination and commitment fees and certain direct loan origination
costs, applicable to mortgage loans, are deferred and the net amount is
amortized to interest income over the contractual lives of the loans by the
interest method. Fees and costs applicable to other loans are not material
and are recognized in income as received or incurred.
Allowance for Possible Loan Losses
- ----------------------------------
The allowance for possible loan losses is established by a provision for
possible loan losses charged to earnings and is maintained at a level
considered adequate by management to provide for reasonably foreseeable
loan losses. Loan losses are charged against the allowance when management
believes the collectibility of the loan is unlikely. Subsequent recoveries,
if any, are credited to the allowance.
The allowance is evaluated on a regular basis by management and is based
upon management's periodic review of the collectibility of the loans in
light of known and inherent risks in the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective, as it requires
estimates that are susceptible to significant change. Ultimately, losses
may vary from current estimates and future additions to the allowance may
be necessary.
A loan is considered impaired according to Statement of Financial
Accounting Standard ("SFAS") No. 114 "Accounting by Creditors for
Impairment of Loan," if based on current information and events, it is
probable that a creditor will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the
loan agreement. Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not
classified as impaired. Management determines the significance of payment
delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the
borrower, including the length of the delay, the reasons for the delay, the
borrower's prior payment record, and the amount of the shortfall in
relation to the principal and interest owed. Impairment is measured on a
loan by loan basis by the fair value of the collateral.
Large groups of smaller balance homogeneous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately
identify individual loans held for sale and consumer loans for impairment
disclosures.
Foreclosed Real Estate
- ----------------------
Foreclosed real estate includes both formally foreclosed property and
property which the Company has taken physical possession without formal
foreclosure proceedings. Foreclosed real estate is initially recorded at
fair value at the date of acquisition. Costs relating to the development
and improvement of property are capitalized, whereas costs relating to
holding property are expensed.
Management periodically performs valuations, and an allowance for losses is
established through a charge to earnings if the carrying value of a
property exceeds its fair value less estimated costs to sell.
Banking Premises and Equipment
- ------------------------------
Land is carried at cost. Buildings, leasehold improvements and equipment
are stated at cost, less accumulated depreciation and amortization computed
on the straight-line method over the estimated useful lives of the assets
or the term of the lease if shorter. Estimated useful lives of bank
buildings are 10-40 years and equipment is 3-10 years.
It is general practice to charge the cost of maintenance and repairs to
earnings when incurred; major expenditures for betterments are capitalized
and depreciated.
Marketing Costs
- ---------------
Marketing costs are expensed as incurred.
Income Taxes
- ------------
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
accordingly through the provision for income taxes. The Bank's base amount
of its Federal income tax reserve for loan losses is a permanent difference
for which there is no recognition of a deferred tax liability. However,
the loan loss allowance maintained for financial reporting purposes is a
temporary difference with allowable recognition of a related deferred tax
asset, if it is deemed realizable.
Employee Benefit Plans
- ----------------------
The Company has a Multi-employer defined benefit plan and a defined
contribution plan covering substantially all employees. It is the Company's
policy to fund pension plan costs in the year of accrual. The Company has
an Employee Stock Ownership Plan (ESOP), covering eligible employees as
defined by the ESOP. The Company records compensation expense in an amount
equal to the fair value of shares committed to be released from the ESOP to
employees. The Company sponsors a Supplemental Executive Retirement Plan
(SERP). The SERP is a nonqualified deferred compensation plan designed to
make up lost ESOP benefits to designated participants.
Recent Accounting Pronouncements
- --------------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 129, "Disclosure of Information About Capital Structure," which is
effective for the Company's 1998 financial statements. The Company's
Disclosures comply with the provisions of this statement.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997.
This Statement establishes standards for reporting and displaying
comprehensive income, which is defined as all changes to equity income
except investments by and distributions to shareholders. Net income is a
component information, with all other components referred to in the
aggregate as other comprehensive income. The Company's financial statements
comply with the provisions of this statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for the
Company's 1998 financial statements. This statement establishes standards
for reporting information about operating segments. An operating segment
is defined as a component of a business for which separate financial
information is available that is regularly evaluated by the chief operating
decision maker in deciding how to allocate resources and evaluate
performance. The Company has determined that its business is comprised of
a single operating segment and that SFAS 131 has no material impact on its
financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which is effective for
the Company's 1998 financial statements. This statement standardizes the
disclosure requirements for pensions and other postretirement benefits to
the extent practicable. The Company's disclosures comply with the
provisions of this statement.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement established accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities on its balance sheet and measure those instruments at fair
value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting
designation. The Company is required to adopt this Statement effective
January 1, 2000. Through December 31, 1998 the Company's use of
derivatives has not been material.
NOTE B - SECURITIES
The amortized cost and estimated fair value of securities, with gross
unrealized gains and losses, follows:
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available for Sale
- -----------------------------
Debit securities:
U.S. Government and Federal agency $1,842,628 $ 18,685 $ - $1,861,313
Corporate 3,556,798 702 (63,285) 3,494,215
Mortgage-backed 988,164 38,399 - 1,026,563
----------------------------------------------------
Total debt securitites 6,387,590 57,786 (63,285) 6,382,091
Marketable equity securities 1,012,688 47,303 (38,227) 1,021,764
----------------------------------------------------
Total securities available for sale $7,400,278 $105,089 $(101,512) $7,403,855
Securitites Held to Maturity
- ----------------------------
U.S. Government and Federal agency $ - $ - $ - $ -
Corporate 1,308,286 5,402 (48) 1,313,640
----------------------------------------------------
Total securities held to maturity $1,308,286 $ 5,402 $ (48) $1,313,640
====================================================
<CAPTION>
December 31, 1997
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
----------------------------------------------------
<S> <C> <C> <C> <C>
Securities Available for Sale
- -----------------------------
Debt securities:
U.S. Government and Federal agency $1,340,043 $ 14,375 $ (2,077) $1,352,341
Mortgage-backed 1,014,897 32,305 (2,861) 1,044,341
----------------------------------------------------
Total debt securities 2,354,940 46,680 (4,938) 2,396,682
Marketable equity securities 575,270 62,833 (11,895) 626,208
----------------------------------------------------
Total securities available for sale $2,930,210 $109,513 $(16,833) $3,022,890
====================================================
Securities Held to Maturity
U.S. Government and Federal agency $1,499,025 $ 1,260 $ - $1,500,285
Corporate 1,480,088 3,343 (578) 1,482,853
----------------------------------------------------
Total securities held to maturity $2,979,113 $ 4,603 $ (578) $2,983,138
====================================================
</TABLE>
The amortized cost and estimated fair value of debt securities by
contractual maturity are as follows:
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------
Available for Sale Held to Maturity
------------------------ ----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------------------------------------------
<S> <C> <C> <C> <C>
Within 1 year $ 551,978 $ 550,473 $ 773,427 $ 773,900
Over 1 year through 5 years 1,377,337 1,377,842 534,859 539,740
After 5 years through 10 years 1,041,076 1,058,139 - -
After 10 years 2,429,035 2,369,074 - -
----------------------------------------------------
5,399,426 5,355,528 1,308,286 1,313,640
Mortgage-backed securities 988,164 1,026,563 - -
----------------------------------------------------
Total Securities $6,387,590 $6,382,091 $1,308,286 $1,313,640
====================================================
</TABLE>
Sales and calls of securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Proceeds from sales and calls $4,756,639 $1,048,085 $114,997
Gross gains from sales and calls 75,733 67,259 23,798
Gross losses from sales and calls 40,288 24,820 -
</TABLE>
As a member of the Federal Home Loan Bank of Boston ("FHLBB") the Bank is
required to invest in $100 par value stock of the FHLBB in an amount equal
to 1% of its outstanding loans secured by residential housing, or 1% of 30%
of total assets, or 5% of its outstanding advances from the FHLBB,
whichever is higher. When such stock is redeemed, the Bank would receive
from the FHLBB an amount equal to the par value of the stock. As of
December 31, 1998 and 1997 the bank had investments in FHLBB stock of
$762,800. Such investment is reflected separately in the Consolidated
Statements of Financial Condition.
NOTE C - LOANS
A summary of the balances of loans follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997
---- ----
<S> <C> <C>
Real estate mortgage loans:
Adjustable rate $27,328,448 $26,977,594
Fixed rate 22,382,582 11,078,815
Construction loans 11,079,041 5,006,181
Equity lines of credit 403,994 560,375
---------------------------
61,194,065 43,622,965
Less: Net deferred loan fees (145,973) (56,653)
Unadvanced loan funds (3,068,151) (2,181,229)
---------------------------
Net real estate mortgage loans 57,979,941 41,385,083
---------------------------
Other loans:
Personal 82,752 112,882
Unsecured 36,447 40,697
Collateral 38,122 76,268
---------------------------
Total other loans 157,321 229,847
---------------------------
Total loans 58,137,262 41,614,930
Less: allowance for possible loan losses (524,924) (349,404)
---------------------------
Loans, net $57,612,338 $41,265,526
===========================
</TABLE>
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal of mortgage loans
serviced for others was $3,761,875 and $3,412,215 at December 31, 1998 and
1997, respectively. All loans serviced for others were sold without
recourse provisions.
An analysis of the allowance for possible loan losses for the periods
indicated follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $349,404 $322,497 $ 299,606
Provision (credit) for possible loan losses 87,413 (90,000) 14,148
Recoveries 89,121 127,830 181,621
Loans charged-off (1,014) (10,923) (172,878)
-----------------------------------
Balance at end of period $524,924 $349,404 $322,497
===================================
</TABLE>
At December 31, 1998and 1997, the recorded investment in impaired loans
totaled $355,870 and $99,049 respectively, for which there was no valuation
allowance.
No additional funds are committed to be advanced in connection with
impaired loans.
For the years ended December 31, 1998, 1997, and 1996 the average recorded
investment in impaired loans amounted to $214,890, $182,896, and $289,989,
respectively. Interest income recognized on impaired loans was $19,978,
$4,912, and $4,450 for the years ended December 31, 1998, 1997 and 1996,
respectively. Note that all impaired loans are real estate mortgages.
Non-accrual loans totaled $172,736,and $114,566 at December 31, 1998 and
1997, respectively. If interest payments on all non-accrual loans for the
years ended December 31, 1998, 1997 and 1996 had been made in accordance
with original loan agreements, interest income of approximately $8,000,
$9,000 and $38,000 would have been recognized on loans compared to interest
income actually recognized of approximately $0, $8,000, and $23,000,
respectively.
NOTE D - FORECLOSED REAL ESTATE
Foreclosed real estate expenses (income) include the following:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Gain on sale of foreclosed real estate, net $ - ($41,366) ($40,315)
Operating expenses, net of rental income - 16,375 4,824
-------------------------------
Net expense (recovery) from foreclosed real estate $ - ($24,991) ($35,491)
===============================
</TABLE>
NOTE E - BANKING PREMISES AND EQUIPMENT
A summary of the cost and accumulated depreciation and amortization of
banking premises, leasehold improvements and equipment and their estimated
useful lives is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------- Estimated
1998 1997 Useful Lives
---- ---- ------------
<S> <C> <C> <C>
Banking Premises:
Land $ 170,000 $ 170,000
Building and leasehold improvements 1,030,073 980,307 10 - 40 years
Equipment 807,951 720,116 3 - 10 years
-------------------------
2,008,024 1,870,423
Less: accumulated depreciation
and amortization (801,565) (669,872)
-------------------------
Net banking premises $1,206,459 $1,200,551
=========================
</TABLE>
Total depreciation and amortization expense amounted to $133,847, $139,357
and $131,146 for the years ended December 31, 1998, 1997 and 1996,
respectively.
NOTE F - DEPOSITS
A summary of deposit balances, by type, is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
--------------------------
<S> <C> <C>
Demand $ 4,100,588 $ 3,158,297
NOW 13,815,457 7,158,012
Money market accounts 752,167 1,002,925
Regular and other savings 9,700,906 9,623,208
--------------------------
Total non-certificate accounts 28,369,118 20,942,442
--------------------------
Term certificates of $100,000 or more 8,554,978 6,120,848
Term certificates less than $100,000 20,068,704 15,604,452
--------------------------
Total term certificates 28,623,682 21,725,300
--------------------------
Total deposits $56,992,800 $42,667,742
==========================
</TABLE>
Interest expense on deposit balances is summarized as follows.
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Regular and other savings $ 191,062 $ 244,032 $ 240,060
NOW 488,038 173,104 48,860
Money market accounts 21,175 27,864 33,046
Term certificates 1,481,076 1,138,437 926,066
--------------------------------------
$2,181,351 $1,583,437 $1,248,032
======================================
</TABLE>
A summary of term certificates by maturity is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1998 1997
----------------------- ---------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------------------------------------------------
<S> <C> <C> <C> <C>
Within 1 year $24,520,449 5.5% $15,399,624 5.5%
Over 1 year to 2 years 3,799,189 5.3 4,600,447 5.8
Over 2 years to 3 years 216,173 5.2 1,692,907 5.8
Over 3 years to 4 years. 24,492 5.7 6,289 5.5
Over 4 years 63,379 4.8 26,033 5.7
Total Term Certificates $28,623,682 5.5% $21,725,300 5.6%
=========== ===========
</TABLE>
The Federal Reserve Bank requires that the Bank maintain average reserve
balances. The average amount of these reserve balances for the year ended
December 31, 1998 was approximately $537,481.
NOTE G - FEDERAL HOME LOAN BANK BORROWINGS
A summary of borrowed funds consisting of advances from the Federal Home
Loan Bank of Boston, by maturity, is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1998 1997
-------------------------- --------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ -------- ------ --------
<S> <C> <C> <C> <C>
Within 1 year $2,000,000 5.40%-5.58% $4,500,000 5.18%-5.81%
Over 1 year to 3 years 1,000,000 8.11 - -
Over 3 years to 5 years 500,000 5.60 1,000,000 8.11
Over 5 years 92,483 4.00 98,707 4.00
Overnight line of credit 619,000 5.40 837,000 7.05
---------- ----------
Total borrowings $4,211,483 $6,435,707
========== ==========
</TABLE>
All borrowings from the Federal Home Loan Bank of Boston are secured by a
blanket lien on qualified collateral, defined principally as 75% of the
carrying value of first mortgage loans on owner-occupied residential
property and 90% of the market value of U.S. Government and Federal agency
securities. Borrowings under the variable rate overnight line of credit are
limited to $4,300,000 as of December 31, 1998 and 1997.
NOTE H - INCOME TAXES
Allocation of Federal and state income taxes between current and deferred
portions, is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1998 1997 1996
-------------------------------
<S> <C> <C> <C>
Current tax provision:
Federal $105,000 $116,000 $15,000
State 12,000 55,000 80,000
-------------------------------
117,000 171,000 95,000
Deferred tax (benefit):
Federal (82,000) 61,000 (29,000)
State (20,000) - -
-------------------------------
(102,000) 61,000 (29,000)
-------------------------------
Change in valuation reserve - (95,000) (15,000)
-------------------------------
$ 15,000 $137,000 $51,000
===============================
</TABLE>
The reasons for the differences between the effective tax rates and the
statutory Federal income tax rate are summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1998 1997 1996
------------------------
<S> <C> <C> <C>
Tax provision at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State taxes, net of Federal tax benefit 8.0 7.2 8.2
Change in valuation reserve. 0.0 (7.4) (6.1)
Tax credits (22.5) (11.3) (9.4)
Other, net (4.2) 4.7 (5.7)
------------------------
Effective tax rates 15.3% 27.2% 21.0%
========================
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
--------------------
<S> <C> <C>
Deferred tax asset:
Federal $241,000 $153,000
State 59,000 45,000
300,000 198,000
Valuation reserve on asset (109,000) (109,000)
191,000 89,000
Deferred tax liability:
Federal (10,000) (36,000)
State (2,000) (14,000)
(12,000) (50,000)
--------------------
Net deferred tax asset $179,000 $ 39,000
====================
</TABLE>
The tax effects of each type of income and expense item that give rise to
deferred taxes are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Net unrealized gain on securities available for sale $ (1,000) $ (39,000)
Depreciation 6,000 9,000
Deferred loan fees 8,000 23,000
Allowance for loan losses 168,000 132,000
Other tax loss carryovers 110,000 27,000
Other (3,000) (4,000)
------------------------
288,000 148,000
Valuation reserve (109,000) (109,000)
------------------------
Net deferred tax asset $ 179,000 $ 39,000
========================
</TABLE>
The valuation reserve decreased by $0 and $122,000 for the years ended
December 31, 1998 and 1997, respectively. The decreases were the result of
the utilization of previously unrecorded tax benefits that were used to
offset current year's taxable income. In addition, included in the 1997
decrease is a $27,000 benefit that was the result of the expiration of
capital loss carry forwards.
The Federal income tax reserve for loan losses at the Bank's base year
amounted to approximately $1,208,000. If any portion of the reserve is used
for purposes other than to absorb the losses for which established,
approximately 150% of the amount actually used (limited to the amount of
the reserve) would be subject to taxation in the fiscal year in which it is
used. As the Company intends to use the reserve only to absorb loan
losses, a deferred income tax liability of approximately $495,000 has not
been provided.
Tax benefits totaling $17,200 from capital loss carryforwards and
alternative minimum tax credits were realized in 1998.
For the years ended December 31, 1998, 1997 and 1996, the tax expense
(benefit) allocated to the components of comprehensive income amounted to
$(12,542), $49,792, and $(3,720), respectively, for unrealized holding
gains arising during the period and $10,492, $(16,976), and $(9,519)
respectively, for the reclassification adjustment for gains (losses)
realized in net income.
NOTE I - MINIMUM REGULATORY CAPITAL REQUIREMENTS
The Company and Bank are subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and Bank must meet specific capital
guidelines that involve quantitative measures of its assets, liabilities
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and Bank to maintain minimum amounts and ratios (set
forth in the following tables) of total and Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1998
and 1997, that the Company met all capital adequacy requirements to which
they are subject.
The most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, it must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the following tables. There are no conditions or
events since the notification that management believes have changed the
Bank's category. The Company and Bank's actual capital amounts and ratios
as of December 31, 1998 and 1997 are also presented in the tables.
<TABLE>
<CAPTION>
Minimum To Be Well
Capitalized Under
Minimum for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------- ------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
- --------------------------
December 31, 1998
- --------------------------
Total Capital to Risk
Weighted Assets Bank $ 8,019 17.0% $ 3,774 8.0% $4,717 10.0%
Consolidated 10,026 21.7% 3,694 8.0% - -
Tier 1 Capital to Risk
Weighted Assets Bank 7,494 15.9% 1,887 4.0% 2,830 6.0%
Consolidated 9,501 20.5% 1,847 4.0% - -
Tier 1 Capital to
Average Assets Bank 7,494 11.7% 2,564- 4.0%- 3,205 5.0%
3,205 5.0%
Consolidated 9,501 14.8% 2,564- 4.0%- - -
3,205 5.0%
- --------------------------
December 31, 1997
- --------------------------
Total Capital to Risk
Weighted Assets $5,282 15.4% $2,745 8.0% $3,431 10.0%
Tier 1 Capital to Risk
Weighted Assets 4,933 14.4% 1,372 4.0% 2,059 6.0%
Tier 1 Capital to
Average Assets 4,933 9.5% 2,086- 4%- 2,607 5.0%
2,607 5.0%
</TABLE>
NOTE J - PENSION PLANS
The Company provides for pension benefits for its eligible employees
through membership in the Co-operative Companies Employees Retirement
Association defined benefit pension plan. Each full time employee reaching
the age of 21 and having completed six months of service automatically
becomes a participant in the retirement plan. Part-time employees must
complete 1,000 hours of service in one consecutive twelve-month period
beginning with such employee's date of employment to automatically become a
participant in the retirement plan. Participants become fully vested when
credited with five years of service measured from their date of
participation.
The plan is a multiemployer plan whereas the contributions by each Company
are not restricted to provide benefits for employees of the contributing
Company and information on the Company's share of the actuarial present
value of accumulated plan benefits and the net assets at fair value
available for benefits is not determinable. Total pension expense amounted
to $136,360, $62,041 and $57,675 for the years ended December 31,
1998,1997,and 1996, respectively.
In addition to the defined benefit plan, the Company adopted a Section
401(k) plan that provides for voluntary contributions by participating
employees ranging from one percent to twelve percent of their compensation,
subject to certain limitations. The Company will match the employee's
voluntary contribution up to five percent of their compensation.
Contributions made by the Company amounted to $52,165, $34,754, $26,083 for
the years ended December 31, 1998, 1997 and 1996, respectively.
On December 22, 1998, the Company's ESOP purchased 43,638 shares of common
stock for $436,380. These funds were obtained by the ESOP through a loan
from MCB Funding. Annual payments are approximately $59,803 with interest
at 7.5%. The Company's contributions are the primary source of funds for
repayment of the loan. Interest expense incurred on the ESOP debt totaled
$834 for 1998. Compensation expenses related to the ESOP amounted to
$59,803 for 1998. This included contributions in excess of amounts
required to service the ESOP debt of $16,000. There were no dividend
payments on unallocated shares. The shares held by the ESOP are as
follows; Allocated shares 4,364, unallocated shares 39,274, total shares
43,638. The fair value of the unallocated shares as of December 31, 1998
was $392,740.
Supplemental Executive Retirement Benefits
The Company maintains agreements to provide supplemental retirement
benefits to certain executive officers. Total expense for benefits payable
under the agreement totaled $0.for the year ended December 31, 1998.
Aggregate benefits payable included in accrued expenses and other
liabilities at December 31, 1998 totaled $0.
NOTE K - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are outstanding commitments and
contingencies that are not reflected in the financial statements.
Loan Commitments
- ----------------
The Company 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. These financial instruments include commitments to extend
credit. Such commitments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the balance
sheets.
The Company's exposure to credit loss is represented by the contractual
amount of these commitments. The Company uses the same credit policies in
making commitments as it does for on-balance-sheet instruments.
At December 31, 1998 and 1997, the following financial instruments were
outstanding whose contract amounts represent credit risk:
<TABLE>
<S> <C> <C>
Commitments to grant loans $8,783,340 $2,355,376
Unadvanced funds on equity lines of credit 260,143 202,418
</TABLE>
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. The commitments for equity lines
of credit may expire without being drawn upon. Therefore, the total
commitment amounts do not necessarily represent future cash requirements.
The Company evaluates each customer's credit worthiness on a case-by-case
basis. Funds disbursed under these financial instruments are collateralized
by real estate. Commitments to sell loans require the Company to make
delivery at a specific future date of a specified amount, at a specified
price or yield. At December 31, 1998 and 1997, the Company had commitments
to sell loans of $6,335,665 and $3,029,670, respectively. Failure to
fulfill delivery requirements of commitments may result in payment of
certain fees to the investors. Loans are sold without recourse and,
accordingly, risks arise principally from movements in interest rates.
Operating Lease Commitments
- ---------------------------
Pursuant to the terms of noncancelable lease agreements in effect at
December 31, 1998, pertaining to banking premises and equipment, future
minimum rent commitments are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
<S> <C>
1999 $30,365
2000 19,098
2001 17,500
2002 17,500
2003 7,292
-------
$91,755
=======
</TABLE>
Rent expense was $43,193, $23,590, and $29,550 for the years ended December
31, 1998, 1997 and 1996, respectively.
Other Contingencies
- -------------------
The Company entered into employment agreements with three senior
executives. The agreements include provisions for minimum annual
compensation and certain lump-sum severance payments in the event of a
"change in control."
Various legal claims also arise from time to time in the normal course of
business which in the opinion of management, will have no material effect
on the Company's financial position.
NOTE L - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has granted loans to
principal officers and directors and their affiliates, generally at the
same prevailing terms as those of other borrowers. A summary of related
party activity follows:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1998 1997 1996
--------------------------------
<S> <C> <C> <C>
Balance at beginning of period $403,000 $446,000 $484,000
Loans made/advanced 66,200 - 2,600
Repayments (133,072) (43,000) (40,600)
--------------------------------
Balance at end of period $336,128 $403,000 $446,000
================================
</TABLE>
All Related Party transactions are performing as agreed.
NOTE M - DIVIDEND PAYMENT AND RETAINED EARNINGS RESTRICTIONS
The Company and the Bank may not declare or pay dividends on and the
Company may not repurchase, any of its shares of common stock if the effect
thereof would cause shareholders' equity to be reduced below applicable
regulatory capital maintenance requirements or if such declaration, payment
or repurchase would otherwise violate regulatory requirements.
The Company created a special "liquidation account" for the benefit of
account holders in an amount equal to the shareholder's equity of the Bank
as of the date of its latest balance sheet contained in the final
prospectus in connection with the conversion. Each account holder
continuing to maintain a deposit account at the Bank would be entitled, in
a complete liquidation of the Bank, to an interest in the liquidation
account prior to any payment to the shareholders of the Bank. As a result,
the Company's shareholder's equity is substantially restricted with respect
to payment of dividends to shareholders.
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following is a summary of the carrying values and estimated fair values
of the Company's significant financial and non-financial instruments as of
the dates indicated:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial Assest
Cash and due from banks $ 708,827 $ 708,827 $ 1,320,315 $ 1,320,315
Federal funds sold 1,760,909 1,760,909 172,518 172,518
Securities 8,708,564 9,480,295 6,764,803 6,768,828
Loans, net 57,612,338 58,159,480 44,450,646 44,904,331
Accrued interest receivable 350,054 350,054 322,257 322,257
Financial Liabilities:
Demand, NOW, savings and money
market deposit accounts $28,369,118 $28,369,118 $20,942,442 $20,942,442
Term certificates of deposit 28,623,682 28,835,059 21,725,300 21,778,586
Borrowed funds 4,211,483 4,177,668 6,435,707 6,475,402
</TABLE>
SFAS No. 107 requires disclosures about fair values of financial
instruments for which it is practicable to estimate fair value. Fair value
is defined in SFAS No. 107 as the amount that a financial instrument could
be exchanged in a current transaction between willing parties, other than
in a forced liquidation sale. Quoted market prices are used to estimate
fair values when those prices are available. However, active markets do
not exist for many types of financial instruments. Consequently, fair
values for these instruments must be estimated by management using
techniques such as discounted cash flow analysis and comparison to similar
instruments. These instruments are highly subjective and require judgments
regarding significant matters such as the amount and timing of future cash
flows and the selection of discount rates that may appropriately reflect
market and credit risks. Changes in these judgments often have a material
impact on the fair value estimates. In addition, since these estimates are
as of a specific point in time, they are susceptible to material near-term
changes. Fair values disclosed in accordance with SFAS No. 107 do not
reflect any premium or discount that could result from the sale of a large
volume of a particular financial instrument, nor do they reflect the
possible tax ramifications or estimated transaction costs.
The following is a description of the principal valuation methods used by
the Company to estimate the fair values of its financial instruments:
Securities
- ----------
The fair values of securities were based principally on market prices and
dealer quotes. Certain fair values were estimated using pricing models or
were based on comparisons to market prices of similar securities. The fair
value of stock in the FHLB equals its carrying amount since such stock is
only redeemable as its par value.
Loans
- -----
The fair value of performing loans is estimated by discounting the
contractual cash flows using interest rates currently being offered for
loans with similar terms to borrowers of similar quality. For non-
performing loans where the credit quality of the borrower has deteriorated
significantly, fair values are estimated based on recent appraised values.
In the event appraisal is not available, values are estimated by
discounting cash flows at a rate commensurate with the risk associated with
those cash flows.
Deposit Liabilities
- -------------------
In accordance with SFAS No. 107, the fair values of deposit liabilities
with no stated maturity (demand, NOW, savings and money market savings
accounts) are equal to the carrying amounts payable on demand. The fair
value of time deposits represents contractual cash flows discounted using
interest rates currently offered on deposits with similar characteristics
and remaining maturities. The fair value estimates for deposits do not
include the benefit that results from the low-cost funding provided by the
deposit liabilities compared to the cost of alternative forms of funding
("deposit based intangibles").
Borrowed Funds
- --------------
The fair value of borrowings from the FHLB represent contractual repayments
discounted using interest rates currently available for borrowings with
similar characteristics and remaining maturities.
Other Financial Assets and Liabilities
- --------------------------------------
Cash and due from banks, short-term investments and accrued interest
receivable have fair values which approximate the respective carrying
values because the instruments are payable on demand or have short-term
maturities and present relatively low credit risk and interest rate risk.
Off-Balance Sheet Financial Instruments
- ---------------------------------------
In the course of originating loans and extending credit, the Company will
charge fees in exchange for its commitment. While these commitment fees
have value, the Company has not estimated their value due to the short-term
nature of the underlying commitments and their immateriality.
NOTE O - CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
Condensed parent company financial statements as of and for the period from
July 10, 1998 (the date the Company commenced operations) through December
31, 1998 as follows:
Massachusetts Fincorp, Inc.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998
<S> <C>
Assets:
Cash and due from banks $1,878,270
Investment in Massachusetts Co-operative Bank 2,320,592
Investment in MCB funding 436,380
----------
Total Assets $4,635,242
==========
Liabilities and stockholders' equity:
Accrued taxes $ -85,351
Accounts payable 16,231
----------
Total liabilities -69,120
Common Stock 5,455
Additional paid in capital. 4,889,278
Surplus -190,370
----------
Total shareholders' equity 4,704,362
----------
Total liabilities and shareholders' equity $4,635,242
==========
</TABLE>
Massachusetts Fincorp, Inc.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
December 31,
1998
<S> <C>
Operating expenses:
Directors fees $ 9,000
Contributions 259,490
Miscellaneous expense 7,231
---------
Total operaing expenses 275,721
---------
Income before income tax provision (275,721)
Income tax provisions (85,351)
---------
Net Income $(190,370)
=========
</TABLE>
Massachusetts Fincorp, Inc.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
December 31,
1998
<S> <C>
Cash flow from operating activities:
Net income $ (190,370)
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in other assets (2,756,972)
Decrease in other liabilities (69,120)
-----------
Net cash provided from operating activities (3,016,462)
-----------
Cash flows from financing activities:
Proceeds from IPO offering 5,454,810
Payments in IPO offering (560,078)
-----------
Net cash used for investing activities 4,894,732
-----------
Net increase (decerease) in cash equivalents 1,878,270
-----------
Cash and cash equilivalents at end of year 0
-----------
Cash and cash equivalents at end of year $ 1,878,270
===========
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Wolf & Company, P.C. resigned as of April 22, 1998, and Grant
Thornton LLP was engaged and continues as the independent auditors of the
Bank. The decision to change auditors was approved by the Board of
Directors. The balance sheet as of December 31, 1997, and related
statements of income and comprehensive income, surplus and cash flows for
each of the years ended December 31, 1997 and 1996 were audited by Wolf &
Company, P.C.
For the years ended December 31, 1997 and 1996 and up to the date of
replacement of Wolf & Company, P.C., there were no disagreements with Wolf
& Company, P.C. on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of Wolf & Company, P.C., would have caused
them to make reference to the subject matter of the disagreement in
connection with their report. The independent auditors' report on the
financial statements for the year ended December 31, 1997 did not contain
an adverse opinion or a disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope or accounting principles.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors
The Directors of the Company are also Directors of the Bank. The
following table sets forth certain information regarding the Board of
Directors of the Bank and the Company.
<TABLE>
<CAPTION>
Director Term
Name Age(1) Position(s) Held(2) Since(3) Expires(4)
<S> <C> <C> <C> <C>
Paul C. Green 48 Director, President, Chief 1991 1999
Executive Officer and
Chairman of the Board
John B. Byrne 86 Director 1977 1999
John R. Byrne 57 Director 1983 2000
Richard F. Cahill 55 Director 1984 2000
W. Craig Dolan 59 Director and Clerk of the Bank 1973 2000
John E. Hurley, Jr. 57 Director 1981 1999
Robert E. McGovern 80 Director 1972 1999
John P. O'Hearn, Jr. 59 Director and Vice President 1973 2000
of the Bank
Robert H. Quinn 70 Director 1974 2001
Joseph W. Sullivan 61 Director 1977 2001
Diane Valle 45 Director 1983 2001
- --------------------
<F1> As of December 31, 1998.
<F2> Positions listed are for the Company and the Bank unless otherwise
noted.
<F3> Lists date individual first became director of the Bank. All
Directors of the Company were appointed in 1998, the first year of
its incorporation.
<F4> Expiration date is the same for the Company and the Bank.
</TABLE>
Executive Officers Who Are Not Directors
The following table sets forth certain information regarding the
executive officers who are not also directors.
<TABLE>
<CAPTION>
Name Age (1) Position(s) Held
<S> <C> <C>
Anthony A. Paciulli 49 Senior Vice President of the Company
and the Bank
Ruth J. Rogers 48 Chief Financial Officer and Treasurer
of the Company and the Bank and
Secretary of the Company
Kenneth R. Bordewieck 44 Vice President of the Bank
- --------------------
<F1> As of December 31, 1998.
</TABLE>
Biographical Information
Directors
Paul C. Green has served as President and Chief Executive Officer of
the Bank since February 1991. Prior to 1991, Mr. Green was an executive
officer at a thrift institution located in the greater Boston metropolitan
area.
John B. Byrne is the former President and Treasurer of Byrne, Daily &
Pike Insurance Agency located in East Milton, Massachusetts. Mr. Byrne is
now retired. Mr. Byrne is the father of John R. Byrne.
John R. Byrne is the President and Treasurer of Byrne, Daily & Pike
Insurance Agency located in East Milton, Massachusetts. Mr. Byrne is the
son of John B. Byrne.
Richard F. Cahill is the President and Chief Executive Officer of
Jack Conway & Co, Inc., a real estate firm located in Hanover,
Massachusetts.
W. Craig Dolan is President of James W. Dolan, Inc., a funeral home
located in the Dorchester section of Boston, Massachusetts. Mr. Dolan is
the Clerk of the Board of Directors.
John E. Hurley, Jr. is a probation officer for the Chelsea District
Court in Chelsea, Massachusetts.
Robert E. McGovern was, until his retirement in 1981, a real estate
director for the Boston Redevelopment Authority in Boston, Massachusetts.
John P. O'Hearn, Jr. is Executive Vice President of Meredith & Grew,
Inc., a real estate firm located in Boston, Massachusetts. He has served
as a director of the Bank since 1973 and as a Vice President since 1995.
Robert H. Quinn is a partner in the law firm of Quinn & Morris,
located in Boston, Massachusetts.
Joseph W. Sullivan is the former President of Neponset Lincoln
Mercury, an automobile dealership located in the Dorchester section of
Boston, Massachusetts. Mr. Sullivan is now retired.
Diane Valle is President of Harbor Greenery, a retail florist located
in Boston, Massachusetts.
Executive Officers Who Are Not Directors
Anthony A. Paciulli has been Senior Vice President of the Bank since
March 1994. From 1988 to 1994, Mr. Paciulli held several senior officer
positions (including vice president, loan officer, sales manager and
regional manager) with several different mortgage companies and financial
institutions, all of which were located in the greater Boston metropolitan
area.
Ruth J. Rogers has been Treasurer of the Bank since August 1993. In
June 1998, Ms. Roger was named Chief Financial Officer and Treasurer of the
Bank. From 1970 to 1992, Ms. Rogers was Vice President and Assistant
Controller of Guaranty First Trust Co., Waltham, Massachusetts.
Kenneth R. Bordewieck has been Vice President of the Bank since
August 1998. Since 1976, Mr. Bordewieck has held various positions with
several different financial institutions located in the greater Boston
metropolitan area.
ITEM 10. EXECUTIVE COMPENSATION.
Summary Compensation Table
Summary Compensation Table. The following table sets forth the cash
compensation paid by the Bank as well as certain other compensation paid or
accrued for services rendered in all capacities during the fiscal year
ended December 31, 1998, to the Chief Executive Officer ("Named Executive
Officer").
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------------
Annual Compensation(1) Awards Payouts
----------------------------------- -------------------------- -------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Year Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Principal Position (2) ($) ($) ($)(3) ($)(4) (#)(5) ($)(6) ($)(7)
- ------------------ ---- ------ ----- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul C. Green
President and
Chief Executive Officer 1998 $114,188 $12,575 $ - $ - - - $6,862
- --------------------
<F1> Under Annual Compensation, the column titled "Salary" includes
amounts deferred by the Named Executive Officer under the Bank's
401(k) Plan.
<F2> Neither the Company nor its predecessor, the Bank was a reporting
company with respect to the 1997 or 1996 fiscal years.
<F3> For 1998, there were no (a) perquisites over the lesser of $50,000 or
10% of the individual's total salary and bonus for the year; (b)
payments of above-market preferential earnings on deferred
compensation; (c) payments of earnings with respect to long-term
incentive plans prior to settlement or maturation; (d) tax payment
reimbursements; or (e) preferential discounts on stock. For 1998,
the Bank had no restricted stock or stock related plans in existence.
<F4> No stock awards were granted or earned in fiscal year 1998.
<F5> No stock options or SARs were earned or granted in 1998.
<F6> For 1998, there were no payouts or awards under any long-term
incentive plan.
<F7> Other compensation includes the Bank's matching contribution under
the Bank's 401(k) Plan.
</TABLE>
Employment Agreements
The Bank and the Company entered into employment agreements with Paul
C. Green, Ruth J. Rogers and Anthony A. Paciulli (individually, the
"Executive") (collectively, the "Employment Agreements"). The Employment
Agreements are intended to ensure that the Bank and the Company will be
able to maintain a stable and competent management base after the
Conversion. The continued success of the Bank and the Company depends to a
significant degree on the skills and competence of the above referenced
officers.
The Employment Agreements will provide for a three-year term for Mr.
Green and a one-year term for Ms. Rogers and Mr. Paciulli. The term of the
Company Employment Agreements shall be extended on a daily basis unless
written notice of non-renewal is given by the Board of Directors and the
term of the Bank Employment Agreements shall be renewable on an annual
basis. The Employment Agreements provide that the Executive's base salary
will be reviewed annually. The base salaries which were effective for such
Employment Agreements for Messrs. Green and Paciulli and Ms. Rogers will
be $120,750, $99,300 and $69,000, respectively. In addition to the base
salary, the Employment Agreements provide for, among other things,
participation in stock benefits plans and other fringe benefits applicable
to executive personnel. The Employment Agreements provide for termination
by the Bank or the Company for cause, as defined in the Employment
Agreements, at any time. In the event the Bank or the Company chooses to
terminate the Executive's employment for reasons other than for cause, or
in the event of the Executive's resignation from the Bank and the Company
upon: (i) failure to re-elect the Executive to his current offices; (ii) a
material change in the Executive's functions, duties or responsibilities;
(iii) a relocation of the Executive's principal place of employment by more
than 25 miles; (iv) a reduction in the benefits and perquisites being
provided to the Executive in the Employment Agreement; (v) liquidation or
dissolution of the Bank or the Company; or (vi) a breach of the Employment
Agreement by the Bank or the Company, the Executive or, in the event of
death, his beneficiary would be entitled to receive an amount equal to the
remaining base salary payments due to the Executive for the remaining term
of the Employment Agreement and the contributions that would have been made
on the Executive's behalf to any employee benefit plans of the Bank and the
Company during the remaining term of the Employment Agreement. The Bank
and the Company would also continue and pay for the Exective's life,
health, dental and disability coverage for the remaining term of the
Employment Upon any termination of the Executive, the Executive is subject
to a one year non-competition agreement.
Under the Employment Agreements, if voluntary or involuntary
termination follows a change in control of the Bank or the Company, the
Executive or, in the event of the Executive's death, his beneficiary, would
be entitled to a severance payment equal to the greater of: (i) the
payments due for the remaining terms of the agreement; or (ii) three times
the average of the five preceding taxable years' annual compensation. The
Bank and the Company would also continue the Executive's life, health, and
disability coverage for thirty-six months in the case of Mr. Green and 12
months in the case of Mr. Paciulli and Ms. Rogers. Notwithstanding that
both the Bank and Company Employment Agreements provide for a severance
payment in the event of a change in control, the Executive would only be
entitled to receive a severance payment under one agreement.
Payments to the Executive under the Bank's Employment Agreement will
be guaranteed by the Company in the event that payments or benefits are not
paid by the Bank. Payment under the Company's Employment Agreement would
be made by the Company. All reasonable costs and legal fees paid or
incurred by the Executive pursuant to any dispute or question of
interpretation relating to the Employment Agreements shall be paid by the
Bank or Company, respectively, if the Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement. The Employment
Agreements also provide that the Bank and Company shall indemnify the
Executive to the fullest extent allowable under Massachusetts and Delaware
law, respectively. In the event of a change in control of the Bank or the
Company, the total amount of payments due under the Agreements, based
solely on cash compensation paid to the officers who will receive
Employment Agreements over the past five fiscal years and excluding any
benefits under any employee benefit plan which may be payable, would be
approximately $602,000.
Change in Control Agreements
The Bank entered into a three-year Change in Control Agreements with
Mr. Bordewieck, who was not covered by an employment agreement. The Change
in Control Agreement is renewable on an annual basis. The Change in
Control Agreement provides that in the event that voluntary or involuntary
termination follows a change in control of the Company or the Bank, the
officer would be entitled to receive a severance payment equal to three
times the officer's average annual compensation for the five most recent
taxable years. The Bank would also continue and pay for the officer's
life, health and disability coverage for thirty-six months following
termination. In the event of a change in control of the Company or the
Bank, the total payments that would be due under the Change in Control
Agreement, based solely on the current annual compensation paid to the
officer covered by the Change in Control Agreement and excluding any
benefits under any employee benefit plan which may be payable, would be
approximately $195,000.
Management Supplemental Executive Retirement Plan
The Bank implemented a non-qualified deferred compensation
arrangement known as a "Management Supplemental Executive Retirement Plan"
(the "MSERP"). The Bank intends the MSERP to make up lost Employee Stock
Ownership Plan (the "ESOP") benefits to designated participants who retire,
who terminate employment in connection with a change in control, or whose
participation in the ESOP ends due to termination of the ESOP in connection
with a change in control (regardless of whether the individual terminates
employment) prior to the complete repayment of the ESOP loan. Generally,
upon the retirement of an eligible individual (designated by the Board of
Directors of the Bank or a participating affiliate of the Bank) or upon a
change in control of the Bank or the Company prior to complete repayment of
the ESOP Loan, the MSERP will provide the individual with a benefit
determined by first (i) projecting the number of shares that would have
been allocated to the individual under the ESOP if the individual had
remained employed throughout the term of the ESOP loan (measured from the
individual's first date of ESOP participation) and (ii) reducing that
number by the number of shares actually allocated to the individual's
account under the ESOP; and second, by multiplying the number of shares
that represent the difference between such figures by the average fair
market value of the Common Stock over the preceding five years. The
individual's benefits become payable under the MSERP upon the participant's
retirement (in accordance with the standard retirement policies of the
Bank) or upon the change in control of the Bank or the Company. The Bank
may establish a grantor trust in connection with the MSERP to satisfy the
obligations of the Bank with respect to the MSERP. The assets of the
grantor trust would remain subject to the claims of the Bank's general
creditors in the event of the Bank's insolvency until paid to the
individual pursuant to the terms of the MSERP.
Director Compensation
Non-employee Directors of the Bank are currently paid an annual
retainer of $6,600. Each member of the Bank's Security Committee is
currently paid an annual retainer of $1,800. In addition, the Clerk of the
Bank receives $50 for each monthly Board meeting that he attends. All
directors of the Company are paid an annual retainer fee of $1,800.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners
The following table sets forth information as to those persons
believed by management to be beneficial owners of more than 5% of the
Company's outstanding shares of Common Stock or as disclosed in certain
reports received to date regarding such ownership filed by such persons
with the Company and with the SEC, in accordance with Sections 13(d) and
13(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Other than those persons listed below, the Company is not aware of
any person, as such term is defined in the Exchange Act, who owns more than
5% of the Company's Common Stock as of the Record Date.
<TABLE>
<CAPTION>
Name and Address of Number Percent of
Title of Class Beneficial Owner of Shares Class
- -------------- ----------------------------------- --------- ----------
<S> <C> <C> <C>
Common Stock The Massachusetts Co-operative Bank 43,638(1) 8.0%
Employee Stock Ownership Plan
and Trust (the "ESOP")
1442 Dorchester Avenue
Boston, Massachusetts 02122
Common Stock Spence Limited, L.P. 33,100(2) 6.1%
4712 Clendenin Road
Nashville, TN 37220-1004
- --------------------
<F1> Shares of Common Stock were acquired by the ESOP in the Bank's
Conversion. The ESOP Committee administers the ESOP. First Bankers
Trust, N.A. has been appointed as the corporate trustee for the ESOP
("ESOP Trustee"). The ESOP Trustee, subject to its fiduciary duty,
must vote all allocated shares held in the ESOP in accordance with the
instructions of the participants. As of December 31, 1998, 4,364 shares
had been allocated and 39,274 shares were unallocated under the ESOP.
Under the ESOP, unallocated shares and allocated shares as to which
voting instructions are not given by participants are to be voted by the
ESOP Trustee in a manner calculated to most accurately reflect the
instructions received from participants regarding the allocated stock so
long as such vote is in accordance with the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
<F2> Based in information filed in a schedule 13G on March 12, 1999,
Spence Limited, L.P. may be deemed beneficial owners of 33,100
shares.
</TABLE>
Security Ownership of Management
The following table sets forth, as of March 19, 1999, the number of
shares of Common Stock that the directors own and that all directors and
executive officers own as a group.
<TABLE>
<CAPTION>
Number of Percent
Name Title of Class Shares of Class
- --------------------------- -------------- --------- --------
<S> <C> <C> <C>
Paul C. Green(1) Common Stock 10,100 1.85%
John B. Byrne(1) Common Stock 10,000 1.83%
John R. Byrne Common Stock 5,000 *
Richard F. Cahill Common Stock 1,500 *
W. Craig Dolan Common Stock 3,100 *
John E. Hurley, Jr.(1) Common Stock 1,000 *
Robert E. McGovern(1) Common Stock 500 *
John P. O'Hearn, Jr. Common Stock 10,000 1.83%
Robert H. Quinn Common Stock 1,000 *
Joseph W. Sullivan Common Stock 2,500 *
Diane Valle Common Stock 2,653 *
------ -----
All directors and executive
Officers as a group (14) 60,353 11.06%
====== =====
- --------------------
<F*> Does not exceed 1.0% of the Company's voting securities.
<F1> Individuals whole terms expire in 1999.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not
involve more than the normal risk of repayment or present other unfavorable
features. In addition, loans made to a director or executive officer 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.
The Bank currently has a policy of not making loans to officers and
employees. Exceptions to that policy must be approved in advance by a
majority of the disinterested members of the Board of Directors. The
Company intends that all transactions between the Company and its executive
officers, directors, holders of 10% or more of the shares of any class of
its Common Stock and affiliates thereof, will contain terms no less
favorable to the Company than could have been obtained by it in arms-length
negotiations with unaffiliated persons and will be approved by a majority
of independent outside directors of the Company not having any interest in
the transaction.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-
K.
(a) 1. Financial Statements
The following consolidated financial statements of the Company and
its subsidiaries are filed as part of this document under Item 7:
- - Independent Auditors' Reports
- - Consolidated Balance Sheets as of December 31, 1998 and 1997
- - Consolidated Statements of Income and Comprehensive Income for the
Years Ended December 31, 1998, 1997 and 1996
- - Consolidated Statements of Changes in Surplus for the Years Ended
December 31, 1998, 1997 and 1996
- - Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996
- - Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not
applicable or the required information is shown in the Consolidated
Financial Statements or notes thereto.
(b) Reports on Form 8-K filed during the last quarter of 1998
None
(c) Exhibits Required by Securities and Exchange Commission Regulation
S-K
<TABLE>
<CAPTION>
Exhibit
Number
- -------
<C> <S>
10.1 Employment Agreement between Massachusetts Fincorp, Inc. and Paul
C. Green
10.2 Employment Agreement between Massachusetts Fincorp, Inc. and Ruth
J. Rogers
10.3 Employment Agreement between Massachusetts Fincorp, Inc. and
Anthony A. Paciulli
10.4 Employment Agreement between The Massachusetts Co-operative Bank.
and Paul C. Green
10.5 Employment Agreement between The Massachusetts Co-operative Bank.
and Ruth J. Rogers
10.6 Employment Agreement between The Massachusetts Co-operative Bank.
and Anthony A. Paciulli
10.7 Change in Control agreement between The Massachusetts Co-operative
Bank and Kenneth R. Bordewieck
10.8 Form of Proposed The Massachusetts Co-operative Bank Employee
Severance Compensation Plan (1)
10.9 Form of The Massachusetts Co-operative Bank Supplemental
Executive Retirement Plan (1)
10.10 Form of The Massachusetts Co-operative Bank Management
Supplemental Executive Retirement Plan (1)
11.0 Statement Re: Computation of Per Share Earnings(2)
16.1 Letter re: Change in Certifying Accountant
21.0 Subsidiaries Information Incorporated Herein By Reference to
Part 1 - Subsidiary Activity
27.0 Financial Data Schedule
- --------------------
<F1> Incorporated by reference into this document from the Exhibits filed
with the Registration Statement on Form SB-2, and any amendments
thereto, Registration No. 333-60237.
<F2> Not applicable as the Company did not have earnings in 1998.
</TABLE>
CONFORMED SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it
meets all the requirements of filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in
the City of Boston, Commonwealth of Massachusetts, on March 29, 1999.
Massachusetts Fincorp, Inc.
By: /s/ Paul C. Green
------------------------
Paul C. Green
President, Chief Executive Officer
and Director
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Paul C. Green President, Chief Executive March 29, 1999
- -------------------------- Officer and Director
Paul C. Green (principal executive
officer)
/s/ Ruth J. Rogers Chief Financial Officer March 29, 1999
- -------------------------- Treasurer and Corporate
Ruth J. Rogers Secretary (principal
accounting and financial
officer)
/s/ John B. Byrne Director March 29, 1999
- --------------------------
John B. Byrne
/s/ John R. Byrne Director March 29, 1999
- --------------------------
John R. Byrne
/s/ Richard F. Cahill Director March 29, 1999
- --------------------------
Richard F. Cahill
/s/ W. Craig Dolan Director March 29, 1999
- --------------------------
W. Craig Dolan
/s/ John E. Hurley, Jr. Director March 29, 1999
- --------------------------
John E. Hurley, Jr.
/s/ Robert E. McGovern Director March 29, 1999
- --------------------------
Robert E. McGovern
/s/ Joseph P. O'Hearn, Jr. Director March 29, 1999
- --------------------------
John P. O'Hearn, Jr.
/s/ Robert H. Quinn Director March 29, 1999
- --------------------------
Robert H. Quinn
/s/ Joseph W. Sullivan Director March 29, 1999
- --------------------------
Joseph W. Sullivan
/s/ Diane Valle Director March 29, 1999
- --------------------------
Diane Valle
</TABLE>
Exhibit 10.1
Employment Agreement between Massachusetts Fincorp, Inc. and Paul C.Green
MASSACHUSETTS FINCORP, INC.
THREE-YEAR
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of December 22,
1998, by and between Massachusetts Fincorp, Inc. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal
offices at 1442 Dorchester Avenue, Boston, Massachusetts, and Paul C. Green
("Executive"). Any reference to "Institution" herein shall mean
Massachusetts Co-operative Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services
of Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the
Holding Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided,
the parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive
agrees to serve as President and Chief Executive Officer of the Holding
Company. The Executive shall render administrative and management services
to the Holding Company such as are customarily performed by persons in a
similar executive capacity. During said period, Executive also agrees to
serve, if elected, as an officer or director of any subsidiary of the
Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall
be deemed to have commenced as of the date first above written and shall
continue for a period of thirty-six (36) full calendar months thereafter.
Commencing on the date of the execution of this Agreement, the term of this
Agreement shall be extended for one day each day until such time as the
board of directors of the Holding Company (the "Board") or Executive elects
not to extend the term of the Agreement by giving written notice to the
other party in accordance with Section 8 of this Agreement, in which case
the term of this Agreement shall be fixed and shall end on the first
anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except
for periods of absence occasioned by illness, reasonable vacation periods,
and reasonable leaves of absence, Executive shall devote substantially all
his business time, attention, skill, and efforts to the faithful
performance of his duties hereunder, including activities and services
related to the organization, operation and management of the Holding
Company and its direct or indirect subsidiaries ("Subsidiaries") and
participation in community, professional and civic organizations; provided,
however, that, with the approval of the Board, as evidenced by a resolution
of such Board, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or
positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary,
Executive's employment with the Holding Company may be terminated by the
Holding Company or Executive during the term of this Agreement, subject to
the terms and conditions of this Agreement. However, Executive shall not
perform, in any respect, directly or indirectly, during the pendency of his
temporary or permanent suspension or termination from the Institution,
duties and responsibilities formerly performed at the Institution as part
of his duties and responsibilities as President and Chief Executive Officer
of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Holding Company shall pay Executive as compensation a
salary of $120,750 per year ("Base Salary") payable in accordance with the
normal payroll practices. Base Salary shall include any amounts of
compensation deferred by Executive under any tax-qualified retirement or
welfare benefit plan or any other deferred compensation arrangement
maintained by the Holding Company or its Subsidiaries. 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 the Board or
by a Committee of the Board delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary. Any increase
in Base Salary shall become the "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided in this Section 3(a),
the Holding Company shall also provide Executive, at no premium cost to
Executive, with all such other benefits as provided uniformly to permanent
full-time employees of the Holding Company and its Subsidiaries.
(b) Discretionary Bonuses. The Executive shall be entitled to
participate in an equitable manner with all other executive officers of the
Holding Company in discretionary bonuses as authorized and declared by the
Holding Company Board to executive employees. No other compensation
provided for in this Agreement shall be deemed a substitute for the
Executive's right to participate in such bonuses when and as declared by
the Holding Company Board.
(c) The Executive shall be entitled to participate in any 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 Holding Company will not, without Executive's prior written consent,
make any changes in such plans, arrangements or perquisites which would
materially adversely affect Executive's rights or benefits thereunder;
except to the extent such changes are made applicable to all Holding
Company employees on a non-discriminatory basis. Without limiting the
generality of the foregoing provisions of this Subsection (c), Executive
shall be entitled to participate in or receive benefits under all plans
relating to stock options, restricted stock awards, stock purchases,
pension, thrift, supplemental retirement, profit-sharing, employee stock
ownership, group life insurance, medical and other health and welfare
coverage, education, cash or stock bonuses that are now or hereafter made
available by the Holding Company 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. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during the 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 Holding Company of Executive's full-
time employment hereunder for any reason other than termination governed by
Section 5(a) hereof, or for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Holding Company's employ, upon, any (A)
failure to elect or reelect or to appoint or reappoint Executive as
President and Chief Executive Officer, unless consented to by the
Executive, (B) a material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by
the Executive, (D) a material reduction in the benefits and perquisites to
the Executive from those being provided as of the effective date of this
Agreement, unless consented to by the Executive, (E) a liquidation or
dissolution of the Holding Company or the Institution, or (F) breach of
this Agreement by the Holding Company. Upon the occurrence of any event
described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall
have the right to elect to terminate his employment under this Agreement by
resignation upon not less than sixty (60) days prior written notice given
within six full calendar months after the event giving rise to said right
to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company 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, a sum
equal to the sum of: (i) the Base Salary and bonuses in accordance with
Sections 3(a) and 3(b); respectively, that would have been paid to
Executive for the remaining term of this Agreement had the Event of
Termination not occurred, plus the value as calculated by a recognized firm
customarily performing such valuation, of any stock options or related
rights which as of the Date of Termination have been granted to Executive
but are not exercisable by Executive and the value of any restricted stock
or related rights which have been granted to Executive; but in which
Executive does not have a non-forfeitable or fully-vested interest as of
the Date of Termination; and; and (ii) all benefits, including health
insurance in accordance with Section 3(c) that would have been provided to
Executive for the remaining term of the this Agreement had an Event of
Termination not occur At the election of the Executive, which election is
to be made upon an Event of Termination, such payments shall be made in a
lump sum. In the event that no election is made, payment to the Executive
will be made on a monthly basis in approximately equal installments during
the remaining term of the Agreement. Such payments shall not be reduced in
the event the Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, the Holding
Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Holding
Company or its Subsidiaries for Executive prior to his termination at no
premium cost to the Executive. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" shall
mean an event of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of
the Bank or the Holding Company within the meaning of the Change in Bank
Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. [Section Sign] 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. [Section Sign] 225.41(b) with respect to the
Holding Company, as in effect on the date hereof; or (iii) results in a
transaction requiring prior FRB approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB at 12 C.F.R.
[Section Sign] 225.11, as in effect on the date hereof except for the
Holding Company's acquisition of the Bank; or (iv) without limitation such
a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-
3 under the Exchange Act), directly or indirectly, of securities of the
Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities except for any securities of the
Bank purchased by the Holding Company in connection with the conversion of
the Bank to the stock form and any securities purchased by any tax
qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding
Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan or reorganization, merger
of consolidation of the Holding Company or Bank or similar transaction with
one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are exchanged
for or converted into cash or property or securities not issued by the Bank
or the Holding Company shall be distributed; or (E) a tender offer is made
for 20% or more of the voting securities of the Bank or the Holding
Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or
the Board has determined that a Change in Control has occurred, Executive
shall be entitled to the benefits provided in paragraphs (c) and (d), of
this Section 5 upon his subsequent termination of employment at any time
during the term of this Agreement due to (i) Executive's dismissal, or (ii)
Executive's voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, reduction in the annual
compensation or reduction in benefits or relocation of his principal place
of employment by more than 25 miles from its location immediately prior to
the change in control, unless such termination is because of his death or
termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to
Section 5(b), the Holding Company 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 greater of: (1) the Base Salary and bonuses in accordance with
Sections 3(a) and 3(b), respectively, that would have been paid to
Executive for the payments due for the remaining term of the Agreement had
the event described in Subsection (b) of this Section 5 not occurred, plus
value, as calculated by a recognized firm customarily performing such
valuation, of any stock option or related rights which as of the Date of
Termination have been granted to Executive, but are not exercisable by
Executive and the value of restricted stock awards or related rights which
have been granted to Executive, but which Executive does not have a non-
forfeitable or fully-vested interest as of the Date of Termination and all
benefits, including health insurance, in accordance with Section 3(d) that
would have been provided to Executive for the remaining term of this
Agreement had the event described in Subsection (b) of this Section 5 not
occurred; or 2) three (3) times Executive's Average Annual Compensation (as
defined herein) for the five (5) most recent taxable years that Executive
has been employed by the Bank or such lesser number of years in the event
that Executive shall have been employed by the Bank for less than five (5)
years. Such "Average Annual Compensation" shall include all taxable income
paid by the Bank or Holding Company, including but not limited to, Base
Salary, commissions, and bonuses, as well as contributions on Executive's
behalf to any pension and/or profit sharing plan, severance payments,
retirement payments, directors or committee fees and fringe benefits paid
or to be paid to the Executive in any such year and payment of any expense
items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Bank. At the
election of the Executive, which election is to be made prior to a Change
in Control, such payment shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis
in approximately equal installments during the remaining term of the
Agreement. Such payments shall not be reduced in the event Executive
obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to
Section 5(b), the Company will cause to be continued life, medical, dental
and disability coverage substantially equivalent to the coverage maintained
by the Institution for Executive at no premium cost to Executive prior to
his severance. Such coverage and payments shall cease upon the expiration
of thirty-six months following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments
or benefits under the provisions of this Employment Agreement, the Holding
Company shall determine if an excess parachute payment (as defined in
Section 4999 of the Internal Revenue Code of 1986, as amended, and any
successor provision thereto, (the "Code")) exists. Such determination shall
be made after taking any reductions permitted pursuant to Section 280G of
the Code and the regulations thereunder. Any amount determined to be an
excess parachute payment after taking into account such reductions shall be
hereafter referred to as the "Initial Excess Parachute Payment". As soon as
practicable after a Change in Control, the Initial Excess Parachute Payment
shall be determined. Upon the Date of Termination following a Change in
Control, the Holding Company shall pay Executive, subject to applicable
withholding requirements under applicable state or federal law, an amount
equal to:
(1) twenty (20) percent of the Initial Excess Parachute
Payment (or such other amount equal to the tax imposed under Section
4999 of the Code); and
(2) such additional amount (tax allowance) as may be
necessary to compensate Executive for the payment by Executive of
state and federal income and excise taxes on the payment provided
under clause (1) and on any payments under this Clause (2). In
computing such tax allowance, the payment to be made under Clause (1)
shall be multiplied by the "gross up percentage" ("GUP"). The GUP
shall be determined as follows
Tax Rate
GUP = -----------
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the
sum of the highest marginal federal and state income and
employment-related tax rates, including any applicable excise
tax rates, applicable to the Executive in the year in which the
payment under Clause (1) is made.
(3) Notwithstanding the foregoing, if it shall subsequently
be determined in a final judicial determination or a final
administrative settlement to which Executive is a party that the
excess parachute payment as defined in Section 4999 of the Code,
reduced as described above, is more than the Initial Excess Parachute
Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's
independent accountants shall determine the amount (the "Adjustment
Amount") the Holding Company must pay to the Executive in order to
put the Executive in the same position as the Executive would have
been if the Initial Excess Parachute Payment had been equal to the
Determinative Excess Parachute Payment. In determining the Adjustment
Amount, independent accountants of the Holding Company shall take
into account any and all taxes (including any penalties and interest)
paid by or for Executive or refunded to Executive or for Executive's
benefit. As soon as practicable after the Adjustment Amount has been
so determined, the Holding Company shall pay the Adjustment Amount to
Executive. In no event however, shall Executive make any payment
under this paragraph to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses), final cease and desist order or
material breach of any provision of this Agreement. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a Notice of
Termination which shall include a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith
opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause. During the period
beginning on the date of the Notice of Termination for Cause pursuant to
Section 8 hereof through the Date of Termination, stock options and related
limited rights granted to Executive under any stock option plan shall not
be exercisable nor shall any unvested awards granted to Executive under any
stock benefit plan of the Institution, the Holding Company or any
subsidiary or affiliate thereof, vest. At the Date of Termination, such
stock options and related limited rights and any such unvested awards shall
become null and void and shall not be exercisable by or delivered to
Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the
Notice of Termination (which, in the case of a Termination for Cause, shall
not be less than thirty (30) days from the date such Notice of Termination
is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, except upon the
occurrence of a Change in Control and voluntary termination by the
Executive in which case the Date of Termination shall be the date specified
in the Notice, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, by a binding arbitration award, or by a final judgment, order or
decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected) and provided further
that the Date of Termination shall be extended by a notice of dispute only
if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute
was given, until the dispute is finally resolved in accordance with this
Agreement. Amounts paid under this Section are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection
with any litigation in which it or any of its subsidiaries or affiliates
is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder
pursuant to Section 4 hereof, Executive agrees not to compete with the
Holding Company or its Subsidiaries for a period of one (1) year following
such termination in any city, town or county in which the Executive's
normal business office is located and the Holding Company or any of its
Subsidiaries has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of
such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said
cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business
activities of the Holding Company or its Subsidiaries. The parties hereto,
recognizing that irreparable injury will result to the Holding Company or
its Subsidiaries, its business and property in the event of Executive's
breach of this Subsection 10(a) agree that in the event of any such breach
by Executive, the Holding Company or its Subsidiaries, will be entitled, in
addition to any other remedies and damages available, to an injunction to
restrain the violation hereof by Executive, Executive's partners, agents,
servants, employees and all persons acting for or under the direction of
Executive. Executive represents and admits that in the event of the
termination of his employment pursuant to Section 7 hereof, Executive's
experience and capabilities are such that Executive can obtain employment
in a business engaged in other lines and/or of a different nature than the
Holding Company or its Subsidiaries, and that the enforcement of a remedy
by way of injunction will not prevent Executive from earning a livelihood.
Nothing herein will be construed as prohibiting the Holding Company or its
Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including
the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding
Company and its Subsidiaries as it may exist from time to time, is a
valuable, special and unique asset of the business of the Holding Company
and its Subsidiaries. Executive will not, during or after the term of his
employment, disclose any knowledge of the past, present, planned or
considered business activities of the Holding Company and its Subsidiaries
thereof to any person, firm, corporation, or other entity for any reason or
purpose whatsoever unless expressly authorized by the Board of Directors or
required by law. Notwithstanding the foregoing, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or
ideas which are not solely and exclusively derived from the business plans
and activities of the Holding Company. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining Executive
from disclosing, in whole or in part, the knowledge of the past, present,
planned or considered business activities of the Holding Company or its
Subsidiaries or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the Holding Company from pursuing any other
remedies available to the Holding Company for such breach or threatened
breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Holding Company subject to
Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the
extent that payments and benefits, as provided by this Agreement, are paid
to or received by Executive under the Employment Agreement dated December
22, 1998, between Executive and the Institution, such compensation payments
and benefits paid by the Institution will be subtracted from any amount due
simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Institution Agreement shall be
allocated in proportion to the level of activity and the time expended on
such activities by the Executive as determined by the Holding Company and
the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding
Company or any predecessor of the Holding Company and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy, or similar process or assignment by operation
of law, and any attempt, voluntary or involuntary, to affect any such
action shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive and the Holding Company and their respective successors and
assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
as to any act other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware
without regards to principles of conflicts of law of this state.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of the Institution, in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
In the event any dispute or controversy arising under or in
connection with Executive's termination is resolved in favor of the
Executive, whether by judgment, arbitration or settlement, Executive shall
be entitled to the payment of all back-pay, including salary, bonuses and
any other cash compensation, fringe benefits and any compensation and
benefits due Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall
be paid or reimbursed by the Holding Company, if Executive is successful
pursuant to a legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his
heirs, executors and administrators) with coverage under a standard
directors' and officers' liability insurance policy at its expense and
shall indemnify Executive (and his heirs, executors and administrators) to
the fullest extent permitted under Delaware law against all expenses and
liabilities reasonably incurred by him in connection with or arising out of
any action, suit or proceeding in which he may be involved by reason of his
having been a director or officer of the Holding Company (whether or not he
continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but not
be limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are
subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k)
and 12 C.F.R. Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all
or substantially all the business or assets of the Institution or the
Holding Company, expressly and unconditionally to assume and agree to
perform the Holding Company's obligations under this Agreement, in the same
manner and to the same extent that the Holding Company would be required to
perform if no such succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, Massachusetts Fincorp, Inc. has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this
Agreement, on the 22nd day of December, 1998.
ATTEST: MASSACHUSETTS FINCORP, INC.
/s/ Kathleen M. Connelly By: /s/ W. Craig Dolan
- ------------------------------ ---------------------------
Kathleen M. Connelly W. Craig Dolan
For the Entire Board of
Directors
[SEAL]
WITNESS:
/s/ Kathleen M. Connelly By: /s/ Paul C. Green
- ------------------------------ ---------------------------
Kathleen M. Connelly Paul C. Green
Executive
Exhibit 10.2
Employment Agreement between Massachusetts Fincorp, Inc. and Ruth J. Rogers
MASSACHUSETTS FINCORP, INC.
ONE-YEAR
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of December 22,
1998, by and between Massachusetts Fincorp, Inc. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal
offices at 1442 Dorchester Avenue, Boston, Massachusetts, and Ruth J.
Rogers ("Executive"). Any reference to "Institution" herein shall mean
Massachusetts Co-operative Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services
of Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the
Holding Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided,
the parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive
agrees to serve as Chief Financial Officer, Treasurer and Corporate
Secretary of the Holding Company. The Executive shall render administrative
and management services to the Holding Company such as are customarily
performed by persons in a similar executive capacity. During said period,
Executive also agrees to serve, if elected, as an officer or director of
any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall
be deemed to have commenced as of the date first above written and shall
continue for a period of twelve (12) full calendar months thereafter.
Commencing on the date of the execution of this Agreement, the term of this
Agreement shall be extended for one day each day until such time as the
board of directors of the Holding Company (the "Board") or Executive elects
not to extend the term of the Agreement by giving written notice to the
other party in accordance with Section 8 of this Agreement, in which case
the term of this Agreement shall be fixed and shall end on the first
anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except
for periods of absence occasioned by illness, reasonable vacation periods,
and reasonable leaves of absence, Executive shall devote substantially all
her business time, attention, skill, and efforts to the faithful
performance of her duties hereunder, including activities and services
related to the organization, operation and management of the Holding
Company and its direct or indirect subsidiaries ("Subsidiaries") and
participation in community, professional and civic organizations; provided,
however, that, with the approval of the Board, as evidenced by a resolution
of such Board, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or
positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary,
Executive's employment with the Holding Company may be terminated by the
Holding Company or Executive during the term of this Agreement, subject to
the terms and conditions of this Agreement. However, Executive shall not
perform, in any respect, directly or indirectly, during the pendency of his
temporary or permanent suspension or termination from the Institution,
duties and responsibilities formerly performed at the Institution as part
of his duties and responsibilities as Chief Financial Officer, Treasurer
and Corporate Secretary of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of
$69,000 per year ("Base Salary") payable in accordance with the normal
payroll practices of the Bank. Base Salary shall include any amounts of
compensation deferred by Executive under any tax-qualified retirement or
welfare benefit plan or any other deferred compensation arrangement
maintained by 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 the Board or by a Committee of the Board delegated
such responsibility by the Board. The Committee or the Board may increase
Executive's Base Salary. Any increase in Base Salary shall become the "Base
Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Holding Company shall also provide
Executive, at no premium cost to Executive, with all such other benefits as
provided uniformly to permanent full-time employees of the Holding Company
and its Subsidiaries.
(b) Discretionary Bonuses. The Executive shall be entitled to
participate in an equitable manner with all other executive officers of the
Holding Company in discretionary bonuses as authorized and declared by the
Holding Company Board to executive employees. No other compensation
provided for in this Agreement shall be deemed a substitute for the
Executive's right to participate in such bonuses when and as declared by
the Holding Company Board.
(c) The Executive shall be entitled to participate in any 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 Holding Company will not, without Executive's prior written consent,
make any changes in such plans, arrangements or perquisites which would
materially adversely affect Executive's rights or benefits thereunder;
except to the extent such changes are made applicable to all Holding
Company employees on a non-discriminatory basis. Without limiting the
generality of the foregoing provisions of this Subsection (c), Executive
shall be entitled to participate in or receive benefits under all plans
relating to stock options, restricted stock awards, stock purchases,
pension, thrift, supplemental retirement, profit-sharing, employee stock
ownership, group life insurance, medical and other health and welfare
coverage, education, cash or stock bonuses that are now or hereafter made
available by the Holding Company 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. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during the 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 Holding Company of Executive's full-
time employment hereunder for any reason other than termination governed by
Section 5(a) hereof, or for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Holding Company's employ, upon, any (A)
failure to elect or reelect or to appoint or reappoint Executive as Chief
Financial Officer, Treasurer and Corporate Secretary, unless consented to
by the Executive, (B) a material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by
the Executive, (D) a material reduction in the benefits and perquisites to
the Executive from those being provided as of the effective date of this
Agreement, unless consented to by the Executive, (E) a liquidation or
dissolution of the Holding Company or the Institution, or (F) breach of
this Agreement by the Holding Company. Upon the occurrence of any event
described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall
have the right to elect to terminate his employment under this Agreement by
resignation upon not less than sixty (60) days prior written notice given
within six (6) full calendar months after the event giving rise to said
right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company 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, a sum
equal to the sum of: (i) the Base Salary and bonuses in accordance with
Sections 3(a) and 3(b); respectively, that would have been paid to
Executive for the remaining term of this Agreement had the Event of
Termination not occurred, plus the value as calculated by a recognized firm
customarily performing such valuation, of any stock options or related
rights which as of the Date of Termination have been granted to Executive
but are not exercisable by Executive and the value of any restricted stock
or related rights which have been granted to Executive; but in which
Executive does not have a non-forfeitable or fully-vested interest as of
the Date of Termination; and; and (ii) all benefits, including health
insurance in accordance with Section 3(c) that would have been provided to
Executive for the remaining term of the this Agreement had an Event of
Termination not occur At the election of the Executive, which election is
to be made upon an Event of Termination, such payments shall be made in a
lump sum. In the event that no election is made, payment to the Executive
will be made on a monthly basis in approximately equal installments during
the remaining term of the Agreement. Such payments shall not be reduced in
the event the Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, the Holding
Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Holding
Company or its Subsidiaries for Executive prior to her termination at no
premium cost to the Executive. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" shall
mean an event of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of
the Bank or the Holding Company within the meaning of the Change in Bank
Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. [Section Sign] 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. [Section Sign] 225.41(b) with respect to the
Holding Company, as in effect on the date hereof; or (iii) results in a
transaction requiring prior FRB approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB at 12 C.F.R.
[Section Sign] 225.11, as in effect on the date hereof except for the
Holding Company's acquisition of the Bank; or (iv) without limitation such
a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-
3 under the Exchange Act), directly or indirectly, of securities of the
Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities except for any securities of the
Bank purchased by the Holding Company in connection with the conversion of
the Bank to the stock form and any securities purchased by any tax
qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding
Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan or reorganization, merger
of consolidation of the Holding Company or Bank or similar transaction with
one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are exchanged
for or converted into cash or property or securities not issued by the Bank
or the Holding Company shall be distributed; or (E) a tender offer is made
for 20% or more of the voting securities of the Bank or the Holding
Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or
the Board has determined that a Change in Control has occurred, Executive
shall be entitled to the benefits provided in paragraphs (c) and (d), of
this Section 5 upon her subsequent termination of employment at any time
during the term of this Agreement due to (i) Executive's dismissal, or (ii)
Executive's voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, reduction in the annual
compensation or reduction in benefits or relocation of her 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 her death or
termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to
Section 5(b), the Holding Company shall 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 or liquidated damages, or both, a sum
equal to the greater of: (1) the Base Salary and bonuses in accordance with
Sections 3(a) and 3(b), respectively, that would have been paid to
Executive for the payments due for the remaining term of the Agreement had
the event described in Subsection (b) of this Section 5 not occurred, plus
value, as calculated by a recognized firm customarily performing such
valuation, of any stock option or related rights which as of the Date of
Termination have been granted to Executive, but are not exercisable by
Executive and the value of restricted stock awards or related rights which
have been granted to Executive, but which Executive does not have a non-
forfeitable or fully-vested interest as of the Date of Termination and all
benefits, including health insurance, in accordance with Section 3(c) that
would have been provided to Executive for the remaining term of this
Agreement had the event described in Subsection (b) of this Section 5 not
occurred; or 2) three (3) times Executive's Average Annual Compensation (as
defined herein) for the five (5) most recent taxable years that Executive
has been employed by the Bank or such lesser number of years in the event
that Executive shall have been employed by the Bank for less than five (5)
years. Such "Average Annual Compensation" shall include all taxable income
paid by the Bank or Holding Company, including but not limited to, Base
Salary, commissions, and bonuses, as well as contributions on Executive's
behalf to any pension and/or profit sharing plan, severance payments,
retirement payments, directors or committee fees and fringe benefits paid
or to be paid to the Executive in any such year and payment of any expense
items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Bank. At the
election of the Executive, which election is to be made prior to a Change
in Control, such payment shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis
in approximately equal installments during the remaining term of the
Agreement. Such payments shall not be reduced in the event Executive
obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to
Section 5(b), the Company will cause to be continued life, medical, dental
and disability coverage substantially equivalent to the coverage maintained
by the Institution for Executive at no premium cost to Executive prior to
his severance. Such coverage and payments shall cease upon the expiration
of twelve (12) months following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments
or benefits under the provisions of this Employment Agreement, the Holding
Company shall determine if an excess parachute payment (as defined in
Section 4999 of the Internal Revenue Code of 1986, as amended, and any
successor provision thereto, (the "Code")) exists. Such determination shall
be made after taking any reductions permitted pursuant to Section 280G of
the Code and the regulations thereunder. Any amount determined to be an
excess parachute payment after taking into account such reductions shall be
hereafter referred to as the "Initial Excess Parachute Payment". As soon as
practicable after a Change in Control, the Initial Excess Parachute Payment
shall be determined. Upon the Date of Termination following a Change in
Control, the Holding Company shall pay Executive, subject to applicable
withholding requirements under applicable state or federal law, an amount
equal to:
(1) twenty (20) percent of the Initial Excess Parachute
Payment (or such other amount equal to the tax imposed under Section
4999 of the Code); and
(2) such additional amount (tax allowance) as may be
necessary to compensate Executive for the payment by Executive of
state and federal income and excise taxes on the payment provided
under clause (1) and on any payments under this Clause (2). In
computing such tax allowance, the payment to be made under Clause (1)
shall be multiplied by the "gross up percentage" ("GUP"). The GUP
shall be determined as follows:
Tax Rate
GUP = -----------
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the
sum of the highest marginal federal and state income and
employment-related tax rates, including any applicable excise
tax rates, applicable to the Executive in the year in which the
payment under Clause (1) is made.
(3) Notwithstanding the foregoing, if it shall subsequently
be determined in a final judicial determination or a final
administrative settlement to which Executive is a party that the
excess parachute payment as defined in Section 4999 of the Code,
reduced as described above, is more than the Initial Excess Parachute
Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's
independent accountants shall determine the amount (the "Adjustment
Amount") the Holding Company must pay to the Executive in order to
put the Executive in the same position as the Executive would have
been if the Initial Excess Parachute Payment had been equal to the
Determinative Excess Parachute Payment. In determining the Adjustment
Amount, independent accountants of the Holding Company shall take
into account any and all taxes (including any penalties and interest)
paid by or for Executive or refunded to Executive or for Executive's
benefit. As soon as practicable after the Adjustment Amount has been
so determined, the Holding Company shall pay the Adjustment Amount to
Executive. In no event however, shall Executive make any payment
under this paragraph to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses), final cease and desist order or
material breach of any provision of this Agreement. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to her a Notice of
Termination which shall include a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for, 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. The
Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause. During the period
beginning on the date of the Notice of Termination for Cause pursuant to
Section 8 hereof through the Date of Termination, stock options and related
limited rights granted to Executive under any stock option plan shall not
be exercisable nor shall any unvested awards granted to Executive under any
stock benefit plan of the Institution, the Holding Company or any
subsidiary or affiliate thereof, vest. At the Date of Termination, such
stock options and related limited rights and any such unvested awards shall
become null and void and shall not be exercisable by or delivered to
Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the
Notice of Termination (which, in the case of a Termination for Cause, shall
not be less than thirty (30) days from the date such Notice of Termination
is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, except upon the
occurrence of a Change in Control and voluntary termination by the
Executive in which case the Date of Termination shall be the date specified
in the Notice, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, by a binding arbitration award, or by a final judgment, order or
decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected) and provided further
that the Date of Termination shall be extended by a notice of dispute only
if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive her full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue her as a participant in all compensation, benefit and
insurance plans in which she was participating when the notice of dispute
was given, until the dispute is finally resolved in accordance with this
Agreement. Amounts paid under this Section are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection
with any litigation in which it or any of its subsidiaries or affiliates
is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder
pursuant to Section 4 hereof, Executive agrees not to compete with the
Holding Company or its Subsidiaries for a period of one (1) year following
such termination in any city, town or county in which the Executive's
normal business office is located and the Holding Company or any of its
Subsidiaries has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of
such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said
cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business
activities of the Holding Company or its Subsidiaries. The parties hereto,
recognizing that irreparable injury will result to the Holding Company or
its Subsidiaries, its business and property in the event of Executive's
breach of this Subsection 10(a) agree that in the event of any such breach
by Executive, the Holding Company or its Subsidiaries, will be entitled, in
addition to any other remedies and damages available, to an injunction to
restrain the violation hereof by Executive, Executive's partners, agents,
servants, employees and all persons acting for or under the direction of
Executive. Executive represents and admits that in the event of the
termination of his employment pursuant to Section 7 hereof, Executive's
experience and capabilities are such that Executive can obtain employment
in a business engaged in other lines and/or of a different nature than the
Holding Company or its Subsidiaries, and that the enforcement of a remedy
by way of injunction will not prevent Executive from earning a livelihood.
Nothing herein will be construed as prohibiting the Holding Company or its
Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including
the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding
Company and its Subsidiaries as it may exist from time to time, is a
valuable, special and unique asset of the business of the Holding Company
and its Subsidiaries. Executive will not, during or after the term of his
employment, disclose any knowledge of the past, present, planned or
considered business activities of the Holding Company and its Subsidiaries
thereof to any person, firm, corporation, or other entity for any reason or
purpose whatsoever unless expressly authorized by the Board of Directors or
required by law. Notwithstanding the foregoing, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or
ideas which are not solely and exclusively derived from the business plans
and activities of the Holding Company. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining Executive
from disclosing, in whole or in part, the knowledge of the past, present,
planned or considered business activities of the Holding Company or its
Subsidiaries or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the Holding Company from pursuing any other
remedies available to the Holding Company for such breach or threatened
breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Holding Company subject to
Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the
extent that payments and benefits, as provided by this Agreement, are paid
to or received by Executive under the Employment Agreement dated December
22, 1998, between Executive and the Institution, such compensation payments
and benefits paid by the Institution will be subtracted from any amount due
simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Institution Agreement shall be
allocated in proportion to the level of activity and the time expended on
such activities by the Executive as determined by the Holding Company and
the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding
Company or any predecessor of the Holding Company and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy, or similar process or assignment by operation
of law, and any attempt, voluntary or involuntary, to affect any such
action shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive and the Holding Company and their respective successors and
assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
as to any act other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware
without regards to principles of conflicts of law of this state.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of the Institution, in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
In the event any dispute or controversy arising under or in
connection with Executive's termination is resolved in favor of the
Executive, whether by judgment, arbitration or settlement, Executive shall
be entitled to the payment of all back-pay, including salary, bonuses and
any other cash compensation, fringe benefits and any compensation and
benefits due Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall
be paid or reimbursed by the Holding Company, if Executive is successful
pursuant to a legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including her
heirs, executors and administrators) with coverage under a standard
directors' and officers' liability insurance policy at its expense and
shall indemnify Executive (and her heirs, executors and administrators) to
the fullest extent permitted under Delaware law against all expenses and
liabilities reasonably incurred by her in connection with or arising out of
any action, suit or proceeding in which she may be involved by reason of
her having been a director or officer of the Holding Company (whether or
not she continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but not
be limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are
subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k)
and 12 C.F.R. Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all
or substantially all the business or assets of the Institution or the
Holding Company, expressly and unconditionally to assume and agree to
perform the Holding Company's obligations under this Agreement, in the same
manner and to the same extent that the Holding Company would be required to
perform if no such succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, Massachusetts Fincorp, Inc. has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this
Agreement, on the 22nd day of December, 1998.
ATTEST: MASSACHUSETTS FINCORP, INC.
/s/ Kathleen M. Connelly By: /s/ Paul C. Green
- ------------------------------ ---------------------------
Kathleen M. Connelly Paul C. Green
For the Entire Board of
Directors
[SEAL]
WITNESS:
/s/ Kathleen M. Connelly By: /s/ Ruth J. Rogers
- ------------------------------ ---------------------------
Kathleen M. Connelly Ruth J. Rogers
Executive
Exhibit 10.3
Employment Agreement between Massachusetts Fincorp, Inc.
and Anthony A. Paciulli
MASSACHUSETTS FINCORP, INC.
ONE-YEAR
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of December 23,
1998, by and between Massachusetts Fincorp, Inc. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal
offices at 1442 Dorchester Avenue, Boston, Massachusetts, and Anthony A.
Paciulli ("Executive"). Any reference to "Institution" herein shall mean
Massachusetts Co-operative Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services
of Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the
Holding Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided,
the parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive
agrees to serve as Senior Vice President of the Holding Company. The
Executive shall render administrative and management services to the
Holding Company such as are customarily performed by persons in a
similar executive capacity. During said period, Executive also agrees to
serve, if elected, as an officer or director of any subsidiary of the
Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall
be deemed to have commenced as of the date first above written and shall
continue for a period of twelve (12) full calendar months thereafter.
Commencing on the date of the execution of this Agreement, the term of this
Agreement shall be extended for one day each day until such time as the
board of directors of the Holding Company (the "Board") or Executive elects
not to extend the term of the Agreement by giving written notice to the
other party in accordance with Section 8 of this Agreement, in which case
the term of this Agreement shall be fixed and shall end on the first
anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except
for periods of absence occasioned by illness, reasonable vacation periods,
and reasonable leaves of absence, Executive shall devote substantially all
his business time, attention, skill, and efforts to the faithful
performance of his duties hereunder, including activities and services
related to the organization, operation and management of the Holding
Company and its direct or indirect subsidiaries ("Subsidiaries") and
participation in community, professional and civic organizations; provided,
however, that, with the approval of the Board, as evidenced by a resolution
of such Board, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or
positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary,
Executive's employment with the Holding Company may be terminated by the
Holding Company or Executive during the term of this Agreement, subject to
the terms and conditions of this Agreement. However, Executive shall not
perform, in any respect, directly or indirectly, during the pendency of his
temporary or permanent suspension or termination from the Institution,
duties and responsibilities formerly performed at the Institution as part
of his duties and responsibilities as Senior Vice President of the Holding
Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Bank shall pay Executive as compensation a salary of
$99,300 per year ("Base Salary") payable in accordance with the normal
payroll practices of the Bank. Base Salary shall include any amounts of
compensation deferred by Executive under any tax-qualified retirement or
welfare benefit plan or any other deferred compensation arrangement
maintained by 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 the Board or by a Committee of the Board delegated
such responsibility by the Board. The Committee or the Board may increase
Executive's Base Salary. Any increase in Base Salary shall become the "Base
Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Holding Company shall also provide
Executive, at no premium cost to Executive, with all such other benefits as
provided uniformly to permanent full-time employees of the Holding Company
and its Subsidiaries.
(b) Discretionary Bonuses. The Executive shall be entitled to
participate in an equitable manner with all other executive officers of the
Holding Company in discretionary bonuses as authorized and declared by the
Holding Company Board to executive employees. No other compensation
provided for in this Agreement shall be deemed a substitute for the
Executive?s right to participate in such bonuses when and as declared by
the Holding Company Board.
(c) The Executive shall be entitled to participate in any 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 Holding Company will not, without Executive's prior written consent,
make any changes in such plans, arrangements or perquisites which would
materially adversely affect Executive's rights or benefits thereunder;
except to the extent such changes are made applicable to all Holding
Company employees on a non-discriminatory basis. Without limiting the
generality of the foregoing provisions of this Subsection (c), Executive
shall be entitled to participate in or receive benefits under all plans
relating to stock options, restricted stock awards, stock purchases,
pension, thrift, supplemental retirement, profit-sharing, employee stock
ownership, group life insurance, medical and other health and welfare
coverage, education, cash or stock bonuses that are now or hereafter made
available by the Holding Company 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. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein
defined) during the 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 Holding Company of Executive's full-
time employment hereunder for any reason other than termination governed by
Section 5(a) hereof, or for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Holding Company's employ, upon, any (A)
failure to elect or reelect or to appoint or reappoint Executive as Senior
Vice President, unless consented to by the Executive, (B) a material change
in Executive's function, duties, or responsibilities with the Holding
Company or its Subsidiaries, which change would cause Executive's position
to become one of lesser responsibility, importance, or scope from the
position and attributes thereof described in Section 1, above, unless
consented to by the Executive, (C) a relocation of Executive's principal
place of employment by more than 25 miles from its location at the
effective date of this Agreement, unless consented to by the Executive, (D)
a material reduction in the benefits and perquisites to the Executive from
those being provided as of the effective date of this Agreement, unless
consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A),
(B), (C), (D), (E) or (F), above, Executive shall have the right to elect
to terminate his employment under this Agreement by resignation upon not
less than sixty (60) days prior written notice given within six full
calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company 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, a sum
equal to the sum of: (i) the Base Salary and bonuses in accordance with
Sections 3(a) and 3(b); respectively, that would have been paid to
Executive for the remaining term of this Agreement had the Event of
Termination not occurred, plus the value as calculated by a recognized firm
customarily performing such valuation, of any stock options or related
rights which as of the Date of Termination have been granted to Executive
but are not exercisable by Executive and the value of any restricted stock
or related rights which have been granted to Executive; but in which
Executive does not have a non-forfeitable or fully-vested interest as of
the Date of Termination; and; and (ii) all benefits, including health
insurance in accordance with Section 3(c) that would have been provided to
Executive for the remaining term of the this Agreement had an Event of
Termination not occur At the election of the Executive, which election is
to be made upon an Event of Termination, such payments shall be made in a
lump sum. In the event that no election is made, payment to the Executive
will be made on a monthly basis in approximately equal installments during
the remaining term of the Agreement. Such payments shall not be reduced in
the event the Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, the Holding
Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Holding
Company or its Subsidiaries for Executive prior to his termination at no
premium cost to the Executive. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" shall
mean an event of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of
the Bank or the Holding Company within the meaning of the Change in Bank
Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. [Section Sign] 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. [Section Sign] 225.41(b) with respect to the
Holding Company, as in effect on the date hereof; or (iii) results in a
transaction requiring prior FRB approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB at 12 C.F.R.
{Section Sign] 225.11, as in effect on the date hereof except for the
Holding Company's acquisition of the Bank; or (iv) without limitation such
a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-
3 under the Exchange Act), directly or indirectly, of securities of the
Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities except for any securities of the
Bank purchased by the Holding Company in connection with the conversion of
the Bank to the stock form and any securities purchased by any tax
qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding
Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan or reorganization, merger
of consolidation of the Holding Company or Bank or similar transaction with
one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are exchanged
for or converted into cash or property or securities not issued by the Bank
or the Holding Company shall be distributed; or (E) a tender offer is made
for 20% or more of the voting securities of the Bank or the Holding
Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or
the Board has determined that a Change in Control has occurred, Executive
shall be entitled to the benefits provided in paragraphs (c) and (d), of
this Section 5 upon his subsequent termination of employment at any time
during the term of this Agreement due to (i) Executive's dismissal, or (ii)
Executive's voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, reduction in the annual
compensation or reduction in benefits or relocation of his principal place
of employment by more than 25 miles from its location immediately prior to
the change in control, unless such termination is because of his death or
termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to
Section 5(b), the Holding Company 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 greater of: (1) the Base Salary and bonuses in accordance with
Sections 3(a) and 3(b), respectively, that would have been paid to
Executive for the payments due for the remaining term of the Agreement had
the event described in Subsection (b) of this Section 5 not occurred, plus
value, as calculated by a recognized firm customarily performing such
valuation, of any stock option or related rights which as of the Date of
Termination have been granted to Executive, but are not exercisable by
Executive and the value of restricted stock awards or related rights which
have been granted to Executive, but which Executive does not have a non-
forfeitable or fully-vested interest as of the Date of Termination and all
benefits, including health insurance, in accordance with Section 3(d) that
would have been provided to Executive for the remaining term of this
Agreement had the event described in Subsection (b) of this Section 5 not
occurred; or 2) three (3) times Executive's Average Annual Compensation (as
defined herein) for the five (5) most recent taxable years that Executive
has been employed by the Bank or such lesser number of years in the event
that Executive shall have been employed by the Bank for less than five (5)
years. Such ?Average Annual Compensation? shall include all taxable income
paid by the Bank or Holding Company, including but not limited to, Base
Salary, commissions, and bonuses, as well as contributions on Executive's
behalf to any pension and/or profit sharing plan, severance payments,
retirement payments, directors or committee fees and fringe benefits paid
or to be paid to the Executive in any such year and payment of any expense
items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Bank. At the
election of the Executive, which election is to be made prior to a Change
in Control, such payment shall be made in a lump sum. In the event that no
election is made, payment to the Executive will be made on a monthly basis
in approximately equal installments during the remaining term of the
Agreement. Such payments shall not be reduced in the event Executive
obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to
Section 5(b), the Company will cause to be continued life, medical, dental
and disability coverage substantially equivalent to the coverage maintained
by the Institution for Executive at no premium cost to Executive prior to
his severance. Such coverage and payments shall cease upon the expiration
of twenty-four (24) months following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments
or benefits under the provisions of this Employment Agreement, the Holding
Company shall determine if an excess parachute payment (as defined in
Section 4999 of the Internal Revenue Code of 1986, as amended, and any
successor provision thereto, (the "Code")) exists. Such determination shall
be made after taking any reductions permitted pursuant to Section 280G of
the Code and the regulations thereunder. Any amount determined to be an
excess parachute payment after taking into account such reductions shall be
hereafter referred to as the "Initial Excess Parachute Payment". As soon as
practicable after a Change in Control, the Initial Excess Parachute Payment
shall be determined. Upon the Date of Termination following a Change in
Control, the Holding Company shall pay Executive, subject to applicable
withholding requirements under applicable state or federal law, an amount
equal to:
(1) twenty (20) percent of the Initial Excess Parachute
Payment (or such other amount equal to the tax imposed under Section
4999 of the Code); and
(2) such additional amount (tax allowance) as may be
necessary to compensate Executive for the payment by Executive of
state and federal income and excise taxes on the payment provided
under clause (1) and on any payments under this Clause (2). In
computing such tax allowance, the payment to be made under Clause (1)
shall be multiplied by the "gross up percentage" ("GUP"). The GUP
shall be determined as follows:
Tax Rate
GUP = -----------
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the
sum of the highest marginal federal and state income and
employment-related tax rates, including any applicable excise
tax rates, applicable to the Executive in the year in which the
payment under Clause (1) is made.
(3) Notwithstanding the foregoing, if it shall subsequently
be determined in a final judicial determination or a final
administrative settlement to which Executive is a party that the
excess parachute payment as defined in Section 4999 of the Code,
reduced as described above, is more than the Initial Excess Parachute
Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's
independent accountants shall determine the amount (the "Adjustment
Amount") the Holding Company must pay to the Executive in order to
put the Executive in the same position as the Executive would have
been if the Initial Excess Parachute Payment had been equal to the
Determinative Excess Parachute Payment. In determining the Adjustment
Amount, independent accountants of the Holding Company shall take
into account any and all taxes (including any penalties and interest)
paid by or for Executive or refunded to Executive or for Executive's
benefit. As soon as practicable after the Adjustment Amount has been
so determined, the Holding Company shall pay the Adjustment Amount to
Executive. In no event however, shall Executive make any payment
under this paragraph to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule, regulation (other than
traffic violations or similar offenses), final cease and desist order or
material breach of any provision of this Agreement. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a Notice of
Termination which shall include a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith
opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause. During the period
beginning on the date of the Notice of Termination for Cause pursuant to
Section 8 hereof through the Date of Termination, stock options and related
limited rights granted to Executive under any stock option plan shall not
be exercisable nor shall any unvested awards granted to Executive under any
stock benefit plan of the Institution, the Holding Company or any
subsidiary or affiliate thereof, vest. At the Date of Termination, such
stock options and related limited rights and any such unvested awards shall
become null and void and shall not be exercisable by or delivered to
Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by
Executive shall be communicated by Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the
Notice of Termination (which, in the case of a Termination for Cause, shall
not be less than thirty (30) days from the date such Notice of Termination
is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, except upon the
occurrence of a Change in Control and voluntary termination by the
Executive in which case the Date of Termination shall be the date specified
in the Notice, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, by a binding arbitration award, or by a final judgment, order or
decree of a court of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected) and provided further
that the Date of Termination shall be extended by a notice of dispute only
if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute
was given, until the dispute is finally resolved in accordance with this
Agreement. Amounts paid under this Section are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection
with any litigation in which it or any of its subsidiaries or affiliates
is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder
pursuant to Section 4 hereof, Executive agrees not to compete with the
Holding Company or its Subsidiaries for a period of one (1) year following
such termination in any city, town or county in which the Executive's
normal business office is located and the Holding Company or any of its
Subsidiaries has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of
such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said
cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business
activities of the Holding Company or its Subsidiaries. The parties hereto,
recognizing that irreparable injury will result to the Holding Company or
its Subsidiaries, its business and property in the event of Executive's
breach of this Subsection 10(a) agree that in the event of any such breach
by Executive, the Holding Company or its Subsidiaries, will be entitled, in
addition to any other remedies and damages available, to an injunction to
restrain the violation hereof by Executive, Executive's partners, agents,
servants, employees and all persons acting for or under the direction of
Executive. Executive represents and admits that in the event of the
termination of his employment pursuant to Section 7 hereof, Executive's
experience and capabilities are such that Executive can obtain employment
in a business engaged in other lines and/or of a different nature than the
Holding Company or its Subsidiaries, and that the enforcement of a remedy
by way of injunction will not prevent Executive from earning a livelihood.
Nothing herein will be construed as prohibiting the Holding Company or its
Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including
the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding
Company and its Subsidiaries as it may exist from time to time, is a
valuable, special and unique asset of the business of the Holding Company
and its Subsidiaries. Executive will not, during or after the term of his
employment, disclose any knowledge of the past, present, planned or
considered business activities of the Holding Company and its Subsidiaries
thereof to any person, firm, corporation, or other entity for any reason or
purpose whatsoever unless expressly authorized by the Board of Directors or
required by law. Notwithstanding the foregoing, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or
ideas which are not solely and exclusively derived from the business plans
and activities of the Holding Company. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining Executive
from disclosing, in whole or in part, the knowledge of the past, present,
planned or considered business activities of the Holding Company or its
Subsidiaries or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the Holding Company from pursuing any other
remedies available to the Holding Company for such breach or threatened
breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Holding Company subject to
Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the
extent that payments and benefits, as provided by this Agreement, are paid
to or received by Executive under the Employment Agreement dated December
23, 1998, between Executive and the Institution, such compensation payments
and benefits paid by the Institution will be subtracted from any amount due
simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Institution Agreement shall be
allocated in proportion to the level of activity and the time expended on
such activities by the Executive as determined by the Holding Company and
the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding
Company or any predecessor of the Holding Company and Executive, except
that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.
13. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy, or similar process or assignment by operation
of law, and any attempt, voluntary or involuntary, to affect any such
action shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive and the Holding Company and their respective successors and
assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
as to any act other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware
without regards to principles of conflicts of law of this state.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by the Executive
within fifty (50) miles from the location of the Institution, in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
In the event any dispute or controversy arising under or in
connection with Executive's termination is resolved in favor of the
Executive, whether by judgment, arbitration or settlement, Executive shall
be entitled to the payment of all back-pay, including salary, bonuses and
any other cash compensation, fringe benefits and any compensation and
benefits due Executive under this Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement shall
be paid or reimbursed by the Holding Company, if Executive is successful
pursuant to a legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his
heirs, executors and administrators) with coverage under a standard
directors' and officers' liability insurance policy at its expense and
shall indemnify Executive (and his heirs, executors and administrators) to
the fullest extent permitted under Delaware law against all expenses and
liabilities reasonably incurred by him in connection with or arising out of
any action, suit or proceeding in which he may be involved by reason of his
having been a director or officer of the Holding Company (whether or not he
continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but not
be limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are
subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k)
and 12 C.F.R. Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all
or substantially all the business or assets of the Institution or the
Holding Company, expressly and unconditionally to assume and agree to
perform the Holding Company's obligations under this Agreement, in the same
manner and to the same extent that the Holding Company would be required to
perform if no such succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, Massachusetts Fincorp, Inc. has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this
Agreement, on the 23rd day of December, 1998.
ATTEST: MASSACHUSETTS FINCORP, INC.
/s/ Kathleen M. Connelly By: /s/ Paul C. Green
- ------------------------------ ---------------------------
Kathleen M. Connelly Paul C. Green
For the Entire Board of
Directors
[SEAL]
WITNESS:
/s/ Kathleen M. Connelly By: /s/ Anthony A. Pariulli
- ------------------------------ ---------------------------
Kathleen M. Connelly Anthony A. Paciulli
Executive
Exhibit 10.4
Employment Agreement between The Massachusetts Co-operative Bank
and Paul C. Green
THE MASSACHUSETTS CO-OPERATIVE BANK
THREE-YEAR
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of December 22,
1998 by and among The Massachusetts Co-operative Bank (the "Bank"), a
Massachusetts-chartered stock co-operative bank, with its principal
administrative office at 1442 Dorchester Avenue, Boston, Massachusetts,
Massachusetts Fincorp, Inc., a corporation organized under the laws of the
State of Delaware, the holding company for the Bank (the "Holding
Company"), and Paul C. Green ("Executive").
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. Executive shall
render administrative and management services to the Bank such as are
customarily performed by persons situated in a similar executive capacity.
During said period, Executive also agrees to serve, if elected, as an
officer and director of the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall
be deemed to have commenced as of the date first above written and shall
continue for a period of thirty-six (36) full calendar months thereafter.
Commencing on the first anniversary date of this Agreement, and continuing
on each anniversary thereafter, the disinterested members of the board of
directors of the Bank ("Board") may extend the Agreement an additional year
such that the remaining term of the Agreement shall be three (3) years
unless the Executive elects not to extend the term of this Agreement by
giving written notice in accordance with Section 8 of this Agreement.
Executive shall abstain from any vote regarding an extension of the term of
this Agreement. The Board will review the Agreement and Executive's
performance annually for purposes of determining whether to extend the
Agreement and the rationale and results thereof shall be included in the
minutes of the Board's meeting. The Board shall give notice to the
Executive as soon as possible after such review as to whether the Agreement
is to be extended.
(b) During the period of Executive's 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 and
participation in community and civic organizations; provided, however,
that, with the approval of the Board, as evidenced by a resolution of such
Board, from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in,
companies or organizations, which, in 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.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
Executive shall receive compensation and reimbursement under this
Agreement, as follows:
(a) The Bank shall pay Executive as compensation a salary of
$120,750 per year ("Base Salary") payable in accordance with the normal
payroll practices of the Bank. Base Salary shall include any amounts of
compensation deferred by Executive under any tax-qualified retirement or
welfare benefit plan or any other deferred compensation arrangement
maintained by the Bank. During the period of this Agreement, Executive's
Base Salary shall be reviewed at least annually with the Bank Board making
its first review no later than one year from the date of this Agreement.
Such review shall be conducted by the Board or by a Committee of the Board,
delegated such responsibility by the Board. The Committee or the Board may
increase Executive's Base Salary at any time during this Agreement and the
resulting annual salary attributable to such increase shall become the
"Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), the Bank shall also provide
Executive, at no premium cost to Executive, with all such other benefits as
are provided uniformly to permanent full-time employees of the Bank.
(b) Discretionary Bonuses. The Executive shall be entitled to
participate in an equitable manner with all other executive officers of the
Bank in discretionary bonuses as authorized and declared by the Bank Board
to executive employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Executive's right to
participate in such bonuses when and as declared by the Bank Board.
(c) The Executive shall be entitled to participate in any 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 materially
adversely affect Executive's rights or benefits thereunder; except to the
extent such changes are made applicable to all Bank employees on a non-
discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (c), Executive shall be entitled to
participate in or receive benefits under all plans relating to stock
options, restricted stock awards, stock purchases, pension, thrift,
supplemental retirement, profit-sharing, employee stock ownership, group
life insurance, medical and other health and welfare coverage, education,
cash or stock bonuses that are now or hereafter 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. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu
of other compensation to which the Executive is entitled under this
Agreement.
(d) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
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 the 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 or the Holding Company of
Executive's full-time employment hereunder for any reason other than a
termination governed by Section 5(a) hereof, or Termination for Cause, as
defined in Section 7 hereof; (ii) Executive's resignation from the Bank's
employ upon any (A) failure to elect or reelect or to appoint or reappoint
Executive as President and Chief Executive Officer, unless consented to by
the Executive, (B) 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 Section 1, above, unless consented to by
Executive, (C) a relocation of Executive's principal place of employment by
more than 25 miles from its location at the effective date of this
Agreement, unless consented to by the Executive, (D) a material reduction
in the benefits and perquisites to the Executive from those being provided
as of the effective date of this Agreement, unless consented to by the
Executive, (E) a liquidation or dissolution of the Bank or Holding Company,
or (F) breach of this Agreement by the Bank. Upon the occurrence of any
event described in clauses (A), (B), (C), (D), (E) or (F), above, Executive
shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written
notice given within six full months after the event giving rise to said
right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, 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 a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Sections 3(a) and 3(b);
respectively, that would have been paid to Executive for the remaining term
of this Agreement had the Event of Termination not occurred, plus the value
as calculated by a recognized firm customarily performing such valuation,
of any stock options or related rights which as of the Date of Termination
have been granted to Executive but are not exercisable by Executive and the
value of any restricted stock or related rights which have been granted to
Executive; but in which Executive does not have a non-forfeitable or fully-
vested interest as of the Date of Termination; and; and (ii) all benefits,
including health insurance in accordance with Section 3(c) that would have
been provided to Executive for the remaining term of the this Agreement had
an Event of Termination not occur; provided, however, that any payments
pursuant to this subsection and subsection 4(c) below shall not, in the
aggregate, exceed three (3) times Executive's average annual compensation
for the five (5) most recent taxable years that Executive has been employed
by the Bank or such lesser number of years in the event that Executive
shall have been employed by the Bank for less than five (5) years. In the
event the Bank is not in compliance with its minimum capital requirements
or if such payments pursuant to this subsection (b) would cause the Bank's
capital to be reduced below its minimum regulatory capital requirements,
such payments shall be deferred until such time as the Bank or successor
thereto is in capital compliance. At the election of the Executive, which
election is to be made upon an Event of Termination, such payments shall be
made in a lump sum as of the Executive's Date of Termination. In the event
that no election is made, payment to Executive will be made on a monthly
basis in approximately equal installments during the remaining term of the
Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(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 or the
Holding Company for Executive prior to his termination at no premium cost
to the Executive, except to the extent such coverage may be changed in its
application to all Bank or Holding Company employees. Such coverage shall
cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" shall
mean an event of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of
the Bank or the Holding Company within the meaning of the Change in Bank
Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. [Section Sign] 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. [Section Sign] 225.41(b) with respect to the
Holding Company, as in effect on the date hereof; or (iii) results in a
transaction requiring prior FRB approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB at 12 C.F.R.
[Section Sign] 225.11, as in effect on the date hereof except for the
Holding Company's acquisition of the Bank; or (iv) without limitation such
a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-
3 under the Exchange Act), directly or indirectly, of securities of the
Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities except for any securities of the
Bank purchased by the Holding Company in connection with the conversion of
the Bank to the stock form and any securities purchased by any tax
qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding
Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan or reorganization, merger
of consolidation of the Holding Company or Bank or similar transaction with
one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are exchanged
for or converted into cash or property or securities not issued by the Bank
or the Holding Company shall be distributed; or (E) a tender offer is made
for 20% or more of the voting securities of the Bank or the Holding
Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or
the Board has determined that a Change in Control has occurred, Executive
shall be entitled to the benefits provided in paragraphs (c), and (d) of
this Section 5 upon his subsequent termination of employment at any time
during the term of this Agreement due to: (1) Executive's dismissal or (2)
Executive's voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, material reduction in
annual compensation or benefits or relocation of his principal place of
employment by more than 25 miles from its location immediately prior to the
Change in Control, unless such termination is because of his death,
disability, retirement or termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section
5(b), 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,
a sum equal to the greater of: (1) the Base Salary and bonuses in
accordance with Sections 3(a) and 3(b), respectively, that would have been
paid to Executive for the payments due for the remaining term of the
Agreement had the event described in Subsection (b) of this Section 5 not
occurred, plus value, as calculated by a recognized firm customarily
performing such valuation, of any stock option or related rights which as
of the Date of Termination have been granted to Executive, but are not
exercisable by Executive and the value of restricted stock awards or
related rights which have been granted to Executive, but which Executive
does not have a non-forfeitable or fully-vested interest as of the Date of
Termination and all benefits, including health insurance, in accordance
with Section 3(d) that would have been provided to Executive for the
remaining term of this Agreement had the event described in Subsection (b)
of this Section 5 not occurred; or 2) three (3) times Executive's Average
Annual Compensation (as defined herein) for the five (5) most recent
taxable years that Executive has been employed by the Bank or such lesser
number of years in the event that Executive shall have been employed by the
Bank for less than five (5) years. Such "Average Annual Compensation" shall
include all taxable income paid by the Bank or Holding Company, including
but not limited to, Base Salary, commissions, and bonuses, as well as
contributions on Executive's behalf to any pension and/or profit sharing
plan, severance payments, retirement payments, directors or committee fees
and fringe benefits paid or to be paid to the Executive in any such year
and payment of any expense items without accountability or business purpose
or that do not meet the Internal Revenue Service requirements for
deductibility by the Bank; provided, however, that any payment under this
provision and subsection 5(d) below shall not exceed three (3) times the
Executive's average annual compensation over a five (5) year period. In the
event 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 regulatory capital requirements, such payments shall be deferred
until such time as the Bank or successor thereto is in capital compliance.
At the election of the Executive, which election is to be made prior to a
Change in Control, such payment shall be made in a lump sum as of the
Executive's Date of Termination. In the event that no election is made,
payment to the Executive will be made in approximately equal installments
on a monthly basis over a period of thirty-six (36) months following the
Executive's termination. Such payments shall not be reduced in the event
Executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to
Section 5(b), 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 at no premium cost to the
Executive, except to the extent that such coverage may be changed in its
application for all Bank employees on a non-discriminatory basis. Such
coverage and payments shall cease upon the expiration of thirty-six (36)
months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under
said paragraphs (the "Termination Benefits") constitute an "excess
parachute payment" under Section 280G of the Internal Revenue Code of 1986,
as amended, or any successor thereto, and in order to avoid such a result,
Termination Benefits will be reduced, if necessary, to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to three (3) times Executive's "base amount", as determined in
accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by Section 5 shall be
determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive'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 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 Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than a majority 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 the Date of Termination for Cause. During the
period beginning on the date of the Notice of Termination for Cause
pursuant to Section 8 hereof through the Date of Termination for Cause,
stock options and related limited rights granted to Executive under any
stock option plan shall not be exercisable nor shall any unvested awards
granted to Executive under any stock benefit plan of the Bank, the Holding
Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination for Cause, such stock options and related limited rights and
any unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
8. 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 the date specified in the
Notice of Termination (which, in the case of a Termination for Cause, shall
not be less than thirty days from the date such Notice of Termination is
given.).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal
having been perfected) and, provided further, that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in
good faith and the party giving such notice pursues the resolution of such
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, in the event the Executive is terminated for reasons other than
Termination for Cause, the Bank will continue to pay Executive his Base
Salary in effect when the notice giving rise to the dispute was given until
the earlier of: 1) the resolution of the dispute in accordance with this
Agreement or 2) the expiration of the remaining term of this Agreement as
determined as of the Date of Termination. Amounts paid under this Section
are in addition to all other amounts due under this Agreement and shall not
be offset against or reduce any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable
notice, furnish such information and assistance to the Bank as may
reasonably be required by the Bank in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a
party.
10. NON-COMPETITION AND NON-DISCLOSURE OF BANK BUSINESS.
(a) Upon any termination of Executive's employment hereunder
pursuant to Section 4 hereof, Executive agrees not to compete with the Bank
for a period of one (1) year following such termination in any city, town
or county in which the Executive's normal business office is located and
the Bank has an office or has filed an application for regulatory approval
to establish an office, determined as of the effective date of such
termination, except as agreed to pursuant to a resolution duly adopted by
the Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or
otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business
activities of the Bank. The parties hereto, recognizing that irreparable
injury will result to the Bank, its business and property in the event of
Executive's breach of this Subsection 10(a) agree that in the event of any
such breach by Executive, the Bank, will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants,
employees and all persons acting for or under the direction of Executive.
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.
(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. Further, Executive may
disclose information regarding the business activities of the Bank to the
Massachusetts Commissioner of Banks and the Federal Deposit Insurance
Corporation ("FDIC") pursuant to a formal regulatory request. 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.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Bank. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts
and benefits due hereunder to Executive and, if such amounts and benefits
due from the Bank are not timely paid or provided by the Bank, such amounts
and benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the
extent that payments and benefits, as provided by this Agreement, are paid
to or received by Executive under the Employment Agreement dated December
22, 1998, between Executive and the Holding Company, such compensation
payments and benefits paid by the Holding Company will be subtracted from
any amounts due simultaneously to Executive under similar provisions of
this Agreement. Payments pursuant to this Agreement and the Holding Company
Agreement shall be allocated in proportion to the services rendered and
time expended on such activities by Executive as determined by the Holding
Company and the Bank on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the 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.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy, or similar process or assignment by operation
of law, and any attempt, voluntary or involuntary, to affect any such
action shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
as to any act other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
17. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of
Massachusetts applicable to contracts entered into and to be performed
entirely within the Commonwealth of Massachusetts.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by Executive
within fifty (50) miles from the location of the 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.
In the event any dispute or controversy arising under or in
connection with Executive's termination is resolved in favor of Executive,
whether by judgment, arbitration or settlement, Executive shall be entitled
to the payment of all back-pay, including salary, bonuses and any other
cash compensation, fringe benefits and any compensation and benefits due
Executive under this Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and 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.
20. INDEMNIFICATION.
(a) 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 and shall indemnify
Executive (and his heirs, executors and administrators) as permitted under
federal 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 director or officer at the
time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are
subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k),
12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules or
regulations promulgated thereunder.
21. SUCCESSOR TO THE BANK.
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 or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Bank's obligations under this Agreement, 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.
SIGNATURES
IN WITNESS WHEREOF, The Massachusetts Co-operative Bank and
Massachusetts Fincorp, Inc. have caused this Agreement to be executed and
their seals to be affixed hereunto by their duly authorized officers and
directors, and Executive has signed this Agreement, on the 22nd day of
December, 1998.
ATTEST: THE MASSACHUSETTS CO-OPERATIVE BANK
/s/ Kathleen M. Connelly By: /s/ W. Craig Dolan
- ------------------------------ ---------------------------
Kathleen M. Connelly W. Craig Dolan
For the Entire Board of
Directors
[SEAL]
ATTEST: MASSACHUSETTS FINCORP, INC.
(Guarantor)
/s/ Kathleen M. Connelly By: /s/ W. Craig Dolan
- ------------------------------ ---------------------------
Kathleen M. Connelly W. Craig Dolan
For the Entire Board of
Directors
[SEAL]
WITNESS:
/s/ Kathleen M. Connelly /s/ Paul C. Green
- ------------------------------ --------------------------------
Kathleen M. Connelly Paul C. Green
Executive
Exhibit 10.5
Employment Agreement between The Massachusetts Co-operative Bank.
and Ruth J. Rogers
THE MASSACHUSETTS CO-OPERATIVE BANK ONE-YEAR
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of December 22,
1998 by and among The Massachusetts Co-operative Bank (the "Bank"), a
Massachusetts-chartered stock co-operative bank, with its principal
administrative office at 1442 Dorchester Avenue, Boston, Massachusetts,
Massachusetts Fincorp, Inc., a corporation organized under the laws of the
State of Delaware, the holding company for the Bank (the "Holding
Company"), and Ruth J. Rogers ("Executive").
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 her employment hereunder, Executive agrees to
serve as Chief Financial Officer and Treasurer of the Bank. Executive shall
render administrative and management services to the Bank such as are
customarily performed by persons situated in a similar executive capacity.
During said period, Executive also agrees to serve, if elected, as an
officer and director of the Holding Company or any subsidiary of the Bank.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall
be deemed to have commenced as of the date first above written and shall
continue for a period of twelve (12) full calendar months thereafter.
Commencing on the first anniversary date of this Agreement, and continuing
on each anniversary thereafter, the disinterested members of the board of
directors of the Bank ("Board") may extend the Agreement an additional year
such that the remaining term of the Agreement shall be one (1) year unless
the Executive elects not to extend the term of this Agreement by giving
written notice in accordance with Section 8 of this Agreement. Executive
shall abstain from any vote regarding an extension of the term of this
Agreement. The Board will review the Agreement and Executive's performance
annually for purposes of determining whether to extend the Agreement and
the rationale and results thereof shall be included in the minutes of the
Board's meeting. The Board shall give notice to the Executive as soon as
possible after such review as to whether the Agreement is to be extended.
(b) During the period of Executive's 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 and
participation in community and civic organizations; provided, however,
that, with the approval of the Board, as evidenced by a resolution of such
Board, from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in,
companies or organizations, which, in 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.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive
during the term of this Agreement, subject to the terms and conditions of
this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
Executive shall receive compensation and reimbursement under this
Agreement, as follows:
(a) The Bank shall pay Executive as compensation a salary of
$69,000 per year ("Base Salary") payable in accordance with the normal
payroll practices of the Bank. Base Salary shall include any amounts of
compensation deferred by Executive under any tax-qualified retirement or
welfare benefit plan or any other deferred compensation arrangement
maintained by the Bank. During the period of this Agreement, Executive's
Base Salary shall be reviewed at least annually with the Bank Board making
its first review no later than one year from the date of this Agreement.
Such review shall be conducted by the Board or by a Committee of the Board,
delegated such responsibility by the Board. The Committee or the Board may
increase Executive's Base Salary at any time during this Agreement and the
resulting annual salary attributable to such increase shall become the
"Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), the Bank shall also provide
Executive, at no premium cost to Executive, with all such other benefits as
are provided uniformly to permanent full-time employees of the Bank.
(b) Discretionary Bonuses. The Executive shall be entitled to
participate in an equitable manner with all other executive officers of the
Bank in discretionary bonuses as authorized and declared by the Bank Board
to executive employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Executive's right to
participate in such bonuses when and as declared by the Bank Board.
(c) The Executive shall be entitled to participate in any 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 materially
adversely affect Executive's rights or benefits thereunder; except to the
extent such changes are made applicable to all Bank employees on a non-
discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (c), Executive shall be entitled to
participate in or receive benefits under all plans relating to stock
options, restricted stock awards, stock purchases, pension, thrift,
supplemental retirement, profit-sharing, employee stock ownership, group
life insurance, medical and other health and welfare coverage, education,
cash or stock bonuses that are now or hereafter 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. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu
of other compensation to which the Executive is entitled under this
Agreement.
(d) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing her
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 the 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 or the Holding Company of
Executive's full-time employment hereunder for any reason other than a
termination governed by Section 5(a) hereof, or Termination for Cause, as
defined in Section 7 hereof; (ii) Executive's resignation from the Bank's
employ upon any (A) failure to elect or reelect or to appoint or reappoint
Executive as Chief Financial Officer and Treasurer, unless consented to by
the Executive, (B) 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 Section 1, above, unless consented to by
Executive, (C) a relocation of Executive's principal place of employment by
more than 25 miles from its location at the effective date of this
Agreement, unless consented to by the Executive, (D) a material reduction
in the benefits and perquisites to the Executive from those being provided
as of the effective date of this Agreement, unless consented to by the
Executive, (E) a liquidation or dissolution of the Bank or Holding Company,
or (F) breach of this Agreement by the Bank. Upon the occurrence of any
event described in clauses (A), (B), (C), (D), (E) or (F), above, Executive
shall have the right to elect to terminate her employment under this
Agreement by resignation upon not less than sixty (60) days prior written
notice given within six (6) full months after the event giving rise to said
right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, 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 a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Sections 3(a) and 3(b);
respectively, that would have been paid to Executive for the remaining term
of this Agreement had the Event of Termination not occurred, plus the value
as calculated by a recognized firm customarily performing such valuation,
of any stock options or related rights which as of the Date of Termination
have been granted to Executive but are not exercisable by Executive and the
value of any restricted stock or related rights which have been granted to
Executive; but in which Executive does not have a non-forfeitable or fully-
vested interest as of the Date of Termination; and; and (ii) all benefits,
including health insurance in accordance with Section 3(c) that would have
been provided to Executive for the remaining term of the this Agreement had
an Event of Termination not occur; provided, however, that any payments
pursuant to this subsection and subsection 4(c) below shall not, in the
aggregate, exceed three (3) times Executive's average annual compensation
for the five (5) most recent taxable years that Executive has been employed
by the Bank or such lesser number of years in the event that Executive
shall have been employed by the Bank for less than five (5) years. In the
event the Bank is not in compliance with its minimum capital requirements
or if such payments pursuant to this subsection (b) would cause the Bank's
capital to be reduced below its minimum regulatory capital requirements,
such payments shall be deferred until such time as the Bank or successor
thereto is in capital compliance. At the election of the Executive, which
election is to be made upon an Event of Termination, such payments shall be
made in a lump sum as of the Executive's Date of Termination. In the event
that no election is made, payment to Executive will be made on a monthly
basis in approximately equal installments during the remaining term of the
Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(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 or the
Holding Company for Executive prior to her termination at no premium cost
to the Executive, except to the extent such coverage may be changed in its
application to all Bank or Holding Company employees. Such coverage shall
cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" shall
mean an event of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of
the Bank or the Holding Company within the meaning of the Change in Bank
Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. [Section Sign] 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. [Section Sign] 225.41(b) with respect to the
Holding Company, as in effect on the date hereof; or (iii) results in a
transaction requiring prior FRB approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB at 12 C.F.R.
[Section Sign] 225.11, as in effect on the date hereof except for the
Holding Company's acquisition of the Bank; or (iv) without limitation such
a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-
3 under the Exchange Act), directly or indirectly, of securities of the
Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities except for any securities of the
Bank purchased by the Holding Company in connection with the conversion of
the Bank to the stock form and any securities purchased by any tax
qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding
Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan or reorganization, merger
of consolidation of the Holding Company or Bank or similar transaction with
one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are exchanged
for or converted into cash or property or securities not issued by the Bank
or the Holding Company shall be distributed; or (E) a tender offer is made
for 20% or more of the voting securities of the Bank or the Holding
Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or
the Board has determined that a Change in Control has occurred, Executive
shall be entitled to the benefits provided in paragraphs (c), and (d) of
this Section 5 upon her subsequent termination of employment at any time
during the term of this Agreement due to: (1) Executive's dismissal or (2)
Executive's voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, material reduction in
annual compensation or benefits or relocation of her 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 her death,
disability, retirement or termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section
5(b), the Bank shall pay Executive, or in the event of her subsequent
death, her beneficiary or beneficiaries, or her estate, as the case may be,
a sum equal to the greater of: (1) the Base Salary and bonuses in
accordance with Sections 3(a) and 3(b), respectively, that would have been
paid to Executive for the payments due for the remaining term of the
Agreement had the event described in Subsection (b) of this Section 5 not
occurred, plus value, as calculated by a recognized firm customarily
performing such valuation, of any stock option or related rights which as
of the Date of Termination have been granted to Executive, but are not
exercisable by Executive and the value of restricted stock awards or
related rights which have been granted to Executive, but which Executive
does not have a non-forfeitable or fully-vested interest as of the Date of
Termination and all benefits, including health insurance, in accordance
with Section 3(c) that would have been provided to Executive for the
remaining term of this Agreement had the event described in Subsection (b)
of this Section 5 not occurred; or 2) three (3) times Executive's Average
Annual Compensation (as defined herein) for the five (5) most recent
taxable years that Executive has been employed by the Bank or such lesser
number of years in the event that Executive shall have been employed by the
Bank for less than five (5) years. Such "Average Annual Compensation" shall
include all taxable income paid by the Bank or Holding Company, including
but not limited to, Base Salary, commissions, and bonuses, as well as
contributions on Executive's behalf to any pension and/or profit sharing
plan, severance payments, retirement payments, directors or committee fees
and fringe benefits paid or to be paid to the Executive in any such year
and payment of any expense items without accountability or business purpose
or that do not meet the Internal Revenue Service requirements for
deductibility by the Bank; provided, however, that any payment under this
provision and subsection 5(d) below shall not exceed three (3) times the
Executive's average annual compensation over a five (5) year period. In the
event 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 regulatory capital requirements, such payments shall be deferred
until such time as the Bank or successor thereto is in capital compliance.
At the election of the Executive, which election is to be made prior to a
Change in Control, such payment shall be made in a lump sum as of the
Executive's Date of Termination. In the event that no election is made,
payment to the Executive will be made in approximately equal installments
on a monthly basis over a period of twelve (12) months following the
Executive's termination. Such payments shall not be reduced in the event
Executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to
Section 5(b), 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 her severance at no premium cost to the
Executive, except to the extent that such coverage may be changed in its
application for all Bank employees on a non-discriminatory basis. Such
coverage and payments shall cease upon the expiration of twelve (12) months
following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under
said paragraphs (the "Termination Benefits") constitute an "excess
parachute payment" under Section 280G of the Internal Revenue Code of 1986,
as amended, or any successor thereto, and in order to avoid such a result,
Termination Benefits will be reduced, if necessary, to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to three (3) times Executive's "base amount", as determined in
accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by Section 5 shall be
determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive'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 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
her a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than a majority 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 the Date of Termination for Cause. During the
period beginning on the date of the Notice of Termination for Cause
pursuant to Section 8 hereof through the Date of Termination for Cause,
stock options and related limited rights granted to Executive under any
stock option plan shall not be exercisable nor shall any unvested awards
granted to Executive under any stock benefit plan of the Bank, the Holding
Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination for Cause, such stock options and related limited rights and
any unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
8. 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 the date specified in the
Notice of Termination (which, in the case of a Termination for Cause, shall
not be less than thirty days from the date such Notice of Termination is
given.).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal
having been perfected) and, provided further, that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in
good faith and the party giving such notice pursues the resolution of such
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, in the event the Executive is terminated for reasons other than
Termination for Cause, the Bank will continue to pay Executive his Base
Salary in effect when the notice giving rise to the dispute was given until
the earlier of: 1) the resolution of the dispute in accordance with this
Agreement or 2) the expiration of the remaining term of this Agreement as
determined as of the Date of Termination. Amounts paid under this Section
are in addition to all other amounts due under this Agreement and shall not
be offset against or reduce any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable
notice, furnish such information and assistance to the Bank as may
reasonably be required by the Bank in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a
party.
10. NON-COMPETITION AND NON-DISCLOSURE OF BANK BUSINESS.
(a) Upon any termination of Executive's employment hereunder
pursuant to Section 4 hereof, Executive agrees not to compete with the Bank
for a period of one (1) year following such termination in any city, town
or county in which the Executive's normal business office is located and
the Bank has an office or has filed an application for regulatory approval
to establish an office, determined as of the effective date of such
termination, except as agreed to pursuant to a resolution duly adopted by
the Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or
otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business
activities of the Bank. The parties hereto, recognizing that irreparable
injury will result to the Bank, its business and property in the event of
Executive's breach of this Subsection 10(a) agree that in the event of any
such breach by Executive, the Bank, will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants,
employees and all persons acting for or under the direction of Executive.
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.
(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. Further, Executive may
disclose information regarding the business activities of the Bank to the
Massachusetts Commissioner of Banks and the Federal Deposit Insurance
Corporation ("FDIC") pursuant to a formal regulatory request. 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.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Bank. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts
and benefits due hereunder to Executive and, if such amounts and benefits
due from the Bank are not timely paid or provided by the Bank, such amounts
and benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the
extent that payments and benefits, as provided by this Agreement, are paid
to or received by Executive under the Employment Agreement dated December
22, 1998, between Executive and the Holding Company, such compensation
payments and benefits paid by the Holding Company will be subtracted from
any amounts due simultaneously to Executive under similar provisions of
this Agreement. Payments pursuant to this Agreement and the Holding Company
Agreement shall be allocated in proportion to the services rendered and
time expended on such activities by Executive as determined by the Holding
Company and the Bank on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the 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.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy, or similar process or assignment by operation
of law, and any attempt, voluntary or involuntary, to affect any such
action shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
as to any act other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
17. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of
Massachusetts applicable to contracts entered into and to be performed
entirely within the Commonwealth of Massachusetts.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by Executive
within fifty (50) miles from the location of the 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 her right to be paid until the Date of Termination during
the pendency of any dispute or controversy arising under or in connection
with this Agreement.
In the event any dispute or controversy arising under or in
connection with Executive's termination is resolved in favor of Executive,
whether by judgment, arbitration or settlement, Executive shall be entitled
to the payment of all back-pay, including salary, bonuses and any other
cash compensation, fringe benefits and any compensation and benefits due
Executive under this Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and 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.
20. INDEMNIFICATION.
(a) The Bank shall provide Executive (including her heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and her heirs, executors and administrators) as permitted under
federal law against all expenses and liabilities reasonably incurred by her
in connection with or arising out of any action, suit or proceeding in
which she may be involved by reason of her having been a director or
officer of the Bank (whether or not she continues to be a director or
officer at the time of incurring such expenses or liabilities), such
expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are
subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k),
12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules or
regulations promulgated thereunder.
21. SUCCESSOR TO THE BANK.
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 or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Bank's obligations under this Agreement, 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.
SIGNATURES
IN WITNESS WHEREOF, The Massachusetts Co-operative Bank and
Massachusetts Fincorp, Inc. have caused this Agreement to be executed and
their seals to be affixed hereunto by their duly authorized officers and
directors, and Executive has signed this Agreement, on the 22nd day of
December, 1998.
ATTEST: THE MASSACHUSETTS CO-OPERATIVE BANK
/s/ Kathleen M. Connelly By: /s/ Paul C. Green
- ------------------------------ ---------------------------
Kathleen M. Connelly Paul C. Green
For the Entire Board of
Directors
[SEAL]
ATTEST: MASSACHUSETTS FINCORP, INC.
(Guarantor)
/s/ Kathleen M. Connelly By: /s/ Paul C. Green
- ------------------------------ ---------------------------
Kathleen M. Connelly Paul C. Green
For the Entire Board of
Directors
[SEAL]
WITNESS:
/s/ Kathleen M. Connelly /s/ Ruth J. Rogers
- ------------------------------ --------------------------------
Kathleen M. Connelly Ruth J. Rogers
Executive
Exhibit 10.6
Employment Agreement between The Massachusetts Co-operative Bank
and Anthony A. Paciulli
THE MASSACHUSETTS CO-OPERATIVE BANK ONE-YEAR
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of December 23rd,
1998, by and among The Massachusetts Co-operative Bank (the "Bank"), a
Massachusetts-chartered stock co-operative bank, with its principal
administrative office at 1442 Dorchester Avenue, Boston, Massachusetts,
Massachusetts Fincorp, Inc., a corporation organized under the laws of the
State of Delaware, the holding company for the Bank (the "Holding
Company"), and Anthony A. Paciulli ("Executive").
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 Senior Vice President and Senior Lending Officer of the Bank.
During said period, Executive also agrees to serve, if elected, as an
officer and director of the Holding Company or any subsidiary of the Bank.
For the purposes of this Agreement, the position of Senior Vice President
and Senior Lending Officer shall mean Executive is responsible for managing
the safe, profitable and prudent origination of the Bank's real estate
loans with individual balances of $3 million or less.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall
be deemed to have commenced as of the date first above written and shall
continue for a period of twelve (12) full calendar months thereafter.
Commencing on the first anniversary date of this Agreement, and continuing
on each anniversary thereafter, the disinterested members of the board of
directors of the Bank ("Board") may extend the Agreement an additional year
such that the remaining term of the Agreement shall be one (1) year unless
the Executive elects not to extend the term of this Agreement by giving
written notice in accordance with Section 8 of this Agreement. Executive
shall abstain from any vote regarding an extension of the term of this
Agreement. The Board will review the Agreement and Executive's performance
annually for purposes of determining whether to extend the Agreement and
the rationale and results thereof shall be included in the minutes of the
Board's meeting. The Board shall give notice to the Executive as soon as
possible after such review as to whether the Agreement is to be extended.
(b) During the period of Executive's 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 and
participation in community and civic organizations; provided, however,
that, with the approval of the Board, as evidenced by a resolution of such
Board, from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in,
companies or organizations, which, in 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.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive
during the term of this Agreement, subject to the terms and conditions of
this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
Executive shall receive compensation and reimbursement under this
Agreement, as follows:
(a) The Bank shall pay Executive as compensation a salary of
$99,300 per year ("Base Salary") payable in accordance with the normal
payroll practices of the Bank. Base Salary shall include any amounts of
compensation deferred by Executive under any tax-qualified retirement or
welfare benefit plan or any other deferred compensation arrangement
maintained by the Bank. During the period of this Agreement, Executive's
Base Salary shall be reviewed at least annually with the Bank Board making
its first review no later than one year from the date of this Agreement.
Such review shall be conducted by the Board or by a Committee of the Board,
delegated such responsibility by the Board. The Committee or the Board may
increase Executive's Base Salary at any time during this Agreement and the
resulting annual salary attributable to such increase shall become the
"Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), the Bank shall also provide
Executive, at no premium cost to Executive, with all such other benefits as
are provided uniformly to permanent full-time employees of the Bank.
(b) Discretionary Bonuses. The Executive shall be entitled to
participate in an equitable manner with all other executive officers of the
Bank in discretionary bonuses as authorized and declared by the Bank Board
to executive employees. No other compensation provided for in this
Agreement shall be deemed a substitute for the Executive's right to
participate in such bonuses when and as declared by the Bank Board.
(c) The Executive shall be entitled to participate in any 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 materially
adversely affect Executive's rights or benefits thereunder; except to the
extent such changes are made applicable to all Bank employees on a non-
discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (c), Executive shall be entitled to
participate in or receive benefits under all plans relating to stock
options, restricted stock awards, stock purchases, pension, thrift,
supplemental retirement, profit-sharing, employee stock ownership, group
life insurance, medical and other health and welfare coverage, education,
cash or stock bonuses that are now or hereafter 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. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu
of other compensation to which the Executive is entitled under this
Agreement.
(d) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
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 the 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 or the Holding Company of
Executive's full-time employment hereunder for any reason other than a
termination governed by Section 5(a) hereof, or Termination for Cause, as
defined in Section 7 hereof; (ii) Executive's resignation from the Bank's
employ upon any (A) failure to elect or reelect or to appoint or reappoint
Executive as Senior Vice President, unless consented to by the Executive,
(B) a material change in Executive's function, duties, or responsibilities
as solely described in Section 1 of this Agreement, which change would
cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by Executive, (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by
the Executive, (D) a material reduction in the benefits and perquisites to
the Executive from those being provided as of the effective date of this
Agreement, unless consented to by the Executive, (E) a liquidation or
dissolution of the Bank or Holding Company, or (F) breach of this Agreement
by the Bank. Upon the occurrence of any event described in clauses (A),
(B), (C), (D), (E) or (F), above, Executive shall have the right to elect
to terminate his employment under this Agreement by resignation upon not
less than sixty (60) days prior written notice given within six (6) full
months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, 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 a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Sections 3(a) and 3(b);
respectively, that would have been paid to Executive for the remaining term
of this Agreement had the Event of Termination not occurred, plus the value
as calculated by a recognized firm customarily performing such valuation,
of any stock options or related rights which as of the Date of Termination
have been granted to Executive but are not exercisable by Executive and the
value of any restricted stock or related rights which have been granted to
Executive; but in which Executive does not have a non-forfeitable or fully-
vested interest as of the Date of Termination; and; and (ii) all benefits,
including health insurance in accordance with Section 3(c) that would have
been provided to Executive for the remaining term of the this Agreement had
an Event of Termination not occur; provided, however, that any payments
pursuant to this subsection and subsection 4(c) below shall not, in the
aggregate, exceed three (3) times Executive's average annual compensation
for the five (5) most recent taxable years that Executive has been employed
by the Bank or such lesser number of years in the event that Executive
shall have been employed by the Bank for less than five (5) years. In the
event the Bank is not in compliance with its minimum capital requirements
or if such payments pursuant to this subsection (b) would cause the Bank's
capital to be reduced below its minimum regulatory capital requirements,
such payments shall be deferred until such time as the Bank or successor
thereto is in capital compliance. At the election of the Executive, which
election is to be made upon an Event of Termination, such payments shall be
made in a lump sum as of the Executive's Date of Termination. In the event
that no election is made, payment to Executive will be made on a monthly
basis in approximately equal installments during the remaining term of the
Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(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 or the
Holding Company for Executive prior to his termination at no premium cost
to the Executive, except to the extent such coverage may be changed in its
application to all Bank or Holding Company employees. Such coverage shall
cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" shall
mean an event of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of
the Bank or the Holding Company within the meaning of the Change in Bank
Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. [Section Sign] 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. [Section Sign] 225.41(b) with respect to the
Holding Company, as in effect on the date hereof; or (iii) results in a
transaction requiring prior FRB approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB at 12 C.F.R.
[Section Sign] 225.11, as in effect on the date hereof except for the
Holding Company's acquisition of the Bank; or (iv) without limitation such
a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-
3 under the Exchange Act), directly or indirectly, of securities of the
Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities except for any securities of the
Bank purchased by the Holding Company in connection with the conversion of
the Bank to the stock form and any securities purchased by any tax
qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding
Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan or reorganization, merger
of consolidation of the Holding Company or Bank or similar transaction with
one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are exchanged
for or converted into cash or property or securities not issued by the Bank
or the Holding Company shall be distributed; or (E) a tender offer is made
for 20% or more of the voting securities of the Bank or the Holding
Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or
the Board has determined that a Change in Control has occurred, Executive
shall be entitled to the benefits provided in paragraphs (c), and (d) of
this Section 5 upon his subsequent termination of employment at any time
during the term of this Agreement due to: (1) Executive's dismissal or (2)
Executive's voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, material reduction in
annual compensation or benefits or relocation of his principal place of
employment by more than 25 miles from its location immediately prior to the
Change in Control, unless such termination is because of his death,
disability, retirement or termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section
5(b), 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,
a sum equal to the greater of: (1) the Base Salary and bonuses in
accordance with Sections 3(a) and 3(b), respectively, that would have been
paid to Executive for the payments due for the remaining term of the
Agreement had the event described in Subsection (b) of this Section 5 not
occurred, plus value, as calculated by a recognized firm customarily
performing such valuation, of any stock option or related rights which as
of the Date of Termination have been granted to Executive, but are not
exercisable by Executive and the value of restricted stock awards or
related rights which have been granted to Executive, but which Executive
does not have a non-forfeitable or fully-vested interest as of the Date of
Termination and all benefits, including health insurance, in accordance
with Section 3(d) that would have been provided to Executive for the
remaining term of this Agreement had the event described in Subsection (b)
of this Section 5 not occurred; or 2) three (3) times Executive's Average
Annual Compensation (as defined herein) for the five (5) most recent
taxable years that Executive has been employed by the Bank or such lesser
number of years in the event that Executive shall have been employed by the
Bank for less than five (5) years. Such "Average Annual Compensation" shall
include all taxable income paid by the Bank or Holding Company, including
but not limited to, Base Salary, commissions, and bonuses, as well as
contributions on Executive's behalf to any pension and/or profit sharing
plan, severance payments, retirement payments, directors or committee fees
and fringe benefits paid or to be paid to the Executive in any such year
and payment of any expense items without accountability or business purpose
or that do not meet the Internal Revenue Service requirements for
deductibility by the Bank; provided, however, that any payment under this
provision and subsection 5(d) below shall not exceed three (3) times the
Executive's average annual compensation over a five (5) year period. In the
event 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 regulatory capital requirements, such payments shall be deferred
until such time as the Bank or successor thereto is in capital compliance.
At the election of the Executive, which election is to be made prior to a
Change in Control, such payment shall be made in a lump sum as of the
Executive's Date of Termination. In the event that no election is made,
payment to the Executive will be made in approximately equal installments
on a monthly basis over a period of twelve (12) months following the
Executive's termination. Such payments shall not be reduced in the event
executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to
Section 5(b), 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 at no premium cost to the
Executive, except to the extent that such coverage may be changed in its
application for all Bank employees on a non-discriminatory basis. Such
coverage and payments shall cease upon the expiration of twelve (12) months
following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under
said paragraphs (the "Termination Benefits") constitute an "excess
parachute payment" under Section 280G of the Internal Revenue Code of 1986,
as amended, or any successor thereto, and in order to avoid such a result,
Termination Benefits will be reduced, if necessary, to an amount (the
"Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as
determined in accordance with said Section 280G. The allocation of the
reduction required hereby among the Termination Benefits provided by
Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive'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 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 Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than a majority 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 the Date of Termination for Cause. During the
period beginning on the date of the Notice of Termination for Cause
pursuant to Section 8 hereof through the Date of Termination for Cause,
stock options and related limited rights granted to Executive under any
stock option plan shall not be exercisable nor shall any unvested awards
granted to Executive under any stock benefit plan of the Bank, the Holding
Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination for Cause, such stock options and related limited rights and
any unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
8. 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 the date specified in the
Notice of Termination (which, in the case of a Termination for Cause, shall
not be less than thirty days from the date such Notice of Termination is
given.).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal
having been perfected) and, provided further, that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in
good faith and the party giving such notice pursues the resolution of such
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, in the event the Executive is terminated for reasons other than
Termination for Cause, the Bank will continue to pay Executive his Base
Salary in effect when the notice giving rise to the dispute was given until
the earlier of: 1) the resolution of the dispute in accordance with this
Agreement or 2) the expiration of the remaining term of this Agreement as
determined as of the Date of Termination. Amounts paid under this Section
are in addition to all other amounts due under this Agreement and shall not
be offset against or reduce any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable
notice, furnish such information and assistance to the Bank as may
reasonably be required by the Bank in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a
party.
10. NON-COMPETITION AND NON-DISCLOSURE OF BANK BUSINESS.
(a) Upon any termination of Executive's employment hereunder
pursuant to Section 4 hereof, Executive agrees not to compete with the Bank
for a period of one (1) year following such termination in any city, town
or county in which the Executive's normal business office is located and
the Bank has an office or has filed an application for regulatory approval
to establish an office, determined as of the effective date of such
termination, except as agreed to pursuant to a resolution duly adopted by
the Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or
otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business
activities of the Bank. The parties hereto, recognizing that irreparable
injury will result to the Bank, its business and property in the event of
Executive's breach of this Subsection 10(a) agree that in the event of any
such breach by Executive, the Bank, will be entitled, in addition to any
other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants,
employees and all persons acting for or under the direction of Executive.
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.
(c) 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. Further, Executive may
disclose information regarding the business activities of the Bank to the
Massachusetts Commissioner of Banks and the Federal Deposit Insurance
Corporation ("FDIC") pursuant to a formal regulatory request. 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.
11. SOURCE OF PAYMENTS
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Bank. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts
and benefits due from the Bank are not timely paid or provided by the Bank,
such amounts and benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the
extent that payments and benefits, as provided by this Agreement, are paid
to or received by Executive under the Employment Agreement dated December
23, 1998, between Executive and the Holding Company, such compensation
payments and benefits paid by the Holding Company will be subtracted from
any amounts due simultaneously to Executive under similar provisions of
this Agreement. Payments pursuant to this Agreement and the Holding Company
Agreement shall be allocated in proportion to the services rendered and
time expended on such activities by Executive as determined by the Holding
Company and the Bank on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the 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.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation, or to
execution, attachment, levy, or similar process or assignment by operation
of law, and any attempt, voluntary or involuntary, to affect any such
action shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
as to any act other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any other
provision of this Agreement or any part of such provision not held so
invalid, and each such other provision and part thereof shall to the full
extent consistent with law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
17. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of
Massachusetts applicable to contracts entered into and to be performed
entirely within the Commonwealth of Massachusetts
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by Executive
within fifty (50) miles from the location of the 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.
In the event any dispute or controversy arising under or in
connection with Executive's termination is resolved in favor of Executive,
whether by judgment, arbitration or settlement, Executive shall be entitled
to the payment of all back-pay, including salary, bonuses and any other
cash compensation, fringe benefits and any compensation and benefits due
Executive under this Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and 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.
20. INDEMNIFICATION.
(a) 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 and shall indemnify
Executive (and his heirs, executors and administrators) as permitted under
federal 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 director or officer at the
time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are
subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k),
12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules or
regulations promulgated thereunder.
21. SUCCESSOR TO THE BANK.
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 or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Bank's obligations under this Agreement, 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.
SIGNATURES
IN WITNESS WHEREOF, The Massachusetts Co-operative Bank and
Massachusetts Fincorp, Inc. have caused this Agreement to be executed and
their seals to be affixed hereunto by their duly authorized officers and
directors, and Executive has signed this Agreement, on the 23rd day of
December, 1998.
ATTEST: THE MASSACHUSETTS CO-OPERATIVE BANK
/s/ Kathleen M. Connelly By: /s/ Paul C. Green
- ------------------------------ ---------------------------
Kathleen M. Connelly Paul C. Green
For the Entire Board of
Directors
[SEAL]
ATTEST: MASSACHUSETTS FINCORP, INC.
(Guarantor)
/s/ Kathleen M. Connelly By: /s/ Paul C. Green
- ------------------------------ ---------------------------
Kathleen M. Connelly Paul C. Green
For the Entire Board of
Directors
[SEAL]
WITNESS:
/s/ Kathleen M. Connelly /s/ Anthony A. Pariulli
- ------------------------------ --------------------------------
Kathleen M. Connelly Anthony A. Paciulli
Executive
Exhibit 10.7
Change in Control agreement between The Massachusetts Co-operative Bank
and Kenneth R. Bordewieck
THE MASSACHUSETTS CO-OPERATIVE BANK
THREE YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of December 22, 1998, by and
among The Massachusetts Co-operative Bank (the "Institution"), a
Massachusetts-chartered stock co-operative bank, with its principal
administrative office at 1442 Dorchester Avenue, Boston, Massachusetts
02122, Kenneth R. Bordewieck ("Executive"), and Massachusetts Fincorp, Inc.
(the "Holding Company"), a corporation organized under the laws of the
State of Delaware which is the holding company of the Institution.
WHEREAS, the Institution recognizes the substantial contribution
Executive has made to the Institution and wishes to protect Executive's
position therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the
Institution.
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
The term of this Change in Control Agreement (the "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 of this Agreement and continuing
at each anniversary date thereafter, the Board of Directors of the
Institution ("Board") may extend the Agreement for an additional year. The
Board will review the Agreement and Executive's performance annually 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. CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Institution
or the Holding Company (as herein defined) followed at any time during the
term of this Agreement by the termination of Executive's employment, other
than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. Upon the occurrence of a Change in Control,
Executive shall have the right to elect to voluntarily terminate his
employment at any time during the term of this Agreement following any
demotion, loss of title, office or significant authority, reduction in his
annual compensation or benefits, or relocation of his principal place of
employment by more than 25 miles from its location immediately prior to the
Change in Control; provided, however, the Executive may consent in writing
to any such demotion, loss, reduction or relocation. The effect of any
written consent of the Executive under this Section 2 (a) shall be strictly
limited to the terms specified in such written consent.
(b) For purposes of this Agreement, a "Change in Control" shall
mean an event of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of
the Bank or the Holding Company within the meaning of the Change in Bank
Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. [Section Sign] 303.4(a)
with respect to the Bank and the Board of Governors of the Federal Reserve
System ("FRB") at 12 C.F.R. [Section Sign] 225.41(b) with respect to the
Holding Company, as in effect on the date hereof; or (iii) results in a
transaction requiring prior FRB approval under the Bank Holding Company Act
of 1956 and the regulations promulgated thereunder by the FRB at 12 C.F.R.
[Section Sign] 225.11, as in effect on the date hereof except for the
Holding Company's acquisition of the Bank; or (iv) without limitation such
a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-
3 under the Exchange Act), directly or indirectly, of securities of the
Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding securities except for any securities of the
Bank purchased by the Holding Company in connection with the conversion of
the Bank to the stock form and any securities purchased by any tax
qualified employee benefit plan of the Bank; or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided that any person becoming a director subsequent to the date hereof
whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board;
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding
Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan or reorganization, merger
of consolidation of the Holding Company or Bank or similar transaction with
one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan or transaction are exchanged
for or converted into cash or property or securities not issued by the Bank
or the Holding Company shall be distributed; or (E) a tender offer is made
for 20% or more of the voting securities of the Bank or the Holding
Company.
(c) Executive shall not have the receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term
"Termination for Cause" shall mean termination because of Executive's
personal dishonesty, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule 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 Notice of Termination which
shall include a copy of a resolution duly adopted by the affirmative vote
of not less than a majority of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to
Executive and an opportunity for him, together with counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and
specifying the particulars thereof in detail. Executive shall not have the
right to receive compensation or other benefits for any period after
Termination for Cause. During the period beginning on the date of the
Notice of Termination for Cause pursuant to Section 4 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall
any unvested awards granted to Executive under any stock benefit plan of
the Institution, the Holding Company or any subsidiary or affiliate thereof
vest. At the Date of Termination, such stock options and related limited
rights and such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Date of Termination for Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any
time during the term of this Agreement by termination of the Executive's
employment due to: (1) Executive's dismissal or (2) Executive's voluntary
termination pursuant to Section 2(a), unless such termination is due to
Termination for Cause, the Institution and the Holding Company shall pay
Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to three (3)
times Executive's Average Annual Compensation (as defined herein) for the
five most recent taxable years that Executive has been employed by the
Institution or such lesser number of years in the event that Executive
shall have been employed by the Institution for less than five years, such
"Average Annual Compensation" shall include all taxable income paid by the
Bank or Holding Company, including but not limited to any base salary,
bonuses, and commissions paid or to be paid to Executive, as well as
contributions on Executive's behalf to any pension and/or profit sharing
plan, severance payments, retirement payments, and fringe benefits paid or
to be paid to the Executive in any such year. At the election of Executive,
which election is to be made prior to a Change in Control, such payment
shall be made in a lump sum. In the event that no election is made, payment
to Executive will be made on a monthly basis in approximately equal
installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Institution
or the Holding Company followed at any time during the term of this
Agreement by Executive's voluntary or involuntary termination of
employment, other than for Termination for Cause, the Institution shall
cause to be continued life, medical and disability coverage substantially
identical to the coverage maintained by the Institution or Holding Company
for Executive prior to his severance, except to the extent such coverage
may be changed in its application to all Institution or Holding Company
employees on a nondiscriminatory basis. Such coverage and payments shall
cease upon the expiration of thirty-six (36) full calendar months from the
Date of Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in
no event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Internal Revenue Code
of 1986, as amended, or any successor thereto, and in order to avoid such a
result Termination Benefits will be reduced, if necessary, to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base amount," as
determined in accordance with said Section 280G. The allocation of the
reduction required hereby among the Termination Benefits provided by the
preceding paragraphs of this Section 3 shall be determined by Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Institution or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which shall indicate
the specific termination provision in this Agreement relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the
Notice of Termination (which, in the instance of Termination for Cause,
shall not be less than thirty (30) days from the date such Notice of
Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal
having been perfected) and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in
good faith and the party giving such notice pursues the resolution of such
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute in connection with a Change in Control, in the event that the
Executive is terminated for reasons other than Termination for Cause, the
Institution will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not
limited to his annual salary) and continue him as a participant in all
compensation, benefit and insurance plans in which he was participating
when the notice of dispute was given, until the earlier of: (1) the
resolution of the dispute in accordance with this Agreement; or (2) the
expiration of the remaining term of this Agreement as determined as of the
Date of Termination.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in
this Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company guarantees such payment and
provision of all amounts and benefits due hereunder to Executive and, if
such amounts and benefits due from the Institution are not timely paid or
provided by the Institution, such amounts and benefits shall be paid or
provided by the Holding Company.
6. 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 Institution 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.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Institution or shall impose on the Institution
any obligation to employ or retain Executive in its employ for any period.
7. 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 Institution and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of any
provision of this Agreement, except by written instrument of the party
charged with such waiver or estoppel. No such written waiver shall be
deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for the future
or as to any act other than that specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
[Section Sign]1828(k), 12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and
any rules and regulations promulgated thereunder.
10. 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.
11. 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. In addition,
references to the masculine shall apply equally to the feminine.
12. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of
Massachusetts applicable to contracts entered into and to be performed
entirely within the Commonwealth of Massachusetts.
13. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by Executive
within fifty (50) miles from the location of the Institution's main office,
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.
14. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and 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 Institution (which payments
are guaranteed by the Holding Company pursuant to Section 5 hereof) if
Executive is successful on the merits pursuant to a legal judgment,
arbitration or settlement.
15. INDEMNIFICATION.
(a) 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 and shall indemnify
Executive (and his heirs, executors and administrators) as permitted under
federal 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 director or officer at the
time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are
subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k),
12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules or
regulations promulgated thereunder.
16. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all
or substantially all the business or assets of the Institution, expressly
and unconditionally to assume and agree to perform the Institution's
obligations under this Agreement, in the same manner and to the same extent
that the Institution would be required to perform if no such succession or
assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, The Massachusetts Co-operative Bank and
Massachusetts Fincorp, Inc. have caused this Agreement to be executed by
their duly authorized officers, and Executive has signed this Agreement, on
the 22nd day of December, 1998.
ATTEST: THE MASSACHUSETTS CO-OPERATIVE BANK
/s/ Kathleen M. Connelly By: /s/ Paul C. Green
- ------------------------------ ---------------------------
Kathleen M. Connelly Paul C. Green
For the Entire Board of
Directors
SEAL
ATTEST: MASSACHUSETTS FINCORP, INC.
(Guarantor)
/s/ Kathleen M. Connelly By: /s/ Paul C. Green
- ------------------------------ ---------------------------
Kathleen M. Connelly Paul C. Green
For the Entire Board of
Directors
SEAL
WITNESS:
/s/ Kathleen M. Connelly /s/ Kenneth R. Bordemieck
- ------------------------------ --------------------------------
Kathleen M. Connelly Kenneth R. Bordewieck
Executive
Exhibit 16.1
Letter re: Change in Certifying Accountants
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re. Massachusetts Fincorp, Inc., Annual Report on Form 10-KSB
Ladies and Gentlemen:
We have read the two paragraphs under the caption "Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure" in
the Form 10-KSB relating to the change of independent auditors made in
1998. With respect to the comments made in such paragraphs, we agree with
the statements contained therein.
/s/ WOLF & COMPANY, P.C.
WOLF & COMPANY, P.C.
Boston, Massachusetts
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<INTEREST-INVEST> 515
<INTEREST-OTHER> 93
<INTEREST-TOTAL> 4,678
<INTEREST-DEPOSIT> 2,181
<INTEREST-EXPENSE> 2,441
<INTEREST-INCOME-NET> 2,238
<LOAN-LOSSES> 87
<SECURITIES-GAINS> 35
<EXPENSE-OTHER> 2,783
<INCOME-PRETAX> 100
<INCOME-PRE-EXTRAORDINARY> 71
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.68
<LOANS-NON> 173
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 349
<CHARGE-OFFS> 1
<RECOVERIES> 90
<ALLOWANCE-CLOSE> 525
<ALLOWANCE-DOMESTIC> 525
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
