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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended June 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to __________
Commission File Number: 0-29814
FIRST BANCORP OF INDIANA, INC.
(Exact name of registrant as specified in its charter)
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INDIANA 35-2061832
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2200 West Franklin Street, Evansville, Indiana 47712
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (812) 423-3196
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. X
-----
The aggregate market value of the voting and non-voting common equity held
by non-affiliates was $21,320,257, based upon the closing price of $9.8125 as
quoted on the Nasdaq National Market for September 15, 1999. Solely for
purposes of this calculation, the shares held by the directors and officers of
the registrant are deemed to be held by affiliates.
The number of shares outstanding of the registrant's Common Stock as of
September 15, 1999 was 2,272,400.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999 Annual Meeting of Shareholders
are incorporated by reference in Part III of this Form 10-K
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INDEX
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Part I
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Page
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 28
Item 3. Legal Proceedings............................................. 28
Item 4. Submission of Matters to a Vote of Securities
Holders....................................................... 29
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Part II
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 29
Item 6. Selected Financial Data....................................... 30
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 32
Item 7A. Quantitative and Qualitative Disclosure about Market Risk..... 42
Item 8. Financial Statements and Supplementary Data................... 42
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 43
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Part III
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Item 10. Directors and Executive Officers of the Registrant........... 43
Item 11. Executive Compensation....................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 43
Item 13. Certain Relationships and Related Transactions............... 43
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Part IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K....................................................... 43
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PART I
Item 1. BUSINESS
General
First Bancorp of Indiana, Inc. ("First Bancorp"), headquartered in
Evansville, Indiana, was formed in November 1998 as the holding company for
First Federal Savings Bank ("First Federal") in connection with the conversion
of First Federal from mutual to stock form of ownership ("Conversion"). The
Conversion was completed on April 7, 1999 through the sale of 2,272,400 shares
of common stock by First Bancorp at a price of $10.00 per share. First
Bancorp's sole business activity is the ownership of all of First Federal's
capital stock. First Bancorp does not transact any material business other than
through its subsidiary, First Federal. First Bancorp is subject to the
regulation of the Office of Thrift Supervision ("OTS") and the Securities and
Exchange Commission ("SEC"). First Bancorp is listed on the Nasdaq National
Market under the symbol FBEI.
First Federal's principal business is attracting deposits from the general
public and originating loans secured by one-to-four family residential real
estate properties located in its market area. First Federal is regulated by the
OTS and the Federal Deposit Insurance Corporation ("FDIC"). First Federal's
deposits have been federally insured by the FDIC since 1934 and are currently
insured by the FDIC under the Savings Association Insurance Fund. First Federal
has been a member of the Federal Home Loan Bank System since 1934.
Market Area and Competition
First Federal is headquartered in Evansville, Indiana and has been, and
intends to continue to be, a community oriented financial institution. First
Federal conducts its operations through four offices located in Evansville,
Indiana. Most of First Federal's depositors live in the areas surrounding its
branches and most of First Federal's loans are made to persons in Evansville and
the surrounding counties.
Evansville, which is in the southwest corner of Indiana, had a population of
approximately 168,000 persons as of 1997. The service sector (primarily medical
services) is the largest source of employment. However, manufacturing has
played an increasingly larger role in recent years with the addition or
reopening of several plants. The area's largest manufacturers produce
pharmaceuticals, home appliances, aluminum and plastic products, and
automobiles. Employers include Whirlpool Corporation, Bristol-Myers Squibb,
Alcoa, AK Steel, General Electric and Toyota Motor Corp. Unemployment is
currently low and First Federal believes the outlook for the area's economy is
positive.
First Federal faces intense competition for deposits and loan originations
from the many financial institutions conducting business within its market area.
Four commercial banks and three other savings banks have retail banking offices
in Vanderburgh County. Most of these financial institutions are larger than
First Federal. First Federal has faced additional significant competition for
investors' funds from short-term money market securities and other corporate and
government securities. First Federal's competition for loans comes principally
from other thrift institutions, commercial banks, credit unions, mortgage
banking companies and mortgage brokers.
Lending Activities
Loan Portfolio Composition. At June 30, 1999, net loans receivable totaled
$56.3 million, which was 45.1% of total assets. The principal lending activity
of First Federal is the origination of mortgage loans for the purpose of
purchasing or refinancing one- to four-family residential property and consumer
loans for the purchase of automobiles. To a significantly lesser extent, First
Federal also originates construction loans and mortgage loans secured by
commercial and multi-family real estate. Most of First Federal's borrowers and
the properties securing its loans are located in Evansville, Indiana and the
surrounding counties.
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The following table sets forth the composition of First Federal's loan
portfolio at the dates indicated.
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At June 30,
---------------------------------------------------------------
1999 1998 1997
----------------- -------------------- -------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in thousands)
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Mortgage loans:
One- to four-family.......... $39,718 68.80% $33,493 90.95% $31,106 94.44%
Construction................. 1,403 2.43 1,551 4.21 77 0.23
Commercial and multi-family.. 73 0.13 117 0.32 153 0.46
------ ------ ------ ------ ------ ------
Total mortgage loans...... 41,194 71.36 35,161 95.48 31,336 95.13
Credit line equity loans........ 1,020 1.77 937 2.55 1,047 3.18
Savings account loans........... 127 0.22 226 0.61 131 0.40
Consumer loans.................. 15,389 26.65 501 1.36 424 1.29
------ ------ ------ ------ ------ ------
Total loans............... 57,730 100.00% 36,825 100.00% 32,938 100.00%
====== ====== ====== ====== ====== ======
Less:
Undisbursed loan funds....... 981 700 349
Net deferred loan fees....... 166 220 175
Allowance for loan losses.... 274 250 250
------ ------ ------
Net loans....................... $56,309 $35,655 $32,164
====== ====== ======
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The following table sets forth certain information at June 30, 1999
regarding the dollar amount of loans maturing in First Federal's portfolio based
on their scheduled contractual principal repayments. Demand loans, loans having
no stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less. Loan balances do not include undisbursed
loan funds, deferred loan fees and allowance for loan losses.
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Amount Due
-------------------------------------------------
After 1 After After
Year 3 Years 5 Years
Within Through Through Through Beyond
1 Year 3 Years 5 Years 10 Years 1O Years Total
------ ------- ------- -------- -------- ------
(In thousands)
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Mortgage loans:
One- to four-family.......... $2,091 $ 4,183 $ 4,282 $10,927 $18,235 $39,718
Construction................. 20 43 50 160 1,130 1,403
Commercial and multi-family.. 13 24 25 11 -- 73
Credit line equity loans........ 154 354 424 88 -- 1,020
Savings account loans........... 127 -- -- -- -- 127
Consumer loans.................. 3,039 6,709 5,374 267 -- 15,389
------ ------ ------ ------ ------ ------
Total..................... $5,444 $11,313 $10,155 $11,453 19,365 $57,730
====== ======= ======= ====== ====== =======
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4
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The following table sets forth, as of June 30, 1999, the dollar amount
of all loans due or repricing after June 30, 2000, based on their scheduled
contractual principal payments, which have fixed interest rates and have
floating or adjustable interest rates.
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Floating or
Adjustable
Fixed-Rate Rate
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(In thousands)
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Mortgage loans:
One- to four-family.......... $34,326 $3,301
Construction................. 1,383 --
Commercial and multi-family.. 4 56
Credit line equity loans........ -- 866
Savings account loans........... -- --
Consumer loans.................. 12,350 --
------- ------
Total.................. $48,063 $4,223
======= ======
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Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of loans is substantially less
than their contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give First Federal the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan market rates are substantially higher than rates on existing mortgage loans
and, conversely, decreases when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates.
Residential Real Estate Loans. A significant lending activity of First
Federal is the origination of mortgage loans to enable borrowers to purchase
existing homes or to refinance existing mortgage loans. At June 30, 1999, $39.7
million, or 68.8%, of First Federal's total loan portfolio consisted of loans
secured by residential real estate. At June 30, 1999, 8.5% of First Federal's
residential real estate loans were subject to periodic interest rate adjustments
and 91.5% were fixed-rate loans.
First Federal offers a variety of fixed and adjustable-rate mortgage loan
products. The loan fees charged, interest rates and other provisions of First
Federal's mortgage loans are determined by First Federal on the basis of its own
pricing criteria and market conditions. Generally, all loans originated by
First Federal conform to Fannie Mae underwriting standards. First Federal's
fixed-rate loans typically have maturities of 15 to 30 years, although 30-year
loans constitute the largest percentage of originations. First Federal also
offers five- and seven-year balloon mortgages based on a 30-year amortization
schedule. First Federal's adjustable-rate mortgage ("ARM") loans are typically
based on a 30-year amortization schedule. Interest rates and payments on First
Federal's ARM loans generally are adjusted annually after a specified period
ranging from one to ten years to a rate typically equal to 2.75% above the one-
year constant maturity U.S. Treasury index. First Federal currently offers ARM
loans with initial rates below those which would prevail under the foregoing
computation, determined by First Federal based on market factors and competitive
rates for loans having similar features offered by other lenders for such
initial periods. The maximum amount by which the interest rate may be increased
or decreased in a given period on First Federal's ARM loans is generally 2% per
adjustment period and the lifetime interest rate cap is generally 6% over the
initial interest rate of the loan. First Federal qualifies the borrower based on
the borrower's ability to repay the ARM loan based on the maximum interest rate
at the first adjustment, in the case of one-year ARM loans, and based on the
initial interest rate in the case of ARM loans that adjust after three or more
years. First Federal does not originate negative amortization loans. The terms
and conditions of the ARM loans offered by First Federal, including the index
for interest rates, may vary from time to time. First Federal believes that the
annual adjustment feature of its ARM loans also provides flexibility to meet
competitive
5
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conditions as to initial rate concessions while preserving First Federal's
return on equity objectives by limiting the duration of the initial rate
concession.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment. As a result of
the low interest rate environment in recent years, First Federal has experienced
a strong customer preference for fixed-rate loans.
The retention of ARM loans in First Federal's loan portfolio helps reduce
First Federal's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that, during
periods of rising interest rates, the risk of default on ARM loans may increase
as a result of repricing and the increased costs to the borrower. Furthermore,
because the ARM loans originated by First Federal generally provide, as a
marketing incentive, for initial rates of interest below the rates which would
apply were the adjustment index used for pricing initially (discounting), these
loans are subject to increased risks of default or delinquency. Another
consideration is that although ARM loans allow First Federal to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest sensitivity is limited by the periodic and lifetime interest rate
adjustment limits. Because of these considerations, First Federal has no
assurance that yields on ARM loans will be sufficient to offset increases in
First Federal's cost of funds.
While fixed-rate, single-family residential real estate loans are normally
originated with 15- to 30-year terms, and First Federal permits its ARM loans to
be assumed by qualified borrowers, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in First
Federal's loan portfolio contain due-on-sale clauses providing that First
Federal may declare the unpaid amount due and payable upon the sale of the
property securing the loan. First Federal enforces these due-on-sale clauses to
the extent permitted by law and as business judgment dictates. Thus, average
loan maturity is a function of, among other factors, the level of purchase and
sale activity in the real estate market, prevailing interest rates and the
interest rates payable on outstanding loans.
First Federal requires title insurance insuring the status of its first
lien on real estate secured loans and also requires that the fire and extended
coverage casualty insurance (and, if appropriate, flood insurance) be maintained
in an amount at least equal to the outstanding loan balance.
First Federal's residential mortgage loans typically do not exceed 80% of
the appraised value of the property. First Federal's lending policies permit
First Federal to lend up to 97% of the appraised value of the property; however,
First Federal generally requires private mortgage insurance on the portion of
the principal amount that exceeds 80% of the appraised value of the property.
First Federal obtains appraisals on all first mortgage real estate loans from
outside appraisers.
Construction Loans. First Federal originates loans to individuals for the
construction of their personal residence. Recently, First Federal began
originating loans to local home builders. Construction loans to individuals are
made on the same terms as First Federal's residential mortgage loans, but
provide for the payment of interest only during the construction phase, which is
usually six months. At the end of the construction phase, the loan converts to
a permanent mortgage loan. First Federal's construction loans to builders
generally have fixed interest rates and are for a term of up to 18 months. Loans
to builders are usually made on a speculative basis, which means that the
builder has not identified a purchaser for the home at the time the loan is
made. Builders are evaluated on a case-by-case basis to establish a maximum
credit limit, however the maximum amount that First Federal will loan to any one
builder is $750,000. At June 30, 1999, First Federal had no outstanding
construction loans to builders. First Federal occasionally originates loans for
the purchase of residential building lots. Most of these loans have terms of
five years or less and may have fixed or adjustable rates. At June 30, 1999,
First Federal did not have any land loans outstanding.
6
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Construction lending is generally considered to involve a higher degree of
risk than single-family permanent mortgage lending because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. The nature of these loans is such that
they are generally more difficult to evaluate and monitor. If the estimate of
construction cost proves to be inaccurate, First Federal may be required to
advance funds beyond the amount originally committed to permit completion of the
project. If the estimate of value upon completion proves to be inaccurate,
First Bancorp may be confronted with a project whose value is insufficient to
assure full repayment. Projects may also be jeopardized by disagreements
between borrowers and builders and by the failure of builders to pay
subcontractors. Loans to builders to construct homes for which no purchaser has
been identified carry more risk because the payoff for the loan is dependent on
the builder's ability to sell the property prior to the time that the
construction loan is due.
First Federal has attempted to minimize the foregoing risks by, among other
things, monitoring the project and controlling the disbursement of funds. Prior
to making a commitment to fund a construction loan, First Federal requires an
appraisal of the property. First Federal also reviews and inspects each project
prior to disbursement of funds during the term of the construction loan. In
most cases, loan proceeds are disbursed after inspection of the project based on
percentage of completion.
Commercial and Multi-Family Real Estate Loans. First Federal engages in a
limited amount of commercial and multi-family real estate lending. At June 30,
1999, commercial and multi-family real estate loans in First Federal's portfolio
totaled $73,000 and consisted of 2 loans. The maximum loan-to-value ratio for a
commercial or multi-family real estate loan is 75%. The maximum term for a
commercial or multi-family real estate loan is 15 years and the maximum loan
amount is $1,000,000. The majority of First Federal's commercial real estate
loans have been secured by small office buildings, motels and retail
establishments in Indiana.
Loans secured by commercial and multi-family real estate generally are
larger and involve greater risks than one- to four-family residential mortgage
loans. Payments on loans secured by such properties are often dependent on
successful operation or management of the properties. Repayment of such loans
may be subject to a greater extent to adverse conditions in the real estate
market or the economy. First Federal seeks to minimize these risks in a variety
of ways, including limiting the size of such loans and strictly scrutinizing the
financial condition of the borrower, the quality of the collateral and the
management of the property securing the loan. The properties securing First
Federal's commercial and multi-family real estate loans are inspected by First
Federal's lending personnel before the loan is made. First Federal also obtains
appraisals on each property in accordance with applicable regulations.
Consumer and Other Loans. At June 30, 1999, First Federal's consumer and
other loans totaled approximately $16.5 million, or 28.6% of First Federal's
total loans. First Federal originates consumer loans secured by automobiles
and, occasionally, boats and other recreational vehicles. Automobile loans are
secured by both new and used cars and light trucks. Both new and used cars are
financed for a period of up to 60 months and the rate on such loans is fixed for
the term of the loan.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not
warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Furthermore, the application of various Federal and state laws,
including Federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans. Such loans may also give rise to claims
and defenses by a consumer loan borrower against an assignee of such loans such
as First Federal, and a borrower may be able to assert against such assignee
claims and defenses that it has against the seller of the underlying collateral.
7
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In January 1999, First Federal significantly expanded its consumer lending
operations by hiring four loan officers and three clerical staff to develop an
indirect automobile lending program. First Federal now originates automobile
loans through approximately 75 to 100 automobile dealers in southern Indiana,
northwestern Kentucky and southern Illinois. These dealers provide First Federal
applications to finance vehicles sold by their dealerships. Although
substantially all of the dealers through which First Federal originates loans
sell both new and used automobiles, most of the loans First Federal originates
are secured by used automobiles. First Federal processes loan applications
through "CreditDesk," an automated underwriting program by Fair Isaac and
Company, Inc. Applications processed through "CreditDesk" receive a score
which, along with other underwriting criteria, determine if the application will
be approved, denied or approved at an increased interest rate or on other terms.
For the period ended June 30, 1999, First Federal originated and retained
for its own portfolio $15.4 million in automobile loans. At June 30, 1999,
indirect automobile loans constituted 25.6% of total loans. In May 1999, First
Federal developed a contractual relationship with another financial institution
in order to sell indirect automobile loans on a flow basis for an origination
fee of approximately 1.50% of the loan amount. This contract defines the
criteria to be satisfied for loans to be eligible for sale to the purchasing
institution. First Federal now sells all loans with servicing released and
without recourse to First Federal. Interest rates are determined by reference
to the rate sheet in effect on the date the loan was closed and approved by the
financial institution purchasing the loan. Under the terms of its arrangement,
First Federal has no minimum or maximum delivery requirements. This eliminates
the risk that First Federal will not be able to sell the loans and that an
increase in market interest rates will reduce the value of the loans before they
can be sold.
In fiscal year 2000, First Federal intends to sell 60% to 80% of its
indirect automobile loan production and to retain the remainder for its own
portfolio, with the goal of increasing its consumer loan portfolio to $25
million. The loans sold will be primarily the ones with the highest credit
quality. The loans retained for First Federal's portfolio will generally have a
lower credit quality, but with a correspondingly higher interest rate. First
Federal believes that it will benefit from the higher yields earned on consumer
loans and that the shorter duration of consumer loans will improve First
Federal's interest rate risk position. However, because consumer loans tend to
have a higher rate of default than mortgage loans and because full repayment of
defaulted loans is less likely when the loan is secured by a depreciating asset
like an automobile, First Federal expects that it will increase its allowance
for loan losses as its consumer loan portfolio grows. First Federal will
increase its allowance for loan losses by charging a provision for loan losses
against income.
First Federal originates home equity loans in the form of lines of credit.
At June 30, 1999, First Federal had $1.0 million of credit line equity loans
and unused commitments to extend credit under credit line equity loans of $2.5
million. Most of these loans are made to existing customers. First Federal's
home equity loans have variable interest rates tied to the prime lending rate.
First Federal imposes a maximum loan-to-value ratio of 80% after considering
both the first and second mortgage loans. First Federal's home equity loans may
have greater credit risk than one- to four-family residential mortgage loans
because they are secured by mortgages subordinated to an existing first mortgage
on the property, which, in most cases, is held by First Federal.
First Federal makes savings account loans for up to 90% of the depositor's
account balance. The interest rate is normally 2.0% or 3.0% above the rate paid
on the deposit account, depending on the type of account, and the account must
be pledged as collateral to secure the loan. Savings account loans are payable
on demand, although interest must be paid every six months.
Loan Solicitation and Processing. Mortgage loan applicants come through
direct solicitation by First Federal's branch managers and commissioned loan
originators, as well as through referrals by realtors and past and present
customers. First Federal does not advertise extensively. All types of loans may
be originated and closed in any of First Federal's offices. Loans are serviced
from First Federal's main office.
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Upon receipt of a loan application from a prospective borrower, a credit
report and other data are obtained to verify specific information relating to
the loan applicant's employment, income and credit standing. An appraisal of
the real estate offered as collateral generally is undertaken by a fee appraiser
approved by First Federal and licensed or certified by the State of Indiana.
Loans in the amount of up to $240,000 must be approved by two members of
First Federal's Executive Committee, one of which must be First Federal's
President. The Executive Committee consists of First Federal's President,
Executive Vice President and members of the Board of Directors. Loans of more
than $240,000 must be approved by a majority of First Federal's Executive
Committee.
Loan applicants are promptly notified of the decision of First Federal.
Interest rates are subject to change if the approved loan is not closed within
the time of the commitment, which usually is 45 days.
Consumer loans in amounts up to $35,000 can be approved by consumer loan
underwriters. The Consumer Loan Committee must approve all loans above the
lending limit of a consumer loan underwriter. The maximum lending limits of the
Consumer Loan Committee are as follows: any one member, $50,000; any two
members, $75,000; all members, up to $100,000. The Consumer Loan Committee
consists of the President, Executive Vice President and the Senior Vice
President - Consumer Lending. Consumer loans in excess of $100,000 must be
approved by the majority of the Board of Directors.
Loan Originations, Sales and Purchases. In an effort to manage its
interest rate risk position, First Federal generally sells the fixed-rate
mortgage loans with terms in excess of 15 years that it originates. However,
since the beginning of 1998, First Federal has retained selected 30-year, fixed-
rate loans in order to build its loan portfolio and increase the yield on its
interest-earning assets. The sale of loans in the secondary mortgage market
reduces First Federal's risk that the interest rates paid to depositors will
increase while First Federal holds long-term, fixed-rate loans in its portfolio.
It also allows First Federal to continue to fund loans when savings flows
decline or funds are not otherwise available. First Federal generally sells
loans without recourse to Fannie Mae with servicing retained. Gains, net of
origination expense, from the sale of such loans are recorded at the time of
sale. Generally a loan is committed to be sold and a price for the loan is
fixed after the loan is approved by the Executive Committee and the interest
rate is approved by the customer. This eliminates the risk to First Federal
that a rise in market interest rates will reduce the value of a mortgage before
it can be sold.
In the past First Federal has supplemented its loan originations through
the purchase of whole loans and loan participations. However, First Federal has
not purchased any loans or loan participations in many years.
At June 30, 1999, First Federal was servicing loans for others (Fannie Mae)
amounting to approximately $10.5 million. Servicing loans for others generally
consists of collecting mortgage payments, maintaining escrow accounts,
disbursing payments to investors and foreclosure processing. Loan servicing
income is recorded on the accrual basis and includes servicing fees from
investors.
In addition, in January 1999, First Federal significantly expanded its
consumer lending operations. For the fiscal year ended June 30, 1999, First
Federal originated $18.0 million in consumer loans as compared to $398,000 for
the fiscal year ended June 30, 1998. First Federal now originates automobile
loans through approximately 75 to 100 automobile dealers in southern Indiana,
northwestern Kentucky and southern Illinois. First Federal also originates home
equity loans in the form of lines of credit. For the fiscal year ended June 30,
1999, First Federal originated $1.0 million in home equity loans.
9
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The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
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Years Ended June 30,
----------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Loan originated:
Mortgage loans:
One- to four-family................... $16,283 $11,557 $3,974
Construction.......................... 2,870 1,767 571
Commercial and multi-family........... -- -- --
Credit line equity loans................. 1,015 848 818
Savings account loans.................... 60 249 85
Consumer loans........................... 18,010 398 290
------- ------- ------
Total loans originated............. 38,238 14,819 5,738
Loans purchased.......................... -- -- --
Loans sold............................... 5,822 1,844 627
Loan principal repayments................ 10,245 8,379 5,289
Increase (decrease) in other items, net.. (1,517) (1,105) (99)
------- ------- ------
Net increase (decrease) in loans $20,654 $ 3,491 $ (277)
receivable............................ ======= ======= ======
</TABLE>
Loan Commitments. First Federal issues commitments for fixed- and
adjustable-rate one- to four-family residential mortgage loans conditioned upon
the occurrence of certain events. Such commitments are made on specified terms
and conditions and are honored for up to 45 days from the date of loan approval.
First Federal had outstanding loan commitments of approximately $729,000 at June
30, 1999, $460,000 and $269,000 of which were at fixed and adjustable rates,
respectively. At June 30, 1999, First Federal also had commitments to fund $2.5
million of credit line equity loans. See Note 11 of Notes to Consolidated
Financial Statements.
Loan Origination and Other Fees. First Federal, in most instances, receives
mortgage loan origination fees and discount "points." Loan fees and points are a
percentage of the principal amount of the mortgage loan which are charged to the
borrower for funding the loan. The amount of points charged by First Federal
generally is 1%. Current accounting standards require fees received (net of
certain loan origination costs) for originating loans to be deferred and
amortized into interest income over the contractual life of the loan. Net
deferred fees or charges associated with loans that are prepaid are recognized
as income adjustments at the time of prepayment. First Federal had $265,000 of
net deferred mortgage loan fees at June 30, 1999.
In connection with its indirect automobile lending program, First Federal
pays the automobile dealers a flat fee for the origination of the loans. These
loan origination costs have been deferred and amortized over the contractual
life of the loan. At June 30, 1999, First Federal had $99,000 of deferred loan
charges related to its indirect automobile lending program.
Nonperforming Assets and Delinquencies. First Federal generates reports
regarding delinquent loans at regular intervals each month to enable management
to track their status. First Federal also generates a series of notices at
regular intervals to inform mortgage loan borrowers when a required payment is
past due. When a payment becomes 30 days past due, First Federal contacts the
borrower by letter. If a satisfactory response is not obtained, continuous
follow-up contacts, including contact by telephone, are attempted until the loan
has been brought current. Before the 90th day of delinquency, attempts to
interview the borrower, preferably in person, are made to establish the cause of
10
<PAGE>
the delinquency, whether the cause is temporary, the attitude of the borrower
toward the debt, and a mutually satisfactory arrangement for curing the default.
In most cases, delinquencies are cured promptly; however, if by the 91st day of
delinquency, or sooner if the borrower is chronically delinquent and all
reasonable means of obtaining payment on time have been exhausted, foreclosure,
according to the terms of the security instrument and applicable law, is
approved by the Board of Directors.
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, First Federal institutes collection
procedures. The first notice is mailed to the borrower 15 days following the
payment due date. A computer-generated collection report is received by First
Federal daily. The customer is contacted by telephone to ascertain the nature of
the delinquency. In most cases, delinquencies are cured promptly; however, if,
by the 45th day following the grace period of delinquency no progress has been
made, a written notice is mailed informing the borrowers of their right to cure
the delinquency within 20 days and of First Federal's intent to begin legal
action if the delinquency is not corrected. Depending on the type of property
held as collateral, First Federal either obtains a judgment in small claims
court or takes action to repossess the collateral.
Loans are placed on nonaccrual status when they become 90 days past due.
Nonaccrual loans are returned to accrual status when they become less than 90
days past due.
First Federal's Board of Directors is informed on a monthly basis as to the
status of all mortgage and consumer loans that are delinquent 60 days or more,
the status on all loans currently in foreclosure, and the status of all
foreclosed and repossessed property owned by First Federal.
The following table sets forth information with respect to First Federal's
nonperforming assets and restructured loans within the meaning of Statement of
Financial Accounting Standards No. 15 at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
----------------------
1999 1998 1997
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis........ $ 6 $ -- $ 27
Accruing loans past due 90 days or more.......... -- -- --
----- ----- ----
Nonperforming loans.............................. 6 -- 27
Real estate owned (net).......................... -- -- --
----- ----- ----
Total nonperforming assets................. $ 6 $ -- $ 27
===== ===== ====
Restructured loans............................... -- -- --
Total loans delinquent 90 days or more to net
loans......................................... 0.01% N/A 0.08%
Total loans delinquent 90 days or more to total
assets........................................ 0.00% N/A 0.02%
Total nonperforming assets to total assets....... 0.00% N/A 0.02%
</TABLE>
Real Estate Owned. Real estate acquired by First Federal as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is recorded at the lower of its
cost, which is the unpaid principal balance of the related loan plus foreclosure
costs, or fair market value. Subsequent to foreclosure, the property is carried
at the lower of the foreclosed amount or fair value. Upon receipt of a new
appraisal and market analysis, the carrying value is written down through a
charge to income, if appropriate. At June 30, 1999, First Federal had no real
estate owned.
Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in
11
<PAGE>
connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets:
substandard, doubtful and loss. Substandard assets must have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected. Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified loss
is considered uncollectible and of such little value that continuance as an
asset of the institution without establishment of a specific reserve is not
warranted. If an asset or portion thereof is classified loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified loss. A portion of general loan loss
allowances established to cover possible losses related to assets classified
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses
generally do not qualify as regulatory capital. OTS regulations also require
that assets that do not currently expose an institution to a sufficient degree
of risk to warrant classification as loss, doubtful or substandard but do
possess credit deficiencies or potential weakness deserving management's close
attention shall be designated "special mention" by either the institution or its
examiners.
First Federal reviews and classifies its assets on a monthly basis. At
June 30, 1999 First Federal had no loans classified as loss, doubtful or
substandard. At such date First Federal had loans aggregating $6,000 classified
as special mention. First Federal had no impaired loans at June 30, 1999 or
1998.
Allowance for Loan Losses. In originating loans, First Federal recognizes
that losses will be experienced and that the risk of loss will vary with, among
other things, the type of loan being made, the creditworthiness of the borrower
over the term of the loan, general economic conditions and, in the case of a
secured loan, the quality of the security for the loan. The allowance method is
used in providing for loan losses: all loan losses are charged to the allowance
and all recoveries are credited to it. The allowance for loan losses is
established through a provision for loan losses charged to First Federal's
income. The provision for loan losses is based on management's periodic
evaluation of First Federal's past loan loss experience, changes in the
composition of the portfolio, the current condition and amount of loans
outstanding and the probability of collecting all amounts due.
At June 30, 1999, First Federal had an allowance for loan losses of
$274,000, which represented 0.48% of total loans. Management believes that the
amount maintained in the allowances will be adequate to absorb losses inherent
in the portfolio. Although management believes that it uses the best
information available to make such determinations, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
significantly and adversely affected if circumstances differ substantially from
the assumptions used in making the determinations. While First Federal believes
it has established its existing allowance for loan losses in accordance with
generally accepted accounting principles, there can be no assurance that First
Federal's regulators, in reviewing First Federal's loan portfolio, will not
request First Federal to increase significantly its allowance for loan losses.
In addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that substantial increases will not be necessary
should the quality of any loans deteriorate as a result of the factors discussed
above. Any material increase in the allowance for loan losses may adversely
affect First Federal's financial condition and results of operations.
12
<PAGE>
The following table sets forth an analysis of First Federal's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Allowance at beginning of period.............. $ 250 $ 250 $ 250
Provision for loan losses..................... 24 -- --
Charge-offs................................... -- -- --
Recoveries.................................... -- -- --
------ ------- -------
Net charge-offs............................... -- -- --
------ ------- -------
Allowance at end of period................. $ 274 $ 250 $ 250
====== ======= =======
Ratio of allowance to total loans
outstanding at the end of the period....... 0.48% 0.70% 0.77%
Ratio of net charge-offs to average loans
outstanding during the period.............. N/A N/A N/A
Allowance for loan losses to nonperforming
loans........................................ 4,566.67% N/A 925.93%
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated.
At June 30,
---------------------------------------------------------------
1999 1998 1997
-------------------- ------------------- ------------------
% of % of % of
Loans in Loans in Loans in
Each Each Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
----- ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C>
Mortgage loans................................ $ 225 71.36% $ 225 95.48% $250 95.13%
Consumer and other loans...................... 49 28.64 25 4.52 -- 4.87
Unallocated................................... -- N/A -- N/A -- N/A
----- ----- ----- ------ ---- ------
Total allowance for loan losses............ $ 274 100.00% $ 250 100.00% $250 100.00%
===== ====== ===== ====== ==== ======
</TABLE>
Investment Activities
First Federal is permitted under applicable law to invest in various types
of liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the Federal
Home Loan Bank-Indianapolis, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Subject to
various restrictions, savings institutions may also invest a portion of their
assets in commercial paper, corporate debt securities and mutual funds. Savings
institutions like First Federal are also required to maintain an investment in
Federal Home Loan Bank stock and a minimum level of liquid assets.
First Federal must categorize its investments as "held to maturity,"
"trading" or "available for sale," based on management's intent as to the
ultimate disposition of each security. Debt securities may be classified as
"held to
13
<PAGE>
maturity" and reported in financial statements at amortized cost only
if First Federal has the positive intent and ability to hold those securities to
maturity. Securities that might be sold in response to changes in market
interest rates, changes in the security's prepayment risk, increases in loan
demand, or other similar factors cannot be classified as "held to maturity."
Debt and equity securities held for current resale are classified as "trading."
Such securities are reported at fair value, and unrealized gains and losses on
such securities would be included in earnings. First Federal does not currently
use or maintain a trading account. Debt and equity securities not classified as
either "held to maturity" or "trading" are classified as "available for sale."
Such securities are reported at fair value, and unrealized gains and losses on
such securities are excluded from earnings and reported as a net amount in a
separate component of equity.
First Federal's President determines appropriate investments in accordance
with the Board of Directors' approved investment policies and procedures.
Investments are made following certain considerations, which include First
Federal's liquidity position and anticipated cash needs and sources, which in
turn include outstanding commitments, upcoming maturities, estimated deposits
and anticipated loan amortization and repayments. Further, the effect that the
proposed investment would have on First Federal's credit and interest rate risk,
and risk-based capital is given consideration during the evaluation. The
interest rate, yield, settlement date and maturity are also reviewed. The Board
of Directors must ratify all investments up to $3 million and must provide its
prior approval for any investments above such amount.
First Federal purchases investments to provide necessary liquidity for day-
to-day operations and to manage First Federal's interest rate risk and overall
credit risk profile. In recent years First Federal has purchased mortgage-
backed and related securities when investable funds exceed loan demand.
First Federal maintains a significant portfolio of mortgage-backed and
related securities. Almost all of these securities were issued by Fannie Mae,
Freddie Mac or Ginnie Mae. Mortgage-backed securities generally entitle First
Federal to receive a pro rata portion of the cash flows from an identified pool
of mortgages. Ginnie Mae certificates are guaranteed as to principal and
interest by the full faith and credit of the United States, while Fannie Mae and
Freddie Mac certificates are guaranteed by Fannie Mae and Freddie Mac.
Approximately 34.8% of First Federal's mortgage-backed securities are real
estate mortgage investment conduits ("REMICs"), which are created by redirecting
the cash flows from a pool of mortgages or mortgage-backed securities to create
two or more classes (or tranches) with different maturity or risk
characteristics designed to meet a variety of investor needs and preferences.
Management believes these securities represent attractive alternatives relative
to other investments due to the wide variety of maturity, repayment and interest
rate options available. Current investment practices of First Federal prohibit
the purchase of high risk REMICs. At June 30, 1999, 48.7% of First Federal's
mortgage-backed securities were adjustable rate and 51.3% were fixed rate.
Of First Federal's $30.9 million mortgage-backed securities portfolio at
June 30, 1999, $8.7 million had contractual maturities within ten years and
$22.2 million had contractual maturities over ten years. However, the actual
maturity of a mortgage-backed security may be less than its stated maturity due
to prepayments of the underlying mortgages. Prepayments that are faster than
anticipated may shorten the life of the security and may result in a loss of any
premiums paid and thereby reduce the net yield on such securities. Although
prepayments of underlying mortgages depend on many factors, including the type
of mortgages, the coupon rate, the age of mortgages, the geographical location
of the underlying real estate collateralizing the mortgages and general levels
of market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, if the coupon rate of the underlying
mortgages exceeds the prevailing market interest rates offered for mortgage
loans, refinancing generally increases and accelerates the prepayment of the
underlying mortgages and the related security. Under such circumstances, First
Federal may be subject to reinvestment risk because, to the extent that First
Federal's mortgage-backed securities amortize or prepay faster than anticipated,
First Federal may not be able to reinvest the proceeds of such repayments and
prepayments at a comparable rate. In contrast to mortgage-backed securities in
which cash flow is received (and hence, prepayment risk is shared) pro rata by
all securities holders, the cash flow from the mortgages or mortgage-backed
securities underlying REMICs are segmented and paid in accordance with a
14
<PAGE>
predetermined priority to investors holding various tranches of such securities
or obligations. A particular tranche of REMICs may therefore carry prepayment
risk that differs from that of both the underlying collateral and other
tranches.
A portion of First Federal's investment portfolio consists of corporate
securities and commercial paper. First Federal's investment policy requires
that such investments have one of the two highest ratings by a nationally
recognized rating agency such as Standard & Poor's or Moody's. A high credit
rating indicates only that the rating agency believes there is a low risk of
default. However, all of First Federal's investment securities, including those
that have high credit ratings, are subject to market risk insofar as increases
in market rates of interest may cause a decrease in their market value.
Corporate securities are also subject to credit risk insofar as the payment
obligations on such securities are dependent on the successful operation of the
issuer's business. First Federal purchased corporate obligations, most of which
have fixed interest rates, because they offered a yield higher than that
available for U.S. Government agency obligations of similar duration.
First Federal also maintains a small investment in collateralized auto
obligations. These asset-backed securities are similar to mortgage-backed
securities in that they generally entitle First Federal to receive a pro rata
portion of the cash flows from an identified pool of auto loans. As with
corporate securities, First Federal's investment policy requires that such
investments have one of the two highest ratings by a nationally recognized
rating agency. First Federal purchased these securities, which generally have
fixed interest rates, because they offered a yield higher than that available
for U.S. Government agency obligations of similar duration.
The following table sets forth First Federal's investment securities
portfolio at carrying value at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
---------------------------
1999 1998 1997
------- -------- -------
(In thousands)
<S> <C> <C> <C>
Available for sale:
Mortgage-backed securities.......... $ 2,973 $ 4,376 $ 7,864
Held to maturity:
U.S. Government agency obligations.. 4,000 10,232 16,201
Collateralized auto obligations..... 557 1,009 249
Corporate obligations............... 5,499 2,956 --
Mortgage-backed securities.......... 27,964 31,169 33,530
Commercial paper.................... 1,983 3,998 2,490
------- ------- -------
Total held to maturity........... 40,003 49,364 52,470
------- ------- -------
Total......................... $42,976 $53,740 $60,334
======= ======= =======
</TABLE>
At June 30, 1999, First Federal held no securities by an issuer where the
aggregate book value of the securities exceeded 10% of the equity capital of
First Federal at June 30, 1999, except for securities issued by the U.S.
Government or U.S. Government agencies and corporations.
15
<PAGE>
The following table sets forth the maturities and weighted average yields
of the securities in First Federal's investment securities portfolio at June 30,
1999. Expected maturities of mortgage-backed securities will differ from
contractual maturities due to scheduled repayments and because borrowers may
have the right to call or prepay obligations with or without prepayment
penalties.
<TABLE>
<CAPTION>
Less Than One to Five to Over
One Year Five Years Ten Years Ten Years
------------------ ---------------- ------------- --------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
Mortgage-backed securities....... $ -- --% $ 573 7.72% $ 801 7.62% $ 1,599 6.72%
Held to maturity:
U.S. Government agency
obligations................... -- -- 1,000 6.01 1,000 6.58 2,000 6.49
Collateralized auto obligations.. -- -- 557 5.65 -- -- -- --
Corporate obligations............ 3,916 5.49 -- -- 1,583 6.31 -- --
Mortgage-backed securities....... -- -- 1,506 7.22 5,817 5.87 20,641 6.41
Commercial paper................. 1,983 5.04 -- -- -- -- -- --
------ ------ ------ -------
Total held to maturity........ 5,899 5.34 3,063 6.54 8,400 6.04 22,641 6.42
------ ------ ------ -------
Total................... $5,899 5.34 $3,636 6.72 $9,201 6.18 $24,240 6.44
====== ====== ====== =======
</TABLE>
The following table sets forth the carrying value of investment securities
which have fixed interest rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
At June 30, 1999
-----------------------
Floating or
Fixed Adjustable
Rates Rates
------ -----------
(In thousands)
<S> <C> <C>
Available for sale:
Mortgage-backed securities............ $ 1,517 $ 1,456
Held to maturity:
U.S. Government agency obligations.... 4,000 --
Collateralized auto obligations....... 557 --
Corporate obligations................. 3,916 1,583
Mortgage-backed securities............ 14,365 13,599
Commercial paper...................... 1,983 --
------- -------
Total held to maturity............. 24,821 15,182
------- -------
Total investment securities.. $26,338 $16,638
======= =======
</TABLE>
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of First
Federal's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings from Federal Home Loan Bank-
Indianapolis may be used to compensate for reductions in the availability of
funds from other sources. First Federal had no other borrowing arrangements at
June 30, 1999.
Deposit Accounts. Substantially all of First Federal's depositors are
residents of the State of Indiana. Deposits are attracted from within First
Federal's market area through the offering of a broad selection of deposit
instruments, including NOW checking accounts, money market deposit accounts,
regular savings accounts, certificates of deposit and retirement savings plans.
Deposit account terms vary according to the minimum balance required, the time
periods
16
<PAGE>
the funds must remain on deposit and the interest rate, among other factors. In
determining the terms of its deposit accounts, First Federal considers current
market interest rates, profitability to First Federal, matching deposit and loan
products and its customer preferences and concerns. First Federal generally
reviews its deposit mix and pricing weekly. In recent years First Federal has
offered amongst the highest deposit rates in its market area in order to compete
with larger financial institutions that provide a wider range of products and
services. First Federal is evaluating the possibility of expanding its checking
account program as a means of attracting lower cost funding.
The following table indicates the amount of First Federal's jumbo
certificates of deposit by time remaining until maturity as of June 30, 1999.
Jumbo certificates of deposit represent minimum deposits of $100,000.
Maturity Period Amount
--------------- --------------
(In thousands)
Three months or less............ $1,490
Over three through six months... 1,556
Over six through twelve months.. 1,613
Over twelve months.............. 3,069
------
Total..................... $7,728
======
The following table sets forth the certificates of deposits in First
Federal classified by rates at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
<S> <C> <C> <C>
3.00 - 3.99%........................................ $ 563 $ -- $ --
4.00 - 4.99%........................................ 20,583 7,771 11,657
5.00 - 5.99%........................................ 23,846 35,999 36,503
6.00 - 6.99%........................................ 18,432 22,803 17,482
7.00 - 7.99%........................................ 1,302 1,299 1,506
8.00 - 8.99%........................................ 60 144 464
9.00 - 9.99%........................................ -- 183 307
------- ------- -------
Total......................................... $64,786 $68,199 $67,919
======= ======= =======
</TABLE>
The following table sets forth the amount and maturities of time deposits
at June 30, 1999.
<TABLE>
<CAPTION>
Amount Due
---------------------------------------------------------------
Less Than 1 - 2 2 - 3 3 - 4 After
1 Year Years Years Years 4 Years
--------- ----- ----- ----- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
3.00 - 3.99%........................................ $ 563 $ -- $ -- $ -- $ --
4.00 - 4.99%........................................ 14,607 5,103 255 134 484
5.00 - 5.99%........................................ 8,624 12,083 1,788 722 629
6.00 - 6.99%........................................ 17,277 454 112 333 256
7.00 - 7.99%........................................ 693 27 465 25 92
8.00 - 8.99%........................................ 26 34 -- -- --
------- ------- ------- ------ ------
Total......................................... $41,790 $17,701 $ 2,620 $1,214 $1,461
======= ======= ======= ====== ======
</TABLE>
17
<PAGE>
The following table sets forth the balances and changes in dollar
amounts of deposits in the various types of accounts offered by First Federal
between the dates indicated.
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ------------------------------ ----------------
Percent Percent Percent
of Increase/ of Increase/ of
Amount Total Decrease Amount Total Decrease Amount Total
------ ----- -------- ------ ----- -------- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Demand deposits $12,335 14.22% $ 1,711 $10,624 11.91% $ 1,714 $ 8,910 10.06%
Savings deposits 9,601 11.07 (805) 10,406 11.66 (1,325) 11,731 13.25
Certificates which mature:
Within 1 year 41,790 48.19 6,088 35,702 40.01 (7,287) 42,989 48.54
After 1 year, but within
2 years 17,701 20.41 (7,668) 25,369 28.43 8,771 16,598 18.74
After 2 years, but within
5 years 4,852 5.60 (1,723) 6,575 7.37 (836) 7,411 8.37
Certificates maturing
thereafter 443 0.51 (110) 553 0.62 (368) 921 1.04
------- ------ ------- ------- ------ ------- ------- ------
Total $86,722 100.00% $(2,507) $89,229 100.00% $ 669 $88,560 100.00%
======= ====== ======= ======= ====== ======= ======= ======
</TABLE>
The following table sets forth the deposit activities of First Federal
for the periods indicated.
Years Ended June 30,
-----------------------------
1999 1998 1997
---- ---- ----
(In thousands)
Beginning balance....................... $89,229 $88,560 $88,844
Net increase (decrease)
before interest credited............... (5,499) (2,582) (3,140)
Interest credited....................... 2,992 3,251 2,856
------- ------- -------
Net increase (decrease) in deposits..... (2,507) 669 (284)
------- ------- -------
Ending balance.......................... $86,722 $89,229 $88,560
======= ======= =======
Borrowings. First Federal has the ability to use advances from the
Federal Home Loan Bank-Indianapolis to supplement its supply of lendable funds
and to meet deposit withdrawal requirements. The Federal Home Loan Bank-
Indianapolis functions as a central reserve bank providing credit for savings
and loan associations and certain other member financial institutions. As a
member, First Federal is required to own capital stock in the Federal Home Loan
Bank-Indianapolis and is authorized to apply for advances on the security of
such stock and certain of its mortgage loans and other assets (principally
securities which are obligations of, or guaranteed by, the U.S. Government)
provided certain creditworthiness standards have been met. Advances are made
under several different credit programs. Each credit program has its own
interest rate and range of maturities. Depending on the program, limitations on
the amount of advances are based on the financial condition of the member
institution and the adequacy of collateral pledged to secure the credit. At
June 30, 1999, First Federal had a borrowing capacity of $33.3 million based on
available collateral.
18
<PAGE>
The following table sets forth certain information regarding First
Federal's use of Federal Home Loan Bank advances during the periods indicated.
Years Ended June 30,
----------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Maximum balance at any month end.. $3,645 $7,050 $7,500
Average balance................... 2,656 5,991 7,498
Period end balance................ -- 3,645 7,050
Weighted average interest rate:
At end of period............... N/A 5.77% 5.91%
During the period.............. 5.57% 5.93 5.77
Personnel
As of June 30, 1999, First Federal had 47 full-time employees and no
part-time employees. The employees are not represented by a collective
bargaining unit and First Federal believes its relationship with its employees
is good.
Subsidiary Activities
First Federal has one subsidiary, FFSL Service Corporation, Inc.
Federal savings associations generally may invest up to 3% of their assets in
service corporations, provided that any amount in excess of 2% is used primarily
for community, inner-city and community development projects. At June 30, 1999,
First Federal's equity investment in its subsidiary was $226,000, or 0.18% of
total assets. First Federal used the service corporation in 1994 to purchase a
$500,000 equity interest in a limited partnership organized to build, own and
operate a 44-unit low-income apartment complex. The limited partnership
generates low-income housing credits of approximately $73,000 per year.
19
<PAGE>
REGULATION AND SUPERVISION
General
As a savings and loan holding company, First Bancorp is required by federal
law to file reports with, and otherwise comply with, the rules and regulations
of the OTS. First Federal is subject to extensive regulation, examination and
supervision by the OTS, as its primary federal regulator, and the FDIC, as the
deposit insurer. First Federal is a member of the FHLB and its deposit accounts
are insured up to applicable limits by the SAIF managed by the FDIC. First
Federal must file reports with the OTS and the FDIC concerning its activities
and financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other savings institutions. The OTS and/or the FDIC conduct periodic
examinations to test First Federal's safety and soundness and compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulatory requirements and policies, whether by the OTS, the
FDIC or the Congress, could have a material adverse impact on First Bancorp,
First Federal and their operations. Certain of the regulatory requirements
applicable to First Federal and to First Bancorp are referred to below or
elsewhere herein. The description of statutory provisions and regulations
applicable to savings institutions and their holding companies set forth in this
report does not purport to be a complete description of such statutes and
regulations and their effects on First Bancorp and First Federal.
Holding Company Regulation
First Bancorp is a nondiversified unitary savings and loan holding company
within the meaning of federal law. As a unitary savings and loan holding
company, First Bancorp generally is not restricted under existing laws as to the
types of business activities in which it may engage, provided that First Federal
continues to be a qualified thrift lender. See "--Federal Savings Institution
Regulation--QTL Test." Upon any non-supervisory acquisition by First Bancorp of
another savings institution or savings bank that meets the qualified thrift
lender test and is deemed to be a savings institution by the OTS, First Bancorp
would become a multiple savings and loan holding company (if the acquired
institution is held as a separate subsidiary) and would generally be limited to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to the prior approval of the OTS, and certain
activities authorized by OTS regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written approval
of the OTS and from acquiring or retaining control of a depository institution
that is not insured by the FDIC. In evaluating applications by holding
companies to acquire savings institutions, the OTS considers the financial and
managerial resources and future prospects of the company and institution
involved, the effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and competitive factors.
The OTS may not approve any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such restrictions
on subsidiary savings institutions as described below. First Federal must
notify the OTS 30 days before declaring any dividend to First Bancorp. In
addition, the financial impact of a holding company on its subsidiary
institution is a matter
20
<PAGE>
that is evaluated by the OTS and the agency has authority to order cessation of
activities or divestiture of subsidiaries deemed to pose a threat to the safety
and soundness of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal association,
e.g., commercial, non-residential real property loans and consumer loans, are
limited to a specified percentage of the institution's capital or assets. In
addition, certain activities, such as mergers and acquisitions, and branching
are subject to the prior approval of the OTS.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 3% leverage ratio and an 8% risk-based capital ratio. Effective April
1, 1999, however, the minimum core capital ratio increased to 4% for all
institutions except those with the highest ratings on the CAMELS financial
institution rating system. In addition, the prompt corrective action standards
discussed below also establish, in effect, a minimum 2% tangible capital
standard, a 4% leverage ratio (3% for institutions receiving the highest rating
on the CAMELS financial institution rating system), and, together with the risk-
based capital standard itself, a 4% Tier I risk-based capital standard. The OTS
regulations also require that, in meeting the tangible, leverage and risk-based
capital standards, institutions must generally deduct investments in and loans
to subsidiaries engaged in activities as principal that are not permissible for
a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the OTS capital regulation based on the risks
believed inherent in the type of asset. Core (Tier I) capital is defined as
common stockholders' equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, and minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock, the allowance for loan and lease losses
limited to a maximum of 1.25% of risk-weighted assets and up to 45% of
unrealized gains on available-for-sale equity securities with readily
determinable fair values. Overall, the amount of supplementary capital included
as part of total capital cannot exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the OTS has deferred implementation
of the interest rate risk component. At June 30, 1999, First Federal met each
of its capital requirements.
21
<PAGE>
The following table presents First Federal's capital position at June 30,
1999.
Capital
Excess ------------------
Actual Required (Deficiency) Actual Required
Capital Capital Amount Percent Percent
------- -------- ------------ ------- --------
(Dollars in thousands)
Tangible $25,083 $1,838 $23,245 20.47% 1.50%
Core (Leverage) 25,083 4,901 20,182 20.47 4.00
Risk-based 25,357 4,954 20,403 40.95 8.00
Prompt Corrective Regulatory Action. The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization. Generally, a
savings institution that has a ratio of total capital to risk weighted assets of
less than 8%, a ratio of Tier I (core) capital to risk-weighted assets of less
than 4% or a ratio of core capital to total assets of less than 4% (3% or less
for institutions with the highest examination rating) is considered to be
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier I capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, the OTS is required to appoint a receiver or conservator for an
institution that is "critically undercapitalized." The regulation also provides
that a capital restoration plan must be filed with the OTS within 45 days of the
date a savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company in an amount of
up to the lesser of 5% of the institution's assets or the amount which would
bring the institution into compliance with all capital standards. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Insurance of Deposit Accounts. Deposits of First Federal are presently
insured by the SAIF. The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon
the categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the SAIF. During 1998,
FICO payments for SAIF members, including First Federal, approximated 6.10 basis
points, while Bank Insurance Fund ("BIF") members paid 1.22 basis points. By
law, there will be equal sharing of FICO payments between SAIF and BIF members
on the earlier of January 1, 2000 or the date the SAIF and BIF are merged. The
FDIC has authority to increase insurance assessments. A significant increase in
SAIF insurance premiums would likely have an adverse effect on the operating
expenses and results of operations of First Federal. Management cannot predict
what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of First Federal does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
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<PAGE>
Thrift Rechartering Legislation. Legislation enacted in 1996 provided that
the BIF and SAIF were to have merged on January 1, 1999 if there were no more
savings associations as of that date. Various proposals to eliminate the
federal savings association charter, create a uniform financial institutions
charter, abolish the OTS and restrict savings and loan holding company
activities have been introduced in Congress. Pending legislation would place
activities restrictions on unitary savings and loan holding companies, subject
to an exception for existing holding companies such as First Bancorp. First
Federal is unable to predict whether such legislation will be enacted or the
extent to which the legislation would restrict or disrupt its operations.
Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to national
banks. A savings institution may not make a loan or extend credit to a single
or related group of borrowers in excess of 15% of its unimpaired capital and
surplus. An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily-marketable collateral. At June 30,
1999, First Federal's limit on loans to one borrower was $3.8 million, and First
Federal's largest aggregate outstanding balance of loans to one borrower was
$0.3 million.
QTL Test. Federal law requires savings institutions to meet a qualified
thrift lender test. Under the test, a savings association is required to either
qualify as a "domestic building and loan association" under the Internal Revenue
Code or maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least nine
months out of each 12 month period.
A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of June 30, 1999, First Federal met the qualified thrift
lender test. Recent legislation has expanded the extent to which education
loans, credit card loans and small business loans may be considered "qualified
thrift investments."
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution, including cash
dividends, payments to repurchase its shares and payments to shareholders of
another institution in a cash-out merger. The rule effective in 1998
established three tiers of institutions based primarily on an institution's
capital level. An institution that exceeded all capital requirements before and
after a proposed capital distribution ("Tier I Bank") and had not been advised
by the OTS that it was in need of more than normal supervision, could, after
prior notice but without obtaining approval of the OTS, make capital
distributions during the calendar year equal to the greater of (i) 100% of its
net earnings to date during the calendar year plus the amount that would reduce
by one-half the excess capital over its capital requirements at the beginning of
the calendar year or (ii) 75% of its net income for the previous four quarters.
Any additional capital distributions required prior regulatory approval. At
June 30, 1999, First Federal was a Tier I Bank. Effective April 1, 1999, the
OTS's capital distribution regulation changed. Under the new regulation, an
application to and the prior approval of the OTS will be required prior to any
capital distribution if the institution does not meet the criteria for
"expedited treatment" of applications under OTS regulations (i.e., generally,
safety and soundness, compliance and Community Reinvestment Act examination
ratings in the two top categories), the total capital distributions for the
calendar year exceed net income for that year plus the amount of retained net
income for the preceding two years, the institution would be undercapitalized
following the distribution or the distribution would otherwise be contrary to a
statute, regulation or agreement with OTS. If an application is not required,
the institution must still provide prior notice to OTS of the capital
distribution. In the event First Federal's capital fell below its regulatory
requirements or the OTS notified it that it was in need of more than normal
supervision, First Federal's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice.
Liquidity. First Federal is required to maintain an average daily balance
of specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed from
time to time by the OTS to any
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<PAGE>
amount within the range of 4% to 10%. Monetary penalties may be imposed for
failure to meet these liquidity requirements. First Federal's has never been
subject to monetary penalties for failure to meet its liquidity requirements.
Assessments. Savings institutions are required to pay assessments to the
OTS to fund the agency's operations. The general assessments, paid on a semi-
annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in First Federal's latest
quarterly thrift financial report.
Transactions with Related Parties. First Federal's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law. The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
capital and surplus of the savings institution. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required to be
secured by collateral in an amount and of a type described in federal law. The
purchase of low quality assets from affiliates is generally prohibited. The
transactions with affiliates must be on terms and under circumstances, that are
at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited from lending to any affiliate that is engaged in
activities that are not permissible for bank holding companies and no savings
institution may purchase the securities of any affiliate other than a
subsidiary.
First Federal's authority to extend credit to executive officers, directors
and 10% shareholders ("insiders"), as well as entities such persons control, is
also governed by federal law. Such loans are required to be made on terms
substantially the same as those offered to unaffiliated individuals and not
involve more than the normal risk of repayment. An exception exists for loans
made pursuant to a benefit or compensation program that is widely available to
all employees of the institution and does not give preference to insiders over
other employees. The law limits both the individual and aggregate amount of
loans First Federal may make to insiders based, in part, on First Federal's
capital position and requires certain board approval procedures to be followed.
Special limitations apply to loans made to executive officers of the
institution.
Enforcement. The OTS has primary enforcement responsibility over savings
institutions and has the authority to bring actions against the institution and
all institution-affiliated parties, including stockholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful
action likely to have an adverse effect on an insured institution. Formal
enforcement action may range from the issuance of a capital directive or cease
and desist order to removal of officers and/or directors to institution of
receivership, conservatorship or termination of deposit insurance. Civil
penalties cover a wide range of violations and can amount to $25,000 per day, or
even $1 million per day in especially egregious cases. The FDIC has the
authority to recommend to the Director of the OTS that enforcement action to be
taken with respect to a particular savings institution. If action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances. Federal law also establishes criminal penalties for certain
violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that a
savings institution fails to meet any standard prescribed by the guidelines, the
OTS may require the institution to submit an acceptable plan to achieve
compliance with the standard.
Federal Home Loan Bank System
First Federal is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. First
Federal, as a member of the Federal Home Loan Bank-Indianapolis, is required to
acquire and hold shares of capital stock in the Federal Home Loan Bank-
Indianapolis in an amount at least equal to 1.0% 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
24
<PAGE>
advances (borrowings) from the Federal Home Loan Bank-Indianapolis, whichever is
greater. First Federal was in compliance with this requirement with an
investment in Federal Home Loan Bank stock at June 30, 1999, of $727,000.
Federal Home Loan Bank advances must be secured by specified types of collateral
and all long-term advances may only be obtained for the purpose of providing
funds for residential housing finance.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts and to contribute funds for affordable housing
programs. These requirements could reduce the amount of dividends that the
Federal Home Loan Banks pay to their members and could also result in the
Federal Home Loan Banks imposing a higher rate of interest on advances to their
members.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally
provide that reserves be maintained against aggregate transaction accounts as
follows: for accounts aggregating $46.5 million or less (subject to adjustment
by the Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $46.5 million, the reserve requirement is $1.395
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of $46.5
million. The first $4.9 million of otherwise reservable balances (subject to
adjustments by the Federal Reserve Board) are exempted from the reserve
requirements. First Federal complies with the foregoing requirements.
FEDERAL AND STATE TAXATION
Federal Taxation
General. First Bancorp and First Federal report their income on a fiscal
year, consolidated basis and the accrual method of accounting, and are subject
to federal income taxation in the same manner as other corporations with some
exceptions, including particularly First Federal's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to First Bancorp or First Federal. For its 1999 taxable year, First
Bancorp is subject to a maximum federal income tax rate of 34%.
Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and other
conditions of the Internal Revenue Code were permitted to use certain favorable
provisions to calculate their deductions from taxable income for annual
additions to their bad debt reserve. A reserve could be established for bad
debts on qualifying real property loans (generally secured by interests in real
property improved or to be improved) under (i) the percentage of taxable income
method or (ii) the experience method. The reserve for nonqualifying loans was
computed using the experience method.
Congress repealed the reserve method of accounting for bad debts for tax
years beginning after 1995 and required savings institutions to recapture (i.e.,
take into income) certain portions of their accumulated bad debt reserves.
Thrift institutions eligible to be treated as "small banks" (assets of $500
million or less) are allowed to use the experience method applicable to such
institutions, while thrift institutions that are treated as large banks (assets
exceeding $500 million) are required to use only the specific charge-off method.
Thus, the percentage of taxable income method of accounting for bad debts is no
longer available for any financial institution.
A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the Internal
Revenue Service. Any Section 481(a) adjustment required to be taken into income
with respect to such change generally will be taken into income ratably over a
six-taxable year period, beginning with the first taxable year beginning after
1995, subject to a 2-year suspension if the "residential loan requirement" is
satisfied.
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<PAGE>
Under the residential loan requirement provision, the required recapture
will be suspended for each of two successive taxable years, beginning with First
Federal's 1996 taxable year, in which First Federal originates a minimum of
certain residential loans based upon the average of the principal amounts of
such loans made by First Federal during its six taxable years preceding its
current taxable year.
Distributions. If First Federal makes "non-dividend distributions" to
First Bancorp, such distributions will be considered to have been made from
First Federal's unrecaptured tax bad debt reserves (including the balance of its
reserves as of December 31, 1987) to the extent thereof, and then from First
Federal's supplemental reserve for losses on loans, to the extent thereof, and
an amount based on the amount distributed (but not in excess of the amount of
such reserves) will be included in First Federal's income. Non-dividend
distributions include distributions in excess of First Federal'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 First Federal's current or accumulated
earnings and profits will not be so included in its income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Thus, if First Federal makes a non-dividend
distribution to First Bancorp, 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. First Federal does not intend to pay dividends that
would result in a recapture of any portion of its bad debt reserves.
State Taxation
Indiana imposes an 8.5% franchise tax based on a financial institution's
adjusted gross income as defined by statute. In computing adjusted gross
income, deductions for municipal interest, U.S. Government interest, the bad
debt deduction computed using the reserve method and pre-1990 net operating
losses are disallowed. First Federal's state franchise tax returns have not
been audited for the past five tax years.
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<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of First Bancorp.
<TABLE>
<CAPTION>
Name Age (1) Position
- ---- -------- --------
<S> <C> <C>
Harold Duncan........... 58 President, Chief Executive Officer and Chairman of the Board
Michael H. Head......... 41 Vice President
Christopher A. Bengert.. 42 Treasurer
</TABLE>
- ----------------------------
(1) As of June 30, 1999
The following table sets forth certain information regarding the executive
officers of First Federal.
<TABLE>
<CAPTION>
Age (1)
Name Age (1) Position
- ---- -------- --------
<S> <C> <C>
Harold Duncan........... 58 President and Chief Executive Officer
Michael H. Head......... 41 Executive Vice President and Chief Operating Officer
Monica L. Stinchfield... 43 Senior Vice President
Christopher A. Bengert.. 42 Senior Vice President and Treasurer
Kirby W. King........... 45 Senior Vice President
Richard S. Witte........ 46 Vice President
Dale Holt............... 45 Vice President
</TABLE>
- ----------------------------
(1) As of June 30, 1999
The executive officers of First Bancorp and First Federal are elected
annually and hold office until their successors have been elected and
qualified or until they are removed or replaced.
Biographical Information
Harold Duncan joined First Federal in 1964 and served as a loan officer,
Assistant Vice President, Vice President, and Executive Vice President before
becoming President in 1990. Mr. Duncan added the title of Chief Executive
Officer in 1991.
Michael H. Head joined First Federal in 1980. From 1984 to 1994, he served as
Vice President and manager of the loan department. In 1994, he became Senior
Vice President. In 1996, Mr. Head became Executive Vice President and in
September 1998 added the title of Chief Operating Officer.
Monica L. Stinchfield joined First Federal in 1980. From 1985 to 1993 she
served as Assistant Vice President and from 1993 to September 1998, she served
as Vice President. In 1996, Ms. Stinchfield became the manager of the loan
department and secondary market activity. In September 1998, Ms. Stinchfield
became Senior Vice President.
Christopher A. Bengert joined First Federal in 1986. From 1991 to 1994, Mr.
Bengert served as Vice President and Treasurer. In 1994, he became Senior Vice
President.
Kirby W. King joined First Federal in January 1999 as Senior Vice President-
Consumer Lending. He was previously employed by United Fidelity Bank as Senior
Vice President.
Richard S. Witte joined First Federal in 1997 and in October 1998 became Vice
President. Mr. Witte is responsible for the savings department and deposit
services. Prior to joining First Federal, Mr. Witte was employed by Evansville
Federal Savings Bank for 21 years.
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<PAGE>
Dale Holt joined First Federal in January 1999 as Vice President-Consumer
Lending. He was previously employed by United Fidelity Bank as Vice President.
ITEM 2. PROPERTIES
First Federal currently conducts its business through its four full service
banking offices, including its main banking office. First Federal owns all four
of its offices. The following table sets forth information regarding First
Federal's properties.
<TABLE>
<CAPTION>
Original Net Book Value of
Year Property at Approximate
Location Acquired June 30, 1999(1) Square Footage
- ------------------------- -------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Main Office:
2200 West Franklin Street
Evansville, Indiana...... 1904 $281 17,507
Branch Offices:
2028 Division Street
Evansville, Indiana...... 1956 153 5,276
1001 N. Green River Road
Evansville, Indiana...... 1981 503 2,603
4451 N. First Avenue
Evansville, Indiana...... 1997 561 7,300
</TABLE>
- ---------------
(1) Represents the net book value of land, buildings, furniture, fixtures and
equipment owned by First Federal.
ITEM 3. LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving
First Federal, such as claims to enforce liens, condemnation proceedings on
properties in which First Federal holds security interests, claims involving the
making and servicing of real property loans and other issues incident to First
Federal's business. In the opinion of management, after consultation with First
Federal's legal counsel, no significant loss is expected from any of such
pending claims or lawsuits. Except as described below, First Federal is not a
party to any material pending legal proceedings.
On January 8, 1999, Fidelity Federal Bancorp and its wholly owned
subsidiary, United Fidelity Bank, FSB, filed suit in Vanderburgh County Superior
Court (82D039901CP61) against First Federal in connection with First Federal's
actions in hiring new personnel for its consumer lending department, all of whom
were previously employed by United Fidelity Bank. The plaintiffs allege three
counts in their complaint. In the first count, the plaintiffs allege that First
Federal tortuously interfered with the plaintiff's contractual relationships
with its employees by intentionally inducing six persons to simultaneously break
their employment contracts and/or relationships with United Fidelity Bank. The
plaintiffs allege that First Federal's actions have effectively shut down the
consumer loan department of United Fidelity Bank and have caused damage to
United Fidelity Bank, including lost profits and damage to its reputation. In
the second count, the plaintiffs seek to impose a constructive trust on the
future profits generated by First Federal's consumer loan department in order to
avoid the unjust enrichment of First Federal. In the third count, the
plaintiffs
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<PAGE>
allege that through the development of its consumer lending department United
Fidelity Bank had developed practices, policies, methods and procedures as well
as customer and prospective customer information which it considered proprietary
and confidential and that First Federal has misappropriated these trade secrets.
The complaint requests injunctive relief prohibiting First Federal from using
the information alleged to constitute trade secrets, unspecified monetary
damages and recovery of reasonable attorneys' fees and costs. As of the date of
this report, the plaintiffs have not sought a temporary restraining order, a
preliminary injunction or any other interim relief. First Federal intends to
vigorously defend the action. The parties are currently conducting discovery. A
trial date has tentatively been set for December 6, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
First Bancorp's common stock has been listed on the Nasdaq National Market
since April 7, 1999. According to the records of its transfer agent, First
Bancorp had approximately 556 stockholders of record as of September 15, 1999.
This number does not reflect stockholders who hold their shares in "street
name." The following table sets forth the high and low sale price of First
Bancorp's common stock as of the close of market and dividends paid in each the
fiscal quarter's since First Bancorp's initial public offering.
<TABLE>
<CAPTION>
High Low Dividends
------ ------- -----------
<S> <C> <C> <C>
Fiscal 1999:
Fourth Quarter.. $10.50 $9.0625 --
</TABLE>
29
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain consolidated summary historical
financial information concerning the financial position of First Bancorp,
including its subsidiary, First Federal, for the period and at the dates
indicated. The financial data is derived in part from, and should be read in
conjunction with, the consolidated financial statements and related notes of
First Bancorp. Information for periods prior to 1999 is for First Federal only.
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Balance Sheet Data:
Total assets............................. $124,800 $ 108,964 $ 110,747 $110,905 $105,846
Other investment securities.............. 12,039 18,195 18,940 17,246 8,788
Mortgage-backed securities............... 30,937 35,545 41,394 41,607 47,936
Loans receivable, net.................... 56,309 35,655 32,164 32,441 32,492
Deposit accounts......................... 86,722 89,229 88,560 88,844 86,886
Borrowings............................... -- 3,645 7,050 7,500 5,000
Stockholders' equity..................... 36,528 14,949 14,053 13,575 13,002
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income.......................... $ 7,467 $ 7,715 $ 7,474 $ 7,295 $ 6,658
Interest expense......................... 4,529 4,977 4,763 4,645 4,062
-------- --------- ----------- -------- --------
Net interest income...................... 2,938 2,738 2,711 2,650 2,596
Provision for loan losses................ 24 -- -- 100 --
-------- --------- ----------- -------- --------
Net interest income after provision for
loan losses........................... 2,914 2,738 2,711 2,550 2,596
Other income............................. 323 601/(1)/ 179 169 219
Other expense............................ 2,454 2,044 2,391/(2)/ 1,900 1,901
-------- --------- ----------- -------- --------
Income before income taxes............... 783 1,295 499 819 914
Income taxes............................. 210 415 112 199 264
-------- --------- ----------- -------- --------
Net income......................... $ 573 $ 880 $ 387 $ 620 $ 650
======== ========== =========== ======== ========
</TABLE>
- --------------------------------
(1) Includes gains of $400,000 on the sale of a branch office and related
deposits.
(2) Includes one-time assessment of $561,000 to recapitalize the Savings
Association Insurance Fund.
30
<PAGE>
<TABLE>
<CAPTION>
At or For the Years Ended June 30,
-----------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios:
Performance Ratios:
Return on average assets (1)....... 0.49% 0.77% 0.35% 0.57% 0.62%
Return on average equity (2)....... 2.86 6.04 2.83 4.66 5.14
Average equity as a percent of
average total assets............. 17.27 12.79 12.35 12.33 12.01
Interest rate spread (3)........... 2.04 2.03 2.08 2.09 2.01
Net interest margin (4)............ 2.69 2.53 2.56 2.57 2.53
Average interest-earning assets
to average interest-bearing
liabilities...................... 115.81 110.75 110.71 110.68 113.18
Other expenses as a percent of
average total assets............. 2.11 1.79 2.16 1.76 1.80
Capital Ratios:
Tangible........................... 20.47 13.60 12.62 12.28 12.29
Core............................... 20.47 13.60 12.62 12.28 12.29
Risk-based......................... 40.95 34.75 37.35 36.95 36.42
Asset Quality Ratios:
Nonperforming loans as a percent
of total loans (5).............. 0.01 0.00 0.08 0.00 0.12
Nonperforming assets as a percent
of total assets (6)............. 0.00 0.00 0.02 0.00 0.04
Allowance for loan losses as a
percent of total loans.......... 0.48 0.70 0.77 0.76 0.46
Allowance for loan losses as a
percent of nonperforming loans.. 4566.67 N/A 925.93 N/A 263.16
Net charge-offs as a percent of
average outstanding loans....... N/A N/A N/A N/A N/A
- -------------------------------------
</TABLE>
(1) Net income divided by average total assets.
(2) Net income divided by average total equity.
(3) Difference between weighted average yield on interest-earning assets and
weighted average cost of interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
(5) Nonperforming loans consist of loans accounted for on a nonaccrual basis
and accruing loans 90 days or more past due.
(6) Nonperforming assets consist of nonperforming loans, real estate acquired
in settlement of loans, and restructured loans.
31
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of First Bancorp. The information contained in this
section should be read in conjunction with the consolidated financial statements
and accompanying notes contained in this report.
Forward-Looking Statements
This Annual Report on Form 10-K contains certain forward-looking statements
which are based on certain assumptions and describe future plans, strategies and
expectations of First Bancorp. These forward-looking statements are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. First Bancorp's ability to
predict results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on the operations
of First Bancorp and the subsidiaries include, but are not limited to, changes
in: interest rates, general economic conditions, legislative/regulatory
changes, monetary and fiscal policies of the U.S. Government, including policies
of the U.S. Treasury and the Federal Reserve Board, the quality or composition
of the loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in First Bancorp's market area and
accounting principles and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. First Bancorp does not undertake -- and
specifically disclaims any obligation -- to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
Operating Strategy
First Bancorp's principal business currently consists of the operations of
First Federal. The principal business activity of First Federal consists of
attracting deposits from the general public and originating loans secured by
one-to-four family residential real estate properties located in its market
area. First Federal also maintains a substantial investment portfolio of
mortgage-backed and other securities. Earnings depend primarily upon net
interest income, which is the difference between the interest income First
Federal receives on its loan and investment portfolios and the interest it pays
on deposits and borrowings. First Federal's profitability is also affected by
the level of other income and expenses. Other income includes service charges,
fees and gains on sales of loans. Other expenses include compensation and
benefits, occupancy and equipment expenses, deposit insurance premiums, and data
processing. First Federal's profitability is also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government legislation and regulation, and monetary and fiscal
policies.
First Federal's strategy is to operate as an independent, retail financial
institution dedicated to financing home ownership and other consumer needs in
Evansville, Indiana. First Federal's operating philosophy has been to be
conservative with respect to its underwriting standards and maintain a high
level of asset quality, while generating profits, remaining well capitalized and
providing a high level of customer service. First Federal's current business
strategy includes an emphasis on increasing its mortgage loan, consumer loan and
loan servicing portfolios. It also includes continued maintenance of a
substantial investment portfolio of U.S. government and agency securities and
investment grade mortgage-backed securities and deposit growth to support the
growth in loans and investments. First Federal intends to expand its mortgage
loan and loan servicing portfolios through increased origination efforts and not
by lowering its underwriting standards. First Federal has recently expanded its
consumer lending activities by initiating an indirect automobile lending
program.
32
<PAGE>
Comparison of Financial Condition at June 30, 1999 and June 30, 1998
Total consolidated assets of First Bancorp increased $15.8 million, or
14.5%, from $109.0 million at June 30, 1998 to $124.8 million at June 30, 1999.
This growth in assets occurred primarily in cash and cash equivalents and loans
offset by a decline in investment securities. The growth in total assets was
funded with net proceeds from First Bancorp's initial public offering in April
1999.
Cash and cash equivalents, which are primarily comprised of demand deposits
at the Federal Home Loan Bank, increased by $5.0 million, or 42.9%, from $11.7
million at June 30, 1998 to $16.7 million at June 30, 1999. This increase was
the result of higher liquidity needs as the Bank increased its emphasis on both
mortgage and consumer lending.
Investment securities decreased $10.7 million, or 20.0%, from $53.7 million
at June 30, 1998 to $43.0 million at June 30, 1999. This decline was the result
of First Federal reinvesting the proceeds from investment security maturities
and principal repayments into its mortgage and consumer loan portfolios.
Net loans grew $20.7 million, or 57.9%, from $35.7 million at June 30, 1998
to $56.3 million at June 30, 1999. This increase is attributable to a $6.2
million increase in one- to four-family mortgage loans and a $15.0 million
increase in consumer loans. In January 1999, First Federal significantly
expanded its consumer lending operation. From January through June 1999, First
Federal originated $17.6 million of indirect automobile loans. In May 1999,
First Federal entered into an agreement to sell indirect automobile loans with
servicing released and without recourse to another financial institution. It is
management's intent to sell 60% - 80% of its indirect automobile loan production
and retain the remainder in its own portfolio.
The allowance for loan losses increased from $250,000 at June 30, 1998 to
$274,000 at June 30, 1999 due to the total provision recorded of $24,000. The
ratios of First Bancorp's allowance for loan losses to total loans were .48% and
.70% at June 30, 1999 and 1998. The ratios of First Bancorp's allowance for
loan losses to total nonperforming loans was 4566.67% at June 30, 1999. There
were no nonperforming loans at June 30, 1998.
Other assets increased $1.1 million or 34.2% from $3.4 million at June 30,
1998 to $4.5 million at June 30, 1999. This increase was primarily the result
of $700,000 in accounts receivable related to First Federal's new indirect
lending program.
Total deposits declined $2.5 million, or 2.8%, from $89.2 million at June
30, 1998 to $86.7 million at June 30, 1999. This slight decline was primarily
the result of customers using funds deposited at First Federal to purchase stock
in First Bancorp's initial public offering.
Borrowings declined from $3.6 million to zero as a portion of the proceeds
from the initial public offering was used to repay Federal Home Loan Bank
advances.
Total stockholders' equity increased $21.6 million from $14.9 million at
June 30, 1998 to $36.5 million at June 30, 1999. This increase was primarily
attributable to the $21.0 million of net proceeds generated from the initial
public offering in April 1999. The balance of the increase, $600,000, was
attributable to the net earnings of First Bancorp for the year ended June 30,
1999.
Comparison of Operating Results for the Years Ended June 30, 1999 and 1998
General. Net income for the year ended June 30, 1999 declined $307,000, or
34.8%, from $880,000 for the year ended June 30, 1998 to $573,000 for the year
ended June 30, 1999. This decrease was primarily attributable to a decline in
noninterest income coupled with an increase in noninterest expense. Included in
income in 1998 was $400,000 of gains in connection with the sale of a branch and
related deposits. The reduction in net income was somewhat offset by an
increase in net interest income. The return on average assets was .49% for
fiscal 1999 compared to .77% for fiscal 1998 and the return on average equity
was 2.86% for fiscal 1999 compared to 6.04% for 1998.
33
<PAGE>
Net Interest Income. Net interest income for the year ended June 30, 1999
increased $200,000, or 7.3%, from $2.7 million during the year ended June 30,
1998 to $2.9 million for the year ended June 30, 1999. The increase in net
interest income was attributable to a $448,000, or 9.0%, reduction in total
interest expense from $5.0 million during fiscal 1998 to $4.5 million during
fiscal 1999. This decline was primarily the result of a $278,000 decline in
interest expense on deposits, as average deposits decreased from $91.4 million
during 1998 to $90.1 million during 1999, and the average cost of those deposits
declined from 5.01% during 1998 to 4.78% during 1999 and a $207,000 decline in
interest expense on borrowings, as average borrowings declined from $6.0 million
during 1998 to $2.7 million during 1999, and the average cost of those
borrowings declined from 5.93% during 1998 to 5.57% during 1999.
In addition, interest income declined by $248,000, or 3.2%, from $7.7
million during fiscal 1998 to $7.5 million during fiscal 1999. This decline was
attributable to a $1.0 million, or 24.5%, decrease in interest income from
investment securities, from $4.1 million during 1998 to $3.1 million during 1999
as the average balance of investment securities declined from $60.4 million,
with an average yield of 6.80% during 1998 to $50.0 million with an average
yield of 6.26% during 1999.
This decline in interest income was partially offset by a $742,000 increase
in interest income from loans, as the average balance of loans receivable
increased from $32.7 million during fiscal 1998 to $42.5 million during fiscal
1999. The increase in interest income attributable to loan growth (volume) was
somewhat mitigated by a 16 basis point decline on the average yield on the
portfolio from 8.25% during fiscal 1998 to 8.09% during fiscal 1999.
Provision for Loan Losses. The provision for loan losses for the year
ended June 30, 1999 was $24,000 compared to no provision for the year ended June
30, 1998. The provision reflects management's analysis of the loan portfolio
based on information which is currently available to it at such time. In
particular, management considers the level of non-performing loans (if any) and
potential problem loans. The higher provision for 1999 reflects overall growth
in the loan portfolio. First Federal did not experience any loan charge-offs
during fiscal 1999 or 1998. While management believes that the allowance for
loan losses is sufficient based on information currently available to it, no
assurances can be made that future events, conditions, or regulatory directives
will not result in increased provisions for loan losses or additions to the
allowance for loan losses which may adversely affect net income.
Noninterest Income. Noninterest income totaled $324,000 in fiscal 1999
compared to $601,000 in fiscal 1998, a decrease of $278,000 or 46.2%. Gains
related to the sale of a branch office during fiscal 1998 accounted for the
decrease and were somewhat offset by an increase in other noninterest income.
Gain on branch disposal and gain on deposit disposal were $261,000 and
$139,000 respectively during fiscal 1998, while no such disposals occurred
during fiscal 1999. Other noninterest income was $227,000 during fiscal 1999
compared to $115,000 during fiscal 1998, an increase of $112,000, which was
primarily attributable to a $48,000 increase in gains on loan sales and an
approximately $38,000 increase in service charges on deposit accounts and other
customer fees.
Noninterest Expense. Total noninterest expense increased from $2.0
million in fiscal 1998 to $2.5 million in fiscal 1999, an increase of $410,000
or 20.1%. Salaries and employee benefits totaled $1.4 million during fiscal
1999, $270,000, or 23.8%, higher than the $1.1 million recorded during fiscal
1998. Approximately $147,000 of the increase in salaries and employee benefits
expense is attributable to the addition of a new indirect lending department in
January 1999. Compensation expense is also approximately $47,000 higher during
fiscal 1999 as a result of the implementation of First Federal's Employee Stock
Ownership Plan, which was adopted in conjunction with First Bancorp's initial
public offering in April 1999. Salaries for employees other than those
previously noted were $76,000 higher during fiscal 1999 due mainly to incentive
compensation bonuses and normal salary increases.
Other noninterest expense increased from $469,000 during fiscal 1998 to
$560,000 during fiscal 1999, an increase of $91,000 or 19.3%. This increase was
primarily the result of increased phone fees, office supplies, postage and other
expenses associated with the new indirect lending department totaling $31,000, a
$21,000 increase in professional fees primarily related to the defense of a
lawsuit in connection with the acquisition of the indirect lending department,
and various other small increases in several other noninterest expense
categories.
34
<PAGE>
Income Tax Expense. Total income tax expense was $210,000 in fiscal 1999
compared to $415,000 in 1998. The decrease is attributable to a lower taxable
income for fiscal 1999. The effective tax rates for the years ended June 30,
1999 and 1998 were 26.8% and 32.1%.
Comparison of Operating Results for the Years Ended June 30, 1998 and 1997
General. Net income increased by $493,000 to $880,000 for the year ended
June 30, 1998, from $387,000 for the fiscal year ended June 30, 1997. The
majority of the increase was due to a branch sale in fiscal 1998 and the one-
time Savings Association Insurance Fund assessment in fiscal 1997. Net interest
income increased $27,000, or less than 1%.
Net Interest Income. Net interest income increased less than 1% from
fiscal 1997 to $2.7 million in fiscal 1998. Interest income increased $241,000
to $7.7 million for fiscal 1998 from $7.5 million for fiscal 1997. The increase
was the result of First Federal's increased focus on the origination of loans,
which generated a slightly higher rate of interest than investments, and to
larger average balances of investment securities and deposits with financial
institutions. The average yield on interest-earning assets increased to 7.12%
for fiscal 1998 from 7.05% for fiscal 1997.
Interest expense increased by $214,000 to $5.0 million for fiscal 1998 from
$4.8 million for fiscal 1997. The increase in interest expense was due to an
increase in interest bearing deposits, primarily certificates of deposit, and a
12 basis point increase in the average cost of interest bearing liabilities.
Certificates of deposit were First Federal's largest type of interest-bearing
liability, comprising, on average, 73% of the total. The average balance of
certificates of deposit outstanding during the year increased $5.2 million, to
$71.8 million from $66.6 million for fiscal 1997. Additionally, the average
yield on certificates of deposit increased 8 basis points, to 5.68% from 5.60%
for fiscal 1997. Following the sale of a branch office and the opening of a new
office in October 1997, First Federal offered a short-term certificate of
deposit at an above-market rate in order to attract customers to its new branch.
There was also an increase in the average cost of borrowings, which was
partially offset by decreases in the average cost of demand and savings deposits
and in other interest bearing liabilities.
Provision for Loan Losses. First Federal took no provision for loan losses
in fiscal 1998 or fiscal 1997 as it had no loan losses during those years and
believed that the allowance for loan losses reflected the inherent risks within
the loan portfolio.
Noninterest Income. Noninterest income increased by $422,000, to $601,000
for fiscal 1998 from $179,000 for fiscal 1997. Included in other income for
fiscal 1998 are gains on the sale of real estate, equipment and deposit accounts
from First Federal's sale of its Mt. Vernon, Indiana branch in October 1997.
First Federal recognized gains on the sale of real estate and equipment of
$261,000 and gains on the sale of deposits of $139,000. The primary components
of other income are loan servicing, deposit, ATM and other customer fees,
increases in cash surrender value of life insurance, and gains on sales of
loans.
Noninterest Expense. Noninterest expenses decreased by 14.5%, to $2.0
million during fiscal 1998 from $2.4 million for fiscal 1997. This decrease was
principally associated with the $561,000 one time Savings Association Insurance
Fund assessment that was paid and expensed during fiscal 1997. Pursuant to
legislation enacted on September 30, 1996, the FDIC imposed a one-time special
assessment on deposits held by financial institutions that are insured through
the Savings Association Insurance Fund. The special assessment was equal to
$0.657 per $100 of insured deposits and was required to be applied against
deposits held as of March 31, 1995. The assessment had the effect of reducing
First Federal's annual assessment per $1,000 of insured deposits from $0.23 to
$0.0648. Salaries and employee benefits increased $162,000, or 16.6%, from
fiscal 1997. First Federal, in addition to normal increases, added personnel to
the mortgage loan department, technology, and branch administration. In
addition to selling the Mt. Vernon, Indiana branch, as discussed above, First
Federal also purchased a new branch location from another financial institution
and opened this location for business. Additional personnel were added to
operate this full-service branch. Net occupancy and equipment expense also
combined to reflect an increase of $77,000 for fiscal 1998 over fiscal 1997.
Reasons for this increase included depreciation and related costs for the new
branch, as well as for significant improvements in the area of technology.
35
<PAGE>
Income Tax Expense. Income tax expense increased $303,000 to $415,000 for
fiscal 1998 from $112,000 for fiscal 1997 as a result of the increase in taxable
income. The effective tax rate increased to 32% for fiscal 1998 from 22% for
fiscal 1997 due principally to an increased amount of earnings relative to a
consistent amount of tax credits from First Federal's investment in a low-income
apartment complex. First Federal receives approximately $73,000 per year in
low-income housing tax credits through this investment. Such credits are
expected to be available through February 2004.
Average Balances, Interest and Average Yields/Cost
The following table sets forth for the years ended June 30, 1999, 1998 and
1997 information regarding average balances of assets and liabilities as well as
the total dollar amounts of interest income from average interest-earning assets
and interest expense on average interest-bearing liabilities and average yields
and costs. Such yields and costs for the periods indicated are derived by
dividing income or expense by the average balances of assets or liabilities,
respectively, for the periods presented.
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------- -------------------------------- -----------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
-------- --------- ------- ------- --------- ------ ------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1).... $ 42,472 $3,436 8.09% $ 32,675 $2,695 8.25% $ 32,000 $2,581 8.07%
Investment securities... 49,607 3,103 6.26 60,379 4,108 6.80 60,034 4,085 6.80
Deposits with financial
institutions........... 15,715 833 5.30 13,909 818 5.88 12,729 719 5.65
Federal funds sold...... 703 35 4.98 637 35 5.49 572 31 5.42
Other................... 727 60 8.25 727 59 8.12 727 58 7.98
-------- ------ ------- ------ -------- -------
Total
interest-earning
assets.............. 109,224 7,467 6.84 108,327 7,715 7.12 106,062 7,474 7.05
Non-interest-earning assets 6,831 5,589 4,822
-------- ------- --------
Total assets......... $116,055 $113,916 $110,884
======== ======== ========
Interest-bearing liabilities:
Demand and savings
accounts............... $ 22,666 596 2.63 $ 19,573 500 2.55 $ 21,379 571 2.67
Certificates of deposit. 67,482 3,710 5.50 71,847 4,084 5.68 66,636 3,731 5.60
-------- ------ ------- ------ -------- ------
Total deposits....... 90,148 4,306 4.78 91,420 4,584 5.01 88,015 4,302 4.89
Borrowings.............. 2,656 148 5.57 5,991 355 5.93 7,498 433 5.77
Other................... 1,508 75 4.97 400 38 9.50 288 28 9.72
-------- ----- ------- ----- -------- ------
Total
interest-bearing
liabilities......... 94,312 4,529 4.80 97,811 4,977 5.09 95,801 4,763 4.97
Non-interest-bearing
liabilities............... 1,697 1,536 1,386
Stockholders' equity....... 20,046 14,569 13,697
-------- ------- --------
Total liabilities
and stockholders'
equity.............. $116,055 $113,916 $110,884
======== ======== ========
Net interest income........ $2,938 $2,738 $2,711
====== ====== ======
Interest rate spread (2)... 2.04% 2.03% 2.08%
Net interest margin (3).... 2.69% 2.53% 2.56%
Ratio of average
interest-earning assets
to average
interest-bearing
liabilities............ 115.81% 110.75% 110.71%
</TABLE>
- --------------------------------
(1) Average loans receivable includes nonperforming loans. Interest income
includes interest and fees on loans, but does not include interest on loans
90 days or more past due.
(2) Yield on interest-earning assets less cost of interest-bearing liabilities.
(3) Net interest income as a percentage of average interest-earning assets.
36
<PAGE>
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on
net interest income of First Bancorp for the years ended June 30, 1999, 1998 and
1997. Information is provided with respect to (1) effects on interest income
attributable to changes in volume (changes in volume multiplied by prior rate)
and (2) effects on interest income attributable to changes in rate (changes in
rate multiplied by prior volume). Changes attributable to the combined input of
volume and rate have been allocated proportionately to the changes due to volume
and the changes due to rate.
<TABLE>
<CAPTION>
1999 vs. 1998 1998 vs. 1997
---------------------------------- -------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
--------------------- -----------------------
Rate Volume Net Rate Volume Net
-------- -------- -------- -------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net... $ (53) $ 794 $ 741 $ 59 $ 55 $114
Investment securities... (313) (692) (1,005) (1) 24 23
Deposits with financial
institutions........... (85) 100 15 31 68 99
Federal funds sold...... (3) 3 -- 1 3 4
Other................... 1 -- 1 1 -- 1
----- ----- ------- ---- ---- ----
Total net change in
income on
interest-earning
assets........... (453) 205 (248) 91 150 241
Interest-bearing
liabilities:
Demand and savings 15 81 96 (24) (47) (71)
accounts...............
Certificates of deposit. (131) (243) (374) 57 296 353
----- ----- ------- ---- ---- ----
Total deposits....... (116) (162) (278) 33 249 282
Borrowings.............. (20) (187) (207) 11 (89) (78)
Other................... (25) 62 37 (1) 11 10
----- ----- ------- ---- ---- ----
Total net change in
expense on
interest-bearing
liabilities...... (161) (287) (448) 43 171 214
Net change in net interest ----- ----- ------- ---- ---- ----
income.................... $(292) $ 492 $ 200 $ 48 $(21) $ 27
===== ===== ======= ==== ==== ====
</TABLE>
Market Risk Analysis
Quantitative Aspects of Market Risk. First Bancorp does not maintain a
trading account for any class of financial instrument nor does it engage in
hedging activities or purchase high-risk derivative instruments. Furthermore,
First Bancorp is not subject to foreign currency exchange rate risk or commodity
price risk. For information regarding the sensitivity to interest rate risk of
First Bancorp's interest-earning assets and interest-bearing liabilities, see
the tables under Part I, Item 1, "Business --Lending Activities--Loan Portfolio
Composition," "--Investment Activities" and "--Deposit Activities and Other
Sources of Funds--Deposit Accounts."
First Bancorp uses interest rate sensitivity analysis to measure its
interest rate risk by computing changes in net portfolio value of its cash flows
from assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. Net portfolio value represents the
market value of portfolio equity and is equal to the market value of assets
minus the market value of liabilities, with adjustments made for off-balance
sheet items. This analysis assesses the risk of loss in market risk sensitive
instruments in the event of a sudden and sustained 100 to 400 basis point
increase or decrease in market interest rates with no effect given to any steps
that management might take to counter the effect of that interest rate movement.
First Bancorp measures interest rate risk by modeling the change in net
portfolio value over a variety of interest rate scenarios.
37
<PAGE>
The following table sets forth the change in First Bancorp's net portfolio
value at June 30, 1999 that would occur in the event of an immediate change in
interest rates, with no effect given to any steps that management might take to
counteract that change.
<TABLE>
<CAPTION>
Interest Rate Sensitivity of Net Portfolio Value
----------------------------------------------------------------------
Basis Point Net Portfolio Value Portfolio Value of Assets
("bp") --------------------------------------- -------------------------
Change in Rates $ Amount $ Change % Change NPV Ratio Change
- --------------- -------- -------- -------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
400bp $27,160 $(7,704) (22.1)% 24.33% (419)bp
300 28,998 (5,866) (16.8) 25.41 (311)
200 31,076 (3,788) (10.9) 26.58 (194)
100 32,971 (1,893) ( 5.4) 27.58 ( 94)
0 34,864 -- -- 28.52 --
(100) 36,431 1,567 4.5 29.20 68
(200) 37,094 2,230 6.4 29.33 81
(300) 37,238 2,374 6.8 29.16 64
(400) 37,139 2,275 6.5 28.85 33
</TABLE>
The above table indicates that in the event of a sudden and sustained
increase in prevailing market interest rates, First Bancorp's net portfolio
value would be expected to decrease.
Certain assumptions were utilized in preparing the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under differing interest rate
scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
Qualitative Aspects of Market Risk. First Bancorp's principal financial
objective is to achieve long-term profitability while reducing its exposure to
fluctuating market interest rates. First Federal has sought to reduce the
exposure of its earnings to changes in market interest rates by attempting to
manage the mismatch between asset and liability maturities and interest rates.
In order to reduce the exposure to interest rate fluctuations, First Federal has
developed strategies to manage its liquidity and shorten its effective
maturities of certain interest-earning assets.
Management has sought to decrease the average maturity of its assets by:
(1) offering a variety of adjustable-rate residential mortgage loans and
consumer loans, all of which are retained by First Federal for its
portfolio;
(2) establishing an indirect automobile lending program through which it
originates short-term, fixed-rate automobile loans;
(3) purchasing mortgage-backed and related securities with adjustable rates
or estimated lives of five to ten years or less; and
38
<PAGE>
(4) purchasing short- to intermediate-term investment securities.
In addition, First Federal sells a portion of its long-term, fixed-rate
single-family residential mortgage loans for cash in the secondary market. The
retention of ARM loans and adjustable-rate mortgage-backed securities, which
reprice at regular intervals, helps to ensure that the yield on First Federal's
loan portfolio will be sufficient to offset increases in First Federal's cost of
funds. However, periodic and lifetime interest rate adjustment limits may
prevent ARM loans from repricing to market interest rates during periods of
rapidly rising interest rates. First Federal does not use any hedging
techniques to manage the exposure of its assets to fluctuating market interest
rates. First Federal relies on retail deposits as its primary source of funds
and maintains a moderate proportion of lower-costing passbook, NOW and money
market accounts. First Federal has attempted to lengthen the term of deposits
by offering certificates of deposit with terms of up to ten years. Management
believes retail deposits, compared to brokered deposits, reduce the effects of
interest rate fluctuations because they generally represent a more stable source
of funds.
Liquidity and Capital Resources
First Federal's principal sources of funds are proceeds from maturities of
investment securities, principal payments received on mortgage-backed and
related securities, loan repayments and deposits. While scheduled payments from
the amortization of loans, investment securities and interest-bearing time
deposits are relatively predictable sources of funds, deposit flows and loan or
investment security prepayments are greatly influenced by general interest
rates, economic conditions, and competition. First Federal has been able to
generate sufficient cash through its deposits and has been able to maintain its
borrowings from the Federal Home Loan Bank at a relatively low level. Funds
borrowed from the Federal Home Loan Bank are generally matched against higher
yielding assets of like amounts with similar maturities to provide a built-in
margin of interest to First Federal.
First Federal must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. First Federal invests excess funds in overnight
deposits and other short-term interest-earning assets to provide liquidity to
meet these needs. At June 30, 1999, cash and cash equivalents totaled $16.7
million, or 13.4% of total assets. At June 30, 1999, First Federal had
outstanding commitments to originate loans of $3.2 million. At the same time,
certificates of deposit which are scheduled to mature in one year or less
totaled $41.8 million. Based upon historical experience, management believes
the majority of maturing certificates of deposit will remain with First Federal.
In addition, management of First Federal believes that it can adjust the
offering rates of certificates of deposit to retain deposits in changing
interest rate environments. If a significant portion of these deposits are not
retained by First Federal, First Federal would be able to utilize Federal Home
Loan Bank advances to fund deposit withdrawals, which would result in an
increase in interest expense to the extent that the average rate paid on such
advances exceeds the average rate paid on deposits of similar duration.
Federal regulations require First Federal to maintain minimum levels of liquid
assets, such as cash and eligible investments. The required percentage has
varied from time to time based upon economic conditions and savings flows and is
currently 4% of the average daily balance of its net withdrawable savings
deposits and short-term borrowings. At June 30, 1999, First Federal's liquidity
ratio, defined as liquid assets as a percentage of net withdrawable savings
deposits and short-term borrowings, was 21.1%.
The primary investing activities of First Federal are originating loans and
purchasing investments and mortgage-backed securities. Proceeds from maturities
of investment securities and principal payments received on mortgage-backed and
related securities, net of purchases, totaled $10.7 million for the year ended
June 30, 1998, while loan originations in excess of repayments totaled $20.7
million.
First Federal's most significant financing activities are deposit accounts and
Federal Home Loan Bank borrowings. The repayment of Federal Home Loan Bank
borrowings of $3.6 million was the primary use of cash during 1999. This cash
outflow was offset by net proceeds from stock issuances.
39
<PAGE>
On April 7, 1999, the conversion of First Federal was completed. First
Bancorp raised net proceeds of $21.9 million of which $874,000 was loaned to
First Federal's employee stock ownership plan to purchase stock in the offering.
One-half of the net proceeds was invested in First Federal and the remaining was
invested in short-term securities which will provide First Bancorp with a larger
capital base which will enhance its ability to pursue lending and investment
opportunities, as well as opportunities for growth and expansion.
Management believes its ability to generate funds internally will satisfy its
liquidity requirements. If First Federal requires funds beyond its ability to
generate them internally, it has the ability to borrow funds from the Federal
Home Loan Bank. At June 30, 1999, First Federal had approximately $15.0 million
available to it under its borrowing arrangement with the Federal Home Loan Bank.
At June 30, 1999, First Federal had no borrowings from the Federal Home Loan
Bank.
OTS regulations require First Federal to maintain specific amounts of capital.
As of June 30, 1999, First Federal complied with all regulatory capital
requirements as of that date with tangible, core and risk-based capital ratios
of 20.47%, 20.47% and 40.95%, respectively. For a detailed discussion of
regulatory capital requirements, see Part I, Item 1, "Regulation and
Supervision--Federal Savings Institution Regulation--Capital Requirements."
Year 2000 Issues
First Federal is a user of computers, computer software and equipment
utilizing embedded microprocessors that will be affected by the year 2000 issue.
The year 2000 issue exists because many computer systems and applications use
two-digit date fields to designate a year. As the century date change occurs,
date-sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause erroneous
results, ranging from system malfunctions to incorrect or incomplete processing.
First Federal established a year 2000 committee in 1997 which is headed by the
Chief Operating Officer and includes all department heads. The committee has
developed and is currently implementing a comprehensive plan to make all
information and non-information technology assets year 2000 compliant. The
committee provides periodic reports to the Board of Directors in order to assist
the directors in their year 2000 readiness oversight role. The plan is
comprised of the following phases:
(1) Awareness - Educational initiatives on year 2000 issues and concerns.
This phase is ongoing, especially as it relates to informing customers of
First Federal's year 2000 preparedness.
(2) Assessment - Inventory of all technology assets and identification of
third-party vendors and service providers. First Federal has completed its
inventory of software and hardware that could potentially be effected by
the year 2000 issue.
(3) Renovation - Review of vendor and service providers responses to First
Federal's year 2000 inquiries and development of a follow-up plan and
timeline. This phase has been completed. None of First Federal's vendors
or service providers have indicated that they will be unable to make their
products year 2000 compliant on a timely basis.
(4) Validation - Testing all systems and third-party vendors for year 2000
compliance. First Federal has completed this phase of its plan. A third-
party service bureau processes all customer transactions and has indicated
to First Federal that it has completed upgrades to its systems to be year
2000 compliant. First Federal has tested the third-party service bureau's
systems by reviewing and verifying the results of proxy test transactions
at different test dates before and after the year 2000 date change
covering all of the applications used by First Federal.
(5) Implementation - Replacement or repair of non-compliant technology. As
First Federal progressed through the validation phase, First Federal
determined necessary remedial actions and provided for their
implementation. First Federal has implemented a new year 2000 compliant
computerized teller
40
<PAGE>
system and mortgage loan-processing system and has verified the year 2000
compliance of its computer hardware and other equipment.
First Federal estimates its total cost to replace computer equipment, software
programs or other equipment containing embedded microprocessors that were not
year 2000 compliant to be approximately $161,500. As of June 30, 1999,
approximately $157,500 of this amount has been incurred. System maintenance or
modification costs are being expensed as incurred, while the cost of new
hardware, software or other equipment is capitalized and amortized over their
estimated useful lives. First Federal does not separately track the internal
costs and time that its own employees spend on year 2000 issues. Such costs are
principally payroll costs.
Because First Federal is substantially dependent on its computer systems and
the computer systems of third parties, the failure of these systems to be year
2000 compliant could cause substantial disruption of First Federal's business
and could have a material adverse financial impact on First Federal. Failure to
resolve year 2000 issues presents the following risks to First Federal, which
First Federal believes reflects its most reasonably likely worst-case scenario:
(1) First Federal could lose customers to other financial institutions,
resulting in a loss of revenue, if First Federal's third party service
bureau is unable to properly process customer transactions;
(2) Governmental agencies, such as the Federal Home Loan Bank, and
correspondent banks could fail to provide funds to First Federal, which
could materially impair First Federal's liquidity and affect First
Federal's ability to fund loans and deposit withdrawals;
(3) Concern on the part of depositors that year 2000 issues could impair
access to their deposit account balances could result in First Federal
experiencing deposit outflows prior to December 31, 1999; and
(4) First Federal could incur increased personnel costs if additional staff is
required to perform functions that inoperative systems would have
otherwise performed.
Management believes that it is not possible to estimate the potential lost
revenue due to the year 2000 issue, as the extent and longevity of any potential
problem cannot be predicted. Because substantially all of First Federal's loan
portfolio consists of residential mortgage and consumer loans, management
believes that year 2000 issues will not impair the ability of First Federal's
borrowers to repay their debt.
There can be no assurances that First Federal's year 2000 plan will
effectively address the year 2000 issue, that First Federal's estimates of the
timing and costs of completing the plan will ultimately be accurate or that the
impact of any failure of First Federal or its third-party vendors and service
providers to be year 2000 compliant will not have a material adverse effect on
First Federal's business, financial condition or results of operations.
Impact of Accounting Pronouncements and Regulatory Policies
Comprehensive Income. Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," issued in July 1997, establishes standards for
reporting and presentation of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. It requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is presented with the same prominence as other
financial statements. SFAS No. 130 requires that companies (1) classify items
of other comprehensive income by their nature in a financial statement and (2)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of the
statement of financial condition. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Comparative financial statements are
required to be reclassified to reflect the provisions of this statement. First
Bancorp adopted SFAS No. 130 in the quarter ended June 30, 1999.
41
<PAGE>
Segment Information. Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information,"
establishes standards for the way public business enterprises report information
about operating segments and establishes standards for related disclosures about
products and services, geographic areas and major customers. 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. Information
required to be disclosed includes segment profit or loss, certain specific
revenue and expense items, segment assets and certain other information. This
statement is effective for First Bancorp for financial statements issued for the
fiscal year ending June 30, 1999. Adoption of SFAS No. 131 did not have a
significant effect upon the presentation of First Bancorp's financial
statements.
Employers' Disclosures about Pensions and Other Postretirement Benefits.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," issued in February 1998,
standardizes disclosure requirements for pensions and other postretirement
benefits and requires additional disclosure on changes in benefit obligations
and fair values of plan assets in order to facilitate financial analysis. This
statement is effective for First Bancorp for financial statements issued for the
fiscal year ending June 30, 1999. Adoption of SFAS No. 132 did not have a
significant effect upon the presentation of First Bancorp's financial
statements.
Accounting for Derivative Instruments and Hedging Activities. Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" establishes accounting and reporting standards for
derivative instruments and requires that all derivatives be recognized as either
assets or liabilities in the statement of financial position. Under this
standard, all derivative instruments should be measured at fair value. At the
date of initial application, an entity may transfer any held-to-maturity
securities into the available-for-sale category or the trading category. First
Bancorp has not determined whether it will transfer any securities from held-to-
maturity. An entity will then be able in the future to designate a security
transferred into the available-for-sale category as a hedged item. SFAS No.
133 is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. First Bancorp adopted this standard effective July 1, 1999. Because
First Federal does not hold off-balance sheet derivative instruments or enter
into hedging transactions, adoption of this statement is not anticipated to have
a significant effect on First Bancorp's financial position or results of
operations.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data presented in
this prospectus have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars, without considering the change
in the relative purchasing power of money over time due to inflation. The
impact of inflation is reflected in the increased cost of First Federal's
operations. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The above-captioned information appears in this report under Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed at Item 14 of this Form 10-K are incorporated
by reference into this Item 8 of Part II of this Form 10-K.
42
<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the directors and officers of First Bancorp is
incorporated herein by reference to First Bancorp's Proxy Statement for the 1999
Annual Meeting of Stockholders to be held on November 10, 1999 at pages 4
through 5 and to Part I, Item 1, "Business--Executive Officers of the
Registrant" of this report. Reference is made to the cover page of this report
for information regarding compliance with Section 16(a) of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation is incorporated herein by
reference to First Bancorp's Proxy Statement for the 1999 Annual Meeting of
Stockholders to be held on November 10, 1999 at pages 6 through 8.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to First Bancorp's Proxy
Statement for the 1999 Annual Meeting of Stockholders to be held on November 10,
1999 at page 3.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions
is incorporated herein by reference to First Bancorp's Proxy Statement for the
1999 Annual Meeting of Stockholders to be held on November 10, 1999 at page 12.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) The following are filed as a part of this report:
. Independent Auditors' Report
. Consolidated Balance Sheets as of June 30, 1999 and 1998
. Consolidated Statements of Income for the Years Ended June
30, 1999, 1998 and 1997
. Consolidated Statements of Changes in Equity Capital for
the Years Ended June 30, 1999, 1998 and 1997
. Consolidated Statements of Cash Flows for the Years Ended
June 30, 1999, 1998 and 1997
. Notes to Consolidated Financial Statements
43
<PAGE>
(2) All financial statement schedules are omitted because they are
not required or applicable, or the required information is shown
in the consolidated financial statements or the notes thereto.
(3) Exhibits
3.1 Articles of Incorporation of First Bancorp of Indiana, Inc.(1)
3.2 Amended Bylaws of First Bancorp of Indiana, Inc.
4.0 Form of Stock Certificate of First Bancorp of Indiana, Inc.(1)
10.1 First Federal Savings Bank Employee Stock Ownership Plan Trust Agreement
10.2 Employment Agreement between First Bancorp of Indiana, Inc., First
Federal Savings Bank and Harold Duncan
10.3 Employment Agreement between First Bancorp of Indiana, Inc., First
Federal Savings Bank and Michael H. Head
10.4 First Federal Savings Bank Employee Severance Compensation Plan
10.5 First Federal Savings Bank Director Deferred Compensation Plan(1)
21.0 Subsidiary information is incorporated herein by reference to Part I,
Item 1, "Business--Subsidiary Activities"
27.0 Financial Data Schedule
____________________
(1) Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement and amendments thereto, initially filed
on December 11, 1998, Registration No. 333-68793.
(b) Reports on Form 8-K
None.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST BANCORP OF INDIANA, INC.
Date: September 27, 1999 By: /s/ Harold Duncan
-----------------------------------
Harold Duncan
President, Chief Executive Officer
and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
Name Title Date
---- ----- ----
/s/ Harold Duncan President, Chief Executive September 27, 1999
- -------------------------- Officer and Chairman of the Board
Harold Duncan (principal executive officer)
/s/ Christopher A. Bengert Treasurer September 27, 1999
- -------------------------- (principle financial and
Christopher A. Bengert accounting officer)
/s/ Robert L. Clayton, Sr. Director September 27, 1999
- --------------------------
Robert L. Clayton, Sr.
/s/ Herbert V. Dassel Director September 27, 1999
- --------------------------
Herbert V. Dassel
/s/ Frank E. Kern Director September 27, 1999
- --------------------------
Frank E. Kern
/s/ James E. Will, Jr. Director September 27, 1999
- --------------------------
James E. Will, Jr.
/s/ Jerry Ziemer Director September 27, 1999
- --------------------------
Jerry Ziemer
<PAGE>
Olive
Independent Auditor's Report
Board of Directors
First Bancorp of Indiana, Inc.
Evansville, Indiana
We have audited the consolidated balance sheet of First Bancorp of Indiana, Inc.
and subsidiary as of June 30, 1999 and 1998, and the related consolidated
statements of income, changes in equity capital and cash flows for each of the
three years in the period ended June 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of First
Bancorp of Indiana, Inc. and subsidiary as of June 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1999, in conformity with generally accepted accounting
principles.
/s/ Olive LLP
Evansville, Indiana
July 23, 1999
F-1
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 1,105,134 $ 926,974
Interest-bearing demand deposits 15,567,989 10,442,095
Federal funds sold 25,000 320,000
---------------------------
Cash and cash equivalents 16,698,123 11,689,069
Interest-bearing deposits 2,079,000 2,279,000
Investment securities
Available for sale 2,972,581 4,375,672
Held to maturity (fair value of
$39,709,000 and $49,463,000) 40,003,256 49,363,642
---------------------------
Total investment securities 42,975,837 53,739,314
Loans, net of allowance for loan losses of $274,000 and $250,000 56,308,900 35,655,003
Premises and equipment 1,508,570 1,520,311
Federal Home Loan Bank stock 727,400 727,400
Other assets 4,502,175 3,353,715
---------------------------
Total assets $124,800,005 $108,963,812
===========================
Liabilities
Deposits
Noninterest bearing $ 419,865 $ 197,161
Interest bearing 86,302,246 89,031,871
---------------------------
Total deposits 86,722,111 89,229,032
Borrowings 3,645,000
Advances by borrowers for taxes and insurance 381,226 355,841
Other liabilities 1,168,668 785,282
---------------------------
Total liabilities 88,272,005 94,015,155
---------------------------
Commitments and Contingent Liabilities
Stockholders' Equity
Preferred stock, $.01 par value
Authorized and unissued--1,000,000 shares
Common stock, $.01 par value
Authorized--9,000,000 shares
Issued and outstanding--2,272,400 shares 22,724
Additional paid-in capital 21,831,518
Retained earnings 15,473,935 14,900,739
Accumulated other comprehensive income 25,263 47,918
---------------------------
37,353,440 14,948,657
Less:
Unallocated employee stock ownership plan
shares--825,440 (825,440)
---------------------------
Total stockholders' equity 36,528,000 14,948,657
---------------------------
Total liabilities and stockholders' equity $124,800,005 $108,963,812
===========================
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year Ended June 30 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans receivable $ 3,436,286 $ 2,694,771 $ 2,580,620
Investment securities 3,103,298 4,107,803 4,084,957
Deposits with financial institutions 832,625 818,200 719,044
Federal funds sold 34,918 35,277 30,592
Other interest and dividend income 59,492 58,650 58,550
---------------------------------------------
Total interest income 7,466,619 7,714,701 7,473,763
---------------------------------------------
Interest Expense
Deposits 4,306,087 4,584,001 4,301,758
Long-term debt 148,040 354,630 432,896
Other 74,862 37,993 27,893
---------------------------------------------
Total interest expense 4,528,989 4,976,624 4,762,547
---------------------------------------------
Net Interest Income 2,937,630 2,738,077 2,711,216
Provision for Loan Losses 24,000
---------------------------------------------
Net Interest Income After Provision for Loan Losses 2,913,630 2,738,077 2,711,216
---------------------------------------------
Noninterest Income
Gain on disposal of branch office 261,024
Gain on disposal of deposits 138,528
Increase in cash surrender values of life insurance 97,315 87,234 81,975
Other income 226,501 114,601 97,971
---------------------------------------------
Total noninterest income 323,816 601,387 179,946
---------------------------------------------
Noninterest Expense
Salaries and employee benefits 1,404,244 1,134,397 972,717
Net occupancy expense 179,680 181,065 141,808
Equipment expense 141,812 103,749 65,660
Deposit insurance expense 55,097 56,468 118,678
SAIF special assessment 561,290
Data processing fees 113,633 99,478 86,588
Other expenses 559,673 469,117 444,622
---------------------------------------------
Total noninterest expense 2,454,139 2,044,274 2,391,363
---------------------------------------------
Income Before Income Tax 783,307 1,295,190 499,799
Income tax expense 210,111 415,486 112,439
---------------------------------------------
Net Income $ 573,196 $ 879,704 $ 387,360
=============================================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Consolidated Statement of Changes in Equity Capital
<TABLE>
<CAPTION>
Common Stock Accumulated
-------------------- Additional Other Unallocated
Shares Paid-in Comprehensive Retained Comprehensive ESOP
Outstanding Amount Capital Income Earnings Income Shares Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, July 1, 1996 $13,633,675 $ (59,132) $13,574,543
Comprehensive income
Net income for 1997 $ 387,360 387,360 387,360
Other comprehensive income,
net of tax
Unrealized gains on
securities, net of
reclassification adjustment 91,470 91,470 91,470
-----------
Comprehensive income $ 478,830
===========
----------------------------------- --------------------------------------------------
Balances, June 30, 1997 14,021,035 32,338 14,053,373
Comprehensive income
Net income for 1998 $ 879,704 879,704 879,704
Other comprehensive income,
net of tax
Unrealized gains on
securities, net of
reclassification adjustment 15,580 15,580 15,580
-----------
Comprehensive income $ 895,284
===========
----------------------------------- --------------------------------------------------
Balances, June 30, 1998 14,900,739 47,918 14,948,657
Issuance of common stock 2,272,400 $22,724 $21,833,369 $ (874,000) 20,982,093
Comprehensive income
Net income $ 573,196 573,196 573,196
Other comprehensive income,
net of tax
Unrealized losses on
securities, net of
reclassification adjustment (22,655) (22,655) (22,655)
-----------
Comprehensive income $ 550,541
===========
Employee Stock Ownership
Plan shares allocated (1,851) 48,560 46,709
----------------------------------- --------------------------------------------------
Balances, June 30, 1999 2,272,400 $22,724 $21,831,518 $15,473,935 $ 25,263 $ (825,440) $36,528,000
=================================== ==================================================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 573,196 $ 879,704 $ 387,360
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Provision for loan losses 24,000
Depreciation 105,069 96,349 51,180
Amortization of net loan origination fees (45,000) (47,940) (28,412)
Deferred income tax (108,000) (41,607) (54,752)
Increase in cash surrender value of life insurance
in excess of premiums paid (97,315) (87,234) (81,975)
Investment securities amortization (accretion), net 34,416 (146,994) (164,730)
Gain on disposal of branch office and deposits (399,552)
Loans originated for sale (5,822,000) (1,844,000) (627,000)
Proceeds from sales of loans originated for sale 5,822,000 1,844,000 627,000
Compensation expense related to employee stock
ownership plan 46,709
Net change in
Other assets (931,474) 86,408 (4,250)
Other liabilities 383,386 35,717 234,808
------------------------------------------
Net cash provided (used) by operating activities (15,013) 374,851 339,229
------------------------------------------
Investing Activities
Net change in interest-bearing deposits 200,000 3,267,000 2,477,000
Proceeds from maturities of securities available for sale 1,372,969 3,528,075 4,177,517
Purchases of securities held to maturity (30,582,723) (38,641,921) (14,317,656)
Proceeds from maturities of securities held to maturity 39,904,489 41,882,979 8,982,598
Net change in loans (20,632,897) (3,442,727) 305,532
Purchases of premises and equipment (93,328) (779,275) (4,066)
Disposal of branch office and deposits (2,319,522)
------------------------------------------
Net cash provided (used) by investing activities (9,831,490) 3,494,609 1,620,925
------------------------------------------
Financing Activities
Net change in
Noninterest bearing, interest-bearing demand
and savings deposits 906,079 1,091,502 (1,932,818)
Certificates of deposit (3,413,000) 2,347,864 1,648,781
Advances by borrowers for taxes and insurance 25,385 22,071 (83,229)
Repayment of long-term debt (3,645,000) (3,405,000) (450,000)
Issuance of stock, net of offering costs 20,982,093
------------------------------------------
Net cash provided (used) by financing activities 14,855,557 56,437 (817,266)
------------------------------------------
Net Change in Cash and Cash Equivalents 5,009,054 3,925,897 1,142,888
Cash and Cash Equivalents, Beginning of Year 11,689,069 7,763,172 6,620,284
------------------------------------------
Cash and Cash Equivalents, End of Year $ 16,698,123 $ 11,689,069 $ 7,763,172
==========================================
Additional Cash Flows Information
Interest paid $ 4,517,989 $ 5,041,792 $ 4,586,705
Income tax paid 98,768 492,900 247,200
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 1 -- Nature of Operations and Summary of Significant Accounting Policies
The accounting and reporting policies of First Bancorp of Indiana, Inc.
(Company) and its wholly-owned subsidiary, First Federal Savings Bank (Bank),
conform to generally accepted accounting principles and reporting practices
followed by the thrift industry. The Bank has one wholly owned subsidiary, FFSL
Service Corporation (FFSL). The more significant of the policies are described
below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a savings and loan holding company whose principal activity is
the ownership and management of the Bank. The Bank operates under a federal
savings bank charter and provides full banking services in a single significant
business segment. As a federally-chartered savings bank, the Bank is subject to
regulation by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation.
The Bank generates mortgage and consumer loans and receives deposits from
customers located primarily in Vanderburgh County, Indiana, and surrounding
counties. The Bank's loans are generally secured by specific items of
collateral, including real property and consumer assets. Although the Bank has a
diversified loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent upon economic conditions in Southwestern
Indiana.
Consolidation--The consolidated financial statements include the accounts of the
Company and Bank after elimination of all material intercompany transactions and
accounts.
Investment Securities--Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. Debt
securities not classified as held to maturity are classified as available for
sale. Securities available for sale are carried at fair value with unrealized
gains and losses reported separately in accumulated other comprehensive income,
net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed when considered uncollectible. Interest
income is subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans.
F-6
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Allowance for loan losses is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that, as of June
30, 1999, the allowance for loan losses is adequate based on information
currently available. A worsening or protracted economic decline in the area
within which the Bank operates would increase the likelihood of additional
losses due to credit and market risks and could create the need for additional
loss reserves.
Premises and equipment are stated at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred
while major additions and improvements are capitalized. Gains and losses on
dispositions are included in current operations.
Federal Home Loan Bank (FHLB) stock is a required investment for institutions
that are members of the FHLB system. The required investment in the common stock
is based on a predetermined formula.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiary.
Employee Stock Ownership Plan--The Company accounts for its employee stock
ownership plan (ESOP) in accordance with American Institute of Certified Public
Accountants (AICPA) Statement of Position 93-6, Employer's Accounting for
Employee Stock Ownership Plans. The cost of shares issued to the ESOP but not
yet allocated to participants are presented in the consolidated balance sheet as
a reduction of stockholders' equity. Compensation expense is recorded based on
the market price of the shares as they are committed to be released for
allocation to participant accounts. The difference between the market price and
the cost of the shares committed to be released is recorded as an adjustment to
paid-in capital. Dividends on allocated ESOP shares will be recorded as a
reduction of retained earnings; dividends on unallocated ESOP shares will be
reflected as a reduction of debt.
Shares will be considered outstanding for earnings per share calculations when
they are committed to be released; unallocated shares are not considered
outstanding.
Earnings per share will be computed based upon the weighted average common and
common equivalent shares outstanding for periods subsequent to the Bank's
conversion to a stock savings bank on April 7, 1999. Earnings per share for 1999
are not meaningful.
F-7
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 2 -- Conversion to Stock Ownership
On April 7, 1999, the Bank consummated its conversion from a from a federally
chartered mutual savings bank to a federally chartered stock savings bank
pursuant to the Bank's Plan of Conversion. Concurrent with the formation of the
Company, the Company acquired 100% of the stock of the Bank and issued 2,272,400
shares of Company common stock, with $.01 par value, at $10.00 per share. Net
proceeds of the Company's stock issuance, after costs of $868,000 and Employee
Stock Ownership Plan shares of $874,000, were approximately $20.98 million.
Note 3 -- Investment Securities
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------
<S> <C> <C> <C> <C>
At June 30, 1999
Available for sale
Mortgage-backed securities $ 2,929 $ 45 $ 1 $ 2,973
---------------------------------------------------------------
Held to maturity
Federal agencies 4,000 151 3,849
Collateralized auto obligations 557 1 556
Corporate obligations 5,499 23 4 5,518
Mortgage-backed securities 27,964 85 245 27,804
Commercial paper 1,983 1 1,982
---------------------------------------------------------------
Total held to maturity 40,003 108 402 39,709
---------------------------------------------------------------
Total investment securities $ 42,932 $153 $403 $42,682
===============================================================
At June 30, 1998
Available for sale
Mortgage-backed securities $ 4,292 $ 84 $ 4,376
---------------------------------------------------------------
Held to maturity
Federal agencies 10,232 32 10,264
Collateralized auto obligations 1,009 $ 2 1,007
Corporate obligations 2,956 3 2 2,957
Mortgage-backed securities 31,169 220 151 31,238
Commercial paper 3,998 1 3,997
---------------------------------------------------------------
Total held to maturity 49,364 255 156 49,463
---------------------------------------------------------------
Total investment securities $ 53,656 $339 $156 $53,839
===============================================================
</TABLE>
F-8
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The amortized cost and fair market value of securities held to maturity and
available for sale at June 30, 1999, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
-----------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Within one year $ 5,899 $ 5,895
One to five years 1,557 1,541
Five to ten years 2,583 2,577
After ten years 2,000 1,892
-------------------------
12,039 11,905
Mortgage-backed securities 27,964 27,804 $ 2,929 $2,973
-----------------------------------------------------------
Totals $ 40,003 $39,709 $ 2,929 $2,973
==========================================================
</TABLE>
Securities with a carrying value of $5,256,000 and $7,322,000 were pledged at
June 30, 1999 and 1998 to secure FHLB advances and certain other funds advanced
to the Bank as part of the Community Reinvestment Act.
Note 4 -- Loans and Allowance
<TABLE>
<CAPTION>
June 30 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate loans $41,194 $35,161 $31,336
Credit line equity loans 1,020 937 1,047
Loans to depositors secured by savings 127 226 131
Consumer loans 15,389 501 424
-------------------------------------------
57,730 36,825 32,938
Undisbursed portion of loans (981) (700) (349)
Deferred loan fees (166) (220) (175)
Allowance for loan losses (274) (250) (250)
-------------------------------------------
$56,309 $35,655 $32,164
===========================================
Allowance for loan losses
Balances, July 1 $ 250 $ 250 $ 250
Provision for losses 24
-------------------------------------------
Balances, June 30 $ 274 $ 250 $ 250
===========================================
</TABLE>
F-9
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Bank has not had any impaired loans during each of the years ended June 30,
1999, 1998 and 1997.
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid balances of these loans were $10,523,000
and $7,994,000 at June 30, 1999 and 1998.
Note 5 -- Premises and Equipment
June 30 1999 1998
- --------------------------------------------------------------------
Land $ 639 $ 639
Buildings 1,852 1,840
Equipment 939 838
------------------
Total cost 3,430 3,317
Accumulated depreciation (1,921) (1,797)
------------------
Net $ 1,509 $ 1,520
==================
F-10
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 6 -- Other Assets and Other Liabilities
<TABLE>
<CAPTION>
June 30 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Other assets
Interest receivable
Investment securities $ 305 $ 502
Loans 277 181
Cash value of insurance 2,158 2,061
Investment in limited partnership 226 277
Net deferred tax asset 273 148
Prepaid expenses and other 563 185
Accounts receivable--dealer draft 700
------------------------
Total $ 4,502 $ 3,354
========================
Other liabilities
Interest payable
Deposits $ 112 $ 144
Other borrowings 146 103
Deferred directors' fees and officer compensation 466 382
Accrued expenses 445 156
------------------------
Total $ 1,169 $ 785
========================
</TABLE>
The investment in limited partnership of $226,000 and $277,000 at June 30, 1999
and 1998 represents a 40 percent equity interest in Vann Park II, L.P., a
limited partnership organized to build, own and operate a 44-unit apartment
complex. In addition to recording its equity in the losses of $51,000, $53,000
and $32,000, the Bank has recorded the benefit of low-income housing tax credits
of $73,000 for each of the years ended June 30, 1999, 1998 and 1997.
Note 7 -- Deposits
June 30 1999 1998
- -------------------------------------------------------------------------------
Demand deposits $ 12,335 $ 10,624
Savings deposits 9,601 10,406
Certificates of deposit of $100,000 or more 7,728 6,782
Other certificates of deposit 57,058 61,417
-----------------------
Total deposits $ 86,722 $ 89,229
=======================
F-11
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Certificates maturing in years ending June 30:
2000 $41,790
2001 17,701
2002 2,620
2003 1,214
2004 1,018
Thereafter 443
-------
$64,786
=======
Note 8 -- Borrowings
June 30 1999 1998
- -----------------------------------------------------------------------------
Federal Home Loan Bank advances
Variable rate, due in March 1999 $ 0 $ 3,645
=====================
F-12
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 9 -- Income Tax
<TABLE>
<CAPTION>
Year Ended June 30 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax
Currently payable
Federal $ 229 $ 332 $ 141
State 90 125 25
Deferred
Federal (92) (32) (45)
State (17) (10) (9)
--------------------------------------------
Total income tax expense $ 210 $ 415 $ 112
============================================
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $ 266 $ 440 $ 170
State income taxes, net of federal benefit 48 76 11
Cash surrender value of life insurance (33) (30) (28)
Tax credits (73) (73) (73)
Other 2 2 32
--------------------------------------------
Actual tax expense $ 210 $ 415 $ 112
============================================
</TABLE>
A cumulative net deferred tax asset is included in other assets. The components
of the asset are as follows:
<TABLE>
<CAPTION>
June 30 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Differences in accounting for loan losses $ 101 $ 91
Differences in accounting for loan fees 28 37
Deferred compensation and directors fees 242 188
Other 53 5
-------------------------
Total assets 424 321
-------------------------
Liabilities
Differences in depreciation methods (77) (83)
Federal Home Loan Bank dividends (55) (55)
Unrealized loss on mortgage-backed securities available for sale (19) (35)
-------------------------
Total liabilities (151) (173)
-------------------------
$ 273 $ 148
=========================
</TABLE>
F-13
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Retained earnings at June 30, 1999 and 1998 include approximately $4,102,000 for
which no deferred income tax liability has been recognized. This amount
represents an allocation of income to bad debt deductions for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses or
adjustments arising from carryback of net operating losses would create income
for tax purposes only, which income would be subject to the then-current
corporate income tax rate. The unrecorded deferred income tax liability on the
above amount was approximately $1,395,000.
Note 10 -- Other Comprehensive Income
<TABLE>
<CAPTION>
1999
-------------------------------------
Before-Tax Tax Net-of-Tax
Year Ended June 30 Amount Benefit Amount
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized losses on securities
Unrealized holding losses arising during the year $ (35) $ 12 $ (23)
=====================================
1998
-------------------------------------
Before-Tax Tax Net-of-Tax
Year Ended June 30 Amount Expense Amount
- ------------------------------------------------------------------------------------------
Unrealized gains on securities
Unrealized holding gains arising during the year $ 24 $ (8) $ 16
=====================================
1997
-------------------------------------
Before-Tax Tax Net-of-Tax
Year Ended June 30 Amount Expense Amount
- ------------------------------------------------------------------------------------------
Unrealized gains on securities
Unrealized holding gains arising during the year $ 138 $ (47) $ 91
=====================================
</TABLE>
F-14
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 11 -- Commitments and Contingent Liabilities
In the normal course of business, there are outstanding commitments and
contingent liabilities, such as guarantees and commitments to extend credit
which are not included in the accompanying consolidated financial statements.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The
Bank uses the same credit policies in making such commitments as it does for
instruments that are included in the consolidated balance sheet.
June 30
----------------------
1999 1998
----------------------
Loan commitments
At variable rates $ 2,766 $ 2,108
At fixed rates ranging from 6.75% to 7.25% 460 710
----------------------
$ 3,226 $ 2,818
======================
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies, but may include residential real estate,
income-producing commercial properties or other assets of the borrower.
The Company and subsidiary are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate determination of such possible claims or
lawsuits will not have a material adverse effect on the consolidated financial
position of the Bank.
Note 12 -- Year 2000
Like all entities, the Company and subsidiary are exposed to risks associated
with the Year 2000 Issue, which affects computer software and hardware;
transactions with customers, vendors, and other entities; and equipment
dependent upon microchips. The Company has begun, but not yet completed, the
process of identifying and remediating potential Year 2000 problems. It is not
possible for any entity to guarantee the results of its own remediation efforts
or to accurately predict the impact of the Year 2000 Issue on third parties with
which the Company and subsidiary does business. If remediation efforts of the
Company or third parties with which the Company and subsidiary does business are
not successful, the Year 2000 Issue could have negative effects on the Company's
financial condition and results of operations in the near term.
F-15
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 13 -- Dividends and Capital Restrictions
Without prior approval, current regulations allow the Bank to pay dividends to
the Company not exceeding net income for the current year plus those for the
preceding two years. The Bank normally restricts dividends to a lesser amount
because of the need to maintain an adequate capital structure.
At the time of conversion, a liquidation account was established in an amount
equal to the Bank's net worth as reflected in the latest statement of condition
used in its final conversion offering circular. The liquidation account is
maintained for the benefit of eligible deposit account holders who maintain
their deposit account in the Bank after conversion. In the event of a complete
liquidation, and only in such event, each eligible deposit account holder will
be entitled to receive a liquidation distribution from the liquidation account
in the amount of the then current adjusted subaccount balance for deposit
accounts then held, before any liquidation distribution may be made to
stockholders. Except for the repurchase of stock and payment of dividends, the
existence of the liquidation account will not restrict the use or application of
net worth. The initial balance of the liquidation account was $15,268,982.
Note 14 -- Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies and is assigned to a capital category. The assigned
capital category is largely determined by three ratios that are calculated
according to the regulations: total risk adjusted capital, Tier 1 capital, and
Tier 1 leverage ratios. The ratios are intended to measure capital relative to
assets and credit risk associated with those assets and off-balance sheet
exposures of the entity. The capital category assigned to an entity can also be
affected by qualitative judgments made by regulatory agencies about the risk
inherent in the entity's activities that are not part of the calculated ratios.
F-16
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At June 30, 1999 and 1998, the
Bank is categorized as well capitalized and met all subject capital adequacy
requirements. There are no conditions or events since June 30, 1999 that
management believes have changed the Bank's classification.
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
Required for To Be Well
Actual Adequate Capital* Capitalized*
-------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999
Total risk-based capital* (to risk-
weighted assets) $25,357 40.95% $4,954 8.00% $6,192 10.00%
Core capital* (to adjusted tangible
assets) 25,083 20.47 4,901 4.00 7,351 6.00
Core capital* (to adjusted total assets) 25,083 20.47 4,902 4.00 6,127 5.00
As of June 30, 1998
Total risk-based capital* (to risk-
weighted assets) $15,151 34.7% $3,488 8.00% $4,361 10.00%
Core capital* (to adjusted tangible
assets) 14,901 13.6 4,383 4.00 6,575 6.00
Core capital* (to adjusted total assets) 14,901 13.6 4,385 4.00 5,482 5.00
</TABLE>
*As defined by regulatory agencies
The Bank's tangible capital at June 30, 1999 was $25,083,000 which amount was
20.47% of tangible assets and exceeded the required ratio of 1.5%.
NOTE 15 -- Pension and Employee Benefit Plans
The Bank is a participant in a pension fund known as the Financial Institutions
Retirement Fund (FIRF). This plan is a multi-employer plan; separate actuarial
valuations are not made with respect to each participating employer. According
to FIRF administrators, the market value of the fund's assets exceeded the value
of vested benefits in the aggregate as of June 30, 1998, the date of the latest
actuarial valuation. Pension expense was $2,200, $1,700 and $8,500 for 1999,
1998 and 1997. This plan provides pension benefits for substantially all of the
Bank's employees.
The Bank has a retirement savings Section 401(k) plan in which substantially all
employees may participate. The Bank matches employees' contributions at the rate
of 50% of the first 6% of base salary contributed by participants. The Bank's
expense for the plan was $23,400, $21,500 and $18,000 for 1999, 1998 and 1997.
F-17
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Bank also has supplemental retirement plan arrangements for the benefit of
certain officers. These arrangements are funded by life insurance contracts
which have been purchased by the Bank. The Bank's expense for the plan was
$45,100, $40,600 and $34,900 for the years ended June 30, 1999, 1998 and 1997.
The Bank also established deferred compensation arrangements with certain
directors whereby, in lieu of currently receiving fees, the directors or their
beneficiaries will be paid benefits for an established period following the
director's retirement or death. These arrangements are also funded by life
insurance contracts which have been purchased by the Bank. The Bank's expense
for the plan was $43,900, $33,100 and $24,400 for the years ended June 30, 1999,
1998 and 1997.
In connection with the conversion, the Bank established an employee stock
ownership plan for the benefit of substantially all employees. It is anticipated
that the ESOP will purchase 8% of the shares issued in the Company's conversion,
or 181,792 shares and for the Company to lend the ESOP 100% of the funds
necessary to purchase these shares. At June 30, 1999, the ESOP had borrowed
$874,000 from the Company and used those funds to acquire 87,400 shares of the
Company's stock at $10 per share.
Shares issued to the ESOP are allocated to ESOP participants based on principal
repayments made by the ESOP on the loan from the Company. The loan is secured by
shares purchased with the loan proceeds and will be repaid by the ESOP with
funds from the Bank's discretionary contributions to the ESOP and earnings on
ESOP assets. Dividends on unallocated ESOP shares will be applied to reduce the
loan. Principal payments are scheduled to occur in even annual amounts over a 12
year period. However, in the event contributions exceed the minimum debt service
requirements, additional principal payments will be made.
Stock totaling 4,856 shares for 1999 with an average fair value of $9.62 per
share, were committed to be released, resulting in ESOP compensation expense of
$46,700. Shares held by the ESOP at June 30 are as follows:
1999
- --------------------------------------------------------------------------------
Allocated shares 0
Shares distributed to participants 0
Unallocated shares 87,400
---------
Total ESOP shares 87,400
=========
Fair value of unallocated shares at June 30 $884,925
=========
NOTE 16 -- Related Party Transactions
The Bank has entered into transactions with certain directors, executive
officers, significant stockholders and their affiliates or associates (related
parties). Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management involve more
than normal credit risk or present other unfavorable features.
F-18
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The aggregate amount of loans and open lines of credit, as defined, to such
related parties were as follows:
Balances, July 1, 1998 $306
Changes in composition of related parties 102
New loans, including renewals 47
Payments, etc., including renewals (45)
-------
Balances, June 30, 1999 $410
=======
Deposits from related parties held by the Bank at June 30, 1999 and 1998 totaled
$452,000 and $855,900.
NOTE 17 -- Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents--The fair value of cash and cash equivalents
approximates carrying value.
Interest-bearing Deposits--The fair value of interest-bearing time deposits
approximates carrying value.
Investment Securities--Fair values are based on quoted market prices.
Loans--For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair values for certain mortgage loans, including one-to-four family
residential, are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences in loan
characteristics. The fair value for other loans, are estimated using discounted
cash flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Interest Receivable/Payable--The fair values of interest receivable/payable
approximate carrying values.
FHLB Stock--Fair value of FHLB stock is based on the price at which it may be
resold to the FRB.
Cash Surrender Value of Life Insurance--The fair values of cash surrender values
of life insurance approximate carrying values.
Deposits--The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance sheet
date. The carrying amounts for variable rate, fixed-term certificates of deposit
approximate their fair values at the balance sheet date. Fair values for fixed-
rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on such time deposits.
Borrowings--The fair value of these borrowings are estimated using a discounted
cash flow calculation, based on current rates for similar debt. Fair value
approximates carrying value.
F-19
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Off-Balance Sheet Commitments--Commitments include commitments to purchase and
originate mortgage loans and commitments to sell mortgage loans and standby
letters of credit and are generally of a short-term nature. The fair value of
such commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing. The carrying amounts of these commitments,
which are immaterial, are reasonable estimates of the fair value of these
financial instruments.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------
Carrying Fair Carrying Fair
June 30 Amount Value Amount Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $16,698 $16,698 $11,689 $11,689
Interest-bearing deposits 2,079 2,079 2,279 2,279
Investment securities available for sale 2,973 2,973 4,376 4,376
Investment securities held to maturity 40,003 39,709 49,364 49,463
Loans, net 56,308 54,714 35,655 35,931
Interest receivable 582 582 683 683
FHLB stock 727 727 727 727
Cash surrender value of life insurance 2,158 2,158 2,061 2,061
Liabilities
Deposits 86,722 85,576 89,229 89,556
Borrowings 3,645 3,645
Interest payable 258 258 247 247
</TABLE>
F-20
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Note 18 -- Condensed Financial Information (Parent Company Only)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
Condensed Balance Sheet
<TABLE>
<CAPTION>
June 30 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Cash $ 124
Interest-bearing demand deposits 2,439
------------
Total cash and cash equivalents 2,563
Investment in common stock of subsidiary 25,108
Loans to First Federal Savings Bank 8,861
Other assets 47
------------
Total assets $36,579
============
Liabilities--Other liabilities $ 51
Stockholders' Equity 36,528
------------
Total liabilities and stockholders' equity $36,579
============
</TABLE>
F-21
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Condensed Statement of Income
<TABLE>
<CAPTION>
Year Ended June 30 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Income--Other income $ 113
Expense--Other expenses 20
-----------
Income before income tax and equity in undistributed
income of subsidiary 93
Income tax expense 39
-----------
Income before equity in undistributed income of subsidiary 54
Equity in undistributed income of subsidiary 519
-----------
Net Income $ 573
===========
</TABLE>
F-22
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Operating Activities
Net income $ 573
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed income of subsidiary (519)
Net change in
Other assets (47)
Other liabilities 51
-------------
Net cash provided by operating activities 58
-------------
Investing Activities
Net change in loans to subsidiary (8,861)
Purchase of subsidiary stock (9,616)
-------------
(18,477)
-------------
Financing Activities--Issuance of common stock, net of offering costs 20,982
-------------
Net Change in Cash and Equivalents 2,563
Cash and Cash Equivalents, Beginning of Year 0
-------------
Cash and Cash Equivalents, End of Year $ 2,563
=============
</TABLE>
F-23
<PAGE>
First Bancorp of Indiana, Inc.
and Subsidiary
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
NOTE 19 -- Quarterly Financial Data
The following is a summary of selected quarterly results of operations for the
years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Quarter Ended
(unaudited)
----------------------------------------------------------------------
Fiscal 1999 June 30 March 31 December 31 September 30
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $976 $661 $655 $647
Provision for loan losses 13 11
Noninterest income 90 77 81 74
Noninterest expense 750 608 590 506
Income before income tax 303 119 146 215
Net income 210 97 111 155
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
(unaudited)
----------------------------------------------------------------------
Fiscal 1998 June 30 March 31 December 31 September 30
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $630 $689 $724 $695
Noninterest income (1) 49 63 447 42
Noninterest expense 554 512 563 415
Income before income tax 125 240 608 322
Net income 106 168 391 215
</TABLE>
(1) Other income for December 1997 includes gains of $400,000 on the sale of a
branch office and related deposits.
F-24
<PAGE>
EXHIBIT 3.2
AMENDED BYLAWS
OF
FIRST BANCORP OF INDIANA, INC.
ARTICLE I
OFFICES
Section 1. Principal Office. First Bancorp of Indiana, Inc. (hereinafter
referred to as the "Corporation") shall at all times maintain a principal office
in the State of Indiana, which, except as otherwise determined by the Board of
Directors of the Corporation (hereinafter referred to as the "Board"), shall be
in the City of Evansville, County of Vanderburgh.
Section 2. Other Offices. The Corporation may also have offices at such
other places within or without the State of Indiana as the Board shall from time
to time designate or the business of the Corporation shall require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
stockholders shall be held at such places within or without the State of Indiana
as may from time to time be designated by the Board and specified in the notice
of meeting.
Section 2. Annual Meeting. A meeting of the stockholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at 10:00 a.m. on the third
Thursday of October, if not a legal holiday, and if a legal holiday, then on the
next day following such day which is not a legal holiday, or at such other date
and time as the Board may determine and specify in the notice of the meeting.
Section 3. Special Meetings. A special meeting of the stockholders may
only be called by those persons authorized to do so in the Corporation's
Articles of Incorporation. Business transacted at any special meeting of the
stockholders shall be confined to the purpose or purposes stated in the notice
of such meeting.
Section 4. Conduct of Meetings. Annual and special meetings of the
stockholders shall be conducted in accordance with Indiana law unless otherwise
prescribed by these Bylaws. The Chairman, or in the absence of the Chairman,
the highest ranking officer of the Corporation who is present, or such other
person as the Board shall have designated, shall call to order any meeting of
the stockholders and act as chairman of the meeting. The Secretary of the
Corporation, if present
<PAGE>
at the meeting, shall be the secretary of the meeting. In the absence of the
Secretary of the Corporation, the secretary of the meeting shall be such person
as the chairman of the meeting shall appoint. The chairman of any meeting of the
stockholders, unless otherwise prescribed by law or regulation or unless the
Chairman has otherwise determined, shall determine the order of business and the
procedure at the meeting.
Section 5. Notice of Meetings. Written notice stating the date, time and
place of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting of the stockholders is called shall be delivered
no fewer than ten (10) nor more than sixty (60) days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman,
the Secretary or the directors requesting the meeting to each stockholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
given when deposited in the United States mail, postage prepaid, addressed to
the stockholder at his address as it appears on the stock transfer books or
records of the Corporation as of the record date prescribed in Section 6 of this
Article II. When any meeting of the stockholders, either annual or special, is
adjourned for more than thirty (30) days or if, after adjournment, a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the date, time and place of any other adjourned meeting of
the stockholders, other than an announcement at the meeting at which such
adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of the stockholders
or any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose under Indiana law, the Board may fix, in advance, a date as the
record date for any such determination of stockholders. Such date shall not be
less than ten (10) days and not more than the seventy (70) days before the
meeting or action requiring a determination of stockholders.
Section 7. Voting Lists. The Secretary of the Corporation, or other
officer or agent of the Corporation having charge of the stock transfer books
for shares of the capital stock of the Corporation, shall prepare and make, at
least five (5) business days before each meeting of the stockholders, a complete
list of the stockholders entitled to vote at such meeting, or any adjournment
thereof, arranged in alphabetical order, with the address of and the number of
shares held by each stockholder. Such list shall be open to the examination of
any stockholder entitled to vote at the meeting, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least five (5)
business days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or at the Corporation's principal office. Such list shall also be
produced and kept open at the time and place of the meeting during the whole
time thereof and shall be subject to the inspection of any stockholder present
at the meeting. The stock transfer books shall be the only evidence as to who
are the stockholders entitled to examine the stock transfer books, or to vote in
person or by proxy at any meeting of stockholders.
2
<PAGE>
Section 8. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote at a meeting of the stockholders, represented in
person or by proxy, shall constitute a quorum at a meeting. If less than a
majority of the outstanding shares are represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice except as otherwise provided in Section 5 of this Article II. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted at the meeting as originally called. The
stockholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 9. Proxies. At any meeting of the stockholders, every
stockholder having the right to vote shall be entitled to vote in person, or by
proxy appointed by an instrument in writing and complying with the requirements
of Indiana law.
Section 10. Voting by the Corporation. Neither treasury shares of its own
capital stock held by the Corporation, nor shares held by another corporation,
if a majority of the shares entitled to vote for the election of directors of
such other corporation are held by the Corporation, shall be entitled to vote or
be counted for quorum purposes at any meeting of the stockholders; provided,
however, that the Corporation may vote shares of its capital stock held by it,
or by any such other corporation, if such shares of capital stock are held by
the Corporation or such other corporation in a fiduciary capacity.
Section 11. Inspectors of Election. The Board shall, in advance of any
meeting of stockholders, appoint one or three persons as inspectors of election,
to act at the meeting or any adjournment thereof and make a written report
thereof.
Section 12. Notice for Nominations and Proposals
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of stockholders may be
made by the Board of Directors of the Corporation or by any stockholder of the
Corporation entitled to vote generally in the election of directors. In order
for a stockholder of the Corporation to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than sixty days nor more than ninety days prior to any such
meeting; provided, however, that if less than seventy-one days' notice or prior
public disclosure of the date of the meeting is given to stockholders, such
written notice shall be delivered or mailed, as prescribed, to the Secretary of
the Corporation not later than the close of the tenth day following the day on
which notice of the meeting was mailed to stockholders or such public disclosure
was made. Each such notice given by a stockholder with respect to nominations
for election of directors shall set forth (i) the name, age, business address
and, if known, residence address of each nominee proposed in such notice, (ii)
the principal occupation or employment of each such nominees, (iii) the number
of shares of stock of the Corporation which are beneficially owned by each such
nominee, (iv) such other information as would be required to be included in a
proxy statement soliciting proxies for the election of the proposed nominee
pursuant
3
<PAGE>
to Regulation 14A of the Securities Exchange Act of 1934, as amended, including,
without limitation, such person's written consent to being named in the proxy
statement as a nominee and to serving as a director, if elected, and (v) as to
the stockholder giving such notice (a) his name and address as they appear on
the Corporation's books and (b) the class and number of shares of the
Corporation which are beneficially owned by such stockholder. In addition, the
stockholder making such nomination shall promptly provide any other information
reasonably requested by the Corporation.
B. Each such notice given by a stockholder to the Secretary with respect
to business proposals to bring before a meeting shall set forth in writing as to
each matter: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
(ii) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder; and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in this Certificate to the contrary, no business shall be conducted at the
meeting except in accordance with the procedures set forth in this Article.
C. The Chairman of the annual or special meeting of stockholders may, if
the facts warrant, determine and declare to the meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if the
Chairman should so determine, the Chairman shall so declare to the meeting and
the defective nomination or proposal shall be disregarded and laid over for
action at the next succeeding adjourned, special or annual meeting of the
stockholders taking place thirty days or more thereafter. This provision shall
not require the holding of any adjourned or special meeting of stockholders for
the purpose of considering such defective nomination or proposal.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board except as may be otherwise provided by
law or the Articles of Incorporation. The Board shall elect from among its
members a Chairman, and may elect one (1) or more Vice Chairmen of the Board.
The Chairman, or in his absence the Vice Chairman, shall preside at all meetings
of the Board.
Section 2. Number. The number of directors of the Corporation shall be
fixed from time to time exclusively by the Board by resolution adopted by a
majority of the total number of the Corporation's directors.
4
<PAGE>
Section 3. Regular Meetings. A regular meeting of the Board shall be held
without other notice than this Bylaw immediately after, and at the same place
as, the annual meeting of the stockholders or at such other place as may be
designated by the Board. Additional meetings shall be held at such time as the
Board shall fix at such places within or without the State of Indiana as shall
be fixed by the Board. No call shall be required for regular meetings for which
the time and place has been fixed.
Section 4. Special Meetings. Special meetings of the Board may be called
by or at the request of the Chairman or the Vice Chairman, or in the absence or
disability of both of them, a majority of the remaining directors. The persons
authorized to call special meetings of the Board may fix any place as the place
for holding any special meeting of the Board called by such persons.
Section 5. Participation In Meetings. Members of the Board may
participate in regular or special meetings by means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can communicate with each other. A director participating in a meeting
by this means is deemed to be present in person at the meeting.
Section 6. Notice. The persons authorized to call special meetings of the
Board shall cause the Secretary of the Corporation to give written or oral
notice of the meeting, specifying the time and place of the meeting, to each
director, either personally, by mailing, or by telegram, at least two (2) days
in advance of the meeting. Any director may waive notice of any meeting by a
writing filed with the Secretary. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except in the event a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the Board need be specified in the notice or waiver of notice of such
meeting.
Section 7. Quorum. A majority of the number of directors fixed pursuant
to Section 2 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the Board, but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by Section 7 of this Article III.
Section 8. Manner of Acting. Unless otherwise prescribed in the Articles
of Incorporation or these Bylaws, the act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board.
Section 9. Action Without a Meeting. Any action required or permitted to
be taken by the Board at a meeting may be taken without a meeting if a consent
in writing, setting forth the action so taken, shall be signed by all of the
directors.
5
<PAGE>
Section 10. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the Corporation addressed to the Chairman
or the Vice Chairman. Unless otherwise specified therein, such resignation
shall take effect upon receipt thereof.
Section 11. Vacancies. Any vacancy occurring in the Board may be filled
in accordance with the Articles of Incorporation.
Section 12. Compensation. Directors, as such, may receive pursuant to
resolution of the Board, fixed fees and other compensation for their services as
directors, including their services as members of committees of the Board.
Section 13. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the
Corporation. No person seventy years of age shall be eligible for election,
reelection, appointment or reappointment to the Board of Directors; provided,
however, that the foregoing age limitation shall not apply to the election of
the persons named as the initial directors of the Corporation at the
Corporation's first annual meeting of stockholders. A director who becomes
seventy years of age may serve as such until the completion of the term to which
the director was elected or appointed. To be eligible for election, reelection,
appointment or reappointment to the Board of Directors, a person must reside
within 50 miles of an office of the Corporation or one of its depository
institution subsidiaries.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The Board, by resolution adopted by a majority of
the Board, may designate the Chairman, the President and one (1) or more of the
other directors to constitute an Executive Committee. The designation of any
committee pursuant to this Article IV and the delegation of authority thereto
shall not operate to relieve the Board, or any director, of any responsibility
imposed by law or regulation.
Section 2. Authority. The Executive Committee, when the Board is not in
session, shall have and may exercise all of the authority of the Board except to
the extent, if any, that such authority shall be limited by the resolution
appointing the Executive Committee, or as otherwise expressly provided by law,
the Articles of Incorporation or these Bylaws.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
IV, each member of the Executive Committee shall hold office until the next
regular annual meeting of the Board following his designation and until a
successor is designated as a member of the Executive Committee.
6
<PAGE>
Section 4. Meetings. Regular meetings of the Executive Committee may be
held without notice at such times and places as the Executive Committee may fix
from time to time. Special meetings of the Executive Committee may be called by
the Chairman or the President, or in the absence or disability of both of them,
by a majority of the remaining members of the Executive Committee upon not less
than one (1) day's notice stating the place, date and hour of the meeting, which
notice may be written or oral. Any member of the Executive Committee may waive
notice of any meeting and no notice of any meeting need be given to any member
thereof who attends in person. The notice of a meeting of the Executive
Committee need not state the business proposed to be transacted at the meetings.
Regular or special meetings may be held by means of conference telephone or
similar communications equipment by which all persons participating in the
meeting can communicate with each other.
Section 5. Quorum. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the Executive Committee must be authorized by the
affirmative vote of a majority of the members present as a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
be taken by the Executive Committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the Executive Committee.
Section 7. Vacancies. Any vacancy in the Executive Committee may be
filled by a resolution adopted by a majority of the Board.
Section 8. Resignations and Removal. Any member of the Executive
Committee may be removed at any time with or without cause by resolution adopted
by a majority of the Board. Any member of the Executive Committee may resign
from the Executive Committee at any time by giving written notice to the
Chairman or the President. Unless otherwise specified thereon, such resignation
shall take effect upon receipt. The acceptance of such resignation shall not be
necessary to make it effective.
Section 9. Procedure. The Chairman shall be presiding officer of the
Executive Committee, or, in his absence or disability, the President, or in the
absence or disability of both of them, such other persons as may be elected by a
majority of the members present. The Executive Committee may fix its own rules
of procedure which shall not be inconsistent with these bylaws. It shall keep
regular minutes of its proceedings and report the same to the Board for its
information at the meeting thereof held next after the proceedings shall have
been taken.
Section 10. Other Committees. The Board may by resolution establish an
audit committee or other committees composed of directors as they may determine
to be necessary or appropriate for
7
<PAGE>
the conduct of the business of the Corporation and may prescribe the duties,
constitution and procedures thereof.
ARTICLE V
OFFICERS
Section 1. Positions. The officers of the Corporation shall consist of a
President, one (1) or more Vice Presidents, a Secretary and a Treasurer, each of
whom shall be elected by the Board. The same individual may simultaneously hold
more than one office in the corporation. The Board may designate one (1) or
more Vice Presidents as Executive Vice President or Senior Vice President. The
Board may also elect or authorize the appointment of such other officers as the
business of the Corporation may require. The officers shall have such authority
and perform such duties as the Board may from time to time authorize or
determine. In the absence of action by the Board, the officers shall have such
powers and duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually at the first meeting of the Board held after each
annual meeting of the stockholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until his successor shall have been duly elected and
qualified or until his death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not by
itself create any contractual rights. The Board may authorize the Corporation
to enter into an employment contract with any officer, but no contract shall
impair the right of the Board to remove any officer at any time in accordance
with Section 8 of this Article V.
Section 3. President. The President shall have the authority and the duty
to manage the affairs of the Corporation and shall have such other powers and
perform such other duties as are delegated to him by the Board of Directors or
as are incidental to his office. The President shall be a director.
Section 4. Vice President. The Vice President or Vice Presidents, if any,
shall perform the duties of the President in his absence or during his
disability to act. In addition, the Vice Presidents shall perform the duties
and exercise the powers usually incident to their respective offices and/or such
other duties and powers as may be properly assigned to them from time to time by
the Board of Directors or the President.
Section 5. Secretary. The Secretary shall have custody of the minutes and
records of the Corporation. He shall keep the minutes of all meetings of the
stockholders and of the Board of Directors, shall give such notice as may be
required for all such meetings and shall have such other powers and perform such
other duties as are delegated to him by the Board of Directors or the President
or as are incidental to his office.
8
<PAGE>
Section 6. Treasurer. The Treasurer shall keep correct and complete books
of account in accordance with the accounting methods adopted by the Board of
Directors, showing the financial condition of the Corporation and the results of
its operations. He shall have custody of all monies, securities, and other
certificates evidencing intangible personal property belonging to the
Corporation. He shall upon request furnish statements of the current financial
condition and the current results of operations of the Corporation and he shall
have such other powers and perform such other duties as are delegated to him by
the Board of Directors or the President or as are incidental to his office.
Section 7. Other Offices. All other officers shall have such powers and
perform such duties as are delegated to them by the Board of Directors or the
President.
Section 8. Removal. Any officer may be removed by the Board whenever in
its judgment the best interests of the Corporation will be served thereby.
Section 9. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by a majority
vote of the Board for the unexpired portion of the term.
Section 10. Remuneration. The remuneration of the officers shall be fixed
from time to time by the Board.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. To the extent permitted by applicable law, the
Articles of Incorporation or these Bylaws, the Board may authorize any officer,
employee or agent of the Corporation to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation. Such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one (1) or more officers, employees
or agents of the Corporation in such manner as shall from time to time be
determined by the Board.
Section 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in any
duly authorized depositories as the Board may select.
9
<PAGE>
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the Corporation shall be in such form as shall be determined by
the Board. Such certificates shall be signed by the President or any other
officer of the Corporation authorized by the Board, attested by the Secretary or
an Assistant Secretary, and sealed with the corporate seal or a facsimile
thereof. The signatures of such officers upon a certificate may be facsimiles if
the certificate is manually signed on behalf of a transfer agent or a registrar
other than the Corporation itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares issued and date of issue, shall be entered on the stock
transfer books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in the case of a lost, stolen or
destroyed certificate, a new certificate may be issued therefor upon such terms
and indemnity to the Corporation as the Board may prescribe as sufficient to
indemnify the Corporation against any claim that may be made against it on
account of such loss, theft or destruction.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
Corporation shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto duly authorized by power of attorney duly executed and filed
with the Corporation. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the Corporation shall be deemed by
the Corporation to be the owner thereof for all purposes.
ARTICLE VIII
DIVIDENDS
Subject to applicable law, the Articles of Incorporation or these Bylaws,
the Board may, from time to time, declare, and the Corporation may pay,
dividends on the outstanding shares of capital stock of the Corporation.
ARTICLE IX
SECURITIES OF OTHER CORPORATIONS
Unless otherwise ordered by the Board, the President shall have full power
and authority on behalf of the Corporation to purchase, sell, transfer, encumber
or vote any and all securities of any other corporation owned by the
Corporation, and may execute and deliver such documents as may
10
<PAGE>
be necessary to effectuate such purchase, sale, transfer, encumbrance or vote.
The Board may, from time to time, confer like powers upon any other person or
persons.
ARTICLE X
FISCAL YEAR, ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 30th day of June of
each year. The Corporation shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the Board.
ARTICLE XI
CORPORATE SEAL
The corporate seal of the Corporation, if any, shall be in such form as the
Board shall prescribe.
ARTICLE XII
AMENDMENTS
These Bylaws may be adopted, amended or repealed by a resolution adopted by
a two-thirds (2/3) majority of the directors then in office.
11
<PAGE>
EXHIBIT 10.1
FIRST FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
EFFECTIVE JANUARY 1, 1999
<PAGE>
CONTENTS
--------
Page No.
--------
Section 1 Creation of Trust........................................... 1
Section 2 Investment of Trust Fund and Administrative Powers
of the Trustee............................................. 2
Section 3 Compensation and Indemnification of Trustee
and Payment of Expenses and Taxes.......................... 7
Section 4 Records and Valuation....................................... 8
Section 5 Instructions from Committee................................. 9
Section 6 Change of Trustees.......................................... 9
Section 7 Miscellaneous............................................... 9
<PAGE>
This TRUST AGREEMENT dated March 17, 1999, BETWEEN First Federal Savings
Bank, with its principal office at 2200 W. Franklin Street, Evansville, Indiana
47712 (hereinafter called the "Bank"), AND Harold Duncan and Michael H. Head
(hereinafter collectively referred to as the "Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, effective January 1, 1999, the Bank approved and adopted an
employee stock ownership plan for the benefit of its employees, known as the
First Federal Savings Bank Employee Stock Ownership Plan (hereinafter called the
"Plan"); and
WHEREAS, the Bank has authorized the execution of this Trust Agreement and
has appointed Harold Duncan and Michael H. Head each as Trustee of the Trust
Fund created pursuant to the Plan; and
WHEREAS, Harold Duncan and Michael H. Head each has agreed to act as
Trustee and to hold and administer the assets of the Plan in accordance with the
terms of this Trust Agreement;
NOW, THEREFORE, the Bank and each of the Trustees agree as follows:
Section 1. Creation of Trust.
------------------
1.1 Trustees. Harold Duncan and Michael H. Head shall each be a trustee of
--------
the Trust Fund (as defined below) created in accordance with and in furtherance
of the Plan, and shall serve as Trustee until his/her removal or resignation in
accordance with Section 6 (unless otherwise noted, all Section references
contained herein are to this Trust Agreement).
1.2 Trust Fund. The Trustee hereby agrees to accept contributions from
-----------
the Employer (as such term is defined in the Plan) and amounts transferred from
other qualified retirement plans from time to time in accordance with the terms
of the Plan. All such property and contributions, together with income thereon
and increments thereto, shall constitute the "Trust Fund" to be held in
accordance with the terms of the Trust Agreement.
1.3 Incorporation of Plan. An instrument entitled "First Federal Savings
----------------------
Bank Employee Stock Ownership Plan" is incorporated herein by reference, and
this Trust Agreement shall be interpreted consistently with that Plan. All
words and phrases defined in that Plan shall have the same meaning when used in
this Trust Agreement, unless otherwise specifically defined in this Trust
Agreement.
1.4 Name. The name of this trust shall be "First Federal Savings Bank
-----
Employee Stock Ownership Plan Trust."
1.5 Nondiversion of Assets. In no event shall any part of the corpus or
-----------------------
income of the Trust Fund be used for, or diverted to, purposes other than for
the exclusive benefit of the Participants and
1
<PAGE>
their Beneficiaries prior to the satisfaction of all liabilities under the Plan,
except to the extent that assets may be returned to the Employer in accordance
with the Plan where the Plan fails to qualify initially under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), or where they are
attributable to contributions made by mistake of fact or conditioned upon their
deductibility.
Section 2. Investment of Trust Fund and Administrative Powers of the
---------------------------------------------------------
Trustee.
- --------
2.1 Stock and Other Investments. The basic investment policy of the Plan
----------------------------
shall be to invest primarily in Stock of the Employer for the exclusive benefit
of the Participants and their Beneficiaries. The Committee shall have full and
complete investment authority and responsibility with respect to the purchase,
retention, sale, exchange, and pledge of Stock and the payment of Stock
Obligations, and the Trustee shall not deal in any way with Stock except in
accordance with the written instructions of the Committee. The Trustee shall
invest, or keep invested, all or a portion of the Trust Fund in Stock, and shall
pay Stock Obligations out of assets of the Trust Fund, as instructed from time
to time by the Committee. The Trustee shall invest any balance of the Trust
Fund (the "Investment Fund") in such other property as the Committee, in its
sole discretion, shall deem advisable, subject to any delegation of such
investment responsibility pursuant to Section 2.2. Nothing contained herein
shall provide investment discretion authority or any like kind responsibility in
regard to the assets of the Trust Fund.
In connection with instructions from the Committee to acquire Stock, the
Trustee may purchase newly issued or outstanding Stock from an Employer or any
other holders of Stock, including Participants, Beneficiaries, and Plan
fiduciaries. All purchases and sales of Stock shall be made by the Trustee at
fair market value as determined by the Committee in good faith and in accordance
with any applicable requirement under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Such purchases may be made with assets of
the Trust Fund, with funds borrowed for this purpose (with or without guarantees
of repayment to the lender by an Employer), or by any combination of the
foregoing.
Notwithstanding any other provision of this Trust Agreement or the Plan,
neither the Committee nor Trustee shall make any purchase, sale, exchange,
investment, pledge, valuation, or loan, or take any other action involving those
assets for which it is responsible which (i) is inconsistent with the policy of
the Plan and Trust Agreement, (ii) is inconsistent with the prudence and
diversification requirements set forth in Sections 404(a)(1)(B) and (C) of ERISA
(to the extent such requirements apply to an employee stock ownership plan and
related trust), (iii) is prohibited by Section 406 or 407 of ERISA or Section
4975 of the Code, or (iv) would impair the qualification of the Plan or the
exemption of the Trust under Sections 401 and 501 of the Code.
2.2 Delegation of Investment Responsibility. The Committee may, by
----------------------------------------
written notice, direct the Trustee to segregate any portion or all of the
Investment Fund into one or more separate accounts for each of which full
investment responsibility will be delegated to an investment manager, as defined
in Section 3(38) of ERISA, appointed in such notice pursuant to Section
402(c)(3) of ERISA (hereinafter a "Manager"). For any separate account where
the Trustee is to maintain custody of the
2
<PAGE>
assets, the Trustee and the Manager shall agree upon procedures for the
transmittal of investment instructions from the Manager to the Trustee, and the
Trustee may provide the Manager with such documents as may be necessary to
authorize the Manager to effect transactions directly on behalf of the
segregated account.
Further, the Committee may, by written notice, direct the Trustee to
segregate any portion or all of the Investment Fund into one or more separate
accounts for each of which full investment responsibility will be delegated to
an insurance company through one or more group annuity contracts, deposit
administration contracts, or similar contracts, which may provide for
investments in any commingled separate accounts established under such
contracts. An insurance company shall be a Manager with respect to any amounts
held under such a contract except to the extent the insurer's assets are not
deemed assets of the Plan and Trust Fund pursuant to Section 401(b)(2) of ERISA.
The allocation of amounts held under such a contract among the insurer's general
account and one or more individual or commingled separate accounts shall be
determined by the Bank except as otherwise agreed by the Bank and the insurer.
Any Manager shall have all of the powers given to the Trustee pursuant to
Section 2.3 with respect to the portion of the Trust Fund committed to its
investment discretion and control. The Trustee shall be responsible for the
safekeeping of any assets which remain in its custody, but in no event shall the
Trustee be under any duty to question or make any inquiry or suggestion
regarding the action or inaction of a Manager or an insurer or the advisability
of acquiring, retaining, or disposing of any asset of a segregated account. The
Employer shall indemnify and hold the Trustee harmless from any and all costs,
damages, expenses, and liabilities which the Trustee may incur by reason of any
action taken or omitted to be taken by the Trustee upon directions from the
Committee, a Manager, or an insurer pursuant to this Section 2.2.
2.3 Trustee Powers. In addition to and not by way of limitation upon the
---------------
fiduciary powers granted to it by law, the Trustee shall have the following
specific powers, subject to direction by the Committee and subject to the
limitations set forth in Section 2.1:
2.3-1 to receive, hold, manage, invest and reinvest the money or other
property which constitutes the Trust Fund, without distinction between principal
and income;
2.3-2 to hold funds uninvested temporarily without liability for interest
thereon, and to deposit funds in one or more savings or similar accounts with
any banks and savings and loan associations which are insured by an
instrumentality of the federal government, including the Trustee if it is such
an institution.
2.3-3 to invest or reinvest the whole or any portion of the money or other
property which constitutes the Trust Fund in such common or preferred stocks,
investment trust shares, mutual funds, commingled trust funds, partnership
interests, bonds, notes, or other evidences of indebtedness, and real and
personal property as the Committee in its absolute judgment and discretion may
deem to be for the best interests of the Trust Fund, regardless of
nondiversification to the extent that such nondiversification is clearly
prudent, and regardless of whether any such
3
<PAGE>
investment or property is authorized by law regarding the investment of trust
funds, of a wasting asset nature, temporarily non-income producing, or within or
without the United States;
2.3-4 to invest in common and preferred stocks, bonds, notes, or other
obligations of any corporation or business enterprise in which an Employer or
its owners may own an interest;
2.3-5 to exchange any investment or property, real or personal, for other
investments or properties at such time and upon such terms as the Trustee shall
deem proper;
2.3-6 to sell, transfer, convey or otherwise dispose of any investment or
property, real or personal, for cash or on credit, in such manner and upon such
terms and conditions as the Trustee shall deem advisable, and no person dealing
with the Trustee shall be under any duty to inquire as to the validity,
expediency, or propriety of any such sale or as to the application of the
purchase money paid to the Trustee;
2.3-7 to hold any investment or property in the name of the Trustee, with
or without the designation of any fiduciary capacity, or in name of a nominee,
or unregistered, or in such other form that title may pass by delivery;
provided, however, that the Trustee's records always show that such investment
or property belongs to the Trust Fund and the Trustee shall not be relieved
hereby of its responsibility to maintain safe custody of the Trust Fund;
2.3-8 to organize one or more corporations to hold, manage, or liquidate
any property, including real estate, owned or acquired by the Trust Fund if in
the sole discretion of the Trustee the organization of such corporation or
corporations is for the best interest of the Trust;
2.3-9 to extend the time for payment of, to modify, to renew, or to
release security from any mortgage, note or other evidence of indebtedness, or
to take advantage of or waive any default; to foreclose mortgages and bid in
property under foreclosure or to take title to property by conveyance in lieu of
foreclosure, either with or without the payment of additional consideration;
2.3-10 to vote in person or by proxy all stocks and other securities
having voting privileges; to exercise or refrain from exercising any option or
privilege with respect to stocks and other securities, including any right or
privilege to subscribe for or otherwise to acquire stocks and other securities;
or to sell any such right or privilege; to assent to and join in any plan of
refinance, merger, consolidation, reorganization or liquidation of any
corporation or other enterprise in which this Trust may have an interest, to
deposit stocks and other securities with any committee formed to effectuate the
same, to pay any expense incidental thereto, to exchange stocks and other
securities for those which may be issued pursuant to any such plan, and to
retain as an investment the stocks and other securities received by the Trustee;
and to deposit any investment in a voting trust; notwithstanding the preceding,
participants and beneficiaries shall be entitled to direct the manner in which
stock allocated to their respective accounts are to be voted on all matters.
All Stock which has been allocated to participants' accounts for which the
Trustee has received no written direction and all unallocated Employer
securities will be voted in accordance with Section 8.01 of the Plan. Whenever
such voting rights are to be exercised, the Employer, the Committee and the
Trustee shall
4
<PAGE>
see that all Participants and Beneficiaries are provided with adequate
opportunity to deliver their instructions to the Trustee regarding voting of
Stock allocated to their accounts. The instructions of the Participants with
respect to the voting of allocated shares hereunder shall be confidential;
2.3-11 to abandon any property, real or personal, which the Trustee at the
direction of the Committee, shall consider to be worthless or not of sufficient
value to warrant its keeping or protecting; to abstain from the payment of
taxes, water rents, assessments, repairs, maintenance, and upkeep of any such
property; to permit any such property to be lost by tax sale or other
proceedings, and to convey any such property for a nominal consideration or
without consideration;
2.3-12 to borrow money from an Employer or from others (including the
Trustee), and to enter into installment contracts, for the purchase of Stock
upon such terms and conditions and at such reasonable rates of interest as the
Committee may deem to be advisable, to issue its promissory notes as Trustee to
evidence such debt, to secure the payment of such notes by pledging any property
of the Trust Fund, and to authorize the holders of any such notes to pledge them
to secure obligations of the holders and in connection therewith to repledge any
assets of the Trust as security therefor; provided that, with respect to any
extension of credit to the Trust involving, as a lender or guarantor, an
Employer or another "disqualified person" within the meaning of Section
4975(e)(2) of the Code --
(a) each loan or installment contract is primarily for the benefit of
Participants and Beneficiaries of the Plan;
(b) any interest on a loan or installment contract does not exceed a
reasonable rate;
(c) the proceeds of any loan shall be used only to acquire Stock, to repay
the loan, or to repay a previous loan meeting these conditions, and the
subject of any installment contract shall be only the Trust's purchase
of Stock;
(d) any collateral pledged to a creditor by the Trustee shall consist only
of the assets purchased with borrowed funds or received in accordance
with an installment contract and the creditor shall have no recourse
against the Trust Fund except with respect to the collateral (although
the creditor may have recourse against an Employer as guarantor);
(e) payments with respect to a loan or installment contract shall be made
only from those amounts contributed by the Employer to the Trust Fund,
from amounts earned on such contributions, and from cash dividends
received on unallocated Stock held by the Trust as collateral for such
an obligation; and
(f) upon the payment of any portion of balance due on a loan or upon any
installment payment, a proportionate part of any assets originally
pledged as collateral for such indebtedness shall be released from
encumbrance in accordance with Section 4.2 of the Plan and the
Committee shall at least annually advise the Trustee of the number of
shares of Stock so released and the proper allocation of such shares
under the terms of the Plan;
2.3-13 to manage and operate any real property which shall at any time
constitute an asset of the Trust Fund; to make repairs, alterations, and
improvements thereto; to insure such property
5
<PAGE>
against loss by fire or other casualty; to lease or grant options for the sale
of such property, which lease or option may be for a period of time which may
extend beyond the life of this Trust; and to take any other action or enter into
any other contract respecting such property which is consistent with the best
interests of the Trust;
2.3-14 to pay any and all reasonable and normal expenses incurred in
connection with the exercise of any power, right, authority or discretion
granted herein, and, upon prior notice to the Bank, to employ and compensate
agents, investment counsel, custodians, actuaries, attorneys, and accountants in
such connection;
2.3-15 to employ and consult with any legal counsel, who also may be
counsel to an Employer or the Committee, with respect to the meaning or
construction of this Trust Agreement, the extent of the Trustee's obligations
and duties hereunder, and whether the Trustee should take or decline to take a
particular action hereunder, and the Trustee shall be fully protected with
respect to any action taken or omitted by it in good faith pursuant to such
advice;
2.3-16 to defend any action or proceeding instituted against the Trust
Fund, to institute any action on behalf of the Trust Fund, and to compromise or
submit to arbitration any dispute concerning the Trust Fund;
2.3-17 to make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted;
2.3-18 to commingle the Trust Fund created pursuant hereto, in whole or in
part, in a single trust with all or any portion of any other trust fund,
assigning an undivided interest to each such commingled trust fund, provided
that such commingled trust is itself exempt from taxation pursuant to Section
501(a) of the Code, or its successor Section; and provided further that the
trust agreement governing such commingled trust shall be deemed incorporated by
reference in the Plan;
2.3-19 where two or more trusts governed by this Trust Agreement have an
undivided interest in any property, to credit the income from such property to
such trusts in proportion to their undivided interests, and when non pro rata
distributions of property or money are made from such trusts, to make
appropriate adjustments to the undivided fractional interests of such trusts;
2.3-20 to invest all or any portion of the Trust Fund in one or more group
annuity contracts, deposit administration contracts, and other such contracts
with insurance companies, including any commingled separate accounts established
under such contracts;
2.3-21 generally, with respect to all cash, stocks and other securities,
and property, both real and personal, received or held in the Trust Fund by the
Trustee, to exercise all the same rights and powers as are or may be lawfully
exercised by persons owning cash, or stocks and other securities, or such
property in their own right; and to do all other acts, whether or not expressly
authorized, which it may deem necessary or proper for the protection of the
Trust Fund; and
6
<PAGE>
2.3-22 whenever more than two persons shall qualify to act as co-trustees,
to exercise and perform every power (including discretionary powers), authority
or duty by the concurrence of a majority of them the same effect as if all had
joined therein, except that the unanimous vote of such persons shall be
necessary to determine the number (one or more) and identity of persons who may
sign checks, make withdrawals from financial institutions, have access to safe
deposit boxes, or direct the sale of trust assets and the disposition of the
proceeds.
Section 3. Compensation and Indemnification of Trustee and Payment of
----------------------------------------------------------
Expenses and Taxes.
- -------------------
3.1 Fees and Expenses from Fund. Compensation of Trustee. In
---------------------------
consideration for rendering services pursuant to this Trust Agreement the
Trustee shall be paid fees in accordance with the Trustee's fee schedule as in
effect from time to time; provided, however, that any individual serving as
Trustee who already receives full-time pay from the Employer shall not receive
compensation from the Plan. Fee changes resulting in fee increases shall be
effective upon not less than 30 days' notice to the Bank. In addition, the
Trustee shall be reimbursed for any reasonable expenses, including reasonable
attorneys' fees, incurred in the administration of the Trust created hereby.
Fees and expenses shall be allocated to Participant Accounts, if any, unless
paid directly by the Employer. All compensation and expenses of the Trustee
shall be paid out of the Trust Fund or by the Employer as specified in the Plan.
If and to the extent the Trust Fund shall not be sufficient, such compensation
and expenses shall be paid by the Employer upon demand. If payment is due but
not paid by the Employer, such amount shall be paid from the assets of the
Trust Fund. The Trustee is hereby empowered to withdraw all such compensation
and expenses which are 60 days past due from the Trust Fund, and, in furtherance
thereof, liquidate any assets of the Trust Fund, without further authorization
or direction from or by any person.
3.2 Indemnification. Notwithstanding any other provision of this Trust
----------------
Agreement, any individual designated as a trustee hereunder shall be indemnified
and held harmless by the Employer to the fullest extent permitted by law against
any and all costs, damages, expenses and liabilities including, but not limited
to attorneys' fees and disbursements reasonably incurred by or imposed upon such
individual in connection with any claim made against him or in which he may be
involved by reason of his being, or having been, a trustee hereunder, to the
extent such amounts are not satisfied by insurance maintained by the Employer,
except liability which is adjudicated to have resulted from the gross negligence
or willful misconduct of the Trustee by reason of any action so taken. Further,
any corporate trustee and its officers, directors and agents may be indemnified
and held harmless by the Employer to the fullest extent permitted by law against
any and all costs, damages, expenses and liabilities including, but not limited
to attorneys' fees and disbursements reasonably incurred by or imposed upon such
persons and/or corporation in connection with any claim made against it or them
or in which it or them may be involved by reason of its being, or having been, a
trustee hereunder as may be agreed between the Employer and such Trustee, except
liability which is adjudicated to have resulted from the gross negligence or
willful misconduct of the Trustee by reason of any action so taken.
7
<PAGE>
3.3 Expenses. All expenses of administering this Trust and the Plan,
---------
whether incurred by the Trustee or the Committee, shall be paid by the Trustee
from the Trust Fund to the extent such expenses shall not have been assumed by
the Employer.
3.4 Taxes. All taxes of any kind that may be levied or assessed upon the
------
Trust Fund, its income or assets, shall be paid from the Trust Fund, but the
Trustee shall not be obliged to pay such tax so long as it shall contest the
validity of such levy or assessment upon the advice of counsel.
Section 4. Records and Valuation.
----------------------
4.1 Records. The Trustee, and any investment manager appointed pursuant
--------
to Section 2.2, shall maintain accurate and detailed records and accounts of all
investments, receipts, disbursements and other transactions made by it with
respect to the Trust Fund, and all accounts, books and records relating thereto
shall be open at all reasonable time to inspection and audit by the Committee
and the Employer.
4.2 Valuation. From time to time upon the request of the Committee, but
----------
at least annually as of the last day of each Plan Year, the Trustee shall
prepare a balance sheet of the Investment Fund in accordance with Section 5 of
the Plan and shall deliver copies of the balance sheet to the Committee and the
Employer. In the absence of any written objections to the balance sheet by the
Committee or an Employer within 90 days after its delivery to them, the Trustee
shall be entitled to presume and to rely upon its correctness for all purposes.
Section 5. Instructions from Committee.
----------------------------
5.1 Certification of Members and Employees. From time to time the Bank
---------------------------------------
shall certify to the Trustee in writing the names of the individuals comprising
the Committee and shall furnish to the Trustee specimens of their signatures and
the signatures of their agents, if any. The Trustee shall be entitled to
presume that the identities of such individuals and their agents are unchanged
until it receives a certification from the Bank notifying it of any changes.
5.2 Instructions to Trustee. The Trustee shall pay such sums to such
------------------------
persons and shall take such other actions as shall be set forth in written
instructions from a single member of the Committee, whose name shall be
certified in writing to the Trustee by the Bank from time to time. The Trustee
shall be fully protected in taking any action based upon such written
instructions and shall have no power, authority, or duty to interpret the Plan
or to inquire into the decisions or determinations of the Committee, or to
question the instructions given to it by the Committee.
5.3 Plan Change. In the event of an amendment, merger, division, or
------------
termination of the Plan, the Trustee shall continue to disburse funds and to
take other proper actions in accordance with the instructions of the Committee.
8
<PAGE>
Section 6. Change of Trustees.
-------------------
The Bank may, at any time, remove any person or entity serving as a Trustee
hereunder by giving to such person or entity written notice of removal and, if
applicable, the name and address of the successor trustee. Any person or entity
serving as a Trustee hereunder may resign at any time by giving written notice
to the Bank. Any such removal or resignation shall take effect within 30 days
after notice has been given by the Trustee or by the Bank, as the case may be.
Within those 30 days, the removed or resigned Trustee shall transfer, pay over
and deliver any portion of the Trust Fund in its possession or control (less an
appropriate reserve for any unpaid fees, expenses, and liabilities) and all
pertinent records to the successor or remaining Trustee; provided, however, that
any assets which are invested in a collective fund or in some other manner which
prevents their immediate transfer shall be transferred and delivered to the
successor trustee as soon as may be practicable. Thereafter, the removed or
resigned Trustee shall have no liability for the Trust Fund or for its
administration by the successor or remaining trustee, but shall render an
accounting to the Committee of its administration of the Trust Fund to the date
on which its trusteeship shall have been terminated. The Bank may also, upon 30
days' notice to each person currently serving as a Trustee, appoint one or more
persons to serve as co-trustees hereunder.
Section 7. Miscellaneous.
--------------
7.1 Right to Amend. This Trust Agreement may be amended from time to time
---------------
by an instrument executed by the Bank; provided, however, that any amendment
affecting the powers, duties or liabilities of the Trustee must be approved by
the Trustee, and provided, further, that no amendment may divert any portion of
the Trust Fund to purposes other than the exclusive benefit of the Participants
and their Beneficiaries prior to the satisfaction of all liabilities for
benefits. Any amendment shall apply to the Trust Fund as constituted at the
time of the amendment as well as to that portion of the Trust Fund which is
subsequently acquired.
7.2 Compliance with ERISA. In the exercise of its powers and the
----------------------
performance of its duties, the Trustee shall act in good faith and in accordance
with the applicable requirements under ERISA. Except as may be otherwise
required by ERISA, the Trustee shall not be required to furnish any bond in any
jurisdiction for the performance of its duties and, if a bond is required
despite this provision, no surety shall be required on it.
7.3 Nonresponsibility for Funding. The Trustee shall be under no duty to
------------------------------
enforce the payment of any contributions and shall not be responsible for the
adequacy of the Trust Fund to satisfy any obligations for benefits, expenses,
and liabilities under the Plan.
7.4 Reports. The Trustee shall file any report which it is required by
--------
law to file with any governmental authority with respect to this Trust, and the
Committee shall furnish to the Trustee whatever information is necessary to
prepare the report.
7.5 Dealings with Trustee. Persons dealing with the Trustee, including
----------------------
but not limited to banks, brokers, dealers, and insurers, shall be under no
obligation to inquire concerning the validity
9
<PAGE>
of anything which the Trustee purports to do, nor need any person see to the
proper application of any money paid or any property transferred upon the order
of the Trustee or to inquire into the Trustee's authority as to any transaction.
7.6 Limitation Upon Responsibilities. The Trustee shall have no
---------------------------------
responsibilities with respect to the Plan or Trust other than those specifically
enumerated or explicitly allocated to it under this Trust Agreement or the
provisions of ERISA. All other responsibilities are retained and shall be
performed by one or more of the Employer, the Committee, and such advisors or
agents as they choose to engage.
The Trustee may execute any of the trusts or powers hereof and perform any
of its duties by or through attorneys, agents, receivers or employees and shall
not be answerable for the conduct of the same if chosen with reasonable care and
shall be entitled to advice of counsel concerning all matters of trust hereof
and the duties hereunder, and may in all cases pay such reasonable compensation
to all such attorneys, agents, receivers and employees as may reasonably be
employed in connection with the trusts hereof. The Trustee may act upon the
opinion or advice of any attorney (who may be the attorney for the trustee or
attorney for the Committee), approved by the Trustee in the exercise of
reasonable care. The Trustee shall not be responsible for any loss or damage
resulting from any action or non-action in good faith in reliance upon such
opinion or advice.
The Trustee shall be protected in acting upon any notice, request, consent,
certificate, order, affidavit, letter, telegram or other paper or document
believed to be genuine and correct and to have been signed or sent by the proper
person or persons.
As to the existence or non-existence of any fact or as to the sufficiency
or validity of any instrument, paper or proceedings, the Trustee shall be
entitled to rely upon a certificate signed on behalf of the Committee as
sufficient evidence of the facts therein contained but may at its discretion
secure such further evidence deemed necessary or advisable, but shall in no case
be bound to secure the same. The Trustee shall not be answerable for other than
its gross negligence or willful misconduct.
Before taking any action hereunder at the request or direction of the
Committee, the Trustee may require that indemnity in form and amount
satisfactory to the Trustee be furnished for the reimbursement of any and all
costs and expenses to which it may be put including, without limitation,
reasonable attorneys' fees and to protect it against all liability, except
liability which is adjudicated to have resulted from the gross negligence or
willful misconduct of the Trustee by reason of any action so taken.
No provision of this Agreement shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
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7.7 Successor Trustees. This Trust Agreement shall apply to any person
-------------------
who shall be appointed to succeed the person currently appointed as the Trustee;
and any reference herein to the Trustee shall be deemed to include any one or
more individuals or corporations or any combination thereof who or which hall at
any time act as a co-trustee or as the sole trustee.
7.8 Governing State Law. This Trust Agreement shall be interpreted in
--------------------
accordance with the laws of the State of Indiana to the extent those laws may be
applicable under the provisions of ERISA.
IN WITNESS WHEREOF, the parties hereto have executed this Trust Agreement
as of the day and year first above written.
ATTEST: FIRST FEDERAL SAVINGS BANK
/s/ Michael H. Head By: /s/ Harold Duncan
- ------------------------------ ---------------------------------
Michael H. Head Harold Duncan
Executive Vice President and President and Chief Executive Officer
Chief Operating Officer
WITNESS: FIRST FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
/s/ Ruthanne Orth /s/ Harold Duncan
- ------------------------------ -------------------------------------
Harold Duncan, Trustee
/s/ Ruthanne Orth /s/ Michael H. Head
- ------------------------------ -------------------------------------
Michael H. Head, Trustee
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EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of April 1, 1999, by and between FIRST
FEDERAL SAVINGS BANK (the "BANK"), FIRST BANCORP OF INDIANA, INC., (the
"COMPANY"), an Indiana corporation; and HAROLD DUNCAN ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve as
President and Chief Executive Officer of the Bank. EXECUTIVE also agrees to
serve, if elected, as an officer and director of the COMPANY or any subsidiary
or affiliate of the COMPANY or the BANK. Executive shall render administrative
and management duties to the BANK such as are customarily performed by persons
situated in a similar executive capacity.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for thirty six (36) months
thereafter. Commencing on the first anniversary date, and continuing at each
anniversary date thereafter, the Board of Directors of the BANK (the "Board")
may extend the Agreement for an additional year. Prior to the extension of the
Agreement as provided herein, the Board of Directors of the BANK will conduct a
formal performance evaluation of EXECUTIVE for purposes of determining whether
to extend the Agreement, and the results thereof shall be included in the
minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the BANK; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
EXECUTIVE may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the BANK,
or materially affect the performance of EXECUTIVE's duties pursuant to this
Agreement.
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3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The BANK
shall pay EXECUTIVE as compensation a salary of $136,000 per year ("Base
Salary"). Such Base Salary shall be payable in accordance with the customary
payroll practices of the BANK. During the period of this Agreement, EXECUTIVE's
Base Salary shall be reviewed at least annually; the first such review will be
made no later than one year from the date of this Agreement. Such review shall
be conducted by a Committee designated by the Board, and the Board may increase
EXECUTIVE's Base Salary. In addition to the Base Salary provided in this Section
3(a), the BANK shall provide EXECUTIVE at no cost to EXECUTIVE with all such
other benefits as are provided uniformly to permanent full-time employees of the
BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the BANK will not, without
EXECUTIVE's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect EXECUTIVE's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), EXECUTIVE will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the BANK in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
EXECUTIVE will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the BANK, in which EXECUTIVE is
eligible to participate. Nothing paid to EXECUTIVE under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
EXECUTIVE is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the BANK of EXECUTIVE's full-time employment hereunder for any reason other than
a Change in Control, as defined in Section 5(a) hereof; disability, as defined
in Section 6(a) hereof; death; retirement, as defined in Section 7 hereof; or
Termination for
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Cause, as defined in Section 8 hereof; (ii) EXECUTIVE's resignation from the
BANK's employ, upon (A) unless consented to by EXECUTIVE, a material change in
EXECUTIVE's function, duties, or responsibilities, which change would cause
EXECUTIVE's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Sections 1 and 2,
above (any such material change shall be deemed a continuing breach of this
Agreement), (B) a relocation of EXECUTIVE's principal place of employment by
more than 35 miles from its location at the effective date of this Agreement, or
a material reduction in the benefits and perquisites to EXECUTIVE from those
being provided as of the effective date of this Agreement, (C) the liquidation
or dissolution of the BANK, or (D) any material breach of this Agreement by the
BANK. Upon the occurrence of any event described in clauses (A), (B), (C) or
(D), above, EXECUTIVE shall have the right to elect to terminate his employment
under this Agreement by resignation upon not less than sixty (60) days prior
written notice given within a reasonable period of time not to exceed, except in
case of a continuing breach, four (4) calendar months after the event giving
rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to EXECUTIVE for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the BANK
as of the Date of Termination), to EXECUTIVE for the term of the Agreement
provided, however, that if the BANK is not in compliance with its minimum
capital requirements or if such payments would cause the BANK's capital to be
reduced below its minimum capital requirements, such payments shall be deferred
until such time as the BANK is in capital compliance. All payments made pursuant
to this Section 4(b) shall be paid in substantially equal monthly installments
over the remaining term of this Agreement following EXECUTIVE's termination;
provided, however, that if the remaining term of the Agreement is less than one
(1) year (determined as of EXECUTIVE's Date of Termination), such payments and
benefits shall be paid to EXECUTIVE in a lump sum within thirty (30) days of the
Date of Termination.
(c) Upon the occurrence of an Event of Termination, the BANK will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining term
of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the COMPANY or the BANK. For purposes of this
Agreement, a "Change in Control" of the COMPANY or the BANK shall be deemed to
occur (a) if there occurs a change in control of the BANK or the COMPANY within
the meaning of the Home Owners Loan Act of
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1933 and 12 C.F.R. Part 574, (b) if any person (as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, of securities of the COMPANY or the BANK representing
twenty-five percent (25%) or more of the combined voting power of the COMPANY's
or the BANK's then outstanding securities, (c) if the membership of the board of
directors of the COMPANY or the BANK changes as the result of a contested
election, such that individuals who were directors at the beginning of any
twenty-four (24) month period (whether commencing before or after the date of
adoption of this Agreement) do not constitute a majority of the Board at the end
of such period, or (d) upon the consummation of a transaction approved by the
shareholders of the COMPANY or the BANK involving a merger, consolidation, sale
or disposition of all or substantially all of the COMPANY's or the BANK's
assets, or a similar transaction occurs in which the COMPANY or the BANK is not
the resulting entity.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred, EXECUTIVE shall be entitled to the benefits
provided in paragraphs (c), (d) and (e) of this Section 5 upon his subsequent
involuntary termination following the effective date of a Change in Control (or
voluntary termination within twelve (12) months of the effective date of a
Change in Control following any material demotion, loss of title, office or
significant authority, material reduction in his annual compensation or benefits
(other than a reduction affecting the BANK's personnel generally), or the
relocation of his principal place of employment by more than 35 miles from its
location immediately prior to the Change in Control), unless such termination is
because of his death, retirement as provided in Section 7, termination for
Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK shall pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to 2.99
times EXECUTIVE's "base amount," within the meaning of (S)280G(b)(3) of the
Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be made
in a lump sum paid within ten (10) days of EXECUTIVE's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. Such coverage shall
cease upon the expiration of thirty-six (36) months. In addition, EXECUTIVE
shall be entitled to receive the value of employer contributions that would have
been made on EXECUTIVE's behalf over the remaining term of the agreement to any
tax-qualified retirement plan sponsored by the BANK as of the Date of
Termination.
(e) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of the
Code, then, at the election of EXECUTIVE, (i) such payments or benefits shall be
payable or
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provided to EXECUTIVE over the minimum period necessary to reduce the present
value of such payments or benefits to an amount which is one dollar ($1.00) less
than three (3) times EXECUTIVE's "base amount" under (S)280G(b)(3) of the Code
or (ii) the payments or benefits to be provided under this Section 5 shall be
reduced to the extent necessary to avoid treatment as an excess parachute
payment with the allocation of the reduction among such payments and benefits to
be determined by EXECUTIVE.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to three-
quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of EXECUTIVE's termination and will end on the earlier of (i) the
date EXECUTIVE returns to the full-time employment of the BANK in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's
full-time employment by another employer; (iii) EXECUTIVE attaining the age of
sixty-five (65); or (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement. The disability pay shall be reduced by the amount, if any, paid
to EXECUTIVE under any plan of the BANK providing disability benefits to
EXECUTIVE.
(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment by another
employer; (iii) EXECUTIVE's attaining the age of sixty-five (65); (iv)
EXECUTIVE's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established
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with EXECUTIVE's consent with respect to him. Upon termination of EXECUTIVE upon
Retirement, EXECUTIVE shall be entitled to all benefits under any retirement
plan of the BANK or the COMPANY and other plans to which EXECUTIVE is a party.
Upon the death of EXECUTIVE during the term of this Agreement, the BANK shall
pay to EXECUTIVE's estate the compensation due to EXECUTIVE through the last day
of the calendar month in which his death occurred. Upon the voluntary
resignation of EXECUTIVE during the term of this Agreement, other than in
connection with an Event of Termination, the BANK shall pay to EXECUTIVE the
compensation due to EXECUTIVE through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar infractions) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the members of the Board at a meeting of the Board called
and held for that purpose (after reasonable notice to EXECUTIVE and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, EXECUTIVE was guilty of
conduct justifying termination for Cause and specifying the reasons thereof.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after termination for Cause. Any stock options granted to EXECUTIVE
under any stock option plan or any unvested awards granted under any other stock
benefit plan of the BANK, the COMPANY, or any subsidiary or affiliate thereof,
shall become null and void effective upon EXECUTIVE's receipt of Notice of
Termination for Cause pursuant to Section 10 hereof, and shall not be
exercisable by EXECUTIVE at any time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all
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or part of the compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its obligations that
were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK under the authority contained in Section 13(c) of the FDIA or
(ii) by the Director, or his designee at the time the Director or such designee
approves a supervisory merger to resolve problems related to operation of the
BANK or when the BANK is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of EXECUTIVE's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for Cause,
the date specified in the Notice of Termination . In the event of EXECUTIVE's
Termination for Cause, the Date of Termination shall be the same as the date of
the Notice of Termination.
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(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by EXECUTIVE in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to
an Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not to
compete with the BANK and/or the COMPANY for a period of one (1) year following
such termination in any city, town or county in which the BANK and/or the
COMPANY has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
EXECUTIVE agrees that during such period and within said cities, towns and
counties, EXECUTIVE shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the BANK and/or the
COMPANY. The parties hereto, recognizing that irreparable injury will result to
the BANK and/or the COMPANY, its business and property in the event of
EXECUTIVE's breach of this Subsection 11(a) agree that in the event of any such
breach by EXECUTIVE, the BANK and/or the COMPANY will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by EXECUTIVE, EXECUTIVE's partners, agents, servants,
employers, employees and all persons acting for or with EXECUTIVE. EXECUTIVE
represents and admits that in the event of the termination of his employment
pursuant to Section 4 hereof, EXECUTIVE's experience and capabilities are such
that EXECUTIVE can obtain employment in a business engaged in other lines and/or
of a different nature than the BANK and/or the COMPANY, and that the enforcement
of a remedy by way of injunction will not prevent EXECUTIVE from earning a
livelihood. Nothing herein will be construed as prohibiting the BANK and/or the
COMPANY from pursuing any other remedies available to the BANK and/or the
COMPANY for such breach or threatened breach, including the recovery of damages
from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the BANK. EXECUTIVE will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof to any person,
firm, 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
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which are not solely and exclusively derived from the business plans and
activities of the BANK. In the event of a breach or threatened breach by
EXECUTIVE of the provisions of this Section, the BANK will be entitled to an
injunction restraining EXECUTIVE from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
BANK or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the BANK from pursuing any other remedies available to the BANK for
such breach or threatened breach, including the recovery of damages from
EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that EXECUTIVE is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
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(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Indiana,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or state
law or regulation, including , specifically, 12 C.F.R. Section 563.39(b), the
provisions of such law or regulation shall prevail.
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 BANK, if EXECUTIVE is successful pursuant to a legal
judgment, arbitration or settlement.
20. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest extent
permitted under Indiana law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the BANK (whether or not he continues to be a directors or officer
at the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgment, court costs and
attorneys' fees and the cost of reasonable
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settlements. The provisions of 12 C.F.R. 545.121 shall apply to the BANK's
obligations under this Section 20.
21. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the 1st day of April, 1999.
ATTEST: FIRST FEDERAL SAVINGS BANK
/s/ Michael H. Head /s/ Robert L. Clayton, Sr.
_______________________________ BY:_________________________________
Robert L. Clayton, Sr.
Chairman of the Board of Directors
ATTEST: FIRST BANCORP OF INDIANA, INC.
/s/ Michael H. Head /s/ Robert L. Clayton, Sr.
_______________________________ BY:_________________________________
Robert L. Clayton, Sr.
Chairman of the Board of Directors
WITNESS: EXECUTIVE
/s/ Michael H. Head /s/ Harold Duncan
_______________________________ ____________________________________
Harold Duncan
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made effective as of April 1, 1999, by and between FIRST
FEDERAL SAVINGS BANK (the "BANK"), FIRST BANCORP OF INDIANA, INC., (the
"COMPANY"), an Indiana corporation; and MICHAEL H. HEAD ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve as
Executive Vice President and Chief Operating Officer of the Bank. EXECUTIVE also
agrees to serve, if elected, as an officer and director of the COMPANY or any
subsidiary or affiliate of the COMPANY or the BANK. Executive shall render
administrative and management duties to the BANK such as are customarily
performed by persons situated in a similar executive capacity.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for thirty six (36) months
thereafter. Commencing on the first anniversary date, and continuing at each
anniversary date thereafter, the Board of Directors of the BANK (the "Board")
may extend the Agreement for an additional year. Prior to the extension of the
Agreement as provided herein, the Board of Directors of the BANK will conduct a
formal performance evaluation of EXECUTIVE for purposes of determining whether
to extend the Agreement, and the results thereof shall be included in the
minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the BANK; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
EXECUTIVE may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the BANK,
or materially affect the performance of EXECUTIVE's duties pursuant to this
Agreement.
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3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The BANK
shall pay EXECUTIVE as compensation a salary of $72,000 per year ("Base
Salary"). Such Base Salary shall be payable in accordance with the customary
payroll practices of the BANK. During the period of this Agreement, EXECUTIVE's
Base Salary shall be reviewed at least annually; the first such review will be
made no later than one year from the date of this Agreement. Such review shall
be conducted by a Committee designated by the Board, and the Board may increase
EXECUTIVE's Base Salary. In addition to the Base Salary provided in this Section
3(a), the BANK shall provide EXECUTIVE at no cost to EXECUTIVE with all such
other benefits as are provided uniformly to permanent full-time employees of the
BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the BANK will not, without
EXECUTIVE's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect EXECUTIVE's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), EXECUTIVE will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the BANK in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
EXECUTIVE will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the BANK, in which EXECUTIVE is
eligible to participate. Nothing paid to EXECUTIVE under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
EXECUTIVE is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the BANK of EXECUTIVE's full-time employment hereunder for any reason other than
a Change in Control, as defined in Section 5(a) hereof; disability, as defined
in Section 6(a) hereof; death; retirement, as defined in Section 7 hereof; or
Termination for
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Cause, as defined in Section 8 hereof; (ii) EXECUTIVE's resignation from the
BANK's employ, upon (A) unless consented to by EXECUTIVE, a material change in
EXECUTIVE's function, duties, or responsibilities, which change would cause
EXECUTIVE's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Sections 1 and 2,
above (any such material change shall be deemed a continuing breach of this
Agreement), (B) a relocation of EXECUTIVE's principal place of employment by
more than 35 miles from its location at the effective date of this Agreement, or
a material reduction in the benefits and perquisites to EXECUTIVE from those
being provided as of the effective date of this Agreement, (C) the liquidation
or dissolution of the BANK, or (D) any material breach of this Agreement by the
BANK. Upon the occurrence of any event described in clauses (A), (B), (C) or
(D), above, EXECUTIVE shall have the right to elect to terminate his employment
under this Agreement by resignation upon not less than sixty (60) days prior
written notice given within a reasonable period of time not to exceed, except in
case of a continuing breach, four (4) calendar months after the event giving
rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to EXECUTIVE for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the BANK
as of the Date of Termination), to EXECUTIVE for the term of the Agreement
provided, however, that if the BANK is not in compliance with its minimum
capital requirements or if such payments would cause the BANK's capital to be
reduced below its minimum capital requirements, such payments shall be deferred
until such time as the BANK is in capital compliance. All payments made pursuant
to this Section 4(b) shall be paid in substantially equal monthly installments
over the remaining term of this Agreement following EXECUTIVE's termination;
provided, however, that if the remaining term of the Agreement is less than one
(1) year (determined as of EXECUTIVE's Date of Termination), such payments and
benefits shall be paid to EXECUTIVE in a lump sum within thirty (30) days of the
Date of Termination.
(c) Upon the occurrence of an Event of Termination, the BANK will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining term
of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the COMPANY or the BANK. For purposes of this
Agreement, a "Change in Control" of the COMPANY or the BANK shall be deemed to
occur (a) if there occurs a change in control of the BANK or the COMPANY within
the meaning of the Home Owners Loan Act of
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1933 and 12 C.F.R. Part 574, (b) if any person (as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, of securities of the COMPANY or the BANK representing
twenty-five percent (25%) or more of the combined voting power of the COMPANY's
or the BANK's then outstanding securities, (c) if the membership of the board of
directors of the COMPANY or the BANK changes as the result of a contested
election, such that individuals who were directors at the beginning of any
twenty-four (24) month period (whether commencing before or after the date of
adoption of this Agreement) do not constitute a majority of the Board at the end
of such period, or (d) upon the consummation of a transaction approved by the
shareholders of the COMPANY or the BANK involving a merger, consolidation, sale
or disposition of all or substantially all of the COMPANY's or the BANK's
assets, or a similar transaction occurs in which the COMPANY or the BANK is not
the resulting entity.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred, EXECUTIVE shall be entitled to the benefits
provided in paragraphs (c), (d) and (e) of this Section 5 upon his subsequent
involuntary termination following the effective date of a Change in Control (or
voluntary termination within twelve (12) months of the effective date of a
Change in Control following any material demotion, loss of title, office or
significant authority, material reduction in his annual compensation or benefits
(other than a reduction affecting the BANK's personnel generally), or the
relocation of his principal place of employment by more than 35 miles from its
location immediately prior to the Change in Control), unless such termination is
because of his death, retirement as provided in Section 7, termination for
Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK shall pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to 2.99
times EXECUTIVE's "base amount," within the meaning of (S)280G(b)(3) of the
Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be made
in a lump sum paid within ten (10) days of EXECUTIVE's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. Such coverage shall
cease upon the expiration of thirty-six (36) months. In addition, EXECUTIVE
shall be entitled to receive the value of employer contributions that would have
been made on EXECUTIVE's behalf over the remaining term of the agreement to any
tax-qualified retirement plan sponsored by the BANK as of the Date of
Termination.
(e) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of the
Code, then, at the election of EXECUTIVE, (i) such payments or benefits shall be
payable or
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provided to EXECUTIVE over the minimum period necessary to reduce the present
value of such payments or benefits to an amount which is one dollar ($1.00) less
than three (3) times EXECUTIVE's "base amount" under (S)280G(b)(3) of the Code
or (ii) the payments or benefits to be provided under this Section 5 shall be
reduced to the extent necessary to avoid treatment as an excess parachute
payment with the allocation of the reduction among such payments and benefits to
be determined by EXECUTIVE.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to three-
quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of EXECUTIVE's termination and will end on the earlier of (i) the
date EXECUTIVE returns to the full-time employment of the BANK in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's
full-time employment by another employer; (iii) EXECUTIVE attaining the age of
sixty-five (65); or (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement. The disability pay shall be reduced by the amount, if any, paid
to EXECUTIVE under any plan of the BANK providing disability benefits to
EXECUTIVE.
(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment by another
employer; (iii) EXECUTIVE's attaining the age of sixty-five (65); (iv)
EXECUTIVE's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established
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with EXECUTIVE's consent with respect to him. Upon termination of EXECUTIVE upon
Retirement, EXECUTIVE shall be entitled to all benefits under any retirement
plan of the BANK or the COMPANY and other plans to which EXECUTIVE is a party.
Upon the death of EXECUTIVE during the term of this Agreement, the BANK shall
pay to EXECUTIVE's estate the compensation due to EXECUTIVE through the last day
of the calendar month in which his death occurred. Upon the voluntary
resignation of EXECUTIVE during the term of this Agreement, other than in
connection with an Event of Termination, the BANK shall pay to EXECUTIVE the
compensation due to EXECUTIVE through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar infractions) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the members of the Board at a meeting of the Board called
and held for that purpose (after reasonable notice to EXECUTIVE and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, EXECUTIVE was guilty of
conduct justifying termination for Cause and specifying the reasons thereof.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after termination for Cause. Any stock options granted to EXECUTIVE
under any stock option plan or any unvested awards granted under any other stock
benefit plan of the BANK, the COMPANY, or any subsidiary or affiliate thereof,
shall become null and void effective upon EXECUTIVE's receipt of Notice of
Termination for Cause pursuant to Section 10 hereof, and shall not be
exercisable by EXECUTIVE at any time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all
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or part of the compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its obligations that
were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK under the authority contained in Section 13(c) of the FDIA or
(ii) by the Director, or his designee at the time the Director or such designee
approves a supervisory merger to resolve problems related to operation of the
BANK or when the BANK is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of EXECUTIVE's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for Cause,
the date specified in the Notice of Termination . In the event of EXECUTIVE's
Termination for Cause, the Date of Termination shall be the same as the date of
the Notice of Termination.
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(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by EXECUTIVE in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to
an Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not to
compete with the BANK and/or the COMPANY for a period of one (1) year following
such termination in any city, town or county in which the BANK and/or the
COMPANY has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
EXECUTIVE agrees that during such period and within said cities, towns and
counties, EXECUTIVE shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the BANK and/or the
COMPANY. The parties hereto, recognizing that irreparable injury will result to
the BANK and/or the COMPANY, its business and property in the event of
EXECUTIVE's breach of this Subsection 11(a) agree that in the event of any such
breach by EXECUTIVE, the BANK and/or the COMPANY will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by EXECUTIVE, EXECUTIVE's partners, agents, servants,
employers, employees and all persons acting for or with EXECUTIVE. EXECUTIVE
represents and admits that in the event of the termination of his employment
pursuant to Section 4 hereof, EXECUTIVE's experience and capabilities are such
that EXECUTIVE can obtain employment in a business engaged in other lines and/or
of a different nature than the BANK and/or the COMPANY, and that the enforcement
of a remedy by way of injunction will not prevent EXECUTIVE from earning a
livelihood. Nothing herein will be construed as prohibiting the BANK and/or the
COMPANY from pursuing any other remedies available to the BANK and/or the
COMPANY for such breach or threatened breach, including the recovery of damages
from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the BANK. EXECUTIVE will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof to any person,
firm, 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
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which are not solely and exclusively derived from the business plans and
activities of the BANK. In the event of a breach or threatened breach by
EXECUTIVE of the provisions of this Section, the BANK will be entitled to an
injunction restraining EXECUTIVE from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
BANK or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the BANK from pursuing any other remedies available to the BANK for
such breach or threatened breach, including the recovery of damages from
EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that EXECUTIVE is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
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15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Indiana,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or state
law or regulation, including , specifically, 12 C.F.R. Section 563.39(b), the
provisions of such law or regulation shall prevail.
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 BANK, if EXECUTIVE is successful pursuant to a legal
judgment, arbitration or settlement.
20. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest
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extent permitted under Indiana law against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which he may be involved by reason of his having been a
director or officer of the BANK (whether or not he continues to be a directors
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgment, court costs and
attorneys' fees and the cost of reasonable settlements. The provisions of 12
C.F.R. 545.121 shall apply to the BANK's obligations under this Section 20.
21. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the 1st day of April, 1999.
ATTEST: FIRST FEDERAL SAVINGS BANK
/s/ Harold Duncan /s/ Robert L. Clayton, Sr.
_______________________________ BY:_________________________________
Robert L. Clayton, Sr.
Chairman of the Board of Directors
ATTEST: FIRST BANCORP OF INDIANA, INC.
/s/ Harold Duncan /s/ Robert L. Clayton, Sr.
_______________________________ BY:_________________________________
Robert L. Clayton, Sr.
Chairman of the Board of Directors
WITNESS: EXECUTIVE
/s/ Harold Duncan /s/ Michael H. Head
_______________________________ ____________________________________
Michael H. Head
11
<PAGE>
EXHIBIT 10.4
FIRST FEDERAL SAVINGS BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of this First Federal Savings Bank Employee Severance
Compensation Plan is to assure the services of employees of the Bank in the
event of a Change in Control. The benefits contemplated by the Plan recognize
the value to the Bank of the services and contributions of the employees of the
Bank and the effect upon the Bank resulting from the uncertainties of continued
employment, reduced employee benefits, management changes and relocations that
may arise in the event of a Change in Control. The Board believes that the Plan
will also aid the Bank in attracting and retaining the highly qualified
individuals who are essential to its success and that the Plan's assurance of
fair treatment of the Bank's employees will reduce the distractions and other
adverse effects on employees' performance in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank hereby
establishes an employee severance compensation plan to be known as the "First
Federal Savings Bank Employee Severance Compensation Plan."
1.2 Application of Plan
-------------------
The benefits provided by this Plan shall be available to all employees of
the Bank, who, at or after the Effective Date, meet the eligibility requirements
of Article III, except for those officers of the Bank who have entered into, or
who enter into in the future, and continue to be subject to, an employment or
change in control agreement with the Employer.
1.3 Contractual Right to Benefits
-----------------------------
This plan establishes and vests in each Participant a contractual right to
the benefits to which each Participant is entitled hereunder in the event of a
Change in Control, enforceable by the Participant against the Employer, the
Bank, or both. The Plan does not provide, and should not be construed as
providing, benefits of any kind to any employee except in the event of a Change
in Control and, in the event of a Change in Control, only upon the involuntary
or voluntary termination of an employee in the manner contemplated herein.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
"Annual Compensation" of a Participant means and includes all wage and
salary paid (including accrued amounts) by an Employer as consideration for the
Participant's service during the 12-month period ending on the last day of the
month preceding the date of a Participant's termination pursuant to Section 4.2.
For purposes of this Plan, a Participant's "Monthly Compensation" shall equal
one-twelfth of a Participant's Annual Compensation as determined in accordance
with this paragraph.
"Bank" means First Federal Savings Bank or any successor as provided for in
Article VII hereof.
"Board" means the Board of Directors of the Bank.
"Change in Control" shall be deemed to occur (a) if there occurs a change
in control of the Bank or the Company within the meaning of the Home Owners Loan
Act of 1933 and 12 C.F.R. Part 574, (b) if any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial
owner, directly or indirectly, of securities of the Company or the Bank
representing twenty-five percent (25%) or more of the combined voting power of
the Company's or the Bank's then outstanding securities, (c) if the membership
of the board of directors of the Company or the Bank changes as the result of a
contested election, such that individuals who were directors at the beginning of
any twenty-four (24) month period (whether commencing before or after the date
of adoption of this Plan) do not constitute a majority of the Board at the end
of such period, or (d) upon the consummation of a transaction approved by the
shareholders of the Company or the Bank involving a merger, consolidation, sale
or disposition of all or substantially all of the Company's or the Bank's
assets, or a similar transaction occurs in which the Company or the Bank is not
the resulting entity.
"Company" means First Bancorp of Indiana, Inc., an Indiana corporation, the
holding company of the Bank.
"Disability" means the permanent and total inability by reason of mental or
physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board must advise the Board that it is either not possible to determine if or
when such Disability will terminate or that it appears probable that such
Disability will be permanent during the remainder of said employees lifetime.
"Effective Date" means the date the Plan is approved by the Board of the
Bank, or such other date as the Board shall designate in its resolution
approving the Plan.
<PAGE>
"Employer" means (i) the Bank or (ii) a subsidiary of the Bank or a parent
company of the Bank which has adopted the plan pursuant to Article VI hereof.
"Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
"Payment" means the payment of severance compensation as provided in
Article IV hereof.
"Participant" means an employee of an Employer who meets the eligibility
requirements of Article III.
"Plan" means this First Federal Savings Bank Employee Severance
Compensation Plan.
"Termination for Cause" shall include termination because of Participant's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or other
similar offenses) or any final cease-and-desist order or material breach of any
provision of the Plan.
2.2 Applicable Law
--------------
The laws of the State of Indiana shall be controlling law in all matters
relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term "Participant" shall include all employees of an Employer who have
completed at least two (2) years of service with the Employer at the time of any
termination pursuant to Section 4.2 herein. For purposes of this Plan, "years
of service" shall include all years of employment with Bank in which an employee
was credited with at least 500 actual hours of service and "years of service"
shall be determined without regard to any break in service. In addition, the
term "Participant" shall, without regard to years of service, include each
employee who serves as treasurer, assistant treasurer, corporate secretary,
assistant corporate secretary or is an assistant vice president, vice president,
manager, or other senior officer of the Bank. Notwithstanding the foregoing, an
employee who has entered into and continues to be covered by an individual
<PAGE>
employment contract or change in control agreement with an Employer shall not be
entitled to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to receipt
of a Payment shall remain a Participant in this Plan until the full amount of
such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from his or her Employer a
Payment in the amount provided in Section 4.3 if a Change in Control occurs and
if, within one (1) year thereafter, the Participant's employment by an Employer
shall terminate for any reason specified in Section 4.2. A Participant shall not
be entitled to a Payment if termination occurs by reason of death, voluntary
retirement, voluntary termination other than for the reasons specified in
Section 4.2, Disability or for Termination for Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a Payment
in accordance with Section 4.3 if employment by an Employer is terminated,
voluntarily or involuntary, for any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control, or as the
same may have been increased thereafter.
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause the Participant's position to be one of
lesser responsibility, importance or scope with the Employer than immediately
prior to the Change in Control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty-five (35) miles from the location of the Participant's
job or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control;
provided, however, that a material reduction in benefits and perquisites
generally provided to all employees of the Bank on a nondiscriminatory basis
shall not trigger a Payment pursuant to this Plan.
<PAGE>
(e) A successor to the Employer fails or refuses to assume the
Employer's obligations under this Plan, as required by Article VII.
(f) The Employer, or any successor to the Employer, breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Termination for Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant who served as treasurer or corporate secretary of
the Bank or was a vice president or other senior officer of the Bank immediately
prior to the effective date of the Change in Control and is entitled to a
Payment under this Plan shall receive from the Bank a lump sum cash payment
equal to two (2) times the Participant's Annual Compensation.
(b) Each Participant who served as assistant treasurer or assistant
corporate secretary of the Bank or was a branch manager or assistant vice
president of the Bank immediately prior to the effective date of the Change in
Control and is entitled to a Payment under this Plan shall receive from the Bank
a lump sum cash payment equal to the Participant's Annual Compensation.
(c) Each Participant (other than a Participant entitled to a benefit
under Sections 4.3(a) and (b) of the Plan) entitled to a Payment under this Plan
shall receive from the Employer a lump sum cash payment equal to the product of
the Participant's Monthly Compensation and the Participant's years of service
(including partial years rounded up to the nearest full month) from the
Participant's date of hire through the date of termination. Notwithstanding
anything herein to the contrary, (i) the maximum payment under this Section
4.3(c) to a Participant shall not exceed fifty percent (50%) of the
Participant's Annual Compensation and the (ii) minimum payment under this
Section 4.3(c) shall be the Participant's Monthly Compensation (determined
without regard to the Participant's period of service).
(d) The Participant shall not be required to mitigate damages on the
amount of the Payment by seeking other employment or otherwise, nor shall the
amount of such Payment be reduced by any compensation earned by the Participant
as a result of employment after termination of employment hereunder.
(e) Notwithstanding the provisions of paragraphs (a)-(c) above, if a
Payment to a Participant who is a "Disqualified Individual" shall be in an
amount or otherwise include an "Excess Parachute Payment," the Payment shall be
reduced to the maximum amount which does not include an Excess Parachute
Payment. For purposes of this Plan, the terms "Disqualified Individual" and
"Excess Parachute Payment" shall have the same meanings as under Section 280G of
the Internal Revenue Code of 1986, as amended, or any successor provision
thereto.
<PAGE>
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than thirty (30) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative of behalf of or for the benefit of the Participant's
estate.
4.5 Suspension of Payment
---------------------
Notwithstanding the foregoing, no payments or portions thereof shall be
made under this Plan, if such payment or portion would result in the Bank
failing to meet its minimum regulatory capital requirements as required by 12
C.F.R. (S)567.2. Any payments or portions thereof not paid shall be suspended
until such time as their payment would not result in a failure to meet the
Bank's minimum regulatory capital requirements. Any portion of benefit payments
which have not been suspended will be paid on an equitable basis, pro rata based
upon amounts due each Participant, among all eligible Participants.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on the
Participant's Employer any obligation to retain the Participant, to maintain the
status of the Participant's employment, or to change the Employer's policies
regarding termination of employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of the Bank, this Plan may be adopted by
any subsidiary of the Bank or by the Company. Upon such adoption, the
subsidiary or the Company shall become an Employer hereunder and the provisions
of the Plan shall be fully applicable to the employees of that subsidiary or the
Company. The term "subsidiary" means any corporation in which the Bank,
directly or indirectly, holds a majority of the voting power of its outstanding
shares of capital stock.
<PAGE>
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2, or unless
extended for an additional period or periods by resolution adopted by the Board
of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution adopted
by a majority of the Board of the Bank, unless a Change in Control has
previously occurred. If a Change in Control occurs, the Plan no longer shall be
subject to amendment, change, substitution, deletion, revocation or termination
in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board. A
proper termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under this Plan
shall be subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge, or hypothecation, or to execution, attachment,
levy, or similar process or assignment by operation of law, and any attempt,
voluntary or involuntary, to affect such action shall be null, void, and of no
effect.
<PAGE>
(b) This Plan shall be binding upon, and inure to the benefit of, each
employee, the Employer and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the employee's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
employee's right to compensation or other benefits under this Agreement if the
employee is otherwise entitled to a benefit. The employee shall not have the
right to receive compensation or other benefits for any period after termination
for Termination for Cause as defined in Section 2.1 hereinabove.
10.2 If the employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this Plan to such employee
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay the employee all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole or in
part) any of the obligation which were suspended.
10.3 If the employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this Plan to the
employee shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the Federal
Deposit Insurance Act, 12 U.S.C. (S)1818(x)(1), all obligations of the Bank
under this Plan shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
10.5 All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution, (i) by the Director or his or
her designee or (ii) the Federal Deposit Insurance Corporation ("FDIC") or the
Resolution Trust Corporation, at the time the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. (S)1823(c); or
(ii) by the Director or his or her designee at the time the Director or his or
her designee approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the Director to be in
an
<PAGE>
unsafe or unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by such action.
10.6 Any payments made to an employee pursuant to this Plan or otherwise
shall be conditioned upon compliance under 12 U.S.C. (S)1828(k) and 12 C.F.R.
Section 545.121 and any regulations promulgated thereunder.
ARTICLE XI
ADMINISTRATION OF THE PLAN
11.1 The Plan shall be administered by the Board (or, by a committee of
non-employee directors designated by the Board). Subject to the other
provisions of the Plan, the Board shall have authority to adopt, amend, alter
and repeal such administrative rules, guidelines and practices governing the
operation of the Plan as it shall from time to time consider advisable, to
interpret the provisions of the Plan and to decide all disputes arising in
connection with the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan in the manner and to the
extent it shall deem appropriate to carry the Plan into effect, in its sole and
absolute discretion. The Board's decisions and interpretations shall be final
and binding. Any action of the Board with respect to the administration of the
Plan shall be taken pursuant to a majority vote or by the unanimous written
consent of its members.
Having been adopted by the First Federal Savings Bank Board of Directors on
March 17, 1999, this Plan is executed by a duly authorized officer of the Bank
this 17th day of March, 1999.
Attest
/s/ Michael H. Head By: /s/ Harold Duncan
- ------------------------------- ---------------------------------------
Michael H. Head Harold Duncan
Executive Vice President and President and Chief Executive Officer
Chief Operating Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,105,134
<INT-BEARING-DEPOSITS> 17,646,989
<FED-FUNDS-SOLD> 25,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,972,581
<INVESTMENTS-CARRYING> 40,003,256
<INVESTMENTS-MARKET> 39,708,749
<LOANS> 56,582,900
<ALLOWANCE> 274,000
<TOTAL-ASSETS> 124,800,005
<DEPOSITS> 86,722,111
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,549,894
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0
0
<COMMON> 22,724
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<TOTAL-LIABILITIES-AND-EQUITY> 124,800,005
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<INTEREST-TOTAL> 7,466,619
<INTEREST-DEPOSIT> 4,306,087
<INTEREST-EXPENSE> 4,528,989
<INTEREST-INCOME-NET> 2,937,630
<LOAN-LOSSES> 24,000
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<EXPENSE-OTHER> 2,454,139
<INCOME-PRETAX> 783,307
<INCOME-PRE-EXTRAORDINARY> 783,307
<EXTRAORDINARY> 0
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<NET-INCOME> 573,196
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