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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from.....................to...........................
Commission file number...................................................0-18046
FIRST FEDERAL CAPITAL CORP
(Exact name of Registrant as specified in its charter)
WISCONSIN 39-1651288
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
605 STATE STREET
LA CROSSE, WISCONSIN 54601
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (608) 784-8000
Securities registered pursuant to Section 12(b) of the Act: NOT APPLICABLE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(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 such shorter period as the Registrant
has been subject to such requirements), 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate value of the common stock of the Registrant that was held by
non-affiliates as of February 28, 2000, was approximately $164.1 million. This
amount was based on the closing price of $10.88 per share of the Registrant's
common stock as of the same date.
The number of shares of common stock of the Registrant outstanding as of
February 28, 2000, was 18,319,091 (net of 1,622,539 shares held as treasury
stock).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders are
incorporated into Part III, Items 10 through 13 of this Form 10-K.
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FORM 10-K TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
<S> <C>
Item 1--Business.......................................................................................2
Item 2--Properties....................................................................................13
Item 3--Legal Proceedings.............................................................................14
Item 4--Submission of Matters to a Vote of Security Holders...........................................14
PART II
Item 5--Market for Registrant's Common Equity and Related Stockholder Matters.........................14
Item 6--Selected Financial Data.......................................................................15
Item 7--Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................................16
Item 7A--Quantitative and Qualitative Disclosures about Market Risk...................................31
Item 8--Financial Statements and Supplementary Data...................................................34
Item 9--Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.............................................................................61
PART III
Item 10--Directors and Executive Officers of the Registrant...........................................61
Item 11--Executive Compensation.......................................................................61
Item 12--Security Ownership of Certain Beneficial Owners and Management...............................62
Item 13--Certain Relationships and Related Transactions...............................................62
PART IV
Item 14--Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................62
SIGNATURES..................................................................................................64
EXHIBITS....................................................................................................66
</TABLE>
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FORWARD-LOOKING STATEMENTS
This report includes certain forward-looking statements based on
management's current expectations. Examples of factors which could cause future
results to differ from management's expectations include, but are not limited
to, the following: general economic and competitive conditions; legislative and
regulatory initiatives; monetary and fiscal policies of the federal government;
general market rates of interest; interest rates on competing investments;
interest rates on funding sources; consumer demand for deposit and loan products
and services; consumer demand for other financial services; changes in
accounting policies or guidelines; and changes in the quality or composition of
the Corporation's loan and investment portfolios. Readers are cautioned that
forward-looking statements are not guarantees of future performance and that
actual results may differ materially from management's current expectations.
PART I
ITEM 1--BUSINESS
This section of the report contains general information about First
Federal Capital Corp (the "Corporation"), First Federal Saving Bank of La
Crosse-Madison (the "Bank"), and the Bank's wholly-owned subsidiaries (together
"the reporting group"). Included in this section is information regarding the
reporting group's markets and business environments, significant operating and
accounting policies, practices, and procedures, as well as its competitive and
regulatory environments. Information regarding the reporting group's current
financial condition and results of operations is included in Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", Part II, Item 7a, "Quantitative and Qualitative Disclosures about
Market Risk", and Part II, Item 8, "Financial Statements and Supplementary
Data". This section should be read in conjunction with those sections.
FIRST FEDERAL CAPITAL CORP
The Corporation was incorporated under the laws of the State of
Wisconsin in July 1989. In November 1989, the Corporation became the savings and
loan holding company for the Bank upon its conversion from mutual to stock form.
The Corporation currently owns all of the outstanding capital stock of the Bank,
which is the principal asset of the Corporation. The Corporation's principal
office is located at 605 State Street, La Crosse, Wisconsin, 54601, and its
telephone number is (608) 784-8000.
FIRST FEDERAL SAVINGS BANK LA CROSSE-MADISON
The Bank was founded in 1934 and is a federally-chartered,
federally-insured, savings bank headquartered in La Crosse, Wisconsin. The
Bank's primary business is retail community banking, which includes attracting
deposits from and originating loans for the general public. In addition to
deposits, the Bank also obtains a portion of its funding through borrowings from
the Federal Home Loan Bank of Chicago ("FHLB"), of which it is a member. The
Bank's funding sources are principally used to originate single-family
residential loans, as well as commercial real estate, consumer, and education
loans. The Bank also occasionally purchases single-family residential and
commercial real estate loans from third-party financial institutions. The Bank
is also an active seller of residential loans in the secondary market.
The Bank's primary market areas for conducting its activities consist
of communities located in the western, south-central, and eastern portions of
Wisconsin and the northern portion of Illinois, as well as contiguous counties
in Iowa and Minnesota. The Bank maintains 64 banking offices in its market
areas. Nineteen of these offices are located in the Madison metropolitan area,
six in the La Crosse metropolitan area, five in the city of Eau Claire, four in
the city of Appleton, and two each in the cities of Beloit, Green Bay, Hudson,
Neenah, and Oshkosh, Wisconsin. The Bank also maintains one retail banking
facility in fifteen other cities located throughout its market area in
Wisconsin, as well as three offices in Rockford, Illinois. The Bank also has
separate residential loan production offices in Janesville and Wausau,
Wisconsin.
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In addition to loans, the Bank also invests in securities issued by the
U.S. government and its agencies and in other investment securities such as
collateralized mortgage obligations ("CMOs"), mortgage-backed securities
("MBSs"), mutual funds, and corporate bonds and notes, as permitted by
applicable federal laws and regulations.
The Bank is subject to regulation and examination by the Office of
Thrift Supervision ("OTS"), its chartering authority and primary regulator, and
by the Federal Deposit Insurance Corporation ("FDIC"), which administers the
Savings Association Insurance Fund ("SAIF"), which insures the Bank's deposits
to the maximum extent permitted by law.
The Bank's principal executive offices are located at 605 State Street,
La Crosse, Wisconsin, 54601, and its telephone number is (608) 784-8000.
OPERATING DIVISIONS AND SEGMENT REPORTING
The Bank has five operating divisions: (i) residential lending, (ii)
commercial real estate lending, (iii) retail banking, (iv) finance and
administration, and (v) human resources. Each division is headed by an executive
officer that reports directly to the president of the Bank. The first three
divisions contain all but one of the Bank's profit centers for segment reporting
purposes. The remaining two divisions are considered support departments for
segment reporting purposes, although the finance and administration division
also provides the primary support for the Bank's remaining profit center--the
investment and mortgage-related securities portfolio.
The residential lending division is divided into two profit centers for
segment reporting purposes: (i) a mortgage banking profit center that is
responsible for loan origination, sales of loans in the secondary market, and
servicing of residential loans, and (ii) a residential loan portfolio that
consists of loans held by the Bank for investment purposes (loans held for sale
are included in the mortgage banking profit center). The commercial real estate
lending division is a single profit center for segment reporting purposes. It
consists of the Bank's portfolio of multi-family and non-residential mortgage
loans, as well as functions related to the origination and servicing of such
loans. The retail banking division is divided into two profit centers for
segment reporting purposes: (i) a consumer lending portfolio, which consists of
the Bank's second mortgage, automobile, and other consumer installment loans, as
well as functions related to the origination and servicing of such loans and
(ii) an education loan portfolio, which also includes functions related to the
origination and servicing of the loans. The Bank's retail branch network, which
delivers checking, savings, certificates of deposit, and other financial
products and services to customers, is also part of the retail banking division,
but is considered a support department for segment reporting purposes. Finally,
the Bank's investment and mortgage-related securities portfolio is considered a
profit center for segment reporting purposes. Personnel in the finance and
administration division support this profit center, as previously noted.
For additional discussion regarding the Corporation's reportable
segments, refer to Note 13 of the Corporation's Audited Consolidated Financial
Statements, included herein under Part II, Item 8, "Financial Statements and
Supplementary Data", as well as Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Segment Information".
LENDING ACTIVITIES
GENERAL The principal categories of loans in the Bank's portfolio are
conventional real estate loans secured by single-family residences, commercial
real estate loans secured by multi-family residential and non-residential real
estate, consumer loans secured primarily by second mortgages on single-family
residences and automobiles, and government-guaranteed education loans. Although
the Bank also originates single-family residential loans that are insured or
partially guaranteed by federal and state agencies, the Bank does not generally
retain such loans in its residential loan portfolio. As of December 31, 1999,
approximately 74% of the Bank's total assets consisted of loans held for
investment purposes.
RESIDENTIAL LENDING Single-family residential loans accounted for
approximately 42% of the Bank's gross loans as of December 31, 1999.
Applications for single-family residential and construction loans are accepted
by commission-based employees of the Bank at twelve loan production offices (ten
of which are located with deposit-taking offices) and at eight deposit-taking
offices of the Bank which are able to handle such applications.
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In general, the Bank retains in its portfolio only single-family
residential mortgage loans that provide for periodic adjustments of the interest
rate ("adjustable-rate mortgage loans"). These loans generally have terms of up
to 30-years and interest rates which adjust every one to two years in accordance
with an index based on the yield on certain U.S. government securities. A
portion of these loans may guarantee borrowers a fixed rate of interest for the
first three years of the loan's term. Furthermore, most of these loans have
annual interest rate change limits ranging from 1% to 2% and maximum lifetime
interest rates ranging from 11% to 16%. It is the Bank's normal practice to
discount the interest rate it charges on its adjustable-rate mortgage loans
during the first one to three years of the loan, which has the effect of
reducing a borrower's payment during such years. In addition, most of the Bank's
adjustable-rate mortgage loan agreements permit borrowers to convert their
adjustable-rate loans to fixed-rate loans under certain circumstances in
exchange for a fee. Upon conversion, the Bank generally sells such loans in the
secondary market.
Adjustable-rate mortgage loans decrease the Bank's exposure to risks
associated with changes in interest rates, but involve other risks because as
interest rates increase, borrowers' monthly payments increase, thus increasing
the potential for default. This risk has not had any adverse effect on the Bank
to date, although no assurances can be made with respect to future periods.
The Bank occasionally purchases adjustable-rate single-family
residential loans from third-party financial institutions. In general, such
loans are subject to the same underwriting standards as loans originated
directly by the Bank. However, such loans are usually secured by properties
located outside of the Bank's primary market areas. In addition, the Bank does
not generally service such loans after their acquisition.
Although the Bank generally retains only adjustable-rate mortgage loans
in its portfolio, it continues to originate fixed-rate mortgage loans in order
to provide a full range of products to its customers. In general, such loans are
originated only under terms, conditions, and documentation standards that make
such loans eligible for sale to the Federal Home Loan Mortgage Corporation
("FHLMC"), the Federal National Mortgage Association ("FNMA"), the FHLB, and
other institutional investors. The Bank generally sells these loans at the time
they are originated. In addition, the Bank generally sells any adjustable-rate
mortgage loans that convert to fixed-rate loans in accordance with options
granted to such borrowers in the original loan documents, as previously
described. Sales of mortgage loans provide additional funds for lending and
other business purposes and have generally been under terms that do not provide
for any recourse to the Bank by the purchaser. In the case of sales to the FHLB,
however, the Bank retains a small share of the credit risk on the underlying
loans in exchange for a credit enhancement fee. The Bank on occasion has also
retained the credit risk on certain securitizations of its own loans into MBSs.
The Bank's general policy is to lend up to 80% of the independently
appraised value of the property securing a loan (referred to as the
"loan-to-value ratio"). The Bank occasionally will lend more than 80% of the
appraised value of the property, but will generally require the borrower to
obtain private mortgage insurance on the portion of the principal amount of the
loan that exceeds 80% of the property's value. The Bank evaluates the collateral
of its residential real estate loans using documentation that complies with
applicable regulations.
The Bank also originates loans to individuals to construct
single-family residences. Such loans accounted for approximately 3% of the
Bank's gross loans as of December 31, 1999. Construction loans may be made
without commitments to purchase the property being constructed and the borrower
may not have take-out commitments for permanent financing on hand at the time of
origination. Construction loans generally have a maturity of 6 to 12 months and
a fixed rate of interest, with payments being made monthly on an interest-only
basis. Construction loans are otherwise underwritten and approved in the same
manner as other single-family residential loans. Construction loans, however,
are generally considered to involve a higher degree of risk than conventional
residential mortgage loans. This is because the risk of loss is largely
dependent on the accuracy of the initial estimate of the property's value at
completion of construction, the estimated cost of construction, and the
borrower's ability to advance additional construction funds, if necessary.
In addition to servicing the loans in its own portfolio, the Bank
continues to service most of the loans that it sells to third-party investors
(commonly referred to as "loans serviced for others"). Servicing mortgage loans
includes such functions as collecting monthly principal and interest payments
from borrowers, maintaining escrow accounts for real estate taxes and insurance,
and making such payments on behalf of borrowers when they are due.
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When necessary, servicing of mortgage loans also includes functions related to
the collection of delinquent principal and interest payments, loan foreclosure
proceedings, and disposition of foreclosed real estate.
The Bank is compensated for the aforementioned services through the
retention of a servicing fee from borrowers' monthly payments. The Bank pays the
third-party investors an agreed-upon yield on the loans, which is generally less
than the interest agreed to be paid by the borrowers. The difference, typically
25 basis points or more, is retained by the Bank and recognized as servicing fee
income over the lives of the loans, net of amortization of capitalized servicing
rights. The Bank also receives fees and interest income from ancillary sources
such as delinquency charges and float on escrow and other funds. The Bank also
purchases mortgage servicing rights from third parties for which it retains an
agreed-upon fee from borrowers' monthly payments, as previously described. The
Bank performs substantially the same services for these loans as it does on its
own originations.
Management believes that servicing mortgage loans for third parties
provides a natural hedge against other risks inherent in the Bank's mortgage
banking operations. That is, fluctuations in volumes of mortgage loan
originations and resulting gains on sales of such loans caused by changes in
market interest rates will generally be offset in part by an opposite change in
loan servicing fee income. The latter is generally caused by fluctuations in the
value of servicing rights. These fluctuations are usually the result of actual
loan prepayment activity that is different from that which was anticipated when
the related servicing rights were originally recorded. However, fluctuations in
the value of mortgage servicing rights may also be caused by mark-to-market
adjustments under generally accepted accounting principles ("GAAP"). That is,
the value of servicing rights may fluctuate because of changes in the discount
rates or future prepayment assumptions used to periodically value servicing
rights. Although management believes that most of the Corporation's loans that
prepay are replaced by a new loan to the same customer or even a different
customer (thus preserving the future servicing cash flow), GAAP requires
mark-to-market losses resulting from a change in future prepayment assumptions
to be recorded in the period in which the change occurs. However, the offsetting
gain on the sale of the new loan, if any, cannot be recorded under GAAP until
the customer actually prepays the old loan and the new loan is sold in the
secondary market. Mortgage servicing rights are particularly susceptible to
unfavorable mark-to-market adjustments during periods of declining interest
rates during which prepayment activity typically accelerates to levels above
that which had been anticipated when the servicing rights were originally
recorded. For additional discussion refer to Notes 1 and 4 of the Corporation's
Audited Consolidated Financial Statements, included herein under Part II, Item
8, "Financial Statements and Supplementary Data", as well as Part II, Item 7,
"Management Discussion and Analysis of Financial Condition and Results of
Operations".
COMMERCIAL REAL ESTATE LENDING Multi-family residential loans and
non-residential real estate loans (together "commercial real estate loans")
accounted for approximately 12% and 11%, respectively, of the Bank's gross loans
as of December 31, 1999. Applications for commercial real estate loans are
accepted at the Bank's main office in La Crosse, as well as offices in Madison,
Appleton, and Milwaukee. All underwriting and approval of such loans, however,
is performed at the Bank's main office in La Crosse, as is the servicing of such
loans on an on-going basis. It is the Bank's general policy to restrict its
commercial real estate lending to loans secured by properties located within a
300-mile radius of La Crosse, which includes all or a portion of the states of
Wisconsin, Nebraska, Illinois, Iowa, and Minnesota.
The Bank's emphasis in commercial real estate lending is in loans
secured by collateral classified as Type A properties, which are to comprise not
less than 80% of the Bank's total commercial real estate loan portfolio.
Examples of such properties include multi-family residential properties, retail
shopping establishments, office buildings, and multi-tenant industrial
buildings. Not more than 20% of the Bank's commercial real estate loan portfolio
is to include loans secured by collateral classified as Type B properties,
examples of which include nursing homes, single-tenant industrial buildings,
hotels and motels, and churches. The Bank's current policy is to not make any
new loans secured by collateral classified as Type C properties, examples of
which include restaurants, recreation facilities, and other special purpose
facilities, although the Bank has made loans secured by such properties in the
past.
Applications for commercial real estate loans are generally obtained
from existing borrowers, direct contacts by loan officers, and referrals. In
general these loans have amortization periods ranging from 20 to 30 years,
mature in ten years or less, and have interest rates which are fixed for one to
five years--thereafter adjusting in accordance with a designated index that is
generally subject to a floor and a ceiling. Loan-to-value ratios on the
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Bank's commercial real estate loans may be as high as 80% for loans secured by
Type A properties and 75% or lower for commercial real estate loans secured by
Type B properties. In addition, as part of the criteria for underwriting
commercial real estate loans, the Bank generally imposes on potential borrowers
a "debt coverage ratio" (the ratio of net cash from operations before payment of
debt service to debt service). This ratio ranges from 115% to 120% for loans
secured by Type A properties and 120% to 160% for loans secured by Type B
properties. It is also the Bank's general policy to obtain personal guarantees
on its commercial real estate loans and, when this cannot be obtained, to impose
more stringent loan-to-value ratios, debt service ratios, and other underwriting
requirements.
The Bank occasionally purchases commercial real estate loans from
third-party financial institutions. In general, such loans are subject to the
same underwriting standards as loans originated directly by the Bank. The Bank,
however, does not generally service such loans after their acquisition.
From time-to-time the Bank originates loans to construct multi-family
residential and non-residential real estate properties. Such loans accounted for
approximately 2% of the Bank's gross loans as of December 31, 1999. Construction
loans are generally considered to involve a higher degree of risk than mortgage
loans on completed properties. The Bank's risk of loss on a construction loan is
dependent largely upon the accuracy of the initial estimate of the property's
value at completion of construction, the estimated cost of construction, and the
borrower's ability to advance additional construction funds if such should
become necessary. The Bank's construction lending activities are generally
limited to an area within a 150-mile radius of each of Madison, La Crosse,
Appleton, and Milwaukee, Wisconsin.
Commercial real estate lending is generally considered to involve a
higher level of risk than single-family residential lending. This is due to the
concentration of principal in a limited number of loans and borrowers, the
effects of general economic conditions on real estate developers and managers
and on income producing properties, and the increased difficulty of evaluating
and monitoring these types of loans. Moreover, a construction loan can involve
additional risks because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. In addition, loans secured by properties located outside of the Bank's
immediate market area may involve a higher degree of risk. This is because the
Bank may not be as familiar with market conditions and other relevant factors as
it would be in the case of loans secured by properties located within its market
areas. The Bank does not have a material concentration of loans outside of its
immediate market area.
The Bank has attempted to minimize the foregoing risks by adopting what
management believes are conservative underwriting guidelines that impose more
stringent loan-to-value ratios, debt service ratios, and other requirements on
loans which are believed to involve higher elements of risk. The Bank also
requires independent appraisals on all loans, requires personal guarantees where
appropriate, limits the geographic area in which the Bank will make construction
loans, and limits the types of loans in its portfolio, as previously described.
CONSUMER LENDING The Bank offers consumer loans in order to provide a
full range of financial services to its retail customers. Such loans accounted
for approximately 17% of the Bank's gross loans as of December 31, 1999.
Applications for consumer loans may be taken at most of the Bank's retail
banking offices. The majority of such loans, however, are underwritten,
approved, and serviced on an on-going basis at the Bank's headquarters in La
Crosse. Most of the Bank's consumer loan portfolio consists of second mortgage
loans, but also includes automobile loans, home equity lines of credit,
recreational vehicle and mobile home loans, deposit account secured loans, and
unsecured lines of credit or signature loans. The Bank services all of its own
consumer loans.
Consumer loans generally have shorter terms and higher rates of
interest than conventional mortgage loans, but typically involve more credit
risk than such loans because of the nature of the collateral and, in some
instances, the absence of collateral. In general, consumer loans are more
dependent upon the borrower's continuing financial stability, are more likely to
be affected by adverse personal circumstances, and are often secured by rapidly
depreciating personal property such as automobiles. In addition, various laws,
including bankruptcy and insolvency laws, may limit the amount that may be
recovered from a borrower. However, such risks are mitigated to some extent in
the case of second mortgage loans and home-equity lines of credit. These types
of loans are secured by a second mortgage on the borrower's residence for which
the total principal balance outstanding (including the first mortgage) does not
generally exceed 100% of the property's value. Second mortgage loans are
generally fixed-rate and have terms of up to ten years.
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The Bank believes that the higher yields earned on consumer loans
compensate for the increased risk associated with such loans and that consumer
loans are important to the Bank's efforts to increase the interest rate
sensitivity and shorten the average maturity of its loan portfolio. Furthermore,
the Bank's net charge-offs on consumer loans as a percentage of gross loans have
not been significant in recent years, despite the risks inherent in consumer
lending.
EDUCATION LENDING The Bank offers education loans through programs
sponsored by the federal government. As such, the federal government guarantees
most of the principal and interest on such loans. A third party services the
loans for the Bank after they are originated. Education loans accounted for
approximately 12% of the Bank's gross loans as of December 31, 1999.
Education loans generally carry a floating-rate of interest and have
terms of up to fifteen years. Legislation enacted in late 1999 changed the
interest rate earned by lenders on education loans from the three-month U.S.
Treasury bill plus 220 basis points (280 basis points for borrowers no longer in
school) to a commercial paper rate plus 174 basis points (234 basis points for
borrowers no longer in school). This change is effective for loans originated
after January 1, 2000. A separate law, enacted in 1993, further changes the rate
in 2003 to a long-term U.S. Treasury bond rate plus 100 basis points. Management
is not certain at this time what impact these legislative changes may have on
the Bank's willingness to originate education loans, although no changes are
contemplated at this time. During the twelve months ended December 31, 1999,
1998, and 1997, the Bank originated $29.5 million, $37.7 million, and $38.4
million in education loans, respectively.
NON-PERFORMING AND OTHER CLASSIFIED ASSETS Loans are generally placed
on non-accrual status and considered "non-performing" when, in the judgement of
management, the probability of collection of principal or interest is deemed to
be insufficient to warrant further accrual of interest. When a loan is placed on
non-accrual and/or non-performing status, previously accrued but unpaid interest
is deducted from interest income. In general, the Bank does not record accrued
interest on loans 90 or more days past due. Refer to Notes 1 and 3 of the
Corporation's Audited Consolidated Financial Statements, included herein under
Part II, Item 8, "Financial Statements and Supplementary Data".
When a loan is placed on non-accrual and/or non-performing status, the
Bank generally institutes foreclosure or other collection proceedings at that
time. Real estate property acquired by the Bank as a result of foreclosure or
deed-in-lieu of foreclosure is classified as "real estate" and is considered
"non-performing" until it is sold. Other property acquired through adverse
judgement, such as automobiles, is generally classified as an "other asset". The
amount of foreclosed real estate and other repossessed property has not been
material to the Bank in recent years.
Federal regulations require thrift institutions to classify their
assets on a regular basis. In addition, in connection with examinations of
thrift institutions, federal examiners have authority to classify problem assets
as "Substandard", "Doubtful", or "Loss". An asset is classified as "Substandard"
if it is determined to involve a distinct possibility that the Bank could
sustain some loss if deficiencies associated with the loan are not corrected. An
asset is classified, as "Doubtful" if full collection is highly questionable or
improbable. An asset is classified as "Loss" if it is considered uncollectible,
even if a partial recovery could be expected in the future. The regulations also
provide for a "Special Mention" designation, described as assets which do not
currently expose the Bank to a sufficient degree of risk to warrant adverse
classification, but which possess credit deficiencies or potential weaknesses
deserving management's close attention. Assets classified as Substandard or
Doubtful require the Bank to establish a general allowance for loan losses. If
an asset or portion thereof is classified as Loss, the Bank must either
establish a specific allowance for the portion of the asset classified as Loss,
or charge off such amount. Refer to Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations", for additional
discussion.
ALLOWANCES FOR LOSSES ON LOANS AND REAL ESTATE The Bank's policy is to
establish allowances for estimated losses on specific loans and real estate when
it determines that losses are expected to be incurred. In addition, the Bank
maintains a general loss allowance against its loan and real estate portfolios
that is based on its own loss experience, management's ongoing assessment of
current economic conditions, the credit risk inherent in the portfolios, and the
experience of the financial services industry. For additional information, refer
to Part II,
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Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Notes 1 and 3 of the Corporation's Audited Consolidated
Financial Statements, included herein under Part II, Item 8, "Financial
Statements and Supplementary Data".
Management of the Bank believes that the current allowances established
by the Bank are adequate to cover any potential losses in the Bank's loan and
real estate portfolios. However, future adjustments to these allowances may be
necessary and the Bank's results of operations could be adversely affected if
circumstances differ substantially from the assumptions used by management in
making its determinations in this regard.
INVESTMENT AND MORTGAGE-RELATED SECURITIES
The Bank periodically invests in CMOs and MBSs (collectively
"mortgage-backed and related securities"). As of December 31, 1999, such
investments accounted for approximately 17% of the Bank's total assets.
Management believes CMOs represent attractive investment alternatives
relative to other investment vehicles, due to the variety of maturity and
repayment options available through such investments and due to the limited
credit risk associated with such securities. CMOs purchased by the Bank
represent a participation interest in a pool of single-family residential
mortgage loans and are generally rated "AAA" by independent credit-rating
agencies. In addition, such investments are secured by credit enhancements
and/or subordinated tranches or are collateralized by U.S. government agency
MBSs. The Bank generally invests only in sequential-pay, planned amortization
class ("PAC"), and targeted amortization class ("TAC") tranches that, at the
time of their purchase, are not considered to be high-risk derivative
securities, as defined in applicable regulations. The Bank does not invest in
support-, companion-, or residual-type tranches. Furthermore, the Bank does not
invest in interest-only, principal-only, inverse-floating-rate CMO tranches, or
similar complex securities.
The Bank also invests in MBSs that are guaranteed by FHLMC, FNMA, or
the Government National Mortgage Association ("GNMA"). In addition, the Bank
periodically securitizes or "swaps" mortgage loans in its own portfolio into
FHLMC or FNMA MBSs and continues to hold such securities. MBSs enhance the
quality of the Bank's assets by virtue of the guarantees that back them,
although the Bank generally foregoes the guarantee on mortgage loans that it has
swapped into MBSs (for additional discussion, refer to Note 2 of the
Corporation's Audited Consolidated Financial Statements, included herein under
Part II, Item 8, "Financial Statements and Supplementary Data"). In addition,
MBSs are more liquid than individual mortgage loans and receive treatment that
is more favorable when used to collateralize certain borrowings of the Bank.
In addition to MBSs and CMOs, federally-chartered savings institutions
such as the Bank have authority to invest in various other types of investment
securities, including U.S. government obligations, securities of various federal
agencies, certificates of deposit issued by insured banks and savings
institutions, and federal funds. Subject to various restrictions,
federally-chartered savings institutions may also invest a portion of their
assets in commercial paper, corporate debt securities, and mutual funds whose
assets conform to the investments that a federally-chartered savings institution
is authorized to make directly. In general, investments in these types of
securities are limited to the four highest credit categories as established by
the major independent credit-rating agencies. Excluding U.S. government and
federal agency securities and mutual funds that invest exclusively in such
securities, the Bank does not invest in individual securities that exceed 10% of
its stockholder's equity. As of December 31, 1999, the Bank held only $873,000
in other investment securities.
The Bank classifies its mortgage-backed and related securities and its
other investment securities as either available for sale or held for investment.
For additional discussion, refer to Part II, Item 7, "Management Discussion and
Analysis of Financial Condition and Results of Operations" and Note 1 of the
Corporation's Audited Consolidated Financial Statements, included herein under
Part II, Item 8, "Financial Statements and Supplementary Data".
SOURCES OF FUNDS
General Deposits obtained through its retail branch network have
traditionally been the principal source of the Bank's funds for use in lending
and for other general business purposes. The Bank also obtains funds through
8
<PAGE> 10
borrowings from the FHLB and other sources, as well as amortization, maturity,
and prepayments of outstanding loans and investments.
DEPOSIT LIABILITIES The Bank's current deposit products include regular
savings accounts, checking accounts, money market deposit accounts, individual
retirement accounts, and certificates of deposit ranging in terms from three
months to five years. Substantially all of the Bank's deposits are obtained from
individuals and businesses located in Wisconsin and the northern portion of
Illinois. As of December 31, 1999, deposit liabilities accounted for
approximately 71% of the Bank's total liabilities and equity.
In addition to serving as the Bank's primary source of funds, deposit
liabilities (especially checking accounts) are a substantial source of
non-interest income. This income is generally received in the form of overdraft
fees, periodic service charges, automated teller machine ("ATM") and debit card
fees, and other transaction charges.
The principal methods used by the Bank to attract deposit accounts
include offering a variety of products and services, competitive interest rates,
and convenient office locations and hours. Most of the Bank's free-standing
retail banking offices have drive-up facilities and 28 of the Bank's retail
banking facilities are located in supermarkets. The Bank also owns 81 ATM
machines, all of which are located in Wisconsin and the northern portion of
Illinois. Depositors may also obtain a VISA "debit card" from the Bank, which
allows them to purchase goods and services directly from any merchant that
accepts VISA credit cards. The same debit card also provides access to the ATM
network.
From time-to-time, the Bank has also used certificates of deposit sold
through third-party brokers ("brokered deposits") as an alternative to
borrowings from the FHLB. FDIC regulations govern the acceptance of brokered
deposits by insured depository institutions such as the Bank. At December 31,
1999, the Bank had no brokered deposits outstanding.
FEDERAL HOME LOAN BANK ADVANCES The Bank obtains advances from the FHLB
secured by certain of its home mortgage loans and mortgage-related securities,
as well as stock in the FHLB that the Bank is required to own. Such advances may
be made pursuant to several different credit programs, each with its own
interest rate and range of maturity dates. As of December 31, 1999, FHLB
advances accounted for approximately 21% of the Bank's total liabilities and
equity.
OTHER BORROWINGS The Bank has lines of credit with two financial
institutions. These lines, which amount to $20.0 million in the aggregate,
permit the overnight purchase of federal funds. The Corporation also has a $10.0
million line of credit with a third financial institution. The interest rate on
borrowings under this line is determined on a daily basis at 125 basis points
above the one-month London Inter-Bank Offered Rate ("LIBOR"). As of December 31,
1999, $25.2 million was outstanding under these lines of credit.
SUBSIDIARIES
The Bank has a number of subsidiaries that engage in certain activities
that management believes are more appropriately conducted in a subsidiary of the
Bank. Following is a brief description of each subsidiary.
FIRST CAPITAL HOLDINGS, INC. In 1993 the Bank formed a wholly-owned
subsidiary in the State of Nevada. The subsidiary, First Capital Holdings, Inc.
("FCHI"), was formed to consolidate and improve the efficiency, management,
safekeeping, and operations of the Bank's investment securities portfolio and
certain other holdings. In addition, the formation of FCHI has resulted in a
lower effective income tax rate for the Bank because the State of Nevada does
not currently impose a corporate income tax. As of December 31, 1999, FCHI was
managing $355.1 million in mortgage-backed and related securities and $192.3
million in purchased single-family residential loans for the Bank. FCHI's net
income was $24.6 million, $15.8 million, and $9.8 million during the years ended
December 31, 1999, 1998, and 1997, respectively. The Bank's net investment in
FCHI as of December 31, 1999, was $566.3 million, which was eliminated in
consolidation in accordance with GAAP.
FIRST REINSURANCE, INC. In 1998 the Bank formed a wholly-owned
subsidiary in the State of Arizona. The subsidiary, First Reinsurance, Inc.
("FRI"), was formed to reinsure or "underwrite" credit life and disability
insurance policies sold to the Bank's consumer loan customers. FRI assumes the
first level of risk on these policies
9
<PAGE> 11
and a third-party insurer assumes the remaining risk. The third-party insurer is
also responsible for performing most of the administrative functions of the
subsidiary on a contract basis. FRI's net income was $140,000 and $265,000
during the years ended December 31, 1999 and 1998, respectively. Results for
1998 included a $416,000 pre-tax underwriting gain recorded upon the formation
of FRI. Of this amount, all but $149,000 was eliminated in consolidation in
accordance with GAAP. At December 31, 1999, the Bank's net investment in FRI was
$646,000, which was also eliminated in consolidation.
FIRST ENTERPRISES, INC. The Bank's wholly-owned subsidiary, First
Enterprises, Inc. ("FEI"), was incorporated in 1971 in the State of Wisconsin.
During the period from the late-1970s to the mid-1980s, FEI was primarily
involved in the acquisition and development of hotels. Except for the
maintenance of its two remaining hotel investments, however, FEI is no longer
involved in these types of activities. FEI's investment in its remaining hotels
was $168,000 as of December 31, 1999. FEI had net income of $84,000, $636,000,
and $49,000 during the years ended December 31, 1999, 1998, and 1997,
respectively. Results for 1998 included a $965,000 pre-tax gain related to the
settlement of a lawsuit against another financial institution. At December 31,
1999, the Bank's net investment in FEI was $202,000, which was eliminated in
consolidation in accordance with GAAP.
TURTLE CREEK CORPORATION In 1995 the Bank acquired an additional
subsidiary, Turtle Creek Corporation ("Turtle Creek"), as a result of its
acquisition of another financial institution. Turtle Creek, a Wisconsin
corporation, holds a 40% limited partnership interest in an apartment complex
providing housing for low-to-moderate income and elderly persons. Turtle Creek's
aggregate investment in this project was $106,000 at December 31, 1999. Turtle
Creek had net income (loss) of $66,000, $(25,000), and $(21,000) during the
years ended December 31, 1999, 1998, and 1997, respectively. Results for 1999
included a $107,000 gain on the sale of Turtle Creek's remaining interest in a
land development project. The Bank's net investment in Turtle Creek as of
December 31, 1999, was $83,000, which was eliminated in consolidation in
accordance with GAAP.
COMPETITION
The Bank faces significant competition in attracting deposits through
its retail branch network. Its most direct competition has historically come
from commercial banks, credit unions, and other savings institutions located in
its market area. In addition, the Bank faces significant competition from mutual
fund and insurance companies, as well as primary financial markets such as the
stock and bond markets. The Bank competes for deposits principally by offering
customers a variety of deposit products, convenient branch locations, operating
hours, and other services. The Bank does not rely upon any individual group or
entity for a material portion of its deposits.
The Bank's competition for loans comes principally from mortgage
banking companies, other savings institutions, commercial banks, finance
companies, and credit unions. The Bank competes for loan originations primarily
through the interest rates and loan fees it charges, the efficiency and quality
of services it provides borrowers, referrals from real estate brokers and
builders, and the variety of its products. Factors that affect competition
include the general and local economic conditions, current interest rate levels,
and volatility in the secondary market for residential mortgage loans.
REGULATION OF THE CORPORATION
The Corporation is a savings and loan holding company within the
meaning of Section 10 of the Home Owners' Loan Act ("HOLA"). As such, the
Corporation is registered with and subject to OTS examination and supervision as
well as to certain OTS reporting requirements. The Corporation is also required
to file certain reports and otherwise comply with the rules and regulations of
the Securities and Exchange Commission ("SEC"). Furthermore, the Corporation is
limited with respect to the transactions it can execute with its affiliates
(including the Bank), and its ability to acquire control of another insured
financial institution, as specified more fully in the applicable regulations.
There generally are no restrictions as to activities of a unitary savings and
loan holding company such as the Corporation as long as its sole insured
subsidiary, the Bank, continues to meet certain regulatory requirements, which
management believes it did as of December 31, 1999.
10
<PAGE> 12
REGULATION OF THE BANK
The Bank, as a federally-chartered savings bank, is subject to federal
regulation and oversight by the OTS extending to all aspects of its operations.
The Bank also is subject to regulation and examination by the FDIC, which
insures the deposits of the Bank to the maximum extent permitted by law, and to
certain requirements established by the Federal Reserve Board. The laws and
regulations governing the Bank generally have been promulgated to protect
depositors and not for the purpose of protecting stockholders of financial
institutions or their holding companies.
The investment and lending authority of a federally-chartered savings
bank is prescribed by federal laws and regulations. The Bank is also subject to
regulatory provisions affecting a wide variety of matters including, but not
limited to, branching, loans to one borrower, investment restrictions,
activities of subsidiaries, loans to "insiders", and transactions with
affiliates. Certain of the regulatory requirements applicable to the Bank and
the Corporation are described in more detail in the following paragraphs.
INSURANCE OF DEPOSITS The Bank's savings deposits are insured by SAIF,
which is administered by the FDIC, up to the maximum extent provided by law,
currently $100,000 for each depositor. The Bank is subject to a risk-based
insurance assessment system under which higher insurance assessment rates are
charged to those thrift institutions that are deemed to pose greater risk to the
deposit insurance fund. Under this system, insurance assessments range from 0%
of deposits for the healthiest financial institutions to 0.27% of deposits for
the weakest. This risk-based assessment schedule is identical to that for
institutions insured by the Bank Insurance Fund ("BIF"), which is also
administered by the FDIC. Under both funds, the insurance assessment paid by a
particular institution will depend on the "supervisory rating" it receives from
the FDIC ("A", "B", or "C") and on its regulatory capital level ("well
capitalized", "adequately capitalized", or "undercapitalized"). Based upon its
current supervisory rating and regulatory capital level, and assuming no change
in the Bank's risk classification or in overall premium assessment levels, the
Bank anticipates that its insurance assessment for 2000 will be zero, which is
the same as the Bank's 1999 rate.
Although the Bank's risk-based insurance assessment for 2000 is
expected to be zero, the Bank will still be required to pay 0.0212% of deposits
to cover its pro rata share of the bond obligation of a government agency known
as the Finance Corporation ("FICO"). This rate is not tied to the FDIC's risk
classification; consequently, it is the same for all FDIC-insured institutions.
CAPITAL STANDARDS The Bank is subject to minimum regulatory capital
requirements as specified by OTS regulations. As more fully described in such
regulations, the Bank is subject to a leverage limit of at least 3% of total
assets, a tangible capital limit of at least 1.5% of total assets, and a
risk-based capital limit of at least 8% of risk-weighted assets. As of December
31, 1999, the Bank exceeded all minimum regulatory capital requirements as
specified by the OTS.
The Bank is also subject to minimum regulatory capital requirements as
specified by FDIC regulations. As more fully described in such regulations, the
Bank must meet the following capital standards to be classified as "adequately
capitalized" under FDIC guidelines: (1) Tier 1 capital in an amount not less
than 4% of adjusted total assets, (ii) Tier 1 capital in an amount not less than
4% of risk-weighted assets, and (iii) total capital in an amount not less than
8% of risk-weighted assets. As of December 31, 1999, the Bank exceeded all
minimum regulatory capital requirements as specified by the FDIC. For additional
discussion refer to Note 11 of the Corporation's Audited Consolidated Financial
Statements, included herein under Part II, Item 8, "Financial Statements and
Supplementary Data".
LIQUIDITY REQUIREMENTS The Bank is required to maintain liquid assets
(generally defined as cash and investment-grade short-term securities, as well
as certain mortgage-related securities and obligations of the United States)
equal to at least 4% of its "liquidity base" (generally defined as short-term
deposit liabilities and other borrowings). The OTS may change this requirement
from time-to-time to any amount within the range of 4% to 10% of the liquidity
base. As of December 31, 1999, the Bank was in compliance with the current
minimum requirements. For additional information refer to Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
11
<PAGE> 13
CLASSIFICATION OF ASSETS As previously described, the Bank's problem
assets are subject to classification according to one of three categories:
Substandard, Doubtful, and Loss. An institution is required to develop its own
program to classify its assets on a regular basis and to set aside appropriate
loss reserves on the basis of such classification. The Bank believes that it is
in compliance with the foregoing requirements.
QUALIFIED THRIFT LENDER TEST A savings association that does not meet
the Qualified Thrift Lender Test ("QTL Test"), as set forth in the HOLA and OTS
regulations, will lose access to FHLB advances and must either convert to a bank
charter or comply with certain restrictions on its operations. Under the QTL
Test, a savings association is required to maintain a certain percentage of its
assets in qualifying investments, as defined by regulations. In general,
qualifying investments consist of housing-related assets. At December 31, 1999,
the Bank's assets invested in qualifying investments exceeded the percentage
required to qualify the Bank under the QTL Test.
FEDERAL HOME LOAN BANK SYSTEM The Bank is a member of the FHLB System,
which consists of 12 regional FHLBs, subject to supervision and regulation by
the Federal Housing Finance Board. The FHLBs provide a central credit facility
primarily for member financial institutions. The Bank, as a member of the FHLB
of Chicago, is required to purchase and hold shares of capital stock in the FHLB
of Chicago. The requirement is equal to the greater of 1% of the Bank's
aggregate unpaid residential mortgage loans, home purchase contracts, and
similar obligations at the beginning of each year or 5% of its outstanding
advances from the FHLB of Chicago. At December 31, 1999, the Bank had a $22.5
million investment in the stock of the FHLB of Chicago and was in compliance
with this requirement.
The Bank's investment in FHLB stock, its single-family mortgage loans,
and certain other assets (consisting principally of CMOs and MBSs) are used to
secure advances from the FHLB of Chicago. The interest rates charged on advances
vary with the maturity of the advance and the FHLB's own cost of funds.
FEDERAL RESERVE SYSTEM Regulation D, as promulgated by the Federal
Reserve Board, requires savings institutions to maintain non-interest-earning
reserves against certain transaction deposit accounts and other liabilities. At
December 31, 1999, the Bank's minimum required reserve level was $19.8 million
and it was in compliance with the regulation.
DIVIDEND RESTRICTIONS The payment of dividends by the Bank is subject
to various limitations set forth in federal regulations and as briefly described
in Note 11 of the Corporation's Audited Consolidated Financial Statements,
included herein under Part II, Item 8, "Financial Statements and Supplementary
Data". The Bank has not paid any dividends in violation of these regulations.
COMMUNITY REINVESTMENT ACT Under the Community Reinvestment Act of
1977, as amended (the "CRA"), and as implemented by OTS regulations, a savings
institution has a continuing and affirmative obligation, consistent with its
safe and sound operation, to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with its examination of a
savings institution, to assess the institution's record of meeting the credit
needs of its community and to take such record into account in its evaluation of
certain applications by such institution. The CRA also requires all institutions
to make public disclosure of their CRA ratings. The Bank's latest CRA rating,
received in 1998, was "Outstanding".
FINANCIAL SERVICES MODERNIZATION ACT On November 12, 1999, the
Financial Services Modernization Act of 1999 (also known as the
"Gramm-Leach-Bliley Act") was signed into law. This new law repeals the
Glass-Steagall Act of 1933 and is intended to increase competition in financial
services so that financial firms, such as banks, securities firms, and insurance
companies can affiliate with each other through the formation of holding
companies. The new law also appoints the Federal Reserve as the overall
regulator of such entities. The law also restricts the chartering and
transferring of unitary thrift holding companies, although it does not restrict
the operations of unitary holding companies in existence prior to May 4, 1999,
that continue to meet the QTL Test and continue to control only a single savings
institution. The Corporation is a unitary thrift holding company and presently
meets these requirements.
12
<PAGE> 14
The new law also adopts a number of consumer protection provisions,
including those aimed at protecting privacy of information and requiring
disclosure of ATM usage charges. Many of the new law's provisions require
regulatory action, including the promulgation of regulations yet to become
effective. As such, it is too early to assess the eventual impact of the new law
on either the financial services industry in general or on the specific
operations of the Corporation or the Bank.
TAXATION
FEDERAL TAXATION The Bank is subject to those rules of federal income
taxation generally applicable to corporations under the Internal Revenue Code of
1986, as amended ("IRC"). The Corporation, the Bank, and the Bank's wholly-owned
subsidiaries (excluding FRI) file consolidated federal income tax returns, which
has the effect of eliminating or deferring the tax consequences of intercompany
distributions, including dividends, in the computation of consolidated taxable
income. The consolidated entity pays taxes at the federal statutory rate of 35%
of its taxable income, as defined in the IRC. Refer to Notes 1 and 8 of the
Corporation's Audited Consolidated Financial Statements, included herein under
Part II, Item 8, "Financial Statements and Supplementary Data" for additional
discussion. As of December 31, 1999, there were no material disputes outstanding
with Internal Revenue Service.
STATE TAXATION The states of Wisconsin, Illinois, and Minnesota impose
a tax on their apportioned shares of the Corporation's taxable income at the
rate of 7.9%, 7.3%, and 9.8%, respectively (all state income taxes are
deductible on the Corporation's federal income tax return). These states'
definitions of taxable income are generally similar to the federal definition,
except that interest from state and municipal obligations is taxable, no
deduction is allowed for state income taxes (except for Illinois, which allows a
deduction for taxes paid to other states), and, in Wisconsin and Minnesota, net
operating losses may be carried forward but not back. Minnesota and Illinois
require the filing of consolidated state income tax returns, whereas Wisconsin
currently requires separate returns for each entity in the consolidated group.
FCHI and FRI are subject to taxation in the states of Nevada and
Arizona, respectively. The State of Nevada does not currently impose a corporate
income tax and the State of Arizona imposes a tax on the premium revenues of
insurance companies rather than taxable income. Although the taxable income of
these subsidiaries is not currently subject to taxation in the State of
Wisconsin, on a number of occasions the government of the State of Wisconsin has
proposed legislation that would require consolidated income tax returns for
entities headquartered in the state. To date, none of these legislative
proposals have been passed into law. If such legislation were passed into law,
it could result in the taxable income of FCHI, and possibly FRI, being subject
to taxation in the State of Wisconsin. If the Corporation had been required to
file a consolidated state income tax return in Wisconsin for the year ended
December 31, 1999, the Corporation's income tax expense would have been
approximately $1.9 million higher than that which has been reported. This would
have reduced diluted and basic earnings per share by approximately $0.10 per
share. At this time, management of the Corporation is not aware of any
legislative proposals that would result in the filing of a consolidated state
income tax return in the State of Wisconsin. However, there can be no assurances
that such legislation will not be introduced and passed into law in the future.
ITEM 2--PROPERTIES
As of December 31, 1999, the Bank conducted its business from its
corporate offices in La Crosse, Wisconsin, 61 other retail banking facilities
located throughout Wisconsin, as previously described, and two separate loan
production offices, also located in Wisconsin. At such date, the Bank owned the
building and land for 20 of its offices and leased the building and/or the land
for its remaining 44 properties, including 28 located in supermarkets. The Bank
also owns or leases certain other properties to meet various business needs. For
additional information, refer to Note 5 of the Corporation's Audited
Consolidated Financial Statements, included herein under Part II, Item 8,
"Financial Statements and Supplementary Data".
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<PAGE> 15
ITEM 3--LEGAL PROCEEDINGS
The information required herein is included in Note 10 of the
Corporation's Audited Consolidated Financial Statements, included herein under
Part II, Item 8, "Financial Statements and Supplementary Data".
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for vote during the
fourth quarter of 1999.
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock is traded on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") National Market System under
the symbol FTFC. As of February 18, 2000, the Corporation had 18,319,091 common
shares outstanding (net of 1,622,539 shares of treasury stock), 1,474
stockholders of record, 3,400 estimated beneficial stockholders, and 4,874
estimated total stockholders.
Dividend and stock price information required by this item, as well as
information relating to the Corporation's stock repurchase plans, is included
under the following sections of this report:
(1) "Liquidity and Capital Resources", included herein under Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
(2) "Note 11--Stockholder's Equity", included herein under Item 8,
"Financial Statements and Supplementary Data--Audited Consolidated Financial
Statements".
(3) "Quarterly Financial Information", included herein under Item 8,
"Financial Statements and Supplementary Data--Supplementary Data".
14
<PAGE> 16
ITEM 6--SELECTED FINANCIAL DATA
The information in the following table contains selected consolidated
financial and other data. This information has been derived in part from the
Audited Consolidated Financial Statements included herein under Item 8,
"Financial Statements and Supplementary Data". Accordingly, the table should be
read in conjunction with such consolidated statements.
<TABLE>
<CAPTION>
Dollars in thousands, except for per share amounts
- ---------------------------------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET DATA AS OF DECEMBER 31 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $2,084,554 $1,786,504 $1,544,294 $1,515,413 $1,402,479
Investment securities available for sale, at fair
value 873 - 21,377 74,029 80,325
Mortgage-backed and related securities:
Available for sale, at fair value 252,165 204,109 47,895 61,875 84,173
Held for investment, at cost 103,932 102,500 124,336 147,835 171,493
Loans held for investment, net 1,538,595 1,177,526 1,193,893 1,106,040 932,084
Allowance for loan losses 7,624 7,624 7,638 7,888 8,186
Mortgage servicing rights, net 21,728 21,103 16,291 11,887 10,293
Intangible assets 12,463 13,485 5,921 5,221 5,643
Deposit liabilities 1,471,259 1,460,136 1,146,534 1,024,093 969,423
FHLB advances and other borrowings 469,580 189,778 275,779 383,593 322,296
Stockholders' equity 127,275 122,685 109,361 95,414 98,939
- ---------------------------------------------------------------------------------------------------------------------
SELECTED OPERATING DATA FOR YEAR ENDED DECEMBER 31 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Interest income $130,071 $118,668 $114,976 $103,977 $88,858
Interest expense 75,953 71,457 70,265 63,684 54,954
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 54,117 47,211 44,711 40,293 33,904
Provision for loan losses 387 293 539 - -
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 53,731 46,918 44,172 40,293 33,904
- ---------------------------------------------------------------------------------------------------------------------
Gains from sales of loans 7,226 16,929 6,374 4,331 3,545
Gains (losses) from sales of other investments - 343 (725) (311) (29)
Other non-interest income 27,952 14,088 18,645 15,811 13,597
- ---------------------------------------------------------------------------------------------------------------------
Total non-interest income 35,178 31,360 24,294 19,831 17,113
- ---------------------------------------------------------------------------------------------------------------------
FDIC special assessment - - - 5,941 -
Other non-interest expense 54,299 47,597 40,197 38,304 34,372
- ---------------------------------------------------------------------------------------------------------------------
Total non-interest expense 54,299 47,597 40,197 44,245 34,372
- ---------------------------------------------------------------------------------------------------------------------
Income before income tax expense 34,609 30,681 28,269 15,880 16,646
Income tax expense 12,167 11,257 10,879 5,806 6,001
- ---------------------------------------------------------------------------------------------------------------------
Net income $22,441 $19,424 $17,390 $10,074 $10,645
- ---------------------------------------------------------------------------------------------------------------------
SELECTED OTHER DATA AT OR FOR THE YEAR ENDED 1999 1998 1997 1996 1995
DECEMBER 31 (1)
- ---------------------------------------------------------------------------------------------------------------------
Return on average assets 1.19% 1.19% 1.13% 0.97% 0.87%
Return on average equity 17.63 16.59 17.20 14.21 12.86
Average equity to average assets 6.74 7.16 6.57 6.80 6.75
Average interest rate spread 2.58 2.51 2.63 2.61 2.54
Average net interest margin 3.05 3.07 3.07 3.02 2.92
Ratio of allowance for loan losses to total loans
held for investment at end of period 0.50 0.65 0.64 0.71 0.88
Ratio of non-interest expense to average assets (2) 2.88 2.90 2.62 2.71 2.83
Earnings per share: (3)
Diluted earnings per share $1.17 $0.98 $0.88 $0.68 $0.57
Basic earnings per share 1.21 1.05 0.95 0.73 0.61
Dividends paid per share (3) 0.340 0.270 0.233 0.207 0.183
Stock price at end of period (3) 14.63 16.38 16.94 7.84 6.00
Book value per share at end of period (3) 6.92 6.68 5.95 5.19 5.02
Banking facilities at end of period 64 61 50 48 44
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Selected other data excludes the after-tax impact of the FDIC special
assessment.
(2) Excludes provision for real estate losses and recoveries, as
well as FDIC special assessment.
(3) Per share data and historical stock prices have been adjusted for a 3-for-2
stock split on June 12, 1997, and a 2-for-1 stock split on June 11, 1998.
15
<PAGE> 17
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This section should be read in conjunction with Item 8, "Financial
Statements and Supplementary Data", as well as Item 7A, "Quantitative and
Qualitative Disclosures about Market Risk", and Part I, Item 1, "Business".
RESULTS OF OPERATIONS
OVERVIEW The Corporation's earnings for the years ended December 31,
1999, 1998, and 1997, were $22.4 million, $19.4 million, and $17.4 million,
respectively. These amounts represented returns on average assets of 1.19%,
1.19%, and 1.13%, respectively, and returns on average equity of 17.63%, 16.59%,
and 17.20%, respectively. Diluted earnings per share during these periods were
$1.17, $0.98, and $0.88, respectively.
The increase in net income from 1998 to 1999 was primarily attributable
to increases in loan servicing fees, net interest income, retail banking fees,
and premiums and commissions on annuity and insurance sales. These developments
were offset in part by a substantial decline in gain on sales of loans, as well
as other non-interest income. In 1998, the latter included income from a legal
settlement, as well as higher levels of fee income from certain loan
originations and conversions. Also affecting net income in 1999 was an increase
in compensation and employee benefits, along with smaller increases in every
other non-interest expense category.
The increase in net income from 1997 to 1998 was due principally to
increases in net interest income, retail banking fees, gain (loss) on sales of
investment securities, and other non-interest income. Also contributing was a
significant increase in gain on sales of loans, although this development was
offset in large part by a substantial decrease in loan servicing fees. These
favorable developments were partially offset by increases in compensation and
employee benefits, occupancy and equipment expenses, communications, postage,
and office supplies expenses, and ATM and debit card transaction costs. Other
non-interest expense also increased, primarily because of increased expenses
related to the servicing of mortgage loans and the operation and disposition of
foreclosed real estate.
The following paragraphs discuss the aforementioned changes in greater
detail along with other changes in the components of net income during the years
ended December 31, 1999, 1998, and 1997.
NET INTEREST INCOME Net interest income increased by $6.9 million or
14.6% and $2.5 million or 5.6% during the years ended December 31, 1999 and
1998, respectively. The improvement in both of these periods was primarily
volume related as the Corporation's average interest-earning assets grew by
$235.6 million or 15.3% in 1999 and by $82.2 million or 5.6% in 1998. The
principal source of growth in both periods occurred in the Corporation's
single-family residential loans and commercial real estate loans and to a lesser
degree in consumer and education loans. Although mortgage-backed and related
securities also increased substantially in both periods, a portion of this
increase was caused by the securitization of adjustable-rate, single-family
residential loans into MBSs in early 1998, which explains in part why average
single-family residential loans show a decline in 1998. Overnight investments
also increased substantially in 1998, although this increase was caused by the
temporary investment of proceeds from an increased volume of loan sales. Asset
growth in both periods was principally funded by increases in deposit
liabilities, as well as FHLB advances in 1999. Also funding growth in loans in
1999 was a significant decline in overnight investments, due to a reduced volume
of loan sales. Refer to "Financial Condition" for additional discussion.
The Corporation's interest rate spread increased modestly in 1999 after
decreasing in 1998. Management attributes the overall decline in interest rate
spread since 1997 to a generally flatter yield curve environment during most of
1998 and early 1999. This type of interest rate environment typically has an
unfavorable impact on the Corporation's interest rate spread because of the
tendency of the Corporation's assets to price off a longer end of the yield
curve than its liabilities. In recent months, however, the yield curve has
steepened somewhat with long-term rates rising faster than short-term rates,
which explains some of the improvement in the Corporation's interest rate spread
during 1999. Contributing to a greater extent, however, was a 54 basis point
decline in the Corporation's average cost of deposit liabilities, from 5.18% in
1998 to 4.64% in 1999. During the first few months of 1999, a significant
portion of the Corporation's certificates of deposits matured and were replaced
by certificates carrying a lower rate of interest. In addition, the Corporation
reduced the rate it pays on its interest-bearing checking accounts, money market
savings accounts, and regular savings accounts. Given recent increases in market
rates of interest,
16
<PAGE> 18
however, management expects the Corporation's average cost of
deposit liabilities to increase in the immediate future. In addition, recent and
potential future increases in the federal funds rate are expected to have an
adverse impact on the rate the Corporation pays on short-term borrowings from
the FHLB, as well as purchased fed funds. FHLB borrowings and purchased fed
funds that mature either overnight or within three months amounted to $204.0
million as of December 31, 1999.
Also contributing to the increase in net interest income in 1998 was an
increase in average non-interest bearing deposit liabilities, which was the
principal reason the Corporation's ratio of average interest-earning assets to
average interest-bearing liabilities improved from 109.14% in 1997 to 112.03% in
1998. The increase in non-interest-bearing liabilities was due in part to an
increase in custodial deposit accounts. The Corporation maintains borrowers'
principal and interest payments in these accounts on a temporary basis pending
their remittance to the third-party owners of the loans. Balances in these
accounts increased significantly in 1998 because of increased loan prepayment
activity, which was brought about by a generally lower interest rate
environment.
The following table sets forth information regarding the average
balances of the Corporation's assets, liabilities, and equity, as well as the
interest earned or paid and the average yield or cost of each. The information
is based on daily average balances during the years ended December 31, 1999,
1998, and 1997.
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Single-family mortgage
loans $588,928 $41,592 7.06% $500,772 $38,404 7.67% $603,662 $47,927 7.94%
Commercial real estate
loans 353,040 28,018 7.94 295,533 25,079 8.49 250,760 21,764 8.68
Consumer loans 240,260 19,981 8.32 210,326 18,485 8.79 186,622 16,712 8.95
Education loans 184,896 14,289 7.73 169,360 13,501 7.97 144,604 11,539 7.98
- --------------------------------------------------------------------------------------------------------------------
Total loans 1,367,124 103,880 7.60 1,175,991 95,469 8.12 1,185,648 97,942 8.26
Mortgage-backed and
related securities 362,418 23,728 6.55 279,767 18,542 6.63 193,135 12,126 6.28
Investment securities 1,019 44 4.37 6,657 407 6.11 49,747 3,079 6.19
Interest-bearing deposits
with banks 29,932 1,405 4.69 63,596 3,336 5.25 10,594 576 5.44
Other earning assets 14,959 1,013 6.78 13,814 913 6.61 18,540 1,254 6.77
- --------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets 1,775,452 130,071 7.33 1,539,825 118,668 7.71 1,457,664 114,976 7.89
Non-interest-earning assets:
Office properties and
equipment 24,855 24,745 25,201
Other assets 87,762 69,464 56,573
- --------------------------------------------------------------------------------------------------------------------
Total assets $1,888,069 $1,634,034 $1,539,438
- --------------------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities:
Regular savings accounts $109,318 $1,741 1.59% $94,981 $1,843 1.94% $88,797 $1,800 2.03%
Checking accounts 70,404 558 0.79 58,126 544 0.94 52,579 524 1.00
Money market accounts 177,025 6,587 3.72 150,209 6,381 4.25 142,438 6,322 4.44
Certificates of deposit 949,500 51,661 5.44 843,066 50,653 6.01 710,591 42,504 5.98
- --------------------------------------------------------------------------------------------------------------------
Total deposits 1,306,248 60,547 4.64 1,146,382 59,422 5.18 994,405 51,150 5.14
FHLB advances 281,652 15,060 5.35 220,223 11,851 5.38 325,481 18,569 5.71
Other borrowings 11,025 346 3.14 7,901 185 2.34 15,650 546 3.49
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,598,926 75,953 4.75 1,374,506 71,457 5.20 1,335,536 70,265 5.26
Non-interest-bearing
liabilities:
Non-interest-bearing
deposits 145,428 126,480 92,439
Other liabilities 16,397 15,997 10,343
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 1,760,751 1,516,983 1,438,318
Stockholders' equity 127,318 117,052 101,120
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,888,069 $1,634,034 $1,539,438
- --------------------------------------------------------------------------------------------------------------------
Net interest income $54,117 $47,211 $44,711
- --------------------------------------------------------------------------------------------------------------------
Interest rate spread 2.58% 2.51% 2.63%
- --------------------------------------------------------------------------------------------------------------------
Net interest income as a
percent
of average earning assets 3.05% 3.07% 3.07%
- --------------------------------------------------------------------------------------------------------------------
Average interest-earning
assets to average
interest-
bearing liabilities 111.04% 112.03% 109.14%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE> 19
The following table sets forth the effects of changing rates and
volumes on net interest income of the Corporation for the periods indicated.
Information is provided with respect to (i) effects on net interest income
attributable to changes in volume (changes in volume multiplied by prior rate);
(ii) effects on net interest income attributable to changes in rate (changes in
rate multiplied by prior volume); (iii) changes attributable to combined effects
of rate and volume (changes in rate multiplied by changes in volume); and (iv)
the net change in interest income.
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
Dollars in thousands INCREASE (DECREASE) INCREASE (DECREASE)
- --------------------------------------------------------------------------------------------------------------------
RATE/ RATE/
RATE VOLUME VOLUME NET RATE VOLUME VOLUME NET
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Single-family mortgage loans ($3,037) $6,761 ($536) $3,188 ($1,632) ($8,169) $278 ($9,523)
Commercial real estate loans (1,626) 4,880 (315) 2,939 (484) 3,886 (86) 3,316
Consumer loans (993) 2,631 (142) 1,496 (310) 2,123 (39) 1,773
Education loans (413) 1,238 (37) 788 (11) 1,975 (2) 1,962
- --------------------------------------------------------------------------------------------------------------------
Total loans (6,069) 15,510 (1,030) 8,411 (2,438) (185) 152 (2,473)
Mortgage-backed and related
securities (225) 5,478 (67) 5,186 675 5,439 302 6,416
Investment securities (116) (345) 98 (363) (37) (2,667) 33 (2,671)
Interest-bearing deposits with
banks (351) (1,766) 186 (1,931) (20) 2,882 (101) 2,761
Other earning assets 22 76 2 100 (28) (320) 7 (341)
- --------------------------------------------------------------------------------------------------------------------
Total net change in income on
interest-earning assets (6,739) 18,953 (811) 11,403 (1,848) 5,149 391 3,692
- --------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing deposits (5,988) 7,927 (814) 1,125 (190) 8,449 13 8,272
FHLB advances (76) 3,306 (21) 3,209 (1,054) (6,005) 341 (6,718)
Other borrowings 64 73 24 161 (180) (270) 89 (361)
- --------------------------------------------------------------------------------------------------------------------
Total net change in expense on
interest-bearing liabilities (6,000) 11,306 (811) 4,496 (1,424) 2,174 442 1,192
- --------------------------------------------------------------------------------------------------------------------
Net change in net interest
income ($739) $7,647 -- $6,906 ($424) $2,975 ($51) $2,500
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PROVISION FOR LOAN LOSSES In general, provisions for loan losses
recorded during the years ended 1999, 1998, and 1997, approximated the
Corporation's actual charge-off activity during such periods, except for a
$272,000 charge-off related to education loans in 1997, as described in a
subsequent paragraph. Management of the Corporation expects the provision for
2000 to also approximate actual charge-off activity, although there can be no
assurances.
The following table summarizes the activity in the Corporation's
allowance for loan losses during each of years indicated.
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $7,624 $7,638 $7,888 $8,186 $8,074
Provision for losses 387 293 539 - -
- --------------------------------------------------------------------------------------------------------------------
Charge-offs:
Single-family mortgage loans - - 13 - -
Consumer loans 408 332 530 328 209
Education loans 26 33 272 9 125
Commercial business loans - - - - 135
- --------------------------------------------------------------------------------------------------------------------
Total loans charged-off 434 365 815 337 469
Recoveries (principally consumer loans) 47 58 26 39 44
- --------------------------------------------------------------------------------------------------------------------
Charge-offs net of recoveries 387 307 789 298 425
Purchased allowances - - - - 537
- --------------------------------------------------------------------------------------------------------------------
Balance at end of period $7,624 $7,624 $7,638 $7,888 $8,186
- --------------------------------------------------------------------------------------------------------------------
Net charge-offs as a percentage of average loans outstanding 0.03% 0.03% 0.07% 0.03% 0.05%
- --------------------------------------------------------------------------------------------------------------------
Ratio of allowance to total loans held for investment at end of
period 0.50% 0.65% 0.64% 0.71% 0.88%
- --------------------------------------------------------------------------------------------------------------------
Note: there were no charge-offs of commercial real estate loans during the five years ended
December 31, 1999.
</TABLE>
Consumer loan charge-offs in 1997 and 1995 included $272,000 and
$125,000, respectively, related to accrued interest on education loans that was
deemed uncollectible from the U.S. Government. Similar charge-offs on education
loans are not anticipated in the future; however, there can be no assurances.
The purchased allowances shown for 1995 were from the acquisition of another
financial institution.
18
<PAGE> 20
The Corporation's ratio of allowance for loan losses to loans held for
investment has declined steadily since 1995. This decline was principally due to
growth in the Corporation's level of loans held for investment while at the same
time its level of allowance for loan losses has remained relatively stable.
Despite growth in its loans held for investment, additions to allowance for loan
losses have not been required in light of extremely low levels of net charge-off
activity, as well as low levels of non-performing and other classified assets.
The allowance as a percentage of non-performing assets was 365%, 330%, and 159%
as of December 31, 1999, 1998, and 1997, respectively. For additional
discussion, refer to "Financial Condition--Non-Performing Assets".
The following table shows the Corporation's total allowance for loan
losses and the allocation to the various loan categories as of December 31 for
each of the years indicated.
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family mortgage loans $144 0.02% $156 0.04% $148 0.03% $183 0.03% $177 0.04%
Commercial real estate loans 7,088 2.00 7,017 2.43 7,200 2.90 7,326 3.30 7,710 3.93
Consumer loans 355 0.13 414 0.19 253 0.12 302 0.18 222 0.16
Commercial business loans 37 12.50 37 9.97 37 6.65 77 6.33 77 3.49
- --------------------------------------------------------------------------------------------------------------------
Total allowance for loan losses $7,624 0.50% $7,624 0.65% $7,638 0.64% $7,888 0.71% $8,186 0.88%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: no allowance for loss was allocated to education loans as of December 31 f
or any of the years presented.
The amounts in the preceding table are expressed as a percentage of
gross loans outstanding for each loan category, excluding construction loans.
The total allowance is expressed as a percent of net loans held for investment.
Although management believes that the Corporation's present level of
allowance for loan losses is adequate, there can be no assurance that future
adjustments to the allowance will not be necessary, which could adversely affect
the Corporation's results of operations.
NON-INTEREST INCOME Non-interest income for the years ended December
31, 1999, 1998, and 1997, was $35.2 million, $31.4 million, and $24.3 million,
respectively. The following paragraphs discuss the principal components of
non-interest income and the primary reasons for their changes from 1998 to 1999
and 1997 to 1998.
Retail banking fees and service charges increased by $5.2 million or
approximately 35% in 1999 and by $2.4 million or 19.4% in 1998. The increase in
1999 was due in part to an increase in the per-item charge for overdrafts on
checking accounts that was instituted early in the year. Also contributing to
the increase in 1999, as well as 1998, was 33% growth in the number of checking
accounts serviced by the Corporation since December 31, 1997. Over 50% of this
growth came from retail banking offices that were opened or acquired in 1998 and
1999. Also contributing to the growth in retail banking fees in both periods was
a $722,000 and $587,000 or approximately 26% and 27% increase in fees from
customers' use of ATMs in 1999 and 1998, respectively. In addition, fee income
from customers' use of debit cards increased by $762,000 and $411,000 or
approximately 54% and 41% in the same periods, respectively. The Corporation
introduced debit cards to its checking account customers in 1996. In addition to
giving customers access to virtually any ATM network, debit cards give customers
the ability to make purchases directly from any merchant that accepts VISA
credit cards.
Loan servicing fees were $2.8 million, $(6.7) million, and $2.4 million
in 1999, 1998, and 1997, respectively. Interest rates reached historically low
levels in 1998. As a result, loan prepayment activity was much higher in that
period than that which had originally been estimated for the related mortgage
servicing rights. Because of such prepayment activity, the Corporation recorded
$10.2 million in losses on its mortgage servicing rights in 1998 over-and-above
that which management considered to be normal periodic amortization. This
compared to only $1.1 million in such losses in 1999, a period during which
interest rates generally increased, which resulted in significantly lower
prepayment activity compared to 1998. Only $650,000 in losses on mortgage
servicing rights were recorded in 1997.
Excluding the effects of the aforementioned losses, but net of normal
periodic amortization, loan servicing fees would have increased by $306,000 or
8.6% and $542,000 or 18.0% in 1999 and 1998, respectively. These increases were
attributable to a $227.6 million or 13.7% increase and a $375.3 million or
approximately 29%
19
<PAGE> 21
increase in the average outstanding balance of loans serviced for others during
such periods, respectively. The significant growth in 1998 was due in part to
the securitization of $222.3 million of the Corporation's adjustable-rate
residential mortgage loans into MBSs. The principal balance related to these
securities was included in the amount reported as loans serviced for others even
though the securities were retained by the Corporation. Also contributing to the
growth in loans serviced for others in 1998 was an interest rate environment
that caused borrowers to favor fixed-rate loans, which the Corporation generally
sells in the secondary market, over adjustable-rate mortgage loans, which the
Corporation generally retains in portfolio. Finally, in 1998 the Corporation
also purchased mortgage servicing rights related to $50.0 million in fixed-rate
residential mortgage loans on properties located in the state of Iowa.
The rate of growth in loans serviced for others slowed in 1999 as
borrower preference shifted to adjustable-rate loans in response to a higher
interest rate environment during most of 1999. Consequently, loans serviced for
others increased by only $17.4 million or 0.9% in 1999 compared to an increase
of $450.9 million or approximately 32% in 1998. After December 31, 1999,
interest rates have remained at relatively high levels compared to 1998 and
early 1999. If this environment persists, or if interest rates rise further,
management anticipates only modest growth in 2000 in the Corporation's loans
serviced for others, due to continued preference on the part of borrowers for
adjustable-rate mortgage loans.
For additional discussion relating to mortgage servicing rights, refer
to Part I, Item 1, "Business--Lending Activities", and Notes 1 and 4 of the
Corporation's Audited Consolidated Financial Statements, included herein under
Part II, Item 8, "Financial Statements and Supplementary Data".
Premiums and commissions on annuity and insurance sales increased by
$833,000 or almost 50% in 1999 and decreased by $31,000 or 1.7% in 1998. The
Corporation's principal sources of premium and commission revenues are from
sales of tax-deferred annuity contracts, credit life and disability insurance
policies, and mortgage loan insurance policies. The increase in 1999 was
primarily due to increased sales of tax-deferred annuity contracts. The decrease
in 1998 was principally due to decreases in revenue from sales of credit life
and disability insurance policies and mortgage loan insurance policies. Included
in commission revenue for 1998 was a $149,000 underwriting gain related to the
Corporation's formation of FRI, a wholly-owned reinsurance subsidiary (refer to
Part I, Item 1, "Business--Subsidiaries", for additional discussion).
Gains on sales of loans for the years ended December 31, 1999, 1998,
and 1997, were $7.2 million, $16.9 million, and $6.4 million, respectively. The
decrease in 1999 was attributable to a $539.8 million or approximately 60%
decline in the Corporation's mortgage loan sales. This decline was due to a
rising interest rate environment during most of 1999 that slowed originations of
fixed-rate mortgage loans, as well as conversions of adjustable-rate loans into
fixed-rate loans, both of which the Corporation generally sells in the secondary
market. The dramatic increase in gains on sales of loans in 1998 was caused by a
historically low interest rate environment, which resulted in significant
originations and sales of fixed-rate mortgage loans in that period, as well as
increased conversions of adjustable-rate loans into fixed-rate loans. After
December 31, 1999, interest rates have remained at relatively high levels
compared to 1998 and early 1999. If this environment persists, or if interest
rates rise further, management anticipates that borrowers will continue to
prefer adjustable-rate loans over fixed-rate loans. Consequently, management
expects the Corporation's gain on sales of loans to decline further in 2000
relative to 1999.
Gain (loss) on sales of investment securities for the years ended
December 31, 1999, 1998, and 1997, were zero, $343,000, and $(725,000),
respectively. The gain in 1998 was caused by the sale of FNMA stock that had
been acquired in the early 1980s. The loss in 1997 was caused by the
Corporation's sale of its remaining interest in mutual funds that invested
primarily in adjustable-rate mortgage loans and short-term government
securities.
The recognition of gains or losses from sales of loans, mortgage-backed
and related securities, and other investments is dependent on market and
economic conditions. Accordingly, there can be no assurance that the gains
reported in prior periods can be achieved in the future or that there will not
be significant inter-period variations in the results from such activities.
Furthermore, the Corporation is subject to accounting principles established by
Statement of Financial Accounting Standards No. 115 ("SFAS 115"), which limits
the Corporation's ability to sell investments classified as "held for
investment". For additional discussion refer to Note 1 of the Corporation's
Audited Consolidated Financial Statements, included herein under Part II, Item
8, "Financial Statements and Supplementary Data".
20
<PAGE> 22
Other income was $2.4 million, $4.0 million, and $1.9 million for the
years ended December 31, 1999, 1998, and 1997, respectively. The results for
1998 included a $965,000 pre-tax gain recorded on the books of FEI, a
wholly-owned subsidiary of the Bank (refer to Part I, Item 1,
"Business--Subsidiaries"). The gain related to FEI's settlement of a lawsuit
that it had brought against another financial institution. Also included in the
results for 1998 was a significant increase in fees from customers' conversions
of adjustable-rate mortgage loans into fixed rate loans due to the low interest
rate environment, as previously described. Also contributing were increases in
fees received on loans originated as agent for the Wisconsin State Veterans
Administration and the Wisconsin Housing and Economic Development Authority.
NON-INTEREST EXPENSE Non-interest expense for the years ended December
31, 1999, 1998, and 1997, was $54.3 million, $47.6 million, and $40.2 million,
respectively. Non-interest expense as a percent of average assets during these
periods was 2.88%, 2.90%, and 2.62%, respectively. The following paragraphs
discuss the principal components of non-interest expense and the primary reasons
for their changes from 1998 to 1999 and 1997 to 1998.
Compensation and employee benefits increased by $4.9 million or 18.2%
in 1999 and $4.8 million or 22.1% in 1998. In general, the increase in both
periods was due to general growth in the number of banking facilities operated
by the Corporation, as well as normal annual merit increases. Since December 31,
1997, the Corporation has opened or acquired fourteen retail banking facilities.
In 2000, the Corporation intends to open or acquire up to five retail banking
facilities and one loan production facility, although there can be no
assurances.
As of December 31, 1999, the Corporation had 831 full-time equivalent
employees. This compared to 808 and 690 as of December 31, 1998 and 1997,
respectively.
Occupancy and equipment expense increased by $432,000 or 6.2% in 1999
and $274,000 or 4.1% in 1998. In addition, communications, postage, and office
supplies expense increased by $344,000 or 9.4% in 1999 and $530,000 or 16.8% in
1998. These increases were primarily attributable to general growth in the
number of banking facilities operated by the Corporation, as previously
described, as well as increases in the number of full-time equivalent employees
and in the number of customers served by the Corporation.
ATM and debit card transaction costs increased by $358,000 or 15.3% in
1999 and $314,000 or 15.5% in 1998. The increase in both years was attributable
to increased use by the Corporation's customers of ATM and debit card networks,
as well as an increase in the number of ATMs operated by the Corporation.
Amortization of intangible assets, which consists primarily of
deposit-based intangibles and purchase accounting goodwill, increased by
$450,000 or approximately 75% in 1999 and $86,000 or 17.3% in 1998. The increase
in both periods was caused by the Corporation's purchase of deposits from
another financial institution in the fourth quarter of 1998.
Other non-interest expenses increased by $148,000 or 2.8% in 1999 and
$1.3 million or approximately 40% in 1998. The results for 1999 included
increased losses from forgery, fraud, and other irregularities associated with
increased checking, ATM, and debit card volumes, as well as increased check
printing charges associated with customers' checking accounts. The latter
development, however, was principally due to a change in accounting for such
charges. Before 1999, check printing charges were netted against the commission
revenue received from the Corporation's third-party check suppliers. Also
contributing to other non-interest expenses in 1999 was the payment of $152,000
in sales and use taxes to the State of Wisconsin for prior years, as well as
increased professional fees incurred as a result of the negotiations connected
with such issue.
The significant increase in other non-interest expense in 1998 was
caused by a variety of factors, the most significant of which were increased
costs related to the operation and disposition of foreclosed real estate,
increased losses on customers' deposit accounts, and increased costs related to
servicing of loans for FNMA. Under the terms of its servicing agreement with
FNMA, the Corporation is required to pay a full month's interest to FNMA when
certain loans are repaid, regardless of the actual date of the loan payoff. A
historically low interest rate environment and increased prepayment activity in
1998 resulted in increased payment of "loan pay-off interest" to FNMA.
21
<PAGE> 23
INCOME TAX EXPENSE Income tax expense for the years ended December 31,
1999, 1998, and 1997, was $12.2 million, $11.3 million, and $10.9 million,
respectively, or 35.2%, 36.7%, and 38.5% of pretax income, respectively. In 1997
the Corporation's effective tax rate was higher because a greater share of its
taxable earnings were in the State of Wisconsin as opposed to the State of
Nevada, which imposes no corporate income tax (refer to Part I, Item 1,
"Business--Subsidiaries" and "Business--Taxation", for additional discussion).
During 1999 and 1998 the Corporation substantially increased its investment in
FCHI, its Nevada subsidiary, which lowered the Corporation's effective income
tax rate in each period.
FINANCIAL CONDITION
OVERVIEW The Corporation's total assets increased by $298.1 million or
16.7% during the twelve months ended December 31, 1999. This increase was
primarily the result of a $361.1 million or approximately 31% increase in loans
held for investment due to continued growth in the Corporation's single-family
residential and commercial real estate loan portfolios, as well as smaller
increases in its consumer and education loan portfolios. Also contributing to
the growth in total assets was a $49.5 million or 16.1% increase in aggregate
mortgage-backed and related securities. These developments were offset in part
by a $78.8 million or over 80% decline in overnight investments and a $65.7
million or over 90% decline in loans held for sale. The majority of growth in
the Corporation's total assets was funded by a $279.8 million or almost 150%
increase in FHLB advances and other borrowings. Contributing to a lesser degree
was an $11.1 million or 0.8% increase in deposit liabilities.
CASH AND DUE FROM BANKS The Corporation's cash and due from banks,
which consists primarily of vault and teller cash, as well as correspondent bank
balances, increased by $21.9 million or approximately 50% during the twelve
months ended December 31, 1999. Most of this increase was caused by the build-up
of cash reserves in the Corporation's vaults in anticipation of customer demand
prior to the year 2000 change-over. Such cash reserves proved unnecessary,
however, and were promptly returned to the Federal Reserve System in January
2000.
INTEREST-BEARING DEPOSITS WITH BANKS The Corporation's interest-bearing
deposits with banks, which consist principally of overnight investments at the
FHLB, declined substantially during the twelve months ended December 31, 1999.
Overnight investments were abnormally high during most of 1998 and early 1999
due to the temporary investment of proceeds from loans sales. Loan sales
activity was extremely high in such periods due to a historically low interest
rate environment, as previously described.
MORTGAGE-BACKED AND RELATED SECURITIES The Corporation's aggregate
investment in its mortgage-backed and related securities portfolios increased by
$49.5 million or 16.1% during the twelve months ended December 31, 1999. This
increase was caused by the purchase of $195.3 million in short- and medium-term,
fixed-rate CMOs. Approximately 74% of these securities were classified as
"available for sale", and the remainder were classified as "held for
investment". These purchases were offset in part by $140.0 million in principal
repayments on the portfolio during the year.
The following table sets forth the composition of the Corporation's
mortgage-backed and related securities portfolios as of December 31 for each of
the years indicated.
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Available for sale:
Collateralized mortgage obligations $148,311 $143,790 $33,871 $33,787 $48,953 $47,895
Mortgage-backed securities 105,651 108,376 165,872 170,322 - -
- --------------------------------------------------------------------------------------------------------------------
Total available for sale 253,963 252,165 199,743 204,109 48,953 47,895
- --------------------------------------------------------------------------------------------------------------------
Held for investment:
Collateralized mortgage obligations 100,522 97,733 97,251 97,608 115,847 115,057
Mortgage-backed securities 3,410 3,335 5,249 5,300 8,489 8,557
- --------------------------------------------------------------------------------------------------------------------
Total held for investment: 103,932 101,068 102,500 102,908 124,336 123,614
- --------------------------------------------------------------------------------------------------------------------
Total mortgage-backed and related
securities $357,895 $353,234 $302,243 $307,017 $173,289 $171,509
- --------------------------------------------------------------------------------------------------------------------
Weighted-average yield 6.82% 6.95% 6.29%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 24
LOANS HELD FOR SALE The Corporation's loans held for sale declined by
$65.7 million or over 90% during the year ended December 31, 1999. This decrease
was due to a rising interest rate environment during most of 1999 that increased
consumer demand for adjustable-rate mortgage loans, which the Corporation
generally retains in portfolio as opposed to selling in the secondary market.
The following table sets forth the activity in the Corporation's
portfolio of loans held for sale during each of the years indicated.
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $72,002 $45,577 $20,339 $23,976 $2,467
Single-family mortgage loans originated for
sale (1) 305,345 818,292 258,818 237,592 180,319
Loans transferred from held for investment
(2) 21,283 98,718 92,573 15,659 12,448
Loans transferred to held for investment (3) (43,554) - - - -
Principal balance of loans sold (348,730) (890,585) (326,153) (256,888) (171,258)
- --------------------------------------------------------------------------------------------------------------------
Balance at end of period $6,346 $72,002 $45,577 $20,339 $23,976
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net of monthly principal payments received from borrowers during the period
held for sale.
(2) Consists of single-family adjustable-rate mortgage loans originated for
investment that converted to fixed-rate loans. The Corporation generally
sells such loans in the secondary market.
(3) Consists of fixed-rate mortgage loans transferred to loans held for
investment at the lower of cost or market to maintain growth in the
Corporation's earning assets.
In the fourth quarter of 1999, the Corporation transferred $43.6
million in fixed-rate mortgage loans that had been originated for sale to its
portfolio of loans held for investment. In accordance with GAAP, these loans
were transferred at the lower of cost or market, which resulted in a $152,000
loss in the current period. This loss reduced the amount reported as gain on
sales of loans in 1999. Refer to the next paragraph for additional discussion.
LOANS HELD FOR INVESTMENT The Corporation's loans held for investment
increased by $361.1 million or approximately 31% during the twelve months ended
December 31, 1999. Most of this increase occurred in the Corporation's
single-family residential and commercial real estate loan portfolios. Also
contributing, although to a lesser degree, were increases in consumer and
education loans. The increase in single-family residential loans was caused by a
rising interest rate environment during most of 1999, which increased borrowers'
preference for adjustable-rate mortgage loans, which the Corporation generally
retains in portfolio. In an effort to increase its level of earning assets in
1999, the Corporation also purchased $97.2 million in adjustable-rate
single-family mortgage loans from a third-party financial institution and
transferred $43.6 million in fixed-rate single-family mortgage loans from its
held for sale portfolio to its held for investment portfolio, as described in
the previous paragraph. The loans purchased by the Corporation were subjected to
substantially the same underwriting process as the Corporation's own
originations. The loans are located throughout the U.S., with no single state
making up a significant portion of the overall principal. The loans have
adjustable-rates that reset annually at an average margin of approximately 250
basis points above the one-year U.S. Treasury bill. Most of the loans have fixed
interest rates for terms of three to seven years before their first adjustment
date. The loans were purchased by FCHI, the Corporation's wholly-owned
investment subsidiary in Nevada.
23
<PAGE> 25
The following table sets forth the composition of the Corporation's
portfolio of loans held for investment as of December 31 for each of the years
indicated.
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family mortgage
loans $652,883 42% $426,603 36% $537,722 45% $543,109 49% $462,760 49%
Multi-family residential
loans 186,591 12 148,060 13 140,589 12 127,334 11 119,955 13
Non-residential real
estate loans 168,453 11 141,046 12 107,315 9 94,401 8 76,242 8
Construction loans (1) 80,563 5 63,035 5 51,319 4 46,641 4 31,364 3
- --------------------------------------------------------------------------------------------------------------------
Total real estate loans 1,088,490 70 778,744 66 836,945 70 811,485 73 690,321 73
- --------------------------------------------------------------------------------------------------------------------
Consumer loans:
Second mortgage and home
equity loans 204,806 13 175,541 15 163,231 14 119,645 11 83,993 9
Automobile loans 46,956 3 37,558 3 31,182 3 36,831 3 39,653 4
Other consumer loans (2) 14,239 1 9,006 1 9,149 1 10,724 1 16,238 2
- --------------------------------------------------------------------------------------------------------------------
Total consumer loans 266,001 17 222,105 19 203,562 17 167,200 15 139,884 15
- --------------------------------------------------------------------------------------------------------------------
Education loans 190,170 12 182,380 15 159,893 13 134,094 12 108,003 11
Commercial business loans 296 - 371 - 557 - 1,217 - 2,205 -
- --------------------------------------------------------------------------------------------------------------------
Subtotal 1,544,958 100% 1,183,600 100% 1,200,957 100% 1,113,996 100% 940,413 100%
Unearned discounts, premiums,
and net deferred loan
fee/costs 1,260 1,549 574 (68) (143)
Allowance for loan losses (7,624) (7,624) (7,638) (7,888) (8,186)
- --------------------------------------------------------------------------------------------------------------------
Total loans held for $1,538,595 $1,177,526 $1,193,893 $1,106,040 $932,084
investment
====================================================================================================================
Weighted average 7.58% 7.80% 8.22% 8.16% 8.24%
contractual rate
====================================================================================================================
</TABLE>
(1) At December 31, 1999, construction loans consisted of $45.6 million in
single-family residences, $22.6 million in non-residential real estate,
and $12.4 million in multi-family residential real estate loans.
(2) At December 31, 1999, other consumer loans included $10.2 million of
unsecured loans, $1.9 million of recreational and household good loans,
$1.5 million of deposit account-secured loans, and $0.6 million of mobile
home loans.
24
<PAGE> 26
The following table sets forth the activity in the Corporation's
portfolio of loans held for investment during each of the years indicated.
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $1,177,526 $1,193,893 $1,106,040 $932,084 $723,826
- ---------------------------------------------------------------------------------------------------------------------
Real estate loan originations:
Single-family mortgage loans (1) 293,227 212,964 243,694 247,362 147,827
Commercial real estate loans 112,180 106,146 71,554 65,384 21,477
Decrease (increase) in loans in process (2) (7,086) 1,654 (13,081) (3,277) (1,836)
- ---------------------------------------------------------------------------------------------------------------------
Total real estate loans originated 398,321 320,764 302,167 309,469 167,468
- ---------------------------------------------------------------------------------------------------------------------
Consumer loan originations:
Second mortgage and home equity loans 137,459 136,659 120,809 89,115 65,397
Automobile loans 39,635 33,729 23,923 29,377 23,489
Other consumer loans (3) 12,168 6,461 7,004 8,675 9,701
- ---------------------------------------------------------------------------------------------------------------------
Total consumer loans originated 189,262 176,849 151,736 127,167 98,587
- ---------------------------------------------------------------------------------------------------------------------
Education loan originations 29,521 37,692 38,422 36,176 31,347
- ---------------------------------------------------------------------------------------------------------------------
Total loans originated for investment 617,103 535,305 492,325 472,812 297,402
- ---------------------------------------------------------------------------------------------------------------------
Loans purchased for investment:
Single-family residential loans 97,238 165,140 - - -
Consumer loans - 377 - - 22
Commercial real estate loans 798 - 6,373 9,692 1,946
- ---------------------------------------------------------------------------------------------------------------------
Total loans purchased for investment 98,036 165,517 6,373 9,692 1,968
- ---------------------------------------------------------------------------------------------------------------------
Loan principal repayments (371,997) (389,935) (317,291) (292,199) (186,024)
Loans transferred to held for sale
portfolio (4) (21,283) (98,718) (92,573) (15,659) (12,448)
Loans transferred from held for sale
portfolio (5) 43,554 - - - -
Loans swapped into mortgage-backed securities - (222,260) - - -
Loans acquired through merger - - - - 107,788
Other changes in loans held for investment (6) (4,344) (6,276) (981) (690) (428)
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of period $1,538,595 $1,177,526 $1,193,893 $1,106,040 $932,084
=====================================================================================================================
</TABLE>
(1) Excludes loans originated for sale and loans originated on an agency basis
for WHEDA and State VA. The latter amounted to $30.3 million, $38.8
million, $23.1 million, $20.9 million, and $27.9 million in 1999, 1998,
1997, 1996, and 1995, respectively.
(2) Consists of changes in loans in process on single-family, multi-family, and
non-residential real estate construction loans.
(3) Consists principally of loans secured by mobile homes, recreational and
household goods, and deposit accounts, as well as unsecured loans.
(4) Consists of single-family adjustable-rate mortgage loans that converted to
fixed-rate and were sold by the Corporation in the secondary market.
(5) Consists of fixed-rate mortgage loans transferred from loans held for sale
at the lower of cost or market to maintain growth in the Corporation's
earning assets.
(6) Consists principally of real estate foreclosures and changes in allowance
for loan losses, discounts, premiums, and deferred fees.
DEPOSIT LIABILITIES The Corporation's deposit liabilities increased by
only $11.1 million or 0.8% during the twelve months ended December 31, 1999.
Growth in the Corporation's deposits slowed in 1999 as the Corporation opened
fewer retail banking facilities during the year and priced its deposits less
aggressively (relative to its competition) in an effort to control changes in
its cost of funds in a rising rate environment. The Corporation's deposit
liabilities were also impacted during the year by an $18.0 million or over 50%
decline in custodial deposit accounts. The Corporation maintains borrowers'
principal and interest payments in such accounts on a temporary basis pending
their remittance to the third-party owners of the loans. Balances in these
accounts were at a high level at the end of 1998 because of a historically low
interest rate environment, which caused significant increases in loan prepayment
activity.
25
<PAGE> 27
The following table sets forth the composition of the Corporation's
deposit liabilities as of December 31 for each of the years indicated.
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Regular savings accounts $104,511 1.49% $103,467 1.98% $87,605 1.98%
Interest-bearing checking accounts 72,913 0.75 83,260 0.86 54,994 0.99
Non-interest bearing checking accounts 136,700 - 144,731 - 93,323 -
Money market accounts 173,596 3.76 166,801 4.03 143,116 4.36
Variable-rate IRA accounts 3,610 3.63 3,215 4.11 2,956 4.41
Certificates of deposit 979,930 5.41 958,662 5.83 764,540 6.04
- --------------------------------------------------------------------------------------------------------------------
Total $1,471,259 4.20% $1,460,136 4.49% $1,146,534 4.79%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, certificates of deposit in denominations of
$100,000 or more amounted to $91.7 million and mature as follows: $21.5 million
within three months, $14.6 million over three through six months, $31.3 million
over six through 12 months, $20.7 million over 12 through 24 months, and $3.6
million over 24 months. At December 31, 1999, the Bank had no brokered deposits
outstanding.
FHLB ADVANCES AND OTHER BORROWINGS The Corporation's FHLB advances and
other borrowings increased by $279.8 million or almost 150% during the year
ended December 31, 1999. This increase funded growth in the Corporation's
earning assets, as previously described.
The following table presents certain information regarding the
Corporation's short-term FHLB advances and other borrowings (original maturity
of less than one year) at or for the years ended December 31, 1999, 1998, and
1997.
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
FHLB advances:
<S> <C> <C> <C>
Average balance outstanding (1) $84,482 $89,832 $244,609
Maximum amount outstanding at any month-end during the period 204,215 211,300 300,985
Balance outstanding at end of period 201,273 3,000 211,300
Average interest rate during the period (2) 5.32% 5.65% 5.39%
Weighted-average interest rate at the end of period 5.66% 5.76% 5.73%
Other borrowings: (3)
Average balance outstanding (1) $2,308 $769 $3,846
Maximum amount outstanding at any month-end during the period 20,000 10,000 10,000
Balance outstanding at end of period 20,000 - 10,000
Average interest rate during the period (2) 5.74% 4.81% 5.95%
Weighted-average interest rate at the end of period 5.79% - 4.81%
Total short-term borrowings:
Average balance outstanding (1) $86,790 $90,601 $248,455
Maximum amount outstanding at any month-end during the period 221,273 221,300 305,985
Balance outstanding at end of period 221,273 3,000 221,300
Average interest rate during the period (2) 5.33% 5.64% 5.40%
Weighted-average interest rate at the end of period 5.67% 5.76% 5.69%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Calculated using month-end balances.
(2) Calculated using month-end weighted average interest rates.
(3) Consists primarily of federal funds purchased and an overnight line of
credit with another financial institution.
NON-PERFORMING ASSETS The Corporation's non-performing assets
(consisting of non-accrual loans, real estate acquired through foreclosure or
deed-in-lieu thereof, and real estate in judgement) amounted to $2.1 million or
0.10% of total assets at December 31, 1999, compared to $2.4 million or 0.13% at
December 31, 1998.
26
<PAGE> 28
The following table contains information regarding the Corporation's
non-performing assets during the five year period ended December 31, 1999.
<TABLE>
<CAPTION>
Dollars in thousands 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Non-accrual loans:
<S> <C> <C> <C> <C> <C>
Single-family mortgage loans $862 $770 $738 $1,003 $547
Commercial real estate loans - - 3,000 - 104
- ---------------------------------------------------------------------------------------------------------------------
Total real estate loans 862 770 3,738 1,003 651
Consumer loans 191 341 672 973 605
- ---------------------------------------------------------------------------------------------------------------------
Total non-accrual loans 1,053 1,111 4,410 1,976 1,256
Real estate owned and in judgement 1,091 1,264 492 460 193
- ---------------------------------------------------------------------------------------------------------------------
Total non-performing assets $2,144 $2,375 $4,902 $2,436 $1,449
- ---------------------------------------------------------------------------------------------------------------------
Ratio of non-accrual loans to total net loans receivable 0.07% 0.09% 0.37% 0.18% 0.13%
- ---------------------------------------------------------------------------------------------------------------------
Ratio of total non-performing assets to total assets 0.10% 0.13% 0.32% 0.16% 0.10%
- ---------------------------------------------------------------------------------------------------------------------
Ratio of total allowance for loan and real estate losses
to total non-performing assets 365% 330% 159% 331% 577%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: there were no non-performing education loans as of December 31 for any of
the years presented.
In addition to non-performing assets, at December 31, 1999, management
was closely monitoring $3.3 million in assets which it had classified as
doubtful, substandard, or special mention, but which were performing in
accordance with their terms. This compares to $6.4 million in such assets at
December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary sources of funds are deposits obtained
through its retail branch offices, borrowings from the FHLB and other sources,
amortization, maturity, and prepayment of outstanding loans and investments, and
sales of loans and other assets. During 1999, 1998, and 1997, the Corporation
used these sources of funds to fund loan commitments, purchase investment
mortgage-related securities, and cover maturing liabilities and deposit
withdrawals. At December 31, 1999, the Corporation had approved real estate loan
commitments of $13.3 million outstanding, undisbursed commitments on
construction loans of $41.8 million, and mortgage loan sale commitments of $3.5
million outstanding. In addition, the Corporation had $709.4 million in time
deposits, $45.4 million in FHLB term advances, and $20.0 million in purchased
fed funds that were scheduled to mature within one year. Management believes
that the Corporation has adequate resources to fund all of these commitments,
that all of these commitments will be funded by the required date, and that the
Corporation can adjust the rates it offers on certificates of deposit to retain
such deposits in changing interest rate environments. Under FHLB lending and
collateralization guidelines, the Corporation had approximately $220 million in
unused borrowing capacity at the FHLB as of December 31, 1999.
The Corporation's stockholders' equity ratio as of December 31, 1999,
was 6.11% of total assets. The Corporation's long-term objective is to maintain
its equity ratio in a range of approximately 6.5% to 7.0%, which is consistent
with return on asset and return on equity goals of at least 1.10% and 16.5%,
respectively. The Corporation is below its target range as of December 31, 1999,
primarily as a result of significant stock repurchases during the fourth quarter
of 1999. The Corporation expects its equity ratio to return to its target range
during the next 12 to 24 months, although there can be no assurances.
The Bank is also required to maintain specified amounts of capital
pursuant to regulations promulgated by the OTS and the FDIC. The Bank's
objective is to maintain its regulatory capital in an amount sufficient to be
classified in the highest regulatory capital category (i.e., as a "well
capitalized" institution). At December 31, 1999, the Bank's regulatory capital
exceeded all regulatory minimum requirements, as well as the amount required to
be classified as a "well capitalized" institution. For additional discussion,
refer to Note 11 of the Corporation's Consolidated Financial Statements,
included herein under Part II, Item 8, "Financial Statements and Supplementary
Data".
The Corporation paid cash dividends of $6.3 million, $5.0 million, and
$4.3 million during the years ended December 31, 1999, 1998, and 1997,
respectively. These amounts equated to dividend payout ratios of 28.0%, 25.7%,
and 24.6% of the net income in such periods, respectively. It is the
Corporation's objective to maintain its dividend payout ratio in a range of 25%
to 35% of net income. However, the Corporation's dividend policy and/or
27
<PAGE> 29
dividend payout ratio will be impacted by considerations which include, but are
not limited to, the level of stockholders' equity in relation to the
Corporation's stated goal, as previously described, regulatory capital
requirements for the Bank, as previously described, and certain dividend
restrictions in effect for the Bank (for additional discussion refer to Note 11
of the Corporation's Audited Consolidated Financial Statements, included herein
under Part II, Item 8, "Financial Statements and Supplementary Data").
Furthermore, unanticipated or non-recurring fluctuations in earnings may impact
the Corporation's ability to pay dividends and/or maintain a given dividend
payout ratio.
On January 25, 2000, the Corporation's Board of Directors approved a
regular quarterly dividend of $0.09 per share payable on March 9, 2000, to
shareholders of record on February 17, 2000.
During 1999, the Corporation repurchased 1,060,990 shares of common
stock at a cost of $15.9 million under its 1997 and 1999 stock repurchase plans
(the "1997 Plan" and "1999 Plan", respectively). As of December 31, 1999, no
shares remained to be purchased under the 1997 Plan and 363,410 shares remained
under the 1999 Plan. Subsequent to December 31, 1999, but prior to the date of
this report, the Corporation repurchased an additional 93,904 shares under the
1999 Plan at a cost of $1.2 million. For additional discussion, refer to Note 11
of the Corporation's Audited Consolidated Financial Statements, included herein
under Part II, Item 8, "Financial Statements and Supplementary Data".
During 1999, the Corporation reissued 1,103,550 shares of common stock
out of its inventory of treasury stock with a cost basis of $14.3 million. In
general, these shares were issued upon the exercise of stock options by, or the
issuance of restricted stock to, employees and directors of the Corporation.
SEGMENT INFORMATION
The following paragraphs contain a discussion of the financial
performance of each the Bank's reportable segments (hereafter referred to as
"profit centers") for the years ended December 31, 1999, 1998, and 1997. This
section of the report should be read in conjunction with Note 13 of the
Corporation's Audited Consolidated Financial Statements, included herein under
Part II, Item 8, "Financial Statements and Supplementary Data". Note 13 contains
a description of the Bank's approach to segment reporting, to include a
discussion of certain non-GAAP adjustments and reclassifications that are made
to the Bank's results of operations and financial condition for segment
reporting purposes only. In the judgment of management, such adjustments and
reclassifications reflect more fairly the performance and/or financial condition
of certain of the Bank's profit centers.
The following table summarizes the after-tax profit (loss) of the
Bank's profit centers during each of the years ended December 31, 1999, 1998,
and 1997 (refer to Note 13 of the Corporation's Audited Consolidated Financial
Statements for a more detailed profit (loss) statement for each profit center).
<TABLE>
<CAPTION>
PROFIT (LOSS) BY PROFIT CENTER 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage banking $3,663,321 $4,909,563 $3,360,590
Residential loans 5,548,997 4,124,432 6,219,797
Commercial real estate lending 4,741,426 3,470,227 3,490,607
Consumer lending 3,437,607 2,736,017 2,543,263
Education lending 2,773,665 1,992,461 1,561,423
Investment and mortgage-related securities 4,049,069 2,341,871 1,002,127
Other segments (276,073) 324,056 (452,737)
Non-GAAP adjustments (1,496,802) (474,493) (334,707)
- --------------------------------------------------------------------------------------------------------------------
Net income $22,441,210 $19,424,134 $17,390,363
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
MORTGAGE BANKING Profits from the Bank's mortgage banking activities
declined by $1.2 million or approximately 25% in 1999 after increasing by $1.5
million or approximately 46% in 1998 compared to the previous year. Loan
origination volumes and mortgage servicing fees are the principal drivers of
performance in this profit center. In 1998, a historically low interest rate
environment resulted in a significant increase in originations of single-family
residential loans. In that year, the Bank's mortgage banking operation
originated $1.1 billion in single-family loans compared to $628.9 million in
1999 and $525.6 million in 1997. The favorable impact of increased originations
in 1998 was offset somewhat by increased losses on mortgage servicing rights, as
previously described in "Results of Operations--Non-Interest Income".
28
<PAGE> 30
RESIDENTIAL LOANS Profits from the Bank's residential loan portfolio
increased by $1.4 million or approximately 35% in 1999 and declined by $2.1
million or approximately 34% in 1998 compared to the previous year. In 1998, the
performance of this profit center was impacted by a substantial decrease in its
assets. As noted in the previous paragraph, interest rates in 1998 reached
historical lows. As a result, assets attributable to this profit center declined
as customer preferences shifted to fixed-rate loans, which were generally sold
in the secondary market. Also affecting the profit center's assets in 1998 was
the securitization of $222.3 million of the Corporation's adjustable-rate
residential mortgage loans into MBSs, which resulted in the transfer of these
assets to the investment and mortgage-related securities profit center. In 1999,
interest rates increased significantly, which reversed the trend established in
1998 resulting in a significant increase in the origination of adjustable-rate
loans, which were generally retained in portfolio. Also contributing to the
increase in the average assets of this profit center in 1999, was the purchase
of $97.2 million and $165.1 million in adjustable-rate loans in 1999 and 1998,
respectively.
Profits of the residential loan portfolio in 1999 also benefited from a
lower effective tax rate as compared to 1998. This development was caused by the
fact that a higher percentage of the portfolio's assets were held in the State
of Nevada, which does not currently impose a corporate income tax (refer to Part
I, Item 1, "Business--Taxation", for additional discussion). Assets in Nevada
increased as a result of the aforementioned purchases of adjustable-rate loans.
The favorable developments described in the previous paragraphs were
offset in part by a lower average yield on assets due to the origination and
purchase of adjustable-rate loans at yields below the existing portfolio yield,
as well as the delayed effects of the lower interest rate environment in 1998.
Offsetting these developments somewhat was a lower cost of funds in 1999, as
well as a lower net cost to acquire and maintain deposit liabilities, as
described more fully in a later paragraph. For more information relating to
yields and costs on assets and liabilities, refer to "Results of Operations--Net
Interest Income".
COMMERCIAL REAL ESTATE LENDING Profits from commercial real estate
lending increased by $1.3 million or approximately 37% in 1999 after declining
by $20,000 or less than 1% in 1998 compared to 1997. In 1999, commercial real
estate lending benefited from a $62.2 million or 20.0% increase in average
assets. In 1999, this profit center originated $112.2 million in loans compared
to $106.1 million in 1998 and $71.6 million in 1997. In 1998, the profit center
also benefited from an increase in average assets. However, operations in that
period were unfavorably impacted by $203,000 in loan charge-offs relating to the
foreclosure and sale of a large apartment complex, as well as a significant
increase in real estate operating expenses related to the same property.
The profitability of commercial real estate lending has also been
impacted by a decline in gross yield on its assets since 1997. This development
has been caused by a very competitive environment for commercial real estate
loans in recent years, as well a declining interest rate environment throughout
1997 and 1998, the effects of which have not yet been fully-offset by recent
increases in market interest rates. The decline in gross yield in 1999 was more
than offset by a decline in the profit center's cost of funds, as well as a
lower net cost to acquire and maintain deposit liabilities, as described more
fully in a later paragraph. For more information relating to yields and costs on
assets and liabilities, refer to "Results of Operations--Net Interest Income".
CONSUMER LENDING Profits from consumer lending increased by $702,000 or
approximately 26% in 1999 and increased by $193,000 or 7.6% in 1998 compared to
the previous year. Consumer lending benefited from a $33.9 million or 15.2%
increase in average assets in 1999 and a $26.2 million or 13.3% increase in
1998. In 1999, the profit center originated $189.3 million in loans compared to
$176.8 million and $151.7 million in 1998 and 1997, respectively.
Like the Bank's other profit centers, the profitability of consumer
lending has been impacted by a decline in gross yield on its assets since 1997.
In 1999, however, this decline was more than offset by a decline in the profit
center's cost of funds, as well as a lower net cost to acquire and maintain
deposit liabilities, as described more fully in a later paragraph. For more
information relating to yields and costs on assets and liabilities, refer to
"Results of Operations--Net Interest Income".
EDUCATION LENDING Profits from education lending increased by $781,000
or almost 40% in 1999 and increased by $431,000 or approximately 28% in 1998
compared to the previous year. The improvement in both
29
<PAGE> 31
periods was primarily volume related as the profit center's average assets
increased by $16.6 million or 9.4% and $26.0 million or 17.1% in each year,
respectively. In 1999, education loans benefited from a decline in its cost of
funds to a greater extent than the Bank's other profit centers. This occurred
because education loans are primarily funded by the Bank's money market deposit
accounts, the cost of which declined to a greater degree than the Bank's other
deposit liabilities. Education loans also benefited in 1999 from a lower net
cost to acquire and maintain deposit liabilities, as described more fully in a
later paragraph.
The gross yield on education loans declined in 1999 as compared to 1998
because the index upon which the yield for these loans is determined, the
three-month U.S. Treasury bill, was lower on average in 1999 than it was in
1998. For more information relating to yields and costs on assets and
liabilities, refer to "Results of Operations--Net Interest Income".
INVESTMENT AND MORTGAGE-RELATED SECURITIES Profits from securities
increased by $1.7 million or over 70% in 1999 and increased by $1.3 million or
over 130% in 1998 compared to the previous year. The improvement in both periods
was principally volume related as the profit center's average assets increased
by $45.6 million or 12.2% and $91.7 million or approximately 32% in each year,
respectively. In 1999, the profit center purchased $206.3 million in securities,
although overnight investments declined by $78.8 million. In 1998, the profit
center purchased only $20.4 million in securities, but experienced an $89.4
million increase in overnight investments (fluctuations in overnight investments
in 1999 and 1998 are discussed in "Financial Condition", above). In 1998, the
profit center also benefited from the securitization of $222.3 million of the
Corporation's adjustable-rate residential mortgage loans into MBSs, as
previously described. Also contributing to the improvement in the securities
portfolio's performance in 1999 was a decline in its cost of funds and a lower
net cost to acquire and maintain deposit liabilities, as described more fully in
a later paragraph. For more information relating to yields and costs on assets
and liabilities, refer to "Results of Operations--Net Interest Income".
Most of the assets of the investment and mortgage-related securities
portfolio are located in Nevada. As such, this profit center experiences a
substantial tax advantage because Nevada does not currently impose a corporate
tax (refer to Part I, Item 1, "Business--Taxation", for additional discussion).
However, most of the liabilities that fund this profit center's operations are
maintained in Wisconsin, which preserves the tax-deductibility of the interest
expense in that state. This situation results in a very low effective tax rate,
or at times a negative effective tax rate, for this profit center.
OTHER SEGMENTS Other segments consist principally of FEI and Turtle
Creek, wholly-owned subsidiaries of the Bank, and the Bank's parent company. The
profit (loss) from other segments was $(276,000), $324,000, and $(453,000) in
1999, 1998, and 1997, respectively. The results for 1998 included a $965,000
pre-tax gain that was recorded on the books of FEI (refer to Part I, Item 1,
"Business--Subsidiaries").
NON-GAAP ADJUSTMENTS The Bank disregards amortization of goodwill and
certain other intangible assets in its profitability model. In 1999,
amortization of intangibles was $1.0 million compared to $582,000 in 1998 and
$496,000 in 1997. This fact explains a portion of the change in non-GAAP
adjustments in 1999 as compared to 1998 and 1997. Also contributing to the
larger amount of adjustments in 1999 was the fact that the mortgage-banking
profit center originated more loans for the Bank's residential lending profit
center than it did in 1998 and 1997, for reasons already described. In general,
this resulted in a larger internal adjustment to compensate the mortgage banking
profit center for efforts related to these originations (refer to the discussion
relating to loan origination fees and costs in Note 13 of the Corporation's
Audited Consolidated Financial Statements). Finally, in 1998 the Bank excluded a
$343,000 gain on the sale of FNMA stock from the results of the investment and
mortgage-related securities profit center. Management made this adjustment
because it did not feel such gain fairly reflected the performance of that
profit center.
NET COST TO ACQUIRE AND MAINTAIN DEPOSIT LIABILITIES In addition to the
after-tax performance of the aforementioned profit centers, management of the
Bank closely monitors the net cost to acquire and maintain deposit liabilities
(as defined in Note 13 of the Corporation's Audited Consolidated Financial). The
net cost to acquire and maintain deposit liabilities during the years ended
December 31, 1999, 1998, and 1997, was 1.13%, 1.32%, and 1.35% of average
deposit liabilities outstanding, respectively. The decline in net cost to
acquire and maintain deposit liabilities in the most recent year was principally
due to an increase in the per-item charge for overdrafts on checking accounts
that was instituted in the second quarter of 1999, as previously described.
30
<PAGE> 32
The Bank's profit centers are allocated a share of the net cost to
acquire and maintain deposit liabilities according to their proportionate use of
such deposits as a funding source. As such, the decline in the net cost to
acquire and maintain deposit liabilities in 1999 benefited all of the Bank's
profit centers.
YEAR 2000
In prior years, the Corporation discussed the nature and progress of
its plans to prepare itself for the year 2000. As a result of its planning and
implementation efforts, the Corporation experienced no disruptions in its
critical computer and software applications and believes those systems responded
successfully to the date change. The Corporation will continue to monitor its
computer and software applications throughout the year 2000 to ensure that any
latent matters related to the date change are addressed promptly. Although
management does not believe any matters that may arise will pose significant
operational problems to the Corporation, there can be no assurances. The
Corporation estimates that it expensed less than $400,000 in 1999 relating to
its preparations for the year 2000.
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Corporation manages the exposure of its operations to changes in
interest rates ("interest rate risk" or "market risk") by monitoring its ratios
of interest-earning assets to interest-bearing liabilities within one- and
three-year maturities and/or repricing dates (i.e., its one- and three-year
"gaps"). Management has sought to control the Corporation's one- and three-year
gaps, thereby limiting the affects of changes in interest rates on its future
earnings, by selling substantially all of its long-term, fixed-rate,
single-family mortgage loan production, investing in adjustable-rate
single-family mortgage loans, investing in consumer and education loans, which
generally have shorter terms to maturity and/or floating rates of interest, and
investing in commercial real estate loans, which also tend to have shorter terms
to maturity and/or floating rates of interest. The Corporation also invests from
time-to-time in short- and medium-term fixed-rate CMOs and MBSs. As a result of
this strategy, the Corporation's exposure to interest rate risk is significantly
impacted by its funding of the aforementioned asset groups with deposit
liabilities and FHLB advances that tend to have average terms to maturity of
less than one year or carry floating rates of interest.
In general, it is management's goal to maintain the Corporation's
one-year gap in a range between 0% and -30% and its three-year gap in a range
between 0% and -10%. Management believes this strategy takes advantage of the
fact that market yield curves tend to be upward sloping, which increases the
spread between the Corporation's earning assets and interest-bearing
liabilities. Furthermore, management of the Corporation does not believe that
this strategy exposes the Corporation to unacceptable levels of interest rate
risk as evidenced by the fact that the Corporation's three-year gap is generally
maintained in a narrow band around zero, which implies that the Corporation is
exposed to little interest rate risk over a three-year horizon. In addition, it
should be noted that for purposes of its gap analysis, the Corporation
classifies its interest-bearing checking, savings, and money market deposits in
the shortest category, due to their potential to reprice. However, it is the
Corporation's experience that these deposits do not reprice as quickly or to the
same extent as other financial instruments, especially in a rising rate
environment.
31
<PAGE> 33
The following table summarizes the Corporation's gap as of December 31,
1999.
<TABLE>
<CAPTION>
MORE THAN MORE THAN MORE THAN
6 MONTHS 6 MONTHS 1 YEAR TO 3 YEARS TO OVER
Dollars in thousands OR LESS TO 1 YEAR 3 YEARS 5 YEARS 5 YEARS TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans:
Fixed $69,323 $45,218 $34,122 $21,156 $23,148 $192,967
Adjustable 174,627 178,456 379,331 138,376 31,087 901,877
Consumer and education loans 281,395 51,160 98,671 19,309 4,911 455,446
Mortgage-backed and related securities 69,356 67,216 121,450 44,989 55,952 358,963
Investment securities and other 17,890 $0 $100 $300 22,911 41,201
earning assets
- --------------------------------------------------------------------------------------------------------------------
Total $612,591 $342,050 $633,674 $224,130 $138,009 $1,950,454
- --------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits liabilities:
Regular savings and checking accounts $177,421 - - - - $177,421
Money market deposit accounts 173,597 - - - - 173,597
Variable-rate IRA accounts 3,610 - - - - 3,610
Time deposits 409,850 $299,495 $266,123 $4,443 $20 979,931
FHLB advances and other borrowings 246,726 100,154 81,676 41,019 5 469,580
- --------------------------------------------------------------------------------------------------------------------
Total $1,011,204 $399,649 $347,799 $45,462 $25 $1,804,139
- --------------------------------------------------------------------------------------------------------------------
Excess (deficiency) of earning assets
over interest-bearing liabilities ($398,613) ($57,599) $285,875 $178,668 $137,984
- --------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) of
earning assets over interest-bearing
liabilities ($398,613) ($456,212) ($170,337) $8,331 $146,315
- --------------------------------------------------------------------------------------------------------------------
Cumulative excess (deficiency) of earning
assets over interest-bearing liabilities
as a percent of total assets -19.12% -21.89% -8.17% 0.40% 7.02%
- --------------------------------------------------------------------------------------------------------------------
Cumulative earning assets as a
percentage of
interest-bearing liabilities 60.58% 67.66% 90.31% 100.46% 108.11%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: If redeemable FHLB advances, interest-bearing checking, and regular
savings deposits were deemed to reprice after one year, the Corporation's
one-year gap would have been -8.58% as of December 31, 1999, which compares to
2.86% and -4.77% as of December 31,
1998 and 1997, respectively.
The Corporation's one-year gap was -21.89% at December 31, 1999,
compared to -11.77% and -14.00% at December 31, 1998 and 1997, respectively. The
Corporation's one-year negative gap widened in 1999 principally because of the
Corporation's strategy of funding originations and purchases of adjustable-rate
loans with terms to initial reprice of greater than one year with liabilities
that had terms to maturity or redemption of less than one year. Also
contributing was the Corporation's purchase in 1999 of medium-term CMOs, also
with the funding sources that generally had terms to maturity or redemption of
less than one year. Refer to "Financial Condition--Loans Held for Investment"
and "Financial Condition--Mortgage-Backed and Related Securities" for additional
discussion.
Certain shortcomings are inherent in using gap to quantify exposure to
interest rate risk. For example, although certain assets and liabilities may
have similar maturities or repricings in the table, they may react differently
to actual changes in market interest rates. 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. This is especially true in circumstances where management has a certain
amount of control over interest rates, as it does in the case of deposit
liabilities. Additionally, certain assets such as adjustable-rate mortgage loans
have features that restrict changes in interest rates on a short-term basis and
over the life of the asset. Furthermore, the proportion of adjustable-rate loans
in the Corporation's portfolio may change as interest rates change. For example,
if current market interest rates remain at or above current levels the
proportion of adjustable-rates loans in the Corporation's portfolio may increase
for reasons described elsewhere in this report. Finally, as interest rates
change, the rates at which loans actually prepay will differ from those rates
assumed by management in the table.
Although management believes that its asset/liability management
strategies reduce the potential effects of changes in interest rates on the
Corporation's operations, material and prolonged increases in interest rates may
adversely affect the Corporation's operations because the Corporation's
interest-bearing liabilities which mature or reprice within one year are greater
than the Corporation's interest-earning assets which mature or reprice within
the
32
<PAGE> 34
same period. Alternatively, material and prolonged decreases in interest
rates may benefit the Corporation's operations.
The Corporation does not use derivative financial instruments such as
futures, swaps, caps, floors, options, interest- or principal-only strips, or
similar financial instruments to manage its interest rate risk. However, the
Corporation does use forward sales of mortgage-backed securities to manage
exposure to market risk in its "pipeline" of single-family residential loans
intended for sale. This pipeline consists of mortgage loans that are held for
sale as of the balance sheet date as well as commitments to originate mortgage
loans that are intended for sale, but are not closed as of the balance sheet
date. Loans held for sale are generally matched against forward sales that
require delivery within 30 to 60 days of the balance sheet date. The
Corporation's policy is to cover its commitments to originate loans intended for
sale with forward sales that have a value of 40% to 130% of the value of such
commitments, depending on management's expectations for near-term changes in
interest rates and anticipated cancellations by borrowers. These forward sales
generally require delivery within 60 to 90 days. Given these policies, as well
as the short-term nature of the Corporation's pipeline and its related forward
sales, management believes these financial instruments pose little market risk
to the Corporation.
The Bank is required by the OTS to estimate the sensitivity of its net
portfolio value of equity ("NPV") to immediate and sustained changes in interest
rates and to measure such sensitivity on at least a quarterly basis. NPV is
defined as the estimated net present value of an institution's existing assets,
liabilities, and off-balance sheet instruments at a given level of market
interest rates. Computation of the estimated net present value of assets,
liabilities, and off-balance sheet instruments requires management to make
numerous assumptions with respect to such items. These assumptions include, but
are not limited to, appropriate discount rates, loan prepayment rates, deposit
decay rates, etc., for each interest rate scenario. In general, the Bank has
used substantially the same assumptions for computing the net present value of
financial assets and liabilities in the base scenario as it uses in preparing
the fair value disclosures required under GAAP (refer to Notes 1 and 12 of the
Corporation's Audited Consolidated Financial Statements, included herein under
Part II, Item 8, "Financial Statements and Supplementary Data"). Computations of
net present values for other interest rate scenarios follow the same basic
approach except that discount rates, loan prepayment rates, and other
assumptions are adjusted accordingly. The net present values of non-financial
assets and liabilities are generally estimated to be equal to their carrying
values under all interest rate scenarios as permitted by OTS regulations. With
respect to off-balance sheet items, the Bank generally relies on estimates of
value provided by the OTS. The same is true for certain other financial assets
such as mortgage servicing rights and deposit-based intangibles.
The following table summarizes as of December 31, 1999 and 1998, the
sensitivity of the Bank's NPV and net interest income to immediate and sustained
changes in interest rates, as shown (parallel shifts in the term structure of
interest rates are assumed as permitted by OTS regulations; dollars are
presented in millions).
<TABLE>
<CAPTION>
Estimated NPV
-------------
Change in Interest Rates 12/31/99 12/31/98
------------------------ -------- --------
<S> <C> <C>
200 basis point increase $117.7 $136.4
Base scenario 144.1 139.5
200 basis point decline 150.3 154.2
</TABLE>
Certain shortcomings are inherent in using NPV to quantify exposure to
market risk. For example, actual and future values of assets, liabilities, and
off-balance sheet items will differ from those determined by the model for a
variety of reasons to include, but not limited to, differences in actual market
discount rates, differences in actual loan prepayment activity, and differences
in deposit customers' responses to changes in interest rates and the resulting
impact on the Bank's offering rates. Furthermore, the analysis does not
contemplate future shifts in asset or liability mix or any actions management
may take in response to changes in interest rates. As a result of these
shortcomings, it is unlikely that actual or future values of the Bank's assets,
liabilities, and off-balance sheet items are or will be equal to those presented
in the NPV analysis.
33
<PAGE> 35
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $65,566,021 $43,642,705
Interest-bearing deposits with banks 17,790,262 96,549,775
Investment securities available for sale, at fair value 872,844 -
Mortgage-backed and related securities:
Available for sale, at fair value 252,165,351 204,108,879
Held for investment, at cost (fair value of $101,068,308 and $102,908,423 103,932,229 102,500,238
respectively)
Loans held for sale 6,345,624 72,002,437
Loans held for investment, net 1,538,594,590 1,177,525,727
Federal Home Loan Bank stock 22,511,300 12,485,500
Accrued interest receivable, net 15,420,837 13,888,538
Office properties and equipment 24,620,596 25,082,582
Mortgage servicing rights, net 21,727,981 21,103,459
Intangible assets 12,463,373 13,485,366
Other assets 2,543,147 4,128,510
- --------------------------------------------------------------------------------------------------------------------
Total assets $2,084,554,155 $1,786,503,716
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------
Deposit liabilities $1,471,259,473 $1,460,135,660
Federal Home Loan Bank advances and other borrowings 469,579,701 189,777,984
Advance payments by borrowers for taxes and insurance 5,407,816 1,762,190
Accrued interest payable 2,516,280 1,947,823
Other liabilities 8,515,659 10,195,412
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 1,957,278,929 1,663,819,069
- --------------------------------------------------------------------------------------------------------------------
Preferred stock, $.10 par value, 5,000,000 shares authorized, none outstanding - -
Common stock, $.10 par value, 100,000,000 shares authorized, 19,941,630 shares
issued and outstanding, including 1,538,235 and 1,580,795 shares of treasury
stock, respectively 1,994,163 1,994,163
Additional paid-in capital 34,540,064 34,540,064
Retained earnings 106,929,097 97,291,806
Treasury stock, at cost (14,388,670) (12,722,834)
Unearned restricted stock (591,183) (1,256,266)
Non-owner adjustments to equity, net (1,208,245) 2,837,714
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 127,275,226 122,684,647
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,084,554,155 $1,786,503,716
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to accompanying Notes to Audited Consolidated Financial Statements.
34
<PAGE> 36
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on loans $103,880,028 $95,469,420 $97,941,595
Interest on mortgage-backed and related securities 23,728,297 18,542,233 12,125,868
Interest and dividends on investments 2,462,273 4,656,215 4,908,793
- -------------------------------------------------------------------------------------------------------------------
Total interest income 130,070,598 118,667,868 114,976,256
- -------------------------------------------------------------------------------------------------------------------
Interest on deposit liabilities 60,547,033 59,421,641 51,149,724
Interest on FHLB advances and other borrowings 15,406,359 12,035,553 19,115,333
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 75,953,392 71,457,194 70,265,057
- -------------------------------------------------------------------------------------------------------------------
Net interest income 54,117,206 47,210,674 44,711,199
Provision for loan losses 387,021 293,112 538,957
- -------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 53,730,185 46,917,562 44,172,242
- -------------------------------------------------------------------------------------------------------------------
Retail banking fees and service charges 20,229,612 15,025,325 12,583,927
Loan servicing fees, net 2,758,148 (6,673,635) 2,367,828
Premiums and commissions on annuity and insurance sales 2,612,694 1,780,045 1,810,667
Gain on sales of loans 7,225,815 16,928,546 6,373,747
Gain (loss) on sales of investment securities - 342,803 (725,142)
Other income 2,351,585 3,956,985 1,882,658
- -------------------------------------------------------------------------------------------------------------------
Total non-interest income 35,177,854 31,360,070 24,293,685
- -------------------------------------------------------------------------------------------------------------------
Compensation and employee benefits 31,512,342 26,659,541 21,827,232
Occupancy and equipment 7,381,256 6,949,198 6,675,597
Communications, postage, and office supplies 4,019,411 3,675,696 3,145,803
ATM and debit card transaction costs 2,694,203 2,335,872 2,022,031
Advertising and marketing 2,275,502 2,157,076 2,173,031
Amortization of intangible assets 1,031,774 582,159 496,180
Other expenses 5,384,961 5,236,981 3,857,178
- -------------------------------------------------------------------------------------------------------------------
Total non-interest expense 54,299,449 47,596,523 40,197,052
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 34,608,590 30,681,109 28,268,875
Income tax expense 12,167,380 11,256,975 10,878,512
- -------------------------------------------------------------------------------------------------------------------
Net income $22,441,210 $19,424,134 $17,390,363
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
PER SHARE INFORMATION 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Diluted earnings per share $1.17 $0.98 $0.88
Basic earnings per share 1.21 1.05 0.95
Dividends paid per share 0.340 0.270 0.233
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to accompanying Notes to Audited Consolidated Financial Statements.
35
<PAGE> 37
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $22,441,210 $19,424,134 $17,390,363
Adjustments to reconcile net income to net cash provided
(used) by operations:
Provision for loan and real estate losses, net 305,852 548,573 458,070
Net loan costs deferred (586,949) (1,162,077) (835,277)
Amortization (including mortgage servicing rights) 7,137,777 14,414,636 3,830,530
Depreciation 2,521,592 2,472,324 2,533,147
Gains on sales of loans and other investments (7,225,815) (17,271,349) (5,648,605)
Increase in accrued interest receivable (1,532,299) (2,340,781) (60,330)
Increase (decrease) in accrued interest payable 568,457 (82,330) (402,643)
Increase in current and deferred income taxes 5,678,518 2,093,042 1,554,525
Other accruals and prepaids, net 356,321 (407,797) (517,954)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operations before loan
originations and sales 29,664,664 17,688,375 18,301,826
Loans originated for sale (305,345,488) (818,292,296) (258,817,745)
Sales of loans originated for sale 327,641,353 791,718,170 252,349,050
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operations 51,960,529 (8,885,751) 11,833,131
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease (increase) in interest-bearing deposits with banks 78,759,513 (89,436,019) (4,656,855)
Purchases of investment securities (941,254) - -
Sales of investment securities - 351,483 31,710,769
Maturities of investment securities - 21,318,517 20,785,762
Purchases of mortgage-backed and related securities
available for sale (144,155,260) - -
Purchases of mortgage-backed and related securities held
for investment (51,163,258) (20,355,825) -
Principal repayments on mortgage-related securities
available for sale 90,384,796 69,972,407 15,934,333
Principal repayments on mortgage-related securities held
for investment 49,632,447 42,177,481 23,369,489
Loans originated for investment (617,103,300) (535,305,071) (492,325,180)
Loans purchased for investment (98,035,581) (165,517,368) (6,372,996)
Loan principal repayments 371,997,482 389,935,430 317,290,692
Sales of loans originated for investment 25,867,310 101,632,748 75,122,123
Sales of real estate 1,710,646 5,593,229 1,380,170
Purchases of office properties and equipment (2,173,855) (3,671,180) (2,595,908)
Purchases of mortgage servicing rights - (454,774) (1,374,069)
Other, net (9,589,230) (6,982,877) 6,423,910
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (304,809,544) (190,741,819) (15,307,760)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposit liabilities 11,123,813 236,668,976 122,441,009
Deposits purchased - 76,932,788 -
Long-term advances from Federal Home Loan Bank 142,000,000 150,660,000 25,000,000
Repayment of long-term Federal Home Loan Bank advances (82,715,000) (18,305,000) (165,507,000)
Net increase (decrease) in short-term Federal Home Loan 198,273,000 (208,300,000) 29,698,000
Bank borrowings
Increase (decrease) in other borrowings 22,243,717 (10,055,786) 2,994,787
Increase (decrease) in advance payments by borrowers for
taxes and insurance 3,645,626 (2,110,574) (39,442)
Proceeds from sale of common stock 3,297,402 328,958 484,179
Purchase of treasury stock (15,930,336) (7,356,875) (2,868,938)
Dividends paid (6,287,822) (5,001,135) (4,283,617)
Other, net (878,069) (130,561) 850,881
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 274,772,331 213,330,791 8,769,859
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and due from banks 21,923,316 13,703,221 5,295,230
Cash and due from banks at beginning of period 43,642,705 29,939,484 24,644,254
- -------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $65,566,021 $43,642,705 $29,939,484
- -------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest and dividends received on loans and investments $128,538,299 $116,327,087 $114,915,926
Interest paid on deposits and borrowings 75,384,935 71,539,524 70,667,700
Income taxes paid 6,685,320 10,010,000 9,689,000
Income taxes refunded 196,429 1,273,063 339,171
Transfer of loans from held for sale to held for investment 43,553,563 - -
Mortgage-backed securities swaps - 222,259,814 -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to accompanying Notes to Audited Consolidated Financial Statements.
36
<PAGE> 38
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
COMMON
STOCK AND
ADDITIONAL UNEARNED NON-OWNER
PAID-IN RETAINED TREASURY RESTRICTED ADJUSTMENTS
CAPITAL EARNINGS STOCK STOCK TO EQUITY TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $36,244,046 $72,569,092 ($10,533,625) ($414,392) ($2,450,763) $95,414,358
--------------
Net income 17,390,363 17,390,363
Securities valuation
adjustment, net of
income taxes 1,354,595 1,354,595
Reclassification adjustment
for loss on securities
included in income, net of
income taxes 431,169 431,169
--------------
Net income and non-owner
adjustments to equity 19,176,127
--------------
Exercise of stock options 290,181 (1,127,547) 2,557,395 1,720,029
Dividends paid (4,283,617) (4,283,617)
Purchase of treasury stock (2,868,938) (2,868,938)
Amortization of restricted 203,386 203,386
stock
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 36,534,227 84,548,291 (10,845,168) (211,006) (664,998) 109,361,346
--------------
Net income 19,424,134 19,424,134
Securities valuation
adjustment, net of
income taxes 3,706,543 3,706,543
Reclassification adjustment
for gain on securities
included in income, net of
income taxes (203,831) (203,831)
--------------
Net income and non-owner
adjustments to equity 22,926,846
--------------
Exercise of stock options (2,443,580) 4,509,897 2,066,317
Restricted stock award 764,096 969,312 (1,733,408)
-
Dividends paid (5,001,135) (5,001,135)
Purchase of treasury stock (7,356,875) (7,356,875)
Amortization of restricted 688,148 688,148
stock
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 36,534,227 97,291,806 (12,722,834) (1,256,266) 2,837,714 122,684,647
Net income 22,441,210 22,441,210
Securities valuation
adjustment, net of
income taxes (4,045,959) (4,045,959)
--------------
Net income and non-owner
adjustments to equity 18,395,251
--------------
Exercise of stock options (6,516,097) 14,264,500 7,748,403
Dividends paid (6,287,822) (6,287,822)
Purchase of treasury stock (15,930,336) (15,930,336)
Amortization of restricted 665,083 665,083
stock
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $36,534,227 $106,929,097 ($14,388,670) ($591,183) ($1,208,245) $127,275,226
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to accompanying Notes to Audited Consolidated Financial Statements.
37
<PAGE> 39
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS The Corporation provides a wide range of financial services to
individuals and businesses in Wisconsin and the northern portion of Illinois
through its wholly-owned subsidiary bank. The Corporation is subject to
competition from other financial institutions and markets. The Corporation, the
Bank, and the Bank's subsidiaries are also subject to the regulations of certain
governmental agencies and undergo periodic examinations by those regulatory
authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION The accounting and reporting
policies of the Corporation, the Bank, and the Bank's subsidiaries conform to
GAAP and to general practices within the financial services industry. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts and balances of the Corporation, the Bank, and the Bank's
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
INVESTMENT SECURITIES, INCLUDING MORTGAGE-BACKED AND RELATED
SECURITIES, AND STOCK HELD FOR REGULATORY PURPOSES Investment securities,
including mortgage-backed and related securities, are classified in one of two
categories and accounted for as follows: (1) securities that the Corporation has
the positive intent and ability to hold to maturity are classified as "held for
investment" and reported at amortized cost; (2) securities not classified as
"held for investment" are classified as "available for sale" and reported at
fair value, with unrealized gains and losses excluded from earnings and reported
as non-owner adjustments to equity, net of estimated income taxes. Management
determines the appropriate classification for its securities at the time of
purchase. The specific identification method is used to determine the cost of
securities sold. The Corporation does not maintain a trading account for
investment securities or mortgage-backed and related securities.
The Corporation occasionally enters into purchases of securities and/or
whole-loans under agreements to resell ("repurchase agreements"). The amounts
advanced under these agreements represent short-term loans and are reflected as
a receivable in the Corporation's Consolidated Statement of Financial Condition.
Stock of the FHLB is owned due to regulatory requirements and is
carried at cost.
INTEREST ON LOANS Interest income is accrued on loan balances
outstanding. Accrued interest on impaired loans is reversed when management
determines that the collection of interest or principal is considered unlikely.
In general, this occurs when a loan is 90 days past due. Interest income is
subsequently recognized only to the extent cash payments are received. Loans are
restored to accrual status when the obligation is brought current and the
ultimate collectibility of the total contractual principal and interest is no
longer in doubt.
DISCOUNTS, PREMIUMS, AND DEFERRED LOAN FEES AND COSTS Discounts and
premiums on loans are amortized over the life of the related loans using a
method that approximates the level-yield method. Loan origination fees and
certain direct loan origination costs are deferred and amortized over the life
of the related loans as an adjustment of yield. Such fees and costs are
amortized using a method that approximates the level-yield method.
LOANS HELD FOR SALE Loans originated and held for sale are carried at
the lower of aggregate cost or market. Net unrealized losses are recognized
through a valuation allowance and a charge to income.
MORTGAGE SERVICING RIGHTS Servicing mortgage loans includes such
functions as collecting monthly payments of principal and interest from
borrowers, passing such payments through to third-party investors, maintaining
escrow accounts for taxes and insurance, and making such payments when they are
due. When necessary, servicing mortgage loans also includes functions related to
the collection of delinquent principal and interest payments, loan foreclosure
proceedings, and disposition of foreclosed real estate. The Corporation
generally
38
<PAGE> 40
earns a fee of 25 basis points or more on the outstanding loan balance for
performing these services as well as fees and interest income from ancillary
sources such as delinquency charges and float.
The Corporation records originated mortgage servicing rights ("OMSR")
as a component of gain on sale of mortgage loans when the obligation to service
such loans has been retained by the Corporation. The value recorded for OMSR is
based on the relative values of the servicing rights and the underlying loans
without the servicing rights. This value approximates the present value of the
servicing fee (typically 25 basis points or more) adjusted for expected future
costs to service the loans, as well as income and fees expected to be received
from ancillary sources, as previously described. The carrying value of OMSR is
amortized against service fee income over the estimated lives of the loans using
the income-forecast method. The Corporation also purchases mortgage servicing
rights ("PMSR") from third-parties. PMSR is recorded at cost and is also
amortized over the estimated lives of the loans using the income-forecast
method.
The value of OMSR and PMSR (collectively "mortgage servicing rights" or
"MSRs") is subject to impairment because of changes in loan prepayment
expectations and in market discount rates used to value the future cash flows
associated with such assets. If, based on periodic evaluations, the estimated
fair value of MSRs is determined to be less than carrying value, a valuation
adjustment is recorded against such assets and against the Corporation's loan
servicing fee income in the period of the prepayment. The valuation adjustment
is calculated using the current outstanding principal balance of the related
loans, a long-term prepayment assumption as determined by management, and a
discount rate as determined by management.
The Corporation purchases or originates MSRs on single-family
residential mortgage loans only. In valuing the MSRs recorded on such loans, the
Corporation stratifies the loans by type of loan (e.g., fixed-rate versus
adjustable-rate, non-government-guaranteed loans versus government-guaranteed
loans), year of original funding, contractual interest rate, and original term
to maturity.
REAL ESTATE Real estate acquired through foreclosure or deed in lieu of
foreclosure and real estate subject to redemption are recorded at the lower of
cost or estimated fair market value, less estimated costs to sell. Costs
relating to the development and improvement of the property are capitalized.
Income and expenses incurred in connection with holding and operating the
property are included in the Corporation's Consolidated Statements of
Operations.
ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is composed of
specific and general valuation allowances. The Corporation establishes specific
valuation allowances on loans it considers to be impaired. A loan is considered
impaired when the carrying amount of the loan exceeds the present value of the
expected future cash flows, discounted at the loan's original effective interest
rate, or the fair value of the underlying collateral. A specific valuation
allowance established for an amount equal to the impairment. General valuation
allowances are based on an evaluation of the various risk components that are
inherent in the credit portfolio. The risk components that are evaluated include
past loan loss experience; the level of non-performing and classified assets;
current economic conditions; volume, growth, and composition of the loan
portfolio; adverse situations that may affect borrowers' ability to repay; the
estimated value of any underlying collateral; peer group comparisons; regulatory
guidance; and other relevant factors.
The allowance is increased by provisions charged to earnings and
reduced by charge-offs, net of recoveries. Management may transfer amounts
between specific and general valuation allowances as considered necessary. The
Corporation's Board of Directors reviews the adequacy of the allowance for loan
losses on a quarterly basis. The allowance reflects management's best estimate
of the amount necessary to provide for the impairment of loans, as well as other
credit risks of the Corporation. The allowance is based on a risk model
developed and implemented by management and approved by the Corporation's Board
of Directors.
OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment are
recorded at cost less accumulated depreciation which is provided over the
estimated useful lives (five to forty years) of the respective assets on a
straight-line basis. The cost of leasehold improvements is being amortized on
the straight-line basis over the lesser of the term of the respective lease or
the estimated economic life. When properties are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
respective accounts and the resulting gain or loss is recorded in income.
39
<PAGE> 41
INTANGIBLE ASSETS From time-to-time the Corporation has acquired all or
a portion of the assets and liabilities of other financial institutions and has
paid or received amounts for such assets and liabilities that are not equal to
their identifiable fair value. A portion of the resulting difference is
amortized to earnings over the estimated remaining lives of the deposit
liabilities acquired in these transactions. The remaining amount (goodwill) is
amortized over 20 years. The carrying amount of goodwill is reviewed when facts
and circumstances indicate that it may be impaired. If such review indicates
that goodwill is impaired, the carrying amount of goodwill is reduced by the
estimated amount of the impairment.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE The Corporation
occasionally enters into sales of securities under agreements to repurchase
("reverse-repurchase agreements"). Reverse-repurchase agreements are treated as
financing, and the obligations to repurchase securities sold are reflected as a
liability in the Corporation's Consolidated Statement of Financial Condition.
The securities underlying the agreements remain in the asset accounts.
RECOURSE LIABILITY The Corporation records a recourse liability to
cover potential losses on certain loans sold to third parties and certain loans
that have been securitized into MBSs. Because the loans involved in these
transactions are similar to those in the Corporation's loans held for
investment, the review of the adequacy of the recourse liability is similar to
the review of the adequacy of the allowance for loan losses, as previously
described.
INCOME TAXES The Corporation, the Bank, and all but one of the Bank's
subsidiaries file a consolidated federal income tax return and separate or
consolidated state income tax returns, depending on the state. Income taxes are
accounted for using the "asset and liability" method. Under this method, a
deferred tax asset or liability is determined based on the enacted tax rates
that will be in effect when the differences between the financial statement
carrying amounts and tax bases of existing assets and liabilities are expected
to be reported in the Corporation's income tax returns. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date of the change. A valuation allowance is provided for
any deferred tax asset for which it is more likely than not that the asset will
not be realized. Changes in valuation allowances are recorded as a component of
income.
PENSION COSTS AND OTHER POSTRETIREMENT BENEFITS The Corporation's net
periodic pension cost consists of the expected cost of benefits earned by
employees during the current period and an interest cost on the projected
benefit obligation, reduced by the earnings on assets held by the retirement
plan, by amortization of transitional assets over a period of 15 years
(beginning in 1987), and by amortization of any actuarial gains and losses over
the estimated future service period of existing plan participants. The projected
unit credit actuarial cost method is used to determine expected pension costs.
The Corporation's funding policy is to contribute amounts deductible for federal
income tax purposes.
The Corporation's cost of postretirement benefits, which consists of
medical reimbursements for retirees, is recognized during the years that the
employees render the necessary service, adjusted for interest costs on the
projected benefit obligation and for the amortization of a transitional
obligation over 20 years (beginning in 1993). The projected unit credit
actuarial cost method is used to determine expected postretirement benefit
costs. The Corporation's postretirement benefit plan is not currently funded.
FAIR VALUES OF FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS The following methods and assumptions were used by the Corporation
in estimating fair value disclosures for financial instruments (refer to Note 12
for actual fair value amounts):
CASH AND DUE FROM BANKS AND INTEREST-BEARING DEPOSITS WITH
BANKS The face amounts presented in the Corporation's Consolidated Statements of
Financial Condition for cash and interest-bearing deposits approximates fair
value for such assets.
INVESTMENT SECURITIES AND MORTGAGE-BACKED AND RELATED
SECURITIES Fair values for this group of financial instruments are based on
average quoted market prices obtained from one or more independent pricing
sources. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
40
<PAGE> 42
LOANS HELD FOR SALE The fair value of loans held for sale is
estimated by matching such loans against outstanding commitments to sell such
loans. The method used for unmatched commitments is discussed under "Off-Balance
Sheet Financial Instruments", below.
LOANS HELD FOR INVESTMENT The estimated fair value of loans
held for investment is determined using discounted cash flow techniques.
Scheduled principal and interest payments are adjusted for estimated future
prepayments as provided by third-party market sources or as estimated by
management using historical prepayment experience. Discount rates used in the
fair value computations are generally based on interest rates offered by the
Corporation on similar loans as of December 31, 1999 and 1998, adjusted for
management's estimate of differences in liquidity, credit risk, remaining term
to maturity, etc.
FEDERAL HOME LOAN BANK STOCK FHLB stock held in excess of
minimum requirements can be returned to the FHLB for face value. Accordingly,
the fair value of all FHLB stock is estimated to be equal to the face amount
presented in the Corporation's Consolidated Statements of Financial Condition.
DEPOSIT LIABILITIES The fair values of demand deposit accounts
(i.e., interest-bearing and non-interest-bearing checking accounts and money
market and regular savings accounts) are equal to the face amount presented in
Note 6. The fair value of fixed-rate time deposits is estimated using a
discounted cash flow calculation that applies interest rates offered by the
Corporation as of the measurement date to a schedule of aggregate contractual
maturities of such deposits as of the same dates.
FEDERAL HOME LOAN BANK ADVANCES The fair value of FHLB
advances is estimated using a discounted cash flow calculation that applies
interest rates quoted by the FHLB as of the measurement date to a schedule of
aggregate contractual maturities of such liabilities as of the same date. The
fair value of FHLB advances excludes the effect of any prepayment penalties that
may be incurred if the Corporation were to prepay any of its term advances.
OTHER BORROWINGS Other borrowings consist of short-term
borrowings from third-party financial institutions and borrowings under
long-term contracts. Other borrowings are not material to the Corporation either
individually or in the aggregate. As such, the Corporation has estimated the
fair value of such borrowings to approximate carrying value.
ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE The fair
value of advance payments by borrowers for taxes and insurance is equal to the
face amount presented in the Corporation's Consolidated Statement of Financial
Condition.
ACCRUED INTEREST RECEIVABLE AND PAYABLE The fair value of
accrued interest is equal to the face amount presented in the Corporation's
Consolidated Statement of Financial Condition.
MORTGAGE SERVICING RIGHTS The fair value of MSRs is estimated
using a discounted cash flow calculation that applies discount rates considered
reasonable by management to a schedule of both contractual and estimated cash
flows. Such cash flows are adjusted for loan prepayment rates deemed appropriate
by management.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS. The Corporation has
become a party to financial instruments with off-balance-sheet risk in the
normal course of its business in order to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby
letters of credit, lines of credit, commitments to sell loans, and financial
guarantees.
Off-balance-sheet financial instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the statement of financial condition. In the event of
non-performance by the other party to a financial instrument, the Corporation's
exposure to credit loss is represented by the contractual amount of the
instrument. The Corporation uses the same credit policies in granting
commitments, letters and lines of credit, and financial guarantees as it does
for on-balance-sheet financial instruments.
41
<PAGE> 43
The fair values of commitments to extend credit and unmatched
commitments to sell loans, both which are generally short-term in nature, are
estimated to be equal to their respective face values.
Home equity lines of credit carry floating market rates of
interest. Accordingly, the fair value of outstanding home equity lines of credit
is estimated to be equal to the face value of such commitments.
Other than credit enhancements on loans sold to the FHLB, the
Corporation does not issue material amounts of financial guarantees or stand-by
letters of credit. Management believes that the Corporation's exposure to loss
on such instruments is insignificant, including its credit enhancements with the
FHLB. Accordingly, management believes the fair value of such financial
instruments approximates zero.
STOCK SPLITS Earnings per share and dividends paid per share, as
presented in the Corporation's Consolidated Statements of Operations, have been
adjusted to recognize a two-for-one stock split on June 11, 1998, and a
three-for-two stock split on June 12, 1997. Common shares issued and
outstanding, as presented in the Corporation's Consolidated Statements of
Financial Condition, have also been adjusted for such stock splits.
STOCK-BASED COMPENSATION The Corporation records expense relative to
stock-based compensation using the "intrinsic value method". Since the intrinsic
value of the Corporation's stock options is generally "zero" at the time of the
award, no expense is recorded. With respect to restricted stock awards, the
intrinsic value is generally equal to the fair value of the Corporation's common
stock on the date of the initial contingent award, adjusted retroactively for
any changes in the value of the stock between the initial award date and the
final measurement date. Such value is amortized as expense over the three-year
measurement period of the award.
As permitted by GAAP, the Corporation has not adopt the "fair value
method" of expense recognition for stock-based compensation awards. Rather, the
effects of the fair value method on the Corporation's earnings have been
disclosed on a pro forma basis. Refer to Note 9 for the appropriate disclosures.
EARNINGS PER SHARE Basic and diluted earnings per share data are based
on the weighted-average number of common shares outstanding during each period.
Diluted earnings per share is further adjusted for potential common shares that
were dilutive and outstanding during the period. Potential common shares
generally consist of stock options outstanding under the incentive plans
described in Note 9. The dilutive effect of potential common shares is computed
using the treasury stock method. All stock options are assumed to be 100% vested
for purposes of the earnings per share computations. The computation of earnings
per share for the years ended December 31, 1999, 1998, and 1997, is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $22,441,220 $22,441,210 $19,424,134 $19,424,134 $17,390,363 $17,390,363
- ---------------------------------------------------------------------------------------------------------------------
Average common shares issued, net
of actual treasury shares 18,541,464 18,541,464 18,479,178 18,479,178 18,321,902 18,321,902
Potential common shares based on
the treasury stock method - 596,458 - 1,384,968 - 1,368,810
- ---------------------------------------------------------------------------------------------------------------------
Average common shares and
potential common shares 18,541,464 19,137,922 18,479,178 19,864,146 18,321,902 19,690,712
- ---------------------------------------------------------------------------------------------------------------------
Earnings per share $1.21 $1.17 $1.05 $0.98 $0.95 $0.88
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
PENDING ACCOUNTING CHANGE In 1998 the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and for Hedging Activities" ("SFAS 133").
This standard establishes new rules for the recognition and measurement of
derivatives and hedging activities and requires all derivatives to be recorded
on the balance sheet at fair value. However, SFAS 133 establishes special
accounting rules for certain derivatives that meet the definition of a hedge.
Changes in the fair value of derivatives that do not meet this definition are
required to be included in earnings in the period of the change. The new
standard is effective for years beginning after June 15, 2000, although earlier
adoption is permitted. The Corporation does not intend to adopt SFAS 133 until
January 1, 2001.
The Corporation does not use derivative financial instruments such as
futures, swaps, caps, floors, options, interest- or principle-only strips, or
similar financial instruments to manage its operations. However, the
42
<PAGE> 44
Corporation does use forward sales of mortgage-backed securities to manage
exposure to market risk in its "pipeline" of single-family residential loans
intended for sale. Forward sales are derivative securities and are subject to
the rules established by SFAS 133. The Corporation has not completed the complex
analysis necessary to determine the impact SFAS 133 will have on its statements
of financial condition or operations. However, such impact is not expected to be
material, although there can be no assurances.
CASH AND CASH EQUIVALENTS For purposes of the Corporation's
Consolidated Statements of Cash Flows, cash and cash equivalents consists solely
of cash on hand and non-interest-bearing deposits in banks ("cash and due from
banks"). The Bank is required to maintain a certain amount of cash on hand and
non-interest-bearing account balances at the Federal Reserve Bank of Minneapolis
to meet specific reserve requirements. These requirements approximated $19.8
million at December 31, 1999.
RECLASSIFICATION Certain 1998 and 1997 balances have been reclassified
to conform with the 1999 presentation.
NOTE 2--MORTGAGE-BACKED AND RELATED SECURITIES
Mortgage-backed and related securities at December 31, 1999 and 1998,
are summarized as follows:
<TABLE>
<CAPTION>
1999
- --------------------------------------------------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Collateralized mortgage obligations $148,311,198 $3,252 ($4,524,895) $143,789,555
Mortgage-backed securities 105,651,320 2,724,476 - 108,375,796
- --------------------------------------------------------------------------------------------------------------------
Total available for sale 253,962,518 2,727,728 (4,524,895) 252,165,351
- --------------------------------------------------------------------------------------------------------------------
Held for investment:
Collateralized mortgage obligations 100,522,117 - (2,789,059) 97,733,058
Mortgage-backed securities 3,410,112 11,934 (86,796) 3,335,250
- --------------------------------------------------------------------------------------------------------------------
Total held for investment 103,932,229 11,934 (2,875,855) 101,068,308
- --------------------------------------------------------------------------------------------------------------------
Total mortgage-backed and related securities $357,894,747 $2,739,662 ($7,400,750) $353,233,659
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998
- --------------------------------------------------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
Collateralized mortgage obligations $33,870,813 $9,230 ($93,319) $33,786,724
Mortgage-backed securities 165,872,355 4,568,826 (119,026) 170,322,155
- --------------------------------------------------------------------------------------------------------------------
Total available for sale 199,743,168 4,578,056 (212,345) 204,108,879
- --------------------------------------------------------------------------------------------------------------------
Held for investment:
Collateralized mortgage obligations 97,250,994 422,662 (65,366) 97,608,290
Mortgage-backed securities 5,249,244 59,792 (8,903) 5,300,133
- --------------------------------------------------------------------------------------------------------------------
Total held for investment 102,500,238 482,454 (74,269) 102,908,423
- --------------------------------------------------------------------------------------------------------------------
Total mortgage-backed and related securities $302,243,406 $5,060,510 ($286,614) $307,017,302
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Accrued interest receivable on mortgage-backed and related securities
was $2,639,477 and $2,719,588 at December 31, 1999 and 1998, respectively.
Mortgage-backed securities consist of FHLMC, FNMA, and GNMA securities.
The Corporation has retained the credit risk on $105.7 million in FHLMC MBSs as
of December 31, 1999.
Collateralized mortgage obligations consist of securities backed by the
aforementioned agency-backed securities or by whole-loans. As of December 31,
1999, approximately 72% of the Corporation's CMO portfolio consisted of
securities backed by whole loans--all of which were generally rated triple-A or
its equivalent by the major credit-rating agencies. Approximately 36% of the
Corporation's whole-loan CMOs consisted of loans on properties located in the
state of California. No other geographical location had a material
concentration.
43
<PAGE> 45
There were no realized gains or losses on sales of mortgage-backed and
related securities during 1999, 1998, or 1997.
NOTE 3--LOANS HELD FOR INVESTMENT
<TABLE>
<CAPTION>
Loans held for investment at December 31 are summarized as follows:
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage loans:
Single-family real estate $652,883,166 $426,602,634
Multi-family real estate 186,591,467 148,059,630
Non-residential real estate 168,453,435 141,046,301
Construction 80,562,997 63,035,445
Second mortgage and home equity loans 204,805,758 175,541,150
Education loans 190,170,252 182,379,556
Automobile and other consumer loans 61,194,825 46,564,021
Commercial business loans 295,756 371,336
- --------------------------------------------------------------------------------------------------------------------
Subtotal 1,544,957,656 1,183,600,073
Unearned discount, premiums, and net deferred loan fees and costs 1,260,460 1,549,180
Allowance for loan losses (7,623,526) (7,623,526)
- --------------------------------------------------------------------------------------------------------------------
Total $1,538,594,590 $1,177,525,727
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Accrued interest receivable on loans was $12,731,071 and $11,134,804 at
December 31, 1999 and 1998, respectively.
Loans serviced for investors were $1.9 billion, $1.9 billion, and $1.4
billion at December 31, 1999, 1998, and 1997, respectively. These loans are not
reflected in the Corporation's Consolidated Statements of Financial Condition.
At December 31, 1999, the Corporation had retained a small portion of the credit
risk related to $360.6 million in single-family residential loans sold to the
FHLB in exchange for a monthly credit enhancement fee.
At both December 31, 1999 and 1998, loans on non-accrual status were
$1.1 million. The Corporation has no loans contractually past due ninety or more
days for which interest is being accrued.
With respect to single-family mortgage loans, it is the Corporation's
general policy to restrict lending to its primary market areas in Wisconsin as
well as contiguous counties in Iowa, Illinois, and Minnesota, though from
time-to-time the Corporation will purchase single-family loans originated
outside of its primary market area. It is also the Corporation's general policy
to limit an individual single-family mortgage loan to 80% of the appraised value
of the property securing the loan. The Corporation will occasionally lend more
than 80% of the appraised value of the property, but generally will require the
borrower to obtain private mortgage insurance on the portion of the loan amount
that exceeds 80% of the collateral. Single-family mortgage loans originated or
purchased outside of the Corporation's primary market area were $196.9 million
and $157.4 million at December 31, 1999 and 1998, respectively.
With respect to multi-family and non-residential real estate loans, it
is the Corporation's policy to restrict its lending area to loans secured by
property located within a 300-mile radius of La Crosse, to include all or a
portion of the states of Wisconsin, Nebraska, Illinois, Iowa, and Minnesota,
although in the past the Corporation originated multi-family and non-residential
real estate loans outside of this area. It is also the Corporation's general
policy to limit loans on multi-family residential complexes, retail shopping
centers, office buildings, and multi-tenant industrial buildings to 80% of the
appraised value of the property securing the loan. Loans on other types of
commercial properties, such as nursing homes, hotels/motels, churches, and
single-tenant industrial buildings are limited to 75% or less of the appraised
value of the property securing the loan. In addition, it is the Corporation's
policy that no more than 20% of its multi-family and non-residential real estate
loans consist of this second category of loans. Multi-family and non-residential
real estate loans originated or purchased outside of the Corporation's market
area were $23.5 million and $22.3 million, at December 31, 1999 and 1998,
respectively.
44
<PAGE> 46
With respect to consumer loans, it is the Corporation's policy that
such loans be supported primarily by the borrower's ability to repay the loan
and secondarily by the value of the collateral securing the loan, if any.
Education loans are substantially guaranteed by the U.S. government.
A summary of the activity in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $7,623,526 $7,637,527 $7,888,323
Provision charged to expense 387,021 293,112 538,957
- -------------------------------------------------------------------------------------------------------------------
Loans charged-off (433,744) (365,511) (816,217)
Recoveries 46,723 58,398 26,464
- -------------------------------------------------------------------------------------------------------------------
Charge-offs, net (387,021) (307,113) (789,753)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period $7,623,526 $7,623,526 $7,637,527
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4--MORTGAGE SERVICING RIGHTS
A summary of the activity in mortgage servicing rights is as follows:
<TABLE>
<CAPTION>
PURCHASED ORIGINATED ALLOWANCE FOR
MSR MSR LOSS TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $3,550,739 $8,747,463 ($411,000) $11,887,202
Purchased servicing 1,374,069 1,374,069
Originated servicing 5,543,993 5,543,993
Amortization charged to earnings (503,540) (1,360,821) (1,864,361)
Valuation adjustments charged to earnings (650,000) (650,000)
Charge-offs (164,749) (341,850) 506,599 -
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 4,256,519 12,588,785 (554,401) 16,290,903
Purchased servicing 454,774 454,774
Originated servicing 17,587,381 17,587,381
Amortization charged to earnings (527,655) (2,468,568) (2,996,223)
Valuation adjustments charged to earnings (10,233,376) (10,233,376)
Charge-offs (864,565) (3,800,276) 4,664,841 -
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 3,319,073 23,907,322 (6,122,936) 21,103,459
Originated servicing 5,333,684 5,333,684
Amortization charged to earnings (368,292) (3,233,691) (3,601,983)
Valuation adjustments charged to earnings (1,107,179) (1,107,179)
Charge-offs (722,157) (3,841,315) 4,563,472 -
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $2,228,624 $22,166,000 ($2,666,643) $21,727,981
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5--OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at December 31 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Office buildings and improvements $19,139,161 $18,594,097
Furniture and equipment 18,819,621 17,402,874
Leasehold improvements 5,260,917 4,814,633
Land and improvements 4,355,945 4,245,353
Property acquired for expansion 332,864 358,470
Construction in progress 95,085 786,064
- --------------------------------------------------------------------------------------------------------------------
Subtotal 48,003,593 46,201,491
- --------------------------------------------------------------------------------------------------------------------
Less allowances for depreciation and amortization 23,382,997 21,118,909
- --------------------------------------------------------------------------------------------------------------------
Total $24,620,596 $25,082,582
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation rents office space and land under operating leases at
certain of its locations. These leases have terms expiring between 2000 and 2009
and provide for renewals subject to escalation clauses. Rental expense was
$1,661,345, $1,455,439, and $1,168,705 for the years ended December 31, 1999,
1998, and 1997, respectively.
45
<PAGE> 47
NOTE 6--DEPOSIT LIABILITIES
Deposit liabilities at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Checking accounts:
Non-interest-bearing $136,700,264 $144,730,597
Interest-bearing 72,913,112 83,260,201
Money market savings:
Great Rate accounts 115,914,599 111,245,052
Insured Market Fund accounts 21,955,533 21,732,447
Market Rate accounts 35,725,030 33,823,677
Regular savings accounts 104,510,856 103,466,501
Variable-rate IRA accounts 3,610,223 3,215,403
Time deposits maturing within...
Three months 226,970,708 394,201,833
Four to six months 183,720,538 85,907,182
Seven to twelve months 298,701,822 233,229,535
Thirteen to twenty-four months 228,798,930 213,708,882
Twenty-five to thirty-six months 36,969,671 26,026,189
Thirty-seven to forty-eight months 3,422,436 2,753,897
Forty-nine to sixty months 1,345,750 2,834,264
- --------------------------------------------------------------------------------------------------------------------
Total time deposits 979,929,855 958,661,783
- --------------------------------------------------------------------------------------------------------------------
Total $1,471,259,473 $1,460,135,660
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Time deposits include $91.7 million and $90.7 million of certificates
in denominations of $100,000 or more at December 31, 1999 and 1998,
respectively. Accrued interest payable on deposit liabilities was $664,844 and
$1,107,214 at December 31, 1999 and 1998, respectively.
Included in non-interest-bearing checking accounts at December 31, 1999
and 1998, were $17.2 million and $35.2 million, respectively, which represented
amounts held in custody for third-party investors in loans serviced by the
Corporation.
Interest expense on deposit liabilities for the year ended December 31
is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Checking accounts $558,393 $543,825 $524,432
Money market savings accounts 6,586,892 6,381,467 6,321,899
Regular savings 1,740,722 1,842,854 1,799,864
Time deposits 51,661,026 50,653,495 42,503,529
- -------------------------------------------------------------------------------------------------------------------
Total $60,547,033 $59,421,641 $51,149,724
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 48
NOTE 7--FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
Federal Home Loan Bank advances and other borrowings at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
BALANCE AVERAGE RATE BALANCE AVERAGE RATE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Bank advances maturing in...
1999 - - $10,715,000 6.02%
2000 $45,400,000 5.73% 33,400,000 5.60
2001 43,245,000 5.11 34,245,000 5.09
2002 13,415,000 5.32 1,415,000 5.92
2003 41,000,000 5.23 32,000,000 5.19
2004 87,500,000 5.59 - -
2008 25,000,000 4.95 75,000,000 4.78
2009 12,500,000 5.20 - -
Open line of credit 176,273,000 5.62 - -
- -------------------------------------------------------------------------------------------------------------------
Total FHLB advances 444,333,000 5.48 186,775,000 5.14
Other borrowings 25,246,701 5.93 3,002,984 6.41
- -------------------------------------------------------------------------------------------------------------------
Total $469,579,701 5.51% $189,777,984 5.16%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's borrowings at the FHLB are limited to the lesser of
35% of total assets or 60% of the book value of certain mortgage loans and 70%
to 85% of the market value of certain mortgage-backed and related securities.
Interest on the open line of credit is paid monthly at approximately 45 basis
points above the FHLB's daily investment deposit rate or approximately 25 basis
points above the federal funds rate. Advances that mature in the years 2004,
2008, and 2009 consist of borrowings that are redeemable quarterly at the option
of the FHLB beginning at various times in 2000 and 2001.
The Corporation has a line of credit with two financial institutions.
These lines, which amount to $20.0 million in the aggregate, permit the
overnight purchase of federal funds. There was $20.0 million outstanding under
these lines as of December 31, 1999. The Corporation also has a $10.0 million
line of credit with a third financial institution under which $5.2 million was
outstanding as of December 31, 1999. The interest rate on borrowings under this
line is determined on a daily basis at 125 basis points above the one-month
London Inter-Bank Offered Rate ("LIBOR"). The Corporation has pledged all issued
and outstanding capital stock of the Bank as collateral for this line of credit.
Accrued interest payable on FHLB advances and other borrowings was
$1,851,436 and $841,021 at December 31, 1999 and 1998, respectively.
NOTE 8--INCOME TAXES
Federal and state income tax expense for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $10,558,903 $10,920,797 $9,795,713
State 159,477 720,178 979,799
- -------------------------------------------------------------------------------------------------------------------
Total current 10,718,380 11,640,975 10,775,512
- -------------------------------------------------------------------------------------------------------------------
Deferred:
Federal 1,629,000 (307,000) (104,000)
State (180,000) (77,000) 207,000
- -------------------------------------------------------------------------------------------------------------------
Total deferred 1,449,000 (384,000) 103,000
- -------------------------------------------------------------------------------------------------------------------
Total $12,167,380 $11,256,975 $10,878,512
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 49
The significant components of the Corporation's deferred tax expense
for the years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage servicing rights $1,614,810 $1,003,793 $901,452
Office properties and equipment depreciation (21,606) 679,244 (828,725)
Asset valuation allowances 652,459 (249,578) (657,090)
Deferred loan fees 139,904 (189,160) 380,707
Provision for loan and real estate losses, net (259,994) (150,979) 107,907
Deferred compensation (323,690) (610,536) 2,473
FHLB stock dividends - (362,877) -
Other (352,883) (503,907) 196,276
- -------------------------------------------------------------------------------------------------------------------
Total deferred $1,449,000 ($384,000) $103,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The income tax provision differs from the provision computed at the
federal statutory corporate tax rate for the years ended December 31 as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes at federal statutory of 35% $12,113,007 $10,738,388 $9,894,106
State income tax (benefit) net of federal income tax effect (13,341) 418,066 771,420
Other 67,714 100,521 212,986
- -------------------------------------------------------------------------------------------------------------------
Income tax provision $12,167,380 $11,256,975 $10,878,512
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The significant components of the Corporation's deferred tax assets and
liabilities as of December 31, are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
- -------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
<S> <C> <C>
Loan and real estate loss allowances $2,929,210 $2,660,621
Deferred compensation 1,941,105 1,612,207
Asset valuation allowances 264,246 913,753
State tax loss carryforwards 1,702,840 270,658
Securities valuation allowance 650,593 -
Other 39,254 523,696
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 7,527,248 5,980,935
Valuation allowance (298,785) (298,785)
- -------------------------------------------------------------------------------------------------------------------
Adjusted deferred tax assets 7,228,463 5,682,150
- -------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Mortgage servicing rights 5,111,492 3,485,422
Securities valuation allowance - 1,527,999
Office properties and equipment depreciation 274,559 295,211
Deferred loan fees 502,747 361,674
FHLB stock dividends 263,786 262,937
Purchase acquisition adjustments 144,563 242,247
Federal tax effect of state deferred taxes, net 486,322 113,751
Investment in unconsolidated partnerships 84,862 81,182
Other 519,257 200,444
- -------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 7,387,588 6,570,867
- -------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities ($159,125) ($888,717)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Bank qualifies under provisions of the IRC that prior to 1996
permitted it to deduct from taxable income an allowance for bad debts that
generally exceeded losses charged to income for financial reporting purposes.
Accordingly, no provision for income taxes has been made for $21.1 million of
retained income at December 31, 1999. If in the future the Bank no longer
qualifies as a bank for tax purposes, income taxes may be imposed at the
then-applicable rates. If income taxes had been provided, the deferred tax
liability would have been approximately $8.5 million.
48
<PAGE> 50
NOTE 9--EMPLOYEE BENEFIT PLANS
PENSION PLAN The Corporation has established a pension plan for the
benefit of full-time employees that have at least one year of service and have
attained the age of 20. Benefits under the plan are based on the employee's
years of service and compensation during the years immediately preceding
retirement. The following table summarizes the components of pension benefit
obligation and plan assets, the funded status of the plan, the amount recognized
in the Corporation's consolidated financial statements, and the weighted-average
assumptions for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of benefit obligation:
Benefit obligation at beginning of year $ 9,361,621 $7,002,102
Service costs 689,568 487,251
Interest costs 620,001 569,673
Actuarial (gain) loss (1,703,497) 1,530,203
Benefit payments (304,440) (227,608)
- ------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $ 8,663,253 $9,361,621
==================================================================================================================
Reconciliation of fair value of plan assets:
Fair value of plan assets at beginning of year: $ 7,968,383 $7,125,080
Actual return on plan assets 2,035,314 1,070,911
Employer contributions 489,227 -
Benefit payments (304,440) (227,608)
- ------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $10,188,484 $7,968,383
==================================================================================================================
Funded status:
Funding shortfall (excess) at end of year ($1,525,231) $1,393,238
Unrecognized transition asset 15,475 110,927
Unrecognized prior service cost 91,599 145,526
Unrecognized net gain (loss) 1,845,803 (1,231,807)
- ------------------------------------------------------------------------------------------------------------------
Accrued pension expense $ 427,646 $ 417,884
==================================================================================================================
Components of net periodic benefit cost:
Service costs $ 689,568 $ 487,251
Interest costs 620,001 569,673
Expected return on plan assets (708,819) (631,412)
Amortization of transition asset (95,452) (95,452)
Amortization of prior service costs (53,927) (59,608)
Recognized actuarial loss 47,618 11,610
- ------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 498,989 $ 282,062
==================================================================================================================
Weighted-average assumptions:
Discount rate 7.75% 6.50%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 5.50% 5.50%
==================================================================================================================
</TABLE>
POSTRETIREMENT EMPLOYEE BENEFITS The Corporation provides certain health care
insurance benefits to retired employees. Substantially all of the employees of
the Corporation may become eligible for these benefits if they reach normal
retirement age while working for the Corporation. The following table summarizes
the components of postretirement benefit obligation and funded states, as well
as the amounts recognized in the Corporation's consolidated financial statements
for the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of benefit obligation:
Benefit obligation at beginning of year $2,019,976 $1,610,192
Service costs 87,022 61,949
Interest costs 140,194 127,047
Actuarial (gain) loss (243,034) 260,418
Benefit payments (73,211) (39,630)
- ------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $1,930,947 $2,019,976
==================================================================================================================
Funded status:
Funding shortfall at end of year $1,930,947 $2,019,976
Unrecognized transition obligation (444,989) (479,219)
Unrecognized net loss (229,663) (490,949)
- ------------------------------------------------------------------------------------------------------------------
Accrued post-retirement benefit expense $1,256,295 $1,049,808
==================================================================================================================
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Components of net periodic benefit cost:
Service costs $ 87,022 $ 61,949
Interest costs 140,194 127,047
Amortization of transition obligation 34,230 34,230
Recognized actuarial loss 18,252 12,312
- ------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $279,698 $235,538
==================================================================================================================
Weighted-average assumptions:
Discount rate 7.75% 6.50%
Rate of compensation increase 5.50% 5.50%
==================================================================================================================
</TABLE>
The assumed rate of increase in the per capita cost of covered benefits
was 9.0% for 1999. This assumption has a significant effect on the amounts
reported in the Corporation's consolidated financial statements. For example, a
one percentage point increase in the assumed trend rate would increase the
accumulated postretirement benefit obligation as of December 31, 1999, by
approximately $477,000 and the aggregate service and interest cost components of
postretirement benefit expense for 1999 by approximately $100,000.
SAVINGS PLANS The Corporation maintains a 401(k) savings plan for the
benefit of substantially all of its employees. Employees may contribute up to a
certain percentage of their compensation to the plan and the Corporation will
match their contributions within certain limits. In addition, the employee may
also receive discretionary profit sharing contributions from the Corporation.
The Corporation provided matching and discretionary contributions of
approximately $490,000, $286,000, and $248,000 during the years ended December
31, 1999, 1998, and 1997, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN The Corporation makes annual
discretionary contributions to an Employee Stock Ownership Program ("ESOP") for
the benefit of substantially all of its employees. All contributions are
recorded as compensation expense on the books of the Corporation at the time
they are made. The Corporation recorded approximately $379,000, $286,000, and
$246,000 in ESOP-related compensation expense during the years ended December
31, 1999, 1998, and 1997, respectively.
SUPPLEMENTAL PENSION PLAN The Corporation makes annual contributions to
a supplemental pension plan for certain key members of management. All
contributions are recorded as compensation expense on the books of the
Corporation at the time they are made. The Corporation recorded approximately
$346,000, $203,000, and $197,000 during the years ended December 31, 1999, 1998,
and 1997, respectively.
STOCK INCENTIVE PLANS During 1989, 1992, and 1997, the Corporation
adopted stock incentive plans designed to attract and retain qualified personnel
in key management positions. In addition, during 1995 the Corporation assumed
the stock incentive plan of a financial institution that was acquired by the
Corporation. These plans provide for the grant of stock options, restricted
stock, and stock appreciation rights. In general, stock options granted under
these plans are exercisable at a price equal to the fair value of the stock on
the date of the grant. Furthermore, the options are subject to three- to
five-year graded vesting requirements and a maximum exercise period of ten
years. These plans authorize the issuance of approximately 4.5 million shares in
the aggregate, of which 1.3 million shares were unallocated as of December 31,
1999. Activity in these stock incentive plans for each of the three years ended
December 31, 1999, 1998, and 1997, is summarized in the following paragraphs.
Stock options outstanding at the beginning of each of the three
preceding years were 1,685,535, 1,674,056, and 1,879,508, respectively. These
options had weighted-average exercise prices of $5.42, $3.07, and $2.86,
respectively. Stock options granted during these years were 76,000, 309,000, and
7,500, respectively, at weighted-average exercise prices of $14.01, $14.77, and
$8.50, respectively. Stock options exercised during these years were 1,012,475,
297,521, and 211,170, respectively, at weighted-average exercise prices of
$3.12, $1.92, and $1.34, respectively. Stock options outstanding at the end of
each of the three preceding years were 734,060, 1,685,535, and 1,674,056,
respectively. These options had weighted-average exercise prices of $9.34,
$5.42, and $3.07, respectively. Of these options, 457,895, 1,430,234, and
1,527,488, respectively, were fully-vested and exercisable at weighted-average
exercise prices of $6.20, $3.81, and $2.84, respectively. As of December 31,
1999, the exercise prices of options outstanding on that date ranged from $1.31
to $15.63 and had a weighted-average remaining life of 6.2 years. Within this
range, 206,960 options had a weighted-average exercise price of $2.54 and a
weighted-
50
<PAGE> 52
average remaining life of 2.8 years; 152,100 options had a weighted-average
exercise price of $5.61 and a weighted-average remaining life of 5.6 years; and
375,000 shares had a weighted-average exercise price of $14.62 and a weighted
average remaining life of 8.3 years. Expirations and forfeitures of stock
options during the three years ended December 31, 1999, 1998, and 1997, were not
material.
During the years ended December 31, 1999 and 1997, no shares of
restricted stock were granted under the aforementioned plans. In 1998, 112,002
shares were granted at a weighted-average fair value of $15.48.
During 1989 and 1992, the Corporation also adopted stock incentive
plans designed to attract and retain qualified non-employee directors for the
Corporation and its subsidiaries. Under both plans each director receives
options to purchase 8,800 shares upon election or re-election to the Board of
Directors. The stock options are exercisable at a price at least equal to the
fair value of the stock on the date of grant and are fully-vested on the date of
the grant. These plans have authorized the issuance of 672,942 shares in the
aggregate, of which 197,746 shares were unallocated as of December 31, 1999.
Activity in these stock incentive plans for each of the three years ended
December 31, 1999, 1998, and 1997 is summarized in the following paragraph.
Stock options outstanding at the beginning of each of the three
preceding years were 218,966, 227,766, and 254,565, respectively. These options
had weighted-average exercise prices of $5.95, $3.89, and $3.34, respectively.
Stock options granted during each of these years were 26,400 at weighted-average
exercise prices of $14.88, $17.59, and $8.96, respectively. Stock options
exercised during these years were 113,370, 35,200, and 53,290, respectively, at
weighted-average exercise prices of $4.37, $1.31, and $3.80, respectively.
Finally, stock options outstanding at the end of December 31, 1999, were
131,996. These options had a weighted-average exercise price of $9.09, a range
of exercise prices from $1.36 to $17.59, and a weighted-average remaining life
of 5.9 years. Within this range, 43,996 had a weighted-average exercise price of
$3.39 and a weighted-average remaining life of 2.9 years; 44,000 options had a
weighted-average exercise price of $7.38 and a weighted-average remaining life
of 6.1 years; and 44,000 shares had a weighted-average exercise price of $16.51
and a weighted average remaining life of 8.8 years. There were no expirations or
forfeitures of stock options during these years.
As described in Note 1, the Corporation has elected to provide pro
forma disclosure of the effects of its stock incentive plans. If the Corporation
had accounted for its stock incentive plans using the fair value method, the
Corporation's pro forma net income would have been $21,845,000, $18,428,000, and
$17,195,000 during the years ended December 31, 1999, 1998, and 1997,
respectively. Pro forma diluted earnings per share would have been $1.14, $0.93,
and $0.88 and pro forma basic earnings per share would have been $1.18, $1.00,
and $0.94 during the same periods, respectively.
The weighted-average fair value of the options granted in 1999, 1998,
and 1997, were $5.23, $5.25, and $2.66, respectively. The fair values of these
options were estimated as of the dates they were granted using a Black-Scholes
option pricing mode. Weighted-average assumptions for 1999 were 5.5% risk-free
interest rate, 2.4% dividend yield, 35% volatility, and a seven-year expected
life. Weighted-average assumptions for 1998 were 5.0% risk-free interest rate,
2.0% dividend yield, 30% volatility, and a seven-year expected life.
Weighted-average assumptions for 1997 were 6.5% risk-free interest rate, 2.6%
dividend yield, 30% volatility, and a seven-year expected life.
NOTE 10--COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS The Corporation and its subsidiaries are engaged in
various routine legal proceedings occurring in the ordinary course of business
which in the aggregate are believed by management to be immaterial to the
consolidated financial condition of the Corporation.
OTHER COMMITMENTS AND CONTINGENCIES At December 31, 1999, the
Corporation had commitments to originate mortgage loans at market terms
aggregating approximately $13.3 million which expire on various dates in 2000.
At December 31, 1999, the Corporation also had commitments to fund $41.8 million
in additional proceeds on construction loans. As of the same date the
Corporation had approximately $5.9 million in commitments outstanding under
standby letters of credit and financial guarantees, as well as $11.0 million in
commitments
51
<PAGE> 53
outstanding under unused home equity lines of credit. Furthermore, the
Corporation had commitments to sell approximately $3.5 million in mortgage loans
to FHLMC, FNMA, and the FHLB at various dates in 2000.
At December 31, 1999, the Corporation had retained a small portion of
the credit risk related to $360.6 million in single-family residential loans
sold to the FHLB in exchange for a monthly credit enhancement fee.
NOTE 11--STOCKHOLDERS' EQUITY
PREFERRED STOCK The Corporation is authorized to issue up to 5,000,000
shares of preferred stock, $.10 par value per share, although no such stock was
outstanding at December 31, 1999. The Board of Directors of the Corporation is
authorized to establish the voting powers, designations, preferences, or other
special rights of such shares and the qualifications, limitations, and
restrictions thereof. The preferred stock may be issued in distinctly designated
series, may be convertible to common stock, and may rank prior to the common
stock in dividend rights, liquidation preferences, or both.
SHAREHOLDERS' RIGHTS PLAN The Corporation's Board of Directors adopted
a shareholders' rights plan (the "Rights Plan") in 1995. Under the terms of the
Rights Plan, the Board of Directors declared a dividend of one preferred share
purchase right on each outstanding share of common stock of the Corporation.
However, the rights can only be exercised if a person or group acquires 20% or
more of the common stock or announces a tender or exchange offer that would
result in a 20% or greater position in the stock. Initially, each right will
entitle shareholders to buy one one-hundredth share of the Corporation's
preferred stock at a price of $50.00, subject to adjustment. Under certain
circumstances, including the acquisition of beneficial ownership of 25% or more
of the Corporation's common stock, holders of the Corporation's common stock,
other than the acquirer, will be entitled to exercise the rights to purchase
common stock from the Corporation having a value equal to two times the exercise
price of the right. If the Corporation is acquired in a merger, share exchange,
or other business combination in which the Corporation is not the survivor,
after a person or group's acquisition of beneficial ownership of 20% or more of
the common stock, rights holders will be entitled to purchase the acquirer's
shares at a similar discount. Issuance of the rights has no dilutive effect,
will not affect reported earnings per share, is not taxable to the Corporation
or its shareholders, and will not change the way in which the Corporation's
shares are traded. The rights expire ten years for the adoption of the Rights
Plan.
STOCK REPURCHASE PLANS AND TREASURY STOCK In 1999 and 1997 the
Corporation's Board of Directors authorized the repurchase of up to 905,248 and
919,052 shares of the Corporation's outstanding common stock, respectively.
Under the plans, repurchases may be made from time-to-time in the open market
during the ensuing twelve months as conditions permit (the 1997 Plan was
extended for an additional twelve months in January 1998 and again in January
1999). Repurchased shares are held as treasury stock and are available for
general corporate purposes.
During 1999, 1998, and 1997, the Corporation repurchased 1,060,990,
447,000, and 264,000 shares under the 1998 and 1997 Plans at an average cost of
$15.01, $16.46, and $10.87 per share during 1999, 1998, and 1997, respectively.
As of December 31, 1999, no shares remained to be purchased under the 1997 Plan
and 363,410 shares remained under the 1999 Plan.
During 1999, 1998, and 1997 the Corporation reissued 1,103,550,
426,775, and 240,330 shares of common stock out of treasury stock, respectively.
These shares had an average cost basis of $12.93, $12.84, and $10.64 per share,
respectively. In general, these shares were issued upon the exercise of stock
options by, or the issuance of restricted stock to, employees and directors of
the Corporation. The Corporation uses the "last-in/first-out" method to
determine the cost basis of shares removed from treasury stock.
DIVIDEND RESTRICTIONS The ability of the Corporation to pay dividends
will depend primarily upon the receipt of dividends from the Bank. The Bank may
not declare or pay a cash dividend without regulatory approval if such dividend
would cause its net capital to be reduced below either the amount required for
the liquidation account or the current risk-based capital requirements imposed
by the OTS. The Bank is a "Tier 1" association under current OTS regulations. As
such, the Bank's dividend payments are limited to 100% of its net income during
the year plus
52
<PAGE> 54
an amount that would reduce by one-half its excess risk-based regulatory capital
as of the beginning of the year, or 75% of its net income during the most recent
four-quarter period, whichever is greater.
REGULATORY CAPITAL REQUIREMENTS Financial institutions such as the Bank
are subject to minimum regulatory capital requirements as specified in federal
banking law and supporting regulations. Failure of a financial institution to
meet such requirements may subject the institution to certain mandatory--and
possibly discretionary--actions on the part of its regulators (referred to as
"prompt corrective actions"). Such actions, if undertaken, could severely
restrict the activities of the institution. During each of the years ended
December 31, 1999 and 1998, the Bank's regulatory capital was sufficient for it
to be classified as "adequately capitalized" under the prompt corrective action
provisions of the federal banking law and supporting regulations. Accordingly,
the Bank is not subject to prompt corrective actions by its regulators.
The following table summarizes the Bank's current regulatory capital in
both percentage and dollar terms as of December 31, 1999 and 1998. It also
summarizes the minimum capital levels that must be maintained by the Bank for it
to be classified as "adequately capitalized" and "well capitalized" under the
prompt corrective action provisions of federal banking law and supporting
regulations. As indicated in the table, the Bank is "well capitalized" for
regulatory capital purposes.
<TABLE>
<CAPTION>
MINIMUM REQUIREMENTS
TO BE CLASSIFIED AS...
----------------------------------
ADEQUATELY WELL
DECEMBER 31, 1999 CAPITALIZED CAPITALIZED ACTUAL
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 leverage ratio 4.0% 5.0% 5.64%
Tier 1 risk-based capital ratio 4.0% 6.0% 10.21%
Total risk-based capital ratio 8.0% 10.0% 10.85%
Tier 1 leverage ratio capital $83,074,000 $103,843,000 $117,177,000
Tier 1 risk-based capital 45,916,000 68,874,000 117,177,000
Total risk-based capital 91,832,000 114,790,000 124,515,000
==================================================================================================================
DECEMBER 31, 1998
- ------------------------------------------------------------------------------------------------------------------
Tier 1 leverage ratio 4.0% 5.0% 5.58%
Tier 1 risk-based capital ratio 4.0% 6.0% 10.03%
Total risk-based capital ratio 8.0% 10.0% 10.76%
Tier 1 leverage ratio capital $70,797,000 $88,497,000 $98,745,000
Tier 1 risk-based capital 39,365,000 59,047,000 98,745,000
Total risk-based capital 78,730,000 98,412,000 105,928,000
==================================================================================================================
</TABLE>
53
<PAGE> 55
NOTE 12--FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of financial instruments as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 65,566,021 $ 65,566,021 $ 43,642,705 $ 43,642,705
Interest-bearing deposits with banks 17,790,262 17,790,262 96,549,775 96,549,775
Investment securities available for sale 872,844 872,844 - -
Mortgage-backed and related securities:
Available for sale 252,165,351 252,165,351 204,108,879 204,108,879
Held for investment 103,932,229 101,068,308 102,500,238 102,908,423
Loans held for sale 6,345,624 6,400,000 72,002,437 73,600,000
Loans held for investment, gross 1,546,218,116 1,545,200,000 1,185,149,253 1,190,000,000
Federal Home Loan Bank stock 22,511,300 22,511,300 12,485,500 12,485,500
Accrued interest receivable 15,420,837 15,420,837 13,888,538 13,888,538
Mortgage servicing rights 21,727,981 21,727,981 21,103,459 21,103,459
Financial liabilities:
Deposit liabilities $1,471,259,473 $1,474,100,000 $1,460,135,660 $1,466,000,000
Federal Home Loan Bank advances and other
borrowings 469,579,701 465,200,000 189,777,984 190,000,000
Advance payments by borrowers for taxes and
insurance 5,407,816 5,407,816 1,762,190 1,762,190
Accrued interest payable 2,516,280 2,516,280 1,947,823 1,947,823
=====================================================================================================================
</TABLE>
Refer to Note 1 for the methods and assumptions used by the Corporation
in estimating the fair value of financial instruments. The carrying value shown
for loans held for investment excludes the impact of the Corporation's allowance
for loan losses.
NOTE 13--SEGMENT INFORMATION
DIVISIONS AND PROFIT CENTERS The Bank has five operating divisions: (i)
residential lending, (ii) commercial real estate lending, (iii) retail banking,
(iv) finance and administration, and (v) human resources. Each division is
headed by an executive officer that reports directly to the president of the
Bank. The first three divisions contain all but one of the Bank's profit centers
for segment reporting purposes. The remaining two divisions are considered
support departments for segment reporting purposes, although the finance and
administration division also provides the primary support for the Bank's
remaining profit center--the investment and mortgage-related securities
portfolio.
Residential lending is divided into two profit centers for segment
reporting purposes: (i) a mortgage banking profit center that is responsible for
loan origination, sales of loans in the secondary market, and servicing of
residential loans, and (ii) a residential loan portfolio that consists of loans
held by the Bank for investment purposes (loans held for sale are included in
the mortgage banking profit center). Commercial real estate lending is a single
profit center for segment reporting purposes. It consists of the Bank's
portfolio of multi-family and non-residential mortgage loans, as well as
functions related to the origination and servicing of such loans. Retail banking
is divided into two profit centers for segment reporting purposes: (i) a
consumer lending portfolio, which consists of the Bank's second mortgage,
automobile, and other consumer installment loans, as well as functions related
to the origination and servicing of such loans and (ii) an education loan
portfolio, which also includes functions related to the origination and
servicing of the loans. The Bank's retail branch network, which delivers
checking, savings, certificates of deposit and other financial products and
services to customers, is also part of retail banking, but is considered a
support department for segment reporting purposes, as more fully described in a
subsequent paragraph. Finally, the Bank's investment and mortgage-related
securities portfolio is considered a profit center for segment reporting
purposes. Personnel in finance and administration support this profit center, as
previously described.
MEASUREMENT OF SEGMENT PROFIT (LOSS) Management evaluates the after-tax
performance of the Bank's profit centers as if each center were a separate
entity--each with its own earning assets, actual and/or allocated non-earning
assets, and allocated funding resources. Each profit center has its own interest
income, non-interest income, and non-interest expense as captured by the Bank's
accounting systems. Interest expense is allocated to each profit
54
<PAGE> 56
center according to its use of the Bank's funding sources, which consist
primarily of deposit liabilities, FHLB advances, and equity. In general, all
funding sources are allocated proportionately to each profit center. However, in
certain instances specific liabilities may be matched against specific assets of
profit centers.
The net cost of operating the Bank's support departments is allocated
to the Bank's profit centers and to the retail banking network using a variety
of methods deemed appropriate by management. In general, these net costs are
included in the non-interest expense of each profit center, to include the
retail banking network. In addition, certain allocations of revenues and
expenses are made between profit centers when they perform services for each
other. Such amounts, however, are not generally material in nature.
The Bank's retail branch network is considered a support department
center for segment reporting purposes. Retail banking fees and revenues are
deducted from the non-interest expense of operating the network (to include an
allocation of net costs from the Bank's other support departments) to arrive at
net cost for the branch network. This net cost is then allocated to each profit
center based on its use of deposit liabilities to fund its operations. This
amount is reported as "net cost to acquire and maintain deposit liabilities" and
is included as an adjustment to the net interest income of each profit center.
For segment reporting purposes, management makes certain non-GAAP
adjustments and reclassifications to the results of operations and financial
condition of the Bank that, in management's judgement, more fairly reflect the
performance and/or financial condition of certain of the Bank's profit centers.
Following is a description of the more significant adjustments:
INTEREST INCOME AND EXPENSE Interest income is credited to the
mortgage banking profit center for implied earnings on non-interest-bearing
liabilities such as custodial and escrow accounts. The offsetting interest
expense is charged to each profit center according to their use of these funding
sources, as previously described. Fee income from customers that make their
monthly loan payments late ("late charges") is reclassified from interest income
to non-interest income in the mortgage banking profit center.
LOAN ORIGINATION FEES AND COSTS In accordance with GAAP,
origination fees earned on residential loans held for investment are deferred
and amortized over the expected life of the loans, as are the direct costs to
originate the loans. In general, these deferrals and their subsequent
amortization are disregarded for segment reporting purposes. As a result, the
mortgage banking profit center receives revenue for loans that it originates for
the portfolio of residential loans held for investment, as well as a full charge
for the costs to originate the loans. These fees and costs are in addition to
the fees it receives and the costs it incurs on loans originated for sale in the
secondary market, which are included in current earnings under GAAP.
MORTGAGE SERVICING RIGHTS In accordance with GAAP, mortgage
servicing rights are not recorded on residential loans held for investment.
However, for segment reporting purposes, the mortgage banking profit center
receives an income allocation for the origination of such loans, which
represents the estimated value of the mortgage servicing rights. This allocation
is in addition to the gain from mortgage servicing rights that is recorded on
loans sold in the secondary market, as permitted under GAAP. The amortization of
the mortgage servicing rights created by this allocation is charged-back to the
mortgage banking profit center over the estimated life of the loans.
LOAN SERVICING FEES In accordance with GAAP, loan servicing fee
income is not recorded on loans held for investment. However, for segment
reporting purposes, the mortgage banking profit center receives an income
allocation for the services it performs for the Bank's residential, commercial
real estate, and consumer loan portfolios. This allocation is in addition to the
service fee income that the profit center receives on loans serviced for
third-parties, as recorded in the Bank's Consolidated Statement of Operations.
The aforementioned loan portfolios are charged with the offsetting servicing
cost.
PROVISION FOR LOAN AND REAL ESTATE LOSSES For segment reporting
purposes, the Bank disregards provisions for loan and real estate losses
recorded under GAAP. Rather, actual charge-off (recovery) activity is charged
(credited) to each profit center in the period it occurs.
55
<PAGE> 57
INTANGIBLE ASSETS The amortization of goodwill and certain other
intangible assets is disregarded for segment reporting purposes.
INCOME TAXES In general, a standard income tax rate of
approximately 41% is used for segment reporting purposes. However, the income
tax benefit associated with assets held in Nevada by FCHI, the Bank's
wholly-owned investment subsidiary, is allocated to the profit centers that own
such assets. This results in a lower effective income tax rate, or even a
negative rate, for such profit centers. During the years ended December 31, 1999
and 1998, the investment and mortgage-related securities profit center was the
only segment that held assets in Nevada. During the year ended December 31,
1999, this segment, as well as the residential loan portfolio, held assets in
Nevada.
NON-GAAP ADJUSTMENTS TO FINANCIAL CONDITION Allowances for losses
on loans and real estate and security valuation allowances are added to and/or
excluded from assets of the profit centers. In addition, an estimated value for
mortgage servicing rights not recorded under GAAP is estimated and added to the
assets of the mortgage banking profit center. For each of these adjustments, a
corresponding amount is added to or excluded from equity prior to the
proportionate allocation of equity to the profit centers, as previously
described. The amount added to or excluded from equity is net of the estimated
income tax effect.
SEGMENT PROFIT (LOSS) STATEMENTS AND OTHER INFORMATION The
following tables contain profit (loss) statements for each of the Bank's
reportable segments for the years ended December 31, 1999, 1998, and 1997 (1998
is presented on both pages to facilitate its comparison with 1999 and 1997). In
addition to the after-tax performance of profit centers, management of the Bank
closely monitors the net cost to acquire and maintain deposit liabilities (as
defined elsewhere in this footnote). The net cost to acquire and maintain
deposit liabilities was 1.13%, 1.32%, and 1.35% of average deposit liabilities
outstanding during the years ended December 31, 1999, 1998, and 1997,
respectively.
56
<PAGE> 58
<TABLE>
<CAPTION>
LOANS HELD FOR INVESTMENT
---------------------------------------------------------------------
SEGMENT PROFIT (LOSS) STATEMENTS MORTGAGE COMMERCIAL
YEAR ENDED DECEMBER 31, 1999 BANKING RESIDENTIAL REAL ESTATE CONSUMER EDUCATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 3,133,892 $38,055,845 $28,001,302 $19,869,080 $ 14,288,948
Interest expense 3,469,150 23,866,100 15,071,889 10,387,845 6,913,737
Net cost to acquire and maintain
deposit liabilities 438,403 4,132,294 3,757,215 2,593,363 1,958,049
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense)
before charge-offs (773,661) 10,057,451 9,172,197 6,887,872 5,417,162
Net loan charge-offs (recoveries) - (70,508) - 367,330 26,031
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) (773,661) 10,127,959 9,172,197 6,520,542 5,391,131
Non-interest income 19,247,738 - 90,903 1,253,961 103,514
Non-interest expense 12,313,093 1,806,834 1,288,957 1,993,125 829,887
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (loss) before taxes 6,160,984 8,321,125 7,974,144 5,781,378 4,664,758
Income tax expense (benefit) 2,497,663 2,772,128 3,232,718 2,343,771 1,891,093
- ------------------------------------------------------------------------------------------------------------------------------------
Segment profit (loss) $ 3,663,321 $ 5,548,997 $ 4,741,426 $ 3,437,607 $ 2,773,665
====================================================================================================================================
BALANCE SHEET INFORMATION
Dollars in thousands
- ------------------------------------------------------------------------------------------------------------------------------------
Average assets $ 78,634 $ 573,994 $ 372,793 $ 256,956 $ 194,008
====================================================================================================================================
Total assets at end of period $ 41,090 $ 729,153 $ 416,192 $ 286,969 $ 202,440
====================================================================================================================================
<CAPTION>
INVESTMENT SUPPORT
SEGMENT PROFIT (LOSS) STATEMENTS & MORTGAGE OTHER DEPARTMENT NON-GAAP
YEAR ENDED DECEMBER 31, 1999 SECURITIES SEGMENTS ALLOCATIONS ADJUSTMENTS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $26,134,167 - $ 587,365(1) $130,070,598
Interest expense 18,258,391 $ 236,384 (2,250,104)(1) 75,953,392
Net cost to acquire and maintain
deposit liabilities 3,071,167 4,489 (15,954,980) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense)
before charge-offs 4,804,609 (240,873) 15,954,980 2,837,469 54,117,206
Net loan charge-offs (recoveries) - - 64,168(2) 387,021
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) 4,804,609 (240,873) 15,954,980 2,773,301 53,730,185
Non-interest income - 312,958 21,209,088 (7,040,308)(3) 35,177,854
Non-interest expense 164,318 371,693 37,164,068 (1,632,526)(3) 54,299,449
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (loss) before taxes 4,640,291 (299,609) - (2,634,481) 34,608,590
Income tax expense (benefit) 591,222 (23,536) (1,137,679) 12,167,380
- ------------------------------------------------------------------------------------------------------------------------------------
Segment profit (loss) $ 4,049,069 ($276,073) - ($1,496,802) $ 22,441,210
====================================================================================================================================
BALANCE SHEET INFORMATION
Dollars in thousands
- ------------------------------------------------------------------------------------------------------------------------------------
Average assets $ 420,172 $ 446 - ($8,934)(4) $ 1,888,069
====================================================================================================================================
Total assets at end of period $ 417,218 $ 308 - ($8,816)(4) $ 2,084,554
====================================================================================================================================
<CAPTION>
LOANS HELD FOR INVESTMENT
---------------------------------------------------------------------
SEGMENT PROFIT (LOSS) STATEMENTS MORTGAGE COMMERCIAL
YEAR ENDED DECEMBER 31, 1998 BANKING RESIDENTIAL REAL ESTATE CONSUMER EDUCATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 4,503,290 $33,496,128 $25,066,823 $18,321,380 $ 13,501,027
Interest expense 4,617,955 20,614,365 14,031,760 10,076,044 7,316,551
Net cost to acquire and maintain
deposit liabilities 547,379 4,332,138 3,635,592 2,612,673 2,077,845
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense)
before charge-offs (662,044) 8,549,625 7,399,471 5,632,663 4,106,631
Net loan charge-offs (recoveries) 17,082 203,379 274,597 32,515
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) (662,044) 8,532,543 7,196,092 5,358,066 4,074,116
Non-interest income 22,060,254 - 55,367 1,036,406 95,122
Non-interest expense 13,141,292 1,877,465 1,415,221 1,793,030 818,311
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (loss) before taxes 8,256,918 6,655,078 5,836,238 4,601,442 3,350,927
Income tax expense (benefit) 3,347,355 2,530,646 2,366,011 1,865,425 1,358,466
- ------------------------------------------------------------------------------------------------------------------------------------
Segment profit (loss) $ 4,909,563 $ 4,124,432 $ 3,470,227 $ 2,736,017 $ 1,992,461
====================================================================================================================================
BALANCE SHEET INFORMATION
Dollars in thousands
- ------------------------------------------------------------------------------------------------------------------------------------
Average assets $ 98,039 $ 460,016 $ 310,633 $ 223,066 $ 177,403
====================================================================================================================================
Total assets at end of period $ 90,536 $ 499,930 $ 342,434 $ 238,889 $ 192,224
====================================================================================================================================
<CAPTION>
INVESTMENT SUPPORT
SEGMENT PROFIT (LOSS) STATEMENTS & MORTGAGE OTHER DEPARTMENT NON-GAAP
YEAR ENDED DECEMBER 31, 1998 SECURITIES SEGMENTS ALLOCATIONS ADJUSTMENTS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $23,198,449 - $ 580,771(1) $118,667,868
Interest expense 17,605,864 $ 75,070 (2,880,415)(1) 71,457,194
Net cost to acquire and maintain
deposit liabilities 3,118,890 8,242 (16,332,759) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense)
before charge-offs 2,473,695 (83,312) 16,332,759 3,461,186 47,210,674
Net loan charge-offs (recoveries) - - (234,461)(2) 293,112
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) 2,473,695 (83,312) 16,332,759 3,695,647 46,917,562
Non-interest income - 1,432,728 15,254,216 (8,574,023)(3) 31,360,070
Non-interest expense 177,015 326,783 31,586,975 (3,539,569)(3) 47,596,523
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (loss) before taxes 2,296,680 1,022,633 - (1,338,807) 30,681,109
Income tax expense (benefit) (45,191) 698,577 (864,314) 11,256,975
- ------------------------------------------------------------------------------------------------------------------------------------
Segment profit (loss) $ 2,341,871 $ 324,056 - ($474,493) $ 19,424,134
====================================================================================================================================
BALANCE SHEET INFORMATION
Dollars in thousands
- ------------------------------------------------------------------------------------------------------------------------------------
Average assets $ 374,527 $ 704 - ($10,354)(4) $ 1,634,034
====================================================================================================================================
Total assets at end of period $ 426,793 $ 1,241 - ($5,543)(4) $ 1,786,504
====================================================================================================================================
</TABLE>
(1) Consists principally of interest income and expense adjustments related to
late charges and implied earnings on custodial and escrow accounts.
(2) In general, the Corporation records actual loan and real estate charge-off
(recovery) activity against each profit center for segment reporting
purposes.
(3) Consists principally of non-GAAP adjustments related to loan origination
fees and costs, mortgage servicing rights, and loan servicing fees. The
offsets for the adjustments described in (1), above, are also include in
non-interest income.
(4) Consists of allowances for loss on loans and real estate and security
valuation allowances that are disregarded for segment reporting purposes.
Also includes mortgage servicing rights that are not recorded under GAAP,
but are recorded for segment reporting purposes.
57
<PAGE> 59
<TABLE>
<CAPTION>
LOANS HELD FOR INVESTMENT
-----------------------------------------------------------------------------
SEGMENT PROFIT (LOSS) STATEMENTS MORTGAGE COMMERCIAL
YEAR ENDED DECEMBER 31, 1998 BANKING RESIDENTIAL REAL ESTATE CONSUMER EDUCATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 4,503,290 $33,496,128 $25,066,823 $18,321,380 $ 13,501,027
Interest expense 4,617,955 20,614,365 14,031,760 10,076,044 7,316,551
Net cost to acquire and maintain
deposit liabilities 547,379 4,332,138 3,635,592 2,612,673 2,077,845
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense)
before charge-offs (662,044) 8,549,625 7,399,471 5,632,663 4,106,631
Net loan charge-offs (recoveries) - 17,082 203,379 274,597 32,515
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) (662,044) 8,532,543 7,196,092 5,358,066 4,074,116
Non-interest income 22,060,254 - 55,367 1,036,406 95,122
Non-interest expense 13,141,292 1,877,465 1,415,221 1,793,030 818,311
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (loss) before taxes 8,256,918 6,655,078 5,836,238 4,601,442 3,350,927
Income tax expense (benefit) 3,347,355 2,530,646 2,366,011 1,865,425 1,358,466
- ------------------------------------------------------------------------------------------------------------------------------------
Segment profit (loss) $ 4,909,563 $ 4,124,432 $ 3,470,227 $ 2,736,017 $ 1,992,461
====================================================================================================================================
BALANCE SHEET INFORMATION
Dollars in thousands
- ------------------------------------------------------------------------------------------------------------------------------------
Average assets $ 98,039 $ 460,016 $ 310,633 $ 223,066 $ 177,403
====================================================================================================================================
Total assets at end of period $ 90,536 $ 499,930 $ 342,434 $ 238,889 $ 192,224
====================================================================================================================================
<CAPTION>
INVESTMENT SUPPORT
SEGMENT PROFIT (LOSS) STATEMENTS & MORTGAGE OTHER DEPARTMENT NON-GAAP
YEAR ENDED DECEMBER 31, 1998 SECURITIES SEGMENTS ALLOCATIONS ADJUSTMENTS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $23,198,449 - $ 580,771(1) $118,667,868
Interest expense 17,605,864 $ 75,070 (2,880,415(1) 71,457,194
Net cost to acquire and maintain
deposit liabilities 3,118,890 8,242 (16,332,759 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense)
before charge-offs 2,473,695 (83,312) 16,332,759 3,461,186 47,210,674
Net loan charge-offs (recoveries) - - (234,461)(2) 293,112
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) 2,473,695 (83,312) 16,332,759 3,695,647 46,917,562
Non-interest income - 1,432,728 15,254,216 (8,574,023)(3) 31,360,070
Non-interest expense 177,015 326,783 31,586,975 (3,539,569)(3) 47,596,523
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (loss) before taxes 2,296,680 1,022,633 - (1,338,807) 30,681,109
Income tax expense (benefit) (45,191) 698,577 (864,314) 11,256,975
- ------------------------------------------------------------------------------------------------------------------------------------
Segment profit (loss) $ 2,341,871 $ 324,056 - ($474,493) $ 19,424,134
====================================================================================================================================
BALANCE SHEET INFORMATION
Dollars in thousands
- ------------------------------------------------------------------------------------------------------------------------------------
Average assets $ 374,527 $ 704 - ($10,354)(4) $ 1,634,034
====================================================================================================================================
Total assets at end of period $ 426,793 $ 1,241 - ($5,543)(4) $ 1,786,504
====================================================================================================================================
<CAPTION>
LOANS HELD FOR INVESTMENT
-----------------------------------------------------------------------------
SEGMENT PROFIT (LOSS) STATEMENTS MORTGAGE COMMERCIAL
YEAR ENDED DECEMBER 31, 1997 BANKING RESIDENTIAL REAL ESTATE CONSUMER EDUCATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 1,521,194 $46,009,725 $21,746,184 $16,552,232 $11,676,426
Interest expense 2,393,024 28,685,579 11,808,145 8,905,641 6,430,163
Net cost to acquire and maintain
deposit liabilities 398,387 4,703,759 3,152,711 2,381,416 1,831,784
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense)
before charge-offs (1,270,217) 12,620,387 6,785,328 5,265,175 3,414,479
Net loan charge-offs (recoveries) (59,742) (15,303) 511,964 18,869
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) (1,270,217) 12,680,129 6,800,631 4,753,211 3,395,610
Non-interest income 16,393,361 452,243 52,531 1,037,696 12,765
Non-interest expense 9,471,294 2,671,899 982,650 1,513,641 782,369
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (loss) before taxes 5,651,850 10,460,473 5,870,512 4,277,266 2,626,006
Income tax expense (benefit) 2,291,260 4,240,676 2,379,905 1,734,003 1,064,583
- ------------------------------------------------------------------------------------------------------------------------------------
Segment profit (loss) $ 3,360,590 $ 6,219,797 $ 3,490,607 $ 2,543,263 $ 1,561,423
====================================================================================================================================
BALANCE SHEET INFORMATION
Dollars in thousands
- ------------------------------------------------------------------------------------------------------------------------------------
Average assets $ 51,239 $ 607,651 $ 261,025 $ 196,881 $ 151,441
====================================================================================================================================
Total assets at end of period $ 68,541 $ 598,619 $ 280,604 $ 215,218 $ 167,507
====================================================================================================================================
<CAPTION>
INVESTMENT SUPPORT
SEGMENT PROFIT (LOSS) STATEMENTS & MORTGAGE OTHER DEPARTMENT NON-GAAP
YEAR ENDED DECEMBER 31, 1997 SECURITIES SEGMENTS ALLOCATIONS ADJUSTMENTS CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $17,034,661 - $ 435,834(1) $114,976,256
Interest expense 13,631,493 $ 270,017 (1,859,005)(1) 70,265,057
Net cost to acquire and maintain
deposit liabilities 1,856,314 9,250 (14,333,621) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense)
before charge-offs 1,546,854 (279,267) 14,333,621 2,294,839 44,711,199
Net loan charge-offs (recoveries) - - 83,169(2) 538,957
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income (expense) 1,546,854 (279,267) 14,333,621 2,211,670 44,172,242
Non-interest income (725,142) (8,835) 12,071,266 (4,992,200)(3) 24,293,685
Non-interest expense 156,692 379,362 26,404,887 (2,165,742)(3) 40,197,052
- ------------------------------------------------------------------------------------------------------------------------------------
Profit (loss) before taxes 665,020 (667,464) - (614,788) 28,268,875
Income tax expense (benefit) (337,107) (214,727) (280,081) 10,878,512
- ------------------------------------------------------------------------------------------------------------------------------------
Segment profit (loss) $1,002,127 ($452,737) - ($334,707) $ 17,390,363
====================================================================================================================================
BALANCE SHEET INFORMATION
Dollars in thousands
- ------------------------------------------------------------------------------------------------------------------------------------
Average assets $ 282,797 $ 612 - ($12,208)(4) $ 1,539,438
====================================================================================================================================
Total assets at end of period $ 223,665 $ 571 - ($10,431)(4) $ 1,544,294
====================================================================================================================================
</TABLE>
(1) Consists principally of interest income and expense adjustments related to
late charges and implied earnings on custodial and escrow accounts.
(2) In general, the Corporation records actual loan and real estate charge-off
(recovery) activity against each profit center for segment reporting
purposes.
(3) Consists principally of non-GAAP adjustments related to loan origination
fees and costs, mortgage servicing rights, and loan servicing fees. The
offsets for the adjustments described in (1), above, are also include in
non-interest income.
(4) Consists of allowances for loss on loans and real estate and security
valuation allowances that are disregarded for segment reporting purposes.
Also includes mortgage servicing rights that are not recorded under GAAP,
but are recorded for segment reporting purposes.
58
<PAGE> 60
NOTE 14--PARENT COMPANY ONLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF FINANCIAL CONDITION: 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash in bank $12,448 $ 43,968
Interest-bearing deposits with subsidiary bank 3,249 3,003,558
Investment in subsidiary 132,226,303 122,446,917
Other assets 233,226 155,314
- -------------------------------------------------------------------------------------------------------------------
Total assets $132,475,226 $125,649,757
===================================================================================================================
Other borrowings $ 5,200,000 $2,950,000
Other liabilities - 15,110
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 5,200,000 2,965,110
- -------------------------------------------------------------------------------------------------------------------
Common stock 1,994,163 1,994,163
Additional paid-in capital 34,540,064 34,540,064
Retained earnings 106,929,097 97,291,806
Treasury stock, at cost (14,388,670) (12,722,834)
Unearned restricted stock (591,183) (1,256,266)
Non-owner adjustments to equity, net (1,208,245) 2,837,714
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 127,275,226 122,684,647
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $132,475,226 $125,649,757
===================================================================================================================
<CAPTION>
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS: 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other income $21,815 $78,434 $67,605
Other expense 688,173 522,190 743,276
- -------------------------------------------------------------------------------------------------------------------
Loss before income taxes and equity in earnings of subsidiary (666,358) (443,756) (675,671)
Income tax benefit 233,225 155,314 236,485
- -------------------------------------------------------------------------------------------------------------------
Loss before equity in earnings of subsidiary (433,133) (288,442) (439,186)
Equity in earnings of subsidiary 22,874,343 19,712,576 17,829,549
- -------------------------------------------------------------------------------------------------------------------
Net income $22,441,210 $19,424,134 $17,390,363
===================================================================================================================
<CAPTION>
YEAR ENDED DECEMBER 31
- -------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS: 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $22,441,210 $19,424,134 $17,390,363
Equity in earnings of subsidiary (22,874,343) (19,712,576) (17,829,550)
Change in income taxes and other accruals and prepaids (93,025) 63,957 (70,780)
- -------------------------------------------------------------------------------------------------------------------
Net cash used by operations (526,158) (224,485) (509,967)
- -------------------------------------------------------------------------------------------------------------------
Decrease (increase) in interest-bearing deposits with 3,000,309 (245,910) (341,769)
subsidiary bank
Dividends received from subsidiary 13,500,000 11,500,000 9,500,000
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 16,500,309 11,254,090 9,158,231
- -------------------------------------------------------------------------------------------------------------------
Proceeds from sale of common stock 3,297,402 328,958 484,179
Increase (decrease) in other borrowings 2,250,000 (50,000) (2,000,000)
Dividends paid to shareholders (6,287,822) (5,001,135) (4,283,617)
Purchase of treasury stock (15,930,336) (7,356,875) (2,868,938)
Other, net 665,085 688,148 203,386
- -------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (16,005,671) (11,390,904) (8,464,990)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash in bank (31,520) (361,299) 183,274
Cash at beginning of period 43,968 405,267 221,993
- -------------------------------------------------------------------------------------------------------------------
Cash in bank at end of period $12,448 $43,968 $405,267
==================================================================================================================
</TABLE>
59
<PAGE> 61
REPORT OF MANAGEMENT
The management of First Federal Capital Corp has prepared the
accompanying financial statements and is responsible for their integrity and
objectivity. The statements, which include amounts that are based on
management's best estimates and judgements, have been prepared in conformity
with generally accepted accounting principles and are free of material
misstatement. Management also prepared the other information in the annual
report on Form 10-K and is responsible for its accuracy and consistency with the
financial statements.
The Corporation maintains a system of internal control over financial
reporting, which is designed to provide reasonable assurance to the
Corporation's management and Board of Directors regarding the preparation of
reliable published annual and interim financial statements. The system contains
self-monitoring mechanisms, and actions are taken to correct deficiencies as
they are identified. However, even an effective internal control system, no
matter how well designed, has inherent limitations--including the possibility of
circumvention or overriding of controls--and therefore can provide only
reasonable assurance with respect to financial statement preparation. Further,
because of changes in conditions, internal control system effectiveness may vary
over time.
The Corporation assessed its internal control system as of December 31,
1999, in relation to criteria for effective internal control over the
preparation of its published annual and interim financial statements described
in "Internal Control--Integrated Framework" issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
the Corporation believes that, as of December 31, 1999, its system of internal
control over the preparation of its published annual and interim financial
statements met those criteria.
<TABLE>
<S> <C> <C>
/s/ Thomas W. Schini /s/ Jack C. Rusch /s/ Michael W. Dosland
Thomas W. Schini Jack C. Rusch Michael W. Dosland
Chairman of the Board and Executive Vice President and Vice President and Controller
Chief Executive Officer Chief Financial Officer
</TABLE>
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated statements of financial
condition of First Federal Capital Corp as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those statements require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Federal Capital Corp at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Milwaukee, Wisconsin
January 27, 2000
60
<PAGE> 62
SUPPLEMENTARY DATA
Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
DEC. SEPT. JUNE MARCH DEC. SEPT. JUNE MARCH
Dollars in thousands, except for per share 1999 1999 1999 1999 1998 1998 1998 1998
amounts
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest on loans $28,587 $26,303 $25,073 $23,916 $24,598 $21,837 $23,252 $25,783
Interest on mortgage-backed and related 5,934 6,049 6,069 5,676 5,745 6,334 3,846 2,617
securities
Interest and dividends on investments 498 385 439 1,140 1,018 819 1,587 1,232
- --------------------------------------------------------------------------------------------------------------------
Total interest income 35,020 32,738 31,581 30,733 31,361 28,990 28,685 29,632
- --------------------------------------------------------------------------------------------------------------------
Interest on deposits 15,237 14,938 14,697 15,675 15,965 15,215 14,473 13,769
Interest on borrowings 5,131 4,021 3,425 2,828 3,128 2,224 2,734 3,950
- --------------------------------------------------------------------------------------------------------------------
Total interest expense 20,368 18,960 18,122 18,503 19,093 17,439 17,207 17,718
- --------------------------------------------------------------------------------------------------------------------
Net interest income 14,652 13,778 13,458 12,229 12,269 11,551 11,478 11,914
Provision for loan losses 86 68 77 156 88 63 89 53
- --------------------------------------------------------------------------------------------------------------------
Net interest income after provision 14,565 13,710 13,381 12,074 12,181 11,488 11,389 11,861
- --------------------------------------------------------------------------------------------------------------------
Gain on sale of loans 785 810 2,041 3,590 5,849 3,499 3,761 3,820
Gain on sale of investments - - - - 343 - - -
Other non-interest income 7,515 7,611 7,348 5,479 2,987 4,375 3,731 2,996
- --------------------------------------------------------------------------------------------------------------------
Total non-interest income 8,300 8,421 9,389 9,069 9,179 7,874 7,492 6,816
- --------------------------------------------------------------------------------------------------------------------
Total non-interest expense 13,885 13,793 13,184 13,437 13,386 11,961 11,347 10,902
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 8,979 8,338 9,586 7,705 7,974 7,400 7,534 7,775
Income tax expense 3,140 2,914 3,420 2,694 2,818 2,628 2,836 2,976
- --------------------------------------------------------------------------------------------------------------------
Net Income $5,840 $5,424 $6,166 $5,011 $5,155 $4,772 $4,698 $4,799
- --------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $0.30 $0.29 $0.32 $0.26 $0.26 $0.24 $0.24 $0.24
- --------------------------------------------------------------------------------------------------------------------
Dividends paid per share $0.09 $0.09 $0.09 $0.07 $0.07 $0.07 $0.07 $0.06
- --------------------------------------------------------------------------------------------------------------------
Stock price at end of period $14.63 $15.50 $14.75 $11.75 $16.38 $14.50 $17.94 $16.50
- --------------------------------------------------------------------------------------------------------------------
High stock price during period $16.13 $18.00 $15.88 $16.38 $16.50 $18.38 $18.25 $16.94
- --------------------------------------------------------------------------------------------------------------------
Low stock price during period $12.56 $14.75 $11.75 $11.75 $12.00 $13.00 $15.72 $14.25
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: per share data and historical stock prices have been adjusted a 2-for-1
stock split on June 11, 1998.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is incorporated by reference from the
sections entitled "Matters to be Voted on at the Annual Meeting--Matter 1.
Election of Directors" and "Executive Officers Who Are Not Directors" in the
Proxy Statement of the Corporation dated March 17, 2000.
ITEM 11--EXECUTIVE COMPENSATION
The information required herein is incorporated by reference from the
section entitled "Compensation of Executive Officers and Directors" in the Proxy
Statement of the Corporation dated March 17, 2000.
61
<PAGE> 63
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein is incorporated by reference from the
section entitled "Beneficial Ownership of Common Stock by Certain Beneficial
Owners and Management" in the Proxy Statement of the Corporation dated March 17,
2000.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is incorporated by reference from the
section entitled "Indebtedness of Management and Certain Transactions" in the
Proxy Statement of the Corporation dated March 17, 2000.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) The following financial statements are included herein under Part II, Item
8, "Financial Statements and Supplementary Data":
Consolidated Statements of Condition at December 31, 1999 and 1998
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1999
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended December 31, 1999
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1999
Notes to Audited Consolidated Financial Statements
Report of Management
Report of Independent Auditors
(2) All financial statement schedules required under this item are omitted
because the required information is either not applicable or the required
information is included in the Audited Consolidated Financial Statements or in
the notes thereto.
(3) Exhibit Index.
No. Exhibit Description
3.1 Articles of Incorporation (1)
3.2 Bylaws, as amended (6)
4.1 Specimen stock certificate (1)
4.2 Rights Agreement, dated as of January 24, 1995 (5)
10.1 1989 Stock Incentive Plan (1)
10.2 1989 Directors' Stock Option Plan, as amended (2)
10.3 1992 Stock Incentive Plan (3)
10.4 1992 Stock Option and Incentive Plan (3)
10.5 Rock Financial Corp. 1992 Stock Option and Incentive Plan (4)
10.6 1997 Stock Option and Incentive Plan (6)
62
<PAGE> 64
10.7 Employee Stock Ownership Plan (1)
10.8 Employment agreements, as amended, between the Bank and the following
executive officers:
a) Thomas W. Schini (7)
b) Bradford R. Price (7)
c) Jack C. Rusch (7)
d) Joseph M. Konradt (7)
e) Milne J. Duncan (7)
f) Robert P. Abell (7)
10.9 First Federal of La Crosse Directors' Deferred Compensation Plan (1)
10.10 First Federal of La Crosse Annual Incentive Bonus Plan (1)
10.11 First Federal of La Crosse Incentive Bonus Plan for Group Life
Insurance (1)
10.12 First Federal of Madison Deferred Compensation Plan for Directors (1)
11.1 Computation of Earnings Per Share--Reference is made to Note 1 of the
Corporation's Audited Consolidated Financial Statements, included
herein under Part II, Item 8, "Financial Statements and Supplementary
Data"
13.1 1999 President's Message (8)
21.1 Subsidiaries of the Registrant--Reference is made to Part I, Item 1,
"Business--Subsidiaries"
23.1 Consent of Ernst & Young LLP (7)
27.1 Financial Data Schedule (7)
99.1 1999 Proxy Statement (7)
(1) Incorporated herein by reference to exhibits filed with the Corporation's
Form S-1 Registration Statement declared effective by the SEC on
September 8, 1989 (Registration No. 33-98298-01).
(2) Incorporated herein by reference to exhibits filed with the Corporation's
Annual Report on Form 10-K for the year ended December 31,
1989, filed with the SEC on March 30, 1990.
(3) Incorporated herein by reference to the Corporation's Proxy Statement dated
March 11, 1992.
(4) Incorporated herein by reference to exhibits filed with the Corporation's
Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration
Statement filed with the SEC on December 26, 1995 (Registration No.
33-98298-01)
(5) Incorporated herein by reference to the Corporation's Registration
Statement on Form 8-A filed with the SEC on January 27, 1995.
(6) Incorporated herein by reference to the exhibits filed with the
Corporation's Annual Report on Form 10-K for the year ended December 31,
1997, filed with the SEC on March 20, 1998.
(7) Filed herewith.
(8) Filed in paper format pursuant to Rule 101(b) of Regulation S-T.
(b) The Corporation filed no reports on Form 8-K during the fourth quarter of
1999.
(c) Refer to item (a)(3) above for all exhibits filed herewith.
(d) Refer to items (a)(1) and (2) above for financial statements required under
this item.
63
<PAGE> 65
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 FEDERAL CAPITAL CORP
February 28, 2000 By: /s/ Thomas W. Schini
Thomas W. Schini
President, Chairman of
the Board, and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Thomas W. Schini February 28, 2000
Thomas W. Schini
President, Chairman of the
Board and Chief Executive Officer
(principal executive officer)
/s/ Dale A. Nordeen February 28, 2000
Dale A. Nordeen
Vice Chairman of the Board
/s/ Marjorie A. Davenport February 28, 2000
Marjorie A. Davenport
Director
/s/ Henry C. Funk February 28, 2000
Henry C. Funk
Director
/s/ John F. Leinfelder February 28, 2000
John F. Leinfelder
Director
/s/ Richard T. Lommen February 28, 2000
Richard T. Lommen
Director
/s/ Patrick J. Luby February 28, 2000
Patrick J. Luby
Director
64
<PAGE> 66
/s/ David C. Mebane February 28, 2000
David C. Mebane
Director
/s/ Phillip J. Quillin February 28, 2000
Phillip J. Quillin
Director
/s/ Don P. Rundle February 28, 2000
Don P. Rundle
Director
/s/ Jack C. Rusch February 28, 2000
Jack C. Rusch
Executive Vice President and
Chief Financial Officer
(principal financial officer)
/s/ Michael W. Dosland February 28, 2000
Michael W. Dosland
Vice president and Controller
(principal accounting officer)
65
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
(As Amended Effective July 1, 1993)
THIS EMPLOYMENT AGREEMENT is made effective as of this 1st day of July,
1993, by and between First Federal Savings Bank, LaCrosse-Madison, a
federally-chartered savings bank (the "Bank"), and Thomas W. Schini (the
"Executive").
WHEREAS, Executive has been employed by the Bank for more than thirty
years, and currently serves as its President and Chief Executive Officer
("Corporate Position"); and
WHEREAS, Executive possesses an intimate knowledge of the business and
affairs of the Bank, including its policies, markets and financial and human
resources; and
WHEREAS, the Board of Directors of the Bank (the "Board"), recognizes
that Executive's contribution to the growth and success of the Bank has been
substantial and desires to assure the Bank of Executive's continued employment
in an executive capacity and to compensate him therefore; and
WHEREAS, Executive is desirous of committing himself to serve the Bank
on the terms provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, the Bank and Executive agree as follows:
1. Employment. Bank shall continue to employ Executive and Executive
shall continue to serve Bank under the terms and conditions of this Agreement
(which terms and conditions are intended to amend and supercede the agreement of
July 1, 1987 as previously in effect between the parties), for the period stated
in paragraph 2 below.
2. Term of Employment. The period of Executive's employment under this
Agreement shall commence on the date set forth above ("Commencement Date") and
shall expire on the third annual anniversary of said Commencement Date, unless
sooner terminated as provided herein. Effective as of any annual anniversary of
the Commencement Date during the term of this Agreement, the term of employment
hereunder may be extended by the action of the Bank's Board of Directors to add
one additional year to the then remaining term of employment hereunder so that
said term is annually restored to a full three-year term. The Board of Directors
or the Executive shall each provide the other with at least forty-five (45)
days' advance written notice of any decision on their respective parts not to
extend the Agreement on the anniversary date. The term of employment under this
Agreement, as in effect from time to time, shall be referred to
<PAGE> 2
as the "Employment Term."
3. Position and Duties. Subject to Section 5(iv)(B), Executive shall
serve in his Corporate Position, reporting to the Board, and shall have
supervision and control over, and responsibility for, the operation of the Bank
and shall have such other powers and duties as may from time to time be
prescribed by the Board, provided that such duties are consistent with his
present duties and position as an executive officer of the Bank. Executive shall
devote substantially all his working time and efforts to the business and
affairs of the Bank.
4. Compensation. As compensation for the services to be provided
pursuant to this Agreement, Executive shall receive from Bank the compensation
and other benefits set forth below:
(i) Base Salary. During the Employment Term the Executive shall
receive a base salary ("Base Salary") in such amount as may from time to time be
approved by the Board. The Base Salary shall at no time be less than the annual
base salary payable to the Executive on the date of this Agreement. Any increase
in Base Salary or other compensation granted by the Board shall in no way limit
or reduce any other obligation of the Bank under this Agreement and, once
established at an increased specified rate, Executive's Base Salary under this
Agreement shall not thereafter be reduced. Executive's Base Salary and other
compensation shall be paid in accordance with the Bank's regular payroll
practices, as from time to time in effect.
(ii) Bonus Payments. In addition to Base Salary, Executive shall
be entitled during the Employment Term to receive such bonus payments as the
Board may determine in accordance with the Bank's Management Incentive Plan (the
"Incentive Plan") in effect on the date of this Agreement or as the same may be
amended or modified from time to time for the Bank's executive officers.
(iii) Other Benefits. During the Employment Term the Bank shall
provide to Executive all other benefits of employment generally made available
to the Bank's executive officers as in effect with other plans or arrangements
providing Executive with at least equivalent benefits there-under. Executive
shall be entitled to participate in or receive benefits under any group health
and life insurance plan, pension plan, stock purchase, incentive savings, stock
option, restricted stock, stock appreciation rights and any other similar plans
or arrangements presently or hereafter made available by the Bank to its
executive officers (collectively the "Benefit Plans"), subject to and on a basis
consistent with the terms, conditions and overall administration of such Benefit
Plans. Executive shall be entitled to vacations and perquisites in accordance
with the Bank's policies as in effect from time to time for its executive
-2-
<PAGE> 3
officers.
5. Termination. This Agreement may be terminated, subject to payment of
the compensation and other benefits described below, upon the occurrence of any
of the events described below. In case of such termination, the date on which
Executive ceases to be employed under this Agreement, after giving effect to any
prior notice requirement set forth below, is referred to as the "Termination
Date."
(i) Death; Disability; Retirement. This Agreement shall terminate
upon the death, disability or retirement of Executive. As used in this
Agreement, the term "disability" shall mean Executive's inability, as a result
of physical or mental incapacity, to substantially perform his duties with the
Bank for a period of 180 consecutive days. Any question as to the existence of
Executive's disability upon which the Executive and the Bank cannot agree shall
be determined by a qualified independent physician mutually agreeable to
Executive and the Bank or, if the parties are unable to agree upon a physician
within ten (10) days after notice from either to the other suggesting a
physician, by a physician designated by the then president of the medical
society for the county in which Executive maintains his principal residence,
upon the request of either party. The costs of any such medical examination
shall be borne by the Bank. If Executive is terminated due to disability he
shall be paid 100% of his Base Salary at the rate in effect at the time notice
of termination is given for the remainder of the Employment Term, payable in
substantially equal monthly installments less, in each case, any disability
payments otherwise payable under plans provided by the Bank for disability or
any governmental social security or workers compensation program, and actually
paid to Executive in substantially equal monthly installments.
As used in this Agreement, the term "retirement" shall mean
Executive's retirement in accordance with and pursuant to any retirement plan of
the Bank generally applicable to its executive officers or in accordance with
any retirement arrangement established with Executive's consent with respect to
Executive.
If termination occurs for such reason, no additional compensation
shall be payable to the Executive under this Agreement except as specifically
provided in this Agreement. Notwithstanding anything to the contrary contained
in this Agreement, the Executive shall receive all compensation and other
benefits to which he was entitled under Section 4 through the Termination Date
and, in addition, shall receive all other benefits available to him under the
Bank's Benefit Plans as in effect on the date of death, disability or
retirement.
-3-
<PAGE> 4
(ii) Cause. The Bank may terminate the Executive's employment
under this Agreement for Cause at any time, and thereafter the Bank's
obligations under this Agreement shall cease and terminate. Notwithstanding
anything to the contrary contained in this Agreement, Executive shall receive
all compensation and other benefits to which he was entitled under Section 4
through the Termination Date and, in addition, shall receive all benefits
available to him under the Bank's Benefit Plans as in effect on the Termination
Date. For purposes of this Agreement, "Cause" shall mean (A) the willful and
continued failure by Executive to substantially perform his duties with the Bank
(other than failure resulting from the Executive's incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to Executive by the Board, which demand specifically identifies the manner in
which the Board believes Executive has not substantially performed his duties,
(B) any willful act of misconduct by Executive which is materially injurious to
the Bank, monetarily or otherwise, (C) a criminal conviction of Executive for
any act involving dishonesty, breach of trust or a violation of the banking or
savings and loan laws of the State of Wisconsin or the United States, (D) a
criminal conviction of the Executive for the commission of any felony, (E) a
willful breach of fiduciary duty involving personal profit, (F) a willful
violation of any law, rule or regulation or final cease and desist order where
such violations materially, adversely, affect the Bank, (G) incompetence,
personal dishonesty or material breach of any provision of this Agreement which
would have a material adverse impact on the Bank. For purposes of this
Subsection 5(ii), no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Bank.
(iii) Voluntary Termination by Executive. Executive may
voluntarily terminate his employment under this Agreement at any time by giving
at least ninety (90) days prior written notice to the Bank. In such event,
Executive shall receive all compensation and other benefits to which he was
entitled under Section 4 through the Termination Date and, in addition, shall
receive all other benefits available to him under the Bank's Benefit Plans as in
effect on the Termination Date.
(iv) Termination by Executive After Change in Control. For
purposes of this Agreement, a "change in control" shall mean a change in control
with respect to the Bank or its parent holding company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor thereto; provided that, without limitation, such a change
in control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections
-4-
<PAGE> 5
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities representing 25% or more of the combined voting power of the Bank or
holding company's then outstanding securities; or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Bank or company cease for any reason to constitute
at least a majority thereof unless the election, or the nomination for election
by stockholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period. The Executive may terminate his employment under this
Agreement by giving at least ninety (90) days prior written notice to the Bank
at anytime (1) within eighteen (18) months of the effective date of a "change in
control", or (2) after the occurrence, at any time subsequent to a "change in
control," of any of the following events, without Executive's express written
consent:
(A) Executive is assigned to any positions, duties or
responsibilities that are materially less significant than his positions, duties
and responsibilities as of the time immediately prior to any change in control;
(B) Executive is removed from or the Board fails to re-elect
Executive to any of his Corporate Position, except (1) in connection with
termination of Executive's employment for cause, disability or retirement, or
(2) in connection with any change in control after which the Bank is not the
continuing or surviving corporation, if the successor organization has executed
an agreement as required by Section 8(i)(A) and the removal or failure to
re-elect is limited to his Corporate Position with the Bank;
(C) Executive's Base Salary is materially reduced or the
Executive experiences in any year a material reduction of the ratio of his bonus
payment to his Base Salary which is greater than the average reduction in the
ratio of bonus payments to base salaries in such year experienced by all other
executive officers of the Bank or any other material failure by the Bank to
comply with Section 4;
(D) Executive is transferred to a location not within a 25
mile radius of the City of LaCrosse, Wisconsin; or
(E) The Bank fails to obtain an agreement from any successor
organization as required by Section 8(i)(A).
(v) Suspension or Termination Required by the OTS
(A) If Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's
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<PAGE> 6
affairs by a notice served under section 8(e)(3), or section 8(g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's
obligations under the Agreement shall be suspended as of the date of service of
the notice unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, Bank shall (1) pay Executive all of the compensation
withheld while its obligations under this Agreement were suspended and (2)
reinstate any of its obligations which were suspended.
(B) 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 section 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss. 1818(e)(4) or (g)(1) obligations of the Bank under the Agreement
shall terminate as of the effective date of the order, but vested rights of the
Executive to compensation and to any benefits under the Bank's Pension Plan
shall not be affected.
(C) If the Bank is in default as defined in section 3(x)(1)
of the Federal Deposit Insurance Act, (12 U.S.C. 1813 (x)(1)) all obligations
under the Agreement shall terminate as of the date of default, except that this
paragraph shall not affect vested rights of the Executive under any qualified
retirement plan nor, in the event the Executive terminates prior to the date of
such default, the Executive's vested rights to continue to receive severance
payments and benefits pursuant to Section 5(vi) of this Agreement.
(D) All obligations under the Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank, (i) by the OTS, at the time the FDIC or
Resolution Trust Corporation ("RTC") enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in section
13(c) of the Federal Deposit Insurance Act; or (ii) by the OTS at the time it
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the OTS 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, and the Executive shall receive the compensation
and benefits set forth in section 5(vi) of this Agreement.
(E) In the event that 12 C.F.R. ss. 563.39, or any successor
regulation, is repealed, this section 5(v) shall cease to be effective on the
effective date of such repeal. In the event that 12 C.F.R. ss. 563.39, or any
successor regulation, is amended or modified, this Agreement shall be revised to
reflect the amended or modified provisions if: (1) the amended or modified
provision is required to be included in this Agreement; or (2) if not so
required, the Executive requests that the
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<PAGE> 7
Agreement be so revised.
(vi) Termination by the Bank Other Than Due to Death, Disability,
Retirement or For Cause; Termination of Executive. If this Agreement is
terminated by the Bank for any reason other than death, disability, retirement
or for cause as set forth in Section 5(i) or (ii), or is terminated by the
Executive pursuant to Section 5(iv), then, following the Date of Termination:
(A) In lieu of any further salary payments to the Executive
for a period subsequent to the Termination Date, the Executive shall receive
severance pay in the form of payments continuing for the remaining unexpired
portion of the Employment Term, fully restored as of the Termination Date, at
the times provided in Section 4(i) and 4 (ii) ("Severance Payments") and based
on his highest rate of Base Salary within the 3 years preceding his Termination
Date and his total cash bonus paid in his most recently completed calendar year
of employment. In the event of a termination as a result of a change in control,
the Executive may elect to receive the Severance Payments calculated above in
one lump-sum, subject to any applicable limitations set forth in Section 6
below; provided that the amount of Severance Payment in connection with a change
in control shall be at least equal to the particular Executive's annual
compensation as of the Termination Date.
(B) In addition to the retirement benefits to which the
Executive is entitled under the Bank's Group Pension Plan, 401(k) Plan, and
ESOP, as amended from time to time (the "Retirement Plans"), the Executive shall
receive additional severance retirement benefits payable under this Agreement,
which benefits (except as provided below) shall be determined in accordance
with, and payable in the form and at the times provided in, the respective
Retirement Plans. Such benefits shall be determined as if the Executive were
fully vested under each Retirement Plan and had accumulated (after any
termination under this Agreement) the additional years of credited service
and/or allocations and Employer contributions under each of said Plans that he
would have received had he continued in the employment of the Bank for the
entire Employment Term at the levels of Base Salary and cash bonus used to
calculate the Severance Payments pursuant to subsection 5(vi)(A) above.
(C) In addition to all other amounts payable under this
section 5, Executive shall be entitled to coverage under any group health, life,
dental, or other group insurance plans (as well as under any individual life
coverages provided by the Bank on Executive's behalf) for the remainder of the
Employment Term upon his continued payment of any required employee contribution
at the rate in effect as of his Termination Date and to receipt of all benefits
otherwise payable to Executive under (i) any tax qualified Bank plan or
agreement relating to pension or
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<PAGE> 8
retirement benefits, and (ii) any other Bank plan or agreement, regardless of
tax status, established to provide deferred compensation, retirement, or other
benefits for the Executive.
(D) If Executive is under fifty-five (55) years of age on the
Termination Date, Executive shall take reasonable steps to obtain employment and
thereby mitigate the amount of compensation and benefits due under Section
5(vi); provided, however, that Executive shall not be required to accept a
position other than one within a 25 mile radius of the City of LaCrosse,
Wisconsin. If the Executive is fifty-five (55) years of age or older on the
Termination Date or if Executive determines upon the advice of a qualified
independent physician that he is physically or medically unable to substantially
perform duties with another employer comparable to those performed by him with
the Bank, the Executive shall have no obligation to seek other employment.
Notwithstanding the foregoing, and regardless of age, during any portion of the
Employment term remaining after the Termination Date, if the Executive becomes
employed on a full-time basis by another employer, then to the extent the
Executive shall receive compensation, benefits or service credit from such other
employer, the aggregate amount of all compensation to be paid and benefits and
service credit to be provided by the Bank under this Agreement shall be
correspondingly reduced.
(E) The requirement for mitigation, as set forth in Section 5
(vi)(D) above, shall not apply with respect to any termination under Section
5(iv) subsequent to a change in control.
6. Limitations on Termination Compensation.
(i) In the event that the severance benefits payable to the
Executive under Subsection 5(vi) ("Severance Benefits"), or any other payments
or benefits received or to be received by the Executive from the Bank (whether
payable pursuant to the terms of this Agreement, any other plan, agreement or
arrangement with the Bank or any corporation ("Affiliate") affiliated with the
Bank within the meaning of Section 1504 of the Internal Revenue Code of 1954, as
amended (the "Code"), in the opinion of tax counsel selected by the Bank's
independent auditors and acceptable to the Executive, constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and the present
value of such "parachute payments" equals or exceeds three (3) times the average
of the annual compensation payable to the Executive by the Bank (or an
Affiliate) and includible in the Executive's gross income for federal income tax
purposes for the five (5) calendar years preceding the year in which a change in
ownership or control of the Bank occurred ("Base Amount"), such severance
benefits shall be reduced to an amount the present value of which (when combined
with the present value of any other payments or
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<PAGE> 9
benefits otherwise received or to be received by the Executive from the Bank (or
an Affiliate) that are deemed "parachute payments") is equal to 2.99 times the
Base Amount, notwithstanding any other provision to the contrary in this
Agreement. The Severance Benefits shall not be reduced if (A) the Executive
shall have effectively waived his receipt or enjoyment of any such payment or
benefit which triggered the applicability of this Section 6, or (B) in the
opinion of such tax counsel, the Severance Benefits (in its full amount or as
partially reduced, as the case may be) plus all other payments or benefits which
constitute "parachute payments" within the meaning of Section 280G(b)(2) of the
code are reasonable compensation for services actually rendered, within the
meaning of Section 280G(b)(4) of the code, and such payments are deductible by
the Bank. The Base Amount shall include every type and form of compensation
includible in the Executive's gross income in respect of his employment by the
Bank (or an Affiliate), except to the extent otherwise provided in temporary or
final regulations promulgated under Section 280G(b) of the Code. For purposes of
this Section 6, a "change in ownership or control" shall have the meaning set
forth in Section 280G(b) of the code and any temporary or final regulations
promulgated thereunder. The present value of any non-cash benefit or any
deferred cash payment shall be determined by the Bank's independent auditors in
accordance with the principles of Sections 280G(b)(3) and (4) of the Code.
(ii) Executive shall have the right to request that the Bank
obtain a ruling from the Internal Revenue Service ("Service") as to whether any
or all payments or benefits deter- mined by such tax counsel are, in the view of
the Service, "para- chute payments" under Section 280G. If a ruling is sought
pursuant to the Executive's request, no severance benefits payable under this
Agreement shall be made to the Executive until after fifteen (15) days from the
date of such ruling. For purposes of this Subsection 6(ii), the Executive and
the Bank agree to be bound by the Service's ruling as to whether payments
constitute "parachute payments" under Section 280G. If the service declines, for
any reason, to provide the ruling requested, the tax counsel's opinion provided
under Sub-section 6(i) with respect to what payments or benefits constitute
"parachute payments" shall control, and the period during which the Severance
Benefits may be deferred shall be extended to a date fifteen (15) days from the
date of the Service's notice indicating that no ruling would be forthcoming.
(iii) In the event that Section 280G, or any successor statute, is
repealed, this Section 6 shall cease to be effective on the effective date of
such repeal. The parties to this Agreement recognize that final regulations
under Section 280G of the Code may affect the amounts that may be paid under
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<PAGE> 10
this Agreement and agree that, upon issuance of such final regulations this
Agreement may be modified as in good faith deemed necessary in light of the
provisions of such regulations to achieve the purposes of this Agreement, and
that consent to such modifications shall not be unreasonably withheld.
7. Noncompetition After Voluntary Termination And Duty of
Confidentiality.
(a) Noncompetition. Executive acknowledges that the development of
personal contacts and relationships is an essential element of the Bank's
business, that the Bank has invested considerable time and money in his
development of such contacts and relationships, that the Bank could suffer
irreparable harm if he were to leave employment and solicit the business of
Bank's customers, and that it is reasonable to protect the Bank against
competitive activities by Executive. Executive covenants and agrees, in
recognition of the foregoing and in consideration of the mutual promises
contained herein, that in the event of a voluntary termination of employment by
Executive pursuant to Section 5(iii), or upon expiration of this Agreement as a
result of Executive's election not to continue automatic annual renewals,
Executive shall not accept employment in La Crosse, Dane or St. Croix counties
with any Significant Competitor of the Bank for a period of eighteen (18) months
following such termination. For purposes of this Agreement, the term Significant
Competitor means any financial institution including, but not limited to, any
commercial bank, savings bank, savings and loan association, credit union, or
mortgage banking corporation which, at the time of termination of Executive's
employment or during the period of this covenant not to compete, (i) maintains a
home, branch or other office in any of said counties, or (ii) has originated
within any of said counties $10,000,000 or more in residential mortgage loans
during any consecutive twelve (12) month period within the thirty-six (36)
months prior to Executive's termination and inclusive of the period covered by
this covenant.
Executive agrees that the non-competition provisions set forth
herein are necessary for the protection of the Bank and are reasonably limited
as to (i) the scope of activities affected, (ii) their duration and geographic
scope, and (iii) their effect on Executive and the public. In the event
Executive violates the non-competition provisions set forth herein, Bank shall
be entitled, in addition to its other legal remedies, to enjoin the employment
of Executive with any Significant Competitor for the period set forth herein. If
Executive violates this covenant and the Bank brings legal action for injunctive
or other relief, the Bank shall not, as a result of the time involved in
obtaining such relief, be deprived of the benefit of the full period of the
restrictive covenant. Accordingly, the covenant shall be deemed to have the
duration specified herein, computed from the date such relief is granted, but
reduced by any period between
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<PAGE> 11
commencement of the period and the date of the first violation. In addition to
such other relief as may be awarded, if the Bank is the prevailing party it
shall be entitled to reimbursement for all reasonable costs, including
attorneys' fees, incurred in enforcing its rights hereunder.
(b) Duty of Confidentiality. Executive acknowledges that he will,
as the result of services performed on behalf of the Bank, obtain or otherwise
become aware of confidential and/or proprietary information regarding the Bank's
affairs, including, but not limited to, information relative to (i) customers,
customer accounts and customer lists, (ii) marketing, (iii) customer development
strategies, (iv) financial and economic plans and projections, and (v) other
similar information. Executive agrees that following termination of his
employment for any reason, he will treat all such matters as confidential and
will refrain both from divulging such information in any manner and from the use
of such information for his benefit or for the benefit of any employer
(regardless of whether such employer would constitute a Significant Competitor
under this Agreement) or third-party.
8. General Provisions.
(i) Successors; Binding Agreement.
(A) The Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank ("successor
organization") to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Bank would be required to perform it
if no such succession had taken place. As used in this Agreement, "Bank" shall
mean the Bank as hereinbefore defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 8 or which otherwise becomes bound by the terms and provisions of
this Agreement by operation of this Agreement or law. Failure of the Bank to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle the Executive as his exclusive
remedy to compensation from the Bank in the same amount and on the same terms as
he would be entitled to under this agreement if he terminated his employment
under Section 5(iv). For purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Termination
Date.
(B) No right or interest to or in any payments or benefits
under this Agreement shall be assignable or transferrable in any respect by the
Executive, nor shall any such payment, right or interest be subject to seizure,
attachment or creditor's process for payment of any debts, judgments, or
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<PAGE> 12
obligations of the Executive.
(C) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the Executive and his heirs, beneficiaries and
personal representatives and the Bank and any successor organization.
(ii) Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Bank:
605 State Street
LaCrosse, WI 54601
Attn: Secretary
or if to Executive at the address set forth below the Executive's signature line
of this Agreement, or to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
(iii) Expenses. If any legal proceeding is necessary to enforce or
interpret this Agreement, or to recover damages for breach of it, the prevailing
party, shall be entitled to recover from the other party reasonable attorneys'
fees and necessary costs and disbursements incurred in such litigation, in
addition to any other relief to which such prevailing party may be entitled.
Notwithstanding the foregoing, in the event of a legal proceeding
to enforce or interpret the terms of this Agreement following a change in
control, Executive shall be entitled to recover from Bank, regardless of the
outcome of said action, necessary costs and disbursements incurred together with
actual attorney's fees up to the greater of (A) $25,000, or (B) thirty percent
(30%) of the amount in dispute between the parties [which amount, for purposes
of this Agreement, shall be deemed to be the difference between the highest
written settlement offer from the Bank and the lowest written settlement offer
(exclusive of any claim for consequential, punitive, or other forms or amounts
of damages not based on specific contract terms) from Executive]. Recovery by
Executive of attorneys fees and costs as provided herein following a change in
control shall be in addition to any other relief to which Executive may be
entitled.
(iv) Withholding. The Bank shall be entitled to withhold from
amounts to be paid to the Executive under this Agreement any federal, state or
local withholding or other taxes
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<PAGE> 13
of charges which it is from time to time required to withhold. the Bank shall be
entitled to rely on an opinion of counsel if any question as to the amount or
requirement of any such withholding shall arise.
(v) Miscellaneous. No provision of this Agreement may be amended,
waived or discharged unless such amendment, waiver or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Wisconsin.
(vi) Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(vii) Counterparts. This Agreement may be executed in several
counterparts, each of which together will constitute one and the same
instrument.
(viii) Headings. Headings contained in this Agreement are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
(ix) Effective Date. The effective date of this Agreement shall be
the date indicated in the first paragraph of this Agreement, notwithstanding the
actual date of execution by any party.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first above written.
Executive: Thomas W. Schini
----------------------------------
----------------------------------
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(Address)
First Federal Savings Bank,
LaCrosse-Madison
(CORPORATE SEAL)
By:
----------------------------------------
By:
----------------------------------------
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<PAGE> 15
EMPLOYMENT AGREEMENT
(As Amended Effective July 1, 1994)
THIS EMPLOYMENT AGREEMENT is made effective as of this 1st day of July,
1994, by and between First Federal Savings Bank, LaCrosse-Madison, a
federally-chartered savings bank (the "Bank"), and Bradford R. Price (the
"Executive").
WHEREAS, Executive has been employed by the Bank for a number of years,
and currently serves as its Executive Vice President, Secretary, and Residential
Lending Division Manager ("Corporate Position"); and
WHEREAS, Executive possesses an intimate knowledge of the business and
affairs of the Bank, including its policies, markets and financial and human
resources; and
WHEREAS, the Board of Directors of the Bank (the "Board"), recognizes
that Executive's contribution to the growth and success of the Bank has been
substantial and desires to assure the Bank of Executive's continued employment
in an executive capacity and to compensate him therefore; and
WHEREAS, Executive is desirous of committing himself to serve the Bank
on the terms provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, the Bank and Executive agree as follows:
1. Employment. Bank shall continue to employ Executive and Executive
shall continue to serve Bank under the terms and conditions of this Agreement
(which terms and conditions are intended to amend and supercede the agreement of
July 1, 1987 as previously in effect between the parties), for the period stated
in paragraph 2 below.
2. Term of Employment. The period of Executive's employment under this
Agreement shall commence on the date set forth above ("Commencement Date") and
shall expire on the third annual anniversary of said Commencement Date, unless
sooner terminated as provided herein. Effective as of any annual anniversary of
the Commencement Date during the term of this Agreement, the term of employment
hereunder may be extended by the action of the Bank's Board of Directors to add
one additional year to the then remaining term of employment hereunder so that
said term is annually restored to a full three-year term. The Board of Directors
or the Executive shall each provide the other with at least forty-five (45)
days' advance written notice of any decision on their respective parts not to
extend the Agreement on the anniversary date. The term of employment under this
<PAGE> 16
Agreement, as in effect from time to time, shall be referred to as the
"Employment Term."
3. Position and Duties. Subject to Section 5(iv)(B), the Executive
shall serve in his Corporate Position, reporting to the President, and shall
have supervision and control over, and responsibility for, residential lending
activities of the Bank, corporate recordkeeping and shall have such other powers
and duties as may from time to time be prescribed by the President, provided
that such duties are consistent with his present duties and with the Executive's
position as an executive officer of the Bank. The Executive shall devote
substantially all his working time and efforts to the business and affairs of
the Bank.
4. Compensation. As compensation for the services to be provided
pursuant to this Agreement, Executive shall receive from Bank the compensation
and other benefits set forth below:
(i) Base Salary. During the Employment Term the Executive shall
receive a base salary ("Base Salary") in such amount as may from time to time be
approved by the Board. The Base Salary shall at no time be less than the annual
base salary payable to the Executive on the date of this Agreement. Any increase
in Base Salary or other compensation granted by the Board shall in no way limit
or reduce any other obligation of the Bank under this Agreement and, once
established at an increased specified rate, Executive's Base Salary under this
Agreement shall not thereafter be reduced. Executive's Base Salary and other
compensation shall be paid in accordance with the Bank's regular payroll
practices, as from time to time in effect.
(ii) Bonus Payments. In addition to Base Salary, Executive shall
be entitled during the Employment Term to receive such bonus payments as the
Board may determine in accordance with the Bank's Management Incentive Plan (the
"Incentive Plan") in effect on the date of this Agreement or as the same may be
amended or modified from time to time for the Bank's executive officers.
(iii) Other Benefits. During the Employment Term the Bank shall
provide to Executive all other benefits of employment generally made available
to the Bank's executive officers as in effect with other plans or arrangements
providing Executive with at least equivalent benefits thereunder. Executive
shall be entitled to participate in or receive benefits under any group health
and life insurance plan, pension plan, stock purchase, incentive savings, stock
option, restricted stock, stock appreciation rights and any other similar plans
or arrangements presently or hereafter made available by the Bank to its
executive officers (collectively the "Benefit Plans"), subject to and on a basis
consistent with the terms, conditions and overall administration of such Benefit
Plans. Executive shall be
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<PAGE> 17
entitled to vacations and perquisites in accordance with the Bank's policies as
in effect from time to time for its executive officers.
5. Termination. This Agreement may be terminated, subject to payment of
the compensation and other benefits described below, upon the occurrence of any
of the events described below. In case of such termination, the date on which
Executive ceases to be employed under this Agreement, after giving effect to any
prior notice requirement set forth below, is referred to as the "Termination
Date."
(i) Death; Disability; Retirement. This Agreement shall terminate
upon the death, disability or retirement of Executive. As used in this
Agreement, the term "disability" shall mean Executive's inability, as a result
of physical or mental incapacity, to substantially perform his duties with the
Bank for a period of 180 consecutive days. Any question as to the existence of
Executive's disability upon which the Executive and the Bank cannot agree shall
be determined by a qualified independent physician mutually agreeable to
Executive and the Bank or, if the parties are unable to agree upon a physician
within ten (10) days after notice from either to the other suggesting a
physician, by a physician designated by the then president of the medical
society for the county in which Executive maintains his principal residence,
upon the request of either party. The costs of any such medical examination
shall be borne by the Bank. If Executive is terminated due to disability he
shall be paid 100% of his Base Salary at the rate in effect at the time notice
of termination is given for the remainder of the Employment Term, payable in
substantially equal monthly installments less, in each case, any disability
payments otherwise payable under plans provided by the Bank for disability or
any governmental social security or workers compensation program, and actually
paid to Executive in substantially equal monthly installments.
As used in this Agreement, the term "retirement" shall mean
Executive's retirement in accordance with and pursuant to any retirement plan of
the Bank generally applicable to its executive officers or in accordance with
any retirement arrangement established with Executive's consent with respect to
Executive.
If termination occurs for such reason, no additional compensation
shall be payable to the Executive under this Agreement except as specifically
provided in this Agreement. Notwithstanding anything to the contrary contained
in this Agreement, the Executive shall receive all compensation and other
benefits to which he was entitled under Section 4 through the Termination Date
and, in addition, shall receive all other benefits available to him under the
Bank's Benefit Plans as in
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<PAGE> 18
effect on the date of death, disability or retirement.
(ii) Cause. The Bank may terminate the Executive's employment
under this Agreement for Cause at any time, and thereafter the Bank's
obligations under this Agreement shall cease and terminate. Notwithstanding
anything to the contrary contained in this Agreement, Executive shall receive
all compensation and other benefits to which he was entitled under Section 4
through the Termination Date and, in addition, shall receive all benefits
available to him under the Bank's Benefit Plans as in effect on the Termination
Date. For purposes of this Agreement, "Cause" shall mean (A) the willful and
continued failure by Executive to substantially perform his duties with the Bank
(other than failure resulting from the Executive's incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to Executive by the Board, which demand specifically identifies the manner in
which the Board believes Executive has not substantially performed his duties,
(B) any willful act of misconduct by Executive which is materially injurious to
the Bank, monetarily or otherwise, (C) a criminal conviction of Executive for
any act involving dishonesty, breach of trust or a violation of the banking or
savings and loan laws of the State of Wisconsin or the United States, (D) a
criminal conviction of the Executive for the commission of any felony, (E) a
willful breach of fiduciary duty involving personal profit, (F) a willful
violation of any law, rule or regulation or final cease and desist order where
such violations materially, adversely, affect the Bank, (G) incompetence,
personal dishonesty or material breach of any provision of this Agreement which
would have a material adverse impact on the Bank. For purposes of this
Subsection 5(ii), no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Bank.
(iii) Voluntary Termination by Executive. Executive may
voluntarily terminate his employment under this Agreement at any time by giving
at least forty-five (45) days prior written notice to the Bank. In such event,
Executive shall receive all compensation and other benefits to which he was
entitled under Section 4 through the Termination Date and, in addition, shall
receive all other benefits available to him under the Bank's Benefit Plans as in
effect on the Termination Date.
(iv) Termination by Executive After Change in Control. For
purposes of this Agreement, a "change in control" shall mean a change in control
with respect to the Bank or its parent holding company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor thereto; provided that, without
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<PAGE> 19
limitation, such a change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities representing 25% or more of
the combined voting power of the Bank or holding company's then outstanding
securities; or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Bank or
company cease for any reason to constitute at least a majority thereof unless
the election, or the nomination for election by stockholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period. The Executive
may terminate his employment under this Agreement by giving at least ninety (90)
days prior written notice to the Bank at anytime (1) within eighteen (18) months
of the effective date of a "change in control", or (2) after the occurrence, at
any time subsequent to a "change in control," of any of the following events,
without Executive's express written consent:
(A) Executive is assigned to any positions, duties or
responsibilities that are less significant than his positions, duties and
responsibilities as of the time immediately prior to any change in control;
(B) Executive is removed from or the Board fails to re-elect
Executive to any of his Corporate Position, except (1) in connection with
termination of Executive's employment for cause, disability or retirement, or
(2) in connection with any change in control after which the Bank is not the
continuing or surviving corporation, if the successor organization has executed
an agreement as required by Section 8(i)(A) and the removal or failure to
re-elect is limited to his Corporate Position with the Bank;
(C) Executive's Base Salary is materially reduced or the
Executive experiences in any year a material reduction of the ratio of his bonus
payment to his Base Salary which is greater than the average reduction in the
ratio of bonus payments to base salaries in such year experienced by all other
executive officers of the Bank or any other material failure by the Bank to
comply with Section 4;
(D) Executive is transferred to a location not within a 25
mile radius of the City of LaCrosse, Wisconsin; or
(E) The Bank fails to obtain an agreement from any successor
organization as required by Section 8(i)(A).
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<PAGE> 20
(v) Suspension or Termination Required by the OTS
(A) 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 section 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's obligations under the Agreement
shall be suspended as of the date of service of the notice unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, Bank shall
(1) pay Executive all of the compensation withheld while its obligations under
this Agreement were suspended and (2) reinstate any of its obligations which
were suspended.
(B) 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 section 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss. 1818(e)(4) or (g)(1) obligations of the Bank under the Agreement
shall terminate as of the effective date of the order, but vested rights of the
Executive to compensation and to any benefits under the Bank's Pension Plan
shall not be affected.
(C) If the Bank is in default as defined in section 3(x)(1)
of the Federal Deposit Insurance Act, (12 U.S.C. 1813 (x)(1))all obligations
under the Agreement shall terminate as of the date of default, except that this
paragraph shall not affect any vested rights of the Executive under any
qualified retirement plan nor, in the event the Executive terminates prior to
the date of such default, the Executive's vested rights to continue to receive
severance payments and benefits pursuant to section 5(vi) of this Agreement.
(D) All obligations under the Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank, (i) by the OTS, at the time the FDIC or
Resolution Trust Corporation ("RTC") enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in section
13(c) of the Federal Deposit Insurance Act; or (ii) by the OTS at the time it
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the OTS 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, and the Executive shall receive the compensation
and benefits set forth in section 5(vi) of this Agreement.
(E) In the event that 12 C.F.R. ss. 563.39, or any successor
regulation, is repealed, this section 5(v) shall cease to be effective on the
effective date of such repeal. In the event that 12 C.F.R. ss. 563.39, or any
successor regulation, is
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<PAGE> 21
amended or modified, this Agreement shall be revised to reflect the amended or
modified provisions if: (1) the amended or modified provision is required to be
included in this Agreement; or (2) if not so required, the Executive requests
that the Agreement be so revised.
(vi) Termination by the Bank Other Than Due to Death, Disability,
Retirement or For Cause; Termination of Executive. If this Agreement is
terminated by the Bank for any reason other than death, disability, retirement
or for cause as set forth in Section 5(i) or (ii), or is terminated by the
Executive pursuant to Section 5(iv), then, following the Date of Termination:
(A) In lieu of any further salary payments to the Executive
for a period subsequent to the Termination Date, the Executive shall receive
severance pay in the form of payments continuing for the remaining unexpired
portion of the Employment Term, fully restored as of the Termination Date, at
the times provided in Section 4(i) and 4 (ii) ("Severance Payments") and based
on his highest rate of Base Salary within the 3 years preceding his Termination
Date and his total cash bonus paid in his most recently completed calendar year
of employment. In the event of a termination as a result of a change in control,
the Executive may elect to receive the Severance Payments calculated above in
one lump-sum, subject to any applicable limitations set forth in Section 6
below; provided that the amount of Severance Payment in connection with a change
in control shall be at least equal to the particular Executive's annual
compensation as of the Termination Date.
(B) In addition to the retirement benefits to which the
Executive is entitled under the Bank's Group Pension Plan, 401(k) Plan, and
ESOP, as amended from time to time (the "Retirement Plans"), the Executive shall
receive additional severance retirement benefits payable under this Agreement,
which benefits (except as provided below) shall be determined in accordance
with, and payable in the form and at the times provided in, the respective
Retirement Plans. Such benefits shall be determined as if the Executive were
fully vested under each Retirement Plan and had accumulated (after any
termination under this Agreement) the additional years of credited service
and/or allocations and Employer contributions under each of said Plans that he
would have received had he continued in the employment of the Bank for the
entire Employment Term at the levels of Base Salary and cash bonus used to
calculate the Severance Payments pursuant to subsection 5(vi)(A) above.
(C) In addition to all other amounts payable under this
section 5, Executive shall be entitled to coverage under any group health, life,
dental, or other group insurance plans (as well as under any individual life
coverages provided by the Bank on Executive's behalf) for the remainder of the
Employment Term
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<PAGE> 22
upon his continued payment of any required employee contribution at the rate in
effect as of his Termination Date and to receipt of all benefits otherwise
payable to Executive under (i) any tax qualified Bank plan or agreement relating
to pension or retirement benefits, and (ii) any other Bank plan or agreement,
regardless of tax status, established to provide deferred compensation,
retirement, or other benefits for the Executive.
(D) If Executive is under fifty-five (55) years of age on the
Termination Date, Executive shall take reasonable steps to obtain employment and
thereby mitigate the amount of compensation and benefits due under Section
5(vi); provided, however, that Executive shall not be required to accept a
position other than one within a 25 mile radius of the City of LaCrosse,
Wisconsin. If the Executive is fifty-five (55) years of age or older on the
Termination Date or if Executive determines upon the advice of a qualified
independent physician that he is physically or medically unable to substantially
perform duties with another employer comparable to those performed by him with
the Bank, the Executive shall have no obligation to seek other employment.
Notwithstanding the foregoing, and regardless of age, during any portion of the
Employment term remaining after the Termination Date, if the Executive becomes
employed on a full-time basis by another employer, then to the extent the
Executive shall receive compensation, benefits or service credit from such other
employer, the aggregate amount of all compensation to be paid and benefits and
service credit to be provided by the Bank under this Agreement shall be
correspondingly reduced.
(E) The requirement for mitigation, as set forth in Section 5
(vi)(D) above, shall not apply with respect to any termination under Section
5(iv) subsequent to a change in control.
6. Limitations on Termination Compensation.
(i) In the event that the severance benefits payable to the
Executive under Subsection 5(vi) ("Severance Benefits"), or any other payments
or benefits received or to be received by the Executive from the Bank (whether
payable pursuant to the terms of this Agreement, any other plan, agreement or
arrangement with the Bank or any corporation ("Affiliate") affiliated with the
Bank within the meaning of Section 1504 of the Internal Revenue Code of 1954, as
amended (the "Code"), in the opinion of tax counsel selected by the Bank's
independent auditors and acceptable to the Executive, constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and the present
value of such "parachute payments" equals or exceeds three (3) times the average
of the annual compensation payable to the Executive by the Bank (or an
Affiliate) and includible in the Executive's gross income for federal income tax
purposes for the five (5)
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<PAGE> 23
calendar years preceding the year in which a change in ownership or control of
the Bank occurred ("Base Amount"), such severance benefits shall be reduced to
an amount the present value of which (when combined with the present value of
any other payments or benefits otherwise received or to be received by the
Executive from the Bank (or an Affiliate) that are deemed "parachute payments")
is equal to 2.99 times the Base Amount, notwithstanding any other provision to
the contrary in this Agreement. The Severance Benefits shall not be reduced if
(A) the Executive shall have effectively waived his receipt or enjoyment of any
such payment or benefit which triggered the applicability of this Section 6, or
(B) in the opinion of such tax counsel, the Severance Benefits (in its full
amount or as partially reduced, as the case may be) plus all other payments or
benefits which constitute "parachute payments" within the meaning of Section
280G(b)(2) of the code are reasonable compensation for services actually
rendered, within the meaning of Section 280G(b)(4) of the code, and such
payments are deductible by the Bank. The Base Amount shall include every type
and form of compensation includible in the Executive's gross income in respect
of his employment by the Bank (or an Affiliate), except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G(b) of
the Code. For purposes of this Section 6, a "change in ownership or control"
shall have the meaning set forth in Section 280G(b) of the code and any
temporary or final regulations promulgated thereunder. The present value of any
non-cash benefit or any deferred cash payment shall be determined by the Bank's
independent auditors in accordance with the principles of Sections 280G(b)(3)
and (4) of the Code.
(ii) Executive shall have the right to request that the Bank
obtain a ruling from the Internal Revenue Service ("Service") as to whether any
or all payments or benefits determined by such tax counsel are, in the view of
the Service, "parachute payments" under Section 280G. If a ruling is sought
pursuant to the Executive's request, no severance benefits payable under this
Agreement shall be made to the Executive until after fifteen (15) days from the
date of such ruling. For purposes of this Subsection 6(ii), the Executive and
the Bank agree to be bound by the Service's ruling as to whether payments
constitute "parachute payments" under Section 280G. If the service declines, for
any reason, to provide the ruling requested, the tax counsel's opinion provided
under Subsection 6(i) with respect to what payments or benefits constitute
"parachute payments" shall control, and the period during which the Severance
Benefits may be deferred shall be extended to a date fifteen (15) days from the
date of the Service's notice indicating that no ruling would be forthcoming.
(iii) In the event that Section 280G, or any successor statute, is
repealed, this Section 6 shall cease to be effective
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<PAGE> 24
on the effective date of such repeal. The parties to this Agreement recognize
that final regulations under Section 280G of the Code may affect the amounts
that may be paid under this Agreement and agree that, upon issuance of such
final regulations this Agreement may be modified as in good faith deemed
necessary in light of the provisions of such regulations to achieve the purposes
of this Agreement, and that consent to such modifications shall not be
unreasonably withheld.
7. Noncompetition After Voluntary Termination And Duty of
Confidentiality.
(a) Noncompetition. Executive acknowledges that the development of
personal contacts and relationships is an essential element of the Bank's
business, that the Bank has invested considerable time and money in his
development of such contacts and relationships, that the Bank could suffer
irreparable harm if he were to leave employment and solicit the business of
Bank's customers, and that it is reasonable to protect the Bank against
competitive activities by Executive. Executive covenants and agrees, in
recognition of the foregoing and in consideration of the mutual promises
contained herein, that in the event of a voluntary termination of employment by
Executive pursuant to Section 5(iii), or upon expiration of this Agreement as a
result of Executive's election not to continue automatic annual renewals,
Executive shall not accept employment in La Crosse, Dane or St. Croix counties
with any Significant Competitor of the Bank for a period of eighteen (18) months
following such termination. For purposes of this Agreement, the term Significant
Competitor means any financial institution including, but not limited to, any
commercial bank, savings bank, savings and loan association, credit union, or
mortgage banking corporation which, at the time of termination of Executive's
employment or during the period of this covenant not to compete, (i) maintains a
home, branch or other office in any of said counties, or (ii) has originated
within any of said counties $10,000,000 or more in residential mortgage loans
during any consecutive twelve (12) month period within the thirty-six (36)
months prior to Executive's termination and inclusive of the period covered by
this covenant.
Executive agrees that the non-competition provisions set forth
herein are necessary for the protection of the Bank and are reasonably limited
as to (i) the scope of activities affected, (ii) their duration and geographic
scope, and (iii) their effect on Executive and the public. In the event
Executive violates the non-competition provisions set forth herein, Bank shall
be entitled, in addition to its other legal remedies, to enjoin the employment
of Executive with any Significant Competitor for the period set forth herein. If
Executive violates this covenant and the Bank brings legal action for injunctive
or other relief, the Bank shall not, as a result of the time involved in
obtaining
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<PAGE> 25
such relief, be deprived of the benefit of the full period of the restrictive
covenant. Accordingly, the covenant shall be deemed to have the duration
specified herein, computed from the date such relief is granted, but reduced by
any period between commencement of the period and the date of the first
violation. In addition to such other relief as may be awarded, if the Bank is
the prevailing party it shall be entitled to reimbursement for all reasonable
costs, including attorneys' fees, incurred in enforcing its rights hereunder.
(b) Duty of Confidentiality. Executive acknowledges that he will,
as the result of services performed on behalf of the Bank, obtain or otherwise
become aware of confidential and/or proprietary information regarding the Bank's
affairs, including, but not limited to, information relative to (i) customers,
customer accounts and customer lists, (ii) marketing, (iii) customer development
strategies, (iv) financial and economic plans and projections, and (v) other
similar information. Executive agrees that following termination of his
employment for any reason, he will treat all such matters as confidential and
will refrain both from divulging such information in any manner and from the use
of such information for his benefit or for the benefit of any employer
(regardless of whether such employer would constitute a Significant Competitor
under this Agreement) or third-party.
8. General Provisions.
(i) Successors; Binding Agreement.
(A) The Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank ("successor
organization") to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Bank would be required to perform it
if no such succession had taken place. As used in this Agreement, "Bank" shall
mean the Bank as hereinbefore defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 8 or which otherwise becomes bound by the terms and provisions of
this Agreement by operation of this Agreement or law. Failure of the Bank to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle the Executive as his exclusive
remedy to compensation from the Bank in the same amount and on the same terms as
he would be entitled to under this agreement if he terminated his employment
under Section 5(iv). For purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Termination
Date.
(B) No right or interest to or in any payments or
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<PAGE> 26
benefits under this Agreement shall be assignable or transferrable in any
respect by the Executive, nor shall any such payment, right or interest be
subject to seizure, attachment or creditor's process for payment of any debts,
judgments, or obligations of the Executive.
(C) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the Executive and his heirs, beneficiaries and
personal representatives and the Bank and any successor organization.
(ii) Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Bank:
605 State Street
LaCrosse, WI 54601
Attn: Chief Executive Officer
or if to Executive at the address set forth below the Executive's signature line
of this Agreement, or to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
(iii) Expenses. If any legal proceeding is necessary to enforce or
interpret this Agreement, or to recover damages for breach of it, the prevailing
party, shall be entitled to recover from the other party reasonable attorneys'
fees and necessary costs and disbursements incurred in such litigation, in
addition to any other relief to which such prevailing party may be entitled.
Notwithstanding the foregoing, in the event of a legal proceeding
to enforce or interpret the terms of this Agreement following a change in
control, Executive shall be entitled to recover from Bank, regardless of the
outcome of said action, necessary costs and disbursements incurred together with
actual attorney's fees up to the greater of (A) $25,000, or (B) thirty percent
(30%) of the amount in dispute between the parties [which amount, for purposes
of this Agreement, shall be deemed to be the difference between the highest
written settlement offer from the Bank and the lowest written settlement offer
(exclusive of any claim for consequential, punitive, or other forms or amounts
of damages not based on specific contract terms) from Executive]. Recovery by
Executive of attorneys fees and costs as provided herein following a change in
control shall be in addition to any other relief to which Executive may be
entitled.
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<PAGE> 27
(iv) Withholding. The Bank shall be entitled to withhold from
amounts to be paid to the Executive under this Agreement any federal, state or
local withholding or other taxes of charges which it is from time to time
required to withhold. the Bank shall be entitled to rely on an opinion of
counsel if any question as to the amount or requirement of any such withholding
shall arise.
(v) Miscellaneous. No provision of this Agreement may be amended,
waived or discharged unless such amendment, waiver or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Wisconsin.
(vi) Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(vii) Counterparts. This Agreement may be executed in several
counterparts, each of which together will constitute one and the same
instrument.
(viii) Headings. Headings contained in this Agreement are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
(ix) Effective Date. The effective date of this Agreement shall be
the date indicated in the first paragraph of this Agreement, notwithstanding the
actual date of execution by any party.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first above written.
Executive: Bradford R. Price
------------------------------------
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------------------------------------
(Address)
First Federal Savings Bank,
LaCrosse-Madison
(CORPORATE SEAL)
By:
------------------------------------
By:
------------------------------------
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<PAGE> 29
EMPLOYMENT AGREEMENT
(As Amended Effective July 1, 1994)
THIS EMPLOYMENT AGREEMENT is made effective as of this 1st day of July,
1994, by and between First Federal Savings Bank, LaCrosse-Madison, a
federally-chartered savings bank (the "Bank"), and Jack C. Rusch (the
"Executive").
WHEREAS, Executive has been employed by the Bank for a number of years,
and currently serves as its Executive Vice President, Treasurer, and Finance and
Administrative Division Manager ("Corporate Position"); and
WHEREAS, Executive possesses an intimate knowledge of the business and
affairs of the Bank, including its policies, markets and financial and human
resources; and
WHEREAS, the Board of Directors of the Bank (the "Board"), recognizes
that Executive's contribution to the growth and success of the Bank has been
substantial and desires to assure the Bank of Executive's continued employment
in an executive capacity and to compensate him therefore; and
WHEREAS, Executive is desirous of committing himself to serve the Bank
on the terms provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, the Bank and Executive agree as follows:
1. Employment. Bank shall continue to employ Executive and Executive
shall continue to serve Bank under the terms and conditions of this Agreement
(which terms and conditions are intended to amend and supercede the agreement of
July 1, 1987 as previously in effect between the parties), for the period stated
in paragraph 2 below.
2. Term of Employment. The period of Executive's employment under this
Agreement shall commence on the date set forth above ("Commencement Date") and
shall expire on the third annual anniversary of said Commencement Date, unless
sooner terminated as provided herein. Effective as of any annual anniversary of
the Commencement Date during the term of this Agreement, the term of employment
hereunder may be extended by the action of the Bank's Board of Directors to add
one additional year to the then remaining term of employment hereunder so that
said term is annually restored to a full three-year term. The Board of Directors
or the Executive shall each provide the other with at least forty-five (45)
days' advance written notice of any decision on their respective parts not to
extend the Agreement on the anniversary date. The term of employment under this
<PAGE> 30
Agreement, as in effect from time to time, shall be referred to as the
"Employment Term."
3. Position and Duties. Subject to Section 5(iv)(B), the Executive shall
serve in his Corporate Position, reporting to the President, and shall have
supervision and control over, and responsibility for, the finance and
administration of the Bank and shall have such other powers and duties as may
from time to time be prescribed by the President, provided that such duties are
consistent with his present duties and with the Executive's position as an
executive officer of the Bank. The Executive shall devote substantially all his
working time and efforts to the business and affairs of the Bank.
4. Compensation. As compensation for the services to be provided
pursuant to this Agreement, Executive shall receive from Bank the compensation
and other benefits set forth below:
(i) Base Salary. During the Employment Term the Executive shall
receive a base salary ("Base Salary") in such amount as may from time to time be
approved by the Board. The Base Salary shall at no time be less than the annual
base salary payable to the Executive on the date of this Agreement. Any increase
in Base Salary or other compensation granted by the Board shall in no way limit
or reduce any other obligation of the Bank under this Agreement and, once
established at an increased specified rate, Executive's Base Salary under this
Agreement shall not thereafter be reduced. Executive's Base Salary and other
compensation shall be paid in accordance with the Bank's regular payroll
practices, as from time to time in effect.
(ii) Bonus Payments. In addition to Base Salary, Executive shall
be entitled during the Employment Term to receive such bonus payments as the
Board may determine in accordance with the Bank's Management Incentive Plan (the
"Incentive Plan") in effect on the date of this Agreement or as the same may be
amended or modified from time to time for the Bank's executive officers.
(iii) Other Benefits. During the Employment Term the Bank shall
provide to Executive all other benefits of employment generally made available
to the Bank's executive officers as in effect with other plans or arrangements
providing Executive with at least equivalent benefits thereunder. Executive
shall be entitled to participate in or receive benefits under any group health
and life insurance plan, pension plan, stock purchase, incentive savings, stock
option, restricted stock, stock appreciation rights and any other similar plans
or arrangements presently or hereafter made available by the Bank to its
executive officers (collectively the "Benefit Plans"), subject to and on a basis
consistent with the terms, conditions and overall administration of such Benefit
Plans. Executive shall be
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<PAGE> 31
entitled to vacations and perquisites in accordance with the Bank's policies as
in effect from time to time for its executive officers.
5. Termination. This Agreement may be terminated, subject to payment of
the compensation and other benefits described below, upon the occurrence of any
of the events described below. In case of such termination, the date on which
Executive ceases to be employed under this Agreement, after giving effect to any
prior notice requirement set forth below, is referred to as the "Termination
Date."
(i) Death; Disability; Retirement. This Agreement shall terminate
upon the death, disability or retirement of Executive. As used in this
Agreement, the term "disability" shall mean Executive's inability, as a result
of physical or mental incapacity, to substantially perform his duties with the
Bank for a period of 180 consecutive days. Any question as to the existence of
Executive's disability upon which the Executive and the Bank cannot agree shall
be determined by a qualified independent physician mutually agreeable to
Executive and the Bank or, if the parties are unable to agree upon a physician
within ten (10) days after notice from either to the other suggesting a
physician, by a physician designated by the then president of the medical
society for the county in which Executive maintains his principal residence,
upon the request of either party. The costs of any such medical examination
shall be borne by the Bank. If Executive is terminated due to disability he
shall be paid 100% of his Base Salary at the rate in effect at the time notice
of termination is given for the remainder of the Employment Term, payable in
substantially equal monthly installments less, in each case, any disability
payments otherwise payable under plans provided by the Bank for disability or
any governmental social security or workers compensation program, and actually
paid to Executive in substantially equal monthly installments.
As used in this Agreement, the term "retirement" shall mean
Executive's retirement in accordance with and pursuant to any retirement plan of
the Bank generally applicable to its executive officers or in accordance with
any retirement arrangement established with Executive's consent with respect to
Executive.
If termination occurs for such reason, no additional compensation
shall be payable to the Executive under this Agreement except as specifically
provided in this Agreement. Notwithstanding anything to the contrary contained
in this Agreement, the Executive shall receive all compensation and other
benefits to which he was entitled under Section 4 through the Termination Date
and, in addition, shall receive all other benefits available to him under the
Bank's Benefit Plans as in
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<PAGE> 32
effect on the date of death, disability or retirement.
(ii) Cause. The Bank may terminate the Executive's employment
under this Agreement for Cause at any time, and thereafter the Bank's
obligations under this Agreement shall cease and terminate. Notwithstanding
anything to the contrary contained in this Agreement, Executive shall receive
all compensation and other benefits to which he was entitled under Section 4
through the Termination Date and, in addition, shall receive all benefits
available to him under the Bank's Benefit Plans as in effect on the Termination
Date. For purposes of this Agreement, "Cause" shall mean (A) the willful and
continued failure by Executive to substantially perform his duties with the Bank
(other than failure resulting from the Executive's incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to Executive by the Board, which demand specifically identifies the manner in
which the Board believes Executive has not substantially performed his duties,
(B) any willful act of misconduct by Executive which is materially injurious to
the Bank, monetarily or otherwise, (C) a criminal conviction of Executive for
any act involving dishonesty, breach of trust or a violation of the banking or
savings and loan laws of the State of Wisconsin or the United States, (D) a
criminal conviction of the Executive for the commission of any felony, (E) a
willful breach of fiduciary duty involving personal profit, (F) a willful
violation of any law, rule or regulation or final cease and desist order where
such violations materially, adversely, affect the Bank, (G) incompetence,
personal dishonesty or material breach of any provision of this Agreement which
would have a material adverse impact on the Bank. For purposes of this
Subsection 5(ii), no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Bank.
(iii) Voluntary Termination by Executive. Executive may
voluntarily terminate his employment under this Agreement at any time by giving
at least forty-five (45) days prior written notice to the Bank. In such event,
Executive shall receive all compensation and other benefits to which he was
entitled under Section 4 through the Termination Date and, in addition, shall
receive all other benefits available to him under the Bank's Benefit Plans as in
effect on the Termination Date.
(iv) Termination by Executive After Change in Control. For
purposes of this Agreement, a "change in control" shall mean a change in control
with respect to the Bank or its parent holding company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor thereto; provided that, without
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<PAGE> 33
limitation, such a change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities representing 25% or more of
the combined voting power of the Bank or holding company's then outstanding
securities; or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Bank or
company cease for any reason to constitute at least a majority thereof unless
the election, or the nomination for election by stockholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period. The Executive
may terminate his employment under this Agreement by giving at least ninety (90)
days prior written notice to the Bank at anytime (1) within eighteen (18) months
of the effective date of a "change in control", or (2) after the occurrence, at
any time subsequent to a "change in control," of any of the following events,
without Executive's express written consent:
(A) Executive is assigned to any positions, duties or
responsibilities that are less significant than his positions, duties and
responsibilities as of the time immediately prior to any change in control;
(B) Executive is removed from or the Board fails to re-elect
Executive to any of his Corporate Position, except (1) in connection with
termination of Executive's employment for cause, disability or retirement, or
(2) in connection with any change in control after which the Bank is not the
continuing or surviving corporation, if the successor organization has executed
an agreement as required by Section 8(i)(A) and the removal or failure to
re-elect is limited to his Corporate Position with the Bank;
(C) Executive's Base Salary is materially reduced or the
Executive experiences in any year a material reduction of the ratio of his bonus
payment to his Base Salary which is greater than the average reduction in the
ratio of bonus payments to base salaries in such year experienced by all other
executive officers of the Bank or any other material failure by the Bank to
comply with Section 4;
(D) Executive is transferred to a location not within a 25
mile radius of the City of LaCrosse, Wisconsin; or
(E) The Bank fails to obtain an agreement from any successor
organization as required by Section 8(i)(A).
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<PAGE> 34
(v) Suspension or Termination Required by the OTS
(A) 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 section 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's obligations under the Agreement
shall be suspended as of the date of service of the notice unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, Bank shall
(1) pay Executive all of the compensation withheld while its obligations under
this Agreement were suspended and (2) reinstate any of its obligations which
were suspended.
(B) 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 section 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss. 1818(e)(4) or (g)(1) obligations of the Bank under the Agreement
shall terminate as of the effective date of the order, but vested rights of the
Executive to compensation and to any benefits under the Bank's Pension Plan
shall not be affected.
(C) If the Bank is in default as defined in section 3(x)(1)
of the Federal Deposit Insurance Act, (12 U.S.C. 1813 (x)(1))all obligations
under the Agreement shall terminate as of the date of default, except that this
paragraph shall not affect any vested rights of the Executive under any
qualified retirement plan nor, in the event the Executive terminates prior to
the date of such default, the Executive's vested rights to continue to receive
severance payments and benefits pursuant to section 5(vi) of this Agreement.
(D) All obligations under the Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank, (i) by the OTS, at the time the FDIC or
Resolution Trust Corporation ("RTC") enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in section
13(c) of the Federal Deposit Insurance Act; or (ii) by the OTS at the time it
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the OTS 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, and the Executive shall receive the compensation
and benefits set forth in section 5(vi) of this Agreement.
(E) In the event that 12 C.F.R. ss. 563.39, or any successor
regulation, is repealed, this section 5(v) shall cease to be effective on the
effective date of such repeal. In the event that 12 C.F.R. ss. 563.39, or any
successor regulation, is
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<PAGE> 35
amended or modified, this Agreement shall be revised to reflect the amended or
modified provisions if: (1) the amended or modified provision is required to be
included in this Agreement; or (2) if not so required, the Executive requests
that the Agreement be so revised.
(vi) Termination by the Bank Other Than Due to Death, Disability,
Retirement or For Cause; Termination of Executive. If this Agreement is
terminated by the Bank for any reason other than death, disability, retirement
or for cause as set forth in Section 5(i) or (ii), or is terminated by the
Executive pursuant to Section 5(iv), then, following the Date of Termination:
(A) In lieu of any further salary payments to the Executive
for a period subsequent to the Termination Date, the Executive shall receive
severance pay in the form of payments continuing for the remaining unexpired
portion of the Employment Term, fully restored as of the Termination Date, at
the times provided in Section 4(i) and 4 (ii) ("Severance Payments") and based
on his highest rate of Base Salary within the 3 years preceding his Termination
Date and his total cash bonus paid in his most recently completed calendar year
of employment. In the event of a termination as a result of a change in control,
the Executive may elect to receive the Severance Payments calculated above in
one lump-sum, subject to any applicable limitations set forth in Section 6
below; provided that the amount of Severance Payment in connection with a change
in control shall be at least equal to the particular Executive's annual
compensation as of the Termination Date.
(B) In addition to the retirement benefits to which the
Executive is entitled under the Bank's Group Pension Plan, 401(k) Plan, and
ESOP, as amended from time to time (the "Retirement Plans"), the Executive shall
receive additional severance retirement benefits payable under this Agreement,
which benefits (except as provided below) shall be determined in accordance
with, and payable in the form and at the times provided in, the respective
Retirement Plans. Such benefits shall be determined as if the Executive were
fully vested under each Retirement Plan and had accumulated (after any
termination under this Agreement) the additional years of credited service
and/or allocations and Employer contributions under each of said Plans that he
would have received had he continued in the employment of the Bank for the
entire Employment Term at the levels of Base Salary and cash bonus used to
calculate the Severance Payments pursuant to subsection 5(vi)(A) above.
(C) In addition to all other amounts payable under this
section 5, Executive shall be entitled to coverage under any group health, life,
dental, or other group insurance plans (as well as under any individual life
coverages provided by the Bank on Executive's behalf) for the remainder of the
Employment Term
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<PAGE> 36
upon his continued payment of any required employee contribution at the
rate in effect as of his Termination Date and to receipt of all benefits
otherwise payable to Executive under (i) any tax qualified Bank plan or
agreement relating to pension or retirement benefits, and (ii) any other Bank
plan or agreement, regardless of tax status, established to provide deferred
compensation, retirement, or other benefits for the Executive.
(D) If Executive is under fifty-five (55) years of age on the
Termination Date, Executive shall take reasonable steps to obtain employment and
thereby mitigate the amount of compensation and benefits due under Section
5(vi); provided, however, that Executive shall not be required to accept a
position other than one within a 25 mile radius of the City of LaCrosse,
Wisconsin. If the Executive is fifty-five (55) years of age or older on the
Termination Date or if Executive determines upon the advice of a qualified
independent physician that he is physically or medically unable to substantially
perform duties with another employer comparable to those performed by him with
the Bank, the Executive shall have no obligation to seek other employment.
Notwithstanding the foregoing, and regardless of age, during any portion of the
Employment term remaining after the Termination Date, if the Executive becomes
employed on a full-time basis by another employer, then to the extent the
Executive shall receive compensation, benefits or service credit from such other
employer, the aggregate amount of all compensation to be paid and benefits and
service credit to be provided by the Bank under this Agreement shall be
correspondingly reduced.
(E) The requirement for mitigation, as set forth in Section 5
(vi)(D) above, shall not apply with respect to any termination under Section
5(iv) subsequent to a change in control.
6. Limitations on Termination Compensation.
(i) In the event that the severance benefits payable to the
Executive under Subsection 5(vi) ("Severance Benefits"), or any other payments
or benefits received or to be received by the Executive from the Bank (whether
payable pursuant to the terms of this Agreement, any other plan, agreement or
arrangement with the Bank or any corporation ("Affiliate") affiliated with the
Bank within the meaning of Section 1504 of the Internal Revenue Code of 1954, as
amended (the "Code"), in the opinion of tax counsel selected by the Bank's
independent auditors and acceptable to the Executive, constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and the present
value of such "parachute payments" equals or exceeds three (3) times the average
of the annual compensation payable to the Executive by the Bank (or an
Affiliate) and includible in the Executive's gross income for federal income tax
purposes for the five (5)
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<PAGE> 37
calendar years preceding the year in which a change in ownership or control of
the Bank occurred ("Base Amount"), such severance benefits shall be reduced to
an amount the present value of which (when combined with the present value of
any other payments or benefits otherwise received or to be received by the
Executive from the Bank (or an Affiliate) that are deemed "parachute payments")
is equal to 2.99 times the Base Amount, notwithstanding any other provision to
the contrary in this Agreement. The Severance Benefits shall not be reduced if
(A) the Executive shall have effectively waived his receipt or enjoyment of any
such payment or benefit which triggered the applicability of this Section 6, or
(B) in the opinion of such tax counsel, the Severance Benefits (in its full
amount or as partially reduced, as the case may be) plus all other payments or
benefits which constitute "parachute payments" within the meaning of Section
280G(b)(2) of the code are reasonable compensation for services actually
rendered, within the meaning of Section 280G(b)(4) of the code, and such
payments are deductible by the Bank. The Base Amount shall include every type
and form of compensation includible in the Executive's gross income in respect
of his employment by the Bank (or an Affiliate), except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G(b) of
the Code. For purposes of this Section 6, a "change in ownership or control"
shall have the meaning set forth in Section 280G(b) of the code and any
temporary or final regulations promulgated thereunder. The present value of any
non-cash benefit or any deferred cash payment shall be determined by the Bank's
independent auditors in accordance with the principles of Sections 280G(b)(3)
and (4) of the Code.
(ii) Executive shall have the right to request that the Bank
obtain a ruling from the Internal Revenue Service ("Service") as to whether any
or all payments or benefits determined by such tax counsel are, in the view of
the Service, "parachute payments" under Section 280G. If a ruling is sought
pursuant to the Executive's request, no severance benefits payable under this
Agreement shall be made to the Executive until after fifteen (15) days from the
date of such ruling. For purposes of this Subsection 6(ii), the Executive and
the Bank agree to be bound by the Service's ruling as to whether payments
constitute "parachute payments" under Section 280G. If the service declines, for
any reason, to provide the ruling requested, the tax counsel's opinion provided
under Subsection 6(i) with respect to what payments or benefits constitute
"parachute payments" shall control, and the period during which the Severance
Benefits may be deferred shall be extended to a date fifteen (15) days from the
date of the Service's notice indicating that no ruling would be forthcoming.
(iii) In the event that Section 280G, or any successor statute, is
repealed, this Section 6 shall cease to be effective
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<PAGE> 38
on the effective date of such repeal. The parties to this Agreement recognize
that final regulations under Section 280G of the Code may affect the amounts
that may be paid under this Agreement and agree that, upon issuance of such
final regulations this Agreement may be modified as in good faith deemed
necessary in light of the provisions of such regulations to achieve the purposes
of this Agreement, and that consent to such modifications shall not be
unreasonably withheld.
7. Noncompetition After Voluntary Termination And Duty of
Confidentiality.
(a) Noncompetition. Executive acknowledges that the development of
personal contacts and relationships is an essential element of the Bank's
business, that the Bank has invested considerable time and money in his
development of such contacts and relationships, that the Bank could suffer
irreparable harm if he were to leave employment and solicit the business of
Bank's customers, and that it is reasonable to protect the Bank against
competitive activities by Executive. Executive covenants and agrees, in
recognition of the foregoing and in consideration of the mutual promises
contained herein, that in the event of a voluntary termination of employment by
Executive pursuant to Section 5(iii), or upon expiration of this Agreement as a
result of Executive's election not to continue automatic annual renewals,
Executive shall not accept employment in La Crosse, Dane or St. Croix counties
with any Significant Competitor of the Bank for a period of eighteen (18) months
following such termination. For purposes of this Agreement, the term Significant
Competitor means any financial institution including, but not limited to, any
commercial bank, savings bank, savings and loan association, credit union, or
mortgage banking corporation which, at the time of termination of Executive's
employment or during the period of this covenant not to compete, (i) maintains a
home, branch or other office in any of said counties, or (ii) has originated
within any of said counties $10,000,000 or more in residential mortgage loans
during any consecutive twelve (12) month period within the thirty-six (36)
months prior to Executive's termination and inclusive of the period covered by
this covenant.
Executive agrees that the non-competition provisions set forth
herein are necessary for the protection of the Bank and are reasonably limited
as to (i) the scope of activities affected, (ii) their duration and geographic
scope, and (iii) their effect on Executive and the public. In the event
Executive violates the non-competition provisions set forth herein, Bank shall
be entitled, in addition to its other legal remedies, to enjoin the employment
of Executive with any Significant Competitor for the period set forth herein. If
Executive violates this covenant and the Bank brings legal action for injunctive
or other relief, the Bank shall not, as a result of the time involved in
obtaining
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<PAGE> 39
such relief, be deprived of the benefit of the full period of the restrictive
covenant. Accordingly, the covenant shall be deemed to have the duration
specified herein, computed from the date such relief is granted, but reduced by
any period between commencement of the period and the date of the first
violation. In addition to such other relief as may be awarded, if the Bank is
the prevailing party it shall be entitled to reimbursement for all reasonable
costs, including attorneys' fees, incurred in enforcing its rights hereunder.
(b) Duty of Confidentiality. Executive acknowledges that he will,
as the result of services performed on behalf of the Bank, obtain or otherwise
become aware of confidential and/or proprietary information regarding the Bank's
affairs, including, but not limited to, information relative to (i) customers,
customer accounts and customer lists, (ii) marketing, (iii) customer development
strategies, (iv) financial and economic plans and projections, and (v) other
similar information. Executive agrees that following termination of his
employment for any reason, he will treat all such matters as confidential and
will refrain both from divulging such information in any manner and from the use
of such information for his benefit or for the benefit of any employer
(regardless of whether such employer would constitute a Significant Competitor
under this Agreement) or third-party.
8. General Provisions.
(i) Successors; Binding Agreement.
(A) The Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank ("successor
organization") to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Bank would be required to perform it
if no such succession had taken place. As used in this Agreement, "Bank" shall
mean the Bank as hereinbefore defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 8 or which otherwise becomes bound by the terms and provisions of
this Agreement by operation of this Agreement or law. Failure of the Bank to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle the Executive as his exclusive
remedy to compensation from the Bank in the same amount and on the same terms as
he would be entitled to under this agreement if he terminated his employment
under Section 5(iv). For purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Termination
Date.
(B) No right or interest to or in any payments or
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<PAGE> 40
benefits under this Agreement shall be assignable or transferrable in any
respect by the Executive, nor shall any such payment, right or interest be
subject to seizure, attachment or creditor's process for payment of any debts,
judgments, or obligations of the Executive.
(C) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the Executive and his heirs, beneficiaries and
personal representatives and the Bank and any successor organization.
(ii) Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Bank:
605 State Street
LaCrosse, WI 54601
Attn: Secretary
or if to Executive at the address set forth below the Executive's signature line
of this Agreement, or to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
(iii) Expenses. If any legal proceeding is necessary to enforce or
interpret this Agreement, or to recover damages for breach of it, the prevailing
party, shall be entitled to recover from the other party reasonable attorneys'
fees and necessary costs and disbursements incurred in such litigation, in
addition to any other relief to which such prevailing party may be entitled.
Notwithstanding the foregoing, in the event of a legal proceeding
to enforce or interpret the terms of this Agreement following a change in
control, Executive shall be entitled to recover from Bank, regardless of the
outcome of said action, necessary costs and disbursements incurred together with
actual attorney's fees up to the greater of (A) $25,000, or (B) thirty percent
(30%) of the amount in dispute between the parties [which amount, for purposes
of this Agreement, shall be deemed to be the difference between the highest
written settlement offer from the Bank and the lowest written settlement offer
(exclusive of any claim for consequential, punitive, or other forms or amounts
of damages not based on specific contract terms) from Executive]. Recovery by
Executive of attorneys fees and costs as provided herein following a change in
control shall be in addition to any other relief to which Executive may be
entitled.
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(iv) Withholding. The Bank shall be entitled to withhold from
amounts to be paid to the Executive under this Agreement any federal, state or
local withholding or other taxes of charges which it is from time to time
required to withhold. the Bank shall be entitled to rely on an opinion of
counsel if any question as to the amount or requirement of any such withholding
shall arise.
(v) Miscellaneous. No provision of this Agreement may be amended,
waived or discharged unless such amendment, waiver or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Wisconsin.
(vi) Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(vii) Counterparts. This Agreement may be executed in several
counterparts, each of which together will constitute one and the same
instrument.
(viii) Headings. Headings contained in this Agreement are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
(ix) Effective Date. The effective date of this Agreement shall be
the date indicated in the first paragraph of this Agreement, notwithstanding the
actual date of execution by any party.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first above written.
Executive: Jack C. Rusch
------------------------------------
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------------------------------------
(Address)
First Federal Savings Bank,
LaCrosse-Madison
(CORPORATE SEAL)
By:
--------------------------------
By:
--------------------------------
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<PAGE> 43
EMPLOYMENT AGREEMENT
(As Amended Effective July 1, 1998)
THIS EMPLOYMENT AGREEMENT is made effective as of this 1st day of July,
1998, by and between First Federal Savings Bank, LaCrosse-Madison, a
federally-chartered savings bank (the "Bank"), and Joseph M. Konradt (the
"Executive").
WHEREAS, Executive has been employed by the Bank for a number of years,
and currently serves as its Senior Vice President and Retail Banking Division
Manager ("Corporate Position"); and
WHEREAS, Executive possesses an intimate knowledge of the business and
affairs of the Bank, including its policies, markets and financial and human
resources; and
WHEREAS, the Board of Directors of the Bank (the "Board"), recognizes
that Executive's contribution to the growth and success of the Bank has been
substantial and desires to assure the Bank of Executive's continued employment
in an executive capacity and to compensate him therefore; and
WHEREAS, Executive is desirous of committing himself to serve the Bank
on the terms provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, the Bank and Executive agree as follows:
1. Employment. Bank shall continue to employ Executive and Executive
shall continue to serve Bank under the terms and conditions of this Agreement
(which terms and conditions are intended to amend and supersede the agreement of
July 1, 1994 as previously in effect between the parties), for the period stated
in paragraph 2 below.
2. Term of Employment. The period of Executive's employment under this
Agreement shall commence on the date set forth above ("Commencement Date") and
shall expire on the third annual anniversary of said Commencement Date, unless
sooner terminated as provided herein. Effective as of any annual anniversary of
the Commencement Date during the term of this Agreement, the term of employment
hereunder may be extended by the action of the Bank's Board of Directors to add
one additional year to the then remaining term of employment hereunder so that
said term is annually restored to a full three-year term. The Board of Directors
or the Executive shall each provide the other with at least forty-five (45)
days' advance written notice of any decision on their respective parts not to
extend the Agreement on the anniversary date. The term of employment under this
Agreement, as in effect from time to time, shall be referred to
<PAGE> 44
as the "Employment Term."
3. Position and Duties. Subject to Section 5(iv)(B), Executive shall
serve in his Corporate Position, reporting to the Board, and shall have
supervision and control over, and responsibility for, the operation of the Bank
and shall have such other powers and duties as may from time to time be
prescribed by the Board, provided that such duties are consistent with his
present duties and position as an executive officer of the Bank. Executive shall
devote substantially all his working time and efforts to the business and
affairs of the Bank.
4. Compensation. As compensation for the services to be provided
pursuant to this Agreement, Executive shall receive from Bank the compensation
and other benefits set forth below:
(i) Base Salary. During the Employment Term the Executive shall
receive a base salary ("Base Salary") in such amount as may from time to time be
approved by the Board. The Base Salary shall at no time be less than the annual
base salary payable to the Executive on the date of this Agreement. Any increase
in Base Salary or other compensation granted by the Board shall in no way limit
or reduce any other obligation of the Bank under this Agreement and, once
established at an increased specified rate, Executive's Base Salary under this
Agreement shall not thereafter be reduced. Executive's Base Salary and other
compensation shall be paid in accordance with the Bank's regular payroll
practices, as from time to time in effect.
(ii) Bonus Payments. In addition to Base Salary, Executive shall
be entitled during the Employment Term to receive such bonus payments as the
Board may determine in accordance with the Bank's Management Incentive Plan (the
"Incentive Plan") in effect on the date of this Agreement or as the same may be
amended or modified from time to time for the Bank's executive officers.
(iii) Other Benefits. During the Employment Term the Bank shall
provide to Executive all other benefits of employment generally made available
to the Bank's executive officers as in effect with other plans or arrangements
providing Executive with at least equivalent benefits there-under. Executive
shall be entitled to participate in or receive benefits under any group health
and life insurance plan, pension plan, stock purchase, incentive savings, stock
option, restricted stock, stock appreciation rights and any other similar plans
or arrangements presently or hereafter made available by the Bank to its
executive officers (collectively the "Benefit Plans"), subject to and on a basis
consistent with the terms, conditions and overall administration of such Benefit
Plans. Executive shall be entitled to vacations and perquisites in accordance
with the Bank's policies as in effect from time to time for its executive
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<PAGE> 45
officers.
5. Termination. This Agreement may be terminated, subject to payment of
the compensation and other benefits described below, upon the occurrence of any
of the events described below. In case of such termination, the date on which
Executive ceases to be employed under this Agreement, after giving effect to any
prior notice requirement set forth below, is referred to as the "Termination
Date."
(i) Death; Disability; Retirement. This Agreement shall terminate
upon the death, disability or retirement of Executive. As used in this
Agreement, the term "disability" shall mean Executive's inability, as a result
of physical or mental incapacity, to substantially perform his duties with the
Bank for a period of 180 consecutive days. Any question as to the existence of
Executive's disability upon which the Executive and the Bank cannot agree shall
be determined by a qualified independent physician mutually agreeable to
Executive and the Bank or, if the parties are unable to agree upon a physician
within ten (10) days after notice from either to the other suggesting a
physician, by a physician designated by the then president of the medical
society for the county in which Executive maintains his principal residence,
upon the request of either party. The costs of any such medical examination
shall be borne by the Bank. If Executive is terminated due to disability he
shall be paid 100% of his Base Salary at the rate in effect at the time notice
of termination is given for the remainder of the Employment Term, payable in
substantially equal monthly installments less, in each case, any disability
payments otherwise payable under plans provided by the Bank for disability or
any governmental social security or workers compensation program, and actually
paid to Executive in substantially equal monthly installments.
As used in this Agreement, the term "retirement" shall mean
Executive's retirement in accordance with and pursuant to any retirement plan of
the Bank generally applicable to its executive officers or in accordance with
any retirement arrangement established with Executive's consent with respect to
Executive.
If termination occurs for such reason, no additional compensation
shall be payable to the Executive under this Agreement except as specifically
provided in this Agreement. Notwithstanding anything to the contrary contained
in this Agreement, the Executive shall receive all compensation and other
benefits to which he was entitled under Section 4 through the Termination Date
and, in addition, shall receive all other benefits available to him under the
Bank's Benefit Plans as in effect on the date of death, disability or
retirement.
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<PAGE> 46
(ii) Cause. The Bank may terminate the Executive's employment
under this Agreement for Cause at any time, and thereafter the Bank's
obligations under this Agreement shall cease and terminate. Notwithstanding
anything to the contrary contained in this Agreement, Executive shall receive
all compensation and other benefits to which he was entitled under Section 4
through the Termination Date and, in addition, shall receive all benefits
available to him under the Bank's Benefit Plans as in effect on the Termination
Date. For purposes of this Agreement, "Cause" shall mean (A) the willful and
continued failure by Executive to substantially perform his duties with the Bank
(other than failure resulting from the Executive's incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to Executive by the Board, which demand specifically identifies the manner in
which the Board believes Executive has not substantially performed his duties,
(B) any willful act of misconduct by Executive which is materially injurious to
the Bank, monetarily or otherwise, (C) a criminal conviction of Executive for
any act involving dishonesty, breach of trust or a violation of the banking or
savings and loan laws of the State of Wisconsin or the United States, (D) a
criminal conviction of the Executive for the commission of any felony, (E) a
willful breach of fiduciary duty involving personal profit, (F) a willful
violation of any law, rule or regulation or final cease and desist order where
such violations materially, adversely, affect the Bank, (G) incompetence,
personal dishonesty or material breach of any provision of this Agreement which
would have a material adverse impact on the Bank. For purposes of this
Subsection 5(ii), no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Bank.
(iii) Voluntary Termination by Executive. Executive may
voluntarily terminate his employment under this Agreement at any time by giving
at least ninety (90) days prior written notice to the Bank. In such event,
Executive shall receive all compensation and other benefits to which he was
entitled under Section 4 through the Termination Date and, in addition, shall
receive all other benefits available to him under the Bank's Benefit Plans as in
effect on the Termination Date.
(iv) Termination by Executive After Change in Control. For
purposes of this Agreement, a "change in control" shall mean a change in control
with respect to the Bank or its parent holding company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor thereto; provided that, without limitation, such a change
in control shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections
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13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities representing 25% or more of the combined voting power of the Bank or
holding company's then outstanding securities; or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Bank or company cease for any reason to constitute
at least a majority thereof unless the election, or the nomination for election
by stockholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period. The Executive may terminate his employment under this
Agreement by giving at least ninety (90) days prior written notice to the Bank
at anytime (1) within eighteen (18) months of the effective date of a "change in
control", or (2) after the occurrence, at any time subsequent to a "change in
control," of any of the following events, without Executive's express written
consent:
(A) Executive is assigned to any positions, duties or
responsibilities that are materially less significant than his positions, duties
and responsibilities as of the time immediately prior to any change in control;
(B) Executive is removed from or the Board fails to re-elect
Executive to any of his Corporate Position, except (1) in connection with
termination of Executive's employment for cause, disability or retirement, or
(2) in connection with any change in control after which the Bank is not the
continuing or surviving corporation, if the successor organization has executed
an agreement as required by Section 8(i)(A) and the removal or failure to
re-elect is limited to his Corporate Position with the Bank;
(C) Executive's Base Salary is materially reduced or the
Executive experiences in any year a material reduction of the ratio of his bonus
payment to his Base Salary which is greater than the average reduction in the
ratio of bonus payments to base salaries in such year experienced by all other
executive officers of the Bank or any other material failure by the Bank to
comply with Section 4;
(D) Executive is transferred to a location not within a 25
mile radius of the City of LaCrosse, Wisconsin; or
(E) The Bank fails to obtain an agreement from any successor
organization as required by Section 8(i)(A).
(v) Suspension or Termination Required by the OTS
(A) If Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's
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affairs by a notice served under section 8(e)(3), or section 8(g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's
obligations under the Agreement shall be suspended as of the date of service of
the notice unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, Bank shall (1) pay Executive all of the compensation
withheld while its obligations under this Agreement were suspended and (2)
reinstate any of its obligations which were suspended.
(B) 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 section 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss. 1818(e)(4) or (g)(1) obligations of the Bank under the Agreement
shall terminate as of the effective date of the order, but vested rights of the
Executive to compensation and to any benefits under the Bank's Pension Plan
shall not be affected.
(C) If the Bank is in default as defined in section 3(x)(1)
of the Federal Deposit Insurance Act, (12 U.S.C. 1813 (x)(1)) all obligations
under the Agreement shall terminate as of the date of default, except that this
paragraph shall not affect vested rights of the Executive under any qualified
retirement plan nor, in the event the Executive terminates prior to the date of
such default, the Executive's vested rights to continue to receive severance
payments and benefits pursuant to Section 5(vi) of this Agreement.
(D) All obligations under the Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank, (i) by the OTS, at the time the FDIC or
Resolution Trust Corporation ("RTC") enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in section
13(c) of the Federal Deposit Insurance Act; or (ii) by the OTS at the time it
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the OTS 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, and the Executive shall receive the compensation
and benefits set forth in section 5(vi) of this Agreement.
(E) In the event that 12 C.F.R. ss. 563.39, or any successor
regulation, is repealed, this section 5(v) shall cease to be effective on the
effective date of such repeal. In the event that 12 C.F.R. ss. 563.39, or any
successor regulation, is amended or modified, this Agreement shall be revised to
reflect the amended or modified provisions if: (1) the amended or modified
provision is required to be included in this Agreement; or (2) if not so
required, the Executive requests that the
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Agreement be so revised.
(vi) Termination by the Bank Other Than Due to Death, Disability,
Retirement or For Cause; Termination of Executive. If this Agreement is
terminated by the Bank for any reason other than death, disability, retirement
or for cause as set forth in Section 5(i) or (ii), or is terminated by the
Executive pursuant to Section 5(iv), then, following the Date of Termination:
(A) In lieu of any further salary payments to the Executive
for a period subsequent to the Termination Date, the Executive shall receive
severance pay in the form of payments continuing for the remaining unexpired
portion of the Employment Term, fully restored as of the Termination Date, at
the times provided in Section 4(i) and 4 (ii) ("Severance Payments") and based
on his highest rate of Base Salary within the 3 years preceding his Termination
Date and his total cash bonus paid in his most recently completed calendar year
of employment. In the event of a termination as a result of a change in control,
the Executive may elect to receive the Severance Payments calculated above in
one lump sum, subject to any applicable limitations set forth in Section 6
below; provided that the amount of Severance Payment in connection with a change
in control shall be at least equal to the particular Executive's annual
compensation as of the Termination Date.
(B) In addition to the retirement benefits to which the
Executive is entitled under the Bank's Group Pension Plan, 401(k) Plan, and
ESOP, as amended from time to time (the "Retirement Plans"), the Executive shall
receive as additional severance retirement benefits payable under this
Agreement, which benefits (except as provided below) shall be determined in
accordance with, and payable in the form and at the times provided in, the
respective Retirement Plans. Such benefits shall be determined as if the
Executive were fully vested under each Retirement Plan and had accumulated
(after any termination under this Agreement) the additional years of credited
service and/or allocations and Employer contributions under each of said Plans
that he would have received had he continued in the employment of the Bank for
the entire Employment Term at the levels of Base Salary and cash bonus used to
calculate the Severance Payments pursuant to subsection 5(vi)(A) above.
(C) In addition to all other amounts payable under this
section 5, Executive shall be entitled to coverage under any group health, life,
dental, or other group insurance plans (as well as under any individual life
coverages provided by the Bank on Executive's behalf) for the remainder of the
Employment Term upon his continued payment of any required employee contribution
at the rate in effect as of his Termination Date and to receipt of all benefits
otherwise payable to Executive under (i) any tax qualified Bank plan or
agreement relating to pension or
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retirement benefits, and (ii) any other Bank plan or agreement, regardless of
tax status, established to provide deferred compensation, retirement, or other
benefits for the Executive.
(D) If Executive is under fifty-five (55) years of age on the
Termination Date, Executive shall take reasonable steps to obtain employment and
thereby mitigate the amount of compensation and benefits due under Section
5(vi); provided, however, that Executive shall not be required to accept a
position other than one within a 25 mile radius of the City of LaCrosse,
Wisconsin. If the Executive is fifty-five (55) years of age or older on the
Termination Date or if Executive determines upon the advice of a qualified
independent physician that he is physically or medically unable to substantially
perform duties with another employer comparable to those performed by him with
the Bank, the Executive shall have no obligation to seek other employment.
Notwithstanding the foregoing, and regardless of age, during any portion of the
Employment term remaining after the Termination Date, if the Executive becomes
employed on a full-time basis by another employer, then to the extent the
Executive shall receive compensation, benefits or service credit from such other
employer, the aggregate amount of all compensation to be paid and benefits and
service credit to be provided by the Bank under this Agreement shall be
correspondingly reduced.
(E) The requirement for mitigation, as set forth in Section 5
(vi)(D) above, shall not apply with respect to any termination under Section
5(iv) subsequent to a change in control.
6. Limitations on Termination Compensation.
(i) In the event that the severance benefits payable to the
Executive under Subsection 5(vi) ("Severance Benefits"), or any other payments
or benefits received or to be received by the Executive from the Bank (whether
payable pursuant to the terms of this Agreement, any other plan, agreement or
arrangement with the Bank or any corporation ("Affiliate") affiliated with the
Bank within the meaning of Section 1504 of the Internal Revenue Code of 1954, as
amended (the "Code"), in the opinion of tax counsel selected by the Bank's
independent auditors and acceptable to the Executive, constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and the present
value of such "parachute payments" equals or exceeds three (3) times the average
of the annual compensation payable to the Executive by the Bank (or an
Affiliate) and includible in the Executive's gross income for federal income tax
purposes for the five (5) calendar years preceding the year in which a change in
ownership or control of the Bank occurred ("Base Amount"), such severance
benefits shall be reduced to an amount the present value of which (when combined
with the present value of any other payments or
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<PAGE> 51
benefits otherwise received or to be received by the Executive from the Bank (or
an Affiliate) that are deemed "parachute payments") is equal to 2.99 times the
Base Amount, notwithstanding any other provision to the contrary in this
Agreement. The Severance Benefits shall not be reduced if (A) the Executive
shall have effectively waived his receipt or enjoyment of any such payment or
benefit which triggered the applicability of this Section 6, or (B) in the
opinion of such tax counsel, the Severance Benefits (in its full amount or as
partially reduced, as the case may be) plus all other payments or benefits which
constitute "parachute payments" within the meaning of Section 280G(b)(2) of the
code are reasonable compensation for services actually rendered, within the
meaning of Section 280G(b)(4) of the code, and such payments are deductible by
the Bank. The Base Amount shall include every type and form of compensation
includible in the Executive's gross income in respect of his employment by the
Bank (or an Affiliate), except to the extent otherwise provided in temporary or
final regulations promulgated under Section 280G(b) of the Code. For purposes of
this Section 6, a "change in ownership or control" shall have the meaning set
forth in Section 280G(b) of the code and any temporary or final regulations
promulgated thereunder. The present value of any non-cash benefit or any
deferred cash payment shall be determined by the Bank's independent auditors in
accordance with the principles of Sections 280G(b)(3) and (4) of the Code.
(ii) Executive shall have the right to request that the Bank
obtain a ruling from the Internal Revenue Service ("Service") as to whether any
or all payments or benefits deter- mined by such tax counsel are, in the view of
the Service, "para- chute payments" under Section 280G. If a ruling is sought
pursuant to the Executive's request, no severance benefits payable under this
Agreement shall be made to the Executive until after fifteen (15) days from the
date of such ruling. For purposes of this Subsection 6(ii), the Executive and
the Bank agree to be bound by the Service's ruling as to whether payments
constitute "parachute payments" under Section 280G. If the service declines, for
any reason, to provide the ruling requested, the tax counsel's opinion provided
under Sub-section 6(i) with respect to what payments or benefits constitute
"parachute payments" shall control, and the period during which the Severance
Benefits may be deferred shall be extended to a date fifteen (15) days from the
date of the Service's notice indicating that no ruling would be forthcoming.
(iii) In the event that Section 280G, or any successor statute, is
repealed, this Section 6 shall cease to be effective on the effective date of
such repeal. The parties to this Agreement recognize that final regulations
under Section 280G of the Code may affect the amounts that may be paid under
this Agreement and agree that, upon issuance of such final regulations
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this Agreement may be modified as in good faith deemed necessary in light of the
provisions of such regulations to achieve the purposes of this Agreement, and
that consent to such modifications shall not be unreasonably withheld.
7. Noncompetition After Voluntary Termination And Duty of
Confidentiality.
(a) Noncompetition. Executive acknowledges that the
development of personal contacts and relationships is an essential element of
the Bank's business, that the Bank has invested considerable time and money in
his development of such contacts and relationships, that the Bank could suffer
tirreparable harm if he were to leave employment and solicit the business of
Bank's customers, and that it is reasonable to protect the Bank against
competitive activities by Executive. Executive covenants and agrees, in
recognition of the foregoing and in consideration of the mutual promises
contained herein, that in the event of a voluntary termination of employment by
Executive pursuant to Section 5(iii), or upon expiration of this Agreement as a
result of Executive's election not to continue automatic annual renewals,
Executive shall not accept employment in La Crosse, Dane or St. Croix counties
with any Significant Competitor of the Bank for a period of eighteen (18) months
following such termination. For purposes of this Agreement, the term Significant
Competitor means any financial institution including, but not limited to, any
commercial bank, savings bank, savings and loan association, credit union, or
mortgage banking corporation which, at the time of termination of Executive's
employment or during the period of this covenant not to compete, (i) maintains a
home, branch or other office in any of said counties, or (ii) has originated
within any of said counties $10,000,000 or more in residential mortgage loans
during any consecutive twelve (12) month period within the thirty-six (36)
months prior to Executive's termination and inclusive of the period covered by
this covenant.
Executive agrees that the non-competition provisions set
forth herein are necessary for the protection of the Bank and are reasonably
limited as to (i) the scope of activities affected, (ii) their duration and
geographic scope, and (iii) their effect on Executive and the public. In the
event Executive violates the non-competition provisions set forth herein, Bank
shall be entitled, in addition to its other legal remedies, to enjoin the
employment of Executive with any Significant Competitor for the period set forth
herein. If Executive violates this covenant and the Bank brings legal action for
injunctive or other relief, the Bank shall not, as a result of the time involved
in obtaining such relief, be deprived of the benefit of the full period of the
restrictive covenant. Accordingly, the covenant shall be deemed to have the
duration specified herein, computed from the date such relief is granted, but
reduced by any period between
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commencement of the period and the date of the first violation. In addition to
such other relief as may be awarded, if the Bank is the prevailing party it
shall be entitled to reimbursement for all reasonable costs, including
attorneys' fees, incurred in enforcing its rights hereunder.
(b) Duty of Confidentiality. Executive acknowledges that he
will, as the result of services performed on behalf of the Bank, obtain or
otherwise become aware of confidential and/or proprietary information regarding
the Bank's affairs, including, but not limited to, information relative to (i)
customers, customer accounts and customer lists, (ii) marketing, (iii) customer
development strategies, (iv) financial and economic plans and projections, and
(v) other similar information. Executive agrees that following termination of
his employment for any reason, he will treat all such matters as confidential
and will refrain both from divulging such information in any manner and from the
use of such information for his benefit or for the benefit of any employer
(regardless of whether such employer would constitute a Significant Competitor
under this Agreement) or third-party.
8. General Provisions.
(i) Successors; Binding Agreement.
(A) The Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank ("successor
organization") to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Bank would be required to perform it
if no such succession had taken place. As used in this Agreement, "Bank" shall
mean the Bank as hereinbefore defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 8 or which otherwise becomes bound by the terms and provisions of
this Agreement by operation of this Agreement or law. Failure of the Bank to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle the Executive as his exclusive
remedy to compensation from the Bank in the same amount and on the same terms as
he would be entitled to under this agreement if he terminated his employment
under Section 5(iv). For purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Termination
Date.
(B) No right or interest to or in any payments or benefits
under this Agreement shall be assignable or transferrable in any respect by the
Executive, nor shall any such payment, right or interest be subject to seizure,
attachment or creditor's process for payment of any debts, judgments, or
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obligations of the Executive.
(C) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the Executive and his heirs, beneficiaries and
personal representatives and the Bank and any successor organization.
(ii) Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Bank:
605 State Street
LaCrosse, WI 54601
Attn: Secretary
or if to Executive at the address set forth below the Executive's signature line
of this Agreement, or to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
(iii) Expenses. If any legal proceeding is necessary to enforce or
interpret this Agreement, or to recover damages for breach of it, the prevailing
party, shall be entitled to recover from the other party reasonable attorneys'
fees and necessary costs and disbursements incurred in such litigation, in
addition to any other relief to which such prevailing party may be entitled.
Notwithstanding the foregoing, in the event of a legal proceeding
to enforce or interpret the terms of this Agreement following a change in
control, Executive shall be entitled to recover from Bank, regardless of the
outcome of said action, necessary costs and disbursements incurred together with
actual attorney's fees up to the greater of (A) $25,000, or (B) thirty percent
(30%) of the amount in dispute between the parties [which amount, for purposes
of this Agreement, shall be deemed to be the difference between the highest
written settlement offer from the Bank and the lowest written settlement offer
(exclusive of any claim for consequential, punitive, or other forms or amounts
of damages not based on specific contract terms) from Executive]. Recovery by
Executive of attorneys fees and costs as provided herein following a change in
control shall be in addition to any other relief to which Executive may be
entitled.
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(iv) Withholding. The Bank shall be entitled to withhold from
amounts to be paid to the Executive under this Agreement any federal, state or
local withholding or other taxes of charges which it is from time to time
required to withhold. the Bank shall be entitled to rely on an opinion of
counsel if any question as to the amount or requirement of any such withholding
shall arise.
(v) Miscellaneous. No provision of this Agreement may be amended,
waived or discharged unless such amendment, waiver or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Wisconsin.
(vi) Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(vii) Counterparts. This Agreement may be executed in several
counterparts, each of which together will constitute one and the same
instrument.
(viii) Headings. Headings contained in this Agreement are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
(ix) Effective Date. The effective date of this Agreement shall be
the date indicated in the first paragraph of this Agreement, notwithstanding the
actual date of execution by any party.
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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first above written.
Executive:
------------------------------------
Joseph M. Konradt
------------------------------------
------------------------------------
(Address)
First Federal Savings Bank,
LaCrosse-Madison
(CORPORATE SEAL)
By:
---------------------------------
By:
----------------------------------
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<PAGE> 57
EMPLOYMENT AGREEMENT
(As Amended Effective July 1, 1994)
THIS EMPLOYMENT AGREEMENT is made effective as of this 1st day of July,
1994, by and between First Federal Savings Bank, LaCrosse-Madison, a
federally-chartered savings bank (the "Bank"), and Jack C. Rusch (the
"Executive").
WHEREAS, Executive has been employed by the Bank for a number of years,
and currently serves as its Executive Vice President, Treasurer, and Finance and
Administrative Division Manager ("Corporate Position"); and
WHEREAS, Executive possesses an intimate knowledge of the business and
affairs of the Bank, including its policies, markets and financial and human
resources; and
WHEREAS, the Board of Directors of the Bank (the "Board"), recognizes
that Executive's contribution to the growth and success of the Bank has been
substantial and desires to assure the Bank of Executive's continued employment
in an executive capacity and to compensate him therefore; and
WHEREAS, Executive is desirous of committing himself to serve the Bank
on the terms provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, the Bank and Executive agree as follows:
1. Employment. Bank shall continue to employ Executive and Executive
shall continue to serve Bank under the terms and conditions of this Agreement
(which terms and conditions are intended to amend and supercede the agreement of
July 1, 1987 as previously in effect between the parties), for the period stated
in paragraph 2 below.
2. Term of Employment. The period of Executive's employment under this
Agreement shall commence on the date set forth above ("Commencement Date") and
shall expire on the third annual anniversary of said Commencement Date, unless
sooner terminated as provided herein. Effective as of any annual anniversary of
the Commencement Date during the term of this Agreement, the term of employment
hereunder may be extended by the action of the Bank's Board of Directors to add
one additional year to the then remaining term of employment hereunder so that
said term is annually restored to a full three-year term. The Board of Directors
or the Executive shall each provide the other with at least forty-five (45)
days' advance written notice of any decision on their respective parts not to
extend the Agreement on the anniversary date. The term of employment under this
<PAGE> 58
Agreement, as in effect from time to time, shall be referred to as the
"Employment Term."
3. Position and Duties. Subject to Section 5(iv)(B), the Executive shall
serve in his Corporate Position, reporting to the President, and shall have
supervision and control over, and responsibility for, the finance and
administration of the Bank and shall have such other powers and duties as may
from time to time be prescribed by the President, provided that such duties are
consistent with his present duties and with the Executive's position as an
executive officer of the Bank. The Executive shall devote substantially all his
working time and efforts to the business and affairs of the Bank.
4. Compensation. As compensation for the services to be provided
pursuant to this Agreement, Executive shall receive from Bank the compensation
and other benefits set forth below:
(i) Base Salary. During the Employment Term the Executive shall
receive a base salary ("Base Salary") in such amount as may from time to time be
approved by the Board. The Base Salary shall at no time be less than the annual
base salary payable to the Executive on the date of this Agreement. Any increase
in Base Salary or other compensation granted by the Board shall in no way limit
or reduce any other obligation of the Bank under this Agreement and, once
established at an increased specified rate, Executive's Base Salary under this
Agreement shall not thereafter be reduced. Executive's Base Salary and other
compensation shall be paid in accordance with the Bank's regular payroll
practices, as from time to time in effect.
(ii) Bonus Payments. In addition to Base Salary, Executive shall
be entitled during the Employment Term to receive such bonus payments as the
Board may determine in accordance with the Bank's Management Incentive Plan (the
"Incentive Plan") in effect on the date of this Agreement or as the same may be
amended or modified from time to time for the Bank's executive officers.
(iii) Other Benefits. During the Employment Term the Bank shall
provide to Executive all other benefits of employment generally made available
to the Bank's executive officers as in effect with other plans or arrangements
providing Executive with at least equivalent benefits thereunder. Executive
shall be entitled to participate in or receive benefits under any group health
and life insurance plan, pension plan, stock purchase, incentive savings, stock
option, restricted stock, stock appreciation rights and any other similar plans
or arrangements presently or hereafter made available by the Bank to its
executive officers (collectively the "Benefit Plans"), subject to and on a basis
consistent with the terms, conditions and overall administration of such Benefit
Plans. Executive shall be
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entitled to vacations and perquisites in accordance with the Bank's policies as
in effect from time to time for its executive officers.
5. Termination. This Agreement may be terminated, subject to payment of
the compensation and other benefits described below, upon the occurrence of any
of the events described below. In case of such termination, the date on which
Executive ceases to be employed under this Agreement, after giving effect to any
prior notice requirement set forth below, is referred to as the "Termination
Date."
(i) Death; Disability; Retirement. This Agreement shall terminate
upon the death, disability or retirement of Executive. As used in this
Agreement, the term "disability" shall mean Executive's inability, as a result
of physical or mental incapacity, to substantially perform his duties with the
Bank for a period of 180 consecutive days. Any question as to the existence of
Executive's disability upon which the Executive and the Bank cannot agree shall
be determined by a qualified independent physician mutually agreeable to
Executive and the Bank or, if the parties are unable to agree upon a physician
within ten (10) days after notice from either to the other suggesting a
physician, by a physician designated by the then president of the medical
society for the county in which Executive maintains his principal residence,
upon the request of either party. The costs of any such medical examination
shall be borne by the Bank. If Executive is terminated due to disability he
shall be paid 100% of his Base Salary at the rate in effect at the time notice
of termination is given for the remainder of the Employment Term, payable in
substantially equal monthly installments less, in each case, any disability
payments otherwise payable under plans provided by the Bank for disability or
any governmental social security or workers compensation program, and actually
paid to Executive in substantially equal monthly installments.
As used in this Agreement, the term "retirement" shall mean
Executive's retirement in accordance with and pursuant to any retirement plan of
the Bank generally applicable to its executive officers or in accordance with
any retirement arrangement established with Executive's consent with respect to
Executive.
If termination occurs for such reason, no additional compensation
shall be payable to the Executive under this Agreement except as specifically
provided in this Agreement. Notwithstanding anything to the contrary contained
in this Agreement, the Executive shall receive all compensation and other
benefits to which he was entitled under Section 4 through the Termination Date
and, in addition, shall receive all other benefits available to him under the
Bank's Benefit Plans as in
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effect on the date of death, disability or retirement.
(ii) Cause. The Bank may terminate the Executive's employment
under this Agreement for Cause at any time, and thereafter the Bank's
obligations under this Agreement shall cease and terminate. Notwithstanding
anything to the contrary contained in this Agreement, Executive shall receive
all compensation and other benefits to which he was entitled under Section 4
through the Termination Date and, in addition, shall receive all benefits
available to him under the Bank's Benefit Plans as in effect on the Termination
Date. For purposes of this Agreement, "Cause" shall mean (A) the willful and
continued failure by Executive to substantially perform his duties with the Bank
(other than failure resulting from the Executive's incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to Executive by the Board, which demand specifically identifies the manner in
which the Board believes Executive has not substantially performed his duties,
(B) any willful act of misconduct by Executive which is materially injurious to
the Bank, monetarily or otherwise, (C) a criminal conviction of Executive for
any act involving dishonesty, breach of trust or a violation of the banking or
savings and loan laws of the State of Wisconsin or the United States, (D) a
criminal conviction of the Executive for the commission of any felony, (E) a
willful breach of fiduciary duty involving personal profit, (F) a willful
violation of any law, rule or regulation or final cease and desist order where
such violations materially, adversely, affect the Bank, (G) incompetence,
personal dishonesty or material breach of any provision of this Agreement which
would have a material adverse impact on the Bank. For purposes of this
Subsection 5(ii), no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Bank.
(iii) Voluntary Termination by Executive. Executive may
voluntarily terminate his employment under this Agreement at any time by giving
at least forty-five (45) days prior written notice to the Bank. In such event,
Executive shall receive all compensation and other benefits to which he was
entitled under Section 4 through the Termination Date and, in addition, shall
receive all other benefits available to him under the Bank's Benefit Plans as in
effect on the Termination Date.
(iv) Termination by Executive After Change in Control. For
purposes of this Agreement, a "change in control" shall mean a change in control
with respect to the Bank or its parent holding company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act") or any successor thereto; provided that, without
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limitation, such a change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities representing 25% or more of
the combined voting power of the Bank or holding company's then outstanding
securities; or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Bank or
company cease for any reason to constitute at least a majority thereof unless
the election, or the nomination for election by stockholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period. The Executive
may terminate his employment under this Agreement by giving at least ninety (90)
days prior written notice to the Bank at anytime (1) within eighteen (18) months
of the effective date of a "change in control", or (2) after the occurrence, at
any time subsequent to a "change in control," of any of the following events,
without Executive's express written consent:
(A) Executive is assigned to any positions, duties or
responsibilities that are less significant than his positions, duties and
responsibilities as of the time immediately prior to any change in control;
(B) Executive is removed from or the Board fails to re-elect
Executive to any of his Corporate Position, except (1) in connection with
termination of Executive's employment for cause, disability or retirement, or
(2) in connection with any change in control after which the Bank is not the
continuing or surviving corporation, if the successor organization has executed
an agreement as required by Section 8(i)(A) and the removal or failure to
re-elect is limited to his Corporate Position with the Bank;
(C) Executive's Base Salary is materiallly reduced or the
Executive experiences in any year a material reduction of the ratio of his bonus
payment to his Base Salary which is greater than the average reduction in the
ratio of bonus payments to base salaries in such year experienced by all other
executive officers of the Bank or any other material failure by the Bank to
comply with Section 4;
(D) Executive is transferred to a location not within a 25
mile radius of the City of LaCrosse, Wisconsin; or
(E) The Bank fails to obtain an agreement from any successor
organization as required by Section 8(i)(A).
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(v) Suspension or Termination Required by the OTS
(A) 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 section 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's obligations under the Agreement
shall be suspended as of the date of service of the notice unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, Bank shall
(1) pay Executive all of the compensation withheld while its obligations under
this Agreement were suspended and (2) reinstate any of its obligations which
were suspended.
(B) 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 section 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. ss. 1818(e)(4) or (g)(1) obligations of the Bank under the Agreement
shall terminate as of the effective date of the order, but vested rights of the
Executive to compensation and to any benefits under the Bank's Pension Plan
shall not be affected.
(C) If the Bank is in default as defined in section 3(x)(1)
of the Federal Deposit Insurance Act, (12 U.S.C. 1813 (x)(1))all obligations
under the Agreement shall terminate as of the date of default, except that this
paragraph shall not affect any vested rights of the Executive under any
qualified retirement plan nor, in the event the Executive terminates prior to
the date of such default, the Executive's vested rights to continue to receive
severance payments and benefits pursuant to section 5(vi) of this Agreement.
(D) All obligations under the Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the Bank, (i) by the OTS, at the time the FDIC or
Resolution Trust Corporation ("RTC") enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in section
13(c) of the Federal Deposit Insurance Act; or (ii) by the OTS at the time it
approves a supervisory merger to resolve problems related to operation of the
Bank or when the Bank is determined by the OTS 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, and the Executive shall receive the compensation
and benefits set forth in section 5(vi) of this Agreement.
(E) In the event that 12 C.F.R. ss. 563.39, or any successor
regulation, is repealed, this section 5(v) shall cease to be effective on the
effective date of such repeal. In the event that 12 C.F.R. ss. 563.39, or any
successor regulation, is
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amended or modified, this Agreement shall be revised to reflect the amended or
modified provisions if: (1) the amended or modified provision is required to be
included in this Agreement; or (2) if not so required, the Executive requests
that the Agreement be so revised.
(vi) Termination by the Bank Other Than Due to Death, Disability,
Retirement or For Cause; Termination of Executive. If this Agreement is
terminated by the Bank for any reason other than death, disability, retirement
or for cause as set forth in Section 5(i) or (ii), or is terminated by the
Executive pursuant to Section 5(iv), then, following the Date of Termination:
(A) In lieu of any further salary payments to the Executive
for a period subsequent to the Termination Date, the Executive shall receive
severance pay in the form of payments continuing for the remaining unexpired
portion of the Employment Term, fully restored as of the Termination Date, at
the times provided in Section 4(i) and 4 (ii) ("Severance Payments") and based
on his highest rate of Base Salary within the 3 years preceding his Termination
Date and his total cash bonus paid in his most recently completed calendar year
of employment. In the event of a termination as a result of a change in control,
the Executive may elect to receive the Severance Payments calculated above in
one lump-sum, subject to any applicable limitations set forth in Section 6
below; provided that the amount of Severance Payment in connection with a change
in control shall be at least equal to the particular Executive's annual
compensation as of the Termination Date.
(B) In addition to the retirement benefits to which the
Executive is entitled under the Bank's Group Pension Plan, 401(k) Plan, and
ESOP, as amended from time to time (the "Retirement Plans"), the Executive shall
receive additional severance retirement benefits payable under this Agreement,
which benefits (except as provided below) shall be determined in accordance
with, and payable in the form and at the times provided in, the respective
Retirement Plans. Such benefits shall be determined as if the Executive were
fully vested under each Retirement Plan and had accumulated (after any
termination under this Agreement) the additional years of credited service
and/or allocations and Employer contributions under each of said Plans that he
would have received had he continued in the employment of the Bank for the
entire Employment Term at the levels of Base Salary and cash bonus used to
calculate the Severance Payments pursuant to subsection 5(vi)(A) above.
(C) In addition to all other amounts payable under this
section 5, Executive shall be entitled to coverage under any group health, life,
dental, or other group insurance plans (as well as under any individual life
coverages provided by the Bank on Executive's behalf) for the remainder of the
Employment Term
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upon his continued payment of any required employee contribution at the rate in
effect as of his Termination Date and to receipt of all benefits otherwise
payable to Executive under (i) any tax qualified Bank plan or agreement relating
to pension or retirement benefits, and (ii) any other Bank plan or agreement,
regardless of tax status, established to provide deferred compensation,
retirement, or other benefits for the Executive.
(D) If Executive is under fifty-five (55) years of age on the
Termination Date, Executive shall take reasonable steps to obtain employment and
thereby mitigate the amount of compensation and benefits due under Section
5(vi); provided, however, that Executive shall not be required to accept a
position other than one within a 25 mile radius of the City of LaCrosse,
Wisconsin. If the Executive is fifty-five (55) years of age or older on the
Termination Date or if Executive determines upon the advice of a qualified
independent physician that he is physically or medically unable to substantially
perform duties with another employer comparable to those performed by him with
the Bank, the Executive shall have no obligation to seek other employment.
Notwithstanding the foregoing, and regardless of age, during any portion of the
Employment term remaining after the Termination Date, if the Executive becomes
employed on a full-time basis by another employer, then to the extent the
Executive shall receive compensation, benefits or service credit from such other
employer, the aggregate amount of all compensation to be paid and benefits and
service credit to be provided by the Bank under this Agreement shall be
correspondingly reduced.
(E) The requirement for mitigation, as set forth in Section 5
(vi)(D) above, shall not apply with respect to any termination under Section
5(iv) subsequent to a change in control.
6. Limitations on Termination Compensation.
(i) In the event that the severance benefits payable to the
Executive under Subsection 5(vi) ("Severance Benefits"), or any other payments
or benefits received or to be received by the Executive from the Bank (whether
payable pursuant to the terms of this Agreement, any other plan, agreement or
arrangement with the Bank or any corporation ("Affiliate") affiliated with the
Bank within the meaning of Section 1504 of the Internal Revenue Code of 1954, as
amended (the "Code"), in the opinion of tax counsel selected by the Bank's
independent auditors and acceptable to the Executive, constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and the present
value of such "parachute payments" equals or exceeds three (3) times the average
of the annual compensation payable to the Executive by the Bank (or an
Affiliate) and includible in the Executive's gross income for federal income tax
purposes for the five (5)
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calendar years preceding the year in which a change in ownership or control of
the Bank occurred ("Base Amount"), such severance benefits shall be reduced to
an amount the present value of which (when combined with the present value of
any other payments or benefits otherwise received or to be received by the
Executive from the Bank (or an Affiliate) that are deemed "parachute payments")
is equal to 2.99 times the Base Amount, notwithstanding any other provision to
the contrary in this Agreement. The Severance Benefits shall not be reduced if
(A) the Executive shall have effectively waived his receipt or enjoyment of any
such payment or benefit which triggered the applicability of this Section 6, or
(B) in the opinion of such tax counsel, the Severance Benefits (in its full
amount or as partially reduced, as the case may be) plus all other payments or
benefits which constitute "parachute payments" within the meaning of Section
280G(b)(2) of the code are reasonable compensation for services actually
rendered, within the meaning of Section 280G(b)(4) of the code, and such
payments are deductible by the Bank. The Base Amount shall include every type
and form of compensation includible in the Executive's gross income in respect
of his employment by the Bank (or an Affiliate), except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G(b) of
the Code. For purposes of this Section 6, a "change in ownership or control"
shall have the meaning set forth in Section 280G(b) of the code and any
temporary or final regulations promulgated thereunder. The present value of any
non-cash benefit or any deferred cash payment shall be determined by the Bank's
independent auditors in accordance with the principles of Sections 280G(b)(3)
and (4) of the Code.
(ii) Executive shall have the right to request that the Bank
obtain a ruling from the Internal Revenue Service ("Service") as to whether any
or all payments or benefits determined by such tax counsel are, in the view of
the Service, "parachute payments" under Section 280G. If a ruling is sought
pursuant to the Executive's request, no severance benefits payable under this
Agreement shall be made to the Executive until after fifteen (15) days from the
date of such ruling. For purposes of this Subsection 6(ii), the Executive and
the Bank agree to be bound by the Service's ruling as to whether payments
constitute "parachute payments" under Section 280G. If the service declines, for
any reason, to provide the ruling requested, the tax counsel's opinion provided
under Subsection 6(i) with respect to what payments or benefits constitute
"parachute payments" shall control, and the period during which the Severance
Benefits may be deferred shall be extended to a date fifteen (15) days from the
date of the Service's notice indicating that no ruling would be forthcoming.
(iii) In the event that Section 280G, or any successor statute, is
repealed, this Section 6 shall cease to be effective
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on the effective date of such repeal. The parties to this Agreement recognize
that final regulations under Section 280G of the Code may affect the amounts
that may be paid under this Agreement and agree that, upon issuance of such
final regulations this Agreement may be modified as in good faith deemed
necessary in light of the provisions of such regulations to achieve the purposes
of this Agreement, and that consent to such modifications shall not be
unreasonably withheld.
7. Noncompetition After Voluntary Termination And Duty of
Confidentiality.
(a) Noncompetition. Executive acknowledges that the development of
personal contacts and relationships is an essential element of the Bank's
business, that the Bank has invested considerable time and money in his
development of such contacts and relationships, that the Bank could suffer
irreparable harm if he were to leave employment and solicit the business of
Bank's customers, and that it is reasonable to protect the Bank against
competitive activities by Executive. Executive covenants and agrees, in
recognition of the foregoing and in consideration of the mutual promises
contained herein, that in the event of a voluntary termination of employment by
Executive pursuant to Section 5(iii), or upon expiration of this Agreement as a
result of Executive's election not to continue automatic annual renewals,
Executive shall not accept employment in La Crosse, Dane or St. Croix counties
with any Significant Competitor of the Bank for a period of eighteen (18) months
following such termination. For purposes of this Agreement, the term Significant
Competitor means any financial institution including, but not limited to, any
commercial bank, savings bank, savings and loan association, credit union, or
mortgage banking corporation which, at the time of termination of Executive's
employment or during the period of this covenant not to compete, (i) maintains a
home, branch or other office in any of said counties, or (ii) has originated
within any of said counties $10,000,000 or more in residential mortgage loans
during any consecutive twelve (12) month period within the thirty-six (36)
months prior to Executive's termination and inclusive of the period covered by
this covenant.
Executive agrees that the non-competition provisions set forth
herein are necessary for the protection of the Bank and are reasonably limited
as to (i) the scope of activities affected, (ii) their duration and geographic
scope, and (iii) their effect on Executive and the public. In the event
Executive violates the non-competition provisions set forth herein, Bank shall
be entitled, in addition to its other legal remedies, to enjoin the employment
of Executive with any Significant Competitor for the period set forth herein. If
Executive violates this covenant and the Bank brings legal action for injunctive
or other relief, the Bank shall not, as a result of the time involved in
obtaining
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such relief, be deprived of the benefit of the full period of the restrictive
covenant. Accordingly, the covenant shall be deemed to have the duration
specified herein, computed from the date such relief is granted, but reduced by
any period between commencement of the period and the date of the first
violation. In addition to such other relief as may be awarded, if the Bank is
the prevailing party it shall be entitled to reimbursement for all reasonable
costs, including attorneys' fees, incurred in enforcing its rights hereunder.
(b) Duty of Confidentiality. Executive acknowledges that he will,
as the result of services performed on behalf of the Bank, obtain or otherwise
become aware of confidential and/or proprietary information regarding the Bank's
affairs, including, but not limited to, information relative to (i) customers,
customer accounts and customer lists, (ii) marketing, (iii) customer development
strategies, (iv) financial and economic plans and projections, and (v) other
similar information. Executive agrees that following termination of his
employment for any reason, he will treat all such matters as confidential and
will refrain both from divulging such information in any manner and from the use
of such information for his benefit or for the benefit of any employer
(regardless of whether such employer would constitute a Significant Competitor
under this Agreement) or third-party.
8. General Provisions.
(i) Successors; Binding Agreement.
(A) The Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank ("successor
organization") to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Bank would be required to perform it
if no such succession had taken place. As used in this Agreement, "Bank" shall
mean the Bank as hereinbefore defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 8 or which otherwise becomes bound by the terms and provisions of
this Agreement by operation of this Agreement or law. Failure of the Bank to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle the Executive as his exclusive
remedy to compensation from the Bank in the same amount and on the same terms as
he would be entitled to under this agreement if he terminated his employment
under Section 5(iv). For purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Termination
Date.
(B) No right or interest to or in any payments or
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benefits under this Agreement shall be assignable or transferrable in any
respect by the Executive, nor shall any such payment, right or interest be
subject to seizure, attachment or creditor's process for payment of any debts,
judgments, or obligations of the Executive.
(C) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the Executive and his heirs, beneficiaries and
personal representatives and the Bank and any successor organization.
(ii) Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Bank:
605 State Street
LaCrosse, WI 54601
Attn: Secretary
or if to Executive at the address set forth below the Executive's signature line
of this Agreement, or to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
(iii) Expenses. If any legal proceeding is necessary to enforce or
interpret this Agreement, or to recover damages for breach of it, the prevailing
party, shall be entitled to recover from the other party reasonable attorneys'
fees and necessary costs and disbursements incurred in such litigation, in
addition to any other relief to which such prevailing party may be entitled.
Notwithstanding the foregoing, in the event of a legal proceeding
to enforce or interpret the terms of this Agreement following a change in
control, Executive shall be entitled to recover from Bank, regardless of the
outcome of said action, necessary costs and disbursements incurred together with
actual attorney's fees up to the greater of (A) $25,000, or (B) thirty percent
(30%) of the amount in dispute between the parties [which amount, for purposes
of this Agreement, shall be deemed to be the difference between the highest
written settlement offer from the Bank and the lowest written settlement offer
(exclusive of any claim for consequential, punitive, or other forms or amounts
of damages not based on specific contract terms) from Executive]. Recovery by
Executive of attorneys fees and costs as provided herein following a change in
control shall be in addition to any other relief to which Executive may be
entitled.
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(iv) Withholding. The Bank shall be entitled to withhold from
amounts to be paid to the Executive under this Agreement any federal, state or
local withholding or other taxes of charges which it is from time to time
required to withhold. the Bank shall be entitled to rely on an opinion of
counsel if any question as to the amount or requirement of any such withholding
shall arise.
(v) Miscellaneous. No provision of this Agreement may be amended,
waived or discharged unless such amendment, waiver or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Wisconsin.
(vi) Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(vii) Counterparts. This Agreement may be executed in several
counterparts, each of which together will constitute one and the same
instrument.
(viii) Headings. Headings contained in this Agreement are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
(ix) Effective Date. The effective date of this Agreement shall be
the date indicated in the first paragraph of this Agreement, notwithstanding the
actual date of execution by any party.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as
of the date first above written.
Executive: Milne J. Duncan
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------------------------------------
(Address)
First Federal Savings Bank,
LaCrosse-Madison
(CORPORATE SEAL)
By:
---------------------------------
By:
---------------------------------
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EMPLOYMENT AGREEMENT
(As Amended Effective July 1, 1994)
THIS EMPLOYMENT AGREEMENT is made effective as of this 1st day of July,
1994, by and between First Federal Savings Bank, LaCrosse-Madison, a
federally-chartered savings bank (the "Bank"), and Robert P. Abell (the
"Executive").
WHEREAS, Executive has been employed by the Bank for a number of years,
and currently serves as its Senior Vice President and Commercial Real Estate
Lending Division Manager ("Corporate Position"); and
WHEREAS, Executive possesses an intimate knowledge of the business and
affairs of the Bank, including its policies, markets and financial and human
resources; and
WHEREAS, the Board of Directors of the Bank (the "Board"), recognizes
that Executive's contribution to the growth and success of the Bank has been
substantial and desires to assure the Bank of Executive's continued employment
in an executive capacity and to compensate him therefore; and
WHEREAS, Executive is desirous of committing himself to serve the Bank
on the terms provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein set forth, the Bank and Executive agree as follows:
1. Employment. Bank shall continue to employ Executive and Executive
shall continue to serve Bank under the terms and conditions of this Agreement
(which terms and conditions are intended to amend and supercede the agreement of
July 1, 1987 as previously in effect between the parties), for the period stated
in paragraph 2 below.
2. Term of Employment. The period of Executive's employment under this
Agreement shall commence on the date set forth above ("Commencement Date") and
shall expire on the second annual anniversary of said Commencement Date, unless
sooner terminated as provided herein. Effective as of any annual anniversary of
the Commencement Date during the term of this Agreement, the term of employment
hereunder may be extended by the action of the Bank's Board of Directors to add
one additional year to the then remaining term of employment hereunder so that
said term is annually restored to a full two-year term. The Board of Directors
or the Executive shall each provide the other with at
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least forty-five (45) days' advance written notice of any decision on their
respective parts not to extend the Agreement on the anniversary date. The term
of employment under this Agreement, as in effect from time to time, shall be
referred to as the "Employment Term."
3. Position and Duties. Subject to Section 5(iv)(B), the Executive shall
serve in his Corporate Position, reporting to the President, and shall have
supervision and control over, and responsibility for, commercial and real estate
lending functions of the Bank and shall have such other powers and duties as may
from time to time be prescribed by the President, provided that such duties are
consistent with his present duties and with the Executive's position as an
executive officer of the Bank. The Executive shall devote substantially all his
working time and efforts to the business and affairs of the Bank.
4. Compensation. As compensation for the services to be provided
pursuant to this Agreement, Executive shall receive from Bank the compensation
and other benefits set forth below:
(i) Base Salary. During the Employment Term the Executive shall
receive a base salary ("Base Salary") in such amount as may from time to time be
approved by the Board. The Base Salary shall at no time be less than the annual
base salary payable to the Executive on the date of this Agreement. Any increase
in Base Salary or other compensation granted by the Board shall in no way limit
or reduce any other obligation of the Bank under this Agreement and, once
established at an increased specified rate, Executive's Base Salary under this
Agreement shall not thereafter be reduced. Executive's Base Salary and other
compensation shall be paid in accordance with the Bank's regular payroll
practices, as from time to time in effect.
(ii) Bonus Payments. In addition to Base Salary, Executive shall be
entitled during the Employment Term to receive such bonus payments as the Board
may determine in accordance with the Bank's Management Incentive Plan (the
"Incentive Plan") in effect on the date of this Agreement or as the same may be
amended or modified from time to time for the Bank's executive officers.
(iii) Other Benefits. During the Employment Term the Bank shall
provide to Executive all other benefits of employment generally made available
to the Bank's executive officers as in effect with other plans or arrangements
providing Executive with at least equivalent benefits thereunder. Executive
shall be entitled to participate in or receive benefits under any group health
and life insurance plan, pension plan, stock purchase, incentive savings, stock
option, restricted stock, stock appreciation rights and any other similar plans
or arrangements presently or hereafter made available by the Bank to its
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executive officers (collectively the "Benefit Plans"), subject to and on a basis
consistent with the terms, conditions and overall administration of such Benefit
Plans. Executive shall be entitled to vacations and perquisites in accordance
with the Bank's policies as in effect from time to time for its executive
officers.
5. Termination. This Agreement may be terminated, subject to payment of
the compensation and other benefits described below, upon the occurrence of any
of the events described below. In case of such termination, the date on which
Executive ceases to be employed under this Agreement, after giving effect to any
prior notice requirement set forth below, is referred to as the "Termination
Date."
(i) Death; Disability; Retirement. This Agreement shall terminate
upon the death, disability or retirement of Executive. As used in this
Agreement, the term "disability" shall mean Executive's inability, as a result
of physical or mental incapacity, to substantially perform his duties with the
Bank for a period of 180 consecutive days. Any question as to the existence of
Executive's disability upon which the Executive and the Bank cannot agree shall
be determined by a qualified independent physician mutually agreeable to
Executive and the Bank or, if the parties are unable to agree upon a physician
within ten (10) days after notice from either to the other suggesting a
physician, by a physician designated by the then president of the medical
society for the county in which Executive maintains his principal residence,
upon the request of either party. The costs of any such medical examination
shall be borne by the Bank. If Executive is terminated due to disability he
shall be paid 100% of his Base Salary at the rate in effect at the time notice
of termination is given for the remainder of the Employment Term, payable in
substantially equal monthly installments less, in each case, any disability
payments otherwise payable under plans provided by the Bank for disability or
any governmental social security or workers compensation program, and actually
paid to Executive in substantially equal monthly installments.
As used in this Agreement, the term "retirement" shall mean
Executive's retirement in accordance with and pursuant to any retirement plan of
the Bank generally applicable to its executive officers or in accordance with
any retirement arrangement established with Executive's consent with respect to
Executive.
If termination occurs for such reason, no additional compensation
shall be payable to the Executive under this Agreement except as specifically
provided in this Agreement. Notwithstanding anything to the contrary contained
in this Agreement, the Executive shall receive all compensation and other
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benefits to which he was entitled under Section 4 through the Termination Date
and, in addition, shall receive all other benefits available to him under the
Bank's Benefit Plans as in effect on the date of death, disability or
retirement.
(ii) Cause. The Bank may terminate the Executive's employment under
this Agreement for Cause at any time, and thereafter the Bank's obligations
under this Agreement shall cease and terminate. Notwithstanding anything to the
contrary contained in this Agreement, Executive shall receive all compensation
and other benefits to which he was entitled under Section 4 through the
Termination Date and, in addition, shall receive all benefits available to him
under the Bank's Benefit Plans as in effect on the Termination Date. For
purposes of this Agreement, "Cause" shall mean (A) the willful and continued
failure by Executive to substantially perform his duties with the Bank (other
than failure resulting from the Executive's incapacity due to physical or mental
illness) after a written demand for substantial performance is delivered to
Executive by the Board, which demand specifically identifies the manner in which
the Board believes Executive has not substantially performed his duties, (B) any
willful act of misconduct by Executive which is materially injurious to the
Bank, monetarily or otherwise, (C) a criminal conviction of Executive for any
act involving dishonesty, breach of trust or a violation of the banking or
savings and loan laws of the State of Wisconsin or the United States, (D) a
criminal conviction of the Executive for the commission of any felony, (E) a
willful breach of fiduciary duty involving personal profit, (F) a willful
violation of any law, rule or regulation or final cease and desist order where
such violations materially, adversely, affect the Bank, (G) incompetence,
personal dishonesty or material breach of any provision of this Agreement which
would have a material adverse impact on the Bank. For purposes of this
Subsection 5(ii), no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the action or omission was in the
best interest of the Bank.
(iii) Voluntary Termination by Executive. Executive may voluntarily
terminate his employment under this Agreement at any time by giving at least
forty-five (45) days prior written notice to the Bank. In such event, Executive
shall receive all compensation and other benefits to which he was entitled under
Section 4 through the Termination Date and, in addition, shall receive all other
benefits available to him under the Bank's Benefit Plans as in effect on the
Termination Date.
(iv) Termination by Executive After Change in Control. For purposes
of this Agreement, a "change in control" shall mean a change in control with
respect to the Bank or its parent holding company of a nature that would be
required to be reported
-4-
<PAGE> 75
in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act") or any successor
thereto; provided that, without limitation, such a change in control shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities representing 25% or more of the combined voting power of the Bank or
holding company's then outstanding securities; or (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Bank or company cease for any reason to constitute
at least a majority thereof unless the election, or the nomination for election
by stockholders, of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period. The Executive may terminate his employment under this
Agreement by giving at least ninety (90) days prior written notice to the Bank
at anytime (1) within eighteen (18) months of the effective date of a "change in
control", or (2) after the occurrence, at any time subsequent to a "change in
control," of any of the following events, without Executive's express written
consent:
(A) Executive is assigned to any positions, duties or
responsibilities that are less significant than his positions, duties and
responsibilities as of the time immediately prior to any change in control;
(B) Executive is removed from or the Board fails to re-elect
Executive to any of his Corporate Position, except (1) in connection with
termination of Executive's employment for cause, disability or retirement, or
(2) in connection with any change in control after which the Bank is not the
continuing or surviving corporation, if the successor organization has executed
an agreement as required by Section 8(i)(A) and the removal or failure to
re-elect is limited to his Corporate Position with the Bank;
(C) Executive's Base Salary is materially reduced or the
Executive experiences in any year a material reduction of the ratio of his bonus
payment to his Base Salary which is greater than the average reduction in the
ratio of bonus payments to base salaries in such year experienced by all other
material executive officers of the Bank or any other failure by the Bank to
comply with Section 4;
(D) Executive is transferred to a location not within a 25
mile radius of the City of LaCrosse, Wisconsin; or
(E) The Bank fails to obtain an agreement from any successor
organization as required by Section 8(i)(A).
-5-
<PAGE> 76
(v) Suspension or Termination Required by the OTS
(A) 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 section 8(g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. ss. 1818(e)(3) and (g)(1), the Bank's obligations under
the Agreement shall be suspended as of the date of service of the notice unless
stayed by appropriate proceedings. If the charges in the notice are dismissed,
Bank shall (1) pay Executive all of the compensation withheld while its
obligations under this Agreement were suspended and (2) reinstate any of its
obligations which were suspended.
(B) 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 section 8(g)(1) of the Federal Deposit Insurance
Act (12 U.S.C. ss. 1818(e)(4) or (g)(1) obligations of the Bank under the
Agreement shall terminate as of the effective date of the order, but vested
rights of the Executive to compensation and to any benefits under the Bank's
Pension Plan shall not be affected.
(C) If the Bank is in default as defined in section
3(x)(1) of the Federal Deposit Insurance Act, (12 U.S.C. 1813 (x)(1)) all
obligations under the Agreement shall terminate as of the date of default,
except that this paragraph shall not affect any vested rights of the Executive
under any qualified retirement plan nor, in the event the Executive terminates
prior to the date of such default, the Executive's vested rights to continue to
receive severance payments and benefits pursuant to section 5(vi) of this
Agreement.
(D) All obligations under the Agreement shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the Bank, (i) by the OTS, at the time
the FDIC or Resolution Trust Corporation ("RTC") enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
section 13(c) of the Federal Deposit Insurance Act; or (ii) by the OTS at the
time it approves a supervisory merger to resolve problems related to operation
of the Bank or when the Bank is determined by the OTS 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, and the Executive shall receive the
compensation and benefits set forth in section 5(vi) of this Agreement.
(E) In the event that 12 C.F.R. ss. 563.39, or any
successor regulation, is repealed, this section 5(v) shall cease to be effective
on the effective date of such repeal. In the event that 12 C.F.R. ss. 563.39, or
any successor regulation, is
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<PAGE> 77
amended or modified, this Agreement shall be revised to reflect the amended or
modified provisions if: (1) the amended or modified provision is required to be
included in this Agreement; or (2) if not so required, the Executive requests
that the Agreement be so revised.
(vi) Termination by the Bank Other Than Due to Death,
Disability, Retirement or For Cause; Termination of Executive. If this Agreement
is terminated by the Bank for any reason other than death, disability,
retirement or for cause as set forth in Section 5(i) or (ii), or is terminated
by the Executive pursuant to Section 5(iv), then, following the Date of
Termination:
(A) In lieu of any further salary payments to the
Executive for a period subsequent to the Termination Date, the Executive shall
receive severance pay in the form of payments continuing for the remaining
unexpired portion of the Employment Term, fully restored as of the Termination
Date, at the times provided in Section 4(i) and 4(ii) ("Severance Payments")
and based on his highest rate of Base Salary within the 3 years preceding his
Termination Date and his total cash bonus paid in his most recently completed
calendar year of employment. In the event of a termination as a result of a
change in control, the Executive may elect to receive the Severance Payments
calculated above in one lump-sum, subject to any applicable limitations set
forth in Section 6 below; provided that the amount of Severance Payment in
connection with a change in control shall be at least equal to the particular
Executive's annual compensation as of the Termination Date.
(B) In addition to the retirement benefits to which the
Executive is entitled under the Bank's Group Pension Plan, 401(k) Plan, and
ESOP, as amended from time to time (the "Retirement Plans"), the Executive shall
receive additional severance retirement benefits payable under this Agreement,
which benefits (except as provided below) shall be determined in accordance
with, and payable in the form and at the times provided in, the respective
Retirement Plans. Such benefits shall be determined as if the Executive were
fully vested under each Retirement Plan and had accumulated (after any
termination under this Agreement) the additional years of credited service
and/or allocations and Employer contributions under each of said Plans that he
would have received had he continued in the employment of the Bank for the
entire Employment Term at the levels of Base Salary and cash bonus used to
calculate the Severance Payments pursuant to subsection 5(vi)(A) above.
(C) In addition to all other amounts payable under this
section 5, Executive shall be entitled to coverage under any group health, life,
dental, or other group insurance plans (as well as under any individual life
coverages provided by the Bank on Executive's behalf) for the remainder of the
Employment Term
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<PAGE> 78
upon his continued payment of any required employee contribution at the rate in
effect as of his Termination Date and to receipt of all benefits otherwise
payable to Executive under (i) any tax qualified Bank plan or agreement relating
to pension or retirement benefits, and (ii) any other Bank plan or agreement,
regardless of tax status, established to provide deferred compensation,
retirement, or other benefits for the Executive.
(D) If Executive is under fifty-five (55) years of age
on the Termination Date, Executive shall take reasonable steps to obtain
employment and thereby mitigate the amount of compensation and benefits due
under Section 5(vi); provided, however, that Executive shall not be required to
accept a position other than one within a 25 mile radius of the City of
LaCrosse, Wisconsin. If the Executive is fifty-five (55) years of age or older
on the Termination Date or if Executive determines upon the advice of a
qualified independent physician that he is physically or medically unable to
substantially perform duties with another employer comparable to those performed
by him with the Bank, the Executive shall have no obligation to seek other
employment. Notwithstanding the foregoing, and regardless of age, during any
portion of the Employment term remaining after the Termination Date, if the
Executive becomes employed on a full-time basis by another employer, then to the
extent the Executive shall receive compensation, benefits or service credit from
such other employer, the aggregate amount of all compensation to be paid and
benefits and service credit to be provided by the Bank under this Agreement
shall be correspondingly reduced.
(E) The requirement for mitigation, as set forth in
Section 5(vi)(D) above, shall not apply with respect to any termination under
Section 5(iv) subsequent to a change in control.
6. Limitations on Termination Compensation.
(i) In the event that the severance benefits payable to the
Executive under Subsection 5(vi) ("Severance Benefits"), or any other payments
or benefits received or to be received by the Executive from the Bank (whether
payable pursuant to the terms of this Agreement, any other plan, agreement or
arrangement with the Bank or any corporation ("Affiliate") affiliated with the
Bank within the meaning of Section 1504 of the Internal Revenue Code of 1954, as
amended (the "Code"), in the opinion of tax counsel selected by the Bank's
independent auditors and acceptable to the Executive, constitute "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and the present
value of such "parachute payments" equals or exceeds three (3) times the average
of the annual compensation payable to the Executive by the Bank (or an
Affiliate) and includible in the Executive's gross income for federal income tax
purposes for the five (5)
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<PAGE> 79
calendar years preceding the year in which a change in ownership or control of
the Bank occurred ("Base Amount"), such severance benefits shall be reduced to
an amount the present value of which (when combined with the present value of
any other payments or benefits otherwise received or to be received by the
Executive from the Bank (or an Affiliate) that are deemed "parachute payments")
is equal to 2.99 times the Base Amount, notwithstanding any other provision to
the contrary in this Agreement. The Severance Benefits shall not be reduced if
(A) the Executive shall have effectively waived his receipt or enjoyment of any
such payment or benefit which triggered the applicability of this Section 6, or
(B) in the opinion of such tax counsel, the Severance Benefits (in its full
amount or as partially reduced, as the case may be) plus all other payments or
benefits which constitute "parachute payments" within the meaning of Section
280G(b)(2) of the code are reasonable compensation for services actually
rendered, within the meaning of Section 280G(b)(4) of the code, and such
payments are deductible by the Bank. The Base Amount shall include every type
and form of compensation includible in the Executive's gross income in respect
of his employment by the Bank (or an Affiliate), except to the extent otherwise
provided in temporary or final regulations promulgated under Section 280G(b) of
the Code. For purposes of this Section 6, a "change in ownership or control"
shall have the meaning set forth in Section 280G(b) of the code and any
temporary or final regulations promulgated thereunder. The present value of any
non-cash benefit or any deferred cash payment shall be determined by the Bank's
independent auditors in accordance with the principles of Sections 280G(b)(3)
and (4) of the Code.
(ii) Executive shall have the right to request that the Bank obtain
a ruling from the Internal Revenue Service ("Service") as to whether any or all
payments or benefits determined by such tax counsel are, in the view of the
Service, "parachute payments" under Section 280G. If a ruling is sought pursuant
to the Executive's request, no severance benefits payable under this Agreement
shall be made to the Executive until after fifteen (15) days from the date of
such ruling. For purposes of this Subsection 6(ii), the Executive and the Bank
agree to be bound by the Service's ruling as to whether payments constitute
"parachute payments" under Section 280G. If the service declines, for any
reason, to provide the ruling requested, the tax counsel's opinion provided
under Subsection 6(i) with respect to what payments or benefits constitute
"parachute payments" shall control, and the period during which the Severance
Benefits may be deferred shall be extended to a date fifteen (15) days from the
date of the Service's notice indicating that no ruling would be forthcoming.
-9-
<PAGE> 80
(iii) In the event that Section 280G, or any successor statute, is
repealed, this Section 6 shall cease to be effective on the effective date of
such repeal. The parties to this Agreement recognize that final regulations
under Section 280G of the Code may affect the amounts that may be paid under
this Agreement and agree that, upon issuance of such final regulations this
Agreement may be modified as in good faith deemed necessary in light of the
provisions of such regulations to achieve the purposes of this Agreement, and
that consent to such modifications shall not be unreasonably withheld.
7. Noncompetition After Voluntary Termination And Duty of
Confidentiality.
(a) Noncompetition. Executive acknowledges that the development of
personal contacts and relationships is an essential element of the Bank's
business, that the Bank has invested considerable time and money in his
development of such contacts and relationships, that the Bank could suffer
irreparable harm if he were to leave employment and solicit the business of
Bank's customers, and that it is reasonable to protect the Bank against
competitive activities by Executive. Executive covenants and agrees, in
recognition of the foregoing and in consideration of the mutual promises
contained herein, that in the event of a voluntary termination of employment by
Executive pursuant to Section 5(iii), or upon expiration of this Agreement as a
result of Executive's election not to continue automatic annual renewals,
Executive shall not accept employment in La Crosse, Dane or St. Croix counties
with any Significant Competitor of the Bank for a period of eighteen (18) months
following such termination. For purposes of this Agreement, the term Significant
Competitor means any financial institution including, but not limited to, any
commercial bank, savings bank, savings and loan association, credit union, or
mortgage banking corporation which, at the time of termination of Executive's
employment or during the period of this covenant not to compete, (i) maintains a
home, branch or other office in any of said counties, or (ii) has originated
within any of said counties $10,000,000 or more in residential mortgage loans
during any consecutive twelve (12) month period within the thirty-six (36)
months prior to Executive's termination and inclusive of the period covered by
this covenant.
Executive agrees that the non-competition provisions set forth herein
are necessary for the protection of the Bank and are reasonably limited as to
(i) the scope of activities affected, (ii) their duration and geographic scope,
and (iii) their effect on Executive and the public. In the event Executive
violates the non-competition provisions set forth herein, Bank shall be
entitled, in addition to its other legal remedies, to enjoin the employment of
Executive with any Significant Competitor for the period set forth herein. If
Executive violates this covenant and
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<PAGE> 81
the Bank brings legal action for injunctive or other relief, the Bank shall not,
as a result of the time involved in obtaining such relief, be deprived of the
benefit of the full period of the restrictive covenant. Accordingly, the
covenant shall be deemed to have the duration specified herein, computed from
the date such relief is granted, but reduced by any period between commencement
of the period and the date of the first violation. In addition to such other
relief as may be awarded, if the Bank is the prevailing party it shall be
entitled to reimbursement for all reasonable costs, including attorneys' fees,
incurred in enforcing its rights hereunder.
(b) Duty of Confidentiality. Executive acknowledges that he will,
as the result of services performed on behalf of the Bank, obtain or otherwise
become aware of confidential and/or proprietary information regarding the Bank's
affairs, including, but not limited to, information relative to (i) customers,
customer accounts and customer lists, (ii) marketing, (iii) customer development
strategies, (iv) financial and economic plans and projections, and (v) other
similar information. Executive agrees that following termination of his
employment for any reason, he will treat all such matters as confidential and
will refrain both from divulging such information in any manner and from the use
of such information for his benefit or for the benefit of any employer
(regardless of whether such employer would constitute a Significant Competitor
under this Agreement) or third-party.
8. General Provisions.
(i) Successors; Binding Agreement.
(A) The Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank ("successor
organization") to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Bank would be required to perform it
if no such succession had taken place. As used in this Agreement, "Bank" shall
mean the Bank as hereinbefore defined and any successor to its business and/or
assets as aforesaid which executes and delivers the agreement provided for in
this Section 8 or which otherwise becomes bound by the terms and provisions of
this Agreement by operation of this Agreement or law. Failure of the Bank to
obtain such agreement prior to the effectiveness of any such succession shall be
a breach of this Agreement and shall entitle the Executive as his exclusive
remedy to compensation from the Bank in the same amount and on the same terms as
he would be entitled to under this agreement if he terminated his employment
under Section 5(iv). For purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Termination
Date.
-11-
<PAGE> 82
(B) No right or interest to or in any payments or benefits
under this Agreement shall be assignable or transferrable in any respect by the
Executive, nor shall any such payment, right or interest be subject to seizure,
attachment or creditor's process for payment of any debts, judgments, or
obligations of the Executive.
(C) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the Executive and his heirs, beneficiaries and
personal representatives and the Bank and any successor organization.
(ii) Notice. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Bank:
605 State Street
LaCrosse, WI 54601
Attn: Secretary
or if to Executive at the address set forth below the Executive's signature line
of this Agreement, or to such other address as either party may have furnished
to the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
(iii) Expenses. If any legal proceeding is necessary to enforce or
interpret this Agreement, or to recover damages for breach of it, the prevailing
party, shall be entitled to recover from the other party reasonable attorneys'
fees and necessary costs and disbursements incurred in such litigation, in
addition to any other relief to which such prevailing party may be entitled.
Notwithstanding the foregoing, in the event of a legal proceeding to
enforce or interpret the terms of this Agreement following a change in control,
Executive shall be entitled to recover from Bank, regardless of the outcome of
said action, necessary costs and disbursements incurred together with actual
attorney's fees up to the greater of (A) $25,000, or (B) thirty percent (30%) of
the amount in dispute between the parties [which amount, for purposes of this
Agreement, shall be deemed to be the difference between the highest written
settlement offer from the Bank and the lowest written settlement offer
(exclusive of any claim for consequential, punitive, or other forms or amounts
of damages not based on specific contract terms) from Executive]. Recovery by
Executive of attorneys fees and costs as provided
-12-
<PAGE> 83
herein following a change in control shall be in addition to any other relief to
which Executive may be entitled.
(iv) Withholding. The Bank shall be entitled to withhold from
to be paid to the Executive under this Agreement any federal, state or
local withholding or other taxes of charges which it is from time to time
required to withhold. the Bank shall be entitled to rely on an opinion of
counsel if any question as to the amount or requirement of any such withholding
shall arise.
(v) Miscellaneous. No provision of this Agreement may be amended,
waived or discharged unless such amendment, waiver or discharge is agreed to in
writing and signed by the Executive and such officer as may be specifically
designated by the board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Wisconsin.
(vi) Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(vii) Counterparts. This Agreement may be executed in several
counterparts, each of which together will constitute one and the same
instrument.
(viii) Headings. Headings contained in this Agreement are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
(ix) Effective Date. The effective date of this Agreement shall be
the date indicated in the first paragraph of this Agreement, notwithstanding the
actual date of execution by any party.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of
the date first above written.
Executive: Robert P. Abell
------------------------------------
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<PAGE> 84
------------------------------------
(Address)
First Federal Savings Bank,
LaCrosse-Madison
(CORPORATE SEAL)
By:
-------------------------------
By:
-------------------------------
-14-
<PAGE> 1
EXHIBIT 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration
Statement (Form S-8) pertaining to the Employee Stock Option Plan of First
Federal Capital Corp of our report dated January 27, 2000, with respect to the
consolidated financial statements of First Federal Capital Corp included in the
annual report (Form 10-K) for the year ended December 31, 1999.
Ernst & Young LLP
Milwaukee, Wisconsin
January 27, 2000
66
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 65,566,021
<INT-BEARING-DEPOSITS> 17,790,262
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 253,038,195
<INVESTMENTS-CARRYING> 103,932,229
<INVESTMENTS-MARKET> 101,068,308
<LOANS> 1,538,594,590
<ALLOWANCE> (7,623,526)
<TOTAL-ASSETS> 2,084,554,155
<DEPOSITS> 1,471,259,473
<SHORT-TERM> 246,920,000
<LIABILITIES-OTHER> 16,439,755
<LONG-TERM> 222,659,701
0
0
<COMMON> 36,534,227
<OTHER-SE> 90,740,999
<TOTAL-LIABILITIES-AND-EQUITY> 2,084,554,155
<INTEREST-LOAN> 103,880,028
<INTEREST-INVEST> 26,190,570
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 130,070,598
<INTEREST-DEPOSIT> 60,547,033
<INTEREST-EXPENSE> 75,953,392
<INTEREST-INCOME-NET> 54,117,206
<LOAN-LOSSES> 387,021
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 54,299,449
<INCOME-PRETAX> 34,608,590
<INCOME-PRE-EXTRAORDINARY> 22,441,210
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,441,210
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.17
<YIELD-ACTUAL> 7.33
<LOANS-NON> 1,053,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,300,000
<ALLOWANCE-OPEN> 7,623,526
<CHARGE-OFFS> 433,744
<RECOVERIES> 46,723
<ALLOWANCE-CLOSE> 7,623,526
<ALLOWANCE-DOMESTIC> 7,623,526
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
First Federal Capital Corp
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
FIRST FEDERAL CAPITAL CORP
A FEDERAL SAVINGS BANK HOLDING COMPANY
March 17, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of First Federal Capital Corp, the holding company for First Federal Savings
Bank La Crosse - Madison, which will be held on Wednesday, April 19, 2000, at
10:30 a.m., Central Time, at the Radisson Hotel, 200 Harborview Plaza, La
Crosse, Wisconsin.
The attached Notice of Annual Meeting of Stockholders and Proxy
Statement describe the formal business to be conducted at the Annual Meeting.
The Company's Form 10-K Annual Report for the fiscal year ended December 31,
1999 also is included in the 1999 Annual Report. Directors and officers of the
Company, as well as representatives of Ernst & Young LLP, the Company's
independent auditors, will be present at the Annual Meeting to respond to any
questions that our stockholders may have.
It is very important that you be represented at the Annual Meeting
regardless of the number of shares you own or whether you are able to attend the
Annual Meeting in person. We urge you to vote and submit your proxy by phone or
to mark, sign and date your proxy card today and return it in the envelope
provided, even if you plan to attend the Annual Meeting. This will not prevent
you from voting in person, but will ensure that your vote is counted if you are
unable to attend.
Your continued support of and interest in First Federal Capital Corp
are appreciated.
Sincerely,
/a/ Thomas W. Schini
THOMAS W. SCHINI
Chairman, President and
Chief Executive Officer
<PAGE> 3
FIRST FEDERAL CAPITAL CORP
605 STATE STREET
LA CROSSE, WISCONSIN 54601
(608) 784-8000
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 19, 2000
---------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of First Federal Capital Corp (the "Company") will be held on
Wednesday, April 19, 2000, at 10:30 a.m., Central Time, at the Radisson Hotel,
200 Harborview Plaza, La Crosse, Wisconsin, for the following purposes, all of
which are set forth more completely in the accompanying Proxy Statement:
(1) To elect three directors each for three-year terms and in each
case until their successors are elected and qualified;
(2) To ratify the appointment by the Board of Directors of Ernst &
Young LLP as the Company's independent auditors for the fiscal
year ending December 31, 2000; and
(3) To transact such other business as may properly come before
the Annual Meeting or any adjournments or postponements
thereof. The Board of Directors is not aware of any other such
business.
The Board of Directors has fixed March 1, 2000 as the voting record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting and at any adjournments or postponements thereof. Only
stockholders of record as of the close of business on that date will be entitled
to vote at the Annual Meeting or at any adjournments or postponements thereof.
In the event there are not sufficient votes for a quorum or to approve or ratify
any of the foregoing proposals at the time of the Annual Meeting, the Annual
Meeting may be adjourned in order to permit further solicitation of proxies by
the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Bradford R. Price
La Crosse, Wisconsin Bradford R. Price
March 17, 2000 Executive Vice President and
Secretary
================================================================================
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. WE ARE ALSO PLEASED TO ANNOUNCE THAT,
AS AN ALTERNATIVE TO USING THE PAPER PROXY TO VOTE, STOCKHOLDERS MAY VOTE BY
TELEPHONE IF THEY CHOOSE. PLEASE SEE "TELEPHONE VOTING ALTERNATIVES" IN THE
PROXY STATEMENT FOR ADDITIONAL DETAILS. IF YOU ATTEND THE ANNUAL MEETING, YOU
MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN
WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
================================================================================
<PAGE> 4
FIRST FEDERAL CAPITAL CORP
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 19, 2000
---------------------
This Proxy Statement is being furnished to holders of common stock,
$0.10 par value per share ("Common Stock"), of First Federal Capital Corp (the
"Company"), the holding company for First Federal Savings Bank La Crosse -
Madison (the "Bank"). Proxies are being solicited on behalf of the Board of
Directors of the Company to be used at the Annual Meeting of Stockholders
("Annual Meeting") to be held at the Radisson Hotel, 200 Harborview Plaza, La
Crosse, Wisconsin, on Wednesday, April 19, 2000, at 10:30 a.m., Central Time,
and at any adjournments or postponements thereof for the purposes set forth in
the Notice of Annual Meeting of Stockholders.
The Company's 1999 Annual Report to Stockholders which includes the
Company's Form 10-K Annual Report, including the Company's consolidated
financial statements for the fiscal year ended December 31, 1999, accompany this
Proxy Statement and appointment form of proxy ("proxy"), which are first being
mailed to stockholders on or about March 17, 2000.
RECORD DATE AND OUTSTANDING SHARES
Only stockholders of record at the close of business on March 1, 2000
(the "Voting Record Date") will be entitled to vote at the Annual Meeting. On
the Voting Record Date, there were 18,321,091 shares of Common Stock outstanding
and the Company had no other class of equity securities outstanding. Each share
of Common Stock is entitled to one vote at the Annual Meeting on all matters
properly presented at the meeting.
QUORUM
The presence, in person or by proxy, of the holders of at least a
majority of the total number of shares of Common Stock entitled to vote is
necessary to constitute a quorum at the Annual Meeting.
ABSTENTIONS AND BROKER NON-VOTES
Abstentions (i.e., shares for which authority is withheld to vote for a
matter) are included in the determination of shares present and voting for
purposes of whether a quorum exists. For the election of directors, abstentions
will have no effect on the outcome of the vote because directors are elected by
a plurality of the votes cast. For all other matters to be voted on at the
Annual Meeting, abstentions will be included in the number of shares voting on a
matter, and consequently, an abstention will have the same practical effect as a
vote against such matter.
Proxies relating to "street name" shares (i.e., shares held of record
by brokers or other third party nominees) that are voted by brokers or other
third party nominees on certain matters will be treated as shares present and
voting for purposes of determining the presence or absence of a quorum. "Broker
non-votes" (i.e., proxies submitted by brokers or third party nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons entitled to vote shares as to a matter with respect to
which the brokers or third party nominees do not have discretionary power to
vote under the rules of the New York Stock Exchange) will be considered present
for the purpose of establishing a quorum, but will not be treated as shares
entitled to vote on such matters.
1
<PAGE> 5
ALL MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING ARE CONSIDERED
"DISCRETIONARY" PROPOSALS FOR WHICH BROKERS AND THIRD PARTY NOMINEES MAY VOTE
PROXIES NOTWITHSTANDING THE FACT THAT THEY HAVE NOT RECEIVED VOTING INSTRUCTIONS
FROM THE BENEFICIAL OWNERS OF SHARES; CONSEQUENTLY, SHARES HELD BY BROKERS OR
THIRD PARTY NOMINEES WILL BE COUNTED IF AND AS VOTED BY SUCH BROKERS AND THIRD
PARTY NOMINEES.
VOTING
Matter 1 (Election of Directors). The proxy being provided by the Board
of Directors enables a stockholder to vote for the election of the nominees
proposed by the Board, or to withhold authority to vote for the nominees being
proposed. Under the Wisconsin Business Corporation Law ("WBCL"), directors are
elected by a plurality of the votes cast with a quorum present, meaning that the
three nominees receiving the most votes will be elected directors.
Matter 2 (Appointment of Ernst & Young LLP). The affirmative vote of a
majority of the shares of Common Stock represented in person or by proxy at the
Annual Meeting is necessary to ratify the appointment of Ernst & Young LLP as
auditors for the fiscal year ending December 31, 2000.
SOLICITATION AND REVOCATION
Stockholders are requested to vote by completing the enclosed proxy and
returning it signed and dated in the enclosed postage-paid envelope or by
telephone (see "Telephone Voting Alternatives"). The proxy solicited hereby, if
properly signed and returned to the Company and not revoked prior to its use,
will be voted in accordance with the directions contained therein. Where no
instructions are indicated, each proxy received will be voted:
- FOR the election of the nominees for director named in this Proxy
Statement;
- FOR the ratification of the appointment of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending
December 31, 2000; and
- In accordance with the best judgment of the persons appointed as
proxies upon the transaction of such other business as may properly
come before the Annual Meeting or any adjournments or postponements
thereof.
Returning your completed proxy form or voting your proxy telephonically will not
prevent you from voting in person at the Annual Meeting should you be present
and wish to do so.
Any stockholder giving a proxy has the power to revoke it any time
before it is exercised by (i) filing with the Secretary of the Company written
notice thereof (Bradford R. Price, Executive Vice President and Secretary, First
Federal Capital Corp, 605 State Street, La Crosse, Wisconsin 54601); (ii)
submitting a duly-executed proxy bearing a later date; or (iii) appearing at the
Annual Meeting and giving the Secretary notice of his or her intention to vote
in person. If you are a stockholder whose shares are not registered in your own
name, you will need additional documentation from your record holder to vote
personally at the Annual Meeting. Proxies solicited hereby may be exercised only
at the Annual Meeting and any adjournment or postponement thereof and will not
be used for any other meeting.
The cost of solicitation of proxies by mail on behalf of the Board of
Directors will be borne by the Company. Proxies may be solicited by personal
interview or by telephone, in addition to the use of the mails by directors,
officers and regular employees of the Company and the Bank, without additional
compensation therefor. The Company also has made arrangements with brokerage
firms, banks, nominees and other fiduciaries to forward proxy solicitation
materials for shares of Common Stock held of record by the beneficial owners of
such shares. The Company will reimburse such holders for their reasonable
out-of-pocket expenses.
In the event there are not sufficient votes for a quorum or to approve
or ratify any proposal at the time of the Annual Meeting, the Annual Meeting may
be adjourned or postponed in order to permit the further solicitation of
proxies. Proxies solicited hereby will be returned to the Board of Directors,
and will be tabulated by inspectors of election designated by the Board of
Directors, who will not be employed by, or a director of, the Company or any of
its affiliates.
2
<PAGE> 6
TELEPHONE VOTING ALTERNATIVES
The Company is pleased to announce that stockholders are now able to
vote their shares by telephone. (Voting via the Internet is not available at
this time.) The giving of a proxy will not affect your right to vote in person
should you decide to attend the Annual Meeting.
Shares Registered in the Name of the Stockholder. Stockholders with
shares registered directly with Norwest Bank Minnesota, N.A. may vote their
proxy telephonically by calling Norwest Bank at (800) 240-6326. Votes submitted
by telephone must be received by noon Eastern Time on April 18, 2000.
Shares Registered in the Name of a Brokerage Firm or Bank. A number of
brokerage firms and banks are participating in a program provided through ADP
Investor Communication Services that offers telephone voting alternatives. This
program is different from the program offered by Norwest Bank for telephonic
voting of shares registered in the name of the stockholder. If your shares are
held in an account at a brokerage firm participating in the ADP program, you may
vote those shares telephonically by calling the telephone number referenced on
your voting form. Votes submitted telephonically through the ADP program must be
received by midnight, Eastern Time on April 18, 2000.
MATTERS TO BE VOTED ON AT THE ANNUAL MEETING
MATTER 1.
ELECTION OF DIRECTORS
The Articles of Incorporation of the Company provide that the Board of
Directors of the Company shall be divided into three classes which are as equal
in number as possible, and that the members of each class are to be elected for
a term of three years and until their successors are elected and qualified. One
class of directors is to be elected annually. A resolution of the Board of
Directors of the Company adopted pursuant to the Company's Bylaws has
established the number of directors at ten.
The agreement pursuant to which First Federal Savings Bank of La Crosse
("FFLX") and First Federal Savings Bank of Madison, F.S.B. ("FFMD") combined to
form the Bank in June 1989 provides that as long as the Bank retains an office
presence in the Madison, Wisconsin market, nominations to the Board of Directors
of the Company are required to be made in a manner which ensures that at least
four members of the Boards of Directors of the Company and the Bank are from
such market. The Company has nominated Ms. Marjorie A. Davenport for election as
a director at the Annual Meeting pursuant to such agreement. Therefore, with the
exception of the foregoing agreement relating to the nomination of Ms.
Davenport, no person being nominated as a director is being proposed for
election pursuant to any agreement or understanding between any person and the
Company. There are no family relationships among any of the directors and/or
executive officers of the Company.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted FOR the election of the nominees for director listed
below. If any person named as nominee should be unable or unwilling to stand for
election at the time of the Annual Meeting, the proxies will nominate and vote
for any replacement nominee or nominees recommended by the Board of Directors.
At this time, the Board of Directors knows of no reason why any of the nominees
listed below may not be able to serve as a director if elected.
3
<PAGE> 7
The following tables present information concerning the nominees for
director and each director whose term continues, including his or her tenure as
a director of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY DIRECTOR
---- --- AND PRINCIPAL OCCUPATION SINCE (1)
------------------------ ---------
<S> <C> <C> <C>
NOMINEES FOR DIRECTOR FOR
THREE-YEAR TERM EXPIRING IN 2003
Marjorie A. Davenport 71 Director; President of Gordon & Marjorie Davenport, 1976
Inc., a company which appraises and sells antique
American furniture, located in Madison, Wisconsin.
Richard T. Lommen 55 Director; President of Courtesy Corporation, a 1978
McDonald's licensee, located in La Crosse, Wisconsin.
Phillip J. Quillin 63 Director; President of Quillin's Inc., which owns and 1984
operates supermarkets in the La Crosse, Wisconsin area.
INFORMATION WITH RESPECT TO CONTINUING DIRECTORS
DIRECTORS WHOSE TERMS EXPIRE IN 2001
Henry C. Funk 74 Director; President and Treasurer of Mills Investment 1976
Corporation, an investment management company, located
in La Crosse, Wisconsin.
Patrick J. Luby 69 Director; Retired; Until February 1992, Vice President 1979
and Economist for Oscar Mayer Foods Corp., a food
processing and manufacturing firm (which is an indirect
subsidiary of Philip Morris Cos., Inc.), located in
Madison, Wisconsin.
Don P. Rundle 67 Director; Retired; Until December 1991, Executive Vice 1984
President of Inland Printing Co., Inc., a printing
company, located in La Crosse, Wisconsin.
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY DIRECTOR
NAME AGE AND PRINCIPAL OCCUPATION SINCE (1)
---- --- ------------------------ ---------
<S> <C> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 2002
John F. Leinfelder 68 Director; President of Joseph J. Leinfelder and Sons, 1978
Inc., a steel fabricating business, located in La
Crosse, Wisconsin.
David C. Mebane 66 Director; Chairman and director, and from January 1994 1985
to January 2000, President, Chief Executive and
Operating Officer of Madison Gas and Electric Co., a
publicly held utility company, located in Madison,
Wisconsin.
Dale A. Nordeen 72 Vice Chairman of the Board of Directors of the Company 1961
and the Bank since June 1989; Chairman and President of
FFMD from 1962 to June 1989.
Thomas W. Schini 64 Chairman of the Board of Directors of the Company and 1983
the Bank since April 1993; Director, President and Chief
Executive Officer of the Company and the Bank since June
1989; President and Chief Executive Officer of FFLX from
September 1983 to June 1989.
</TABLE>
- -----------------------------
(1) Includes service as director of the Bank and predecessor institutions.
THE AFFIRMATIVE VOTE OF A PLURALITY OF THE VOTES CAST IS REQUIRED FOR
THE ELECTION OF DIRECTORS. UNLESS OTHERWISE SPECIFIED, THE SHARES OF COMMON
STOCK REPRESENTED BY THE PROXIES SOLICITED HEREBY WILL BE VOTED IN FAVOR OF THE
ELECTION OF THE ABOVE-DESCRIBED NOMINEES. THE BOARD OF DIRECTORS RECOMMENDS THAT
YOU VOTE FOR ELECTION OF THE NOMINEES FOR DIRECTOR.
STOCKHOLDER NOMINATIONS
Article IV, Section 4.14 of the Company's Bylaws governs nominations
for election to the Board of Directors and requires all such nominations, other
than those made by the Board, to be made at a meeting of stockholders called for
the election of directors, and only by a stockholder who has complied with the
notice provisions outlined in the Company's Bylaws. Stockholder nominations must
be made pursuant to timely notice in writing to the Secretary of the Company. To
be timely, a stockholder's notice must be delivered to, or mailed and received
at, the principal executive offices of the Company not later than (i) with
respect to an election to be held at an annual meeting of stockholders, 60 days
prior to the anniversary date of the mailing of proxy materials in connection
with the immediately preceding annual meeting, and (ii) with respect to an
election to be held at a special meeting of stockholders for the election of
directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to stockholders. The Company did not
receive any director nominations from stockholders in connection with the Annual
Meeting.
Each written notice of a stockholder nomination shall set forth: (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Company entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission (the "SEC"); and (e) the consent of
each nominee to serve as a director of the Company if so elected. The presiding
officer of the meeting may refuse to acknowledge the nomination of any person
not made in compliance with the foregoing procedures.
5
<PAGE> 9
MATTER 2.
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed Ernst & Young
LLP, independent certified public accountants, to perform the audit of the
Company's financial statements for the fiscal year ending December 31, 2000, and
further directed that the selection of auditors be submitted for ratification by
the stockholders at the Annual Meeting.
The Company has been advised by Ernst & Young LLP that neither that
firm nor any of its associates has any relationship with the Company or its
subsidiaries other than the usual relationship that exists between independent
certified public accountants and clients. Ernst & Young LLP will have one or
more representatives at the Annual Meeting who will have an opportunity to make
a statement, if they so desire, and will be available to respond to appropriate
questions.
UNLESS MARKED TO THE CONTRARY, SHARES OF COMMON STOCK REPRESENTED BY
THE ENCLOSED PROXY WILL BE VOTED FOR RATIFICATION OF THE APPOINTMENT OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY. THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS FOR FISCAL 2000.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
Regular meetings of the Board of Directors of the Company are held on a
quarterly basis. The Board of Directors of the Company held a total of four
regular meetings and two special meetings during the fiscal year ended December
31, 1999. With the exception of Messrs. Rundle and Quillin, no incumbent
director attended fewer than 75% of the total number of meetings of the Board of
Directors and the total number of committee meetings on which such director
served during the fiscal year ended December 31, 1999; Mr. Rundle attended two
of the four committee meetings held in fiscal 1999 on which he served, and Mr.
Quillin attended four of the six meetings of the Board of Directors held in
fiscal 1999.
The Audit Committee of the Board of Directors reviews the records and
affairs of the Company to determine its financial condition, reviews with
management and the independent auditors the systems of internal control, and
monitors the Company's adherence in accounting and financial reporting to
generally accepted accounting principles. In fiscal 1999, the members of the
Audit Committee, which met two times during the fiscal year ended December 31,
1999, were Messrs. Leinfelder (Chairman), Funk, Nordeen and Quillin.
The Stock Option Committee of the Board reviews and approves the
granting of options and restricted stock under the Company's stock incentive
plans and administers such plans. In fiscal 1999, the Stock Option Committee
consisted of Messrs. Luby (Chairman), Lommen and Rundle and Ms. Davenport. The
Stock Option Committee met three times during the fiscal year ended December 31,
1999.
The entire Board of Directors of the Company acted as a Nominating
Committee for the selection of nominees for director to stand for election at
the Annual Meeting. The Board, acting as a Nominating Committee, met once during
the fiscal year ended December 31, 1999 to consider director nominees for the
Annual Meeting of Shareholders of the Company held in April 1999. In January
2000, the Board of Directors of the Company, acting as the Nominating Committee,
considered nominations for directors to be elected at the Annual Meeting to be
held in April 2000. The Company's Bylaws allow for stockholder nominations of
directors and require such nominations to be made in accordance with specific
procedures. See "Matter 1. Election of Directors--Stockholder Nominations."
6
<PAGE> 10
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information with respect to
the executive officers of the Company and the Bank who are not directors.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
- ---- --- ----------------------------------------------------------------------------------
<S> <C> <C>
Bradford R. Price.......... 46 Executive Vice President and Secretary of the Company and the Bank (Residential
Lending Division Manager) since March 1992; Senior Vice President and Secretary
of the Company and the Bank from June 1989 until March 1992; Senior Vice
President and Secretary of FFLX from 1986 until June 1989 and prior thereto
Secretary and Vice President-Lending of FFLX.
Jack C. Rusch.............. 53 Executive Vice President, Treasurer and Chief Financial Officer of the Company
and the Bank (Finance and Administration Division Manager) since March 1992;
Senior Vice President, Treasurer and Chief Financial Officer of the Company and
the Bank from June 1989 until March 1992; Senior Vice President of FFLX from
1986 until June 1989 and prior thereto Vice President-Finance of FFLX.
Robert P. Abell............ 51 Senior Vice President of the Bank (Commercial Real Estate Lending Division
Manager) since March 1992; Vice President of the Bank from June 1989 until March
1992; Vice President-Commercial Real Estate Lending of FFLX from December 1987
until June 1989.
Milne J. Duncan............ 51 Senior Vice President of the Bank (Human Resources Division Manager) since March
1992; Vice President of the Bank from June 1989 until March 1992; Vice President
of FFLX from 1986 until June 1989.
Joseph M. Konradt.......... 43 Senior Vice President of the Bank (Retail Banking Division Manager) since March
1992; Vice President of the Bank from June 1989 until March 1992; Vice President
of FFLX from 1986 until June 1989 and prior thereto Director of Marketing of
FFLX.
</TABLE>
7
<PAGE> 11
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of
Common Stock as of February 29, 2000 (except as otherwise noted below) by (i)
each shareholder known to the Company to beneficially own more than 5% of the
shares of Common Stock outstanding, as disclosed in certain reports regarding
such ownership filed with the SEC in accordance with Sections 13(d) or 13(g) of
the Exchange Act, (ii) each director and director nominee of the Company, (iii)
each of the executive officers of the Company appearing in the Summary
Compensation Table below, and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY OWNED(1)
---------------------
PERCENT OF
NAME NUMBER CLASS
---- ------ ----------
<S> <C> <C>
Gail K. Cleary, Estate of Russell G. Cleary and related persons and entities (2) 1,465,376 8.0%
c/o Cleary Management Corporation
301 Sky Harbour Drive
La Crosse, Wisconsin 54603
Directors:
Marjorie A. Davenport (3)...................................................... 55,894 *
Henry C. Funk (3).............................................................. 178,285 1.0
John F. Leinfelder (3)........................................................ 114,403 *
Richard T. Lommen (3).......................................................... 267,900 1.5
Patrick J. Luby (3)............................................................ 120,556 *
David C. Mebane (3)............................................................ 49,383 *
Dale A. Nordeen (3)............................................................ 160,718 *
Phillip J. Quillin (3)......................................................... 188,238 1.0
Don P. Rundle (3).............................................................. 97,972 *
Thomas W. Schini (3) (4) (6)................................................... 818,663 4.5
Executive Officers who are not Directors:
Jack C. Rusch (3) (4) (6)...................................................... 411,850 2.2
Bradford R. Price (3) (4) (6).................................................. 403,334 2.2
Joseph M. Konradt (3) (4) (5) (6).............................................. 219,280 1.2
Robert P. Abell (3) (4) (5) (6)................................................ 159,704 *
All directors and executive officers of the Company and the Bank as a group
(16 persons) (3) (4) (5) (6)................................................... 3,473,470 18.7%
</TABLE>
- ----------------------------
* Represents less than 1% of the total number of shares of Common Stock
outstanding on the Voting Record Date.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
8
<PAGE> 12
(1) For purposes of this table, pursuant to rules promulgated under the
Exchange Act, an individual is considered to beneficially own shares of
Common Stock if he or she, directly or indirectly, has or shares (1)
voting power, which includes the power to vote or to direct the voting
of the shares; or (2) investment power, which includes the power to
dispose or direct the disposition of the shares. Unless otherwise
indicated, includes shares of Common Stock held directly by the
individual as well as by members of such individual's immediate family
who share the same household, shares held in trust and other indirect
forms of ownership over which shares the individual effectively
exercises sole or shared voting and/or investment power. Fractional
shares of Common Stock held by certain executive officers under the
First Federal Capital Corp Employee Stock Ownership Plan (the "ESOP")
and the First Federal Savings Bank La Crosse-Madison Savings Investment
Plan (the "401(k) Plan") have been rounded to the nearest whole share.
(2) Gail K. Cleary possesses sole voting and dispositive power individually
or by trust with respect to 1,000,437 of the indicated shares. Persons
and entities related to Gail K. Cleary who or which beneficially own
shares of Common Stock include: Sandra G. Cleary and Kristine H.
Cleary, adult children of Mrs. Cleary, who possess sole voting and
dispositive power individually or by trust with respect to 43,370
shares and 35,455 shares, respectively; the Lillian Hope Kumm Trust
which holds 85,205 shares, of which Gail K. Cleary is trustee; Megan
Coffey, Sara Coffey, William Coffey and Katherine Heise, grandchildren
of Mrs. Cleary, who beneficially own 12,136, 12,136, 3,100 and 800
shares, respectively; the Cleary - Kumm Foundation, Inc., a charitable
foundation for which various members of the Cleary and Kumm families
serve as executive officers and directors, which possesses sole voting
and dispositive power with respect to 219,938 shares; and the Roy E.
Kumm Family Trust, North Central Trust Company, Trustee, of which Gail
K. Cleary, Sandra G. Cleary and Kristine H. Cleary are beneficiaries,
which possesses sole voting and dispositive power with respect to
52,800 shares.
(3) Includes shares of Common Stock which the named individuals and certain
executive officers have the right to acquire within 60 days of the
Voting Record Date pursuant to the exercise of stock options as
follows: Ms. Davenport - 26,400; Mr. Funk - 8,800; Mr. Leinfelder -
26,400; Mr. Lommen - 0; Mr. Luby - 8,800; Mr. Mebane - 8,800; Mr.
Nordeen - 0; Mr. Quillin - 26,396; Mr. Rundle - 8,800; Mr. Schini -
51,200; Mr. Rusch - 20,800; Mr. Price - 20,800; Mr. Konradt - 19,200
and Mr. Abell - 13,200. Does not include options for shares of Common
Stock which do not vest within 60 days of the Voting Record Date which
have been awarded to executive officers and directors under the
Company's stock option plans.
(4) Includes shares of Common Stock awarded under the Company's stock
incentive plans which are subject to vesting requirements. Recipients
of restricted stock awards may direct voting prior to vesting.
(5) Includes shares of Common Stock allocated to the accounts of executive
officers pursuant to the 401(k) Plan, for which such individuals
possess shared investment power and shared voting power over the shares
of Common Stock allocated to their own account, of which approximately
2,393 shares are allocated to accounts of the executive officers named
in the Summary Compensation Table as follows: Mr. Schini - 0; Mr. Rusch
- 0; Mr. Price - 0; Mr. Konradt - 1,054; and Mr. Abell - 1,339.
(6) Includes shares of Common Stock allocated to certain executive officers
under the ESOP, for which such individuals possess shared voting power,
of which approximately 114,360 shares were allocated to executive
officers named in the Summary Compensation Table as follows: Mr. Schini
- 37,605; Mr. Rusch - 22,388; Mr.
Price - 21,956; Mr. Konradt - 16,370; and Mr. Abell - 16,041.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of the shares of Common
Stock outstanding, to file reports of ownership and changes in ownership with
the SEC and the NASD by certain dates. Officers, directors and greater than ten
percent shareholders are required by regulation to furnish the Company with
copies of all Section 16(a) forms they file. Based upon review of the
information provided to the Company, the Company believes that during the fiscal
year ended December 31, 1999, officers, directors and greater than ten percent
shareholders complied with all Section 16(a) filing requirements.
9
<PAGE> 13
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table summarizes the total compensation paid by the Bank
to its Chief Executive Officer and the next four highest paid executive officers
of the Company and its subsidiaries whose compensation, based on salary and
bonus, exceeded $100,000 during the Company's fiscal years ended December 31,
1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------
VALUE OF NUMBER
ANNUAL COMPENSATION (3) RESTRICTED OF SHARES
----------------------- STOCK SUBJECT TO ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) AWARDS(4)(5) OPTIONS(6) COMPENSATION(7)
- --------------------------- ---- --------- -------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas W. Schini................. 1999 $ 350,000 $ 175,224 $ -- -- $ 21,134
Chairman, President and 1998 333,333 171,936 669,042 76,800 17,501
and Chief Executive Officer 1997 317,417 135,768 -- -- 19,457
Jack C. Rusch.................... 1999 $ 169,433 $ 67,940 $ -- -- $ 10,009
Executive Vice President, 1998 159,600 68,051 263,257 31,200 7,509
Treasurer and 1997 150,667 51,542 -- -- 7,328
Chief Financial Officer
Bradford R. Price................ 1999 $ 169,433 $ 67,940 $ -- -- $ 9,097
Executive Vice President 1998 159,600 68,051 263,257 31,200 6,443
and Secretary 1997 150,667 51,542 -- -- 6,434
Joseph M. Konradt................ 1999 $ 158,333 $ 63,500 $ -- -- $ 8,667
Senior Vice President 1998 150,312 63,142 235,772 28,800 6,301
1997 136,458 46,900 -- -- 6,237
Robert P. Abell.................. 1999 $ 125,800 $ 37,800 $ -- -- $ 8,763
Senior Vice President 1998 123,135 37,952 160,121 19,800 6,352
1997 112,467 28,899 -- -- 5,758
</TABLE>
- -----------------------------
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
10
<PAGE> 14
(1) Includes compensation earned and deferred by the named executive officers
pursuant to the 401(k) Plan.
(2) Executive officers of the Company receive cash bonus compensation under
the First Federal Savings Bank La Crosse-Madison Annual Incentive Bonus
Plan (the "Annual Bonus Plan") which is based upon the Bank's
performance. See "Compensation Committee Report." For the fiscal years
ended December 31, 1997, 1998 and 1999, all bonus compensation paid to
the named executive officers was made pursuant to the Annual Bonus Plan.
(3) Perquisites provided to the named executive officers by the Company did
not exceed the lesser of $50,000 or 10% of each named executive officer's
total annual salary and bonus during the fiscal years indicated, and
accordingly, are not included.
(4) Amounts shown in this column represent the value of shares of Common
Stock awarded pursuant to the terms of the Company's long-term stock
incentive plans during the fiscal year ended December 31, 1998 based upon
the closing market price of the Company's Common Stock on the date of
grant. No shares of restricted stock were awarded during the fiscal years
ended December 31, 1999 and 1997. The amounts indicated for fiscal 1998
represent:
- The aggregate value of restricted stock contingently awarded
pursuant to the 1998-2000 long-term incentive plan, assuming the
Company achieves the average ROE target for 1998-2000, and
awarded shares as follows: (i) Mr. Schini - 25,600 shares; (ii)
Mr. Rusch - 10,400 shares; (iii) Mr. Price - 10,400 shares; (iv)
Mr. Konradt - 9,600 shares; and (v) Mr. Abell - 6,600 shares; and
- The aggregate value of additional shares of restricted stock
awarded pursuant to the 1995-1997 long-term incentive plan in
fiscal 1998, based upon the Company exceeding plan performance
targets for the 1995-1997 period, and awarded shares as follows:
(i) Mr. Schini - 17,764 shares; (ii) Mr. Rusch - 6,696 shares;
(iii) Mr. Price - 6,696 shares; (iv) Mr. Konradt - 5,740 shares;
and (v) Mr. Abell - 3,826 shares.
Restricted stock awarded for the 1995-1997 period is fully vested on
January 1, 2000. Restricted stock awarded for the 1998-2000 period will
vest at the rate of 50% on January 1, 2002 and January 1, 2003, provided
the applicable plan performance criteria are satisfied for the 1998-2000
period. Pursuant to the terms of the plans under which the foregoing
shares were awarded, the number of shares subject to such awards were
adjusted in fiscal 1998 to reflect the Company's 2-for-1 stock split in
June 1998.
(5) At December 31, 1999, the aggregate value of restricted (unvested) stock
holdings by Messrs. Schini, Rusch, Price, Konradt and Abell was $789,487,
$308,558, $308,558, $274,511 and $185,928, respectively, based on a total
of 53,982, 21,098, 21,098, 18,770 and 12,713 shares awarded in fiscal
1998, respectively (adjusted for the 2-for-1 stock split in June 1998),
which were unvested on December 31, 1999, and the closing market price of
the Company's Common Stock on that date ($14.625 per share). Recipients
of restricted stock awards are entitled to vote and receive payment of
any dividends on unvested shares of Common Stock. For a further
discussion of the Company's long-term incentive plans, see "Compensation
Committee Report."
(6) Amounts shown in this column represent the total number of shares of
Common Stock subject to options granted to the named executive officers
under the Company's long-term stock incentive plans during the fiscal
year ended December 31, 1998. Pursuant to the terms of the plans under
which the options were granted, the number of shares subject to
outstanding option grants were adjusted in fiscal 1998 to reflect the
Company's 2-for-1 stock split in June 1998. No options were granted to
the named individuals in fiscal 1999 or 1997.
(7) Amounts shown in this column represent the Bank's contributions on behalf
of the named executive officers under the 401(k) Plan, the ESOP, the
Executive Life Bonus Plan ("Life Bonus Plan"), and disability insurance
premiums paid by the Bank for the fiscal years ended December 31, 1997,
1998 and 1999. The amounts shown for each individual for the fiscal year
ended December 31, 1999 are derived from the following figures: (i) Mr.
Schini - $4,800 matching contribution under the 401(k) Plan, $2,400 -
ESOP contribution, $12,980 - Life Bonus Plan payment, and $954 -
disability premium; (ii) Mr. Rusch - $4,800 - matching contribution under
the 401(k) Plan, $2,400 -ESOP contribution, $1,838 - Life Bonus Plan
payment, and $971 - disability premium; (iii) Mr. Price - $4,800 matching
contribution under the 401(k) Plan, $2,400 - ESOP contribution, $1,270 -
Life Bonus Plan payment, and $627 - disability premium; (iv) Mr. Konradt
-$4,800 - matching contribution under the 401(k) Plan, $2,400 - ESOP
contribution, $1,100 - Life Bonus Plan payment, and $367 - disability
premium; and (v) Mr. Abell - $4,800 - matching contribution under the
401(k) Plan, $2,400 - ESOP contribution, $956 - Life Bonus Plan payment,
and $607 - disability premium.
11
<PAGE> 15
STOCK OPTIONS
As of December 31, 1999, the Company and its subsidiaries had 942
officers and employees eligible to participate in the Company's current stock
option and incentive plans, which include the First Federal Capital Corp 1989
Stock Incentive Plan, the First Federal Capital Corp 1992 Stock Incentive Plan,
the First Federal Capital Corp 1992 Stock Option and Incentive Plan (f/k/a the
Rock Financial Corp. 1992 Stock Option and Incentive Plan) and the First Federal
Capital Corp 1997 Stock Option and Incentive Plan (collectively, the "Stock
Option and Incentive Plans"). As of December 31, 1999, 3,209,184 shares of
Common Stock had been granted under the Stock Option and Incentive Plans (either
in the form of option grants or restricted stock awards) and a total of
1,274,132 shares of Common Stock were available for granting. No stock options
were granted to the named executive officers in the fiscal year ended December
31, 1999.
The following table sets forth certain information concerning the
exercise of stock options granted under the Company's Stock Option and Incentive
Plans by the executive officers named in the Summary Compensation Table during
the fiscal year ended December 31, 1999, and the value of their unexercised
stock options at December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS OPTIONS
SHARES VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED ON ---------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas W. Schini......... 329,298 $ 3,477,165 51,200 25,600 $ 0 $ 0
Jack C. Rusch............ 154,674 1,684,941 20,800 10,400 0 0
Bradford R. Price........ 150,074 1,642,654 20,800 10,400 0 0
Joseph M. Konradt........ 109,392 1,202,170 19,200 9,680 0 0
Robert P. Abell ......... 85,980 946,309 13,200 6,600 0 0
</TABLE>
(1) The value realized was calculated based upon the difference between the
fair market value of the shares of Common Stock subject to the exercised
options on the exercise date and the exercise price of the options.
(2) The value of Unexercised In-the-Money Options is based upon the difference
between the fair market value of the stock options ($14.625) (which was the
closing price on December 31, 1999) and the exercise price of the options
at December 31, 1999.
PENSION PLAN
The Bank maintains the First Federal Savings Bank La Crosse-Madison
Pension Plan (the "Pension Plan") for the benefit of employees of the Company
and its subsidiaries. The Pension Plan is a non-contributory defined benefit
pension plan. All employees who are at least age 20 and who have completed
twelve months of at least 1,000 hours of service with the Company or its
subsidiaries are eligible to participate in the Pension Plan.
12
<PAGE> 16
Benefits are generally payable under the Pension Plan upon retirement
at age 65 based upon an average of an employee's five highest consecutive annual
amounts of compensation during the last ten years of employment. Compensation is
defined to include salary, bonuses, overtime, commissions, vacation and 401(k)
plan deferrals, and does not include expense reimbursement, non-cash or stock
compensation. Benefits are calculated based on a formula that is coordinated
with Social Security covered compensation. Such amounts are within 10% of the
total compensation and bonus reported for the named individuals in the Summary
Compensation Table above.
The maximum annual compensation which may be taken into account under
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") (as
adjusted from time to time by the Internal Revenue Service) for calculating
contributions under qualified defined benefit plans currently is $160,000 and
the maximum annual benefit permitted under such plans currently is $130,000. At
December 31, 1999, Messrs. Schini, Rusch, Price, Konradt and Abell had 40.5,
15.7, 19.8, 18.6 and 12.1 years of credited service, respectively, under the
Pension Plan.
The Board of Directors of the Bank also has authorized a supplemental
non-qualified retirement plan ("Supplemental Plan") to provide certain
additional retirement benefits to Messrs. Schini, Rusch, Price, Konradt and
Abell. The Supplemental Plan provides that Messrs. Schini, Rusch, Price and
Konradt shall receive a supplemental pension benefit commencing on the first day
of the calendar month following their retirement equal to the dollar amount of
the retirement benefit that would have been paid under the Pension Plan, 401(k)
Plan and ESOP without regard to the maximum annual benefit limitation of Section
415 of the Internal Revenue Code (which was $130,000 for 1999) and the maximum
annual compensation limitation in Section 401(a)(17) of the Internal Revenue
Code ($160,000 for 1999). The Supplemental Plan provides that the Bank shall
establish a supplemental defined contribution account which shall include the
amount of contributions which were not allocated to their accounts under the
401(k) Plan and ESOP because of the limitations imposed by the Internal Revenue
Code. In addition to the amounts payable in the table below, the additional
projected benefits under the Supplemental Plan payable to Messrs. Schini, Rusch,
Price, Konradt and Abell amounted to an annual benefit at age 65 of $123,424,
$35,785, $35,785, $28,598 and $1,665, respectively, with respect to the Pension
Plan and a lump sum benefit of $225,051, $8,427, $8,436, $5,510 and $193,
respectively, with respect to the 401(k) Plan and the ESOP at December 31, 1999.
The following table sets forth the estimated annual benefits payable
upon retirement at age 65 in fiscal 1999 to the named executive officers under
the Company's Pension Plan, expressed in the form of a ten year "single life"
annuity benefit, based on average annual compensation and years of service
classifications specified. The table does not set forth the amount of minimum
annual benefits accrued by certain Pension Plan participants under the benefit
plan formula previously in effect before the Pension Plan was amended.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
AVERAGE CREDITABLE YEARS OF SERVICE AT AGE 65
ANNUAL --------------------------------------------------------------
COMPENSATION 10 15 20 25
- ------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 60,000 ...................................... $ 9,100 $13,700 $18,200 $22,800
80,000 ...................................... 12,800 19,200 25,600 32,000
100,000...................................... 16,500 24,800 33,000 41,300
125,000...................................... 21,100 31,700 42,300 52,900
150,000...................................... 25,800 38,600 51,500 64,400
160,000 and above............................ 27,600 41,400 55,200 69,000
</TABLE>
13
<PAGE> 17
EMPLOYMENT AGREEMENTS
The Bank has entered into employment agreements with Messrs. Schini,
Price, Rusch, Abell and Konradt (collectively, the "Employment Agreements"). The
Employment Agreements provide for the continued employment of each executive in
his present position. The Employment Agreements provide Messrs. Schini, Price,
Rusch, Abell and Konradt with annual base salaries which currently amount to
$352,800, $171,100, $171,100, $126,800 and $160,000, respectively. Messrs.
Schini, Price and Rusch's employment agreements initially extended for three
years, Mr. Konradt's employment agreement initially extended for two years (but
was amended in 1998 to a three-year term) and Mr. Abell's employment agreement
initially extended for two years, and each agreement may be extended on an
annual basis for successive additional one-year periods upon the expiration of
each year of the term upon review and approval by the Board of Directors of the
Bank. In April 1999, the Board of Directors of the Bank extended the term of
each of the employment agreements with Messrs. Schini, Price, Rusch, Abell and
Konradt for an additional year.
Under the Employment Agreements, the Bank may, without further
liability, terminate such employment for "cause," which includes, generally,
conviction of a felony or any crime involving falsehood, fraud or moral
turpitude, willful failure to perform his duties and responsibilities in
accordance with written instructions approved by at least two-thirds of the
Board, a willful act of misconduct or violation of any law, regulation or cease
and desist order which is injurious to the Bank, a willful breach of fiduciary
duty involving personal profit and incompetence, personal dishonesty or material
breach of the Employment Agreement by the executive. The Employment Agreements
also provide for termination or suspension of rights granted if the executives
are terminated, suspended or permanently removed for certain violations of
federal laws, or if regulatory authorities were to determine that the Bank is
operating in an unsafe financial condition.
In the event of a termination for cause, the Bank's obligations under
the Employment Agreements to Messrs. Schini, Price, Rusch, Abell and Konradt
cease. In the event of termination of employment under certain circumstances,
including termination without cause or other breach of the Employment Agreements
by the Bank, the executive would be entitled to receive, for the remainder of
the employment term, compensation at substantially the same rate paid to him
prior to such termination in accordance with the Employment Agreement. If the
termination follows a "Change in Control," as defined therein, the executive may
elect to receive the severance payment in a lump sum, calculated on the basis of
his average annual compensation for the three years prior to the date of
termination multiplied by the remaining term of the agreement. The payments are
limited, however, not to exceed such amounts that would be deemed to constitute
"excess parachute payments" within the meaning of Section 280G of the Internal
Revenue Code, and by any amounts paid by a subsequent employer. In addition, the
executives would receive additional benefits under the Pension Plan in an amount
determined as if the executive were fully vested under the Pension Plan and had
accumulated the additional years of credited service under the Pension Plan that
he would have received had he continued employment with the Bank for the entire
employment term at the highest annual rate of base salary in effect during the
twelve months immediately preceding the termination date. Assuming that average
annual compensation was at each executive's existing salary level for fiscal
1999, severance pay in the event of a Change in Control would amount to
$1,058,400, $513,300, $513,300, $253,600 and $480,000 for Messrs.
Schini, Price, Rusch, Abell and Konradt respectively.
The Employment Agreements define a "Change in Control" to include a
change in control under certain federal laws regardless of whether approval of
the Change in Control is required under such laws and whether resulting from
merger, consolidation, reorganization, acquisition of the Bank or its assets, or
any other event. The following other circumstances involving a Change in Control
of the Bank which, if they occur, also provide the executives with termination
benefits under the Employment Agreements: (i) termination of an executive
officer's employment other than for cause after a Change in Control; (ii)
resignation by an executive officer following a significant change in the nature
or scope of his authorities or duties; (iii) a reassignment to duties in a
location more than 35 miles from the location of the executive officer's
principal office immediately before such Change in Control; and (iv) a
determination by an executive officer that, as a result of such Change in
Control and subsequent changes in the circumstances of his employment, he is
unable to exercise effectively his prior authority or responsibility.
14
<PAGE> 18
COMPENSATION OF DIRECTORS
BOARD FEES
Each member of the Board of Directors of the Company who is not a
full-time employee is paid an annual retainer of $10,000. In addition, each
non-employee director of the Company who also is a member of the Board of
Directors of the Bank is paid an annual retainer of $10,000 for services
rendered to the Bank. The Bank also contributes towards health insurance
premiums on behalf of certain directors who previously have so elected, which
are taxable to the directors. Participation in the Bank's health insurance plans
is no longer offered to existing or new directors who have not previously
elected to participate in such plans.
DIRECTORS' DEFERRED COMPENSATION PROGRAM
The Company and the Bank maintain plans under which members of their
Boards of Directors may elect to defer receipt of all or a portion of their
directors' fees. Under the plans, the Company and the Bank are obligated to
repay the deferred fees, in the manner elected by the participating director,
together with interest at a stated rate. The repayments generally will commence
upon the participating director's resignation from the Board of Directors,
although the participating director may elect to receive repayments at an
earlier time. During the fiscal year ended December 31, 1999, no director
deferred funds pursuant to these deferred compensation plans.
DIRECTORS' STOCK OPTION PLAN
The Company adopted the 1989 Directors' Stock Option Plan and the 1992
Directors' Stock Option Plan (collectively, the "Directors' Plans") which
provide for the grant of compensatory stock options to non-employee directors of
the Company and the Bank. Pursuant to the Directors' Plans, each director of the
Company or the Bank who is not also an employee of the Company or any subsidiary
is granted a compensatory stock option to purchase 8,800 shares of Common Stock
upon election or reelection to the Boards of Directors of the Company and the
Bank. The Directors' Plans also authorize discretionary grants of options to
purchase shares of Common Stock.
COMPENSATION COMMITTEE REPORT
I. COMPENSATION COMMITTEE
The Personnel and Compensation Committee of the Bank (the "Committee")
is responsible for recommending to the Board of Directors of the Bank the levels
of compensation and benefits (excluding stock option grants and restricted stock
awards) for executive officers of the Bank. The Stock Option Committee of the
Company reviews and approves the grant of options and restricted stock awards
pursuant to the Company's stock incentive plans.
Under rules established by the SEC, the Company is required to provide
certain data and information regarding the compensation and benefits provided to
the Company's Chief Executive Officer ("CEO") and certain other executive
officers of the Company. The rules require compensation disclosure in the form
of tables and a report by the Compensation Committee of the Company which
explains the rationale and considerations that led to fundamental decisions
affecting such individuals. The Committee has prepared the following report, at
the direction and approval of the Board of Directors of the Company, for
inclusion in this Proxy Statement.
II. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Committee consists of the same independent directors who are
neither officers nor employees of the Company or the Bank ("Outside Directors")
and who serve on the Company's Stock Option Committee (Directors Davenport,
Lommen, Luby and Rundle). Mr. Rundle serves as Chairman of the Committee and Mr.
Luby serves as Chairman of the Company's Stock Option Committee. There are no
interlocks, as defined under the rules and regulations of the SEC, between the
Committee, the Company's Stock Option Committee and corporate affiliates of
members of such committees.
15
<PAGE> 19
III. EXECUTIVE COMPENSATION POLICIES AND PLANS
The Committee uses the concept of total compensation in structuring a
combination of base salary, incentive bonus, long-term compensation and
perquisites for executive officers. It is the intent of the Committee to
recommend a base salary for executive officers that is comparable to the median
pay level of executives of similarly sized financial institutions based upon
available competitive market data. The Committee uses outside consultants and
published compensation survey data to review competitive rates of pay, to
establish salary ranges, and to recommend base salary and bonus pay levels.
Based upon such review, for fiscal 1999, the average increase in base salary for
the four highest paid executive officers (other than the CEO) was 6.1%. The
Company's executives, in general, will receive a level of compensation (base
salary plus cash incentive bonus) at or above the median annual compensation
paid by financial competitors of the Company only when the Company meets or
exceeds the median return on assets ("ROA") and return on equity ("ROE") levels
of its peer group.
The Committee also recognizes that "compensation" (as that term is
defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code")) in excess of $1,000,000 per year to an executive
officer is not deductible by the Company unless such compensation is
performance-based compensation approved by the shareholders of the Company and
thus, is not "compensation" for purposes of complying with the limit on
deductibility. The Committee has been advised that no executive officer of the
Company received compensation in fiscal 1999 that will result in the loss of a
corporate federal income tax deduction under Section 162(m) of the Internal
Revenue Code.
Both short-term and long-term incentive plans are used to reward
executive officers for the Company's performance relative to identified peer
groups. Short-term incentive compensation, paid in the form of annual cash
bonuses, is determined pursuant to factors outlined in the First Federal Savings
Bank La Crosse-Madison Annual Incentive Bonus Plan (the "Annual Bonus Plan") and
long-term incentive compensation, paid in the form of restricted stock awards
and stock option grants, is determined pursuant to factors outlined in the
Company's long-term performance award plans which are reviewed and approved by
the Board of Directors of the Company every three years.
ANNUAL BONUS PLAN
The factors used in measuring the Company's performance under the
Annual Bonus Plan are a weighted combination of ROA and ROE. In general, a
payment pursuant to the terms of the Annual Bonus Plan is made only after the
Company's financial performance equals or exceeds median peer group financial
performance. The peer group includes a group of similarly sized publicly traded
thrifts. The Board of Directors reviews the terms of the Annual Bonus Plan each
year and establishes the threshold, target and maximum ROA and ROE levels, and
percentage of incentive award to be based upon ROA and ROE, respectively, after
evaluation of the Company's strategic business plan and other factors the Board
deems appropriate.
For fiscal 1999, ROA accounted for 25% and ROE accounted for 75% of the
total cash incentive award opportunity. Executive officers earned incentive
compensation based on the Company achieving threshold, target and maximum ROA
and ROE performance at the 50th percentile, 65th percentile and 80th percentile,
respectively, of the peer group. In general, if financial performance is below
the threshold level, no incentive compensation will be earned. Individual award
targets vary by executive group (CEO, Executive Vice Presidents, Senior Vice
Presidents and Department Managers) and are established as a percentage of base
salary. However, even if the Company's performance exceeds the target ratios of
the peer group, the Board of Directors of the Company and the Bank can elect to
reduce or cancel incentive payments if the Company's ROE does not equal or
exceed a "risk-free rate of return" defined to be 110% of the average one-year
treasury bill rate for the plan year. In addition, the performance measures may
be adjusted in any fiscal year if the Board of Directors approves management
proposals or directs management to implement proposals designed to enhance the
long-term performance of the Company but which would materially impact payments
under the Annual Bonus Plan.
For fiscal 1999, the Company is projected to achieve financial
performance objectives that exceed the 80th percentile for ROA and the 90th
percentile for ROE relative to the Annual Bonus Plan peer group. Based on the
Company's projected financial performance, cash bonuses were paid to Annual
Bonus Plan participants in fiscal 1999 representing part of the ROA and ROE
components of their 1999 bonus award. The balance of the 1999
16
<PAGE> 20
incentive cash bonus will be paid in fiscal 2000 when final peer data is
available. The average bonus earned under the Annual Bonus Plan in fiscal 1999
by the four highest paid executive officers at year-end (other than the CEO) was
38.1% of their base salaries compared to 40.0% in fiscal 1998.
LONG-TERM AWARD PLAN: 1998 - 2000 PLAN PERIOD
In fiscal 1998, the Board of Directors of the Company reviewed and
approved the terms of the First Federal Capital Corporation Long-Term
Performance Award Plan (1998-2000) (the "Long-Term Award Plan") which provides
for the grant of stock options and awards of restricted stock. The purpose of
the Long-Term Award Plan is to strengthen the link between executive
compensation and long-term organization performance. In determining appropriate
stock option grants and stock awards, the Stock Option Committee considers the
executives' contribution toward institutional performance and the executives'
expected contribution toward meeting the organization's long-term strategic
goals as well as industry practice. Any value received by the executive from an
option grant and any increase in the value of a stock award is a function of any
increase in the price of the Common Stock. As a result, the value of the
long-term compensation is directly aligned with increased stockholder value. The
total of targeted or projected values of long-term awards at the date of the
grant is set considering observed market practices for similar institutions in
the financial industry.
Pursuant to the Long-Term Award Plan, the Company's financial
performance is measured by comparing the Company's average ROE over a three-year
performance period to the average ROE of all publicly traded thrifts (as defined
by the SNL Securities database of publicly traded thrifts) over the same period.
Executive officers are granted stock options and awarded restricted stock based
upon the Company achieving threshold, target and maximum ROE performance at the
50th percentile, 75th percentile and 90th percentile, respectively, of all
publicly traded thrifts. Individual award targets vary by executive group (CEO,
Executive Vice Presidents and Senior Vice Presidents) and are established as a
percentage of base salary. Department Managers also are eligible to participate
and may be awarded stock options and restricted stock at the discretion of the
Stock Option Committee. Under the Long-Term Award Plan, stock options are
granted and restricted stock is awarded at the beginning of the performance
period based upon the Company achieving the target 75th percentile performance.
The options vest at the rate of 33 1/3% over a three-year period from the date
of grant, with no adjustment at the end of the plan period. The exercise price
of the options is established at the fair market value of the Company's Common
Stock on the date of grant. Restricted stock is awarded at the beginning of the
plan period, subject to adjustments and vesting schedules as described herein.
In fiscal 1998, pursuant to the Long-Term Award Plan (1998-2000),
options to acquire 204,000 shares of Common Stock (adjusted for the June 1998
2-for-1 stock split) were granted to executive officers of the Company
(including the CEO), and 68,000 shares of restricted stock (adjusted for the
June 1998 2-for-1 stock split) were contingently awarded to such executive
officers, subject to the Company achieving the above-noted benchmark ROE
performance during the 1998-2000 plan period. At the end of the 1998-2000
performance period, all of the contingently issued restricted shares must be
forfeited by participants if the Company has not achieved the threshold 50th
percentile performance and a portion of the restricted shares must be forfeited
by participants if the Company has not achieved the target 75th percentile
performance. If the Company's performance has exceeded the target 75th
percentile, additional shares of restricted stock will be awarded as provided
for under the Long-Term Award Plan (1998-2000). The balance of such additional
awards, if any, will be made in fiscal 2001 when final peer data is received.
The restricted stock awards when finalized for the 1998-2000 plan period will be
subject to a two-year vesting period with 50% of the award vesting on January 1
of each year in 2002 and 2003. However, the Stock Option Committee may elect to
cancel or reduce restricted stock awards if the Company's average three-year ROE
is below a "risk-free rate of return" defined to be 110% of the average
three-year treasury bill over the performance period.
In fiscal 1999, no options to purchase shares of Common Stock were
granted and no restricted stock awards were made to executive officers under the
Long-Term Award Plan (1998-2000). In addition, no such awards were made to
executive officers of the Company outside of the Long-Term Award Plan.
17
<PAGE> 21
Shares of restricted stock and stock options granted pursuant to the
Company's Long-Term Award Plans are made from shares of Common Stock reserved
for issuance under the First Federal Capital Corp. 1989 Stock Incentive Plan,
the First Federal Capital Corp. 1992 Stock Incentive Plan, the Rock Financial
Corp. 1992 Stock Option and Incentive Plan (which was assumed by the Company in
connection with the Rock Merger) and the First Federal Capital Corp. 1997 Stock
Option and Incentive Plan (collectively, the "Stock Option and Incentive
Plans"). Under the Stock Option and Incentive Plans, the Stock Option Committee
also may authorize discretionary awards irrespective of whether the performance
criteria set forth in the Long-Term Award Plan are met.
IV. CEO COMPENSATION
Mr. Schini's cash compensation (salary and bonus) for fiscal 1999
consisted of a competitively determined base salary as well as the payment of a
cash incentive bonus based upon the Company's 1998 and 1999 financial
performance. Mr. Schini's base salary was increased 5.0% over 1998 which, in
part, reflected the Committee's recommendation to pay him a base salary that was
representative of comparable financial institutions of similar asset size and
performance. Mr. Schini receives no additional payment for serving as a member
of the Board of Directors of the Company or the Bank.
During fiscal 1999, a cash incentive bonus of $175,224 was paid to Mr.
Schini which represented a portion of his 1999 bonus as well as the balance of
his 1998 bonus under the Company's Annual Bonus Plan. The 1998 cash bonus
reflected the Company's financial performance relative to its peer group which
data was at the 85th percentile for ROA and the 88th percentile for ROE. The
Company achieved a ROA of 1.19% and a ROE of 16.59% for fiscal 1998, which
resulted in a final payment to Mr. Schini in fiscal 1999 representing a portion
of the ROA and ROE components of his bonus. For fiscal 1999, the Company is
projected to achieve financial performance objectives that exceed the 80th
percentile for ROA and the 90th percentile for ROE. The balance of Mr. Schini's
1999 incentive cash bonus will be paid to him in 2000 when final peer data is
received. Incentive cash compensation paid in 1999 was 50.0% of base
compensation compared to 52.0% of base compensation in 1998. During fiscal 1999,
no options to purchase shares of Common Stock were granted and no restricted
stock awards were made to any executive officer of the Company.
MARJORIE A. DAVENPORT
RICHARD T. LOMMEN
PATRICK J. LUBY
DON P. RUNDLE
18
<PAGE> 22
STOCK PERFORMANCE GRAPH
The following graph compares the yearly cumulative total return on the
Common Stock over a five-year measurement period with (i) the yearly cumulative
total return on the stocks included in the National Association of Securities
Dealers, Inc. Automated Quotation ("Nasdaq") Stock Market Index (for United
States companies), and (ii) the yearly cumulative total return on the stocks
included in the Nasdaq Bank Stock Index. The cumulative returns set forth in
each graph assume the reinvestment of dividends into additional shares of the
same class of equity securities at the frequency with which dividends were paid
on such securities during the applicable comparison period.
[LINE GRAPH]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Legend
Symbol CRSP Total Returns Index for: 12/1994 12/1995 12/1996 12/1997 12/1998 12/1999
- ------ ----------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
- ------ * First Federal Capital Corp. 100.0 114.6 153.9 339.9 334.1 305.2
- ------ * Nasdaq Stock Mrket (US Companies) 100.0 141.3 173.9 213.1 300.2 542.4
- ------ * Nasdaq Bank Stocks 100.0 149.0 196.7 329.4 327.1 314.4
SIC 6020-6029. 6710-6719 US & Foreign
Notes:
A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the prceding trading day is used.
D. The index level for all series was set to $100.0 on 12/30/1994.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE> 23
INDEBTEDNESS OF MANAGEMENT AND CERTAIN TRANSACTIONS
Prior to the enactment of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989, as amended ("FIRREA"), FFLX and FFMD followed the
policy of making loans to their directors, officers and employees at preferred
interest rates and fees. In accordance with FIRREA, all loans to officers and
directors are now made on the same terms, including interest rates, loan fees,
and collateral as those prevailing at the time for comparable transactions with
the general public and must not involve more than the normal risk of repayment
or present other unfavorable features. During 1999, no director or executive
officer of the Company or the Bank had loans outstanding at preferred interest
rates from the Company or the Bank which aggregated $60,000 or more.
The Company and the Bank intend that all transactions in the future
between the Company and the Bank and executive officers, directors, holders of
10% or more of the shares of any class of Common Stock of the Company and
affiliates thereof, will contain terms no less favorable to the Company or the
Bank than could have been obtained by them in arms' length negotiations with
unaffiliated persons and will be approved by a majority of outside directors of
the Company or the Bank, as applicable, not having any interest in the
transaction.
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR INCLUSION IN 2000 PROXY
MATERIALS
To be considered for inclusion in the proxy statement relating to the
Annual Meeting (for fiscal year ended December 31, 2000) to be held in April
2001, stockholder proposals must be received at the principal executive offices
of the Company at 605 State Street, La Crosse, Wisconsin 54601, Attention:
Bradford R. Price, Executive Vice President and Secretary, no later than
November 17, 2000. If such proposal is in compliance with all of the
requirements of Rule 14a-8 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), it will be included in the proxy statement and set forth
on the appointment form of proxy issued for such annual meeting of stockholders.
It is urged that any such proposals be sent certified mail, return receipt
requested. Nothing in this section shall be deemed to require the Company to
include in its proxy statement and proxy relating to the 2000 Annual Meeting any
stockholder proposal which does not meet all of the requirements for inclusion
established by the SEC in effect at the time such proposal is received.
ADVANCE NOTICE REQUIREMENT FOR ANY PROPOSAL OR NOMINATION TO BE RAISED BY A
STOCKHOLDER
Stockholder proposals which are not submitted for inclusion in the
Company's proxy materials pursuant to Rule 14a-8 under the Exchange Act may be
brought before an annual meeting pursuant to Article II, Section 2.17 of the
Company's Bylaws, which provides that business at an annual meeting of
stockholders must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Company. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days prior to the anniversary date of the mailing of
the proxy materials by the Company for the immediately preceding annual meeting.
A stockholder's notice must set forth as to each matter the stockholder proposes
to bring before an annual meeting (a) a brief description of the business
desired to be brought before the annual meeting, (b) the name and address, as
they appear on the Company's books, of the stockholder proposing such business,
(c) the class and number of shares of Common Stock of the Company which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business.
20
<PAGE> 24
DISCRETIONARY VOTING OF 2001 PROXIES
Pursuant to Rule 14a-4(c) under the Exchange Act and Article II,
Section 2.17 of the Company's Bylaws, if a stockholder fails to notify the
Company of such proposal by January 16, 2001, then the management proxies named
in the form of proxy distributed in connection with the Company's proxy
statement may use their discretionary voting authority to address the proposal
submitted by the stockholder, without discussion of the proposal in the proxy
statement.
OTHER MATTERS
Management is not aware of any business to come before the Annual
Meeting other than the matters described above in this Proxy Statement. However,
if any other matters should properly come before the Annual Meeting or any
adjournments or postponements thereof, it is intended that the proxies solicited
hereby will be voted with respect to those other matters in accordance with the
judgment of the persons voting the proxies.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Bradford R. Price
La Crosse, Wisconsin Bradford R. Price
March 17, 2000 Executive Vice President and
Secretary
21
<PAGE> 25
FIRST FEDERAL CAPITAL CORP
A FEDERAL SAVINGS BANK HOLDING COMPANY
- --------------------------------------------------------------------------------
FIRST FEDERAL CAPITAL CORP REVOCABLE PROXY
----------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FIRST
FEDERAL CAPITAL CORP (THE "COMPANY") FOR USE AT THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON APRIL 19, 2000, AND AT ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF.
The undersigned hereby appoints Bradford R. Price and Jack C. Rusch as
proxies, each with power to appoint his substitute, and hereby authorizes
each of them to represent and to vote, as designated below, all the shares
of common stock, $0.10 par value per share ("Common Stock") of the Company
held of record by the undersigned on March 1, 2000 at the Annual Meeting of
Stockholders to be held at the Radisson Hotel, 200 Harborview Plaza,
La Crosse, Wisconsin, on Wednesday, April 19, 2000, at 10:30 a.m., Central
Time, or any adjournments or postponements thereof.
SHARES OF THE COMPANY'S COMMON STOCK WILL BE VOTED AS SPECIFIED. IF NOT
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE BOARD
OF DIRECTORS' NOMINEES TO THE BOARD OF DIRECTORS, FOR THE PROPOSAL SPECIFIED
IN ITEM 2 AND OTHERWISE AT THE DISCRETION OF THE PROXIES. YOU MAY REVOKE
THIS PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED AT THE ANNUAL MEETING
OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF.
(Continued, and to be signed and dated, on the reverse side)
<PAGE> 26
-------------------------
COMPANY#
CONTROL#
-------------------------
THERE ARE TWO WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES IN THE SAME
MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
- - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 p.m. Eastern Standard Time, on April 18, 2000.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
- - Follow the simple instructions given over the telephone.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to First Federal Capital Corp, c/o Shareowner
Services(TM), P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE, PLEASE DO NOT MAIL YOUR PROXY CARD
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
\/ Please detach here \/
<TABLE>
- ------ ------
<S><C> <C> <C>
1. ELECTION OF DIRECTORS
Nominees for three-year term expiring in 2003: [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
01 Marjorie A. Davenport 03 Phillip J. Quillin to the contrary below) listed below
02 Richard T. Lommen
-----------------------------------------
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE,
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) -----------------------------------------
2. PROPOSAL TO RATIFY the appointment of Ernst & Young, LLP as the Company's
independent auditors for the year ending December 31, 2000. [ ] For [ ] Against [ ] Abstain
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments or
postponements thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED
FOR EACH PROPOSAL.
Address Change? Mark Box [ ] Indicate changes below: Date 2000
----------------
-------------------------
-------------------------
Signature(s) in Box
Please sign this exactly as your name(s) appear(s)
on this proxy. When signing in a representative
capacity, please give title. When shares are held
jointly, only one holder need sign.
- ------ ------
</TABLE>
<PAGE> 27
FIRST FEDERAL CAPITAL CORP
A FEDERAL SAVINGS BANK HOLDING COMPANY
- --------------------------------------------------------------------------------
FIRST FEDERAL CAPITAL CORP
ANNUAL MEETING OF STOCKHOLDERS REVOCABLE PROXY
----------------------------------------------------------------------------
The undersigned herby instructs Firstar Bank Milwaukee, N.A., the
Trustee of the Trust created pursuant to the Employee Stock Ownership Plan
("ESOP") of First Federal Capital Corp (the "Company"), to vote the shares
of common stock, $0.10 par value per share ("Common Stock") of the Company
which were allocated to my account as of March 1, 2000 under the ESOP upon
the following proposals to be presented at the Annual Meeting of
Stockholders of the Company on April 19, 2000, at 10:30 a.m., Central Time,
or any adjournments or postponements thereof.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE
NOMINEES FOR DIRECTOR AND FOR THE PROPOSAL SPECIFIED IN ITEM 2. SUCH VOTES
ARE HEREBY SOLICITED BY THE BOARD OF DIRECTORS.
(Continued, and to be signed and dated, on the reverse side)
<PAGE> 28
-----------------------
COMPANY #
CONTROL #
-----------------------
THERE ARE TWO WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES IN THE
SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
- - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 p.m. Eastern Standard Time, on April 18, 2000.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
- - Follow the simple instructions given over the telephone.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to First Federal Corp, c/o Shareowner Services(TM),
P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE, PLEASE DO NOT MAIL YOUR PROXY CARD
\/ Please detach here \/
<TABLE>
<S><C>
1. ELECTION OF DIRECTORS
Nominees for three-year term expiring in 2003: [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
01 Marjorie A. Davenport 03 Phillip J. Quillin to the contrary below listed below
02 Richard T. Lommen
---------------------------------------------
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDICATED NOMINEE,
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) ---------------------------------------------
2. PROPOSAL TO RATIFY the appointment of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31, 2000. [ ] For [ ] Against [ ] Abstain
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments or
postponements thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ] Indicate changes below: Date , 2000
-------------------------
---------------------------------------------
---------------------------------------------
Signature(s) in Box
If you return this card properly signed but do
not otherwise specify, shares will be voted FOR
each of the nominees for director and FOR
Proposal 2. If you do not return this card,
shares will be voted by the Trustee.
</TABLE>
<PAGE> 29
FIRST FEDERAL CAPITAL CORP
A Federal Savings Bank Holding Company
- --------------------------------------------------------------------------------
FIRST FEDERAL CAPITAL CORP
ANNUAL MEETING OF STOCKHOLDERS REVOCABLE PROXY
- --------------------------------------------------------------------------------
The undersigned hereby instructs Firstar Bank Milwaukee, N.A., the Trustee
of the Trust created pursuant to the Savings Investment Plan ("SIP") of First
Federal Savings Bank LaCrosse-Madison, to vote the shares of common stock,
$0.10 par value per share ("Common Stock") of First Federal Capital Corp (the
"Company") which were allocated to my account as of March 1, 2000 under the SIP
upon the following proposals to be presented at the Annual Meeting of
Stockholders of the Company on April 19, 2000, at 10:30 a.m., Central Time, or
any adjournments or postponements thereof.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES
FOR DIRECTOR AND FOR THE PROPOSAL SPECIFIED IN ITEM 2. SUCH VOTES ARE HEREBY
SOLICITED IN ITEM 2. SUCH VOTES ARE HEREBY SOLICITED BY THE BOARD OF DIRECTORS.
(Continued, and to be signed and dated, on the reverse side)
<PAGE> 30
-------------
COMPANY #
CONTROL #
-------------
THERE ARE TWO WAYS TO VOTE YOUR PROXY
YOUR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES IN THE SAME
MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
VOTE BY PHONE -- TOLL FREE -- 1-800-240-6326 -- QUICK *** EASY *** IMMEDIATE
- - Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week, until 12:00 p.m. Eastern Standard Time, on April 18, 2000.
- - You will be prompted to enter your 3-digit Company Number and your 7-digit
Control Number which are located above.
- - Follow the simple instructions given over the telephone.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we've provided or return it to First Federal Capital Corp, c/o Shareowner
Services (TM), P.O. Box 64873, St. Paul, MN 55164-0873.
IF YOU VOTE BY PHONE, PLEASE DO NOT MAIL YOUR PROXY CARD
\/ Please detach here\/
<TABLE>
<CAPTION>
1. ELECTION OF DIRECTORS
<S> <C> <C>
Nominees for three-year term expiring in 2003: [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to vote for all nominees
01 Marjorie A. Davenport 03 Phillip J. Quillin to the contrary below) listed below
02 Richard T. Lommen
</TABLE>
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE -----------------------
FOR ANY INDICATED NOMINEE, WRITE THE NUMBER(S)
OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.) -----------------------
<TABLE>
<S> <C> <C> <C>
2. PROPOSAL TO RATIFY the appointment of Ernst & Young
LLP as the Company's independent auditors for the [ ] For [ ] Against [ ] Abstain
year ending December 31, 2000.
</TABLE>
3. In their discretion, the proxies are authorized to
vote upon such other business as may properly come
before the meeting or any adjournments or postponements
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ]
Indicate changes below: Date ,2000
------------------------
---------------------------------
---------------------------------
Signature(s) in Box
If you return this card properly
signed but do not otherwise
specify, shares will be voted FOR
each of the nominees for director
and FOR Proposal 2.
