<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1996
Commission File Number: 0-19609
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FirstFed Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 63-1048648
- - ---------------------------------------------- ----------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) identification No.)
1630 Fourth Avenue North
Bessemer, Alabama 35020
- - -------------------------------------- ---------------
(Address of principal executive office) Zip Code
Registrant's telephone number, including area code: (205) 428-8472
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
--------------------------------
(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 twelve months and (2) has been subject to such filing requirements
for the past ninety days. YES X N0 ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K [___].
As of June 19, 1996, there were issued and outstanding 609,740 shares of the
registrant's common stock.
The aggregate market value of the voting stock held by non-affiliates of the
registrant (i.e., persons other than directors, executive officers and 10%
stockholders of the registrant), based on the closing sales price of the
registrant's common stock as quoted on the National Daily Quotation Service
"Pink Sheet" published by the National Quotation Bureau, Inc. on June 19, 1996,
was $14,633,760.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Stockholders for the year ended March 31,
1996, are incorporated by reference into Parts I, II and IV of this Form 10-
K.
(2) Portions of the Proxy Statement for the 1996 Annual Meeting of Stockholders
are incorporated by reference into Part III of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I.
ITEM I. Business
The Company............................................ 1
First Federal Savings Bank............................. 1
First State Bank of Bibb County........................ 1
Average Balances, Yields and Rates Paid................ 3
Rate/Volume Analysis................................... 4
Asset/Liability Management............................. 5
Lending Activities..................................... 7
Mortgage-Backed Securities and Other
Investment Activities............................. 14
Deposit, Borrowings and Other
Sources of Funds.................................. 17
Competition............................................ 18
Regulations and Supervision............................ 18
Taxation............................................... 29
Personnel.............................................. 30
ADDITIONAL ITEM. Executive Officers..................................... 30
ITEM 2. Properties................................................... 30
ITEM 3. Legal Proceedings............................................ 31
ITEM 4. Submission of Matters to a Vote of Security Workers.......... 31
PART II.
ITEM 5. Market for the Registrant's Common Stock and
Related Security Holder Matters........................ 32
ITEM 6. Selected Financial Data...................................... 32
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 32
ITEM 8. Financial Statements and Supplementary Data.................. 32
ITEM 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.......................... 32
PART III.
ITEM 10. Directors and Executive Officers of the Registrant........... 32
ITEM 11. Executive Compensation....................................... 32
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management............................................... 32
ITEM 13. Certain Relationships and Related Transactions............... 33
PART IV.
ITEM 14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-k.......................................... 33
</TABLE>
i.
<PAGE>
PART I
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ITEM 1. BUSINESS
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THE COMPANY
FirstFed Bancorp, Inc. (the "Company") is a Delaware corporation that serves as
the holding company for First Federal Savings Bank ("First Federal"), a federal
savings bank, and First State Bank of Bibb County, an Alabama state-chartered
commercial bank ("First State"). First State is a wholly-owned subsidiary of
First State Corporation ("FSC") which was acquired by the Company in January
1996. The discussion herein of First State relates to its operations since its
acquisition by the Company. First Federal and First State are referred to
herein as the "Banks".
The Company's assets consist primarily of its investment in the Banks, liquid
investments and real estate held for investment purposes. It engages in no
significant activity, except through the Banks' operations. The Company had
total assets of $166,184,000, total deposits of $145,858,000 and stockholders'
equity of $17,231,000 at March 31, 1996.
The Company's executive office is located at the main office of First Federal at
1630 Fourth Avenue North, Bessemer, Alabama 35020. The telephone number is
(205) 428-8472.
FIRST FEDERAL SAVINGS BANK
First Federal was organized in 1936 as a federally chartered mutual savings and
loan association under the name First Federal Savings and Loan Association of
Bessemer. In 1991, First Federal became a federally chartered mutual savings
bank and changed its name to First Federal Savings Bank. On December 9, 1991,
First Federal converted from a federally chartered mutual savings bank to a
federally chartered stock savings bank and simultaneously reorganized as a
wholly owned subsidiary of the Company.
First Federal's principal business consists of attracting deposits from the
general public and investing those deposits, together with funds generated from
operations and from principal and interest payments on loans and mortgage-backed
securities, primarily in one-to-four-family residential mortgage loans, and to a
lesser extent, commercial mortgage loans, commercial loans and consumer loans.
First Federal is a member of the Federal Home Loan Bank ("FHLB") System and its
deposit accounts are insured by the Savings Association Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation ("FDIC") up to the maximum amount
allowable by the FDIC. First Federal is subject to regulation, examination and
supervision by the Office of Thrift Supervision ("OTS") and the FDIC. See
"Regulation and Supervision of the Banks."
First Federal currently conducts business from four locations in Jefferson and
Shelby Counties, Alabama, consisting of its home office in Bessemer and three
other branches, one each in Pelham, Hueytown and Hoover. Each branch is a full
service facility.
FIRST STATE BANK OF BIBB COUNTY
First State was formed as a state member bank in 1965 under the name The Bank of
West Blocton. In 1979, the name was changed to First State Bank of Bibb County.
FSC was formed in 1985 as a locally-owned stock corporation and purchased First
State.
First State currently conducts business from three full service locations in
Bibb County, Alabama, consisting of its main office in West Blocton and two
other branches, one each in Centreville and Woodstock. First State's primary
business consists of attracting deposits from the community and investing those
deposits, together with funds generated from operations, in one-to-four family
residential mortgage loans, commercial loans and consumer loans.
1
<PAGE>
First State is a member of the Federal Reserve System and its deposit accounts
are insured by the Bank Insurance Fund ("BIF") of the FDIC up to a maximum
amount allowed by the FDIC. First State is subject to regulation, examination
and supervision by the Board of Governors of the Federal Reserve System (the
"FRB") and the State Banking Department of the State of Alabama (the "Banking
Department"). See "Regulation and Supervision of the Banks."
Earnings of First Federal and First State are primarily dependent upon net
interest income, which is the difference between the income it derives from its
interest-earning assets, such as loans, mortgage backed securities and
investment securities, and the interest expense incurred on its interest-bearing
liabilities, primarily deposit accounts. Net interest income is affected by (i)
the difference ("interest rate spread") between rates of interest earned on its
interest-earning assets and rates of interest paid on its interest-bearing
liabilities and (ii) the relative amounts of its interest-earning assets and
interest-bearing liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest rate spread will
generate net interest income.
2
<PAGE>
AVERAGE BALANCES, YIELDS EARNED AND RATES PAID
The following tables set forth certain information relating to the Company's
consolidated statements of financial condition and consolidated statements of
income for each year in the three year period ended March 31, 1996, and reflects
the average yield on assets and average cost of liabilities for the periods
indicated. Average balances are derived subject to certain adjustments from
daily balances. The average balances of loans include non-accrual delinquent
loans. For further discussion see "Management's Discussion and Analysis" in the
Company's 1996 Annual Report.
<TABLE>
<CAPTION>
Year Ended March 31,
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1996 1995 1994
--------------------- ---------------------- -----------------------
Average Average Average
Balance Interest Balance Interest Balance Interest
--------- -------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans $ 102,420 $ 8,147 $ 91,550 $ 6,791 $ 82,329 $ 6,339
Other loans 12,333 1,269 5,467 457 1,993 149
Mortgage-backed securities 4,982 345 5,938 385 8,749 487
Securities 8,144 496 8,984 594 11,269 702
Other interest-earning assets 6,223 285 2,252 102 5,268 159
-------- --------- --------- --------- --------- ---------
Total interest-earning assets 134,102 10,542 114,191 8,329 109,608 7,836
Non-interest-earning assets 4,997 4,344 3,477
--------- --------- ---------
Total assets $ 139,099 $ 118,535 $ 113,085
========= ========== =========
Interest-bearing liabilities:
Deposits $ 115,426 $ 5,612 $ 95,819 $ 3,684 $ 93,647 $ 3,511
Other borrowings 2,904 179 2,950 176 177 -
-------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities 118,330 5,791 98,769 3,860 93,824 3,511
Non-interest bearing liabilities 2,986 1,121 623
-------- --------- --------- --------- --------- ---------
$ 4,751 $ 4,469 $ 4,325
========= ========= =========
Total liabilities 121,316 99,890 94,447
Stockholders' equity 17,783 18,645 18,638
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Total liabilities and stockholders' equity $ 139,099 $ 118,535 $ 113,085
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended
March 31,
--------------------------------------
1996 1995 1994
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<S> <C> <C> <C>
Yield on:
Mortgage loans 7.95% 7.42% 7.70%
Other loans 10.29 8.36 7.47
Mortgage-backed securities 6.29 6.48 5.57
Securities 6.09 6.61 6.23
Other interest-earning assets 4.58 4.53 3.02
All interest-earning assets 7.86 7.29 7.15
Rate paid on:
Deposits 4.86 3.84 3.75
Other borrowings 6.16 5.97 -
All interest-bearing liabilities 4.89 3.91 3.75
Interest rate spread (1) 2.97% 3.38% 3.40%
======== ======== ========
Net yield (2) 3.54% 3.91% 3.95%
======== ======== ========
</TABLE>
(1) Interest rate spread represents the difference between the average yield on
total interest-earning assets and the average rate of total interest-bearing
liabilities.
(2) Net yield represents net interest income as a percentage of average
interest-earning assets.
3
<PAGE>
RATE/VOLUME ANALYSIS
The following table describes the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1996 March 31, 1995
Versus Versus
March 31, 1995 March 31, 1994
------------------------------- -------------------------------
Volume Rate Net Volume Rate Net
-------- ------ ----- -------- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest earned on:
Interest-earning assets-
Mortgage loans $ 847 $ 509 $ 1,356 $ 669 $(217) $ 452
Other loans receivable 686 126 812 288 20 308
Mortgage-backed securities (34) (6) (40) (208) 106 (102)
Securities (53) (45) (98) (155) 47 (108)
Other interest-earning assets 182 1 183 (305) 248 (57)
------ ------- ------- ----- ----- -----
Total 1,628 585 2,213 289 204 493
------ ------- ------- ----- ----- -----
Decrease (increase) in interest paid on:
Interest-bearing liabilities-
Deposits (839) (1,089) (1,928) (85) (88) (173)
Other borrowings 10 (13) (3) (176) - (176)
------ ------- ------- ----- ----- -----
Total (829) (1,102) (1,931) (261) (88) (349)
------ ------- ------- ----- ----- -----
Net (decrease) increase in net
interest income $ 799 $ (517) $ 282 $ 28 $ 116 $ 144
====== ======= ======= ===== ===== =====
</TABLE>
4
<PAGE>
ASSET/LIABILITY MANAGEMENT
The Banks, like other financial institutions, are subject to interest rate risk
to the degree that their interest-bearing liabilities with short and medium term
maturities mature or reprice more rapidly, or on a different basis than its
interest-earning assets. The Banks have employed various strategies intended to
minimize the adverse effect of interest rate risk on future operations by
providing a better match between the interest rate sensitivity of its assets and
liabilities. The Banks' strategies are intended to stabilize net interest
income for the long-term by protecting its interest rate spread against
fluctuations in interest rates. Such strategies include the origination for
portfolio of adjustable-rate mortgage ("ARM") loans secured by one-to-four-
family residences and, to a lesser extent, the origination of consumer and other
loans with greater interest rate sensitivities than long-term fixed-rate
residential mortgage loans. Other strategies include maintaining a significant
portion of liquid assets, such as cash and interest-bearing deposits in other
institutions, and undertaking to maintain a stable core deposit base with a
relatively high percentage of low cost deposits. The matching of assets and
liabilities may be analyzed by examining the extent to which such assets and
liabilities are "interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap". An asset or liability is said to be interest
rate sensitive within a specific period if it will mature or reprice within that
period. The interest rate sensitivity gap is defined as the difference between
the amount of interest-earning assets maturing or repricing with a specific time
period and the amount of interest-bearing liabilities maturing or repricing
within that time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities, and is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
Generally, during a period of rising interest rates, a negative gap would
adversely affect net interest income while a positive gap would result in an
increase in net interest income, while conversely during a period of falling
interest rates, a negative gap would result in an increase in net interest
income and a positive gap would negatively affect net interest income. At March
31, 1996, the Banks' gap could have a negative effect on earnings if there were
a prolonged change in rates. However, management believes that the Banks'
strong capital positions are sufficient to protect the Banks from the negative
effects on net income of interest rate changes.
Certain shortcomings are inherent in any method of any gap analysis, including
that presented in the following table. For example, the analysis does not
consider prepayments of loans or early withdrawals of certificates of deposits.
In addition, the method used assumes that each passbook and transaction account
will be withdrawn in favor of an account with a more favorable interest rate
within 90 days. This assumption maximizes the amount of liabilities repricing
during such period. Also, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Moreover, 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. A change in interest rates may cause assets and liabilities to
reprice or mature on a basis significantly different from their contractual
terms.
Historically, the Banks have not experienced the level of volatility in net
interest income indicated by the cumulative one-year gap ratio. The primary
reason for this is that the Banks have a relatively large base of deposit
products that do not reprice on a contractual basis. These deposit products are
primarily traditional passbook accounts and transaction interest-bearing
accounts. Balances for the accounts are reported in the "within 90 days"
repricing category and comprise 36.4% of total interest-bearing liabilities.
The rates paid on these accounts are typically sensitive to changes in market-
interest rates only under certain conditions, such as market interest rates
falling to historically low levels.
5
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
- - ----------------------------------
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1996, which are expected
to reprice or mature in each of the future time periods shown. The amount of
assets and liabilities shown which reprice or mature during a particular period
was determined in accordance with the contractual terms of the asset or the
liability, except as stated below. Loans that have adjustable interest rates
are shown as being due in the period during which the interest rates are next
subject to change. No prepayment assumptions have been applied to fixed-rate
loans. Certificates of deposit are shown as being due in the period of
maturity. Passbook and transaction accounts are shown as repricing within 90
days. The assumption that assets and liabilities will reprice or mature in
accordance with their contractual terms should not be considered indicative of
the actual results that may be experienced by the Bank. The Company's outside
data processor is not providing the maturity and repricing of loans less than 90
days. The cost for manually determining the information exceeds the benefits
received.
<TABLE>
<CAPTION>
At March 31, 1996
--------------------------------------------------------------------
WITHIN 91 TO 181 DAYS 1 YEAR 3 YEAR
90 DAYS 180 DAYS TO 1 YEAR TO 3 YEAR TO 5 YEAR
--------- ---------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (3) $ 25,309 $ 14,374 $ 31,968 $ 28,485 $ 9,884
Mortgage-backed secutities -- -- -- 374 --
Securities (1)(2) 724 910 699 6,351 1,752
Cash investments 9,893 -- -- -- --
--------- ---------- ----------- ----------- -----------
Total interest-earning assets 35,926 15,284 32,667 35,210 11,636
--------- ---------- ----------- ----------- -----------
Interest-bearing liabilities:
Passbook accounts (4) 27,548 -- -- -- --
Transaction accounts (4) 25,588 -- -- -- --
Certificate accounts 17,378 13,730 22,145 17,527 21,903
-------- -------- -------- ------- --------
Total interest-bearing
liabilities 70,514 13,730 22,145 17,527 21,903
-------- -------- -------- ------- --------
Interest sensitivity
gap per period $ (34,588) $ 1,554 $ 10,522 $ 17,683 $ (10,267)
======== ======== ======== ======= ========
Cumulative interest
sensitivity gap $ (34,588) $ (33,034) $ (22,512) $ (4,829) $ (15,096)
======== ======== ======== ======= ========
Percentage of cumulative gap
to total assets (20.81)% (19.88)% (13.55)% (2.91)% (9.08)%
Cumulative ratio of interest-
sensitive assets to interest-
sensitive liabilities 50.95% 60.79% 78.83% 96.10% 89.65%
<CAPTION>
At March 31, 1996
----------------------------------------------------
5 YEAR 10 YEARS
TO 10 YEAR TO 20 YEAR 20 YEARS TOTAL
------------ ------------ ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (3) $ 4,299 $ 9,808 $ 5,453 $ 129,580
Mortgage-backed secutities 1,382 369 2,641 4,766
Securities (1)(2) 3,084 175 958 14,653
Cash investments -- -- -- 9,893
------------ ------------ ---------- ---------
Total interest-earning assets 8,765 10,352 9,052 158,892
------------ ------------ ---------- ---------
Interest-bearing liabilities:
Passbook accounts (4) -- -- -- 27,548
Transaction accounts (4) -- -- -- 25,588
Certificate accounts 39 -- -- 92,722
------------ ------------ ---------- ---------
Total interest-bearing
liabilities 39 -- -- 145,858
------------ ------------ ---------- ---------
Interest sensitivity
gap per period $ 8,726 $ 10,352 $ 9,052 $ 13,034
============ ============ ========== =========
Cumulative interest
sensitivity gap $ (6,370) $ 3,982 $ 13,034 $ 13,034
============ ============ ========== =========
Percentage of cumulative gap
to total assets (3.83)% 0.24% 7.84% 7.84%
Cumulative ratio of interest-
sensitive assets to interest-
sensitive liabilities 95.63% 102.73% 108.94% 108.94%
</TABLE>
(1) Includes $305 of FHLB Atlanta stock, which represents the stock balance in
excess of the amount required to be held, as due in the within 90 day
category. The FHLB-Atlanta stock required to be owned by the Bank is shown
as due in more than twenty years.
(2) Includes $10,845 in securities available for sale; such securities are
reflected in the above table based on their contractual maturity.
(3) Includes $1,582 in loans held for sale, such loans are reflected in the
above table in the within 90 days category.
(4) Assumes that each passbook and transaction account will be withdrawn in
favor of an account with a more favorable interest rate within 90 days.
This assumption maximizes the amount of liabilities repricing during such
period. Normally, the rates paid on these accounts are typically not
sensitive to changes in market interest rates.
6
<PAGE>
LENDING ACTIVITIES
General
- - -------
The Banks' loan portfolios are comprised primarily of first mortgage loans
secured by one-to four-family residences, a majority of which are adjustable
rate, conventional mortgage loans. At March 31, 1996, 79.71% of the total loan
portfolio, net, consisted of one-to-four family residential loans, of which
approximately 76.09% were ARM loans.
The Banks originate loans on real estate located in their primary lending areas
in West Jefferson, Northern Shelby and Bibb Counties of Alabama, which include
Bessemer, Pelham, Hueytown, Hoover, West Blocton, Centreville, and the western
suburbs of Birmingham. The Banks have authority within regulatory limitations
to originate loans secured by real estate throughout the United States but have
exercised this authority outside their primary lending area only on a limited
basis.
The Banks have never purchased or sold servicing rights and have no plans to do
so. During fiscal 1996, the Banks sold fixed rate loans in the secondary market
and First Federal retained servicing for a portion of those loans.
Residential Lending - One-to Four-Family
- - ----------------------------------------
The Banks offer various adjustable rate one-to-four family residential loan
products. The Banks' ARM loans generally are subject to a limitation of 2% per
adjustment for interest rate increases and decreases. In addition, ARM loans
currently originated by the Banks typically have a lifetime cap of 6% on
increases. These limits, based on the initial rate, may reduce the interest
rate sensitivity of such loans during periods of changing interest rates.
Interest rates and origination fees on ARM loans are priced to provide a profit
margin and not necessarily to be competitive in the local market. The Banks'
one-to four-family residential ARM loans do not provide for negative
amortization.
The Banks generally make one-to-four family residential mortgage loans in
amounts not to exceed 80% of the appraised value or sale price, whichever is
less, of the property securing the loan, or up to 95% if the amount in excess of
80% of the appraised value is secured by private mortgage insurance or 80% to
85% with an increase of interest rate. First Federal usually charges an
origination fee of 1.00% to 2.00% on one-to-four family residential mortgage
loans. First Federal and First State each have loan policies that require
approval by a loan committee or their respective Board of Directors for loans
over specified amounts. The Boards of Directors of First Federal and First
State are furnished with an analysis of the respective monthly loan activity.
In addition to ARM lending, the Banks may originate fixed-rate one-to-four
family residential loans. However, at this time, the majority of all fixed rate
loans are being sold into the secondary market. The Banks have established
investor relationships with several banks and mortgage companies. In addition,
First Federal is approved by the Federal Home Loan Mortgage Corporation (FHLMC)
and the Federal National Mortgage Corporation (FNMA) to sell and service loans.
These outlets allow the Banks to offer more diversified products and enhances
the management of interest rate risk. At March 31, 1996, fixed rate loans
represented 23.91% of the one-to-four family residential loans. The Banks apply
the required underwriting procedures in making these fixed-rate mortgage loans.
Residential Lending - Multi-Family
- - ----------------------------------
The Banks also originate loans secured by multi-family residences within 100
miles of its market area on a case-by-case basis. Loans originated on multi-
family dwellings are generally adjustable rate mortgages with terms of 15 years
but may be as long as 25 years. Generally, all such loans amortize over the
life of the loan. The Banks generally make multi-family mortgage loans up to
65% of the appraised value of the property securing the loan. Such appraised
value is determined by an independent appraiser previously approved by the
Banks. In
7
<PAGE>
addition, properties securing multi-family loans must be used solely for
residential purposes. The Banks had multi-family loans outstanding totaling
$61,000 at March 31, 1996. No multi-family loan was delinquent ninety days or
more at March 31, 1996.
Commercial Real Estate Lending
- - ------------------------------
Loans secured by commercial real estate totalled approximately $8.2 million, or
6.53% of the Banks' total loan portfolio, net, at March 31, 1996. Commercial
real estate loans are generally originated in amounts up to 65% of the appraised
value of the property. Such appraised value is determined by an independent
appraiser previously approved by each Bank. The Banks' commercial real estate
loans are permanent loans secured by improved property such as office buildings,
retail stores, warehouses, churches, hotels/motels, and other non-residential
buildings. Of the commercial real estate loans outstanding at March 31, 1996,
most are located within 100 miles of the Banks' office locations and were made
to local customers of the Banks. In addition, borrowers generally must
personally guarantee loans secured by commercial real estate. Commercial real
estate loans generally are 10 to 20 year loans and are made at rates generally
based upon market rates for the type of property. Such loans amortize over the
life of the loan. Commercial real estate loans are usually made at adjustable
rates and may carry prepayment penalties. At March 31, 1996, all commercial real
estate loans delinquent ninety days or more, totalled $1,050.
Loans secured by commercial real estate properties are generally larger and
involve a greater degree of risk than residential mortgage loans. Because
payments on loans secured by commercial real estate properties are often
dependent on successful operation or management of the properties, repayment of
such loans may be subject to a greater extent to adverse conditions in the real
estate market or the economy. The Banks' seek to minimize these risks by
lending to established customers and generally restricting such loans to its
primary market area.
Construction Lending
- - --------------------
The Banks have several construction loan programs. At March 31, 1996, the Bank
had $9.2 million in construction loans outstanding or 7.3% of the Banks' net
loan portfolio. Such loans are primarily classified as one-to-four family
residential loans or commercial real estate loans depending upon the character
of the property used as collateral. Of such amount, $3.4 million was
undisbursed at March 31, 1996, and consisted of loans to individuals for
construction of residential properties. The Banks presently charge adjustable
interest rates on construction and construction-permanent loans. Construction
and construction-permanent loans may be made for up to 80% of the anticipated
value of the property upon completion. Funds are disbursed based upon
percentage of completion as verified by an on site inspection.
Consumer Lending
- - ----------------
As community-oriented lenders, the Banks offer certain secured and unsecured
consumer loans, including primarily loans secured by deposits, automobile loans,
mobile home loans, signature loans and other secured and unsecured loans.
Consumer loans totalled $11.5 million or 9.09% of the Banks' total net loan
portfolio, at March 31, 1996. Consumer loans, while generally having higher
yields than residential mortgage loans, involve a higher credit risk. At March
31, 1996, all consumer loans delinquent 90 days or more, totalled $74,230.
The Banks' loans secured by second mortgages amounted to $2.0 million at March
31, 1996. Second mortgage loans may be extended for up to 80% of the appraised
value of the property less existing liens. The Banks generally hold the first
mortgage loans on the properties securing the second mortgages.
Home Equity Lending
- - -------------------
First Federal began offering home equity loans during fiscal 1995. Home equity
loans may be made not to exceed 80% of the first and second combined mortgage
8
<PAGE>
loan to value. These loans are credit lines with a maximum loan term of 10
years. The interest rate on these lines of credit adjust monthly at a rate
based on prime. At March 31, 1996, the outstanding home equity loan balance was
$1,503,445.
Commercial Lending
- - ------------------
The Banks originate commercial loans and commercial lines of credit. The
commercial loans are based on serving market needs while limiting risk to
reasonable standards and lending only to strong well established businesses.
Commercial loans are adjustable rate loans and generally secured by equipment,
accounts receivable and inventory. Commercial loans totalled approximately $6.5
million or 5.17% of the Banks' total loan portfolio, net, at March 31, 1996. No
commercial loan was delinquent ninety days or more at March 31, 1996.
9
<PAGE>
Analysis of Loan Portfolio and Mortgage-backed Securities
- - ---------------------------------------------------------
The following table sets forth the composition of the Banks' mortgage and other
loan portfolios and mortgage-backed securities portfolio in dollar amounts and
in percentages at the dates indicated. At March 31, 1996, the Banks had no
concentrations of loans exceeding 10% of total loans that are not disclosed
below. The increase in loans to the March 31, 1996, level from March 31, 1995,
is primarily the result of the acqusition of First State.
<TABLE>
<CAPTION>
At March 31,
--------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
Percent Percent Percent
of of
Amount Total Amount Total Amount Total
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to-four family
residential $100,596 79.71% $ 96,372 90.73% $ 83,826 95.86%
Commercial real estate 8,237 6.53 5,645 5.31 4,756 5.44
Other 4,010 3.18 857 .81 118 .14
-------- ------ -------- ----- -------- ------
Total mortgage loans 112,843 89.42 102,874 96.85 88,700 101.44
-------- ------ -------- ----- -------- ------
Consumer loans:
Savings accounts 1,007 .80 1,512 1.42 808 .93
Other 10,462 8.29 3,634 3.42 1,656 1.89
-------- ------ -------- ----- -------- ------
Total consumer loans 11,469 9.09 5,146 4.84 2,464 2.82
-------- ------ -------- ----- -------- ------
Commercial loans 6,527 5.17 3,162 2.98 -- --
-------- ------ -------- ------ -------- ------
Total loans receivable 130,839 103.68 111,182 104.67 91,164 104.26
-------- ------ -------- ------ -------- ------
Less:
Undisbursed portion of
mortgage loans 3,381 2.68 4,006 3.77 2,949 3.37
Escrow, net 173 .14 262 .25 180 .21
Allowance for loan losses 621 .49 242 .23 215 .25
Net deferred loan fees 461 .37 443 .42 375 .43
Discount on loans purchase 4 -- 5 -- -- -- d
-------- ------ -------- ------ -------- ------
4,640 3.68 4,958 4.67 3,719 4.26
-------- ------ -------- ------ -------- ------
Loans receivable, net $126,199 100.00% $106,224 100.00% $ 87,445 100.00%
======== ====== ======== ====== ======== ======
Mortgage-backed securities :
FNMA $ 3,218 67.52% $ 3,548 67.10% $ 4,405 66.19%
FHLMC 367 7.70 240 4.54 343 5.15
GNMA 1,048 21.99 1,340 25.34 1,714 25.76
-------- ------ -------- ------ -------- ------
Total mortgage-backed
securities 4,633 97.21 5,128 96.98 6,462 97.10
Unearned premiums,
net 133 2.79 160 3.02 193 2.90
-------- ------ -------- ------ -------- ------
Mortgage-backed
securities, net $ 4,766 100.00% $ 5,288 100.00% $ 6,655 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
10
<PAGE>
Loan Maturity
-------------
The following table shows the maturity of the Banks' loan portfolio at
March 31, 1996, based upon contractual maturity.
<TABLE>
<CAPTION>
March 31, 1996
------------------------------------------------------------------
One-to Four Multi-Family
Family and
Residential Commercial Consumer Commercial
Loans Real Estate Loans Loans Total
-------------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Amounts Due:
Within 1 year $ 6,385 $ 2,082 $ 4,524 $ 3,804 $ 16,795
1 to 2 years 547 146 1,543 438 2,674
2 to 3 years 766 1,118 1,859 253 3,996
Over 3 to 5 years 2,196 811 2,514 1,708 7,229
Over 5 to 10 years 9,393 3,394 822 -- 13,609
Over 10 to 15 years 24,158 3,667 136 243 28,204
Over 15 years 57,151 1,029 71 81 58,332
--------- -------- -------- -------- ---------
$ 100,596 $ 12,247 $ 11,469 $ 6,527 $ 130,839
========= ======== ======== ======== =========
Less:
Undisbursed portion of mortgage $ 3,381
Discount on loans purchased 4
Net deferred loan fees 461
Allowance for loan losses 621
Escrow, net 173
---------
Loans receivable, net $ 126,199
=========
</TABLE>
Scheduled contractual principal repayments of loans do not necessarily
reflect the actual life of such assets. The average life of long-term loans
is substantially less than their contractual terms, due to prepayments. The
average life of mortgage loans tends to increase when current mortgage loan
market rates are substantially higher than rates on existing mortgage loans
and tends to decrease when current mortgage loan market rates are
substantially lower than rates on existing mortgage loans.
The following table sets forth at March 31, 1996, the dollar amount of
loans and mortgage-backed securities due after March 31, 1997, based upon
contractual maturity dates, and whether such loans have fixed interest
rates or adjustable interest rates:
<TABLE>
<CAPTION>
DUE AFTER MARCH 31, 1997
----------------------------
FIXED ADJUSTABLE TOTAL
------- ---------- -------
(In thousands)
<S> <C> <C> <C>
Mortgage Loans:
One-to four-family $15,958 $78,253 $ 94,211
Multi-family and commercial real estate 2,443 7,722 10,165
------- ------- --------
Total mortgage loans 18,401 85,975 104,376
------- ------- --------
Consumer loans 6,945 -- 6,945
------- ------- --------
Commercial loans -- 2,723 2,723
------- ------- --------
Total loans receivable $25,346 $88,698 $114,044
======= ======= ========
Mortgage-backed securities $ 2,696 $ 2,070 $ 4,766
======= ======= ========
</TABLE>
11
<PAGE>
Loan Origination, Commitment and Other Loan Fees
- - ------------------------------------------------
In addition to interest earned on loans, the Banks charge fees for originating
and making loan commitments (which are included in interest income), prepayments
of non-residential loans, late payments, changes in property ownership and other
miscellaneous services. The income realized from such fees varies with the
volume of loans made or repaid, and the fees vary from time to time depending
upon the supply of funds and other competitive conditions in the mortgage
markets. Loan demand and the availability of money also affect these conditions.
Loan Delinquencies, Nonperforming Assets and Classified Assets
- - --------------------------------------------------------------
The Banks consider nonperforming assets to include nonaccruing loans, accruing
loans delinquent 90 days or more and real estate owned. The Banks' policies are
to stop accruing interest income when any loan is past due as to principal or
interest in excess of 90 days and the ultimate collection of either is in doubt.
Foreclosed real estate occurs when a borrower ultimately does not abide by the
original terms of the loan agreement and the Banks obtain title of the real
estate securing the loan in foreclosure proceedings. At March 31, 1996, the
Banks had no restructured loans within the meaning of Financial Accounting
Standards Board Statement 15.
<TABLE>
<CAPTION>
At March 31,
----------------------------
1996 1995 1994
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans $240 $ 26 $162
Accruing loans delinquent 90 days
or more:
Mortgage loans 285 504 509
Consumer loans 74 93 11
Commercial loans -- -- --
---- ---- ----
Total non-performing loans 599 623 682
Real estate owned 12(1) 1(1) 16(1)
---- ---- ----
Total non-performing assets $611 $624 $698
==== ==== ====
Allowance for uncollected interest $ 11 $ 2 $ 10
==== ==== ====
Non-performing assets to total assets .37% .48% .61%
==== ==== ====
Non-performing loans to total loans,
net .47% .59% .78%
==== ==== ====
</TABLE>
(1) Real estate owned at March 31, 1996, 1995 and 1994 is shown less its
allowance of $0, $0 and $10,000, respectively.
At March 31, 1996, there were no loans not included in the above table
considered potential problem loans that management expects will significantly
impact future operating results, liquidity or capital resources or for which
management is aware of any information that causes management to have serious
doubts as to the ability of such borrowers to comply with the loan repayment
terms. Interest income recognized on nonaccrual loans outstanding at March 31,
1996, would have increased by approximately $11,000, had interest income been
recorded under the original terms of the loan. Interest income on non-performing
loans included in interest income for fiscal 1996 was approximately $7,000.
Allowance for Loan Losses
- - -------------------------
Losses on loans are charged to the allowance for loan losses. Additions to this
allowance are made by recoveries of loans previously charged off and, if
necessary, by provisions charged to expense. The determination of the balance
12
<PAGE>
of the allowance for loan losses is based on an analysis of the composition of
the loan portfolio, current economic conditions and other factors that warrant
recognition in providing for an adequate allowance. Ultimate losses may vary
from original estimates and adjustments, as necessary, are made in the period in
which these factors and other relevant considerations become known.
The following table sets forth information regarding the Banks' allowance for
loan losses for the periods and at the dates indicated.
<TABLE>
<CAPTION>
For the Year Ended March 31,
-------------------------------
1996 1995 1994
---------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of period $ 242 $ 215 $ 152
Provision for loan losses 75 52 69
Addition of First State (1) 320 -- --
Charge-offs:
Mortgage loans 42 45 22
Consumer loans 54 10 14
Commercial loans -- -- --
------- ------ ------
Total Charge-offs 96 55 36
------- ------ ------
Recoveries:
Mortgage loans 59 25 20
Consumer loans 19 5 10
Commercial loans 2 -- --
------- ------ ------
Total Recoveries 80 30 30
------- ------ ------
Charge-offs, net of recoveries 16 25 6
------- ------ ------
Balance at end of period $ 621 $ 242 $ 215
======= ====== ======
Ratio of allowance for loan losses to
total loans receivable at the end
of period .49% .22% .23%
======= ====== ======
Ratio of allowance for loan losses to
non-performing loans (2) 103.67% 38.84% 31.52%
======= ====== ======
Ratio of allowance for loan losses to
non-performing assets (3) 101.64% 38.78% 30.80%
======= ====== ======
Ratio of net charge-offs during the period
to average loans outstanding during the
period .01% .02% .01%
======= ====== ======
</TABLE>
(1) Reflects acqusition of First State.
(2) Non-performing loans are comprised of accruing loans delinquent
90 days or more and nonaccrual loans.
(3) Non-performing assets include non-performing and nonaccrual loans
and real estate owned.
13
<PAGE>
The following table allocates the allowance for loan losses by category. The
allocation to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
March 31,
----------------------------------------------------
1996 1995 1994
--------- --------- ---------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Mortgage $ 396 63.8% $ 211 87.2% $194 90.2%
Consumer 130 20.9 16 6.6 21 9.8
Commercial 95 15.3 15 6.2 -- 0.0
----- ----- ----- ----- ---- -----
Total $ 621 100.0% $ 242 100.0% $215 100.0%
===== ===== ===== ===== ==== =====
</TABLE>
Classified Assets
- - -----------------
Federal regulations provide for the classification of loans and other assets
such as debt and equity securities considered to be of lesser quality as
"substandard", "doubtful" or "loss" assets. Assets which do not currently
expose the insured institution to a sufficient degree of risk to warrant
classification in one of the aforementioned categories but possess credit
deficiencies or potential weaknesses are required to be designated "special
mention" by management.
When an insured institution classifies problem assets as either substandard or
doubtful, it is required to establish general allowances for loan losses in an
amount deemed prudent by management. When an insured institution classifies
problem assets as "loss", it is required either to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge-off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the OTS and Federal Reserve, which can order the
establishment of additional general or specific loss allowances. At March 31,
1996, the Banks had no assets classified as loss, $42,000 classified as
doubtful, $1.4 million of assets classified as substandard, and no assets
designated as special mention. The Banks' total adversely classified assets
(defined as those assets classified as substandard, doubtful and loss)
represented .87% of the Banks' total assets at March 31, 1996. At that date,
primarily all of the Banks' classified assets were one-to-four family residences
in the Banks' market area.
MORTGAGE-BACKED SECURITIES AND OTHER INVESTMENT ACTIVITIES
The Banks have investments in mortgage-backed securities and have, at times,
utilized such investments as an alternative to mortgage lending. All of the
securities in the portfolio are currently insured or guaranteed by the FNMA,
GNMA or the FHLMC and have coupon rates as of March 31, 1996, ranging from 4.93%
to 9.50%. At March 31, 1996, net mortgage-backed securities totalled $4.8
million, or 2.87% of total assets.
At March 31, 1996, the Banks had 12.5% of total assets in cash, cash
equivalents, mortgage-backed securities and investment securities maturing in
five years or less. The Banks primarily invest in U. S. Government obligations
and agency obligations. The Banks hold cash equivalents in the form of amounts
due from depository institutions, overnight interest-bearing deposits in banks
and federal funds sold, the latter being generally sold for one day periods.
The Boards of Directors set the investment policy of each Bank. These policies
dictate that investments will be made based on the following criteria in order
of importance: regulatory liquidity requirements; return on investment; and
acceptable levels of interest rate risk and credit risk. The Banks' policies
authorize investment in various types of liquid assets permissible under
applicable regulations, which include United States Government obligations,
14
<PAGE>
securities of various federal or federally-sponsored agency obligations, certain
municipal obligations, certain certificates of deposits of Board-approved banks
and savings institutions and federal funds sold. The Banks' policies are to
account for the investments as held to maturity or available for sale. Subject
to various regulatory restrictions, savings institutions also may invest in
commercial paper, investment grade corporate debt securities and mutual funds
whose assets conform to the investments that a savings institution is otherwise
authorized to make directly. The Banks historically have not made such
additional investments and do not presently intend to make such investments.
15
<PAGE>
The table below sets forth certain information regarding the liquidity and the
fair value, weighted average yields and contractual maturities of the Banks'
mortgage-backed and investment securities, both held to maturity and available
for sale, at March 31, 1996. Certain of the U.S. Government agency securities
could be called or prepaid prior to maturity.
<TABLE>
<CAPTION>
After One Through After Five Through
One Year or Less Five Years Ten Years After Ten Years Total
----------------- ----------------- ------------------ --------------------- ------------------------
Weighted Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average Amortized Fair Average
Cost Yield Cost Yield Cost Yield Cost Yield Cost Value Yield
------- ------- ------- ------- -------- ------- ------ ------- ------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing
deposits $ 5,018 5.32% $ --- ----% $ --- ----% $ --- ----% $ 5,018 $ 5,018 5.32%
Federal funds 4,875 5.26 --- ---- --- ---- --- ---- 4,875 4,875 5.26
Mortgage-backed
securities --- --- 374 7.00 1,382 8.59 3,010 7.44 4,766 4,778 7.74
U.S. Government and
agency securities (2) 2,010 6.29 8,086 5.15 2,407 7.52 --- --- 12,503 12,345 5.79
State, County and
Municipal
securities --- --- 150 6.98 689 5.24 175 5.43 1,014 1,039 5.53
FHLB-Atlanta stock(1) 305 7.25 --- --- --- --- 958 7.25 1,263 1,263 7.25
Federal Reserve stock 19 6.00 --- --- --- --- --- --- 19 19 6.00
</TABLE>
(1) The$305 amount of FHLB-Atlanta stock, which represents the stock balance
in excess of the amount required to be held, is shown as due in one year or
less. The FHLB-Atlanta stock required to be owned by First Federal is shown as
due after ten years.
(2) Includes securities held for maturity and available for sale. The
securities are reflected in the above table based on their carrying value and
contractual maturity. The weighted average yield does not include unrealized
gains and losses on fair value of available for sale securities.
16
<PAGE>
DEPOSITS, BORROWINGS AND OTHER SOURCES OF FUNDS
General
- - -------
The Banks' primary sources of funds are deposits and principal, interest and
dividend payments on loans, mortgage-backed securities and investments.
Deposits
- - --------
The Banks offer a variety of deposit accounts having a range of interest rates
and terms. The Banks' deposits consist of passbook savings, checking accounts,
money market deposits, IRA and certificate accounts. The Banks do not maintain
ATM facilities at its branches but First Federal began issuing ATM cards on
checking accounts during fiscal 1996. Compound interest is paid on most of the
Banks' deposits. The flow of deposits is influenced significantly by general
economic conditions, changes in money markets and prevailing interest rates and
competition. The Banks' deposits are obtained primarily from the areas in which
the branches are located. The Banks also maintain collateralized deposits in
excess of $100,000 held by the State of Alabama and certain other depositors.
Generally, the Banks price the deposit rates relative to existing treasury
market rates. The Banks rely primarily on customers as their source to attract
and retain these deposits. The Banks do not seek and have no brokered deposits.
Average Balance and Average Rate of Deposits
- - --------------------------------------------
The average balance of deposits and average yields are summarized for the
periods indicated in the following table.
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------------------
1996 1995 1994
---------------- --------------- ----------------
Amount Rate Amount Rate Amount Rate
------- ----- ------- ----- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts $15,368 2.32% $14,557 2.39% $12,664 2.64%
Passbook accounts 27,293 3.19 24,121 3.12 25,147 2.90
Certificates 74,078 5.91 57,141 4.50 55,836 4.37
</TABLE>
Large Certificates of Deposit
- - -----------------------------
The following table indicates the amount of the Banks' certificates of deposit
of $100,000 or more by time remaining until maturity as of March 31,1996.
<TABLE>
<CAPTION>
Maturity Period Amount
--------------- --------
<S> <C>
(In thousands)
Three months or less $ 3,007
Over three through six months 3,019
Over six through 12 months 5,682
Over 12 months 6,259
--------
Total $ 17,967
========
</TABLE>
Borrowings
- - ----------
Deposits are the Banks' primary source of funds. The Banks' policies have been
to utilize borrowings only when necessary and when they are a less costly source
of funds or can be invested at a positive rate of return. First Federal may
obtain advances from the FHLB-Atlanta upon the security of its capital stock of
the FHLB-Atlanta and certain of its mortgage loans. Such advances may be made
pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. The maximum amount that the FHLB-Atlanta
advances to a member institution generally is reduced by borrowings from any
other source.
17
<PAGE>
At March 31, 1996, First Federal had $2.0 million outstanding in advances from
the FHLB-Atlanta. First Federal also has available a fed fund line of credit
and reverse repurchase line which was not used during the year. See Note 8 of
the Notes to Consolidated Financial Statements for additional information on
First Federal's borrowings. First Federal had borrowings of $177,000 at March
31, 1996, which is a loan associated with the Employee Stock Ownership Plan
("ESOP") established in connection with the conversion. The Company is the
lender on the ESOP loan. The loan is eliminated in consolidation.
COMPETITION
The Banks face strong competition both in making loans and in attracting
deposits. A large number of financial institutions, including commercial banks,
savings associations, credit unions, and other nonbank financial companies,
compete in the greater Birmingham metropolitan area, in which the primary
service areas of Banks are located. Most of these companies are competitors of
the Banks to varying degrees. The Banks also compete with many larger banks and
other financial institutions that have offices over a wide geographic area.
These larger institutions have certain inherent competitive advantages, such as
the ability to finance wide ranging advertising campaigns and promotions and to
allocate their investment assets to regions offering the highest yield and
demand. In addition, competition in the Banks' service areas may increase as a
result of the lifting of restrictions on the interstate operations of financial
institutions. See "Regulation and Supervision of the Banks."
REGULATION, SUPERVISION AND GOVERNMENTAL POLICY
General
- - -------
As a savings and loan holding company, the Company is registered with the OTS
and is subject to OTS regulation and supervision under the Home Owners' Loan
Act, as amended (the HOLA). As a bank holding company, the Company is also
subject to FRB regulation and supervision under the Bank Holding Company Act of
1956, as amended (the "BHC Act"). The Company also is required to file certain
reports with, and otherwise comply with the rules and regulations of, the
Securities and Exchange Commission under the federal securities laws.
First Federal, as a federal savings bank, is subject to regulation,
supervision and regular examination by the OTS. As an Alabama commercial bank
that is a member of the Federal Reserve System, First State is subject to
regulation, supervision and regular examination both by the Banking Department
and by the FRB. The deposits of both Banks are insured by the FDIC to the
maximum extent provided by law (a maximum of $100,000 for each insured
depositor). Federal and Alabama banking laws and regulations control, among
other things, the Banks' required reserves, investments, loans, mergers and
consolidations, issuance of securities, payment of dividends and other aspects
of the Banks' operations.
Supervision, regulation and examination of First Federal and First State by
the bank regulatory agencies are intended primarily for the protection of
depositors rather than for holders of the Company's stock or for the Company as
the holder of the stock of the Banks.
Regulation and Supervision of the Banks
- - ---------------------------------------
The following is a brief summary of certain statutes, rules and regulations
affecting First State and First Federal. A number of other statutes and
regulations have an impact on their operations. The following summary of
applicable statutes and regulations does not purport to be complete and is
qualified in its entirety by reference to such statutes and regulations.
18
<PAGE>
Regulatory Capital Requirements. The OTS and the FRB have adopted guidelines
regarding the capital adequacy of institutions under their respective
jurisdictions, which require such institutions to maintain specified minimum
ratios of capital to total assets and capital to risk-weighted assets.
Under OTS regulations, savings institutions must maintain "tangible" capital
equal to 1.5% of adjusted total assets, "core" capital equal to at least 3% of
adjusted total assets, and a combination of core and "supplementary" capital
equal to 8% of "risk-weighted" assets. In addition, the federal bank
regulators, including the OTS, have adopted regulations that impose certain
restrictions on depository institutions that have a total risk-based capital
ratio of less than 8% or a ratio of Tier 1 capital to risk-weighted assets of
less than 4% (or 3% if the institution is rated Composite 1 under the CAMEL
examination rating system). See "Prompt Corrective Regulatory Action."
Under the OTS capital regulations, "core capital" is defined as common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related surplus, minority interests in the equity accounts
of fully consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits and "qualifying supervisory goodwill." Core capital is generally
reduced by the amount of the savings association's intangible assets, with
limited exceptions for purchased mortgage servicing rights ("PMSRs"), purchased
credit card relationships ("PCCRs") and qualifying supervisory goodwill held by
an eligible savings institution. Tangible capital has the same definition as
core capital but does not include an exception for qualifying supervisory
goodwill and is reduced by the amount of all the savings association's
intangible assets with only a limited exception for PMSRs and PCCRs. Core and
tangible capital are further reduced by the amount of a savings institution's
debt and equity investments in subsidiaries engaged in activities not
permissible for national banks. At March 31, 1996, First Federal had no such
investments.
In determining compliance with the risk-based capital requirement, a savings
institution is permitted to use both core and supplementary capital, provided
that the amount of supplementary capital does not exceed the institution's core
capital. Supplementary capital includes preferred stock that does not qualify
as core capital, certain approved subordinated debt, certain other capital
instruments and a portion of the institution's loan and lease loss allowance.
The risk-based capital requirement is measured against risk-weighted assets,
which equal the sum of each asset and the credit-equivalent amount of each off-
balance sheet item after being multiplied by an assigned risk weight. Under the
OTS risk-weighting system, one-to-four family first mortgages not more than 90
days past due with original loan-to-value ratios under 80% and certain
qualifying loans for the construction of one-to-four family residences that have
been presold are assigned a risk weight of 50%. Consumer loans, home equity
loans, commercial loans and all other residential construction loans are
assigned a risk weight of 100%. Mortgage-backed securities issued, or fully
guaranteed as to principal and interest, by the FNMA or FHLMC are assigned a 20%
risk weight. Cash and U.S. Government securities backed by the full faith and
credit of the U.S. Government (such as mortgage-backed securities issued by
GNMA) are given a 0% risk weight.
OTS risk-based capital requirements require savings institutions with more
than a "normal" level of interest rate risk to maintain additional total
capital. A savings institution's interest rate risk will be measured in terms
of the sensitivity of its "net portfolio value" to changes in interest rates.
Net portfolio value is defined, generally, as the present value of expected cash
inflows from existing assets and off-balance sheet contracts less the present
value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. A savings institution with a greater than normal interest
rate risk will be required to deduct from total capital, for purposes of
calculating its risk-based capital requirement, an amount (the "interest rate
risk component") equal to one-
19
<PAGE>
half the difference between the institution's measured interest rate risk and
the normal level of interest rate risk, multiplied by the economic value of its
total assets.
The OTS calculates the sensitivity of a savings institution's net portfolio
value based on data submitted by the institution in a schedule to its quarterly
Thrift Financial Report and using the interest rate risk measurement model
adopted by the OTS. The amount of the interest rate risk component, if any, to
be deducted from a savings institution's total capital is based on the
institution's Thrift Financial Report filed two quarters earlier. Institutions
with less than $300 million in assets and a risk-based capital ratio above 12%
are generally exempt from filing the interest rate risk schedule with their
Thrift Financial Reports. First Federal has determined that, on the basis of
current financial data, it will not be deemed to have a greater than normal
level of interest rate risk under the new rule and believes that it will not be
required to increase its total capital as a result of the rule.
The OTS has proposed an amendment to its capital regulations establishing a
minimum core capital ratio of 3.00% for savings institutions rated composite 1
under the CAMEL examination rating system. For all other savings institutions,
the minimum core capital ratio would be 3.00% plus at least an additional 100 to
200 basis points. In determining the amount of additional core capital, the OTS
would assess both the quality of risk management systems and the level of
overall risk in each individual savings institution through the supervisory
process on a case-by-case basis.
As a state-chartered bank that is a member of the Federal Reserve System (a
"state member bank"), First State is subject to the regulatory capital
guidelines of the FRB. The FRB's capital guidelines establish two capital
standards for state member banks: a leverage requirement and a risk-based
capital requirement. In addition, the FRB may, on a case-by-case basis,
establish individual minimum capital requirements for a state member bank that
vary from the requirements which would otherwise apply under FRB regulations. A
state member bank that fails to satisfy the capital requirements established
under the regulations will be subject to such administrative action or sanctions
as the FRB deems appropriate.
The leverage ratio adopted by the FRB requires a minimum ratio of "Tier 1
capital" to adjusted total assets of 3% for state member banks rated composite 1
under the CAMEL examination rating system. State member banks not rated
composite 1 under the CAMEL rating system are required to maintain a minimum
ratio of Tier 1 capital to adjusted total assets of 4% to 5%, depending upon the
level and nature of risks of their operations. For purposes of the FRB's
leverage requirement, Tier 1 capital generally consists of the same components
as core capital under the OTS's capital regulations, except that no intangibles
other than certain PMSRs and PCCRs may be included in capital.
The FRB's risk-based capital requirements require state member banks to
maintain "total capital" equal to at least 8% of total risk-weighted assets. For
purposes of the risk-based capital requirement, "total capital" means Tier 1
capital (as described above) plus "Tier 2 capital" (as described below),
provided that the amount of Tier 2 capital may not exceed the amount of Tier 1
capital, less certain assets. The components of Tier 2 capital under the FRB's
guidelines generally correspond to the components of supplementary capital under
OTS regulations. Total risk-weighted assets generally are determined under the
FRB's rules in the same manner as under the OTS's regulations.
The FRB has adopted a policy statement on sound risk management practices
that, among other things, describes prudent methods for monitoring interest rate
risk and stresses the importance of senior management oversight of an
institution's risk management activities. The FRB's policy statement does not
provide for a standardized model for measuring and monitoring interest rate risk
at individual banks. The policy statement indicates, however, that the FRB will,
in evaluating a bank's capital adequacy for interest rate risk, monitor both the
level of interest rate risk exposure and the quality of risk management.
20
<PAGE>
The table below sets forth First Federal's and First State's compliance with
their regulatory capital requirements at March 31, 1996.
REGULATORY CAPITAL RATIOS
At March 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
First Federal First State
--------------- ---------------
<S> <C> <C> <C> <C>
RISK-BASED CAPITAL RATIOS
Tier 1 Capital
Stockholders' Equity less goodwill $10,035 7.66% $ 2,674 8.38%
Minimum Required 5,237 4.00% 1,276 4.00%
------- ----- ------- -----
Excess $ 4,798 3.66% $ 1,398 4.38%
======= ===== ======= =====
Total Capital
Tier 1 Capital plus allowances for loan losses $10,331 13.69% $ 2,907 17.18%
Minimum Required 6,035 8.00% $ 1,353 8.00%
------- ----- ------- -----
Excess $ 4,296 5.69% $ 1,554 9.18%
======= ===== ======= =====
Total Risk-weighted assets $75,447 $16,916
======= =======
First Federal First State
--------------- ---------------
LEVERAGE RATIOS
Tier 1 Capital $10,035 7.66% $ 2,674 8.38%
Minimum Leverage Requirement 3,943 3.00% 957 3.00%
------- ----- ------- -----
Excess $ 6,092 4.66% $ 1,717 5.38%
======= ===== ======= =====
First Federal
----------------
TANGIBLE CAPITAL RATIO
Tangible Capital $10,035 7.64%
Tangible Capital Requirement 1,972 1.50%
------- -----
Excess $ 8,063 6.14%
======= =====
</TABLE>
Federal Deposit Insurance. First Federal and First State are required to pay
assessments based on a percentage of their insured deposits to the FDIC for
insurance of their deposits by the SAIF and the BIF, respectively.
The FDIC has established a risk-based deposit insurance premium assessment
system, under which the assessment rate for an insured depository institution
depends on the assessment risk classification assigned to the institution by the
FDIC, which is determined by the institution's capital level and supervisory
evaluations. Institutions are assigned to one of three capital groups -- well-
capitalized, adequately capitalized or undercapitalized -- based on the data
reported to regulators for date closest to the last day of the seventh month
preceding the semi-annual assessment period. Well-capitalized institutions are
institutions satisfying the following capital ratio standards: (i) total risk-
based capital ratio of 10.0% or greater; (ii) Tier 1 risk-based capital ratio of
6.0% or greater; and (iii) Tier 1 leverage ratio of 5.0% or greater. Adequately
capitalized institutions are institutions that do not meet the standards for
well-capitalized institutions but that satisfy the following capital ratio
standards: (i) total risk-based capital ratio of 8.0% or greater; (ii) Tier 1
risk-based capital ratio of 4.0% or greater; and (iii) Tier 1 leverage ratio of
4.0% or greater. Undercapitalized institutions consist of institutions that do
not qualify as either well-capitalized or adequately capitalized institutions.
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses that, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken.
21
<PAGE>
The insurance assessment rate for the SAIF, which insures First Federal's
deposit accounts, currently ranges from 0.23% of deposits for well capitalized
institutions in Subgroup A to 0.31% of deposits for undercapitalized
institutions in Subgroup C. First Federal is a well-capitalized institution.
The assessment rate for the BIF, by which First State Bank's deposit accounts
are insured, ranges from a statutory minimum of $2,000 annually for well-
capitalized banks, which constitute over 90% of BIF-insured institutions, to
0.27% of insured deposits for undercapitalized banks. First State is a well-
capitalized institution.
The current substantial disparity in the deposit insurance premiums paid by SAIF
and BIF members places SAIF-insured institutions at a significant competitive
disadvantage to BIF-insured institutions. Legislation currently pending before
the United States Congress provides for a one-time special assessment on SAIF-
member institutions, estimated at 0.80% of insured deposits, that would fully
recapitalize the SAIF. See "Legislative Developments."
SAIF-member institutions are generally prohibited from converting to the status
of BIF members until such time as the SAIF's ratio of reserves to insured
deposits (the "reserve ratio") equals 1.25%. Unless SAIF-recapitalization
legislation is enacted by Congress, the SAIF reserve ratio is not expected to
increase to 1.25% for a number of years. However, during the moratorium on
insurance fund conversions, mergers, transfers of assets and assumptions of
liabilities may be approved by the appropriate bank regulator so long as deposit
insurance premiums continue to be paid to the FDIC at the SAIF assessment rate
for deposits attributable to the SAIF member plus an adjustment for the annual
rate of growth of deposits in the surviving bank without regard to subsequent
acquisitions. In addition, a savings institution is not prohibited from
converting to a commercial bank charter during the moratorium if the resulting
bank remains a SAIF member.
Standards for Safety and Soundness. Under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), as amended by the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "CDRI Act"),
the federal bank regulatory agencies were required to prescribe, by regulation,
non-capital safety and soundness standards for all insured depository
institutions and depository institution holding companies. The federal bank
regulators, including the FRB and the OTS, adopted, effective August 9, 1995,
Interagency Guidelines Establishing Standards for Safety and Soundness and a
rule establishing deadlines for submission and review of safety and soundness
compliance plans. The guidelines require depository institutions to maintain
internal controls and information systems and internal audit systems that are
appropriate for the size, nature, and scope of the institution's business. The
guidelines also establish certain basic standards for loan documentation, credit
underwriting, interest rate risk exposure, and asset growth. The guidelines
further provide that depository institutions should maintain safeguards to
prevent the payment of compensation and benefits that are excessive or that
could lead to material financial loss, and should take into account factors such
as comparable compensation practices at comparable institutions. If the
appropriate federal banking agency determines that a depository institution is
not in compliance with the safety and soundness guidelines, it may require the
institution to submit an acceptable plan to achieve compliance with the
guidelines. A depository institution must submit an acceptable compliance plan
to its primary federal regulator within 30 days of receipt of a request for such
a plan. Failure to submit or implement a compliance plan may subject the
institution to regulatory sanctions. Management believes that the Banks already
meet substantially all the standards adopted in the interagency guidelines, and
therefore does not believe that implementation of these regulatory standards
will materially affect the operations of the Banks.
Additionally under FDICIA, as amended by the CDRI Act, the federal banking
agencies are required to establish standards relating to the asset quality and
earnings that the agencies determine to be appropriate. On July 10, 1995, the
federal banking agencies, including the OTS and the FRB, issued proposed
guidelines relating to asset quality and earnings. Under the proposed
guidelines, an FDIC-insured depository institution should maintain systems,
commensurate with its size and the nature and scope of its operations, to
identify problem assets and prevent deterioration in those assets as well as to
evaluate and monitor
22
<PAGE>
earnings and ensure that earnings are sufficient to maintain adequate capital
and reserves. Management believes that the asset quality and earnings
standards, in the form proposed by the banking agencies, would not have a
material effect on the operations of the Banks.
Prompt Corrective Regulatory Action. Under FDICIA, the federal banking
regulators are required to take prompt corrective action in respect of
depository institutions that do not meet certain minimum capital requirements,
including a leverage limit and a risk-based capital requirement. All
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees that would cause the
institution to become undercapitalized. As required by FDICIA, the banking
regulators, including the OTS and the FRB, have issued regulations that classify
insured depository institutions by capital levels and provide that the
applicable agency will take various prompt corrective actions to resolve the
problems of any institution that fails to satisfy the capital standards.
Under the joint prompt corrective action regulations, a "well-capitalized"
bank is one that is not subject to any regulatory order or directive to meet any
specific capital level and that has or exceeds the following capital levels: a
total risk-based capital ratio of 10%, a Tier 1 risk-based capital ratio of 6%,
and a leverage ratio of 5%. An "adequately capitalized" bank is one that does
not qualify as "well capitalized" but meets or exceeds the following capital
requirements: a total risk-based capital of 8%, a Tier 1 risk-based capital
ratio of 4%, and a leverage ratio of either (i) 4% or (ii) 3% if the bank has
the highest composite examination rating. A bank not meeting these criteria is
treated as "undercapitalized," "significantly undercapitalized," or "critically
undercapitalized" depending on the extent to which the bank's capital levels are
below these standards. A bank that fails within any of the three
"undercapitalized" categories will be subject to certain severe regulatory
sanctions required by FDICIA and the implementing regulations. As of March 31,
1996, both First Federal and First State were "well-capitalized" as defined by
the regulations.
Uniform Lending Standards. Under joint regulations of the federal banking
agencies, including the OTS and the FDIC, federal savings banks and state member
banks must adopt and maintain written policies that establish appropriate limits
and standards for extensions of credit that are secured by liens or interests in
real estate or are made for the purpose of financing permanent improvements to
real estate. These policies must establish loan portfolio diversification
standards, prudent underwriting standards, including loan-to-value limits, that
are clear and measurable, loan administration procedures and documentation,
approval and reporting requirements. A bank's real estate lending policy must
reflect consideration of the Interagency Guidelines for Real Estate Lending
Policies (the "Interagency Guidelines") that have been adopted by the federal
bank regulators. The Interagency Guidelines, among other things, call upon
depository institutions to establish internal loan-to-value limits for real
estate loans that are not in excess of the loan-to-value limits specified in the
Guidelines for the various types of real estate loans. The Interagency
Guidelines state that it may be appropriate in individual cases to originate or
purchase loans with loan-to-value ratios in excess of the supervisory loan-to-
value limits. The aggregate amount of loans in excess of the supervisory loan-
to-value limits, however, should not exceed 100% of total capital and the total
of such loans secured by commercial, agricultural, multifamily and other non-
one-to-four family residential properties should not exceed 30% of total
capital. Management believes that the current lending policies of the Banks
conform to the Interagency Guidelines.
Transactions with Affiliates. Each of the Banks is subject to restrictions
imposed by federal law on extensions of credit to, and certain other
transactions with, the Company and other affiliates, and on investments in the
stock or other securities thereof. Such restrictions prevent the Company and
such other affiliates from borrowing from the Banks unless the loans are secured
by specified collateral, and require such transactions to have terms comparable
to terms of arms-length transactions with third persons. Further, such secured
loans and other transactions and investments by each of the Banks are generally
limited in amount as to the Company and as to any other affiliate to 10% of each
23
<PAGE>
Bank's capital and surplus and as to the Company and all other affiliates to an
aggregate of 20% of each Bank's capital and surplus. These regulations and
restrictions may limit the Company's ability to obtain funds from the Banks for
its cash needs, including funds for acquisitions and for payment of dividends,
interest and operating expenses. In general, these regulations do not apply to
restrict transactions between the Banks.
Dividend Limitations. The Banks are prohibited from paying any dividends
or other capital distributions if, after the distribution, they would be
undercapitalized under the prompt corrective action regulations.
Under OTS regulations, First Federal may not pay dividends on its capital
stock if its regulatory capital would thereby be reduced below the amount then
required for the liquidation account established for the benefit of certain
depositors of First Federal at the time of its conversion to stock form. In
addition, First Federal must give the OTS 30 days prior notice of any proposed
declaration of dividends to the Company.
OTS regulations impose additional limitations on the payment of dividends
and other capital distributions by First Federal. Under these regulations, a
savings institution that, immediately prior to, and on a pro forma basis after
giving effect to, a proposed capital distribution, has total capital (as defined
by OTS regulation) that is equal to or greater than the amount of its fully-
phased in capital requirements (a "Tier 1 Institution") is generally permitted
without OTS approval to make capital distributions during a calendar year in an
amount equal to the greater of (i) 75% of net income for the previous four
quarters or (ii) 100% of its net income to date during the calendar year plus an
amount that would reduce by one-half the amount by which its ratio of total
capital to assets exceeded its fully phased-in risk-based capital requirement at
the beginning of the calendar year. A savings institution with total capital in
excess of current minimum capital requirements but not in excess of the fully
phased-in requirements (a "Tier 2 Institution") is permitted to make capital
distributions without OTS approval of up to 75% of its net income for the
previous four quarters, less dividends already paid for such period depending on
the institution's level of risk-based capital. A savings institution that fails
to meet current minimum capital requirements (a "Tier 3 Institution") is
prohibited from making any capital distributions without the prior approval of
the OTS. Tier 1 Institutions that have been notified by the OTS that they are
in need of more than normal supervision will be treated as either a Tier 2 or a
Tier 3 Institution. At March 31, 1996, First Federal was a Tier 1 Institution.
In addition to the foregoing, earnings of First Federal appropriated to bad
debt reserves and deducted for Federal income tax purposes are not available for
payment of dividends or other distributions to the Company without payment of
taxes at the then current tax rate by First Federal on the amount of earnings
removed from the reserves for such distributions. See "Taxation."
The approval of the FRB and the Alabama Superintendent of Banks is
required if the total of all the dividends declared by First State in any
calendar year exceeds First State's net income as defined for that year combined
with its retained net income for the preceding two calendar years.
Reserve Requirements. Pursuant to regulations of the FRB, all FDIC-insured
depository institutions must maintain average daily reserves against their
transaction accounts. No reserves are required to be maintained on the first
$4.3 million of transaction accounts, and reserves equal to 3% must be
maintained on the next $52.0 million of transaction accounts, plus reserves
equal to 10% on the remainder. These percentages are subject to adjustment by
the FRB. Because required reserves must be maintained in the form of vault cash
or in a noninterest-bearing account at a Federal Reserve Bank, the effect of the
reserve requirement is to reduce the amount of the institution's interest-
earning assets. As of March 31, 1996, the Banks met their reserve requirements.
Liquidity Requirements. First Federal is required by OTS regulation to
maintain average daily balances of liquid assets (cash, certain time deposits,
bankers' acceptances, highly rated corporate debt and commercial paper,
securities of certain mutual funds, and specified United Sates government, state
24
<PAGE>
or federal agency obligations) equal to the monthly average of not less than a
specified percentage (currently 5%) of its net withdrawable savings deposits
plus short-term borrowings. The average daily liquidity ratio of First Federal
for the month ended March 31, 1996 was 9.74%. First Federal is also required to
maintain average daily balances of short-term liquid assets at a specified
percentage (currently 1%) of the total of its net withdrawable savings accounts
and borrowings payable in one year or less. First Federal was in compliance
with the 1% requirement at March 31, 1996. Monetary penalties may be imposed
for failure to meet liquidity requirements. First State is not subject to these
or any similar liquidity requirements.
Federal Home Loan Bank System. The FHLB System consists of 12 district
Federal Home Loan Banks (" FHLBs") subject to supervision and regulation by the
Federal Housing Finance Board ("FHFB"). The FHLBs provide a central credit
facility primarily for member institutions. As a member of the FHLB of Atlanta,
First Federal is required to acquire and hold shares of capital stock in the
FHLB in an amount at least equal to 1% of the aggregate unpaid principal of its
home mortgage loans, home purchase contracts, and similar obligations at the
beginning of each year, or 1/20 of its advances (borrowings) from the FHLB of
Atlanta, whichever is greater. First Federal was in compliance with this
requirement, with an investment in FHLB of Atlanta stock at March 31, 1996 of
$1,263,000. Long-term FHLB advances may only be made for the purpose of
providing funds for residential housing finance. At March 31, 1996, First
Federal had $2.0 million in advances outstanding from the FHLB of Atlanta.
Qualified Thrift Lender Test. First Federal, as a savings institution,
is subject to Qualified Thrift Lender ("QTL") requirements imposed by the HOLA
and OTS regulation.
In order to satisfy the statutory QTL test, a savings institution's
"Qualified Thrift Investments" must total at least 65% of "portfolio assets."
Under OTS implementing regulations, portfolio assets are defined as total assets
less intangibles, property used by a savings institution in its business and
liquidity investments in an amount not exceeding 20% of assets. Qualified
Thrift Investments consist of (i) loans, equity positions or securities related
to domestic, residential real estate or manufactured housing and (ii) 50% of the
dollar amount of residential mortgage loans subject to sale under certain
conditions. In addition, subject to a 20% of portfolio assets limit, savings
institutions are able to treat as Qualified Thrift Investments 200% of their
investments in loans to finance "starter homes" and loans for construction,
development or improvement of housing and community service facilities or for
financing small business in "credit needy" areas.
In addition, a savings institution must maintain its status as a QTL on a
monthly basis in nine out of every 12 months. A savings institution that fails
to maintain QTL status will be permitted to requalify once, and if it fails the
QTL test a second time, it will become immediately subject to all penalties as
if all time limits on such penalties had expired. Failure to qualify as a QTL
results in a number of sanctions, including the imposition of certain operating
restrictions imposed on national banks and a restriction on obtaining additional
advances from the Federal Home Loan Bank System. Upon failure to qualify as a
QTL for two years, a savings institution must convert to a commercial bank. At
March 31, 1996, First Federal qualified as a QTL. The QTL test, and the
penalties for failing to maintain QTL status, are not applicable to First State.
Regulation and Supervision of the Company
- - -----------------------------------------
The Company is registered as a savings and loan holding company under the
HOLA and, as such, is subject to OTS regulation, supervision and examination.
In addition, as a bank holding company under the BHC Act, the Company is subject
to regulation, supervision and examination by the FRB. The Company is required
to furnish annual and quarterly reports to the OTS and the FRB and to furnish
such additional information as the OTS or the FRB may require pursuant to the
BHC Act.
25
<PAGE>
Regulatory Capital Requirements. The FRB has adopted capital requirements
for bank holding companies, which require bank holding companies to maintain
specified minimum ratios of capital to total assets and capital to risk-weighted
assets. These requirements generally parallel the capital requirements for
state member banks, described above. In addition, under the FRB capital rules,
any bank holding company experiencing or anticipating significant growth is
expected to maintain capital well above the minimum levels. The FRB has
indicated that whenever appropriate, and in particular when a bank holding
company is undertaking expansion, seeking to engage in new activities or
otherwise facing unusual or abnormal risks, it will consider, on a case-by-case
basis, the level of an organization's ratio of tangible Tier 1 capital (after
deducting all intangibles) to total assets in making an overall assessment of
capital.
The table below provides information with respect to the Company's
compliance with its capital requirements at March 31, 1996.
REGULATORY CAPITAL RATIOS
At March 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
The Company
---------------------
<S> <C> <C>
RISK-BASED CAPITAL RATIOS
Tier 1 Capital
Stockholders' Equity less goodwill $15,633 9.40%
Minimum Required 6,647 4.00%
------- -----
Excess $ 8,986 5.40%
======= =====
Total Capital
Tier 1 Capital plus allowances for loan losses $16,254 17.60%
Minimum Required 7,389 8.00%
------- -----
Excess $ 8,865 9.60%
======= =====
Total Risk-weighted assets $92,363
=======
LEVERAGE RATIOS
Tier 1 Capital $15,633 9.40%
Minimum Leverage Requirement 4,986 3.00%
------- -----
Excess $10,647 6.40%
======= =====
</TABLE>
Activities Restrictions. As a bank holding company, the Company is
prohibited under the BHC Act, with certain exceptions, from acquiring direct or
indirect ownership or control of more than 5% of the voting shares of a company
that is not a bank or a bank holding company, or from engaging directly or
indirectly in activities other than those of banking, managing or controlling
banks, or providing services for its subsidiaries. The principal exceptions to
these prohibitions involve certain non-bank activities that have been identified
by statute or by FRB regulation or order as activities closely related to the
business of banking or managing or controlling banks. The activities of the
Company and of its non-bank subsidiaries are subject to these legal and
regulatory limitations under the BHC Act and the FRB's regulations thereunder.
With certain limited exceptions, the Company must obtain the prior approval
of the FRB to engage in any such permissible activity or to acquire more than 5%
of the voting shares of any nonbank company. Notwithstanding the FRB's prior
approval of specific nonbanking activities, the FRB has the power to order a
holding company or its subsidiaries to terminate any activity, or to terminate
its ownership or control of any subsidiary, when it has reasonable cause to
believe that the continuation of such activity or such ownership or control
26
<PAGE>
constitutes a serious risk to the financial safety, soundness or stability of
any bank subsidiary of that holding company.
Since the Company currently owns only one savings institution and is thus a
unitary savings and loan holding company, the HOLA and OTS regulation do not
impose restrictions on its business activities or its non-savings institution
investments. If the Company were to acquire control of another savings
institution or if First Federal were to fail the QTL test, the Company would
cease to qualify as a unitary savings and loan holding company and would as a
result be required to obtain the prior approval of the OTS before engaging
directly or indirectly in any new business activity other than: (i) furnishing
or performing management services for a subsidiary savings institution; (ii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
savings institution; (iii) holding or managing properties used or occupied by a
subsidiary savings institution; or (iv) acting as trustee under deeds of trust.
Restrictions on Acquisitions. Under the HOLA, a savings and loan holding
company must obtain OTS approval before acquiring (i) control of any other
savings institution or savings and loan holding company or substantially all the
assets thereof or (ii) more than 5% of the voting shares of a savings
institution or savings and loan holding company that is not a subsidiary. Except
with OTS prior approval, no director of officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may acquire control of any savings institution, other than
a subsidiary savings institution, or of any other savings and loan holding
company.
In addition, under the BHC Act, a bank holding company must obtain the
prior approval of the FRB before (i) acquiring direct or indirect ownership or
control of any voting shares of any bank or bank holding company if, after such
acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (ii) acquiring all or substantially all of
the assets of another bank or bank holding company; or (iii) merging or
consolidating with another bank holding company.
Any company must obtain approval of both the OTS, under the HOLA, and the
FRB, under the BHC Act, prior to acquiring control of the Company. For purposes
of the HOLA and the BHC Act, "control" is defined as ownership of more than 25%
of any class of voting securities of the Company, the ability to control the
election of a majority of the directors, or the exercise of a controlling
influence over management or policies of the Company.
Interstate Acquisitions. The OTS may approve acquisitions resulting in the
formation of a multiple savings and loan holding company that controls savings
institutions in more than one state if: (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home or
branch office in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act; or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit savings institutions
to be acquired by state-chartered institutions or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state-chartered savings institutions). The
State of Alabama has enacted reciprocal interstate banking legislation that
permits savings institutions, and their holding companies in Alabama to be
acquired by regional thrift institutions, or their holding companies, and
permits Alabama thrift institutions, and their holding companies, to acquire
thrift institutions in 15 designated jurisdictions in the Southeast, if such
jurisdictions have enacted reciprocal statutes. Most of such jurisdictions have
enacted legislation authorizing interstate transactions in one form or another.
OTS regulations permit federal savings institutions to branch in any state
or states of the United States and its territories. Except in supervisory cases
or when interstate branching is otherwise permitted by state law or other
statutory provision, a federal savings institution may establish an out-of-state
branch only if (i) the institution qualifies as a "domestic building and loan
association" under Section 7701 (a) (19) of the Internal Revenue Code and the
total assets attributable to all branches of the institution in the state would
27
<PAGE>
qualify such branches taken as a whole for treatment as a domestic building and
loan association and (ii) such branch would not result in (a) formation of a
prohibited multistate multiple savings and loan holding company or (b) a
violation of certain statutory restrictions on branching by savings institution
subsidiaries of bank holding companies.
The BHC Act, as amended by the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"), generally permits the FRB to
approve interstate bank acquisitions by bank holding companies without regard to
any prohibitions of state law. As a result, Alabama banks and their holding
companies may be acquired by out-of-state banks or their holding companies, and
Alabama banks, and their holding companies may acquire out-of-state banks
without regard to whether the transaction is prohibited by the laws of any
state. Under the Riegle-Neal Act and Alabama law, the FRB may not approve the
acquisition of a bank in Alabama if such bank has not been in existence for at
least five years or, if following the acquisition, the acquiring bank holding
company and its depository institution affiliates would control 30% or more of
the deposits in depository institutions in Alabama. In addition, the Riegle-Neal
Act authorizes the federal banking agencies, effective June 1, 1997, to approve
interstate merger transactions without regard to whether such transactions are
prohibited by the law of any state, unless the home state of one of the banks
opts out of the Riegle-Neal Act by adopting a law that applies equally to all
out-of-state banks and expressly prohibits merger transactions involving out-of-
state banks. Alabama has enacted legislation that, effective May 31, 1997,
expressly authorizes Alabama banks to participate in interstate mergers in
accordance with the Riegle-Neal Act.
The effect of the Riegle-Neal Act and of the OTS regulation permitting
interstate branching by federal savings institutions may be to increase
competition among depository institutions in the State of Alabama.
Dividends. The FRB has the power to prohibit dividends by bank holding
companies if their actions constitute unsafe or unsound practices. The FRB has
issued a policy statement on the payment of cash dividends by bank holding
companies, which expresses the FRB's view that a bank holding company should pay
cash dividends only to the extent that the company's net income for the past
year is sufficient to cover both the cash dividends and a rate of earning
retention that is consistent with the company's capital needs, asset quality,
and overall financial condition. The FRB also indicated that it would be
inappropriate for a company experiencing serious financial problems to borrow
funds to pay dividends. Furthermore, under the FRB's prompt corrective action
regulations, the FRB may prohibit a bank holding company from paying any
dividends if the holding company's bank subsidiary is classified as
"undercapitalized."
Stock Repurchases. Bank holding companies are required to give the FRB
prior written notice of any purchase or redemption of their outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
retained earnings. The FRB may disapprove such a purchase or redemption if it
determines that the proposal would constitute an unsafe or unsound practice or
would violate any law, regulation, FRB order, or any condition imposed by, or
written agreement with, the FRB.
Effects of Governmental Policy.
- - ------------------------------
The earnings and business of the Company and the Banks have been and will
be affected by the policies of various regulatory authorities of the United
States, particularly the FRB. Important functions of the FRB, in addition to
those enumerated above, include the regulation of the supply of money in light
of general economic conditions within the United States. The instruments of
monetary policy employed by the FRB for these purposes influence in various ways
the overall level of investments, loans, other extensions of credit and
deposits, and the interest rates paid on liabilities and received on interest-
earning assets.
28
<PAGE>
Banking is a business that depends on interest rate differentials. In
general, the difference between the interest paid by the Banks on their deposits
and their other borrowings and the interest received by the Banks on loans
extended to customers and securities held in their investment portfolios
comprises the major portion of the Banks' earnings. The earnings and gross
income of the Banks thus have been and will be subject to the influence of
economic conditions generally, both domestic and foreign, and also to monetary
and fiscal policies of the United States and its agencies, particularly the FRB.
The nature and timing of any future changes in such policies and their impact on
the Banks are not predictable.
Legislative Developments
- - ------------------------
Legislation currently under consideration by the United States Congress
would fully capitalize the SAIF by requiring a one-time special assessment on
all SAIF-member institutions to increase the reserve ratio of the SAIF to 1.25%.
The amount of such special assessment is currently estimated at 0.80% of such
institutions' insured deposits as of March 31, 1995. If this assessment were to
be enacted as described above, it would result in a one-time charge to First
Federal estimated by management to be $600,000 after income tax. If such a
special assessment were required and the SAIF as a result were fully
recapitalized, it could have the effect of reducing First Federal's future
deposit insurance premiums to the SAIF. However, such SAIF-recapitalization
legislation would also, if enacted, require banks that are members of the BIF to
pay 75% of the annual interest on the bonds issued by the Financing Corporation
("FICO") to recapitalize the predecessor to the SAIF. As a result, such
legislation, if enacted, could have the result of increasing First State's
future deposit insurance premiums to the BIF. Management cannot predict whether
SAIF-recapitalization legislation will be enacted.
TAXATION
Federal Taxation
- - ----------------
The following discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to
First Federal or First State. For federal income tax purposes, the Company
reported its income and expenses on the accrual method of accounting under SFAS
No. 109 "Accounting for Income Taxes" and files its federal income tax returns
on a consolidated basis. For its taxable year ended March 31, 1996, the Company
was subject to a maximum federal income tax rate of 34%. The Banks have not been
audited by the Internal Revenue Service for any recent year subject to audit.
Bad Debt Reserves
- - -----------------
Savings institutions such as First Federal which meet certain definitional tests
primarily relating to their assets and the nature of their business ("qualifying
thrifts") are permitted to establish a reserve for bad debts and to make annual
additions thereto, which additions may, within specified formula limits, be
deducted in arriving at their taxable income. Earnings appropriated for bad debt
reserves and deducted for federal income tax purposes cannot be used by First
Federal to pay cash dividends to the Company without the payment of income taxes
by First Federal at the then current income tax rate on the amount deemed
distributed, which would include the amount of any federal income taxes
attributable to the distribution. Generally, earnings would be paid first out of
earnings and profits of the Bank before being paid out of the bad debt reserves.
Thus, any dividends to the Company that would reduce amounts appropriated to
First Federal's bad debt reserves and deducted for federal income tax purposes
could create a tax liability for First Federal. First Federal does not intend to
pay dividends that would result in a recapture of its bad debt reserves.
Commercial banks such as First State may use the reserve for bad debt methods if
their assets are $500 million or less. However, unlike savings institutions,
which may make deductible additions to ther reserve using either the percentage
of taxable income method or the experience method, a commercial bank may only
use the experience method in computing its addition. Further, a commercial bank
is not subject to the recapture provisions applicable to savings institutions.
29
<PAGE>
Corporate Alternative Minimum Tax
- - ---------------------------------
The Banks are subject to taxes based on alternative minimum taxable income
("AMTI") at a 20% tax rate. The excess of the bad debt reserve deduction using
the percentage of taxable income method over the deduction that would have been
allowable under an experience method is treated as a preference item for
purposes of computing the corporate minimum tax. The Code provisions relating to
the alternative minimum tax ("AMT") treat as a preference item interest on
certain tax-exempt private activity bonds issued on or after August 8, 1986.
Additionally, AMIT is increased by an amount equal to 75% of the amount by which
a corporation's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses). In
addition, for taxable years beginning after December 31, 1986, an environmental
tax of .12% of the excess of AMTI (with certain modifications) over $2.0 million
is imposed on corporations, including the Bank, whether or not an AMT is paid.
State and Local Taxation
- - ------------------------
The State of Alabama imposes a 6% excise tax on the earnings of financial
institutions such as First Federal. The 6% excise tax also applies to the
Company. In addition to the excise taxes, the State of Alabama imposes an annual
state franchise tax for domestic and foreign corporations. A domestic
corporation, including a federally chartered stock savings bank domiciled in
Alabama, is assessed a domestic franchise tax of approximately 1% based solely
on the par value of its common stock. Foreign corporations, such as the Company
which is incorporated in Delaware, are assessed a foreign franchise tax of 0.3%
based on a total of capital and long-term debt deemed to be employed in the
State of Alabama. The foreign corporation's investment in the capital of an
Alabama corporation is excluded from the taxable base. The Company is subject to
the Delaware franchise tax.
PERSONNEL
- - ---------
As of March 31, 1996, First Federal had 40 full-time employees and 1 part-time
employee. At March 31, 1996, First State had 22 full-time employees and 3
part-time employees. The employees are not represented by a collective
bargaining unit, and the Bank considers its relationship with its employees to
be good.
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT:
-------------------------------------
The following table sets forth certain information with respect to the persons
who are executive officers of the Company:
<TABLE>
<CAPTION>
Executive Officers Age Positions Held
- - ------------------ --- --------------
<S> <C> <C>
B. K. Goodwin, III 44 Chairman of the Board, Chief Executive Officer
and President
C. Larry Seale 59 Executive Vice President
Lynn J. Joyce 32 Vice President, Secretary, Treasurer
and Financial Officer
James E. Smith, Jr. 46 Vice President
</TABLE>
ITEM 2. PROPERTIES:
-----------
First Federal conducts its business through its main office located in Bessemer,
Alabama, and three branch offices located in Pelham, Hueytown and Hoover,
Alabama. First State conducts its business throught its main office located in
West Blocton, Alabama, and two branch offices located in Woodstock and
Centreville. The Holding Company believes that the Banks' current facilities are
adequate to meet the present and immediately foreseeable needs of the Banks and
the Holding Company. The following table sets forth information relating to each
30
<PAGE>
of the Banks' offices as of March 31, 1996, which totalled a net book value of
$2,606,000. See also Notes 1 and 13 of the "Notes to Consolidated Financial
Statements."
<TABLE>
<CAPTION>
Net
First Federal Leased or Date Book Value at
Locations Owned Opened March 31, 1996
------------- -------------- ------ --------------
(In thousands)
<S> <C> <C> <C>
Main Office -
1630 Fourth Avenue, No. Owned 1961 $ 987 (3)
Bessemer, Alabama 35020
Branches -
1351 Hueytown Road
Hueytown, Alabama 35023 Owned 1966 33 (3)
Food World Plaza
Pelham, Alabama 35124 Leased (1) 1973 N/A (2)
1604 Montgomery Hwy.
Hoover, Alabama 35216 Owned 1992 521 (3)
Other fixed assets, net 320
First State
Locations
-----------
Main Office -
Main Street Owned 1965 195 (3)
West Blocton
Branches -
125 Birmingham Rd Owned 1979 165 (3)
Centreville, Alabama 35042
Highway 5 Owned 1985 218 (3)
Woodstock, Alabama 35188
Other fixed assets, net 167
------
Total $2,606
======
</TABLE>
_____________________________
(1) The lease expires May 31, 1999.
(2) The Bank's lease is classified as an operating lease.
(3) Includes land, building and improvements.
ITEM 3. LEGAL PROCEEDINGS:
------------------
From time to time, the Banks are parties to routine legal proceedings occurring
in the ordinary course of business. At March 31, 1996, there were no legal
proceedings to which the Company or the Banks were a party or parties, or to
which any of their property was subject, which were expected by managment to
result in a material loss. For a further discussion of legal matters, see Note 9
to the "Notes to Consolidated Financial Statements" in the Company's 1996 Annual
Report to Stockholders (the "Annual Report").
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
----------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year ended March 31, 1996.
31
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
----------------------------------------------------------------
MATTERS:
--------
The information contained under the caption "Common Stock Data" in the Annual
Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA:
------------------------
The information contained in the table captioned "Selected Consolidated
Financial and Other Data" in the Annual Report is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS:
-------------------------------------
The information contained in the section captioned "Management's Discussion and
Analysis" in the Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
--------------------------------------------
The report of independent public accountants and consolidated financial
statements contained in the Annual Report which are listed under Item 14 herein
and contained in the Annual Report, and the information contained in the section
captioned "Quarterly Financial Data" in the Annual Report are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE:
---------------------
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
---------------------------------------------------
The information contained under the section captioned "Proposal I--Election of
Directors" in the Company's definitive proxy statement for the Company's 1996
annual meeting of stockholders (the "Proxy Statement") is incorporated herein by
reference. Information concerning executive officers who are not directors is
contained in Part I hereof and is incorporated herein by reference. Information
regarding delinquent Form 3, 4 or 5 filers in incorporated by reference to the
section entitled "Voting Securities and Principal Holders Thereof" in the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION:
-----------------------
The information contained in the sections captioned "Proposal I--Election of
Directors --Executive Compensation" and "--Directors' Compensation" in the Proxy
Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANANGEMENT:
----------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners -
Information required by this item is incorporated herein by reference to
the section captioned "Voting Securities and Principal Holders Thereof"
in the Proxy Statement.
(b) Security Ownership of Management -
Information required by this item is incorporated herein by reference to
the sections captioned "Proposal I--Election of Directors" and "Voting
Securities and Principal Holders Thereof" in the Proxy Statement.
32
<PAGE>
(c) Changes in Control -
Management of the Company is not aware of any arrangements, including any
pledge by any person of securities of the Company, the operation of which
may at a subsequent date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
-----------------------------------------------
The information required by this item is incorporated herein by reference to the
section captioned "Proposal I--Election of Directors" and "Transactions with
Management" in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K:
------------------------------------------------------------------
(a) List of documents filed as part of this report.
-----------------------------------------------
(1)Financial Statements. The following statements are incorporated by
---------------------
reference from Item 8 hereof (See Exhibit 13).
Consolidated Statements of Financial Condition as of March 31, 1996 and
1995
Consolidated Statements of Income for the years ended March 31, 1996, 1995
and 1994
Consolidated Statements of Stockholders' Equity for the years ended March
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended March 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
The remaining information appearing in the Annual Report to Stockholders is not
deemed to be filed as part of this report, except as expressly provided herein.
(2)Financial Statement Schedules.
------------------------------
All schedules have been omitted as the required information is either
inapplicable or is included in the consolidated financial statements or
notes thereto.
(3)Exhibits.
---------
A list of exhibits included in this Form 10-K or incorporated by reference
is set forth in (c) below.
(b) There were no reports on Form 8-K filed during the quarter ended March 31,
1996, except for an 8-K dated January 1, 1996, to report the acquisition
of First State Corporation, the 8-K dated January 24, 1996, to report the
commencement of a stock repurchase program and the 8-K/A dated March 11,
1996, which includes pro forma financial information of the Company and
First State Corporation as of December 31, 1995 and for the year ended
March 31, 1995 for FirstFed and December 31, 1994, for First State
Corporation and the nine months ended December 31, 1995, for FirstFed and
September 30, 1995, for First State Corporation.
(c) Exhibits-The following is a list of exhibits filed as part of this Annual
Report on Form 10-K and is also the Exibit Index
3.1 Certificate of Incorporation of FirstFed Bancorp, Inc.*
3.2 Bylaws of FirstFed Bancorp.Inc. *
4.0 Stock Certificate of FirstFed Bancorp, Inc. *
10.01 First Federal Savings Bank Employees' Pension Plan and
Trust *
33
<PAGE>
10.02 Employment Agreement dated May 12, 1993 and amendment one between the
First Federal Savings Bank, FirstFed Bancorp, Inc. and Fred T. Blair
(xx)
10.03 First Federal Savings Bank Employee Stock Ownership Plan as amended
and restated effective January 1, 1991 ***
10.04 Employment Agreement dated February 8, 1994 and amendment one between
the First Federal Savings Bank, FirstFed Bancorp, Inc. and C. Larry
Seale (xx)
10.05 First Federal Savings Bank Outside Directors' Recognition and
Retention Plan and Trust Agreement ***
10.06 First Federal Savings Bank Recognition and Retention Plan and Trust
Agreement "B" ***
10.07 FirstFed Bancorp, Inc. 1991 Incentive Stock Option Plan ***
10.08 FirstFed Bancorp, Inc. 1991 Stock Option Plan for Outside Directors
as amended ***
10.09 First Federal Savings Bank Directors' Retirement Plan as amended ***
10.10 Form of Indemnification Agreement **
10.11 Severance Agreements dated December 14, 1993 between First Federal
Savings, FirstFed Bancorp and James E. Smith, Lynn J. Joyce and
Brenda M. Baswell ***
10.12 FirstFed Bancorp, Inc. Deferred Compensation Plan and First Federal
Savings Bank Deferred Compensation Plan ***
10.13 Employment Agreement by and between the Company, the Bank and B. K.
Goodwin, III ****
10.14 FirstFed Bancorp, Inc. Incentive Compensation Plan (xx)
10.15 Employment Agreement dated January 1, 1996 by and between FirstFed
Bancorp, Inc. and B. K. Goodwin, III
10.16 Employment Agreement dated January 1, 1996 by and between First
Federal Savings Bank and B. K. Goodwin, III
10.17 Employment Agreement dated January 1, 1996 by and between FirstFed
Bancorp, Inc., First Federal Savings Bank and C. Larry Seale
10.18 Employment Agreement dated January 1, 1996 by and between FirstFed
Bancorp, Inc., First Federal Savings Bank and Lynn J. Joyce
10.19 Severance Agreement by and between FirstFed Bancorp, Inc.
and James E. Smith
10.20 Severance Agreement by and between First Federal Savings Bank and
James E. Smith
10.21 Severance Agreement by and between FirstFed Bancorp, Inc.
and Brenda M. Baswell
10.22 Severance Agreement by and between First Federal Savings Bank and
Brenda M. Baswell
13 1996 Annual Report (Filed herewith only to the extent of those
portions of the Annual Report to Stockholders for the year ended
March 31, 1996 which are expressly incorporated herein by
reference.)
21 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
27 Financial Data Schedule
* Incorporated herein by reference into this document from the
Exhibits of the Form S-1, Registration Statement, filed on July 3,
1991, Registration No. 33-41540.
** Incorporated herein by reference into this document from the Annual
Report on Form 10-K for the year ended March 31, 1993.
*** Incorporated herein by reference into this document from the Annual
Report on Form 10-K for the year ended March 31, 1994.
**** Incorporated herein by reference into this document from the
Quarterly Report on Form 10-Q for the quarter ended December 31,
1994.
xx Incorporated herein by reference into this document from the Annual
Report on Form 10-K for the year ended March 31, 1995.
(d) There are no other financial statements and financial statement schedules
which were excluded from the Annual Report pursuant to Rule 14a-3(b) which
are required to be included herein.
34
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRSTFED BANCORP, INC.
Date: June 26, l996 By: /s/ B. K. Goodwin, III
- - ------------------------ ---------------------------
B. K. Goodwin, III,
Chairman of the Board,
Chief Executive Officer
and President
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.
By: /s/ B. K. Goodwin, III Chairman of the Board, Date:June 26, 1996
----------------------- -------------
B. K. Goodwin, III Chief Executive Officer
and President
(Principal Executive Officer)
By: /s/ Lynn J. Joyce Vice President, Date:June 26, 1996
----------------------- -------------
Lynn J. Joyce Secretary, Treasurer
and Financial Officer
(Principal Financial and Accounting Officer)
By: /s/ Fred T. Blair Director Date:June 26, 1996
----------------------- -------------
Fred T. Blair
By: /s/ A. W. Kuhn Director Date:June 26, 1996
---------------------- -------------
A. W. Kuhn
By: /s/ James B. Koikos Director Date:June 26, 1996
---------------------- -------------
James B. Koikos
By: /s/ Malcolm E. Lewis Director Date:June 26, 1996
---------------------- -------------
Malcolm E. Lewis
By: /s/ E. H. Moore, Jr. Director Date:June 26, 1996
---------------------- -------------
E. H. Moore, Jr.
By: /s/ James E. Mulkin Director Date:June 26, 1996
---------------------- -------------
James E. Mulkin
By: /s/ Robert E. Paden Director Date:June 26, 1996
---------------------- -------------
Robert E. Paden
By: /s/ G. Larry Russell Director Date:June 26, 1996
---------------------- -------------
G. Larry Russell
<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made effective as of January 1, 1996 (the "Effective
Date"), by and between FirstFed Bancorp, Inc. (the "Company") and B.K. Goodwin,
III (the "Employee") and supersedes the Employment Agreement by and between the
Company and the Employee dated February 1, 1995.
WHEREAS, the Company wishes to assure retention of the services of the
Employee for the period provided in the Agreement; and
WHEREAS, the Employee is willing to serve in the employ of the Company for
said period.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as the President and Chief
----------
Executive Officer of the Company. The Employee shall render such administrative
and management services for the Company as are currently rendered and as are
customarily performed by persons situated in a similar executive capacity. The
Employee shall also promote, by entertainment or otherwise, as and to the extent
permitted by law, the business of the Company. The Employee's other duties shall
be such as the Board of Directors of the Company ("Board") may from time to time
reasonably direct, including normal duties as an officer of the Company.
2. Consideration from Company: Joint and Several Liability. In lieu of
-------------------------------------------------------
paying the Employee a base salary during the term of this Agreement, the Company
hereby agrees that to the extent permitted by law, it shall be jointly and
severally liable with its subsidiary, First Federal Savings Bank (the "Bank"),
for the payment of all amounts due under the employment agreement of even date
herewith between the Bank and the Employee. Nevertheless, the Board may in its
discretion at any time during the term of this Agreement agree to pay the
Employee a base salary for the remaining term of this Agreement. If the Board
agrees to pay such salary, the Board shall thereafter review, not less often
than annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
3. Discretionary Bonuses. The Employee shall participate in an equitable
---------------------
manner with all other senior management employees of the Company in
discretionary bonuses that the Board may award from time to time to the
Company's senior management employees. No other compensation provided for in
this Agreement shall be deemed a sub-stitute for the Employee's right to
participate in such discretionary bonuses.
4. (a) Participation in Retirement, Medical and Other Plans. The
----------------------------------------------------
Employee shall participate in any plan that the Company maintains for the
benefit of its employees if the plan relates to (i) pension, profit-sharing, or
other retirement benefits, (ii) medical insurance or the reimbursement of
medical or dependent care expenses, or (iii) other group benefits, including
disability and life insurance plans.
(b) Employee Benefits; Expenses. The Employee shall participate in
----------------------------
any fringe benefits which are or may become available to the Company's senior
management employees and which are commensurate with the responsibilities and
functions to be performed by the Employee under this Agreement. The Employee
shall be reimbursed for all reasonable out-of-pocket business expenses which he
shall incur in connection with his services under this Agreement upon
substantiation of such expenses in accordance with the policies of the Company.
(c) Liability Insurance; Indemnification. The Company shall provide
------------------------------------
the Employee (including his heirs, executors and administrators) with coverage
under a standard directors' and officers' liability insurance policy at the
Company's expense, or in lieu thereof, shall indemnify the Employee (and his
heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be
<PAGE>
involved by reason of his having been a director or officer of the Company
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities); such expenses and liabilities to
include, but not limited to, judgments, court costs and attorneys' fees and the
cost of reasonable settlements, and such settlements to be approved by the Board
of Directors of the Company; provided, however, that such indemnification shall
not extend to matters as to which the Employee is finally adjudged to be liable
for willful misconduct or gross negligence in the performance of his duties as a
director or officer of the Company.
5. Term. The Company hereby employs the Employee, and the Employee
----
hereby accepts such employment under this Agreement, for the period commencing
on the Effective Date and ending 36 months thereafter (or such earlier date as
is determined in accordance with Section 9). Additionally, on each annual
anniversary date from the Effective Date, the Employee's term of employment
shall may be extended for an additional one-year period beyond the then
effective expiration date, provided the Board determines in a duly adopted
resolution that the performance of the Employee has met the Board's requirements
and standards and that this Agreement shall be extended.
6. Loyalty; Noncompetition.
-----------------------
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties hereunder to the Company and its
subsidiaries; provided, however, from time to time, Employee may serve on the
boards of directors of, and hold any other offices or positions in, companies or
organizations which will not present, in the reasonable opinion of the Board,
any conflict of interest with the Company or any of its subsidiaries or
affiliates, or unfavorably affect the performance of the Employee's duties
pursuant to this Agreement, or will not violate any applicable statute or
regulation. "Full business time" is hereby defined as that amount of time
usually devoted to like companies by similarly situated executive officers.
During the term of his employment under this Agreement, the Employee shall not
engage in any business or activity contrary to the business affairs or interests
of the Company, or be gainfully employed in any other position or job other than
as provided above.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent
or limit the Employee's right to invest in the capital stock or other securities
of any business dissimilar from that of the Company, or, solely as a passive or
minority investor, in any business.
7. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards as the Board may establish from
time to time. The Company will provide the Employee with the working facilities
and staff customary for similar executives and necessary for him to perform his
duties.
8. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies that the Board periodically establishes for senior
management employees of the Company.
(b) The Employee shall not receive any additional compensation from
the Company on account of his failure to take a vacation, and the Employee shall
not accumulate unused vacation from one fiscal year to the next, except in
either case to the extent authorized by the Board.
(c) In addition to the aforesaid paid vacations, the Employee shall
be entitled without loss of pay, to absent himself voluntarily from the
performance of his employment with the Company for such additional periods of
time and for such valid and legitimate reasons as the Board may in its
discretion determine.
-2-
<PAGE>
Further, the Board may grant to the Employee a leave or leaves of absence, with
or without pay, at such time or times and upon such terms and conditions as such
Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board.
9. Termination and Termination Pay. Subject to Section 11 hereof (which
-------------------------------
shall only be applicable during the twelve-month period following a "Change in
Control" as defined therein), the Employee's employment hereunder may be
terminated under the following circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensation due the Employee
for the remaining term of the contract, payable in a lump sum if election is
made by the spouse within 30 days of Employee's death or otherwise on a monthly
basis, plus any accrued and unpaid discretionary bonus due Employee at the time
of his death, payable in a lump sum amount within 30 days of the Employee's
death. In addition, the Bank shall maintain the existing medical insurance for
the Employee's spouse for six months after the Employee's death.
(b) Disability. (1) The Company may terminate the Employee's
----------
employment after having established the Employee's Disability. For purposes of
this Agreement, "Disability" means a physical or mental infirmity which impairs
the Employee's ability to substantially perform his duties under this Agreement
and which results in the Employee becoming eligible for long-term disability
benefits under the Company's long-term disability plan (or, if the Company has
no such plan in effect, which impairs, or can be expected to impair, the
Employee's ability to substantially perform his duties under this Agreement for
a period of 180 consecutive days). The Employee shall be entitled to the
compensation and benefits provided for under this Agreement for (i) any period
during the term of this Agreement and prior to the establishment of the
Employee's Disability during which the Employee is unable to work due to the
physical or mental infirmity, or (ii) any period of Disability which is prior to
the Employee's termination of employment pursuant to this Section 9(b).
(c) Just Cause. The Board may, by written notice to the Employee,
----------
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause. Termination for "Just Cause" shall mean
termination because of, in the good faith determination of the Board, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement, or removal and/or permanent
prohibition of the Employee from participating in the conduct of the Bank's
affairs by an order issued by the Office of Trift Supervision, or any successor
agency. No act, or failure to act, on the Employee's part shall be considered
"willful", unless he has acted, or failed to act, with an absence of good faith
and without a reasonable belief that his action, or failure to act, was in the
best interest of the Company. Notwithstanding the foregoing, (i) the Employee
shall not be deemed to have been terminated for Just Cause unless there shall
have been delivered to the Employee a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board at a meeting of the Board called and held for the purpose (after
reasonable notice to the Employee and an opportunity for the Employee to be
heard before the Board), finding that in the good faith opinion of the Board the
Employee was guilty of conduct set forth above in the second third sentence of
this Subsection (c) and specifying the particulars thereof in detail.
(d) Without Just Cause. The Board may, by written notice to the
------------------
Employee, immediately terminate his employment at any time for a reason other
than Just Cause, in which event the Employee shall be entitled to receive the
following compensation and benefits (unless such termination occurs within the
time period set forth in Section 11(b) hereof, in which event the benefits and
compensation provided for in Section 11 shall apply): (i) the salary provided
pursuant to Section 2 hereof, up to the date of termination of the term
(including any renewal term) of this Agreement (the "Expiration Date"), plus
said salary for an additional 12-month period,
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<PAGE>
and (ii) at the Employee's election, either (A) cash in an amount equal to the
cost to the Employee of obtaining all health, life, disability and other
benefits which the Employee would have been eligible to participate in through
the Expiration Date based upon the benefit levels substantially equal to those
that the Company provided for the Employee at the date of termination of
employment or (B) continued participation under such Company benefit plans
through the Expiration Date, but only to the extent the Employee continues to
qualify for participation therein. All amounts payable to the Employee shall be
paid, at the option of the Employee, either (I) in periodic payments through the
Expiration Date, or (II) in one lump sum within 10 days of such termination.
(e) Voluntary Termination by Employee. Subject to Section 11
---------------------------------
hereof, the Employee may voluntarily terminate employment with the Company
during the term of this Agreement, upon at least 60 days' prior written notice
to the Board of Directors, in which case the Employee shall receive only his
compensation, vested rights and employee benefits up to the date of his
termination (unless such termination occurs pursuant to Section 9(d)(2) hereof
or within the time period set forth in Section 11(a) hereof, in which went the
benefits and compensation provided for in Section 9(d) or 11, as applicable,
shall apply.
10. No Mitigation. The Employee shall not be required to mitigate the
-------------
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
11. Change in Control.
-----------------
(a) Notwithstanding any provision herein to the contrary, if the
Employee's employment under this Agreement is terminated by the Company, without
the Employee's prior written consent and for a reason other than Just Cause, in
connection with or within 12 months after any Change in Control (as hereinafter
defined) of the Bank or the Company, the Employee shall be paid an amount equal
to the difference between (i) the product of 2.99 times his "base amount" as
defined in Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended
(the "Code") and regulations promulgated thereunder, and (ii) the sum of any
other parachute payments (as defined under Section 280G(b)(2) of the Code) that
the Employee receives on account of the change Change in control Control. Said
sum shall be paid in one lump sum within ten (10) days of such termination, and
shall be paid in lieu of the payment of any benefits under Section 9 hereof. The
Bank shall also maintain existing insurance for six months after termination of
the Employee's employment, or if Employee dies within such six months, the Bank
shall maintain health insurance for the Employee's spouse, if living, for the
remainder of the six month period. At the election of the Employee, which
election is to be made within 30 days of Employee's termination, such payments
shall be made in a lump sum or paid monthly during the remaining term of this
Agreement following the Employee's termination, and shall be payable, in the
event of the Employee's death before full payment is made, to the Employee's
surviving spouse, if any, and otherwise to his estate. In the event that no
election is made, payment to the Employee will be made on a monthly basis during
the remaining term of this Agreement.
The term "Change in Control" shall mean (1) the ownership, holding or power
to vote more than 25% of the Bank's or the Company's voting stock, (2) the
acquisition of the ability to control of the election of a majority of the
Bank's or the Company's directors, (3) the acquisition of a controlling
influence over the management or policies of the Company by any person or by
persons acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934) (except in the case of (1), (2) and (3) hereof,
ownership or control of the Bank by the Company itself shall not constitute a
"Change in Control"), or (4) during any period of two consecutive years,
individuals who at the beginning of such period constitute the board of
directors of the Bank or the Company (the "Continuing Directors") cease for any
reason to constitute at least two-thirds thereof; provided, however, that any
individual whose election or nomination for election as a member of the board of
directors of the Bank or the Company was approved by a vote of at least two-
thirds of the Continuing Directors then in office shall be considered a
Continuing Director. The term "person" means an individual other than the
Employee, or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated
-4-
<PAGE>
organization or any other form of entity not specifically listed herein. The
decision of the Continuing Directors as to whether a Change in Control has
occurred shall be conclusive and binding.
(b) Notwithstanding any other provision of this Agreement to the
contrary, the Employee may voluntarily terminate his employment under this
Agreement within 12 months following a change Change in control Control of the
Company, and the Employee shall thereupon be entitled to receive the payment
described in Section 11(a) of this Agreement, upon the occurrence of any of the
following events, or within 90 days thereafter, which have not been consented to
in advance by the Employee in writing: (i) the requirement that the Employee
move his personal residence, or perform his principal executive functions, more
than 30 miles from his primary office as of the date of the change Change in
control Control; (ii) a material reduction without reasonable cause in the
Employee's base compensation as in effect on the date of the change Change in
control Control or as the same may be increased from time to time; (iii) the
failure by the Company to continue to provide the Employee with compensation and
benefits provided for under this Agreement, as the same may be increased from
time to time, or with benefits substantially similar to those provided to him
under any of the employee benefit plans in which the Employee now or hereafter
becomes a participant, or the taking of any action by the Company which would
directly or indirectly reduce any of such benefits or deprive the Employee of
any material fringe benefit enjoyed by him at the time of the change Change in
control Control; (iv) the assignment to the Employee of duties and
responsibilities materially different from those normally associated with his
position as referenced at Section 1; (v) a failure to elect or reelect nominate
the Employee to the Board, if the Employee is serving on the Board on the date
of the change Change in control Control; or (vi) a material diminution or
reduction in the Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Company. Said sum
shall be paid in lieu of the payment of any benefits under Section 9 hereof.
(c) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
12. Arbitration; Reimbursement of Expenses.
--------------------------------------
(a) Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitration award in any court having
jurisdiction; provided, however, that until the Expiration Date the Employee
shall be entitled to such specific performance of his right to be paid during
the pendancy of any dispute or controversy arising under or in connection with
this Agreement. Any arbitration proceeding shall be governed by and subject to
Alabama arbitration law.
(b) Reimbursement. All reasonable costs and legal fees paid or
-------------
incurred by the Employee pursuant to any dispute or question of interpretation
relating to this Agreement, or its specific performance, shall be paid or
reimbursed by the Company, if the Employee is the prevailing party. Such payment
or reimbursement shall be made within 10 days of the Employee's furnishing to
the Bank written evidence, which may be in the form, among other things, of a
cancelled check or receipt, of any costs or expenses incurred by the Employee.
13. Federal Income Tax Withholding. The Company may withhold all Federal
------------------------------
and State income or other taxes for any benefit payable under this Agreement as
shall be required pursuant to any law or governmental regulation or ruling.
14. Successors and Assigns.
----------------------
(a) Company. This Agreement shall not be assignable by the Company;
-------
provided, however, that this Agreement shall inure to the benefit of and be
binding upon any corporate or other successor of the Company which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Company.
-5-
<PAGE>
(b) Employee. Since the Company is contracting for the unique and
--------
personal skills of the Employee, the Employee shall be precluded from assigning
or delegating his rights or duties hereunder without first obtaining the written
consent of the Company; provided, however, that nothing in this paragraph shall
preclude (i) the Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) the executor, administrator or other
legal representatives of the Employee or his estate from assigning any rights
hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive
----------
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to exclusion, attachment, levying or similar process or assignment by operation
of law, and any attempt, voluntarily or involuntarily, to effect any such action
shall be null, void and of no effect.
15. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
16. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the State of Alabama shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
17. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
18. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: FIRSTFED BANCORP, INC.
___________________________ By:__________________________
Secretary
WITNESS:
___________________________ ______________________________
B.K. Goodwin, III
-6-
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made effective as of January 1, 1996 (the "Effective
Date"), by and between First Federal Savings Bank (the "Bank") and B. K.
Goodwin, III (the "Employee") and supersedes the Employment Agreement by and
between the Bank and the Employee dated February 1, 1995.
WHEREAS, the Bank wishes to assure retention of the services of the
Employee for the period provided in this Agreement; and
WHEREAS, the Employee is willing to serve in the employ of the Bank for
said period.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed as the President and Chief
----------
Executive Officer of the Bank. The Employee shall render such administrative
and management services for the Bank as are currently rendered and as are
customarily performed by persons situated in a similar executive capacity. The
Employee shall also promote, by entertainment or otherwise, as and to the extent
permitted by law, the business of the Bank. The Employee's other duties shall
be such as the Board of Directors of the Bank ("Board") may from time to time
reasonably direct, including normal duties as an officer of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the term
-----------------
of this Agreement a salary at the rate of $135,000 per annum, payable in cash
twice monthly; provided, however, that such salary shall be reduced by any
salary paid to the Employee by the Bank's holding company, FirstFed Bancorp,
Inc. (the "Company"), under the employment agreement of even date herewith
between the Company and the Employee. The Board shall review, not less often
than annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary. The first such review under this Agreement shall
be made no later than December 31, 1996, to be effective January 1, 1997.
3. Discretionary Bonuses. The Employee shall participate in an equitable
---------------------
manner with all other senior management employees of the Bank in discretionary
bonuses that the Board may award from time to time to the Bank's senior
management employees. No other compensation provided for in this Agreement
shall be deemed a substitute for the Employee's right to participate in such
discretionary bonuses.
4. (a) Participation in Retirement, Medical and Other Plans. The
----------------------------------------------------
Employee shall participate in any plan that the Bank maintains for the benefit
of its employees if the plan relates to (i) pension, profit-sharing, or other
retirement benefits, (ii) medical insurance or the reimbursement of medical or
dependent care expenses, or (iii) other group benefits, including disability and
life insurance plans.
(b) Employee Benefits; Expenses. (1) The Employee shall participate
---------------------------
in any fringe benefits which are or may become available to the Bank's senior
management employees and which are commensurate with the responsibilities and
functions to be performed by the Employee under this Agreement. The Employee
shall be reimbursed for all reasonable out-of-pocket business expenses which he
shall incur in connection with his services under this Agreement upon
substantiation of such expenses in accordance with the policies of the Bank.
(2) The Board recognizes the Employee's need for an automobile for
business purposes. The Bank, therefore shall provide the Employee with an
automobile, including all related maintenance, repairs, insurance and other
costs. The make and model of the automobile shall be mutually agreed upon by the
Employee and the Board.
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<PAGE>
(c) Liability Insurance; Indemnification. The Bank shall provide the
------------------------------------
Employee (including his heirs, executors, and administrators) with coverage
under a standard directors' and officers' liability insurance policy at the
Bank's expense, or in lieu thereof, shall indemnify the Employee (and his heirs,
executors, and administrators) to the fullest extent permitted under Federal law
against all expenses and liabilities reasonably incurred by him in connection
with or arising out of any action, suit or proceeding in which he may be
involved by reason of his having been a director or officer of the Bank (whether
or not he continues to be a director or officer at the time of incurring such
expenses or liabilities); such expenses and liabilities to include, but not
limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements, and such settlements to be approved by the Board of
Directors of the Bank; provided, however, that such indemnification shall not
extend to matters as to which the Employee is finally adjudged to be liable for
willful misconduct or gross negligence in the performance of his duties as a
director or officer of the Bank.
5. Term. The Bank hereby employs the Employee, and the Employee hereby
----
accepts such employment under this Agreement, for the period commencing on the
Effective Date and ending 36 months thereafter (or such earlier date as is
determined in accordance with Section 9). Additionally, on each annual
anniversary date from the Effective Date, the Employee's term of employment
shall may be extended for an additional one-year period beyond the then
effective expiration date, provided the Board determines in a duly adopted
resolution that the performance of the Employee has met the Board's requirements
and standards and that this Agreement shall be extended.
6. Loyalty; Noncompetition.
-----------------------
(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence, the
Employee shall devote all his full business time, attention, skill, and efforts
to the faithful performance of his duties to the Bank hereunder and/or to its
affiliates; provided, however, that from time to time, the Employee may serve on
the boards of directors of, and hold any other offices or positions in,
companies or organizations which will not present, in the reasonable opinion of
the board, any conflict of interest with the Bank or any of its subsidiaries or
affiliates, or unfavorably affect the performance of the Employee's duties
pursuant to this Agreement, or will not violate any applicable statute or
regulation. "Full business time" is hereby defined as that amount of time
usually devoted to like companies by similarly situated executive officers.
During the term of his employment under this Agreement, the Employee shall not
engage in any business or activity contrary to the business affairs or interests
of the Bank and/or its affiliates, or be gainfully employed in any other
position or job other than as provided above.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent
or limit the Employee's right to invest in the capital stock or other securities
of any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
7. Standards. The Employee shall perform his duties under this Agreement
---------
in accordance with such reasonable standards as the Board may establish from
time to time. The Bank will provide the Employee with the working facilities
and staff customary for similar executives and necessary for him to perform his
duties.
8. Vacation and Sick Leave. At such reasonable times as the Board shall
-----------------------
in its discretion permit, the Employee shall be entitled, without loss of pay,
to absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in accordance
with the policies that the Board periodically establishes for senior management
employees of the Bank.
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation or sick leave, and the
Employee shall not accumulate unused vacation or sick leave from one fiscal year
to the next, except in either case to the extent authorized by the Board.
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<PAGE>
(c) In addition to the aforesaid paid vacations, the Employee shall
be entitled without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of
time and for such valid and legitimate reasons as the Board may in its
discretion determine. Further, the Board may grant to the Employee a leave or
leaves of absence, with or without pay, at such time or times and upon such
terms and conditions as such Board in its discretion may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board.
9. Termination and Termination Pay. Subject to Section 11 hereof, the
-------------------------------
Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
-----
terminate upon his death during the term of this Agreement, in which event the
Employee's estate shall be entitled to receive the compensa tion due the
Employee for the remaining term of the contract, payable in a lump sum if
election is made by the spouse within 30 days of Employee's death or otherwise
on a monthly basis, plus any accrued and unpaid discretionary bonus due Employee
at the time of his death, payable in a lump sum amount within 30 days of the
Employee's death. In addition, the Bank shall maintain the existing medical
insurance for the Employee's spouse for six months after the Employee's death.
(b) Disability. (1) The Bank may terminate the Employee's employment
----------
after having established the Employee's Disability. For purposes of this
Agreement, "Disability" means a physical or mental infirmity which impairs the
Employee's ability to substantially perform his duties under this Agreement and
which results in the Employee becoming eligible for long-term disability
benefits under the Bank's long-term disability plan (or, if the Bank has no such
plan in effect, which impairs, or which can be expected to impair, the
Employee's ability to substantially perform his duties under this Agreement for
a period of 180 consecutive days). The Employee shall be entitled to the
compensation and benefits provided for under this Agreement for (i) any period
during the term of this Agreement and prior to the establishment of the
Employee's Disability during which the Employee is unable to work due to the
physical or mental infirmity, or (ii) any period of Disability which is prior to
the Employee's termination of employment pursuant to this Section 9(b);
provided, that any benefits paid pursuant to the Bank's long-term disability
plan will continue in accordance therewith.
(2) During any period that the Employee shall receive disability
benefits and to the extent that the Employee shall be physically and mentally
able to do so, he shall furnish such information, assistance and documents so as
to assist in the continued ongoing business of the Bank and, if able, shall make
himself available to the Bank to undertake reasonable assignments consistent
with his prior position and his physical and mental health. The Bank shall pay
all reasonable expenses incident to the performance of any assignment given to
the Employee during the disability period.
(c) Just Cause. The Board may, by written notice to the Employee,
----------
immediately terminate his employment at any time, for Just Cause. The Employee
shall have no right to receive compensation or other benefits for any period
after termination for Just Cause. Termination for "Just Cause" shall mean
termination because of, in the good faith determination of the Board, the
Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. No act, or failure to act, on the
Employee's part shall be considered "willful" unless he has acted, or failed to
act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Bank. Notwithstanding
the foregoing, in the event of termination the employee shall not be deemed to
have been terminated for Just Cause unless there shall be have been delivered to
the Employee a copy of a resolution duly adopted by the affirmative vote of not
less than a majority
-3-
<PAGE>
of the entire membership of the Board at a meeting of the Board called and held
for that purpose (after reasonable notice to the Employee and an opportunity for
the Employee, together with the Employee's counsel, to be heard before the
Board), such meeting and the opportunity to be heard to be held prior to, or as
soon as reasonably practicable following, termination, but in no event later
than 60 days following such termination, finding that in the good faith opinion
of the Board the Employee was guilty of conduct set forth above in the second
third sentence of this Subsection (c) and specifying the particulars thereof in
detail. If following such meeting the Employee is reinstated, he shall be
entitled to receive back pay for the period following termination and continuing
through reinstatement.
(d) Without Just Cause; Constructive Discharge. (1) The Board may, by
------------------------------------------
written notice to the Employee, immediately terminate his employment at any time
for a reason other than Just Cause, in which event the Employee shall be
entitled to receive the following compensation and benefits (unless such
termination occurs within the time period set forth in Section 11(b) hereof in
which event the benefits and compensation provided for in Section 11 shall
apply): (i) the salary provided pursuant to Section 2 hereof, up to the date of
termination of the term as provided in Section 5 hereof (including any renewal
term) of this Agreement (the "Expiration Date"), plus said salary for an
additional 12-month period, and (ii) at the Employee's election, either (A) cash
in an amount equal to the cost to the Employee of obtaining all health, life,
disability and other benefits which the Employee would have been eligible to
participate in through the Expiration Date based upon the benefit levels
substantially equal to those that the Bank provided for the Employee at the date
of termination of employment, or (B) continued participation under such Bank
benefit plans through the Expiration Date, but only to the extent the Employee
continues to qualify for participation therein. All amounts payable to the
Employee shall be paid, at the option of the Employee, either (I) in periodic
payments through the Expiration Date, or (II) in one lump sum within 10 days of
such termination.
(2) The Employee may voluntarily terminate his employment under
this Agreement, and the Employee shall thereupon be entitled to receive the
compensation and benefits payable under Section 9(d)(1) hereof, within 90 days
following the occurrence of any of the following events, which has not been
consented to in advance by the Employee in writing (unless such voluntary
termination occurs within the time period set forth in Section 11(b) hereof in
which event the benefits and compensation provided for in Section 11 shall
apply): (i) the requirement that the Employee move his personal residence, or
perform his principal executive functions, more than 30 miles from his primary
office; (ii) a material reduction without reasonable cause in the Employee's
base compensation; (iii) the failure by the Bank to continue to provide the
Employee with compensation and benefits provided for under this Agreement, as
the same may be increased from time to time, or with benefits substantially
similar to those provided to him under any of the employee benefit plans in
which the Employee now or hereafter becomes a participant, or the taking of any
action by the Bank which would directly or indirectly reduce any of such
benefits or deprive the Employee of any material fringe benefit enjoyed by him;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position as referenced at
Section 1; (v) a failure to elect or reelect the Employee to the Board; (vi) a
material diminution or reduction in the Employee's responsibilities or authority
(including reporting responsibilities) in connection with his employment with
the Bank; or (vii) a material reduction in the secretarial or other
administrative support of the Employee.
(3) Notwithstanding the foregoing, but only to the extent
required under federal banking law, the amount payable under clause (d)(1)(i)
hereof shall be reduced to the extent that on the date of the Employee's
termination of employment, the present value of the benefits payable under
clauses (d)(1)(i) and (ii) hereof exceeds the limitation on severance benefits
that is set forth in Regulatory Bulletin 27a of the Office of Thrift Supervision
("OTS"), as in effect on the Effective Date. In the event that Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code") becomes applicable to
payments made under this Section 9(d), and the payments exceed the "Maximum
Amount" as defined in Section 11(a)(1) hereof, the payments shall be reduced as
provided by Section 11(a)(2) of this Agreement.
(e) Termination or Suspension Under Federal Law. (1) If the Employee
-------------------------------------------
is removed and/or permanently prohibited from participating in the conduct of
the Bank's affairs by an order issued under Sections
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<PAGE>
8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C.
1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall
terminate, as of the effective date of the order, but vested rights of the
parties shall not be affected.
(2) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph shall not affect the vested rights of the
parties.
(3) All obligations under this Agreement shall terminate, except
to the extent that continuation of this Agreement is necessary for the continued
operation of the Bank: (i) by the Director of the OTS, or his or her designee,
at the time that the Federal Deposit Insurance Corporation ("FDIC") or the
Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
FDIA; or (ii) by the Director of the OTS, or his or her designee, at the time
that the Director of the OTS, or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank is
determined by the Director of the OTS to be in an unsafe or unsound condition.
Such action shall not affect any vested rights of the parties.
(4) If a notice served under Section 8(e)(3) or (g)(1) of the
FDIA (12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily prohibits the
Employee from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, the Bank may in its discretion (i) pay the Employee all or part
of the compensation withheld while its contract obligations were suspended, and
(ii) reinstate (in whole or in part) any of its obligations which were
suspended.
(f) Voluntary Termination by Employee. Subject to Section 11 hereof,
---------------------------------
the Employee may voluntarily terminate employment with the Bank during the term
of this Agreement, upon at least 60 days' prior written notice to the Board of
Directors, in which case the Employee shall receive only his compensation,
vested rights and employee benefits up to the date of his termination (unless
such termination occurs pursuant to Section 9(d)(2) hereof or within the time
period set forth in Section 11(a) hereof, in which event the benefits and
compensation provided for in Section 9(d) or 11, as applicable, shall apply).
10. No Mitigation. The Employee shall not be required to mitigate the
-------------
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
11. Change in Control.
-----------------
(a) Change in Control; Involuntary Termination. (1) Notwithstanding
------------------------------------------
any provision herein to the contrary, if the Employee's employment under this
Agreement is terminated by the Bank, without the Employee's prior written
consent and for a reason other than Just Cause, in connection with or within 12
months after any change in control of the Bank or the Company, the Employee
shall, subject to paragraph (2) of this Section 11(a), be paid an amount equal
to the difference between (i) the product of 2.99 times his "base amount" as
defined in Section 280G(b)(3) of the Code and regulations promulgated thereunder
(the "Maximum Amount"), and (ii) the sum of any other parachute payments (as
defined under Section 280G(b)(2) of the Code) that the Employee receives on
account of the change in control. Said sum shall be paid in one lump sum within
10 days of such termination, and shall be paid in lieu of the payment of any
benefits under Section 9 hereof. The Bank shall also maintain existing insurance
for six months after termination of the Employee's employment, or if Employee
dies within such six months, the Bank shall maintain health insurance for the
Employee's spouse, if living, for the remainder of the six month period. At the
election of the Employee, which election is to be made within 30 days of
Employee's termination, such payments shall be made in a lump sum or paid
monthly during the remaining term of this Agreement following the Employee's
termination, and shall be payable, in the event of
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<PAGE>
the Employee's death before full payment is made, to the Employee's surviving
spouse, if any, and otherwise to his estate. In the event that no election is
made, payment to the Employee will be made on a monthly basis during the
remaining term of this Agreement.
(2) In the event that the Employee and the Bank jointly determine
and agree that the total parachute payments receivable under clauses (i) and
(ii) of Section 11(a)(1) hereof exceed the Maximum Amount, notwithstanding the
payment procedure set forth in Section 11(a)(1) hereof, the Employee shall
determine which and how much, if any, of the parachute payments to which he is
entitled shall be eliminated or reduced so that the total parachute payments to
be received by the Employee do not exceed the Maximum Amount. If the Employee
does not make his determination within 10 business days after receiving a
written request from the Bank, the Bank may make such determination and shall
notify the Employee promptly thereof. Within five business days of the earlier
of the Bank's receipt of the Employee's determination pursuant to this paragraph
or the Bank's determination in lieu of a determination by the Employee, the Bank
shall pay to or distribute to or for the benefit of the Employee such amounts as
are then due the Employee under this Agreement.
(3) As a result of uncertainty in application of Section 280G of
the Code at the time of payment hereunder, it is possible that such payments
will have been made by the Bank which should not have been made ("Overpayment")
or that additional payments will not have been made by the Bank which should
have been made ("Underpayment"), in each case, consistent with the calculations
required to be made under Section 11(a)(1) hereof. In the event that the
Employee, based upon the assertion by the Internal Revenue Service against the
Employee of a deficiency which the Employee believes has a high probability of
success, determines that an Overpayment has been made, any such Overpayment paid
or distributed by the Bank to or for the benefit of Employee shall be treated
for all purposes as a loan ab initio which the Employee shall repay to the Bank
-- ------
together with interest at the applicable federal rate provided for in Section
7872(f)(2)(B) of the Code; provided, however, that no such loan shall be deemed
to have been made and no amount shall be payable by the Employee to the Bank if
and to the extent such deemed loan and payment would not either reduce the
amount on which the Employee is subject to tax under Section 1 and Section 4999
of the Code or generate a refund of such taxes. In the event that the Employee
and the Bank determine, based upon controlling precedent or other substantial
authority, that an Underpayment has occurred, any such Underpayment shall be
promptly paid by the Bank to or for the benefit of the Employee together with
interest at the applicable federal rate provided for in Section 7872(f)(2)(B) of
the Code.
(4) The term "change in control" shall mean any one of the
following events: (i) the acquisition of ownership, holding or power to vote
more than 25% of the Bank's or the Company's voting stock, (ii) the acquisition
of the ability to control the election of a majority of the Bank's or the
Company's directors, (iii) the acquisition of a controlling influence over the
management or policies of the Bank or the Company by any person or by persons
acting as a "group" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended), (iv) the acquisition of control of the Bank
or the Company within the meaning of 12 C.F.R. Part 574 or its applicable
equivalent (except in the case of (i), (ii), (iii) and (iv) hereof, ownership or
control of the Bank by the Company itself shall not constitute a "change in
control"), or (v) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Company or
the Bank (the "Existing Board") (the "Continuing Directors") cease for any
reason to constitute at least a majority thereof, provided that any individual
whose election or nomination for election as a member of the Existing Board was
approved by a vote of at least a majority of the Continuing Directors then in
office shall be considered a Continuing Director. For purposes of this
subparagraph only, the term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
Notwithstanding the foregoing, but only to the extent required
under federal banking law, the amount payable under Subsection (a) of this
Section 11 shall be reduced to the extent that on the date of the Employee's
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<PAGE>
termination of employment, the amount payable under Subsection (a) of this
Section 11 exceeds the limitation on severance benefits that is set forth in
Regulatory Bulletin 27a of the OTS, as in effect on the Effective Date.
(b) Change in Control; Voluntary Termination. Notwithstanding any
----------------------------------------
other provision of this Agreement to the contrary, but subject to Section
11(a)(2) hereof, the Employee may voluntarily terminate his employment under
this Agreement within 12 months following a change in control of the Bank or the
Company, as defined in paragraph (a)(4) of this Section 11, and the Employee
shall thereupon be entitled to receive the payment described in Section
11(a)(1) of this Agreement, within 90 days following the occurrence of any of
the following events, which has not been consented to in advance by the Employee
in writing: (i) the requirement that the Employee perform his principal
executive functions more than 30 miles from his primary office as of the date of
the change in control; (ii) a material reduction in the Employee's base
compensation as in effect on the date of the change in control or as the same
may be changed by mutual agreement from time to time; (iii) the failure by the
Bank to continue to provide the Employee with compensation and benefits provided
for under this Agreement, as the same may be increased from time to time, or
with benefits substantially similar to those provided to him under any employee
benefit in which the Employee is a participant at the time of the change in
control, or the taking of any action which would materially reduce any of such
benefits or deprive the Employee of any material fringe benefit enjoyed by him
at the time of the change in control; (iv) the assignment to the Employee of
duties and responsibilities materially different from those normally associated
with his position as referenced at Section 1; (v) a failure to elect or reelect
the Employee to the Board of Directors of the Bank, if the Employee is serving
on the Board on the date of the change in control; (vi) a material diminution or
reduction in the Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank; or (vii) a
material reduction in the secretarial or other administrative support of the
Employee.
(c) Compliance with 12 U.S.C. Section 1828(k). Any payments made to
-----------------------------------------
the Employee pursuant to this Agreement, or otherwise, are subject to and
conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any
regulations promulgated thereunder.
(d) Trust. (1) Within five business days before or after a change in
-----
control as defined in Section 11(a) of this Agreement which was not approved in
advance by a resolution of a majority of the Continuing Directors of the Bank,
the Bank shall (i) deposit, or cause to be deposited, in a grantor trust (the
"Trust), an amount equal to 2.99 times the Employee's "base amount" as defined
in Section 280G(b)(3) of the Code, and (ii) provide the trustee of the Trust
with a written direction to hold said amount and any investment return thereon
in a segregated account for the benefit of the Employee, and to follow the
procedures set forth in the next paragraph as to the payment of such amounts
from the Trust.
(2) During the 12 consecutive month period following the date on
which the Bank makes the deposit referred to in the preceding paragraph, the
Employee may provide the trustee of the Trust with a written notice requesting
that the trustee pay to the Employee an amount designated in the notice as being
payable pursuant to Section 11(a) or (b). Within three business days after
receiving said notice, the trustee of the Trust shall send a copy of the notice
to the Bank via overnight and registered mail return receipt requested. On the
tenth business day after mailing said notice to the Bank, the trustee of the
Trust shall pay the Employee the amount designated therein in immediately
available funds, unless prior thereto the Bank provides the trustee with a
written notice directing the trustee to withhold such payment. In the latter
event, the trustee shall submit the dispute to non-appealable binding
arbitration for a determination of the amount payable to the Employee pursuant
to Section 11(a) or (b) hereof, and the party responsible for the payment of the
costs of such arbitration (which may include any reasonable legal fees and
expenses incurred by the Employee) shall be determined by the arbitrator. The
trustee shall choose the arbitrator to settle the dispute, and such arbitrator
shall be bound by the rules of the American Arbitration Association in making
his determination. The parties and the trustee shall be bound by the results of
the arbitration and, within three days of the determination by the arbitrator,
the trustee shall pay from the Trust the amounts required to be paid to the
Employee and/or the Bank, and in no event shall the trustee be liable to either
party for making the payments as determined by the arbitrator.
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<PAGE>
(3) Upon the earlier of (i) any payment from the Trust to the
Employee, or (ii) the date 12 months after the date on which the Bank makes the
deposit referred to in the first paragraph of subsection (d)(1) of this Section
11, the trustee of the Trust shall pay to the Bank the entire balance remaining
in the segregated account maintained for the benefit of the Employee. The
Employee shall thereafter have no further interest in the Trust pursuant to this
Agreement.
12. Arbitration. Any dispute or controversy arising under or in connection
-----------
with this Agreement shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitration award in any court having jurisdiction;
provided, however, that until the Expiration Date the Employee shall be entitled
to seek specific performance of his right to be paid during the pendency of any
dispute or controversy arising under or in connection with this Agreement. Any
arbitration proceeding shall be governed by and subject to Alabama arbitration
law.
13. Federal Income Tax Withholding. The Bank may withhold all Federal and
------------------------------
State income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.
14. Successors and Assigns.
----------------------
(a) Bank. This Agreement shall not be assignable by the Bank,
----
provided that this Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Employee. Since the Bank is contracting for the unique and
--------
personal skills of the Employee, the Employee shall be precluded from assigning
or delegating his rights or duties hereunder without first obtaining the written
consent of the Bank; provided, however, that nothing in this paragraph shall
preclude (i) the Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) the executors, administrators, or
other legal representatives of the Employee or his estate from assigning any
rights hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive
----------
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to exclusion, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect.
15. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
16. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the State of Alabama shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
17. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
18. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: FIRST FEDERAL SAVINGS BANK
______________________ By: ____________________________
Secretary
WITNESS:
______________________ ________________________________
B. K. Goodwin, III
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<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
BETWEEN
FIRST FEDERAL SAVINGS BANK,
FIRSTFED BANCORP, INC.,
AND C. LARRY SEALE
___________________________________
Amendment and Restatement
___________________________________
WHEREAS, on December 1, 1992, FirstFed Bancorp, Inc. (the "Holding
Company") and First Federal Savings Bank (the "Savings Bank") entered into an
Employment Agreement (the "Agreement") with C. Larry Seale (the "Executive");
and
WHEREAS, on January 17, 1995, the Board of Directors of the Holding
Company, the Board of Directors of the Savings Bank, and the Executive
determined that it was in their respective best interests to amend the
Agreement; and
WHEREAS, the Board of Directors of the Holding Company, the Board of
Directors of the Savings Bank, and the Executive have determined that it is in
their respective best interests to amend and restate the Agreement in the manner
set forth herein;
NOW, THEREFORE, the Agreement shall be amended and restated as follows,
with such amendment and restatement to become effective as of January 1, 1996:
W I T N E S S E T H
1. The Savings Bank agrees to employ the Executive as its Executive Vice
President. The language herein referring to the Savings Bank, except otherwise
directed by the Board of Directors, includes any subsidiaries of the Savings
Bank.
2. Executive will be paid an annual salary of not less than Ninety One
Thousand, Five Hundred Dollars and no/100 ($91,500.00) per year, payable twice
monthly, effective on the above date; provided, however, that such salary shall
be reduced by any salary paid to the Executive by the Holding Company. Such
annual salary shall be reviewed at least annually; the first such review to be
made no later than December 31, 1996 to be effective January 1, 1997.
In addition, Executive may receive a discretionary cash bonus payable
annually, beginning with the year ending December 31, 1996 and continuing for
the duration of this Agreement. Said bonus, if any, shall be determined by the
Board of Directors based on the performance of the Savings Bank taking into
consideration the Savings Bank's overall achievement of its goals and
Executive's part in the Savings Bank's performance and
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<PAGE>
realization of such goals. In no event, however, shall said bonus exceed one
month of the Executive's annual base salary. The bonus may be paid only as long
as regulatory capital requirements are met and the Savings Bank is profitable.
In addition, the Savings Bank, will provide Executive with employee benefit
plans, arrangements, insurance coverage and perquisites substantially equivalent
to those in which Executive was participating or otherwise deriving benefit from
immediately prior to the beginning of the term of this Agreement, and the
Savings Bank will not, without Executive's prior written consent, make any
changes in such plans, arrangements, insurance coverage or perquisites which
adversely affect Executive's rights or benefits thereunder. Without limiting the
generality of the foregoing provisions of this Section 2, Executive will be
entitled to participate in or receive benefits under any employee benefit plans
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, health-and-accident plans, medical coverage
or any other employee benefit plans or arrangements made available by the
Savings Bank in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Executive will be
entitled to incentive compensation as provided in any plan of the Savings Bank
in which Executive is eligible to participate. Nothing paid to the Executive
under any such plan or arrangement will be deemed to be in lieu of other
compensation to which the Executive is entitled under this Agreement.
3. It is the intention of the parties to this Agreement that the term of
employment of Executive as Executive Vice President of the Savings Bank under
this Agreement shall be for a period of three years from the date of this
Agreement. The renewal of this Agreement for an additional year shall be
considered by the Board of Directors on each annual anniversary from the
effective date. In determining whether to extend the contract for an additional
year, the Board of Directors shall review, among other things, the Executive's
and the Savings Bank's performance and shall include the results of such review
in the minutes of the Board's meeting. As set forth in Section 6 and other
places herein, Executive may be terminated for cause at any time with a
corresponding termination of all benefits and matters pertaining to Executive
hereunder.
4. Executive agrees that he will devote full time and efforts to the
business of the Savings Bank and to the Office of Executive Vice President
except as may be approved by the Board of Directors, will conduct himself in a
manner that will reflect credit on the Savings Bank, and will carry out the
duties assigned to him by the Board of Directors.
2
<PAGE>
5. The Savings Bank will reimburse Executive for all reasonable and
necessary expenses incurred by Executive in carrying out his duties under this
Agreement consistent with normal business practice and in accordance with the
policies of the Board of Directors. Executive shall present to the President of
the Savings Bank, from time to time, an itemized account of his expenses in such
form as may be required by the Savings Bank. The Savings Bank shall pay
professional fees and dues at appropriate clubs approved by the Board of
Directors.
6. It is mutually agreed by the Savings Bank and Executive that this
Agreement can be terminated under the following circumstances:
(a) The Board of Directors of the Savings Bank may terminate Executive's
employment at any time, but any termination by the Savings Bank's Board of
Directors, other than termination by "cause" as defined herein, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall have no right to receive compensation or other
benefits for any period after termination for cause.
(b) In the event the Savings Bank terminates Executive, other than for
cause as herein defined, the Savings Bank shall pay Executive, or, in the
event of his subsequent death, his spouse, if living, as severance pay or
liquidated damages, or both, a sum equal to the base salary due for the
remaining term of this Agreement. Savings Bank shall also maintain existing
insurance for six months after termination of the Executive's employment.
At the election of the Executive, which election is to be made within
thirty (30) days of Executive's termination, such payments shall be made in
a lump sum or paid monthly during the remaining term of this Agreement. In
the event that no election is made, payment to the Executive will be made
on a monthly basis during the remaining term of this Agreement.
(c) Termination for "cause" shall include termination because of
Executive's dishonesty, gross incompetence, willful misconduct, breach of
fiduciary duty involving personal misconduct, breach of fiduciary duty
involved personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation, other than traffic
violations or similar offenses, or final cease-and-desist order, or
material breach of any provision of this Agreement.
(d) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Savings Bank's affairs
by a notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit
Insurance Act (12 U.S.C. 1818 (e)(3) or (g)(1)), the Savings Bank's
obligations under this contract shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the
notice are dismissed, the Savings Bank may in its discretion (i) pay the
Executive all or part of the compensation withheld while the contract
obligations were suspended and (ii) reinstate (in whole or in part) any of
the obligations which were suspended.
(e) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order
issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance
Act (12 U.S.C. 1818 (e)(4) or (g)(1)), all obligations of the Savings Bank
under this contract shall terminate as of the effective date of the order,
but vested rights of the contracting parties shall not be affected.
3
<PAGE>
(f) If the Savings Bank is in default (as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act), all obligations of the Savings Bank
under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(g) All obligations of the Savings Bank under this contract shall be
terminated, except to the extent determined that continuation of the
contract is necessary for the continued operation of the institution, (i)
by the Director or his designee, at the time the Federal Deposit Insurance
Corporation ("FDIC") or Resolution Trust Corporation ("RTC") enters into an
agreement to provide assistance to or on behalf of the Savings Bank under
the authority contained in Section 13(c) of the Federal Deposit Insurance
Act; or (ii) by the Director or his designee, at the time the Director or
his designee approves a supervisory merger to resolve problems related to
the operations of the Savings Bank or when the Savings Bank is determined
by the Director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such
action.
(h) In the event of Executive's death, in which case the Savings Bank
shall pay to the Executive's spouse, if living, the annual base salary
provided for under Section 2 in effect at the time of Executive's death for
the remaining term of the contract, payable in a lump sum if election is
made by the spouse within thirty (30) days of Executive's death or
otherwise on a monthly basis, plus any accrued and unpaid discretionary
bonus due Executive at the time of his death, payable in a lump sum amount
within thirty (30) days of the Executive's death. In addition, the Savings
Bank shall maintain the existing medical insurance for the Executive's
spouse for six months after the Executive's death.
7. In the event that there is a change in control of the Savings Bank or
the Holding Company within the meaning of the Home Owners' Loan Act and the
Rules and Regulations promulgated by the Office of Thrift Supervision (or its
predecessor agency) (specifically, 12 C.F.R. Part 574) as in effect on the date
hereof or hereafter, which results in the Executive's termination under any of
the following conditions: (i) dismissal of Executive other than for cause or
(ii) Executive's resignation from the Savings Bank's employ, upon any (A)
failure to elect or reelect or to appoint or reappoint Executive as a senior
office, (B) material change in Executive's functions, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1 above (and any such material change shall be
deemed a continuing breach of this Agreement), (C) a relocation of Executive's
principal place of employment to a location outside Jefferson County, Alabama or
any county contiguous thereto, (D) a material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, (E) liquidation or dissolution of the Savings Bank, or (F) a
breach of this Agreement by the Savings Bank (or Holding Company), in each case
for reasons other than for cause, Executive shall be entitled to received as
severance pay or liquidated damages, or both, a sum equal to the difference
between (I) the product of 2.99 times his "base amount" as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and
regulations promulgated thereunder (the "Maximum Amount") and (II) the sum of
any other parachute payments (as defined under Section 280G(b)(2) of the Code)
4
<PAGE>
that the Executive receives on account of the change in control. In the event
that the Executive and the Savings Bank jointly determine and agree that the
total parachute payments receivable under clauses (I) and (II) above exceed the
Maximum Amount, notwithstanding the payment procedure set forth above, the
Executive shall determine which and how much, if any, of the parachute payments
to which he is entitled shall be eliminated or reduced so that the total
parachute payments to be received by the Executive do not exceed the Maximum
Amount. If the Executive does not make his determination within ten (10)
business days after receiving a written request from the Savings Bank, the
Savings Bank may make such determination and shall notify the Executive promptly
thereof. Within five (5) business days of the earlier of the Savings Bank's
receipt of the Executive's determination pursuant to this paragraph or the
Savings Bank's determination in lieu of a determination by the Executive, the
Savings Bank shall pay to or distribute to or for the benefit of the Executive
such amounts as are then due the Executive under this Agreement.
As a result of uncertainty in application of Section 280G of the Code
at the time of payment hereunder, it is possible that such payments will have
been made by the Savings Bank which should not have been made ("Overpayment") or
that additional payments will not have been made by the Savings Bank which
should have been made ("Underpayment"), in each case, consistent with the
calculations required to be made hereunder. In the event that the Executive,
based upon the assertion by the Internal Revenue Service against the Executive
of a deficiency which the Executive believes has a high probability of success,
determines that an Overpayment has been made, any such Overpayment paid or
distributed by the Savings Bank to or for the benefit of Executive shall be
treated for all purposes as a loan ab initio which the Executive shall repay to
-- ------
the Savings Bank together with interest at the applicable federal rate provided
for in Section 7872(f)(2)(B) of the Code; provided, however, that no such loan
shall be deemed to have been made and no amount shall be payable by the
Executive to the Savings Bank if and to the extent such deemed loan and payment
would not either reduce the amount on which the Executive is subject to tax
under Section 1 and Section 4999 of the Code or generate a refund of such taxes.
In the event that the Executive and the Savings Bank determine, based upon
controlling precedent or other substantial authority, that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Savings Bank to or
for the benefit of the Executive together with interest at the applicable
federal rate provided for in Section 7872(f)(2)(B) of the Code.
In the event of Executive's subsequent death, Executive's spouse, if
living, shall receive the base salary due for the remaining term of the
contract. Savings Bank shall also maintain existing insurance for six months
after Savings Bank termination of the Executive's employment, or if Executive
dies within such six
5
<PAGE>
months, the Savings Bank shall maintain health
insurance for the Executive's spouse, if living, for the remainder of the six
month period. At the election of the Executive, which election is to be made
within thirty (30) days of Executive's termination, such payments shall be made
in a lump sum or paid monthly during the remaining term of this Agreement
following the Executive's termination, and shall be payable, in the event of the
Executive's death before full payment is made, to the Executive's surviving
spouse, if any, and otherwise to his estate. In the event that no election is
made, payment to the Executive will be made on a monthly basis during the
remaining term of this Agreement. Upon the occurrence of any event described in
(A), (B), (C), (D), (E) or (F) of (ii) above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than sixty (60) days prior written notice given to the Savings Bank within
a reasonable period of time not to exceed three (3) calendar months after the
event giving rise to said right to elect.
Notwithstanding the foregoing, but only to the extent required under
federal banking law, the amount payable hereunder shall be reduced to the extent
that on the date of the Executive's termination of employment, the amount
payable hereunder exceeds the limitation on severance benefits that is set forth
in Regulatory Bulletin 27a of the OTS, as in effect on the effective date.
8. Executive will follow the policies as established by the Board of the
Savings Bank from time to time in supervising and conducting the affairs of the
Savings Bank.
9. It is agreed that any indulgence granted by either party to the other
shall not be construed as a wavier of any rights under this Agreement.
10. All payments provided in this Agreement shall be paid in cash or check
from the general funds of the Savings Bank, as the case may be, and no special
or separate fund shall be established and no other segregation of assets shall
be made to assure payment. The Holding Company, however, guarantees payment and
provision of all amounts and benefits due hereunder to Executive and, if such
amounts and benefits due from the Savings Bank are not timely paid or provided
by the Savings Bank, such amounts shall be paid or provided by the Holding
Company.
11. Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, hypothetication, or to execution,
attachment, levey, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null, void
and of no effect. This Agreement shall be binding upon, and inure to the
benefit of, the Executive and the Savings Bank and their respective successors
and assigns.
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<PAGE>
12. This Agreement contains the entire agreement between the parties and
cannot be varied by an instrument in writing signed by both parties. This
Agreement contains any and all understandings between the parties, and there can
be no other oral or implied agreements except as noted herein.
13. This Agreement shall be construed and enforced in accordance with the
laws of the State of Alabama except where superseded by Federal law.
14. The parties hereto agree that this Agreement will be amended in the
event any tax consideration or regulatory actions arise which necessitate an
amendment consistent with the intent hereof.
15. If for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect. If any provision of this Agreement is
determined to conflict with the requirements of 12 C.F.R. Section 563.39(b), the
latter requirements will control.
16. Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrators award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the date of termination during the pendancy of any
dispute or controversy arising under or in connection with this Agreement. Any
arbitration proceeding shall be governed by and subject to Alabama arbitration
law.
17. All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this
Agreement, or its specific performance, shall be paid or reimbursed by the
Savings Bank, if Executive is the prevailing party.
18. The Savings Bank shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at the Savings Bank's expense, or in lieu
thereof, shall indemnify Executive (and his heirs, executors and administrators)
to the fullest extent permitted under Alabama law against all expenses and
liabilities reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his having
been a director or officer of the Savings Bank (whether or not he continues to
be a director or officer at the time of incurring such expenses or liabilities);
such expenses and liabilities to include, but not limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements, and such
settlements to be approved by the Board of Directors of the Savings Bank, if
such action is brought against Executive in his capacity as an officer or
director
7
<PAGE>
of the Savings Bank; provided, however, that such indemnification shall
not extend to matters as to which Executive is finally adjudged to be liable for
willful misconduct or gross negligence in the performance of his duties.
19. In the event of voluntary termination by Executive all rights and
benefits shall immediately terminate upon the effective date of termination,
except as provided in Section 7 hereof.
8
<PAGE>
WHEREFORE, the undersigned hereby approve this Amendment and Restatement of
the Agreement.
Date of Execution: December __, 1995
C. LARRY SEALE
- - ------------------------------------
FIRSTFED BANCORP, INC.
By Attest:
---------------------------------- --------------------------------
Its Chairman of the Board and
Chief Executive Officer CORPORATE SEAL
FIRST FEDERAL SAVINGS BANK
By Attest:
---------------------------------- --------------------------------
Its Chairman of the Board and
Chief Executive Officer CORPORATE SEAL
9
<PAGE>
Exhibit 10.18
EMPLOYMENT AGREEMENT
BETWEEN
FIRST FEDERAL SAVINGS BANK,
FIRSTFED BANCORP, INC.,
AND LYNN J. JOYCE
WHEREAS, on December 14, 1993, FirstFed Bancorp, Inc. (the "Holding
Company") and First Federal Savings Bank (the "Savings Bank") entered into a
Severance Agreement (the "Severance Agreement") with Lynn J. Joyce (the
"Executive"); and
WHEREAS, the Board of Directors of the Company, the Board of Directors of
the Bank, and the Executive have determined that it is in their respective best
interests to rescind the Severance Agreement and to enter into this Employment
Agreement (the "Agreement");
NOW, THEREFORE, the Severance Agreement is hereby rescinded and this
Agreement is entered into, both to become effective as of January 1, 1996:
W I T N E S S E T H
1. The Savings Bank agrees to employ the Executive as its Vice President
- - - Finance and Corporate Secretary. The language herein referring to the Savings
Bank, except otherwise directed by the Board of Directors, includes any
subsidiaries of the Savings Bank.
2. Executive will be paid an annual salary of not less than Sixty Three
Thousand Dollars and no/100 ($63,000.00) per year, payable twice monthly,
effective on the above date; provided, however, that such salary shall be
reduced by any salary paid to the Executive by the Holding Company. Such annual
salary shall be reviewed at least annually; the first such review to be made no
later than December 31, 1996 to be effective January 1, 1997.
In addition, Executive may receive a discretionary cash bonus payable
annually, beginning with the year ending December 31, 1996 and continuing for
the duration of this Agreement. Said bonus, if any, shall be determined by the
Board of Directors based on the performance of the Savings Bank taking into
consideration the Savings Bank's overall achievement of its goals and
Executive's part in the Savings Bank's performance and realization of such
goals. In no event, however, shall said bonus exceed one month of the
Executive's annual base salary. The bonus may be paid only as long as
regulatory capital requirements are met and the Savings Bank is profitable.
In addition, the Savings Bank, will provide Executive with employee benefit
plans, arrangements, insurance coverage and perquisites substantially equivalent
to those in which Executive was participating or otherwise deriving benefit from
immediately prior to the beginning of the term of this Agreement, and the
Savings
1
<PAGE>
Bank will not, without Executive's prior written consent, make any
changes in such plans, arrangements, insurance coverage or perquisites which
adversely affect Executive's rights or benefits thereunder. Without limiting
the generality of the foregoing provisions of this Section 2, Executive will be
entitled to participate in or receive benefits under any employee benefit plans
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, health-and-accident plans, medical coverage
or any other employee benefit plans or arrangements made available by the
Savings Bank in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Executive will be
entitled to incentive compensation as provided in any plan of the Savings Bank
in which Executive is eligible to participate. Nothing paid to the Executive
under any such plan or arrangement will be deemed to be in lieu of other
compensation to which the Executive is entitled under this Agreement.
3. It is the intention of the parties to this Agreement that the term of
employment of Executive as Executive Vice President of the Savings Bank under
this Agreement shall be for a period of three years from the date of this
Agreement. The renewal of this Agreement for an additional year shall be
considered by the Board of Directors on each annual anniversary from the
effective date. In determining whether to extend the contract for an additional
year, the Board of Directors shall review, among other things, the Executive's
and the Savings Bank's performance and shall include the results of such review
in the minutes of the Board's meeting. As set forth in Section 6 and other
places herein, Executive may be terminated for cause at any time with a
corresponding termination of all benefits and matters pertaining to Executive
hereunder.
4. Executive agrees that she will devote full time and efforts to the
business of the Savings Bank and to the Office of Executive Vice President
except as may be approved by the Board of Directors, will conduct herself in a
manner that will reflect credit on the Savings Bank, and will carry out the
duties assigned to her by the Board of Directors.
5. The Savings Bank will reimburse Executive for all reasonable and
necessary expenses incurred by Executive in carrying out her duties under this
Agreement consistent with normal business practice and in accordance with the
policies of the Board of Directors. Executive shall present to the President of
the Savings Bank, from time to time, an itemized account of her expenses in such
form as may be required by the Savings Bank. The Savings Bank shall pay
professional fees and dues at appropriate clubs approved by the Board of
Directors.
2
<PAGE>
6. It is mutually agreed by the Savings Bank and Executive that this
Agreement can be terminated under the following circumstances:
(a) The Board of Directors of the Savings Bank may terminate Executive's
employment at any time, but any termination by the Savings Bank's Board of
Directors, other than termination by "cause" as defined herein, shall not
prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall have no right to receive compensation or other
benefits for any period after termination for cause.
(b) In the event the Savings Bank terminates Executive, other than for
cause as herein defined, the Savings Bank shall pay Executive, or, in the
event of her subsequent death, her spouse, if living, as severance pay or
liquidated damages, or both, a sum equal to the base salary due for the
remaining term of this Agreement. Savings Bank shall also maintain
existing insurance for six months after termination of the Executive's
employment. At the election of the Executive, which election is to be made
within thirty (30) days of Executive's termination, such payments shall be
made in a lump sum or paid monthly during the remaining term of this
Agreement. In the event that no election is made, payment to the Executive
will be made on a monthly basis during the remaining term of this
Agreement.
(c) Termination for "cause" shall include termination because of
Executive's dishonesty, gross incompetence, willful misconduct, breach of
fiduciary duty involving personal misconduct, breach of fiduciary duty
involved personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation, other than traffic
violations or similar offenses, or final cease-and-desist order, or
material breach of any provision of this Agreement.
(d) If the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Savings Bank's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance
Act (12 U.S.C. 1818 (e)(3) or (g)(1)), the Savings Bank's obligations under
this contract shall be suspended as of the date of service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed,
the Savings Bank may in its discretion (i) pay the Executive all or part of
the compensation withheld while the contract obligations were suspended and
(ii) reinstate (in whole or in part) any of the obligations which were
suspended.
(e) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order
issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance
Act (12 U.S.C. 1818 (e)(4) or (g)(1)), all obligations of the Savings Bank
under this contract shall terminate as of the effective date of the order,
but vested rights of the contracting parties shall not be affected.
(f) If the Savings Bank is in default (as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act), all obligations of the Savings Bank under
this contract shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(g) All obligations of the Savings Bank under this contract shall be
terminated, except to the extent determined that continuation of the
contract is necessary for the continued operation of the institution, (i)
by the Director or his designee, at the time the Federal Deposit Insurance
Corporation ("FDIC") or Resolution Trust Corporation ("RTC") enters into an
agreement to provide assistance to or on behalf of the Savings Bank under
the authority contained in Section 13(c) of the Federal Deposit Insurance
Act; or (ii) by the Director or his designee, at the time the Director or
her designee approves a supervisory merger to resolve problems related to
the operations of the Savings Bank or when the Savings Bank is
3
<PAGE>
determined by the Director to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be
affected by such action.
(h) In the event of Executive's death, in which case the Savings Bank shall
pay to the Executive's spouse, if living, the annual base salary provided
for under Section 2 in effect at the time of Executive's death for the
remaining term of the contract, payable in a lump sum if election is made
by the spouse within thirty (30) days of Executive's death or otherwise on
a monthly basis, plus any accrued and unpaid discretionary bonus due
Executive at the time of her death, payable in a lump sum amount within
thirty (30) days of the Executive's death. In addition, the Savings Bank
shall maintain the existing medical insurance for the Executive's spouse
for six months after the Executive's death.
7. In the event that there is a change in control of the Savings Bank or
the Holding Company within the meaning of the Home Owners' Loan Act and the
Rules and Regulations promulgated by the Office of Thrift Supervision (or its
predecessor agency) (specifically, 12 C.F.R. Part 574) as in effect on the date
hereof or hereafter, which results in the Executive's termination under any of
the following conditions: (i) dismissal of Executive other than for cause or
(ii) Executive's resignation from the Savings Bank's employ, upon any (A)
failure to elect or reelect or to appoint or reappoint Executive as a senior
office, (B) material change in Executive's functions, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1 above (and any such material change shall be
deemed a continuing breach of this Agreement), (C) a relocation of Executive's
principal place of employment to a location outside Jefferson County, Alabama or
any county contiguous thereto, (D) a material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, (E) liquidation or dissolution of the Savings Bank, or (F) a
breach of this Agreement by the Savings Bank (or Holding Company), in each case
for reasons other than for cause, Executive shall be entitled to received as
severance pay or liquidated damages, or both, a sum equal to the difference
between (I) the product of 2.99 times her "base amount" as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and
regulations promulgated thereunder (the "Maximum Amount") and (II) the sum of
any other parachute payments (as defined under Section 280G(b)(2) of the Code)
that the Executive receives on account of the change in control. In the event
that the Executive and the Savings Bank jointly determine and agree that the
total parachute payments receivable under clauses (I) and (II) above exceed the
Maximum Amount, notwithstanding the payment procedure set forth above, the
Executive shall determine which and how much, if any, of the parachute payments
to which she is entitled shall be eliminated or reduced so that the total
parachute payments to be received by the Executive do not exceed the Maximum
Amount. If the Executive does not make her determination within ten (10)
business days after receiving a written request from the Savings Bank, the
Savings Bank may make such determination and shall notify the Executive
4
<PAGE>
promptly thereof. Within five (5) business days of the earlier of the Savings
Bank's receipt of the Executive's determination pursuant to this paragraph or
the Savings Bank's determination in lieu of a determination by the Executive,
the Savings Bank shall pay to or distribute to or for the benefit of the
Executive such amounts as are then due the Executive under this Agreement.
As a result of uncertainty in application of Section 280G of the Code
at the time of payment hereunder, it is possible that such payments will have
been made by the Savings Bank which should not have been made ("Overpayment") or
that additional payments will not have been made by the Savings Bank which
should have been made ("Underpayment"), in each case, consistent with the
calculations required to be made hereunder. In the event that the Executive,
based upon the assertion by the Internal Revenue Service against the Executive
of a deficiency which the Executive believes has a high probability of success,
determines that an Overpayment has been made, any such Overpayment paid or
distributed by the Savings Bank to or for the benefit of Executive shall be
treated for all purposes as a loan ab initio which the Executive shall repay to
-- ------
the Savings Bank together with interest at the applicable federal rate provided
for in Section 7872(f)(2)(B) of the Code; provided, however, that no such loan
shall be deemed to have been made and no amount shall be payable by the
Executive to the Savings Bank if and to the extent such deemed loan and payment
would not either reduce the amount on which the Executive is subject to tax
under Section 1 and Section 4999 of the Code or generate a refund of such taxes.
In the event that the Executive and the Savings Bank determine, based upon
controlling precedent or other substantial authority, that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Savings Bank to or
for the benefit of the Executive together with interest at the applicable
federal rate provided for in Section 7872(f)(2)(B) of the Code.
In the event of Executive's subsequent death, Executive's spouse, if
living, shall receive the base salary due for the remaining term of the
contract. Savings Bank shall also maintain existing insurance for six months
after Savings Bank termination of the Executive's employment, or if Executive
dies within such six months, the Savings Bank shall maintain health insurance
for the Executive's spouse, if living, for the remainder of the six month
period. At the election of the Executive, which election is to be made within
thirty (30) days of Executive's termination, such payments shall be made in a
lump sum or paid monthly during the remaining term of this Agreement following
the Executive's termination, and shall be payable, in the event of the
Executive's death before full payment is made, to the Executive's surviving
spouse, if any, and otherwise to her estate. In the event that no election is
made, payment to the Executive will be made on a monthly basis during the
remaining term of this Agreement. Upon the occurrence of any event described in
(A), (B), (C), (D), (E) or (F) of (ii)
5
<PAGE>
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation upon not less than sixty (60) days prior written
notice given to the Savings Bank within a reasonable period of time not to
exceed three (3) calendar months after the event giving rise to said right to
elect.
Notwithstanding the foregoing, but only to the extent required under
federal banking law, the amount payable hereunder shall be reduced to the extent
that on the date of the Executive's termination of employment, the amount
payable hereunder exceeds the limitation on severance benefits that is set forth
in Regulatory Bulletin 27a of the OTS, as in effect on the effective date.
8. Executive will follow the policies as established by the Board of the
Savings Bank from time to time in supervising and conducting the affairs of the
Savings Bank.
9. It is agreed that any indulgence granted by either party to the other
shall not be construed as a wavier of any rights under this Agreement.
10. All payments provided in this Agreement shall be paid in cash or check
from the general funds of the Savings Bank, as the case may be, and no special
or separate fund shall be established and no other segregation of assets shall
be made to assure payment. The Holding Company, however, guarantees payment and
provision of all amounts and benefits due hereunder to Executive and, if such
amounts and benefits due from the Savings Bank are not timely paid or provided
by the Savings Bank, such amounts shall be paid or provided by the Holding
Company.
11. Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, hypothetication, or to execution,
attachment, levey, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null, void
and of no effect. This Agreement shall be binding upon, and inure to the benefit
of, the Executive and the Savings Bank and their respective successors and
assigns.
12. This Agreement contains the entire agreement between the parties and
cannot be varied by an instrument in writing signed by both parties. This
Agreement contains any and all understandings between the parties, and there can
be no other oral or implied agreements except as noted herein.
13. This Agreement shall be construed and enforced in accordance with the
laws of the State of Alabama except where superseded by Federal law.
14. The parties hereto agree that this Agreement will be amended in the
event any tax consideration or regulatory actions arise which necessitate an
amendment consistent with the intent hereof.
6
<PAGE>
15. If for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect. If any provision of this Agreement is
determined to conflict with the requirements of 12 C.F.R. Section 563.39(b), the
latter requirements will control.
16. Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrators award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the date of termination during the pendancy of any
dispute or controversy arising under or in connection with this Agreement. Any
arbitration proceeding shall be governed by and subject to Alabama arbitration
law.
17. All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this
Agreement, or its specific performance, shall be paid or reimbursed by the
Savings Bank, if Executive is the prevailing party.
18. The Savings Bank shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at the Savings Bank's expense, or in lieu
thereof, shall indemnify Executive (and his heirs, executors and administrators)
to the fullest extent permitted under Alabama law against all expenses and
liabilities reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his having
been a director or officer of the Savings Bank (whether or not he continues to
be a director or officer at the time of incurring such expenses or liabilities);
such expenses and liabilities to include, but not limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements, and such
settlements to be approved by the Board of Directors of the Savings Bank, if
such action is brought against Executive in his capacity as an officer or
director of the Savings Bank; provided, however, that such indemnification shall
not extend to matters as to which Executive is finally adjudged to be liable for
willful misconduct or gross negligence in the performance of his duties.
19. In the event of voluntary termination by Executive all rights and
benefits shall immediately terminate upon the effective date of termination,
except as provided in Section 7 hereof.
WHEREFORE, the undersigned hereby approve this Amendment and Restatement of
the Agreement.
7
<PAGE>
Date of Execution: December __, 1995
LYNN J. JOYCE
_________________________________
FIRSTFED BANCORP, INC.
By_______________________________ Attest:___________________________
Its Chairman of the Board and
Chief Executive Officer CORPORATE SEAL
FIRST FEDERAL SAVINGS BANK
By_______________________________ Attest:____________________________
Its Chairman of the Board and
Chief Executive Officer CORPORATE SEAL
8
<PAGE>
Exhibit 10.19
SEVERANCE AGREEMENT
-------------------
_______________________
Amendment and Restatement
_______________________
WHEREAS, on December 14, 1993, FirstFed Bancorp, Inc. (the "Company")
entered into a Severance Agreement (the "Agreement") with James E. Smith, Jr.
(the "Employee"); and
WHEREAS, the Board of Directors of the Company and the Employee have
determined that it is in their respective best interests to amend and restate
the Agreement in the manner set forth herein;
NOW, THEREFORE, the Agreement shall be amended and restated as follows,
with such amendment and restatement to become effective as of January 1, 1996
(the "Effective Date"):
1. Payment in the Event of Change in Control.
-----------------------------------------
(a) If the Employee's employment is terminated by the Company,
without the Employee's prior written consent and for a reason other than Just
Cause, in connection with or within twelve (12) months after any change in
control of the Company, the Employee shall be paid an amount equal to the
difference between (i) the product of 2.99 times his "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder, and (ii) the sum of any other parachute
payments (as defined under Section 280G(b)(2) of the Code) that the Employee
receives on account of the change in control. Said sum shall be paid in one lump
sum within ten (10) days of such termination. The term "change in control" shall
mean (1) the ownership, holding or power to vote more than 25% of the Company's
voting stock, (2) the control of the election of a majority of the Company's
directors, (3) the exercise of a controlling influence over the management or
policies of the Company by any person or by persons acting as a "group" (within
the meaning of Section 13(d) of the Securities Exchange Act of 1934) (except in
the case of (1), (2), and (3) hereof, ownership or control of the Bank by the
Company itself shall not constitute a change in control), or (4) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company (the "Board") (the "Continuing
Directors") cease for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for election as a
member of the Board was approved by a vote of at least two-thirds of the
Continuing Directors then in office shall be considered a Continuing Director.
The term "person" means an individual other than the Employee, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) The Employee may voluntarily terminate his employment under this
Agreement within twelve (12) months following a change in control of the
Company, and the Employee shall thereupon be entitled to receive the payment
described in Section 1(a) of this Agreement, upon the occurrence of any of the
following events, or within ninety (90) days thereafter, which have not been
consented to in advance by the Employee in writing: (i) the requirement that
the Employee move his personal residence, or perform his principal executive
functions, more than thirty-five (35) miles from his primary office as of the
date of a change in control; (ii) a material reduction in the Employee's base
compensation (i.e., a reduction of more than 10%) as in effect on the date of
----
the change in control or as the same may be increased from time to time; (iii)
the failure by the Company to continue to provide the Employee with compensation
and benefits provided for under this Agreement, as the same may be increased
from time to time, or with benefits substantially similar to those provided to
him under any of the employee benefit plans in which the Employee now or
hereafter becomes a participant, or the taking of any action by the Company
which would directly or indirectly reduce any of such benefits or deprive the
<PAGE>
Employee of any material fringe benefit enjoyed by him at the time of the change
in control; (iv) the assignment to the Employee of duties and responsibilities
materially different from those normally associated with his position as
referenced in the recitals introducing this Agreement; (v) a failure to reelect
the Employee to the Board if the Employee is serving on the Board on the date of
the change in control; or (vi) a material diminution or reduction in the
Employee's responsibilities or authority (including reporting responsibilities)
in connection with his employment with the Company
(c) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
2. Term. This Agreement shall remain in effect for the period commencing
----
on the Effective Date and ending on the earlier of (i) the date thirty-six
months after the Effective Date, and (ii) the date on which the Employee
terminates employment with the Company; provided that the Employee's rights
hereunder shall continue following the termination of this employment with the
Company under any of the circumstances described in Paragraphs 1(a) or (b)
hereof. Additionally, on each annual anniversary date from the Effective Date,
the term of this Agreement shall be extended for an additional one-year period
beyond the then effective expiration date provided the Board determines in a
duly adopted resolution that the performance of the Employee has met the Board's
requirements and standards, and that this Agreement shall be extended.
3. Termination for Just Cause.
--------------------------
The Employee shall have no right to receive compensation or other
benefits for any period after termination for Just Cause. Termination for "Just
Cause" shall mean termination because of, in the good faith determination of the
Board, the Employee's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease-and-desist order, or
material breach of any provision of this Agreement.
4. Expense Reimbursement.
---------------------
In the event that any dispute arises between the Employee and the
Company as to the terms or interpretation of this Agreement, whether instituted
by formal legal proceedings or otherwise, including any action that the Employee
takes to enforce the terms of this Agreement or to defend against any action
taken by the Company, the Employee shall be reimbursed for all costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Employee shall obtain a final
judgement by a court of competent jurisdiction in favor of the Employee. Such
reimbursement shall be paid within ten (10) days of Employee's furnishing to the
Company written evidence, which may be in the form, among other things, of a
cancelled check or receipt, of any costs or expenses incurred by the Employee.
5. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Company which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Company.
(b) Since the Company is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Company.
6. Joint and Several Liability. The Company hereby agrees that to the
---------------------------
extent permitted by law, it shall be jointly and severally liable for the
payment of all amounts due under the Severance Agreement by and between the Bank
and with the Employee dated the Effective Date.
<PAGE>
7. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
8. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the State of Alabama shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
9. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
10. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: FIRSTFED BANCORP, INC.
By: _______________________________
Secretary Its:_______________________________
________________________________________________________________________________
Employee
<PAGE>
Exhibit 10.20
SEVERANCE AGREEMENT
-------------------
_______________________
Amendment and Restatement
_______________________
WHEREAS, on December 14, 1993, First Federal Savings Bank (the "Bank")
entered into a Severance Agreement (the "Agreement") with James E. Smith, Jr.
(the "Employee"); and
WHEREAS, the Board of Directors of the Bank and the Employee have
determined that it is in their respective best interests to amend and restate
the Agreement in the manner set forth herein;
NOW, THEREFORE, the Agreement shall be amended and restated as follows,
with such amendment and restatement to become effective as of January 1, 1996
(the "Effective Date"):
1. Payment in the Event of Change in Control.
-----------------------------------------
(a) If the Employee's employment is terminated by the Bank, without
the Employee's prior written consent and for a reason other than Just Cause, in
connection with or within twelve (12) months after any change in control of the
Bank or FirstFed Bancorp, Inc., the holding company for the Bank (the
"Company"), the Employee shall be paid an amount equal to the difference between
(i) the product of 2.99 times the Employee's "base amount" as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and
regulations promulgated thereunder, and (ii) the sum of any other parachute
payments (as defined under Section 280G(b)(2) of the Code) that the Employee
receives on account of the change in control. Said sum shall be paid in one lump
sum within ten (10) days of such termination. The term "change in control" shall
mean (1) the ownership, holding or power to vote more than 25% of the Bank's or
Company's voting stock, (2) the control of the election of a majority of the
Bank's or Company's directors, (3) the exercise of a controlling influence over
the management or policies of the Bank or Company by any person or by persons
acting as a "group" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934) (except in the case of (1), (2), and (3) hereof, ownership
or control of the Bank by the Company itself shall not constitute a change in
control), or (4) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Company
(the "Board") (the "Continuing Directors") cease for any reason to constitute at
least two-thirds thereof, provided that any individual whose election or
nomination for election as a member of the Board was approved by a vote of at
least two-thirds of the Continuing Directors then in office shall be considered
a Continuing Director. The term "person" means an individual other than the
Employee, or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
(b) The Employee may voluntarily terminate his or her employment
under this Agreement within twelve (12) months following a change in control of
the Bank or the Company, and the Employee shall thereupon be entitled to receive
the payment described in Section 1(a) of this Agreement, upon the occurrence of
any of the following events, or within ninety (90) days thereafter, which have
not been consented to in advance by the Employee in writing: (i) the requirement
that the Employee move his or her personal residence, or perform his or her
principal executive functions, more than thirty-five (35) miles from his or her
primary office as of the date of the change in control; (ii) a material
reduction in the Employee's base compensation (i.e., a reduction of more than
----
10%) as in effect on the date of the change in control or as the same may be
increased from time to time; (iii)
<PAGE>
the failure by the Bank to continue to provide the Employee with compensation
and benefits provided for under this Agreement, as the same may be increased
from time to time, or with benefits substantially similar to those provided to
him under any of the employee benefit plans in which the Employee now or
hereafter becomes a participant, or the taking of any action by the Bank which
would directly or indirectly reduce any of such benefits or deprive the Employee
of any material fringe benefit enjoyed by him at the time of the change in
control; (iv) the assignment to the Employee of duties and responsibilities
other than those normally associated with his or her position as referenced in
the recitals introducing this Agreement; (v) a failure to reelect the Employee
to the Board of Directors of the Bank if he is serving on the Board on the date
of the change in control; or (vi) a material diminution or reduction in the
Employee's responsibilities or authority (including reporting responsibilities)
in connection with his or her employment with the Bank.
2. Term. This Agreement shall remain in effect for the period commencing
----
on the Effective Date and ending on the earlier of (i) the date thirty-six (36)
months after the Effective Date, and (ii) the date on which the Employee
terminates employment with the Bank; provided that the Employee's rights
hereunder shall continue following the termination of this employment with the
Bank under any of the circumstances described in Paragraphs 1(a) or (b) hereof.
Additionally, on each annual anniversary date from the Effective Date, the term
of this Agreement shall be extended for an additional one-year period beyond the
then effective expiration date provided the Board of Directors of the Bank
determines in a duly adopted resolution that the performance of the Employee has
met the Board's requirements and standards, and that this Agreement shall be
extended.
3. Termination or Suspension Under Federal Law.
-------------------------------------------
(a) Termination for "Just Cause" shall mean termination because of,
in the good faith determination of the Bank's Board of Directors, the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. The Employee shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
(b) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) or (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(c) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph shall not affect the vested rights of the
parties.
(d) All obligations under this Agreement shall terminate, except to
the extent that continuation of this Agreement is necessary for the continued
operation of the Bank: (i) by the Director of the Office of Thrift Supervision
("Director of OTS"), or his or her designee, at the time that the Federal
Deposit Insurance Corporation ("FDIC") or the Resolution Trust Company enters
into an agreement to provide assistance to or on behalf of the Bank under the
authority contained in Section 13(c) of FDIA; or (ii) by the Director of the
OTS, or his or her designee, at the time that the Director of the OTS, or his or
her designee, approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director of the OTS
to be in an unsafe or unsound condition. Such action shall not affect any vested
rights of the parties.
(e) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA
(12 U.S.C. 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the
Employee from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless
2
<PAGE>
stayed by appropriate proceedings. If the charges in the notice are dismissed,
the Bank shall (i) pay the Employee all or part of the compensation withheld
while its contract obligations were suspended, and (ii) reinstate (in whole or
in part) any of its obligations which were suspended.
3
<PAGE>
4. Expense Reimbursement.
---------------------
In the event that any dispute arises between the Employee and the Bank
as to the terms or interpretation of this Agreement, whether instituted by
formal legal proceedings or otherwise, including any action that the Employee
takes to enforce the terms of this Agreement or to defend against any action
taken by the Bank or the Company, the Employee shall be reimbursed for all costs
and expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Employee shall obtain a final judgment
by a court of competent jurisdiction in favor of the Employee. Such
reimbursement shall be paid within ten (10) days of Employee's furnishing to the
Bank and the Company written evidence, which may be in the form, among other
things, of a cancelled check or receipt, of any costs or expenses incurred by
the Employee.
5. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Since the Bank is contracting for the unique and personal skills
of the Employee, the Employee shall be precluded from assigning or delegating
his or her rights or duties hereunder without first obtaining the written
consent of the Bank.
6. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
7. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the State of Alabama shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
8. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
9. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: FIRST FEDERAL SAVINGS BANK
By: ___________________________________
Secretary Its:___________________________________
________________________________________________________________________________
Employee
4
<PAGE>
Exhibit 10.21
SEVERANCE AGREEMENT
-------------------
______________________
Amendment and Restatement
______________________
WHEREAS, on December 14, 1993, FirstFed Bancorp, Inc. (the "Company")
entered into a Severance Agreement (the "Agreement") with Brenda M. Baswell (the
"Employee"); and
WHEREAS, the Board of Directors of the Company and the Employee have
determined that it is in their respective best interests to amend and restate
the Agreement in the manner set forth herein;
NOW, THEREFORE, the Agreement shall be amended and restated as follows,
with such amendment and restatement to become effective as of January 1, 1996
(the "Effective Date"):
1. Payment in the Event of Change in Control.
-----------------------------------------
(a) If the Employee's employment is terminated by the Company,
without the Employee's prior written consent and for a reason other than Just
Cause, in connection with or within twelve (12) months after any change in
control of the Company, the Employee shall be paid an amount equal to the
difference between (i) the product of 2.99 times her "base amount" as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code")
and regulations promulgated thereunder, and (ii) the sum of any other parachute
payments (as defined under Section 280G(b)(2) of the Code) that the Employee
receives on account of the change in control. Said sum shall be paid in one lump
sum within ten (10) days of such termination. The term "change in control" shall
mean (1) the ownership, holding or power to vote more than 25% of the Company's
voting stock, (2) the control of the election of a majority of the Company's
directors, (3) the exercise of a controlling influence over the management or
policies of the Company by any person or by persons acting as a "group" (within
the meaning of Section 13(d) of the Securities Exchange Act of 1934) (except in
the case of (1), (2), and (3) hereof, ownership or control of the Bank by the
Company itself shall not constitute a change in control), or (4) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company (the "Board") (the "Continuing
Directors") cease for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for election as a
member of the Board was approved by a vote of at least two-thirds of the
Continuing Directors then in office shall be considered a Continuing Director.
The term "person" means an individual other than the Employee, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) The Employee may voluntarily terminate her employment under this
Agreement within twelve (12) months following a change in control of the
Company, and the Employee shall thereupon be entitled to receive the payment
described in Section 1(a) of this Agreement, upon the occurrence of any of the
following events, or within ninety (90) days thereafter, which have not been
consented to in advance by the Employee in writing: (i) the requirement that
the Employee move her personal residence, or perform her principal executive
functions, more than thirty-five (35) miles from her primary office as of the
date of a change in control; (ii) a material reduction in the Employee's base
compensation (i.e., a reduction of more than 10%) as in effect on the date of
----
the change in control or as the same may be increased from time to time; (iii)
the failure by the Company to continue to provide the Employee with compensation
and benefits provided for under this Agreement, as the same may be increased
from time to time, or with benefits substantially similar to those provided to
her under any of the employee benefit plans in which the Employee now or
hereafter becomes a participant, or the taking of any action by the Company
which would directly or indirectly reduce any of such benefits or deprive the
Employee of
<PAGE>
any material fringe benefit enjoyed by her at the time of the change in control;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with her position as referenced in the
recitals introducing this Agreement; (v) a failure to reelect the Employee to
the Board if the Employee is serving on the Board on the date of the change in
control; or (vi) a material diminution or reduction in the Employee's
responsibilities or authority (including reporting responsibilities) in
connection with her employment with the Company
(c) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
2. Term. This Agreement shall remain in effect for the period commencing
----
on the Effective Date and ending on the earlier of (i) the date thirty-six
months after the Effective Date, and (ii) the date on which the Employee
terminates employment with the Company; provided that the Employee's rights
hereunder shall continue following the termination of this employment with the
Company under any of the circumstances described in Paragraphs 1(a) or (b)
hereof. Additionally, on each annual anniversary date from the Effective Date,
the term of this Agreement shall be extended for an additional one-year period
beyond the then effective expiration date provided the Board determines in a
duly adopted resolution that the performance of the Employee has met the Board's
requirements and standards, and that this Agreement shall be extended.
3. Termination for Just Cause.
--------------------------
The Employee shall have no right to receive compensation or other
benefits for any period after termination for Just Cause. Termination for "Just
Cause" shall mean termination because of, in the good faith determination of the
Board, the Employee's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final cease-and-desist order, or
material breach of any provision of this Agreement.
4. Expense Reimbursement.
---------------------
In the event that any dispute arises between the Employee and the
Company as to the terms or interpretation of this Agreement, whether instituted
by formal legal proceedings or otherwise, including any action that the Employee
takes to enforce the terms of this Agreement or to defend against any action
taken by the Company, the Employee shall be reimbursed for all costs and
expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Employee shall obtain a final
judgement by a court of competent jurisdiction in favor of the Employee. Such
reimbursement shall be paid within ten (10) days of Employee's furnishing to the
Company written evidence, which may be in the form, among other things, of a
cancelled check or receipt, of any costs or expenses incurred by the Employee.
5. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Company which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Company.
(b) Since the Company is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning or
delegating her rights or duties hereunder without first obtaining the written
consent of the Company.
6. Joint and Several Liability. The Company hereby agrees that to the
---------------------------
extent permitted by law, it shall be jointly and severally liable for the
payment of all amounts due under the Severance Agreement by and between the Bank
and with the Employee dated the Effective Date.
<PAGE>
7. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
8. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the State of Alabama shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
9. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
10. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: FIRSTFED BANCORP, INC.
By:___________________________________
Secretary Its:__________________________________
________________________________________________________________________________
Employee
<PAGE>
Exhibit 10.22
SEVERANCE AGREEMENT
-------------------
_________________________
Amendment and Restatement
_________________________
WHEREAS, on December 14, 1993, First Federal Savings Bank (the "Bank")
entered into a Severance Agreement (the "Agreement") with Brenda M. Baswell (the
"Employee"); and
WHEREAS, the Board of Directors of the Bank and the Employee have
determined that it is in their respective best interests to amend and restate
the Agreement in the manner set forth herein;
NOW, THEREFORE, the Agreement shall be amended and restated as follows,
with such amendment and restatement to become effective as of January 1, 1996
(the "Effective Date"):
1. Payment in the Event of Change in Control.
-----------------------------------------
(a) If the Employee's employment is terminated by the Bank, without the
Employee's prior written consent and for a reason other than Just Cause, in
connection with or within twelve (12) months after any change in control of the
Bank or FirstFed Bancorp, Inc., the holding company for the Bank (the
"Company"), the Employee shall be paid an amount equal to the difference between
(i) the product of 2.99 times the Employee's "base amount" as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and
regulations promulgated thereunder, and (ii) the sum of any other parachute
payments (as defined under Section 280G(b)(2) of the Code) that the Employee
receives on account of the change in control. Said sum shall be paid in one lump
sum within ten (10) days of such termination. The term "change in control" shall
mean (1) the ownership, holding or power to vote more than 25% of the Bank's or
Company's voting stock, (2) the control of the election of a majority of the
Bank's or Company's directors, (3) the exercise of a controlling influence over
the management or policies of the Bank or Company by any person or by persons
acting as a "group" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934) (except in the case of (1), (2), and (3) hereof, ownership
or control of the Bank by the Company itself shall not constitute a change in
control), or (4) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Company
(the "Board") (the "Continuing Directors") cease for any reason to constitute at
least two-thirds thereof, provided that any individual whose election or
nomination for election as a member of the Board was approved by a vote of at
least two-thirds of the Continuing Directors then in office shall be considered
a Continuing Director. The term "person" means an individual other than the
Employee, or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
(b) The Employee may voluntarily terminate his or her employment under
this Agreement within twelve (12) months following a change in control of the
Bank or the Company, and the Employee shall thereupon be entitled to receive the
payment described in Section 1(a) of this Agreement, upon the occurrence of any
of the following events, or within ninety (90) days thereafter, which have not
been consented to in advance by the Employee in writing: (i) the requirement
that the Employee move his or her personal residence, or perform his or her
principal executive functions, more than thirty-five (35) miles from his or her
primary office as of the date of the change in control; (ii) a material
reduction in the Employee's base compensation (i.e., a reduction of more than
----
10%) as in effect on the date of the change in control or as the same may be
increased from time to time; (iii)
1
<PAGE>
the failure by the Bank to continue to provide the Employee with compensation
and benefits provided for under this Agreement, as the same may be increased
from time to time, or with benefits substantially similar to those provided to
her under any of the employee benefit plans in which the Employee now or
hereafter becomes a participant, or the taking of any action by the Bank which
would directly or indirectly reduce any of such benefits or deprive the Employee
of any material fringe benefit enjoyed by her at the time of the change in
control; (iv) the assignment to the Employee of duties and responsibilities
other than those normally associated with his or her position as referenced in
the recitals introducing this Agreement; (v) a failure to reelect the Employee
to the Board of Directors of the Bank if she is serving on the Board on the date
of the change in control; or (vi) a material diminution or reduction in the
Employee's responsibilities or authority (including reporting responsibilities)
in connection with his or her employment with the Bank.
2. Term. This Agreement shall remain in effect for the period commencing
----
on the Effective Date and ending on the earlier of (i) the date thirty-six (36)
months after the Effective Date, and (ii) the date on which the Employee
terminates employment with the Bank; provided that the Employee's rights
hereunder shall continue following the termination of this employment with the
Bank under any of the circumstances described in Paragraphs 1(a) or (b) hereof.
Additionally, on each annual anniversary date from the Effective Date, the term
of this Agreement shall be extended for an additional one-year period beyond the
then effective expiration date provided the Board of Directors of the Bank
determines in a duly adopted resolution that the performance of the Employee has
met the Board's requirements and standards, and that this Agreement shall be
extended.
3. Termination or Suspension Under Federal Law.
-------------------------------------------
(a) Termination for "Just Cause" shall mean termination because of,
in the good faith determination of the Bank's Board of Directors, the Employee's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. The Employee shall have no right to receive
compensation or other benefits for any period after termination for Just Cause.
(b) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) or (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(c) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the date of
default; however, this Paragraph shall not affect the vested rights of the
parties.
(d) All obligations under this Agreement shall terminate, except to
the extent that continuation of this Agreement is necessary for the continued
operation of the Bank: (i) by the Director of the Office of Thrift Supervision
("Director of OTS"), or his or her designee, at the time that the Federal
Deposit Insurance Corporation ("FDIC") or the Resolution Trust Company enters
into an agreement to provide assistance to or on behalf of the Bank under the
authority contained in Section 13(c) of FDIA; or (ii) by the Director of the
OTS, or his or her designee, at the time that the Director of the OTS, or his or
her designee, approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the Director of the OTS
to be in an unsafe or unsound condition. Such action shall not affect any vested
rights of the parties.
(e) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA
(12 U.S.C. 1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the
Employee from participating in the conduct of the Bank's affairs, the Bank's
obligations under this Agreement shall be suspended as of the date of such
service, unless
2
<PAGE>
stayed by appropriate proceedings. If the charges in the notice are dismissed,
the Bank shall (i) pay the Employee all or part of the compensation withheld
while its contract obligations were suspended, and (ii) reinstate (in whole or
in part) any of its obligations which were suspended.
3
<PAGE>
4. Expense Reimbursement.
---------------------
In the event that any dispute arises between the Employee and the Bank
as to the terms or interpretation of this Agreement, whether instituted by
formal legal proceedings or otherwise, including any action that the Employee
takes to enforce the terms of this Agreement or to defend against any action
taken by the Bank or the Company, the Employee shall be reimbursed for all costs
and expenses, including reasonable attorneys' fees, arising from such dispute,
proceedings or actions, provided that the Employee shall obtain a final judgment
by a court of competent jurisdiction in favor of the Employee. Such
reimbursement shall be paid within ten (10) days of Employee's furnishing to the
Bank and the Company written evidence, which may be in the form, among other
things, of a cancelled check or receipt, of any costs or expenses incurred by
the Employee.
5. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank which shall acquire, directly or
indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank.
(b) Since the Bank is contracting for the unique and personal skills
of the Employee, the Employee shall be precluded from assigning or delegating
his or her rights or duties hereunder without first obtaining the written
consent of the Bank.
6. Amendments. No amendments or additions to this Agreement shall be
----------
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
7. Applicable Law. Except to the extent preempted by Federal law, the
--------------
laws of the State of Alabama shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.
8. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
9. Entire Agreement. This Agreement, together with any understanding or
----------------
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: FIRST FEDERAL SAVINGS BANK
By:_____________________________________
Secretary Its:____________________________________
________________________________________________________________________________
Employee
4
<PAGE>
Exhibit 13
FirstFed Bancorp, Inc. (the "Company") is a financial institution holding
company located in Bessemer, Alabama. It serves portions of the greater
Birmingham metropolitan area and counties to the south and west through its
financial institution subsidiaries, First Federal Savings Bank ("First Federal")
and First State Bank of Bibb County ("First State"). First Federal is a first-
tier subsidiary of the Company and First State is a wholly-owned subsidiary of
First State Corporation ("FSC") which is a first-tier subsidiary of the Company.
First Federal is a federally chartered savings bank originally chartered in
1936. First Federal offers traditional deposit and mortgage loan products,
principally one-to-four-family residential loans and, to a lesser extent,
commercial and consumer loans. First Federal conducts its business through four
offices, one each in Bessemer, Hueytown, Pelham and Hoover, Alabama.
FSC and First State were acquired by the Company on January 2, 1996. First
State is an Alabama chartered commercial bank that offers traditional deposit
products and commercial, mortgage and consumer loans. First State conducts its
business through three offices, one each in West Blocton, Woodstock and
Centreville, Alabama.
1
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
(Amounts in thousands, except per share data)
INCOME STATEMENT DATA
Interest income $ 10,542 $ 8,329 $ 7,836 $ 8,417 $ 8,622
Interest expense 5,791 3,860 3,511 3,981 5,417
-------- -------- -------- -------- --------
Net interest income 4,751 4,469 4,325 4,436 3,205
Provision for loan losses 75 52 69 90 -
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 4,676 4,417 4,256 4,346 3,205
Noninterest income 496 274 293 209 201
Noninterest expense 3,616 3,093 3,046 2,584 2,197
-------- -------- -------- -------- --------
Income before provision
for income taxes 1,556 1,598 1,503 1,971 1,209
Provision for income taxes 554 715 565 728 420
-------- -------- -------- -------- --------
Net income $ 1,002 $ 883 $ 938 $ 1,243 $ 789
======== ======== ======== ======== ========
Earnings per share $ 1.54 $ 1.27 $ 1.32 $ 1.75 $ 1.14(1)
======== ======== ======== ======== ========
As of March 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ----------- ------------ ------------ -----------
(Amounts in thousands)
BALANCE SHEET DATA
Total assets $166,184 $129,069 $114,449 $111,868 $108,387
Loans receivable, net 126,199 106,224 87,445 78,863 74,600
Mortgage-backed securities 4,766 5,288 6,655 8,773 13,245
Securities 14,653 7,645 11,222 15,398 5,909
Deposits 145,858 106,428 94,939 91,384 89,029
Stockholders' equity 17,231 18,734 18,559 19,159 18,174
Year Ended March 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ----------- ------------ ------------ -----------
KEY OPERATING DATA
Return on average assets .72% .74% .83% 1.13% .77%
Return on average equity 5.63 4.74 5.03 6.66 5.46
Average equity to average
assets 12.78 15.73 16.48 16.96 14.18
Dividend payout ratio .83 .60 1.19 .31 .12(1)
Customer service
facilities and number
providing
full services,
respectively 7-7 4-4 4-4 4-2 3-2
</TABLE>
__________
(1) Earnings per share and the dividend payout ratio are presented on a
retroactive basis as if the 690,000 shares issued in connection with
the conversion of First Federal from mutual to stock form in December
1991 had been outstanding during all of fiscal 1992. (See Note 1 of
Notes to Consolidated Financial Statements.)
2
<PAGE>
QUARTERLY FINANCIAL DATA
(UNAUDITED)
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
Fiscal 1995
June 30 September 30 December 31 March 31
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Interest income $ 1,924 $ 1,976 $ 2,108 $ 2,321
Interest expense 850 886 994 1,130
----------- ------------ ----------- -----------
Net interest income 1,074 1,090 1,114 1,191
Provision for loan losses 6 - - 46
----------- ------------ ----------- -----------
Net interest income after provision for loan losses 1,068 1,090 1,114 1,145
Noninterest income 66 87 74 47
Noninterest expense 762 783 733 815
----------- ------------ ----------- -----------
Income before income taxes 372 394 455 377
Provision for income taxes 148 146 209 212
----------- ------------ ----------- -----------
Net income $ 224 $ 248 $ 246 $ 165
=========== ============ =========== ===========
Earnings per share $.32 $.35 $.36 $.24
=========== ============ =========== ===========
Fiscal 1996
Interest income $ 2,387 $ 2,466 $ 2,540 $ 3,149
Interest expense 1,319 1,379 1,403 1,690
----------- ------------ ----------- -----------
Net interest income 1,068 1,087 1,137 1,459
Provision for loan losses 15 15 15 30
----------- ------------ ----------- -----------
Net interest income after provision for loan losses 1,053 1,072 1,122 1,429
Noninterest income 59 75 106 256
Noninterest expense 803 799 933 1,081
----------- ------------ ----------- -----------
Income before income taxes 309 348 295 604
Provision for income taxes 127 146 45 236
----------- ------------ ----------- -----------
Net income $ 182 $ 202 $ 250 $ 368(1)
=========== ============ =========== ===========
Earnings per share $ .27 $ .31 $ .37 $ .59
=========== ============ =========== ===========
</TABLE>
__________
(1) On January 2, 1996, the Company acquired FSC and its wholly owned
subsidiary, First State. Results of operations of FSC and First State
are included in quarterly data subsequent to that date.
3
<PAGE>
COMMON STOCK DATA
The Company's common stock began trading in December 1991 through the
National Daily Quotation Service "Pink Sheets" published by the National
Quotation Bureau, Inc. There currently are 607,410 shares of common stock
outstanding and approximately 343 holders of record of the common stock. The
following table sets forth certain information known to management as to the
range of the high and low bid prices for the Company's common stock and cash
dividends declared per share of common stock for the calendar quarters
indicated.
<TABLE>
<CAPTION>
Dividends
Declared
High Bid (1) Low Bid (1) Per Share(2)
------------ ----------- ------------
<S> <C> <C> <C>
Fiscal 1995:
First Quarter $21.25 $21.00 $.30
Second Quarter 21.00 20.00 .16
Third Quarter 20.75 20.75 .16
Fourth Quarter 21.00 21.50 .16
Fiscal 1996:
First Quarter $23.00 $22.00 $.80
Second Quarter 23.75 23.25 .16
Third Quarter 23.50 22.00 .16
Fourth Quarter 24.00 23.50 .16
------ ------ ----
</TABLE>
- - ----------------------
(1) Quotations reflect inter-dealer prices, without retail mark-up, mark-
down or commission, and may not represent actual transactions.
(2) See Note 15 of Notes to Consolidated Financial Statements.
4
<PAGE>
FIRSTFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 1996 AND 1995
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash on hand and in banks $ 2,221 $ 2,822
Interest-bearing deposits in other banks 5,018 1,534
Federal funds sold 4,875 1,300
-------- --------
12,114 5,656
-------- --------
Securities available for sale 10,845 1,860
Assets held for sale 1,582 106
Securities, fair value of $3,821 and
$5,752, respectively 3,808 5,785
Mortgage-backed securities, fair value of
$4,778 and $5,243, respectively 4,766 5,288
Loans receivable, net of allowance for loan
losses of $621 and $242, respectively 126,199 106,224
Land, buildings and equipment, less
accumulated depreciation of
$1,063 and $923, respectively 2,606 1,912
Goodwill 1,598 -
Real estate owned 12 1
Real estate held for investment 997 995
Accrued interest receivable 1,326 985
Other assets 331 257
-------- --------
$166,184 $129,069
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $145,858 $106,428
Borrowed funds 2,002 3,207
Accrued interest payable 172 76
Income taxes payable 232 95
Dividend payable 97 107
Other liabilities 592 422
-------- --------
148,953 110,335
-------- --------
Commitments and contingencies (Notes 2, 3,
4, 5, 9 and 10)
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized, none issued
and outstanding - -
Common stock, $.01 par value, 3,000,000
shares authorized, 730,084 issued
and 607,410 outstanding in 1996 and
711,501 issued and 671,214
outstanding in 1995 7 7
Paid-in capital 6,457 6,250
Retained earnings 13,831 13,662
Treasury stock, at cost (122,674 and
40,287 shares, respectively) (2,774) (850)
Unearned compensation (204) (245)
Unrealized loss on securities
available for sale, net (86) (90)
-------- --------
17,231 18,734
-------- --------
$166,184 $129,069
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
FIRSTFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1996, 1995 and 1994
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
------------- -------------- -------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 9,416 $7,248 $6,488
Interest and dividends on
securities 496 594 702
Interest on
mortgage-backed
securities 345 385 487
Other interest income 285 102 159
------- ------ ------
Total interest income 10,542 8,329 7,836
------- ------ ------
INTEREST EXPENSE
Interest on deposits 5,612 3,684 3,511
Interest on other
borrowings 179 176 -
------- ------ ------
Total interest expense 5,791 3,860 3,511
------- ------ ------
Net interest income 4,751 4,469 4,325
Provision for loan losses 75 52 69
------- ------ ------
Net interest income after
provision for loan losses 4,676 4,417 4,256
------- ------ ------
NONINTEREST INCOME
Fees for customer services 316 215 186
Miscellaneous operating
and non-operating
income, net 180 59 107
------- ------ ------
Total noninterest income 496 274 293
------- ------ ------
NONINTEREST EXPENSE
Salaries and employee
benefits 1,866 1,520 1,557
Office building and
equipment expense 450 322 305
Deposit insurance expense 285 259 222
Net (gain) loss on real
estate owned 1 (11) 27
Amortization of goodwill 27 - -
Other operating expenses 987 1,003 935
------- ------ ------
Total noninterest expense 3,616 3,093 3,046
------- ------ ------
Income before provision
for income taxes 1,556 1,598 1,503
Provision for income
taxes 554 715 565
------- ------ ------
NET INCOME $ 1,002 $ 883 $ 938
======= ====== ======
EARNINGS PER SHARE $1.54 $1.27 $1.32
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
FIRSTFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Loss on
Securities
Unearned Available
Common Paid-In Retained Treasury Compen- for Sale,
Stock Capital Earnings Stock sation Net
-------- ----------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1993 $ 7 $ 6,070 $ 13,486 $ - $ (404) $ -
Amortization of unearned
compensation - - - - 89 -
Net income - - 938 - - -
Dividends declared ($1.60
per share) - - (1,118) - - -
Exercise of stock options - 158 - - - -
Purchase of treasury stock - - - (644) - -
Unrealized loss on
securities available
for sale, net - - - - - (23)
-------- ----------- ------------ -------- ----------- --------
BALANCE, March 31, 1994 7 6,228 13,306 (644) (315) (23)
Amortization of unearned
compensation - - - - 80 -
Awards under stock plans - 10 - - (10) -
Net income - - 883 - - -
Dividends declared ($.78
per share) - - (527) - - -
Exercise of stock options - 12 - - - -
Purchase of treasury stock - - - (206) - -
Change in unrealized loss on
securities available for
sale, net - - - - - (67)
-------- ----------- ------------ -------- ----------- --------
BALANCE, March 31, 1995 7 6,250 13,662 (850) (245) (90)
Amortization of unearned
compensation - - - - 94 -
Awards under stock plans - 29 - - (29) -
Net income - - 1,002 - - -
Dividends declared ($1.28
per share) - - (833) - - -
Exercise of stock options - 178 - - - -
Purchase of treasury stock - - - (1,924) - -
Purchase of stock for stock
plan - - - - (24) -
Change in unrealized loss on
securities available for
sale, net - - - - - 4
-------- ----------- ------------ -------- ----------- --------
BALANCE, March 31, 1996 $ 7 $ 6,457 $ 13,831 $ (2,774) $ (204) $ (86)
======== =========== ============ ======== =========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE>
FIRSTFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Net income $ 1,002 $ 883 $ 938
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 202 150 136
Amortization of unearned compensation 94 80 89
Amortization of purchase premiums 45 57 160
Accretion of deferred income (108) (74) (129)
Provision (credit) for deferred income taxes 93 30 -
Provision (credit) for loss on real estate owned - (9) 26
Provision for loan loss 75 52 69
Loan fees (cost) deferred, net (164) 142 167
FHLB stock dividend - - (67)
(Gain) loss on sale of real estate owned, net (3) (11) (24)
(Gain) loss on sale of equipment (8) - -
Net loans (originated for sale) sold (1,476) 76 (182)
Amortization of goodwill 27 - -
Change in assets and liabilities, net of effect from purchase of subsidiary:
(Increase) decrease in accrued interest (73) (180) 152
(Increase) decrease in other assets 86 (90) 20
Increase (decrease) in accrued interest payable 15 27 (10)
Increase (decrease) in current income taxes payable (36) 8 (213)
Increase (decrease) in other liabilities (3) (284) 210
-------- -------- -------
Net cash provided by (used in) operating activities (232) 857 1,342
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiary, net of cash acquired (1,439) - -
Proceeds from maturities of securities available for sale 641 1,450 1,985
Proceeds from maturities of securities 2,995 2,000 -
Purchase of securities available for sale (1,499) - -
Principal payments received on mortgage-backed securities 693 1,333 4,179
Proceeds from sales of real estate owned 18 126 322
Net loan repayments (originations) (3,469) (18,959) (8,776)
Capital expenditures (131) (943) (161)
Purchase of real estate held for investment (2) - (92)
Proceeds from sale of fixed assets 8 - -
-------- -------- -------
Net cash used in investing activities (2,185) (14,993) (2,543)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net 12,683 11,489 3,555
Proceeds from FHLB advances 591 3,500 -
Payment of FHLB advances (1,796) (293) -
Repurchase of stock for stock plan (24) - -
Principal payment on note payable - - (355)
Proceeds from exercise of stock options 178 12 158
Cash dividends paid (833) (522) (1,111)
Purchase of treasury stock (1,924) (206) (644)
-------- -------- -------
Net cash provided by financing activities 8,875 13,980 1,603
-------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,458 (156) 402
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,656 5,812 5,410
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,114 $ 5,656 $ 5,812
======== ======== =======
</TABLE>
8
<PAGE>
The accompanying notes are an integral part of these consolidated statements.
FIRSTFED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
FirstFed Bancorp, Inc. (the "Company") is the holding company and sole
shareholder of First Federal Savings Bank ("First Federal") and First State
Corporation ("FSC"). FSC was acquired by the Company on January 2, 1996, and is
the sole shareholder of First State Bank of Bibb County ("First State"). First
Federal and First State are referred to herein as the "Banks". There are no
material assets in FSC except for the investment in First State. In December
1991, the Company sold 690,000 shares of common stock through subscription
offerings in connection with First Federal's conversion from a federally
chartered mutual savings bank to a federally chartered stock savings bank (the
"Conversion"). Net proceeds of the offering were approximately $5.4 million.
Reference is made to Note 3 concerning establishment of the liquidation account
at the time of Conversion.
The accompanying consolidated financial statements include the accounts of the
Company, First Federal, FSC and First State. All significant intercompany
balances and transactions have been eliminated in consolidation.
Nature of Operations
The Banks, through seven branch offices located in Alabama, are engaged in a
full range of banking services. Those services consist of providing various
deposit opportunities to customers and originating primarily 1-4 family mortgage
loans and to a lesser extent commercial and installment loans in portions of the
Birmingham metropolitan areas and counties surrounding its south and west sides.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Land, Buildings and Equipment
Land, buildings and equipment are stated at cost. Depreciation is provided at
straight-line rates over the estimated service lives of the related property
(15-50 years for buildings and improvements and 3-10 years for furniture and
equipment).
Expenditures for maintenance and repairs are charged to operations as
incurred; expenditures for renewals and improvements are capitalized and written
off through depreciation and amortization charges. Equipment retired or sold is
removed from the asset and related accumulated depreciation accounts and any
profit or loss resulting therefrom is reflected in the consolidated statements
of income.
Loans Receivable
Loans receivable are stated at unpaid principal balances, less the allowance
for loan losses, and net deferred loan origination fees. Interest is credited to
income based upon the principal amount outstanding.
An allowance is established for uncollectible interest on loans that are 90
days past due based on management's periodic evaluation. The allowance is
established by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized only to the extent that cash
payments are received until, in management's judgement, the borrower's ability
to make periodic interest and principal payments has been demonstrated, in which
case the loan is returned to accrual status.
9
<PAGE>
Loan Origination Fees and Related Costs
Nonrefundable fees associated with loan originations, net of direct costs
associated with originating loans, are deferred and amortized over the
contractual lives of the loans or the repricing period for certain loans using
the level yield method. Such amortization is reflected in "Interest and fees on
loans" in the accompanying consolidated statements of income.
Loan commitment fees are recognized in income upon expiration of the
commitment period, unless the commitment results in the loan being funded.
Allowance for Loan Losses
The allowance for loan losses is maintained through provisions charged to
expense at levels which management considers adequate to absorb losses inherent
in the loan portfolio at each reporting date. Management's estimation of this
amount includes a review of all loans for which full collectibility is not
reasonably assured and considers, among other factors, prior years' loss
experience, economic conditions, distribution of portfolio loans by risk class
and the estimated value of underlying collateral. Though management believes the
allowance for loan losses to be adequate, ultimate losses may vary from their
estimations; however, the allowance is reviewed periodically and as adjustments
become necessary they are reported in earnings in the periods in which they
become known.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures," as of April 1, 1995. These standards require that certain impaired
loans be measured based on the present value of expected future cash flows
discounted at the loans' original effective interest rate. As a practical
expedient, impairment may be measured based on the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
When the measure of the impaired loan is less than the recorded investment in
the loan, the impairment is recorded through a valuation allowance. The Company
had previously measured the allowance for loan losses using methods similar to
those prescribed in these standards. As a result of adopting these standards, no
additional provision to the allowance for loan losses was required as of April
1, 1995. As the Company's loan portfolio is comprised primarily of one-to-four
family residential mortgages and consumer installment loans, which are exempt
from SFAS Nos. 114 and 118 due to the Company evaluating them collectively for
impairment, the Company had no loans designated as impaired under the provisions
of SFAS Nos. 114 and 118 at March 31, 1996.
Income Taxes
The consolidated financial statements have been prepared on an accrual basis.
Because some income and expense items are recognized in different periods for
financial reporting purposes and for purposes of computing currently payable
income taxes, a provision or credit for deferred income taxes is made for such
temporary differences.
Statements of Cash Flows
For purposes of presenting the statements of cash flows, the Company considers
cash on hand and in banks, interest bearing deposits in other banks and Federal
funds sold to be cash and cash equivalents.
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
SUPPLEMENTAL CASH FLOW INFORMATION: (In Thousands)
<S> <C> <C> <C>
Cash paid during the
period for-
Income taxes $ 424 $ 648 $ 778
Interest 5,695 3,883 3,521
====== ====== ======
Non-cash transactions-
Transfers of loans receivable to real estate owned $ 26 $ 60 $ 88
Noncash compensation under stock plans 24 - -
Declaration of cash dividend payable 97 107 101
Transfer of mortgage-backed securities held for sale to
held to maturity at amortized cost - - 1,492
Transfer of securities held for sale to available for sale
at fair value - - 3,414
Change in unrealized net loss on securities available for sale,
net of deferred tax of ($2,000) and $37,000, respectively (4) 67 23
====== ====== ======
</TABLE>
Assets Held for Sale
Assets held for sale are recorded at the lower of amortized cost or market
value, as such assets are not intended to be held to maturity. As of March 31,
1996 and 1995, assets held for sale consisted of mortgage loans in the process
of being sold to third-party investors.
10
<PAGE>
Securities
The Company classifies securities as either trading, available for sale or
held to maturity based on management's intent at the time of purchase.
Securities designated as available for sale are carried at fair value. The
unrealized difference between amortized cost and fair value of securities
available for sale is excluded from earnings and is reported net of deferred
taxes as a component of stockholders' equity. This caption includes securities
that management intends to use as part of its asset/liability management
strategy or that may be sold in response to changes in interest rates, changes
in prepayment risk, liquidity needs, or for other purposes.
Securities classified as held to maturity are carried at amortized cost, as
the Company has the ability and positive intent to hold these securities to
maturity. There are no securities classified as trading as of March 31, 1996 or
1995.
Amortization of premium and accretion of discount are computed under the
interest method. The adjusted cost of the specific security sold is used to
compute realized gain or loss on the sale of securities.
Pending accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets, certain indentifiable intangibles and goodwill
related to those assets to be held and used and for long-lived assets and
certain indentifable intangibles to be disposed of. This Standard requires that
long-lived assets and certain indentifiable intangibles to be held and used be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the review for
recoverability, based on undiscounted expected future cash flows, indicates that
impairment exists, the loss should be measured based on the fair value of the
asset. The Company adopted the provisions of the Standard on April 1, 1996,
without a significant impact on the Company's financial position.
In May 1995, the FASB issued SFAS No. 122 "Accounting for Mortgage Servicing
Rights," an amendment to SFAS No. 65. This Standard amends certain provisions of
SFAS No. 65 to eliminate the accounting distinction between rights to service
mortgage loans for others that are acquired through loan origination activities
and those acquired through purchase transactions. This Standard applies
prospectively for fiscal years beginning after December 15, 1995, to
transactions in which a mortgage banking enterprise sells or securitizes
mortagage loans with servicing rights retained and to impairment evaluations of
all amounts capitalized as mortgage servicing rights, including those pruchased
before adoption of this Standard. Management adopted the provisions of this
Standard on April 1, 1996. Based on the Company's current operating activities,
management does not believe that the adoption of this Standard will have a
material impact on the Company's financial condition or results of operations.
Mortgage-Backed Securities
The Company intends and has the ability to hold mortgage-backed securities to
maturity. Accordingly, they are stated at amortized cost. Amortization of
premiums and accretion of discounts are calculated on the level yield method.
Gains/(losses) on sales of mortgage-backed securities are calculated based on
specific identification of securities sold.
Earnings Per Share and Dividends
Earnings per share for fiscal year ended March 31, 1996, has been computed
based on the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. Common stock equivalents includes the
number of shares issuable on exercise of the outstanding stock options less the
number of shares that could have been purchased with the proceeds from the
exercise of the stock options based on the greater of the average price of the
common stock during the year or the price of the common stock as of year end.
The weighted average number of shares used for fiscal years ended March 31,
1996, 1995, and 1994 were 649,267, 696,853 and 710,441, respectively. Total
dividends declared during the fiscal year are based on shares outstanding,
excluding treasury shares.
Business Combination
On January 2, 1996, the Company acquired FSC and its wholly owned subsidiary,
First State. This transaction was accounted for under the purchase method of
accounting and, accordingly, the consolidated statement of income includes FSC
and First State's results of operations subsequent to that date. The cash
purchase price was approximately $4,275,000 for the acquisition of all
outstanding shares of FSC. The total purchase price exceeded the fair value of
net assets acquired by approximately $1,600,000, which is being amortized over
15 years as goodwill.
11
<PAGE>
Assuming the acquisition of First State had been consummated at April 1, 1994,
the consolidated results of operations on a pro forma basis for the years ended
March 31, 1996, and March 31, 1995, would have been as follows:
<TABLE>
<CAPTION>
March 31,
1996 1995
----------- -----------
<S> <C> <C>
Net Interest Income $ 5,749,000 $ 5,716,000
Net Income $ 1,162,000 $ 1,010,000
Earnings Per Share $ 1.79 $ 1.45
</TABLE>
2. INTEREST RATE SENSITIVITY:
A portion of the Company's interest earning assets are long-term fixed-rate
mortgage loans and mortgage-backed securities (approximately 17%); likewise, one
source of funds is savings deposits with maturities longer than three years
(approximately 15%). Because of the short-term nature of most savings deposits,
their cost generally reflects returns currently available in the money market.
Accordingly, the savings deposits have a high degree of interest rate
sensitivity. Long-term fixed-rate loans in the mortgage loan portfolio have much
less sensitivity to changes in current market rates. As a result, the Bank
focuses on originating adjustable-rate mortgage loans and holding adjustable-
rate mortgage-backed securities (approximately 80%). Even so, changes in market
interest rates may affect the level of net interest income as related to such
fixed rate loans.
3. EQUITY:
For Federal income tax purposes, First Federal is generally allowed a special
bad debt deduction limited to 8% of otherwise taxable income and subject to
certain limitations based on aggregate loans and savings accounts at the end of
the year. Subject to certain limitations, which are controllable by First
Federal, the income offset by these deductions claimed for tax purposes may
never be recognized as taxable income. At March 31, 1996, retained earnings
included approximately $4,656,000 for which no income tax has been provided. In
recent months, several regulatory and legislative proposals have included
provisions which may eliminate the special bad debt deduction which has
heretofore been available for savings banks. The impact of such, if any, is not
expected to be material to the consolidated financial statements.
As required by the Office of Thrift Supervision ("OTS") regulations, First
Federal established a liquidation account at the time of the Conversion for the
benefit of the remaining eligible account holders. The initial balance of this
liquidation account was equal to First Federal's net worth as defined by OTS
regulations as of the date of the latest statement of financial condition at the
time of conversion. In the event of a complete liquidation of First Federal (and
only in such event) each eligible holder shall be entitled to receive a
liquidation distribution from this account in the amount of the then current
adjusted balance for deposits then held, before any liquidation distribution may
be made to any stockholders. The liquidation account will not restrict First
Federal's use or application of net worth except for the repurchase of First
Federal's stock and the payment of dividends, if such payments would cause a
reduction in First Federal's net worth below the liquidation account.
Furthermore, First Federal may be prohibited from declaring cash dividends and
repurchasing its own stock based upon various other regulatory restrictions.
Regulation
OTS regulations require First Federal to maintain capital sufficient to meet
three requirements, as defined: (1) a tangible capital requirement equal to 1.5%
of adjusted total assets; (2) a leverage ratio (expressed as the ratio of core
capital, as defined, to as adjusted total assets), requirement equal to 3% of
adjusted total assets; and (3) a risk-based capital requirement equal to 8% of
risk-weighted assets. Capital for purposes of computing the risk-based
computation is derived by aggregating First Federal's stockholders' equity and
the general allowance for loan losses. For purposes of risk-based capital
requirements, such capital is then expressed as a percentage of total First
Federal assets as adjusted by specified percentages representative of the
relative credit risk of First Federal's assets. At March 31, 1996, First Federal
exceeded all capital requirements and is considered "well capitalized" for
regulatory purposes..
The Company and First State are required by Federal Reserve Board ("FRB")
regulation to maintain (1) a leverage ratio of at least 3% (generally increased
by the FRB from 100 to 200 basis points based on its review of individual
holding companies and banks), (2) a ratio of Tier 1 capital to risk-based assets
of 4% and (3) a ratio of total capital to risk-based assets of 8%. At March 31,
1996, both the Company and First State exceeded all applicable capital
requirements and were classified as "well capitalized."
12
<PAGE>
4. INCENTIVE COMPENSATION AND EMPLOYEE BENEFITS:
Defined Benefit Pension Plan
First Federal has a noncontributory defined benefit pension plan available to
all eligible employees. The following table sets forth the plan's funded status
as of March 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of ($1,018), ($980), and ($815) at March 31, 1996, 1995,
and 1994, respectively $(1,096) $(1,049) $ (869)
======= ======= =======
Projected benefit obligation for services rendered to date $(1,495) $(1,405) $(1,204)
Plan assets at fair value, primarily pooled stock and bond funds 1,403 1,208 1,163
------- ------- -------
Projected benefit obligation in excess of plan assets (92) (197) (41)
Unrecognized transitional asset (32) (35) (39)
Unrecognized prior service cost 3 3 3
Unrecognized net (gain) loss 54 188 7
------- ------- -------
Accrued pension expense included in other liabilities $ (67) $ (41) $ (70)
======= ======= =======
</TABLE>
The components of net pension expense consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Service cost $ 65 $ 49 $ 48
Interest cost 110 83 79
Actual return on assets (238) 5 (139)
Net amortization and deferral 114 (112) 60
------- ------- -------
Net periodic pension expense $ 51 $ 25 $ 48
======= ======= =======
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the weighted-average discount rate was 7% and the rate of increase
in future compensation levels was 5% for 1996, 1995 and 1994. The expected long-
term rate of return on assets was 9.5% for 1996, 9% for 1995 and 8% for 1994.
Employee Stock Ownership Plan
During fiscal 1992, the Company established an Employee Stock Ownership Plan
(ESOP) for eligible employees. The ESOP purchased 41,400 shares of the Company's
common stock with the proceeds from a $414,000 third party bank note. During
fiscal 1994, the Company replaced the third party as lender on the note. The
balance on the note at March 31, 1996 was $177,000. The note is secured by the
common stock owned by the ESOP. Principal payments under the note are due in
equal and annual installments through December 1998; interest is payable
quarterly at a rate of 8.5%. The expense related to the ESOP for fiscal 1996,
1995 and 1994 was approximately $59,000, $59,000 and $57,000, respectively.
Unearned compensation related to the ESOP was approximately $158,000 and
$219,000 at March 31, 1996 and 1995, and is shown as a reduction of
stockholders' equity in the accompanying consolidated statements of financial
condition.
Recognition and Retention Plans
During fiscal 1992, the Company established two Recognition and Retention
Plans (RRPs) which purchased 16,898 shares of the Company's common stock issued
in the Conversion and 10,702 shares on the open market subsequent to the
Conversion. The RRPs provide for awards of common stock to directors and
officers of the Bank at no cost to these participants. During fiscal 1996, an
additional 1,020 shares were purchased on the open market and awarded to
directors elected subsequent to the Conversion. The aggregate fair market value
of the shares purchased by the RRPs is considered unearned compensation at the
time of purchase and compensation is earned ratably over the stipulated period.
The expense related to the RRPs for fiscal 1996, 1995 and 1994 was approximately
$21,000 and $20,000 and $32,000, respectively. At March 31, 1996 and 1995,
unearned compensation related to the RRPs was approximately $19,000 and $17,000,
respectively, and is shown as a reduction to stockholders' equity in the
accompanying consolidated statements of financial condition.
13
<PAGE>
Directors' Retirement Plan
During fiscal 1992, the Company established the Outside Directors' Retirement
Plan (DRP) whereby nonmanagement directors or their beneficiaries will be
provided specific amounts of annual retirement benefits for a period of 10 years
following retirement. During fiscal 1994, the DRP was amended to include all
directors and was renamed the Directors' Retirement Plan. The amendment also
reduced the vesting period for the directors. The related compensation expense
for the DRP was approximately $43,000, $40,000 and $218,000 for fiscal 1996,
1995 and 1994, respectively. During fiscal 1995, a trust was established and
funds were transferred to the trust. As of March 31, 1996, the trust was fully
funded.
Stock Option Plans
The Company has two stockholder-approved stock option plans, the Incentive
Stock Option Plan for senior officers and key employees (the "Stock Plan") and
the Stock Option Plan for Outside Directors (the "Directors' Plan"). Both plans
provide for the grant of options at an exercise price equal to the fair market
value on the date of grant. Options under the Stock Plan become exercisable on a
basis as determined by the Stock Option Committee. Options granted under the
Directors' Plan are immediately exercisable. Options under both plans expire no
later than 10 years from date of grant.
<TABLE>
<CAPTION>
Employee Director Total
--------- --------- --------
<S> <C> <C> <C>
Outstanding, March 31, 1993 18,750 34,500 53,250
Granted 7,500 - 7,500
Exercised (1,800) (14,000) (15,800)
------ ------- -------
Outstanding, March 31, 1994 24,450 20,500 44,950
Granted 5,000 - 5,000
Exercised (1,200) - (1,200)
Forfeited (1,000) - (1,000)
------ ------- -------
Outstanding, March 31, 1995 27,250 20,500 47,750
Granted 204 1,000 1,204
Exercised (8,250) (8,750) (17,000)
------ ------- -------
Outstanding, March 31, 1996 19,204 12,750 31,954
====== ======= =======
Authorized for future grants
March 31, 1996 5,700 450 6,150
====== ======= =======
</TABLE>
The options granted in fiscal 1996 were at an exercise price of $23.00 and
$23.75; the options granted in fiscal 1995 and 1994 were at an exercise price of
$21.00 and $21.125, respectively. The options exercised in fiscal 1996, 1995 and
1994 were at an exercise price of $10.00. The weighted average exercise price of
options outstanding at March 31, 1996, 1995 and 1994 is $14.48, $12.67 and
$11.86, respectively.
The Company adopted the 1995 Stock Option and Incentive Plan for select key
employees and directors during fiscal 1996. The plan provides for the grant of
options at an exercise price equal to the fair market value on the date of
grant. The plan is subject to the approval of stockholders.
Incentive Compensation Plan
During fiscal 1995, the Company established the stockholder-approved FirstFed
Bancorp, Inc. Incentive Compensation Plan whereby eligible employees and
directors may receive cash bonuses in the event the Company achieves certain
performance goals indicative of its profitability and stability. In addition,
key employees and directors are eligible to receive "Restricted Stock" awards
and stock option awards. The Restricted Stock awards are considered unearned
compensation at the time of award and compensation is earned ratably over the
stipulated three year vesting period. There were 1,228 and 501 shares of
restricted stock awarded in fiscal 1996 and 1995, respectively. The expense
related to the Restricted Stock awards for fiscal 1996 and 1995 was
approximately $15,000 and $1,000. At March 31, 1996 and 1995, unearned
compensation related to the Restricted Stock awards was approximately $27,000
and $9,000, and is shown as a reduction to stockholders' equity in the
accompanying consolidated statements of financial condition.
The stock options awards are incentive stock options for employees and non-
incentive stock options for non-employee directors. Both provide for the grant
of options at an exercise price equal to the fair market value on the date of
grant. Options granted are immediately exercisable. Options expire no later
than 10 years from date of grant.
<TABLE>
<CAPTION>
Employee Director Total
-------- --------- ------
<S> <C> <C> <C>
Outstanding, March 31, 1995 1,665 840 2,505
Granted 4,095 2,045 6,140
Exercised - (355) (355)
----- ----- -----
Outstanding, March 31, 1996 5,760 2,530 8,290
===== ===== =====
</TABLE>
14
<PAGE>
The options granted in fiscal 1996 and 1995 were at an exercise price of
$23.75 and $21.00. The options exercised in fiscal 1996 were at exercise prices
of $23.75 and $21.00. The Company reserved 24,000 shares of common stock for
issuance to participants as options and restricted stock awards. There are
13,626 shares available for future grants at March 31, 1996.
Savings Plan
First State sponsors a 401(k) savings plan covering substantially all of its
employees and makes matching contributions up to 4% of employee contributions.
First State's matching contributions for the three months ended March 31, 1996,
totalled $3,041.
Stock Based Compensation
In October 1995, SFAS No. 123, "Accounting for Stock Based Compensation", was
issued. The new standard allows companies to continue to record compensation
cost under Accounting Principles Board Opinion ("APB") No. 25 or to record
compensation cost based on the fair value of stock based awards. Management has
decided to continue using its current accounting policy under APB No. 25; and as
a result, adoption of SFAS No. 123 will not affect the financial condition or
results of operations of the Company. SFAS No. 123 does, however, require
certain pro forma disclosures reflecting what compensation cost would have been
if the fair value based method of recording compensation expense for stock based
compensation had been adopted. The disclosure requirements of SFAS No. 123 were
adopted by the Company as of April 1, 1996.
5. LOANS RECEIVABLE:
Loans receivable at March 31, 1996 and 1995, consisted of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(In thousands)
<S> <C> <C>
Mortgage loans:
One to four family residential $100,596 $ 96,372
Commercial real estate 8,237 5,645
Other 4,010 857
Commercial loans 6,527 3,162
Consumer loans 11,469 5,146
-------- --------
130,839 111,182
Less--
Undisbursed portion of
mortgage loans 3,381 4,006
Escrow, net 173 262
Discount on loans purchased 4 5
Allowance for loan losses 621 242
Net deferred loan fees 461 443
-------- --------
$126,199 $106,224
======== ========
</TABLE>
First Federal and First State have a credit concentration in residential real
estate mortgage loans. Substantially all of the customers are located in the
trade areas of Jefferson, Shelby and Bibb Counties in Alabama, primarily in the
cities of Bessemer, Hoover, Hueytown, Pelham and West Blocton. Although the
Banks generally have conservative underwriting standards, including a collateral
policy calling for low loan to collateral values, the ability of their borrowers
to meet their residential mortgage obligations is dependent upon local economic
conditions.
In the ordinary course of business, First Federal and First State make loans
to officers, directors, employees and other related parties. These loans are
made on substantially the same terms as those prevailing for comparable
transactions with others. Such loans do not involve more than normal risk of
collectibility nor do they present other unfavorable features. The amounts of
such related party loans and commitments at March 31, 1996 and 1995, were
$2,348,000 and $3,675,000, respectively. During fiscal 1996, new loans totalled
$1,453,000, repayments were $684,000 and loans that are no longer related
totalled $2,096,000.
An analysis of the allowance for loan losses is detailed below:
<TABLE>
<CAPTION>
For the Year Ended March 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Balance, beginning
of year $ 242 $ 215 $ 152
Provision 75 52 69
Charge-offs (96) (55) (36)
Recoveries 80 30 30
Addition of First State 320 - -
----- ----- -----
Balance, end of year $ 621 $ 242 $ 215
===== ===== =====
</TABLE>
15
<PAGE>
6. REAL ESTATE OWNED AND HELD FOR INVESTMENT:
Real estate owned is recorded at the lower of the recorded investment in the
loan or fair value of the property, less estimated costs of disposition. Holding
costs related to real estate owned and held for investment are expensed as
incurred. Valuations are periodically performed by management and a provision
for estimated losses on real estate is charged to earnings when such losses are
anticipated.
Real estate held for investment of $997,000 is recorded at cost which does not
exceed fair value and primarily represents commercial property located in
Hoover, Alabama, which is currently under a lease contract with a purchase
option.
7. DEPOSITS:
The weighted average rates payable on all deposits at March 31, 1996 and 1995
were 4.81% and 4.56% respectively. Deposits at March 31 and the related range of
interest rates payable for deposits outstanding at March 31, 1996, were as
follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
Types and rates: (In thousands)
<S> <C> <C>
Transaction accounts,
2.25% to 3.25% $ 25,588 $ 14,894
Passbook savings,
3.00% to 3.50% 27,548 23,095
Savings certificates,
3.00% to 8.00% 92,722 68,439
-------- --------
$145,858 $106,428
-------- --------
</TABLE>
The aggregate amount of jumbo savings certificates with a minimum denomination
of $100,000 was $17,967,000 and $8,666,000 at March 31, 1996 and 1995,
respectively.
Interest on deposits for the fiscal years ended March 31, 1996, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Transaction accounts $ 357 $ 348 $ 334
Passbook savings 873 752 728
Savings certificates 4,382 2,584 2,449
------ ------ ------
$5,612 $3,684 $3,511
------ ------ ------
</TABLE>
At March 31, 1996 and 1995, the scheduled maturities of savings certificates
were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Within one year $ 52,284 $ 30,801
One to three years 18,536 26,645
Three to five years 21,902 10,993
-------- --------
$ 92,722 $ 68,439
======== ========
</TABLE>
8. BORROWED FUNDS:
The following table presents federal funds purchased, securities sold under
agreements to repurchase and short-term FHLB advances.
<TABLE>
<CAPTION>
Securities
Federal Sold Under
Funds Agreements FHLB
Purchased to Repurchase Advances
--------- ------------- --------
(Dollars in thousands)
<S> <C> <C> <C>
March 31, 1995:
Balance $ - $ - $ 1,150
Maximum indebtedness at any month end 3,000 1,000 1,150
Daily average indebtedness outstanding 938 258 561
Average fate paid for the year 5.50% 5.21% 6.26%
Average rate on period-end borrowings - - 6.26%
March 31, 1996:
Balance $ - $ - $ 1,002
Maximum indebtedness at any month end 2,000 - 2,207
Daily average indebtedness outstanding 257 - 1,578
Average rate paid for the year 5.30% - 6.52%
Average rate on period-end borrowings - - 6.16%
</TABLE>
16
<PAGE>
Additionally, the Company has long-term FHLB advances. Outstanding at March
31, 1996, is an advance of $1,000,000 at a rate of 7.26% and matures in fiscal
1998. Outstanding at March 31, 1995, are advances of $1,000,000 and $1,057,000
at rates of 7.26% and 6.73%, respectively.
9. COMMITMENTS AND CONTINGENCIES:
Off-Balance Sheet Items
The Banks' policies as to collateral and assumption of credit risk for off-
balance sheet items are essentially the same as those for extensions of credit
to its customers. At March 31, 1996, the Banks' off-balance sheet activities
include outstanding commitments to originate and fund adjustable-rate single-
family mortgage loans, home equity loans and lines of credit of $7.7 million.
Leases
First Federal has a lease agreement for the building in which a branch office
is located. Rental expense under this lease was $24,900, $24,135 and $23,352
for the years ended March 31, 1996, 1995 and 1994, respectively. The lease
agreement expires May 31, 1999. Future minimum lease payments under the lease
in effect at March 31, 1996, are $27,000 for 1997, $28,000 for 1998, $29,000 for
1999 and $5,000 for 2000.
FDIC Assessments
The FDIC's Savings Association Insurance Fund ("SAIF") assessments became
effective January 1, 1990. The FDIC Improvement Act of 1991 expanded the FDIC's
assessment latitude, including the ability to base assessments on risk profile.
The SAIF assessment rate has been $2.30/$1,000 since January 1, 1991.
First State is a member of the FDIC's Bank Insurance Fund ("BIF"). The
current BIF rate of assessment is $.04/$1,000 for well-capitalized institutions.
A number of proposals are being considered to recapitalize the SAIF in order
to eliminate the BIF/SAIF premium disparity. The most common discussed proposals
considered by the Congress provide for a one time assessment of approximately
.80% of insured deposits to be imposed on all SAIF-insured deposits held as of
March 31, 1995. Also under consideration is the merger of the BIF and SAIF into
one fund as soon as practicable after they both reach their designated reserve
ratios. At this time, it is unknown whether any proposal will be implemented or
whether premiums for either BIF or SAIF members will be adjusted in the future
by the FDIC or by legislative action. If a special assessment as described above
were to be required, it would result in a one-time charge with an after tax
impact to First Federal of up to $600,000. First Federal would continue to
exceed all regulatory capital requirements if such a special assessment were
required. If such a special assessment were required and the SAIF as a result
were fully recapitalized, it could have the effect of reducing First Federal's
deposit insurance premiums to the SAIF, thereby increasing net income in future
periods.
Stock Repurchase Program
The Company has an approved a stock repurchase program of up to 10% of its
outstanding common stock at the time of announcement. As of March 31, 1996,
approximately 51,000 shares can be repurchased under this program.
Special Dividend Declared
Subsequent to year end, the Company declared a special dividend of $.16 per
share payable on June 7, 1996, to stockholders of record on June 3, 1996. The
total cash payments required for this dividend will be approximately $97,000.
Employment Agreements
The Company has employment agreements with three executive officers. These
agreements provide for salary continuation for the remaining term of the
contract and insurance benefits for a six month period in the event of a change
in control of the Company or the death of the officer. These contracts
currently expire December 31, 1998, and the maximum aggregate liability to the
Company at March 31, 1996, is approximately $804,000.
17
<PAGE>
Lease/Purchase Contract
During May 1995, the Company entered into a contract for the lease of its
investment property located in Hoover, Alabama. The contract contains a
purchase option that expires February 1998.
Litigation
The Company and the Banks are parties to litigation and claims arising in the
normal course of business. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such litigation and claims
will not be material to the consolidated financial statements.
10. INCOME TAXES:
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
For the Year Ended
March 31,
-------------------------
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 407 $ 611 $ 510
State 54 74 55
----- ----- -----
461 685 565
Deferred, net 93 30 -
----- ----- -----
Totals $ 554 $ 715 $ 565
----- ----- -----
</TABLE>
The differences between the provision for income taxes and the amount computed
by applying the statutory federal income tax rate of 34% to income before taxes
were as follows:
<TABLE>
<CAPTION>
For the Year Ended
March 31,
---------------------------
1996 1995 1994
-------- ------- --------
(In thousands)
<S> <C> <C> <C>
Pre-tax income at statutory rates $ 529 $ 544 $ 511
Add (deduct):
State income tax, net of federal
tax benefit 34 49 78
Restoration of deferred tax liability - 103 -
Other, net (9) 19 (24)
----- ----- -----
Totals $ 554 $ 715 $ 565
===== ===== =====
</TABLE>
The components of the net deferred tax liability as of March 31, 1996, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
(In thousands)
Deferred tax asset
Retirement and other benefit plans $ 178 $ 233 $ 233
Unrealized loss on securities
available for sale 60 50 14
Other 51 90 78
----- ----- -----
Total deferred tax asset 289 373 315
----- ----- -----
Deferred tax liability
Deferred loan fees (220) (151) (163)
FHLB stock dividend (203) (181) (181)
Depreciation (54) (58) (56)
Other (38) (65) (5)
----- ----- -----
Total deferred tax liability (515) (455) (405)
----- ----- -----
Net deferred tax liability $(226) $ (82) $ (90)
===== ===== =====
</TABLE>
18
<PAGE>
11. SECURITIES AND MORTGAGE-BACKED SECURITIES:
The amortized cost, approximate fair value and gross unrealized gains and
losses of the Bank's securities as of March 31, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY
----------------------------------------------------------------------------------------
March 31, 1996 March 31, 1995
------------------------------------------- -------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gain (Loss) Value Cost Gain (Loss) Value
--------- ---------- ----------- ------- --------- ---------- ----------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Government Agency
securities $ 1,512 $ - $ (12) $ 1,500 $ 4,522 $ 2 $ (35) $ 4,489
FHLB and Federal Reserve
stock, at cost 1,282 - - 1,282 1,263 - - 1,263
Obligations of states and
political subdivisions 1,014 27 (2) 1,039 - - - -
--------- ---------- ---------- -------- --------- ---------- ---------- -------
$ 3,808 $ 27 $ (14) $ 3,821 $ 5,785 $ 2 $ (35) $ 5,752
========= ========== ========== ======== ========= ========== ========== =======
<CAPTION>
SECURITIES AVAILABLE FOR SALE
-----------------------------------------------------------------------------------------
March 31, 1996 March 31, 1995
-------------------------------------------- -------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gain (Loss) Value Cost Gain (Loss) Value
--------- ---------- ----------- -------- --------- ---------- ----------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Government Agency
securities $ 10,991 $ 8 $ (154) $ 10,845 $ 2,000 $ - $ (140) $ 1,860
========= ========== ========== ======== ========= ========== ========== =======
</TABLE>
The amortized cost and estimated fair value of securities held to maturity and
securities available for sale at March 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities
because the issuers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Securities
Held to Maturity Available for Sale
---------------------- ----------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 3,578 $ 3,567
Due after one year through five years 150 154 6,517 6,395
Due after five years through ten years 2,376 2,385 896 883
-------- -------- --------- ---------
2,526 2,539 10,991 10,845
FHLB and Federal Reserve stock 1,282 1,282 - -
-------- -------- --------- ---------
$ 3,808 $ 3,821 $ 10,991 $ 10,845
======== ======== ========= =========
</TABLE>
Securities and mortgage-backed securities totaling $5,304,000 have been
pledged as collateral against certain large public deposits at March 31, 1996.
Deposits associated with pledged securities and mortgage-backed securities had
an aggregate balance of $4,938,000 at March 31, 1996.
19
<PAGE>
Mortgage-backed securities at March 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(In thousands)
<S> <C> <C>
Mortgage-backed securities $ 4,633 $ 5,128
Premiums on mortgage-backed
securities 133 160
-------- --------
$4,766 $5,288
======== ========
</TABLE>
The differences between amortized cost and fair value for mortgage-backed
securities at are representative of gross unrealized gains and losses of $47,000
and $(35,000) at March 31, 1996,and $57,000 and $(102,000) at March 31, 1995.
The mortgage-backed securities held at March 31, 1996, bear interest at fixed
and adjustable rates ranging from 4.93% to 9.50% and mature at various dates
ranging from April 1997 to November 2021.
12. ACCRUED INTEREST RECEIVABLE:
Accrued interest receivable at March 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Securities $ 220 $ 143
Securities available for sale 24 8
Mortgage-backed securities 48 50
Loans receivable 1,034 784
-------- --------
$ 1,326 $ 985
======== ========
</TABLE>
13. LAND, BUILDINGS AND EQUIPMENT:
Land, buildings and equipment at March 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Land $ 506 $ 418
Buildings and improvements 2,027 1,527
Equipment 1,136 890
-------- --------
3,669 2,835
Less: Accumulated depreciation 1,063 923
Net carrying amounts -------- --------
$ 2,606 $ 1,912
======== ========
</TABLE>
14. SUPPLEMENTAL INCOME STATEMENT INFORMATION:
The following provides further analysis of other operating expenses for the
years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Professional services $ 163 $ 202 $ 174
Computer Services 210 171 149
Advertising 96 132 127
Other 518 498 485
-------- -------- --------
$ 987 $ 1,003 $ 935
======== ======== ========
</TABLE>
20
<PAGE>
15. PARENT COMPANY FINANCIAL STATEMENTS:
Separate condensed financial statements of FirstFed Bancorp, Inc., (the
"Parent Company") as of and for the years ended March 31, 1996 and 1995, are
presented below:
STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1996 AND 1995
(In thousands)
<TABLE>
<CAPTION>
ASSETS: 1996 1995
-------- --------
<S> <C> <C>
Interest-bearing deposits $ 1,832 $ 1,605
Investment in subsidiaries 14,522 16,275
Real estate held for investment 997 995
Other assets 73 21
------- -------
Total assets $17,424 $18,896
======= =======
LIABILITIES:
Dividend payable $ 97 $ 107
Other liabilities 96 55
------- -------
Total liabilities 193 162
------- -------
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 7 7
Paid-in-capital 6,457 6,250
Retained earnings 13,831 13,662
Treasury stock (2,774) (850)
Unearned compensation (204) (245)
Unrealized loss on securities
available for sale, net (86) (90)
------- -------
Total stockholders' equity 17,231 18,734
------- -------
Total liabilities and stockholders'
equity $17,424 $18,896
======= =======
</TABLE>
STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income from subsidiaries:
Dividends $ 7,177 $ 915 $1,171
Interest 36 53 59
Interest income 18 24 10
Rental income 77 10 52
------- ------ ------
Total income 7,308 1,002 1,292
Operating expense (382) (172) (86)
------- ------ ------
Income before income taxes and
equity in undistributed
(distribution in excess of)
current year subsidiaries
earnings 6,926 830 1,206
Income taxes 108 (10) (12)
------- ------ ------
Income before equity in
undistributed (distribution
in excess of) current year
subsidiaries earnings 7,034 820 1,194
Equity in undistributed current
year subsidiaries earnings - 63 -
Distribution in excess of
current year subsidiaries
earnings (6,032) - (256)
------- ------ ------
Net income $ 1,002 $ 883 $ 938
======= ====== ======
</TABLE>
21
<PAGE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
(In thousands)
<TABLE>
<CAPTION>
Operating Activities: 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income $ 1,002 $ 883 $ 938
Distribution in excess of (equity in
undistributed)
current year earnings of subsidiary 6,032 (63) 256
------- ------ -------
7,034 820 1,194
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of unearned compensation 95 80 89
Other, net (22) 2 (82)
------- ------ -------
Net cash provided by operating
activities 7,107 902 1,201
------- ------ -------
Investing Activities:
Capital contribution to First Federal - (5) (19)
Purchase of FSC (4,275) - -
Capital expenditures (2) - (73)
------- ------ -------
Net cash used in investing activities (4,277) (5) (92)
------- ------ -------
Financing Activities:
Payment of note payable - - (355)
Repurchase of stock for stock plans (24) - -
Proceeds from exercise of stock options 178 12 158
Dividends paid (833) (522) (1,111)
Purchase of treasury stock (1,924) (206) (644)
------- ------ -------
Net cash used in financing activities (2,603) (716) (1,952)
------- ------ -------
Increase (decrease) in cash and cash
equivalents 227 181 (843)
Cash and cash equivalents at beginning of
year 1,605 1,424 2,267
------- ------ -------
Cash and cash equivalents at end of year $ 1,832 $1,605 $ 1,424
======= ====== =======
</TABLE>
First Federal is restricted by the OTS as to the amount of dividends it may
pay to FirstFed Bancorp, Inc. Under the capital distribution rule, which
includes dividend payments from First Federal to FirstFed Bancorp, Inc., the
ability of an institution to pay dividends will depend on which of three
categories it is in: Tier 1, Tier 2, or Tier 3. Tier 1 institutions currently
meet fully phased-in capital requirements, Tier 2 institutions currently meet
minimum capital requirements and Tier 3 institutions currently fail minimum
capital requirements. First Federal is a Tier 1 institution and, accordingly,
can pay dividends up to 100% of net income and 50% of surplus capital existing
at the beginning of the year, as long as the payment of such dividends does not
reduce capital to a level below First Federal's regulatory capital requirements
as defined by the OTS without prior OTS approval. Accordingly, under these
regulations approximately $1.2 million was available for dividend at March 31,
1996, without prior OTS approval.
Banking laws and other regulations limit the amount of dividends a bank
subsidiary may pay without prior regulatory approval. At March 31, 1996,
approximately $85,000 was available for dividend payment from First State
without such prior approval.
16. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The Company's fair values of financial instruments as presented in accordance
with the requirements of SFAS No. 107 and their related carrying amounts are as
follows:
<TABLE>
<CAPTION>
March 31, 1996
-----------------------
Carrying Estimated
Amount Fair Value
--------- ----------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks $ 2,221 $ 2,221
Interest bearing deposits in banks 5,018 5,018
Federal funds sold 4,875 4,875
Securities available for sale 1,582 1,582
Securities 3,808 3,821
Mortgage-backed securities 4,766 4,778
Loans, net 126,199 127,405
FINANCIAL LIABILITIES:
</TABLE>
22
<PAGE>
Deposits $145,858 $147,987
In cases where quoted market prices are not available, fair values have been
estimated using present value or other valuation techniques. These methods are
highly sensitive to the assumptions used, such as those concerning appropriate
discount rates and estimates of future cash flows. In that regard, estimates
presented herein are not necessarily indicative of the amounts the Company could
realize in a current settlement of the underlying financial instruments, and
they are not intended to represent a measure of the underlying value of the
Company.
The Company adopted SFAS No. 119 "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" as of March 31, 1996. As
the Company does not invest in derivatives, adoption of this standard had no
material effect on the Company's financial statement disclosures.
The following methods and assumptions were used by the Company in estimating
the fair values provided above:
Cash and Due from Banks, Interest Bearing Deposits in Banks, and Federal Funds
Sold
The carrying value of highly liquid instruments, such as cash on hand,
interest and noninterest bearing deposits in financial institutions, and federal
funds sold are considered to approximate their fair values.
Securities Available for Sale and Securities
Substantially all of the Company's securities held to maturity and available
for sale have a readily determinable fair value. Fair values for these
securities are based on quoted market prices, where available. If not available,
fair values are based on market prices of comparable instruments.
Loans, Net
For loans with rates that are repriced in coordination with movements in
market rates and with no significant change in credit risk, fair value estimates
are based on carrying values. The fair values for other types of loans are
estimated by discounting future cash flows using current rates at which loans
with similar terms would be made to borrowers of similar credit ratings.
Deposits
The fair value of deposit liabilities with no stated maturity are disclosed as
the amount payable on demand at the reporting date (i.e., at their carrying or
book value). The fair values of fixed maturity deposits are estimated using a
discounted cash flow calculation that applies rates currently offered for time
deposits of similar remaining maturities.
The economic value attributable to the long-term relationship with depositors
who provide low-cost funds to the Company is considered to be a separate
intangible asset and is excluded from the presentation above.
Off-Balance-Sheet Instruments
Off-balance-sheet financial instruments include commitments to extend credit
and standby letters of credit. The fair value of such instruments is negligible
since the arrangements are at current rates, are for short periods and because
of no significant credit exposure.
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FirstFed Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial
condition of FirstFed Bancorp, Inc. (a Delaware Corporation) and subsidiaries as
of March 31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FirstFed
Bancorp, Inc. and subsidiaries as of March 31, 1996 and 1995, and the results of
their operations and cash flows for each of the three years in the period ended
March 31, 1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Birmingham, Alabama,
May 10, 1996
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
FirstFed Bancorp, Inc. (the "Company") is a financial institution holding
company headquartered in Bessemer, Alabama. The Company owns 100% of the
outstanding shares of common stock of its wholly-owned subsidiaries, First
Federal Savings Bank ("First Federal") and First State Corporation ("FSC"). FSC
owns 100% of the outstanding shares of common stock of First State Bank of Bibb
County ("First State"). The Company's assets consist primarily of its
investment in its financial institution subsidiaries, real estate held for
investment and liquid investments.
COMPARISON OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
AS OF MARCH 31, 1996 AND 1995,
AND FOR THE YEARS ENDED
MARCH 31, 1996 AND 1995
CHANGES IN FINANCIAL CONDITION
Total assets were $166.2 million at March 31, 1996, compared to $129.1 million
at March 31, 1995. This $37.1 million increase resulted from continued growth
and, to a greater extent, the purchase of FSC. The purchase of FSC was
consummated on January 2, 1996. FSC was acquired in a cash transaction for $4.2
million and resulted in the recording of approximately $1.6 million of goodwill,
which is being amortized over 15 years at $106,000 per year. First State assets
totalled approximately $34.2 million at March 31, 1996. This acquisition
resulted in an increase in loans, securities and deposits of $16.3 million, $9.4
million and $26.7 million, respectively. During the year ended March 31, 1996,
First Federal experienced growth in both loans and deposits of $3.4 million and
$12.7 million, respectively. Deposits increased primarily because of the
implementation of a new checking account program, ATM cards and competitive
pricing of longer term certificates of deposit.
Stockholders' equity decreased $1.4 million to $17.3 million at March 31,
1996. The decrease in equity during fiscal 1996 was primarily due to $833,000
in dividends declared and the purchase of 82,387 shares of treasury stock for
$1,924,000, partially offset by 1996 earnings of $1,002,000. Earnings per share
were $1.54 for the year ended March 31, 1996, and $.59 for the quarter ended
March 31, 1996.
The Banks meet regulatory requirements related to liquidity and capital. If
needed, sources of additional liquidity include certain securities which have
been designated as available for sale and borrowing ability from the FHLB-
Atlanta of approximately $58.5 million at March 31, 1996. See Notes 3 and 9 of
the "Notes to Consolidated Financial Statements" regarding liquidity and capital
resources.
GENERAL RESULTS OF OPERATIONS
Net income for the year ended March 31, 1996, was $1,002,000, an increase of
13.5% from the prior year's amount of $883,000. This increase was the result of
both the acquisition of First State, which contributed $85,000 net of goodwill
amortization, to earnings during the quarter ended March 31, 1996, and increased
earnings for First Federal and the Company as discussed further below.
INTEREST INCOME
Total interest income increased $2.2 million to $10.5 million for fiscal 1996
from $8.3 million for fiscal 1995. This increase is primarily due to an
increase in the average yield on interest earning assets to 7.9% during fiscal
1996 from 7.3% for fiscal 1995, and a 17.3% increase in the average balance of
interest earning assets. The higher average balance of loans during fiscal 1996
as compared to fiscal 1995 resulted from increased mortgage, commercial and
consumer lending activity in fiscal 1996 and the acquisition of First State.
There was an increase in the average yield on mortgage loans to 8.0% in fiscal
1996 from 7.4% in fiscal 1995, and an increase in the average yield on other
loans to 10.3% from 8.4%. Interest
25
<PAGE>
earned on securities decreased $98,000 to $496,000 in fiscal 1996 from $594,000
in fiscal 1995. The decrease was primarily the result of a 9.3% decrease in the
average balance and a decrease in yield to 6.1% in fiscal 1996 from 6.6% in
fiscal 1995. Interest earned on mortgage-backed securities decreased in fiscal
1996 to $345,000 from $385,000 in fiscal 1995. This reflects a 16.1% decrease in
the average balance of mortgage-backed securities to $5.0 million during fiscal
1996 from $5.9 million during fiscal 1995 as a result of principal repayments
and prepayments during fiscal 1996. The yield on mortgage-backed securities
decreased slightly from fiscal 1995. In summary, relatively more funds were used
to fund higher yielding loans than investing in securities.
Interest Expense
Total interest expense for fiscal 1996 increased $1.9 million to $5.8 million
in 1996 from $3.9 million in fiscal 1995. The increase was the result of a
higher level of deposits and higher market rates paid on deposits in fiscal
1996. The average level of deposits increased $19.6 million, or 20.5%, to
$115.4 million in fiscal 1996 from the fiscal 1995 average level of $95.8
million, while the average rate paid on deposits increased to 4.86% in fiscal
1996 from 3.84% in fiscal 1995. Average borrowings were $2.6 million at an
average rate of 6.8%.
Net Interest Income
Net interest income for the year ended March 31, 1996, increased $282,000, or
6.3%, to $4.8 million from the fiscal 1995 level of $4.5 million. This increase
was primarily due to the increase in average total interest-earning assets to
$134.1 million for fiscal 1996, an increase of $19.9 million from fiscal 1995.
On the other hand, average deposits also increased $19.6 million in fiscal 1996
over 1995. The interest rate spread was 3.0% in fiscal 1996 as compared to 3.4%
in fiscal 1995.
Provision for Loan Losses
During fiscal 1996 the provision made to the allowance for loan losses was
$75,000. This provision maintained the general loan loss allowance at a level
within the Banks' acceptable range of estimated loss exposure and was based on
historical loss experience, current economic conditions and distribution of
portfolio loans by risk class. The $96,000 in gross charge-offs for fiscal 1996
were partially offset by recoveries of $80,000. Additionally, the existing
allowance for First State of $320,000 was consolidated to bring the allowance to
its March 31, 1996, level of $621,000. In the opinion of management, the
allowance for loan losses at March 31, 1996, was adequate to cover losses
inherent in the loan portfolios of First Federal and First State. See Note 6 of
the "Notes to Consolidated Financial Statements".
Noninterest Income
Noninterest income for fiscal 1996 totalled $496,000 as compared to $274,000
for fiscal 1995. The increase was the result of increased service charges, the
sale of loans in the secondary market and the addition of First State, which
contributed noninterest income of $82,000 during the quarter ended March 31,
1996.
Noninterest Expense
Noninterest expense for fiscal 1996 totalled $3.6 million as compared to $3.1
million for fiscal 1995. See Note 14 to the "Notes to Consolidated Financial
Statements" for an analysis of significant other operating expense items. The
increase in noninterest expense was primarily related to the addition of First
State, which incurred noninterest expense of $246,000 during the quarter ended
March 31, 1996, and increased salary expense. The increase in salary expense
was attributable to annual compensation adjustments and the addition of First
State.
Income Taxes
Federal and state income taxes decreased $161,000, or 22.5% to $554,000 in
fiscal 1996 from $715,000 in fiscal 1995. The Company's effective tax rate for
fiscal 1996 was 37%, compared to 45% in fiscal 1995. The higher effective tax
rate in fiscal 1995 was primarily due to additional deferred
26
<PAGE>
provisions recorded in connection with the Company's liability related to its
tax bad debt reserve. The fiscal 1996 rate returned to its approximate
historical level. See Note 10 to the "Notes to Consolidated Financial
Statements".
COMPARISON OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF MARCH 31, 1995
AND 1994, AND FOR THE YEARS ENDED MARCH 31, 1995 AND 1994
CHANGES IN FINANCIAL CONDITION
Total assets were $129.1 million at March 31, 1995, compared to $114.4 million
at March 31, 1994. This $14.7 million increase resulted primarily from an
increase in loan demand in single-family residential mortgage loans, consumer
loans and commercial loans. The increase in loans receivable was $18.8 million.
During the years ended March 31, 1995 and 1994, First Federal originated
mortgage loans in the amounts of $32.0 million and $35.6 million, respectively,
and other loans in the amounts of $9.1 million and $2.0 million, respectively.
Loan demand has been primarily funded by deposit growth, but also by repayments
of securities and mortgage-backed securities, borrowings and cash flows provided
by operating activities. Investing activities included no purchases of
securities during fiscal 1995 and 1994. There were also no purchases of mortgage
backed securities during fiscal 1995 and 1994. During fiscal 1995, proceeds from
maturities of securities and principal payments received on mortgage-backed
securities were $3.5 million and $1.3 million, respectively. The $790,000
increase in land, building and equipment is due to the addition and renovation
of First Federal's main office in Bessemer. This much needed expansion is the
result of the growth of the Company since the stock offering in 1991.
Deposits were $106.4 million at March 31, 1995, compared to $94.9 million at
March 31, 1994. The $11.5 million increase in deposits is primarily due to the
offering of higher rates to fund the afore-mentioned loan growth.
Stockholders' equity increased $175,000 to $18.7 million at March 31, 1995.
The increase in equity during fiscal 1995 is primarily due to earnings of
$883,000 net of approximately $527,000 in dividends declared and the purchase of
9,787 shares of treasury stock for $206,000.
GENERAL RESULTS OF OPERATIONS
Net income for the year ended March 31, 1995, was $883,000, a decrease of 5.9%
from the prior year's amount of $938,000. The decrease primarily resulted from
a 26.5% increase in the provision for deferred income taxes.
INTEREST INCOME
Interest income increased $493,000 to $8.3 million for fiscal 1995 from $7.8
million for fiscal 1994. This increase is primarily due to an increase in the
average balance of interest earning assets during fiscal 1995, and a slight
increase in the average yield on interest earning assets to 7.3% during fiscal
1995 from 7.2% for fiscal 1994. The higher average balance of loans during
fiscal 1995 as compared to fiscal 1994 resulted from increased mortgage,
commercial and consumer lending activity in fiscal 1995. There was a decrease
in the average yield on mortgage loans to 7.4% in fiscal 1995 from 7.7% in
fiscal 1994, and an increase in the average yield on other loans to 8.4% from
7.5%. Interest earned on mortgage-backed securities decreased in fiscal 1995 to
$385,000 from $487,000 in fiscal 1994. This reflects a 32.2% decrease in the
average balance of mortgage-backed securities to $5.9 million during fiscal 1995
from $8.7 million during fiscal 1994 as a result of principal repayments and
prepayments during fiscal 1995. The yield on mortgage-backed securities
increased to 6.5% in fiscal 1995 from 5.6% in fiscal 1994.
INTEREST EXPENSE
Interest expense for fiscal 1995 increased $349,000, or 9.9%, to $3.9 million
in 1995 from $3.5 million in fiscal 1994. The increase was primarily a result
of higher market rates paid on
27
<PAGE>
deposits in fiscal 1995. The average level of deposits increased $2.2 million,
or 2.4%, to $95.8 million in fiscal 1995 from the fiscal 1994 average level of
$93.6 million, while the average rate paid on deposits increased to 3.84% in
fiscal 1995 from 3.75% in fiscal 1994. During fiscal 1995, the Company borrowed
money in the form of Federal Home Loan Bank ("FHLB") advances, federal funds
purchased and reverse repurchase agreements. The average borrowings were
$3,000,000 at an average rate of 6.0%.
Net Interest Income
Net interest income for the year ended March 31, 1995, increased $144,000, or
3.3%, to $4.5 million from the fiscal 1994 level of $4.3 million. This increase
was primarily due to an increase in the average total interest-earning assets to
$114.2 million for fiscal 1995, an increase of $4.6 million from fiscal 1994,
which was slightly offset by a decrease in interest rate spread to 3.38% in
fiscal 1995 compared to 3.40% in fiscal 1994.
Provision for Loan Losses
During fiscal 1995 the provision made to the allowance for loan losses was
$52,000. This provision maintained the general loan loss reserve at a level
within First Federal's acceptable range of estimated loss exposure and is
based on historical loss experience, current economic conditions and
distribution of portfolio loans by risk class. The $55,000 in gross charge-offs
for fiscal 1995 were partially offset by recoveries of $30,000. In the opinion
of management, the allowance for loan losses at March 31, 1995 was adequate to
cover losses inherent in the loan portfolio. See Note 6 of the "Notes to
Consolidated Financial Statements".
Noninterest Income
Noninterest income for fiscal 1995 totalled $274,000 as compared to $293,000
for fiscal 1994. Other income consists primarily of service fees earned on
customers' deposit accounts.
Noninterest Expense
Noninterest expense during fiscal 1995 remained at the fiscal 1994 level of
$3.1 million. See Note 14 to the "Notes to Consolidated Financial Statements"
for an analysis of significant other operating expense items.
Income Taxes
Federal and state income taxes increased $150,000, or 26.5%, to $715,000 in
fiscal 1995 from $565,000 in fiscal 1994. The Company's effective tax rate for
fiscal 1995 was 45% compared to 38% in fiscal 1994. The higher effective tax
rate was primarily due to additional deferred provisions recorded in connection
with the Company's liability related to its tax bad debt reserve. Management
does not believe that this effective tax rate will be reflected in future
periods and the rate will return to its historical level of approximately 38%.
See Note 10 to the "Notes to Consolidated Financial Statements".
LEGISLATIVE DEVELOPMENTS
Legislation currently under consideration by the United States Congress would
fully capitalize the Savings Association Insurance Fund ("SAIF") by requiring a
one-time special assessment on all SAIF-member institutions including First
Federal. Such legislation would also require banks that are members of the Bank
Insurance Fund ("BIF") to pay 75% of the annual interest on bonds issued by the
Financing Corporation to recapitalize the predecessor to the SAIF, and could
have the result of increasing First State's future BIF deposit insurance
premiums. See Note 9 of "Notes to Consolidated Financial Statements".
28
<PAGE>
Exhibit 21
EXHIBIT 21
Subsidiaries of the Registrant
------------------------------
<TABLE>
<CAPTION>
State of Percentage
Subsidiary Incorporation Ownership
- - ---------------------------- ------------- ----------
<S> <C> <C>
First Federal Savings Bank United States 100%
First State Corporation Alabama 100%
Subsidiaries of First State
Corporation:
First State Bank of Bibb County Alabama 100%
</TABLE>
The operations of the Company's subsidiaries are included in the Company's
consolidated statements.
35
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements File Nos. 33-51662, 33-58260, and
33-81798.
/s/ Arthur Andersen LLP
Birmingham, Alabama
June 21, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 2,221
<INT-BEARING-DEPOSITS> 5,018
<FED-FUNDS-SOLD> 4,875
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,845
<INVESTMENTS-CARRYING> 8,574
<INVESTMENTS-MARKET> 8,599
<LOANS> 126,199
<ALLOWANCE> 621
<TOTAL-ASSETS> 166,184
<DEPOSITS> 145,858
<SHORT-TERM> 1,002
<LIABILITIES-OTHER> 1,093
<LONG-TERM> 1,000
0
0
<COMMON> 7
<OTHER-SE> 17,224
<TOTAL-LIABILITIES-AND-EQUITY> 166,184
<INTEREST-LOAN> 9,416
<INTEREST-INVEST> 841
<INTEREST-OTHER> 285
<INTEREST-TOTAL> 10,542
<INTEREST-DEPOSIT> 5,612
<INTEREST-EXPENSE> 5,791
<INTEREST-INCOME-NET> 4,751
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,616
<INCOME-PRETAX> 1,556
<INCOME-PRE-EXTRAORDINARY> 1,556
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,002
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
<YIELD-ACTUAL> 7.86
<LOANS-NON> 240
<LOANS-PAST> 359
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 242
<CHARGE-OFFS> 95
<RECOVERIES> 78
<ALLOWANCE-CLOSE> 621
<ALLOWANCE-DOMESTIC> 621
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
