<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Fiscal Year Ended March 31, 1998.
[_] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Transition Period from ______________ To ________________.
Commission File Number: 0-19609
-----------
FirstFed Bancorp, Inc.
- ------------------------------------------------------------------------------
(Exact name of small business issuer 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
--------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
--------------------------------------------
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X N0
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure 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-KSB
or any amendment to this Form 10-KSB [ X ].
---
State issuer's revenues for its most recent fiscal year $14,891,000 .
-----------------
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 NASDAQ SmallCap Market June 9, 1998,
was $19,934,475.
As of June 9, 1998, there were issued and outstanding 1,204,598 shares of the
registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Stockholders for the year ended March 31,
1998, are incorporated by reference into Parts I and II of this Form 10-
KSB.
(2) Portions of the Proxy Statement for the 1998 Annual Meeting of Stockholders
are incorporated by reference into Part III of this Form 10-KSB.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I.
ITEM I. Description of Business
The Company....................................................................... 1
First Federal Savings Bank........................................................ 1
First State Bank of Bibb County................................................... 1
Average Balances, Yields Earned and Rates Paid.................................... 3
Rate/Volume Analysis.............................................................. 4
Asset/Liability Management........................................................ 5
Lending Activities................................................................ 7
Other Investment Activities....................................................... 13
Deposits, Borrowings and Other Sources of Funds................................... 15
Competition....................................................................... 16
Regulation, Supervision and Governmental Policy................................... 16
Taxation.......................................................................... 22
Personnel......................................................................... 22
ITEM 2. Description of Property............................................................. 23
ITEM 3. Legal Proceedings................................................................... 24
ITEM 4. Submission of Matters to a Vote of Security Holders................................. 24
PART II.
ITEM 5. Market for Common Equity and Related Stockholder Matters............................ 24
ITEM 6. Management's Discussion and Analysis or Plan of Operation........................... 24
ITEM 7. Financial Statements................................................................ 24
ITEM 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure............................................... 24
PART III.
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................................. 24
ITEM 10. Executive Compensation.............................................................. 24
ITEM 11. Security Ownership of Certain Beneficial Owners and Management...................... 24
ITEM 12. Certain Relationships and Related Transactions...................................... 25
ITEM 13. Exhibits, List and Report on Form 8-K............................................... 25
</TABLE>
i.
<PAGE>
PART I
------
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
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
federally-chartered 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 and liquid
investments. It engages in no significant activity, except through the Banks'
operations. The Company had total assets of $181,468,000, total deposits of
$162,859,000 and stockholders' equity of $17,634,000 at March 31, 1998.
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 five locations in Jefferson,
Shelby and Tuscaloosa Counties, Alabama, consisting of its home office in
Bessemer and four other branches, one each in Pelham, Hueytown, Hoover and
Vance. 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, commercial loans,
consumer loans and one-to-four family residential mortgage loans.
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 the 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."
1
<PAGE>
Earnings of First Federal and First State are primarily dependent upon net
interest income, which is the difference between the income derived from
interest-earning assets, such as loans and securities, and the interest expense
incurred on interest-bearing liabilities, primarily deposit accounts. Net
interest income is affected by (i) the difference between rates of interest
earned on interest-earning assets and rates of interest paid on its interest-
bearing liabilities ("interest rate spread") and (ii) the relative amounts of
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 both years in the two year period ended March 31, 1998, 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 1998 Annual Report to Stockholders (the "Annual Report").
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------
1998 1997
---------------------- -------------------
Average Average
Balance Interest Balance Interest
---------- ---------- --------- --------
(In thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans $123,193 $ 11,084 $129,520 $11,339
Securities 28,843 1,789 25,818 1,583
Other interest-earning assets 11,737 644 8,479 399
-------- -------- --------- --------
Total interest-earning assets 163,773 13,517 163,817 13,321
Non-interest-earning assets 15,755 10,195
-------- --------
Total assets $179,528 $174,012
======== ========
Interest-bearing liabilities:
Deposits $157,813 $ 7,252 $152,254 $ 7,208
Other borrowings 516 37 1,435 98
-------- -------- --------- --------
Total interest-bearing liabilities 158,329 7,289 153,689 7,306
Non-interest bearing liabilities 3,786 2,849
-------- -------- --------- -------
Total liabilities 162,115 $ 6,228 156,538 $ 6,015
Stockholders' equity 17,413 ======== 17,474 =======
-------- --------
Total liabilities and stockholders' equity $179,528 $174,012
======== ========
Year Ended
March 31,
--------------------
1998 1997
-------- --------
Yield on:
Loans 9.00% 8.75%
Securities 6.20 6.13
Other interest-earning assets 5.49 4.71
All interest-earning assets 8.25 8.13
Rate paid on:
Deposits 4.60 4.73
Other borrowings 7.17 6.83
All interest-bearing liabilities 4.60 4.75
Interest rate spread (1) 3.65% 3.38%
======= =======
Net yield (2) 3.80% 3.67%
======= =======
</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, 1998 March 31, 1997
Versus Versus
March 31, 1997 March 31, 1996
---------------------------- -----------------------------
Volume Rate Net Volume Rate Net
-------- -------- -------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
interest earned on:
Interest-earning assets-
Loans $(608) $353 $(255) $ 1,463 $460 $ 1,923
Securities 188 18 206 773 (31) 742
Other interest-earning assets 171 74 245 106 8 114
-------- -------- -------- --------- -------- --------
Total (249) 445 196 2,342 437 2,779
-------- -------- -------- --------- -------- --------
Decrease (increase) in
interest paid on:
Interest-bearing
liabilities-
Deposits (178) 134 (44) (1,742) 146 (1,596)
Other borrowings 66 (5) 61 106 (25) 81
-------- -------- -------- --------- -------- --------
Total (112) 129 17 (1,636) 121 (1,515)
-------- -------- -------- --------- -------- --------
Net (decrease) increase
in net
interest income $(361) $574 $ 213 $ 510 $754 $ 1,264
======== ======== ======== ========= ======== ========
</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 their
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 their assets
and liabilities. The Banks' strategies are intended to stabilize net interest
income for the long-term by protecting their 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 within 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, 1998, the Banks' cumulative one-year gap is negative and a period of rising
interest rates could have an adverse effect on earnings. However, management
believes that the Banks' strong capital positions are sufficient to protect the
Banks from the negative effects of interest rate changes on net income.
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 36.0% 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, 1998, 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 Banks. 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, 1998
------------------------------------------------------------------------------------------------------
Within 91 To 181 Days 1 Year 3 Years 5 Years 10 Years
90 Days 180 Days To 1 Year To 3 Years To 5 Years To 10 Years To 20 Years 20 Years Total
-------- -------- --------- ---------- ---------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (3) $ 31,347 $15,116 $ 25,452 $ 30,608 $ 6,115 $ 5,675 $ 3,680 $ 4,252 $122,245
Securities (1)(2) 7,819 2,457 3,767 5,023 4,547 1,494 - - 3,202 28,309
Cash Invesments 24,642 - - - - - - - - - - - - - - 24,642
-------- ------- -------- -------- ------- ------- ------- ------- --------
Total interest-earning
assets 63,808 17,573 29,219 35,631 10,662 7,169 3,680 7,454 175,196
-------- ------- -------- -------- ------- ------- ------- ------- --------
Interest-bearing
liabilities:
Passbook accounts (4) 25,752 - - - - - - - - - - - - - - 25,752
Transaction accounts (4) 32,932 - - - - - - - - - - - - - - 32,932
Certificate accountss 18,132 14,004 33,703 35,463 2,852 21 - - - - 104,175
-------- ------- -------- -------- ------- ------- ------- ------- --------
Total interest-bearing
liabilities 76,815 14,004 33,703 35,463 2,852 21 - - - - 162,858
-------- ------- -------- -------- ------- ------- ------- ------- --------
Interest sensitivity gap
per period $(13,007) $ 3,569 $ (4,484) $ 168 $ 7,810 $ 7,148 $ 3,680 $ 7,454 $ 12,338
======== ======= ======== ======== ======= ======= ======= ======= ========
Cumulative interest
sensitivity gap $(13,007) $(9,438) $(13,922) $(13,754) $(5,944) $ 1,204 $ 4,884 $12,338 $ 12,338
======== ======= ======== ======== ======= ======= ======= ======= ========
Percentage of cumulative
gap to total assets (7.17)% (5.20)% (7.67)% (7.58)% (3.28)% 0.66% 2.69% 6.80% 6.80%
Cumulative ratio of
interest-sensitive assets
to interest-sensitive
liabilities 83.07% 89.61% 88.82% 91.40% 96.35% 100.74% 103.00% 107.58% 107.58%
</TABLE>
(1) Includes $326 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 First Federal is
shown as due in more than twenty years.
(2) Includes $9,191 in securities available for sale; such securities are
reflected in the above table based on their contractual maturity.
(3) Includes $778 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. If these amounts were
spread based on expected repricing characteristics, the cumulative gap
would have been significantly reduced.
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. 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. First Federal has
authority within regulatory limitations to originate loans secured by real
estate throughout the United States but has exercised this authority outside its
primary lending area only on a limited basis.
The Banks have never purchased servicing rights. During fiscal 1998, the Banks
sold fixed rate loans in the secondary market and First Federal retained
servicing for only a small portion of those loans; servicing rights are
immaterial.
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, with 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 increased 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 enhance the
management of interest rate risk. The Banks apply the required underwriting
procedures in making these fixed rate mortgage loans.
Commercial Real Estate Lending
- ------------------------------
Loans secured by commercial real estate totaled approximately $15.2 million, or
12.91% of the Banks' total loan portfolio, at March 31, 1998. 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, 1998,
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 have 10 to 20 year terms 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.
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.
7
<PAGE>
Construction Lending
- --------------------
The Banks have several construction loan programs. At March 31, 1998, the Banks
had $9.8 million in construction loans outstanding or 8.0% of the Banks' 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, $3.5 million was
undisbursed at March 31, 1998, 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 totaled $12.2 million or 10.37% of the Banks' total loan
portfolio at March 31, 1998. Consumer loans, while generally having higher
yields than residential mortgage loans, involve a higher credit risk.
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
loan to value. These loans are credit lines with a maximum loan term of 10
years. The interest rate on these lines of credit adjusts monthly at a rate
based on prime. At March 31, 1998, the outstanding home equity loan balance was
$3.4 million.
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 in
the Banks' respective market areas. Commercial loans are adjustable rate loans
and generally secured by equipment, accounts receivable and inventory.
Commercial loans totaled approximately $7.9 million or 6.73% of the Banks' total
loan portfolio at March 31, 1998.
8
<PAGE>
Analysis of Loan Portfolio
- --------------------------
The following table sets forth the composition of the Banks' mortgage and other
loan portfolios in dollar amounts and in percentages at the dates indicated. At
March 31, 1998, the Banks had no concentrations of loans exceeding 10% of total
loans that are not disclosed below.
<TABLE>
<CAPTION>
At March 31,
--------------------------------------
1998 1997
------------------ ------------------
Percent Percent
of of
Amount Total Amount Total
--------- ------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage Loans:
One-to-four family residential $ 86,965 73.99% $ 95,451 75.25%
Commercial real estate 15,179 12.91 14,590 11.50
-------- ------ -------- ------
Total mortgage loans 102,144 86.90 110,041 86.75
-------- ------ -------- ------
Consumer loans:
Savings accounts 880 .75 927 .73
Other 11,309 9.62 11,480 9.05
-------- ------ -------- ------
Total consumer loans 12,189 10.37 12,407 9.78
-------- ------ -------- ------
Commercial loans 7,912 6.73 7,804 6.15
-------- ------ -------- ------
Total loans receivable 122,245 104.00 130,252 102.68
-------- ------ -------- ------
Less:
Undisbursed portion of
mortgage loans 3,459 2.94 2,523 1.99
Escrow, net 143 .12 177 .14
Allowance for loan losses 1,106 .94 733 .58
Net deferred loan costs (5) - - (33) (.03)
Discount on loans purchased 1 - - 3 - -
-------- ------ -------- ------
4,704 4.00 3,403 2.68
-------- ------ -------- ------
Loans receivable, net $117,541 100.00% $126,849 100.00%
======== ====== ======== ======
</TABLE>
9
<PAGE>
Loan Maturity
- -------------
The following table shows the maturity of the Banks' loan portfolio at March 31,
1998, based upon contractual maturity.
<TABLE>
<CAPTION>
March 31, 1998
----------------------------------------------------------
One-to-Four
Family
Residential Commercial Consumer Commercial
Loans Real Estate Loans Loans Total
----------- ------------ -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
(In thousands)
Amounts Due:
One year or less $42,093 $ 7,952 $ 3,432 $6,243 $ 59,720
One year through 5 years 27,747 3,351 7,459 1,264 39,821
After 5 years 17,125 3,876 1,298 405 22,704
------- ----------- -------- ---------- ---------
$86,965 $15,179 $12,189 $7,912 122,245
======= =========== ======== ==========
Less:
Undisbursed portion of mortgages 3,459
Discount on loans purchased 1
Net deferred loan fees (cost) (5)
Allowance for loan losses 1,106
Escrow, net 143
---------
Loans receivable, net $117,541
=========
</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, 1998, the dollar amount of loans due
after March 31, 1999, based upon contractual maturity dates, and whether such
loans have fixed interest rates or adjustable interest rates:
<TABLE>
<CAPTION>
DUE AFTER MARCH 31, 1999
------------------------------
FIXED ADJUSTABLE TOTAL
-------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Mortgage Loans:
One-to-four family $12,487 $32,385 $44,872
Commercial real estate 1,928 5,299 7,227
------- ------- -------
Total mortgage loans 14,415 37,684 52,099
------- ------- -------
Consumer loans 8,757 - - 8,757
------- ------- -------
Commercial loans 617 1,052 1,669
------- ------- -------
Total loans receivable $23,789 $38,736 $62,525
======= ======= =======
</TABLE>
10
<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, 1998, the
Banks had no restructured loans within the meaning of Financial Accounting
Standards Board Statement 15. The following table is an analysis of the Banks'
nonperforming assets.
<TABLE>
<CAPTION>
At March 31,
-----------------
1998 1997
------- --------
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans $1,207 $ 719
Accruing loans delinquent 90 days or more:
Mortgage loans 397 1,020
Consumer loans 128 116
Commercial loans 3 30
------ ------
Total non-performing loans 1,735 1,885
Real estate owned 665 131
------ ------
Total non-performing assets $2,400 $2,016
====== ======
Allowance for uncollected interest $ 70 $ 38
====== ======
Non-performing assets to total assets 1.32% 1.13%
======= =======
Non-performing loans to total loans, net 1.48% 1.49%
======= =======
</TABLE>
At March 31, 1998, 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,
1998, would have increased by approximately $70,000, had interest income been
recorded under the original terms of the loan. Interest income on non-
performing loans included in interest income for fiscal 1998 was approximately
$44,000.
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
of the allowance for loan losses is based on an analysis of the composition of
the loan portfolio, current economic conditions, past loss histories 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.
11
<PAGE>
The following table sets forth information regarding the Banks' allowance for
loan losses for the periods and at the dates indicated.
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------
1998 1997
------------ ----------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 733 $ 621
Provision for loan losses 532 186
Charge-offs:
Mortgage loans 87 41
Consumer loans 137 191
Commercial loans 1 10
------ ------
Total Charge-offs 225 242
------ ------
Recoveries:
Mortgage loans 9 25
Consumer loans 50 137
Commercial loans 7 6
------ ------
Total Recoveries 66 168
------ ------
Charge-offs, net of recoveries 159 74
------ ------
Balance at end of period $1,106 $ 733
====== ======
Ratio of allowance for loan losses to total loans
receivable at the end of period .94% .58%
====== ======
Ratio of allowance for loan losses to non-performing
loans (1) 63.75% 38.89%
====== ======
Ratio of allowance for loan losses to non-performing
assets (2) 46.08% 36.36%
====== ======
Ratio of net charge-offs during the period to average
loans outstanding during the period .13% .06%
====== ======
</TABLE>
(1) Non-performing loans are comprised of accruing loans delinquent 90 days or
more and nonaccrual loans.
(2) Non-performing assets include non-performing and nonaccrual loans and real
estate owned.
12
<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,
-----------------------------------
1998 1997
----------------- ----------------
Amount Percent Amount Percent
------- -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage $ 587 53.1% $392 53.5%
Consumer 301 27.2 173 23.6
Commercial 218 19.7 168 22.9
------ ----- ---- -----
Total $1,106 100.0% $733 100.0%
====== ===== ==== =====
</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 its' federal regulators, which can order the establishment
of additional general or specific loss allowances. At March 31, 1998, the Banks
had $97,000 of assets classified as loss, no assets classified as doubtful, $1.4
million of assets classified as substandard, and $360,000 of assets designated
as special mention. The Banks' total adversely classified assets (defined as
those assets classified as substandard, doubtful and loss) represented 1.0% of
the Banks' total assets at March 31, 1998. At that date, primarily all of the
Banks' classified assets were one-to-four family residences and commercial
mortgage loans in the Banks' market areas.
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, 1998, ranging from 6.2%
to 9.5%. At March 31, 1998, mortgage-backed securities totaled $12.7 million,
or 7.0% of total assets.
At March 31, 1998, the Banks had 26.6% 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,
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.
13
<PAGE>
The table below sets forth certain information regarding the liquidity and the
fair value, weighted average yields and contractual maturities of the Banks'
investment securities, both held to maturity and available for sale, at March
31, 1998. 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
-------------------- -------------------- -------------------- --------------------
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
--------- --------- --------- --------- --------- --------- --------- ---------
(Dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing deposits $ 5,592 5.45% $ - - - -% $- - - - % $ - - - - %
Federal funds 19,050 5.40 - - - - - - - - - - - -
U.S. Government and agency
securities (2) 4,362 5.49 9,172 6.54 893 6.66 11,495 7.03
State, County and Municipal
securities - - - - 365 5.65 600 5.45 - - - -
FHLB-Atlanta stock (1) 326 7.25 - - - - - - - - 937 7.25
Federal Reserve stock 128 6.02 - - - - - - - - - - - -
</TABLE>
<TABLE>
Total
-----------------------------
Weighted
Amortized Fair Average
Cost Value Yield
--------- ------- ---------
<S> <C> <C> <C>
Interest bearing deposits $ 5,592 $ 5,592 5.45%
Federal funds 19,050 19,050 5.40
U.S. Government and agency
securities (2) 25,922 26,084 6.58
State, County and Municipal
securities 965 1,007 5.53
FHLB-Atlanta stock (1) 1,263 1,263 7.25
Federal Reserve stock 128 128 6.02
</TABLE>
(1) The $326 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 to 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.
14
<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 currently have
two ATM facilities and issue ATM cards on checking accounts. 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,
--------------------------------
1998 1997
--------------- ---------------
Amount Rate Amount Rate
-------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Transaction accounts $ 27,377 1.56% $ 22,813 1.71%
Passbook accounts 25,764 3.07 26,030 3.20
Certificates 104,672 5.77 103,411 5.79
</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 31,1998.
<TABLE>
<CAPTION>
Maturity Period Amount
- --------------- --------------
(In thousands)
<S> <C>
Three months or less $ 3,966
Over three through six months 2,040
Over six through 12 months 6,736
Over 12 months 7,423
-------
Total $20,165
=======
</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.
15
<PAGE>
At March 31, 1998, there were no outside borrowings. First Federal has
available a fed fund line of credit and reverse repurchase line which were not
used during the year. The Banks had internal borrowings totaling $950,000 at
March 31, 1998, which represented a loan associated with the Employee Stock
Ownership Plan ("ESOP"). The Company is the lender on the ESOP loan. The loan
is eliminated in consolidation. See Note 8 of the Notes to Consolidated
Financial Statements for additional information on borrowings.
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, Alabama metropolitan area, in which the
primary service areas of the 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 bank holding company, the Company is 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. The Company formerly was also
registered as a savings and loan holding company with the OTS; however,
legislation recently enacted by the United States Congress eliminated OTS
regulation and supervision of holding companies that, like the Company, have
both bank and savings association subsidiaries.
First Federal, as a federal savings bank, is subject to regulation,
supervision and regular examination by the OTS. First State, as an Alabama
commercial bank that is a member of the Federal Reserve System, is subject to
regulation, supervision and regular examination both by the State 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.
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 ratio of total capital to
risk-weighted assets ("total risk-based capital ratio") of less than 8% or a
ratio of Tier 1 capital to risk-weighted assets ("Tier 1 risk-based capital
ratio") of less than 4% (or 3% if the institution is rated Composite 1 under the
CAMELS examination rating system). See "Prompt Corrective Regulatory Action."
16
<PAGE>
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 certain intangible assets arising from
prior regulatory accounting practices. Tangible capital has the same definition
as core capital but 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, 1998, 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, which
ranges from 0% to 100% as assigned by the OTS capital regulations based on the
risks the OTS believes are inherent in the type of asset. Comparable risk
weights are assigned to off-balance sheet assets.
The OTS risk-based capital regulation also includes an interest rate risk
("IRR") component that requires savings institutions with greater than normal
IRR, when determining compliance with the risk-based capital requirement, to
maintain additional total capital. The OTS has, however, indefinitely deferred
enforcement of its IRR requirments.
At March 31, 1998, First Federal's tangible capital ratio was 7.7%; its core,
or "leverage" capital ratio was 7.7%; its Tier 1 risk-based capital ratio was
13.3%; and its total risk-based capital ratio was 14.3%. Accordingly, it
satisfied all minimum regulatory capital requirements.
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 CAMELS examination rating system. State member banks not rated
composite 1 under the CAMELS 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.
At March 31, 1998, First State's leverage ratio, Tier 1 risk-based capital
ratio, and total risk-based capital ratio were 7.1%, 12.3% and 13.5%,
respectively. Accordingly, it satisfied all minimum regulatory capital
requirements.
17
<PAGE>
See Note 16 of the Notes to Consolidated Financial Statements for additional
information related to regulatory capital.
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. Under the
FDIC's risk-based deposit insurance assessment system, the insurance assessment
rate for an insured depository institution depends on the assessment risk
classification assigned to the institution. Institutions are assigned by the
FDIC to one of three capital groups -- well-capitalized, adequately capitalized,
or undercapitalized -- and, within each capital category, to one of three
supervisory subgroups.
For the first half of 1997, the FDIC set the effective insurance assessment
rates for both BIF- and SAIF-insured institutions at zero to 27 basis points.
In addition, SAIF-insured institutions will be required, until December 31,
1999, to pay assessments to the FDIC at an annual rate of between 6.0 and 6.5
basis points to help fund interest payments on certain bonds issued by the
Financing Corporation ("FICO"), an agency of the federal government established
to recapitalize the predecessor to the SAIF. During this period, BIF member
banks will be assessed for payment of the FICO obligations at one-fifth the
annual rate applicable to SAIF member institutions. After December 31, 1999,
BIF and SAIF members will be assessed at the same rate (currently estimated at
approximately 2.4 basis points) to service the FICO obligations.
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 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 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
required 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 assets 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.
In addition, on July 10, 1995, the federal banking agencies, including the OTS
and 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 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 with respect to
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 falls 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,
1998, both First Federal and First State were "well-capitalized" as defined by
the regulations.
18
<PAGE>
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
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 impose
restrictions on 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. See "-- Prompt
Corrective Regulatory Action."
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, 1998, First Federal was a Tier 1 Institution.
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
$4.7 million of transaction accounts, and reserves equal to 3% must be
maintained on the next $47.8 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, 1998, 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,
qualifying mortgage-related securities and mortgage loans, securities of certain
mutual funds, and specified United Sates government, state or federal agency
obligations) equal to the monthly average of not less than a specified
percentage (currently 4%) of its net withdrawable savings deposits plus short-
term borrowings. The average daily liquidity ratio of First Federal for the
month ended March 31, 1998, was 20.6%. Monetary penalties may be imposed for
failure to meet liquidity requirements. First State is not subject to these or
any similar liquidity requirements.
19
<PAGE>
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, 1998 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, 1998, First
Federal had no advances outstanding from the FHLB of Atlanta.
Qualified Thrift Lender Test. The Home Owners' Loan Act (the "HOLA") and OTS
regulations require all savings institutions, such as First Federal, to satisfy
one of two Qualified Thrift Lender ("QTL") tests or to suffer a number of
sanctions, including restrictions on activities. To qualify as a QTL, a savings
institution must either (i) be deemed a "domestic building and loan association"
under the Internal Revenue Code (the "Code") by maintaining at least 60% of its
total assets in specified types of assets, including cash, certain government
securities, loans secured by and other assets related to residential real
property, educational loans, and investments in premises of the institution or
(ii) satisfy the HOLA's QTL test by maintaining at least 65% of "portfolio
assets" in certain "Qualified Thrift Investments".
A savings institution must maintain its status as a QTL on a monthly basis in
nine out of every 12 months. An initial 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 its FHLB. If a savings institution does not requalify under the
QTL test within the three-year period after it fails the QTL test, it would be
required to terminate any activity not permissible for a national bank and repay
as promptly as possible any outstanding advances from its FHLB. At March 31,
1998, First Federal qualified as a QTL. The QTL test is not applicable to First
State.
Regulation and Supervision of the Company
- -----------------------------------------
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 FRB and to furnish such additional
information as the FRB may require pursuant to the BHC Act.
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 risks, it will consider 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.
At March 31, 1998, the Company complied with all of its regulatory capital
requirements, with a leverage ratio of 9.0%, a Tier 1 risk-based capital ratio
of 16.3%, and a total risk-based capital of 17.4%.
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, such as the operation of a
savings association, 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
constitutes a serious risk to the financial safety, soundness or stability of
any bank subsidiary of that holding company.
20
<PAGE>
Restrictions on Acquisitions. 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 the FRB prior to acquiring control of the
Company. For purposes of 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 Acquisition. 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 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 "opt-in" legislation that
expressly authorizes Alabama banks to participate in interstate mergers in
accordance with the Riegle-Neal Act.
In addition, the State of Alabama has enacted reciprocal interstate
legislation that permits savings institutions located 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 authorized
interstate thrift acquisitions in one form or another. In addition, OTS
regulators generally permit federal savings institutions, like First Federal, to
establish branches in any state or states of the United State and its
territories. 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 Alabama.
Dividends. The FRB has the power to prohibit dividends by bank holding
companies if their actions constitute unsafe or unsound practices. Under
applicable FRB policy statement, a bank holding company should pay cash
dividends only to the extent that 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 are 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. The
nature and timing of any future changes in the regulatory policies of the FRB
and other federal agencies and their impact on the Banks are not predictable.
21
<PAGE>
Pending Legislation
- -------------------
Legislation approved by the United States House of Representatives and
currently pending before the Senate would, if enacted, significantly alter the
competitive structure of the nation's financial services industry by, among
other things, expanding the nonbanking powers of the bank holding companies and
repealing the statutory separation of the commercial banking industry from
investment banking. Based on the provisions of the pending legislation, the
Company does not believe that the bill's enactment would materially affect the
business of the Company or of the Banks.
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, 1998, 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.
Corporate Alternative Minimum Tax
- ---------------------------------
The Banks are subject to taxes based on alternative minimum taxable income
("AMTI") at a 20% tax rate. AMTI 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). See Note 13 of the Notes to Consolidated Financial
Statements for additional information related to income taxes and the bad debt
reserve.
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, 1998, First Federal had 46 full-time employees and 3 part-time
employees. At March 31, 1998, First State had 24 full-time employees and 7
part-time employees. The employees are not represented by a collective
bargaining unit, and the Banks consider their relationship with the employees to
be good.
22
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY:
------------------------
First Federal conducts its business through its main office located in Bessemer,
Alabama, and four branch offices located in Pelham, Hueytown, Hoover and Vance,
Alabama. First State conducts its business through 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 of the Banks' offices as of March 31, 1998, which totaled a net book value
of $2,922,000. See also Notes 1 and 4 of the "Notes to Consolidated Financial
Statements."
<TABLE>
<CAPTION>
Leased
Or Date Net Book Value at
First Federal Locations Owned Opened March 31, 1998
- -------------------------------- ---------- ------ ------------------
(In thousands)
<S> <C> <C> <C>
Main Office -
1630 Fourth Avenue, No. Owned 1961 $926 (3)
Bessemer, Alabama 35020
Branches -
1351 Hueytown Road
Hueytown, Alabama 35023 Owned 1966 30 (3)
Food World Plaza
Pelham, Alabama 35124 Leased (1) 1973 N/A (2)
1604 Montgomery Hwy.
Hoover, Alabama 35216 Owned 1992 495 (3)
18704 Highway 11, North
Vance, Alabama 35490 Owned 1997 462 (3)
Other fixed assets, net 324
First State Locations
- --------------------------------
Main Office -
Main Street Owned 1965 231 (3)
West Blocton
Branches -
125 Birmingham Rd Owned 1979 137 (3)
Centreville, Alabama 35042
Highway 5 Owned 1985 206 (3)
Woodstock, Alabama 35188
Other fixed assets, net 111
------
Total $2,922
======
</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.
23
<PAGE>
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, 1998, 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 management to
result in a material loss.
For a further discussion of legal matters, see Note 10 to the "Notes to
Consolidated Financial Statements" in the Company's 1998 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, 1998.
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:
-------------------------------------------------------------
The information contained under the caption "Common Stock Data" in the Annual
Report is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
----------------------------------------------------------
The information contained in the section captioned "Management's Discussion and
Analysis" in the Annual Report is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS:
---------------------
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 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE:
- ---------------------
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT:
- --------------------------------------------------
The information contained under the section captioned "Proposal I--Election of
Directors" in the Company's definitive proxy statement for the Company's 1998
annual meeting of stockholders (the "Proxy Statement") is incorporated herein by
reference. Information regarding Form 3, 4 or 5 filers is incorporated by
reference to the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance."
ITEM 10. EXECUTIVE COMPENSATION:
-----------------------
The information contained in the sections captioned "Proposal I--Election of
Directors --Executive Compensation and Other Benefits" and "--Directors'
Compensation" in the Proxy Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
---------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners -
Information required by this item is incorporated herein by reference to
the section captioned "Security Ownership of Certain Beneficial Owners and
Management."
24
<PAGE>
(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 "Security
Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement.
(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 12. 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 -- Transactions with
Management" in the Proxy Statement.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K:
---------------------------------------
(a) Exhibits-The following is a list of exhibits filed as part of this Annual
Report on Form 10-KSB and is also the Exhibit Index
3.1 Certificate of Incorporation of FirstFed Bancorp, Inc. (A)
3.2 Bylaws of FirstFed Bancorp.Inc. (A)
4.0 Stock Certificate of FirstFed Bancorp, Inc. (A)
10.01 First Federal Savings Bank Outside Directors' Recognition and
Retention Plan and Trust Agreement (C)
10.02 First Federal Savings Bank Recognition and Retention Plan and Trust
Agreement "B" (C)
10.03 FirstFed Bancorp, Inc. 1991 Incentive Stock Option Plan (C)
10.04 FirstFed Bancorp, Inc. 1991 Stock Option Plan for Outside Directors
as amended (C)
10.05 Form of Indemnification Agreement (B)
10.06 FirstFed Bancorp, Inc. Deferred Compensation Plan, as amended
(filed herewith)
10.07 FirstFed Bancorp, Inc. Incentive Compensation Plan, as amended
(filed herewith)
10.08 Employment Agreement dated January 1, 1996 by and between FirstFed
Bancorp, Inc. and B. K. Goodwin, III, as amended (filed herewith)
10.09 Employment Agreement dated January 1, 1996 by and between First
Federal Savings Bank and B. K. Goodwin, III, as amended (filed
herewith)
10.10 Employment Agreement dated January 1, 1996 by and between FirstFed
Bancorp, Inc., First Federal Savings Bank and C. Larry Seale, as
amended (filed herewith)
10.11 Employment Agreement dated January 1, 1996 by and between FirstFed
Bancorp, Inc., First Federal Savings Bank and Lynn J. Joyce, as
amended (filed herewith)
10.12 Severance Agreement by and between FirstFed Bancorp, Inc., First
Federal Savings Bank and James E. Smith (D)
10.13 Severance Agreement by and between FirstFed Bancorp, Inc., First
Federal Savings Bank and Brenda M. Baswell (D)
10.14 FirstFed Bancorp, Inc. 1995 Stock Option and Incentive Plan, as
amended (filed herewith)
11.0 Statement of Computation of Earnings Per Share (filed herewith)
13.0 1998 Annual Report - Filed herewith only as to those portions of
the Annual Report to stockholders for the year ended March 31,
1998, which are expressly incorporated herein by reference.
21.0 Subsidiaries of the Registrant (filed herewith)
23.0 Consent of Independent Public Accountants (filed herewith)
A. Incorporated herein by reference into this document from the
Exhibits of the Form S-1, Registration Statement, filed on July 3,
1991.
B. Incorporated herein by reference into this document from the Annual
Report on Form 10-K for the year ended March 31, 1993.
C. Incorporated herein by reference into this document from the Annual
Report on Form 10-K for the year ended March 31, 1994.
D. Incorporated herein by reference into this document from the Annual
Report on Form 10-K for the year ended March 31, 1996.
(b) There were no reports on Form 8-K filed during the quarter ended March 31,
1998, except for an 8-K dated April 24, 1998, to report the change in
fiscal year-end from March 31 to December 31.
25
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15 (d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
aurthorized.
FIRSTFED BANCORP, INC.
Date: /s/ B. K. Goodwin, III
------------------------ ----------------------------------
B. K. Goodwin, III
Chairman of the Board, Chief
Executive Officer and President
In accordance with the 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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ B. K. Goodwin, III Chairman of the Board, Chief Date: June 24, 1998
- ------------------------------- Executive Officer and
B. K. Goodwin, III President
/s/ Lynn J. Joyce Chief Financial Officer, Vice Date: June 24, 1998
- ------------------------------- President, Secretary and
Lynn J. Joyce Treasurer
/s/ Fred T. Blair Director Date: June 24, 1998
- -------------------------------
Fred T. Blair
/s/ A. W. Kuhn Director Date: June 24, 1998
- -------------------------------
A. W. Kuhn
/s/ James B. Koikos Director Date: June 24, 1998
- -------------------------------
James B. Koikos
/s/ Malcolm E. Lewis Director Date: June 24, 1998
- -------------------------------
Malcolm E. Lewis
/s/ E. H. Moore, Jr. Director Date: June 24, 1998
- -------------------------------
E. H. Moore, Jr.
/s/ James E. Mulkin Director Date: June 24, 1998
- -------------------------------
James E. Mulkin
/s/ Robert E. Paden Director Date: June 24, 1998
- -------------------------------
Robert E. Paden
/s/ G. Larry Russell Director Date: June 24, 1998
- -------------------------------
G. Larry Russell
</TABLE>
26
<PAGE>
EXHIBIT 10.06
FIRSTFED BANCORP, INC.
DEFERRED COMPENSATION PLAN
------------------
As Amended and Restated
Effective June 17, 1998
------------------
The Board of Directors of FirstFed Bancorp, Inc. has amended and restated
this Plan, effective June 17, 1998, and in the process has merged into this Plan
both the First Federal Savings Bank Directors' Retirement Plan and the First
Federal Savings Bank Deferred Compensation Plan.
ARTICLE I
DEFINITIONS
-----------
The following words and phrases, when used in the Plan with an initial
capital letter, shall have the meanings set forth below unless the context
clearly indicates otherwise.
1.1 "Account" shall mean a bookkeeping account maintained by the Company
in the name of the Participant.
1.2 "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as the terms are defined in Section 424(e) and (f),
respectively, of the Internal Revenue Code of 1986, as amended.
1.3 "Bank" shall mean First Federal Savings Bank, and any successor to
its interest.
1.4 "Beneficiary" shall mean the person or persons whom a Participant may
designate as the beneficiary of the Participant's Benefits under Article II (and
shall mean the Participants' estate in the event of a valid designation). A
Participant's election of a Beneficiary shall be made on the Distribution
Election Form, shall be revocable by the Participant during his or her lifetime,
and shall be effective only upon its delivery to, and acceptance by, the
Committee, which acceptance shall be presumed unless, within ten business days
of delivery of the Participant's election, the Committee provides the
Participant with a written notice detailing the reasons for its rejection.
1.5 "Benefits" shall mean any and all benefits that are or may become
payable under Article II of the Plan.
1.6 "Board" shall mean the Board of Directors of the Company.
1.7 "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
voting stock of the Bank or the Company thereof, (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
<PAGE>
management or policies of the Bank or 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), or (iv) during any period of two consecutive years,
individuals (the "Continuing Directors") who at the beginning of such period
constitute the Board of Directors of the Bank or of the Company (the "Existing
Board") 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
Existing Board was approved by a vote of at least two-thirds of the Continuing
Directors then in office shall be considered a Continuing Director. For purposes
of this paragraph 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.
1.8 "Committee" shall mean any committee that the Board may appoint to
administer and effectuate the Plan, and shall mean the Board in the absence, at
any time, of a duly appointed Committee. The Committee shall act only by a
majority of its members, and may act through meetings or written consents.
Notwithstanding the foregoing, the Board may at any time act in lieu of the
Committee with respect to any action that the Committee may take pursuant to the
Plan.
1.9 "Common Stock" shall mean the common stock of the Company.
1.10 "Company" shall mean FirstFed Bancorp, Inc., and any successor to its
interest.
1.11 "Deferral Election Form" shall mean the form attached as Exhibit "A."
1.12 "Director" shall mean a member of the Board.
1.13 "Distribution Election Form" shall mean the form attached hereto as
Exhibit "B."
1.14 "Effective Date" shall mean June 17, 1998.
1.15 "Employee" shall mean any person who is employed by the Company, the
Bank, or an Affiliate.
1.16 "Investment Election Form" shall mean the form attached as Exhibit
"C."
1.17 "Just Cause" shall mean misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violations of any law, rule or regulation (other than traffic violations or
similar offenses), or final cease-and-desist orders.
1.18 "Participant" shall mean (i) an individual who serves as a Director
of the Company, the Bank, or an Affiliate on or after the Effective Date,
regardless of whether or not the Director is an Employee, and (ii) any Employee
whom the Board has specifically selected for participation in the Plan, provided
that an Employee shall be eligible for Plan participation only if the Employee
2
<PAGE>
is a member of a select group of the Bank's or the Company's management or
highly compensated employees for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended from time to time.
1.19 "Plan" shall mean this FirstFed Bancorp, Inc. Deferred Compensation
Plan.
1.20 "Plan Year" shall mean the Company's fiscal year.
1.21 "Special Distribution Election" shall mean the form attached hereto
as Exhibit "D".
1.22 "Trust" shall mean the trust created under the Trust Agreement.
1.23 "Trust Agreement" shall mean the agreement entered into between the
Company and the Trustee, pursuant to the terms hereof.
1.24 "Trustee" shall mean the person(s) or entity appointed by the Board
pursuant to the Trust Agreement to hold legal title to the Plan assets for the
purposes set forth herein.
1.25 "Year of Service" shall mean each full year of a Director's service
on the Board (measured from the date the Director joined the Board, whether that
date is before or after the Effective Date).
ARTICLE II
CREDITS TO ACCOUNTS
-------------------
2.1 On the Effective Date. The following Participants shall have their
Accounts credited on the Effective Date with the amounts listed below, with
"Deferrals" referring to credits made under both Bank's and the Company's
current deferred compensation plans through the Effective Date:
<TABLE>
<CAPTION>
3/31/98 6/17/98 Total Credit
Participant Deferrals Retirement Credit to Account
----------- --------- ----------------- ------------
<S> <C> <C> <C>
</TABLE>
2.2 Future Credits. Each Director who first joins the Board after the
Effective Date shall have his or her Account credited with $71,000. No
Participant may receive more than ten years of credits to his or her Account.
3
<PAGE>
2.3 Elective Deferrals. Prior to each Plan Year, each Director may elect
to defer the receipt of all or part of his or her future fees (including
retainers), and each other Participant may elect to defer up to 25% of salary or
100% of bonus compensation. Such elections shall be (i) made on the Deferral
Election Form, and (ii) effective on the first day of the Plan Year following
their acceptance by the Committee, provided that elections made within 30 days
of either the Effective Date, or a Participant's initial service with the Bank
as an Employee or a Director, shall be effective as of the first day of the
month following their acceptance by the Committee. Any such elections shall be
irrevocable until the end of the Plan Year in which they are made, except that
the Board may permit suspension of a Participant's deferral election in the
event of "hardship" within the meaning of Article III.
2.4 Investment Return. From the date of any credits through distribution
under the terms of the Plan, each Participant's Account shall be credited with a
rate of return based on the Participant's selection from the choices presented
on the Investment Election Form (and in the absence of a valid election, based
on the interest rate paid by the Bank on one-year certificates of deposit as of
the first day of each Plan Year). A Participant may change his or her investment
selection on a prospective basis only, effective as of the first day of the
calendar quarter that begins after the Committee accepts a new election. If a
Participant has, before the Effective Date, selected a measure for the rate of
return on compensation deferred through the Bank's or the Company's deferred
compensation plans, such election shall be honored and remain in effect until a
superseding election becomes effective.
2.5 Short-swing Profit Rule. If a Participant elects to have his or her
Account appreciate or depreciate based on the Common Stock fund, the
effectiveness of any investment election that the Participant makes shall be
deferred until the next following date on which said election would not result
in an "opposite way" transaction for purposes of SEC Rule 16b-3. For purposes of
this paragraph, an "opposite way" transaction shall be defined as an election
that affects a "sale" of the Common Stock by a Participant within six months of
an election that affects a "purchase" (and vice versa), whether under this Plan
or another plan maintained by the Company or the Bank. This six-month "opposite
way" rule will not apply, however, if the Participant elects to receive a
distribution in connection with his or her death or termination of employment.
2.6 Vesting; Forfeiture for Just Cause. Amounts credited to
Participants' Accounts shall be fully vested at all times, except that the
portion of the Participant's Account that is attributable to June 17, 1998
Retirement Credits listed in Sections 2.1 hereof shall (i) be automatically
forfeited in the event that the Participant's service with the Bank or the
Company terminates for Just Cause, and (ii) become vested according to the
following schedule:
4
<PAGE>
<TABLE>
<CAPTION>
Years of Service Vested Interest
---------------- ---------------
<S> <C>
Less than 3 0%
At least 3 but fewer than 6 50%
At least 6 but fewer than 10 75%
10 or more 100%
</TABLE>
ARTICLE III
DISTRIBUTION FROM ACCOUNTS; ELECTION FORMS
------------------------------------------
3.1 General Rule. The Company shall distribute the vested balance
credited to a Participant's Account in accordance with the Participant's
Distribution Election Form (subject to Section 2.6 hereof). In the absence of a
valid election, the Company shall distribute the Participant's Account in
substantially equal annual installments over a period of five (5) years,
beginning on the first day of the second month following the Participant's
termination from the Bank or the Company for any reason other than Just Cause.
The Participant may elect on the Distribution Election Form to receive his or
her distribution in cash or Common Stock (but only to the extent that shares of
Common Stock are then held in the Trust for the Participant's benefit.)
3.2 Distribution Elections. To be effective, a Participant's initial
Distribution Election Form must be submitted either (i) more than one year
before the date on which the Participant's service as a Director or Employee
terminates for any reason, (ii) within 30 days of the Plan's Effective Date or
the Participant's initial service with the Company or the Bank as a Director or
an Employee, or (iii) more than 90 days before a Change in Control closes.
Distribution elections made pursuant to this Article III shall become
irrevocable one year before the Participant first becomes entitled to receive a
distribution pursuant to this Article III. Nevertheless, Beneficiary
designations made pursuant to executed Distribution Election Forms shall be
revocable during the Participant's lifetime and the Participant may, by
submitting an effective superseding Distribution Election Form at any time or
from time to time, prospectively change the designated Beneficiary and the
manner of payment to a Beneficiary.
3.3 Hardship. If the Participant or a member of the Participant's
immediate family (or a legal dependent of the Participant) should suffer one or
more of the following unforeseen hardships, the Participant may apply to the
Board for a withdrawal of all or part of his or her Account:
(i) extraordinary medical expenses, or
(ii) other unforeseeable and severe financial hardships that the Company's
Board of Directors may generally recognize.
5
<PAGE>
The Board shall have sole and complete discretion over whether or not to
grant a Participant's request for a hardship withdrawal, provided that (i) the
Board shall make its decisions in a uniform and nondiscriminatory manner, and
(ii) the Participant who requests a withdrawal shall abstain from participation
in, and voting on, such request. If the Board approves a withdrawal, the Company
shall pay the approved amount to the Participant as soon as practicable, and
shall treat said amount as constituting a pro rata reduction in any deemed
investment fund for the Participant's Account (unless the Participant's
application for a withdrawal specifies its payment from a particular fund).
3.4 Change in Control. In the event of a Change in Control each
Participant's Account shall be due and payable within ten days following such
Change in Control, unless the Participant has delivered a superseding Special
Distribution Election, to the Company at least 90 days before the closing date
of the Change in Control. A Participant may amend a Special Distribution
Election made pursuant to Article III at any time and from time to time prior to
the date that is 90 days before a Change in Control, except that the Participant
may at any time change a designation of a Beneficiary and term of payments for
death benefits. Once a Change in Control closes, subsequent appreciation or
depreciation in unpaid amounts will be determined in accordance with the
investment elections made in the Participant's Investment Election Form.
3.5 Death Benefits. If a Participant dies before receiving all Benefits
payable pursuant to the preceding paragraph, then the remaining balance of the
Participant's Account shall be distributed in a lump sum payment of cash and
Common Stock (if applicable) to the Participant's designated Beneficiary not
later than the first day of the second month following the date of the
Participant's death; provided that a Participant may specify on the Distribution
Election Form a distribution period that effectuates the annual installment
payments selected by the Participant (with payments made as though the
Participant survived to collect all benefits and retired on the date of his or
her death if payments had not previously commenced).
ARTICLE IV
SOURCE OF BENEFITS
------------------
4.1 General Rule. The rights of the Participants under this Plan and of
their Beneficiaries (if any) shall be solely those of unsecured creditors of the
Company. Benefits shall constitute an unfunded, unsecured promise by the Company
to pay such payments in the future, as and to the extent such Benefits become
payable. Benefits shall be paid from the general assets of the Company, and no
person shall, by virtue of this Plan, have any interest in such assets, other
than as an unsecured creditor of the Company. For any fiscal year during which a
Trust is maintained, (i) the Trustee shall inform the Board annually prior to
the commencement of each fiscal year as to the manner in which such Trust assets
shall be invested, and (ii) the Board shall, as soon as practicable after the
end of each fiscal year of the Company, provide the Trustee with a schedule
specifying the amounts payable to each Participant, and the date for making such
payments.
6
<PAGE>
4.2 Change in Control. In the event of a Change in Control, the Company
shall contribute to the Trust an amount sufficient to provide the Trust with
assets having an overall value equivalent to the value of the aggregate Account
balances under the Plan.
ARTICLE V
ASSIGNMENT
----------
Except as otherwise provided by this Plan, it is agreed that neither the
Participant nor his or her Beneficiary nor any other person or persons shall
have any right to commute, sell, assign, transfer, encumber and pledge or
otherwise convey the right to receive any Benefits hereunder, which Benefits and
the rights thereto are expressly declared to be nontransferable. Notwithstanding
the foregoing, or any other provision of this Plan, a Participant may transfer
all or any part of his or her Account, and the rights associated therewith, to
his or her spouse, lineal ascendants, lineal descendants, or to a duly
established trust for the benefit of one or more of these individuals. Plan
Benefits so transferred may thereafter be transferred only to the Participant
who was originally entitled to receive said Benefits or to an individual or
trust to whom the Participant could have initially transferred the Benefits
pursuant to this Article V. The Benefits, and the rights thereto, which are
transferred pursuant to this Article V shall be exercisable by the transferee
according to the same terms and conditions as applied to the Participant.
ARTICLE VI
NO RETENTION OF SERVICES
------------------------
The Benefits payable under this Plan shall be independent of, and in
addition to, any other compensation payable by the Company to a Participant,
whether in the form of fees, bonus, retirement income under employee benefit
plans sponsored or maintained by the Company or otherwise. This Plan shall not
be deemed to constitute a contract of employment between the Company and any
Participant.
ARTICLE VII
REORGANIZATION
--------------
The Company agrees that it will not merge or consolidate with any other
corporation or organization, or permit its business activities to be taken over
by any other organization, unless and until the succeeding or continuing
corporation or other organization shall expressly assume the rights and
obligations of the Company herein set forth. The Company further agrees that it
will not cease its business activities or terminate its existence, other than as
heretofore set forth in this Article VII, without having made adequate provision
for the fulfillment of its obligation hereunder.
7
<PAGE>
ARTICLE VIII
AMENDMENT AND TERMINATION
-------------------------
The Board may amend or terminate the Plan at any time, provided that no
such amendment or termination shall, without the written consent of an affected
Participant, alter or impair any accrued rights of the Participant under the
Plan.
ARTICLE IX
STATE LAW
---------
This Plan shall be construed and governed in all respects under and by the
laws of the State of Alabama, except to the extent preempted by federal law. If
any provision of this Plan shall be held by a court of competent jurisdiction to
be invalid or unenforceable, the remaining provisions hereof shall continue to
be fully effective.
ARTICLE X
HEADINGS; GENDER
----------------
Headings and subheadings in this Plan are inserted for convenience and
reference only and constitute no part of this Plan. This Plan shall be
construed, where required, so that the masculine gender includes the feminine.
ARTICLE XI
INTERPRETATION OF THE PLAN
--------------------------
The Board shall have sole and absolute discretion to administer, construe,
and interpret the Plan, and the decisions of the Board shall be conclusive and
binding on all affected parties, unless such decisions are arbitrary and
capricious.
ARTICLE XII
LEGAL FEES
----------
In the event any dispute shall arise between a Participant and the Company
as to the terms or interpretation of this Plan, whether instituted by formal
legal proceedings or otherwise, including any action taken by a Participant to
enforce the terms of this Plan or in defending against any action taken by the
Company, the Company shall reimburse the Participant for all costs and expenses,
including reasonable attorneys' fees, arising from such dispute, proceedings or
actions; provided that the Participant shall return such amounts to the Company
if he fails to obtain a final judgment by a court of competent jurisdiction or
obtain a settlement of such dispute, proceedings, or actions substantially in
his or her favor. Such reimbursements to a Participant shall be paid within ten
days of the Participant furnishing to the Company written evidence, which may be
in the form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by the Participant. Any such request for reimbursement by a
Participant shall be made no more frequently than at 30 day intervals.
8
<PAGE>
ARTICLE XIII
DURATION OF PLAN
----------------
Unless terminated earlier in accordance with Article VIII, this Plan shall
remain in effect during the term of service of the Participants and until all
Benefits payable hereunder have been made.
9
<PAGE>
Exhibit "A"
FIRSTFED BANCORP, INC.
DEFERRED COMPENSATION PLAN
-------------------------------
Deferral Election Form
-------------------------------
WHEREAS, FirstFed Bancorp, Inc. (the "Company") maintains the FirstFed
Bancorp, Inc. Deferred Compensation Plan (the "Plan"), and the undersigned
Participant is eligible to participate in said Plan.
NOW THEREFORE, it is mutually agreed as follows:
1. The Participant, by the execution hereof, agrees to participate in the
Plan upon the terms and conditions set forth therein, and, in accordance
therewith, elects to defer receiving from the Company and any subsidiary --
[ ] % of the Participant's salary.
---
[ ] % of any cash bonuses and % of any restricted stock awards.
--- ---
[ ] % of the Participant's fees for services as a director.
---
2. This election will supersede any prior election and will take effect
on the first day of the Plan Year after this election's effective date.
3. This election will continue in force until either the last day of the
Plan Year following a superseding election by the Participant in a writing sent
to the Company or until the Participant ceases service with the Company or a
subsidiary, or until the Plan is terminated by appropriate corporate action,
whichever shall first occur.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands this
day of , .
- --------- ------------ --------
Witnessed by: PARTICIPANT
- ------------------------------------ ---------------------------------------
Witnessed by: FIRSTFED BANCORP, INC.
By
- ------------------------------------ -------------------------------------
Its
----------------------------------
<PAGE>
Exhibit "B"
FIRSTFED BANCORP, INC.
DEFERRED COMPENSATION PLAN
-------------------------------
Distribution Election Form
-------------------------------
AGREEMENT, made this day of , 19 , by and between the
---- -------- --
undersigned participant (the "Participant") in the FirstFed Bancorp, Inc.
Deferred Compensation Plan (the "Plan"), and FirstFed Bancorp, Inc. (the
"Company") with respect to distribution of the Participant's benefits under the
Plan.
NOW THEREFORE, it is mutually agreed as follows:
1. Form of Payment Generally. The Participant, by the execution hereof,
agrees to participate in the Plan upon the terms and conditions set forth
therein, and, in accordance therewith, elects to have his or her Account
distributed as follows:
[ ] in one lump sum payment.
[ ] in substantially equal annual payments over a period of _____ years
(no more than 10).
2. Timing of Benefits. All amounts deferred pursuant to this Agreement
shall be distributed beginning on December 31st of --
[ ] the calendar year in which the Participant ceases service with the
Company.
[ ] the calendar year immediately following the year in which the
Participant ceases service with the Company.
[ ] the later of the calendar year immediately following the year in which
the Participant ceases service with the Company, or ____________,
199_ (a specific date not later than the year in which the
Participant will attain 70 years of age).
[ ] the year in which the Participant attains 70 years of age.
<PAGE>
Deferred Compensation Plan
Distribution Election Form
Page 2
3. Form of Payment to Beneficiary. In the event of the Participant's death,
------------------------------
his or her Account shall be distributed --
[ ] in one lump sum payment.
[ ] in accordance with the payment schedule selected in paragraphs 1 and
4 hereof (with payments made as though the Participant survived to
collect all benefits, and as though the Participant terminated
service on the date of his or her death, if payments had not already
begun).
4. Medium of Payment. Any benefits payable to the Participant shall be
-----------------
paid in --
[ ] cash only.
[ ] cash and any shares of common stock of the Company that are held in
the Plan's grantor trust for the Participant's benefit.
5. Designation of Beneficiary. In the event of the Participant's death
--------------------------
before he or she has collected all of the benefits payable under the Plan, the
Participant hereby directs that any survivorship benefits payable under Article
III of the Plan be distributed to the beneficiary or beneficiaries designated
under subparagraphs a and b of this paragraph 5 in the manner elected pursuant
to paragraph 3 above:
a. Primary Beneficiary. The Participant hereby designates the person(s)
-------------------
named below to be his or her primary beneficiary and to receive the balance of
any unpaid benefits under the Plan.
Name of Percentage of
Primary Beneficiary Mailing Address Death Benefit
- ------------------- --------------- -------------
%
%
b. Contingent Beneficiary. In the event that the primary beneficiary or
----------------------
beneficiaries named above are not living at the time of the Participant's death,
the Participant hereby designates the following person(s) to be his or her
contingent beneficiary for purposes of the Plan:
<PAGE>
Deferred Compensation Plan
Distribution Election Form
Page 3
Name of Percentage of
Primary Beneficiary Mailing Address Death Benefit
- ------------------- --------------- -------------
%
%
6. Effect of Election. The elections made in paragraphs 1, 2, and 4 hereof
------------------
shall become irrevocable one year prior to the Participant's termination of
service as a director or employee. The Participant may, by submitting an
effective superseding Distribution Election Form at any time and from time to
time, prospectively change the beneficiary designation and the manner of payment
to a beneficiary. Such elections shall, however, become irrevocable upon the
Participant's death.
7. Mutual Commitments. The Company agrees to make payment of all amounts
------------------
due the Participant in accordance with the terms of the Plan and the elections
made by the Participant herein. The Participant agrees to be bound by the terms
of the Plan, as in effect on the date hereof or properly amended hereafter.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above-written.
Witnessed by: PARTICIPANT
- ------------------------------------ ---------------------------------------
Witnessed by: FIRSTFED BANCORP, INC.
By
- ------------------------------------ -------------------------------------
Its
----------------------------------
<PAGE>
Exhibit "C"
FIRSTFED BANCORP, INC.
DEFERRED COMPENSATION PLAN
-------------------------------
Investment Election Form
-------------------------------
WHEREAS, FirstFed Bancorp, Inc. (the "Company") has established the FirstFed
Bancorp, Inc. Deferred Compensation Plan (the "Plan"), and the undersigned
participant therein is eligible to make an investment election pursuant to
Article II of said Plan.
NOW THEREFORE, the Participant hereby elects as follows:
1. The Participant, by the execution hereof, agrees to participate in the
Plan upon the terms and conditions set forth therein, and in accordance
therewith, directs that any amounts credited to the Participant's account under
the Plan will appreciate or depreciate from the effective date hereof as though
they were invested as follows:
% in one-year certificates of deposit of First Federal Savings Bank
--- (with the applicable interest rate determined on the first day of
each Plan Year to which this rate is relevant).
% in shares of the common stock of the Company (with credit for a
--- dividend-adjusted rate of return).
2. The investment election made in the prior paragraph shall be effective on
the first day of the next following calendar quarter, and shall remain in effect
until the first day of the calendar quarter that immediately follows the
Company's receipt of a properly executed superseding investment election by the
Participant.
IN WITNESS WHEREOF, the Participant has executed this form on the day of
---
19 .
- -------- --
Witnessed by: PARTICIPANT
- ------------------------------------ ----------------------------------------
<PAGE>
Exhibit "D"
FIRSTFED BANCORP, INC.
DEFERRED COMPENSATION PLAN
-------------------------------
Special Election of Payment
Method after a Change in Control
-------------------------------
AGREEMENT, made this ____ day of ________, 19__, by and between
______________ (the "Participant") and FirstFed Bancorp, Inc. (the "Company"),
with respect to any distribution of the Participant's entire account
("Account"), under the Company's Deferred Compensation Plan (the "Plan"), that
occurs on or after a "change in control" (within the meaning of the Plan).
NOW THEREFORE, it is mutually agreed as follows:
1. Form of Payment. The Participant's Account shall be distributed in
---------------
cash that is paid --
[ ] in one lump sum.
[ ] in substantially equal annual payments over a period of _____ years
(no more than 10), with interest accruing according to the Plan, on
the unpaid present value of his Account.
2. Time of Payment. Distribution of the Participant's Account shall begin
---------------
as soon as practicable after --
[ ] a change in control closes.
[ ] the January 1st after a change in control closes.
[ ] the _________ annual anniversary of the January 1st after a change in
control closes.
3. Frequency of Payment. The Participant shall receive installment
--------------------
payments, if elected as a form of payment, on a ______ monthly, ______
quarterly, _____ semi-annual, or _____ annual basis.
4. Medium of Payment. Any benefits payable to the Participant shall be
-----------------
paid in --
[ ] cash only.
[ ] cash and any shares of common stock of the Company that are held in
the Plan's grantor trust for the Participant's benefit.
<PAGE>
Deferred Compensation Plan
Special Election Form
for Change in Control
Page 2
5. Form of Payment to Beneficiary. In the event of the Participant's
------------------------------
death, any unpaid balance credited to his Account shall be distributed to his
designated beneficiary --
[ ] in one lump sum payment, determined in the manner described in
paragraph 1 hereof.
[ ] in accordance with the payment schedule selected in paragraphs 1, 2,
3, and 4 hereof (with payments made as though the Participant survived
to collect all benefits, and as though the Participant terminated
service on the date of his death, if payments had not already begun).
6. Designation of Beneficiary. In the event of the Participant's death
--------------------------
before he has collected all of the benefits payable under the Plan, the
Participant hereby directs that any amounts unpaid under the Plan be distributed
to the beneficiary or beneficiaries designated under subparagraphs a and b of
this paragraph 6 in the manner elected pursuant to paragraph 5 above:
a. Primary Beneficiary. The Participant hereby designates the person(s)
-------------------
named below to be his primary beneficiary and to receive the balance of any
unpaid benefits under the Plan:
Name of Percentage of
Primary Beneficiary Mailing Address Death Benefit
------------------- --------------- -------------
%
%
b. Contingent Beneficiary. In the event that the primary beneficiary or
----------------------
beneficiaries named above are not living at the time of the Participant's death,
the Participant hereby designates the following person(s) to be his contingent
beneficiary for purposes of the Plan:
Name of Percentage of
Contingent Beneficiary Mailing Address Death Benefit
---------------------- --------------- -------------
%
%
<PAGE>
Deferred Compensation Plan
Special Election Form
for Change in Control
Page 3
7. Effect of Election. The elections made in paragraphs 1, 2, 3, and 4
------------------
hereof shall become irrevocable on the date 90 days before the closing of a
change in control. The Participant may at any time and from time to time change
his designation of, and manner of payment to, a beneficiary. Such election
shall, however, become irrevocable upon the Participant's death.
8. Mutual Commitments. The Company agrees to make payment of all amounts
------------------
due the Participant in accordance with the terms of the Plan and the elections
made by the Participant herein. The Participant agrees to be bound by the terms
of the Plan, as in effect on the date hereof and as properly amended hereafter.
The parties recognize and agree that this Agreement supersedes and nullifies any
prior distribution election to the extent it is inconsistent herewith.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above-written.
PARTICIPANT
Witnessed by:
- ------------------------------------ -----------------------------------------
FIRSTFED BANCORP, INC.
Witnessed by:
- ------------------------------------ ----------------------------------------
By
--------------------------------------
Its
-------------------------------------
<PAGE>
EXHIBIT 10.07
FIRSTFED BANCORP, INC.
INCENTIVE COMPENSATION PLAN
ARTICLE I. General Provisions
------------------
1.01 Purpose. This document sets forth the FirstFed Bancorp, Inc. Incentive
-------
Compensation Plan, as established by the Company. The Plan is maintained for the
purpose of providing certain Directors and selected Employees with incentive
compensation in the form of Bonuses, Stock Options, and Restricted Stock in the
event the Company meets certain performance goals indicative of its
profitability and stability in comparison to other thrift institutions doing
business in the Fourth District of the Office of Thrift Supervision.
1.02 Effective Date. The effective date of this Plan is October 1, 1993.
--------------
ARTICLE II. Definitions
-----------
Unless the context clearly requires otherwise, the terms defined in this
Article II shall, for all purposes of this Plan, have the respective meanings
specified in this Article II.
2.01 "Bank" means First Federal Savings Bank.
----
2.02 "Beneficiary" means the person or persons designated as a Participant's
-----------
beneficiary or beneficiaries in accordance with Section 4.08.
2.03 "Benefits" shall mean as to any Participant any benefits provided for
--------
under Article IV.
2.04 "Bonus Percentage" means the sum of the Safe ROA Bonus Percentage and
----------------
any Growth Rewards (with such Bonus Percentage being determined in accordance
with Exhibit "A" hereof, the terms of which are hereby incorporated by reference
as part of the Plan).
2.05 "Bonuses" means cash bonuses payable to Participants pursuant to
-------
Section 4.01 hereof.
2.06 "Change in Control" shall have the meaning set forth in Section 2(m) of
-----------------
the Company's 1991 Incentive Stock Option Plan.
2.07 "Code" means the Internal Revenue Code of 1986, as amended from time to
----
time. References to a Code section shall include any comparable section or
sections of future legislation that amends, supplements or supersedes such
section.
2.08 "Committee" means those Directors of the Company who are not Employees,
---------
and have not been Employees for the preceding 12 months, except that such
Directors shall have the discretion to delegate their authority under the Plan
to a committee consisting of two or more Directors who are "Non-employee
Directors" within the meaning of Rule 16b-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended ("Rule 16b-3"). Members of
the Committee shall serve at the pleasure of the Company.
2.09 "Common Stock" means the common stock, par value $.01 per share, of the
------------
Company.
1
<PAGE>
2.10 "Compensation" means (i) in the case of an Employee or Key Employee,
------------
the base salary payable by the Bank and/or the Company to said Employee or Key
Employee as of the last day of the applicable Plan Year, and (ii) in the case of
a Director who is not an Employee or a Key Employee, the annual fees payable
from the Bank and/or the Company to the Director as of the last day of the
applicable Plan Year.
2.11 "Company" means FirstFed Bancorp, Inc.
-------
2.12 "Director" means any member of the Board of Directors of the Company.
--------
2.13 "Employee" means any individual who performs service in the business of
--------
the Company or the Bank, excluding any individual who (i) performs such services
solely as a self-employed person or solely as a Director, or (ii) first becomes
employed by the Company or a subsidiary of the Company as a direct result of a
merger or other acquisition by the Company or a subsidiary of the Company.
Notwithstanding the foregoing, the Committee may in its discretion resolve, in
writing, that any or all of the individuals described in clause (ii) of the
preceding sentence be treated as Employees for purposes of the Plan.
2.14 "ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
2.15 "Growth Rewards" means the sum of certain percentages that are
--------------
determined by performance goals and factors established by the Board of
Directors. Prior to the beginning of each new Plan Year, the Board has the
discretion to revise any or all of the performance goals, and expand (or reduce)
the factors being considered.
2.16 "Option", "Option Price," and "Optioned Shares" have the meanings set
------ ------------ ---------------
forth in the Stock Option Plan.
2.17 "Participant" means an Employee or Director who has become a
-----------
Participant in the Plan as provided in Article III.
2.18 "Peer Group" means all thrift institutions headquartered in the Fourth
----------
District, with comparability data to be based upon the published reports of the
Federal Home Loan Bank of Atlanta (or such other independent entity as shall
provide such date in the ordinary course of its business).
2.19 "Plan" means the FirstFed Bancorp, Inc. Incentive Compensation Plan, as
----
herein set forth and as it may from time to time be amended.
2.20 "Plan Year" means the 12 consecutive month period beginning October 1,
---------
1993 and on each anniversary of that date.
2.21 "Restricted Stock Award" means an award to Participants pursuant to
----------------------
Section 4.02 hereof.
2.22 "Retirement" means a Participant's termination of service with the Bank
----------
or the Company on or after attaining age 65.
2.23 "Share" means one share of Common Stock.
-----
2.24 "Stock Option Plan" means the FirstFed Bancorp, Inc. 1991 Incentive
-----------------
Stock Option Plan, as amended from time to time.
2.25 "Years of Service" means each full 12-month period, measured from the
----------------
date on which a Restricted Stock Award is made and each anniversary of that
date, during which a Participant remains a Director or Employee.
2
<PAGE>
ARTICLE III. Eligibility and Participation
-----------------------------
3.01 General Rules. Directors who are not Employees shall receive only the
-------------
formula awards provided for in Article IV, and shall participate in the Plan
only for Plan Years in which they are serving on the Board on the first day of
the Plan Year, and shall otherwise be ineligible to participate in the Plan. An
Employee shall participate in the Plan for a particular Plan Year only if the
Employee is a full-time Employee at some time during the Plan Year. On or before
the first day of each Plan Year, the Board of Directors, in its discretion,
shall select the Employee or Employees who shall be treated as "Key Employees"
for the Plan Year, provided that for the Plan Year beginning October 1, 1993,
the Board of Directors may at any time during the Plan Year, in its discretion,
select the Employees who shall be treated as "Key Employees" for such Plan Year.
The Committee may, in its sole discretion, limit participation in the Plan for
any reason including, but not limited to, ensuring that the Plan at all times is
a plan described in Section 201(2) of ERISA.
3.02 Effect of Partial Year of Service Following Date of Hire.
--------------------------------------------------------
Notwithstanding any provision of the Plan inconsistent herewith, a Participant
who begins service with the Company or the Bank after the first day of a Plan
Year, shall be entitled to a fraction of the Benefits otherwise payable for that
Plan Year, with said fraction being equal to the number of days for which the
Participant was a Director or Employee during the Plan Year, divided by 365.
3.03 Effect of Termination of Service. Notwithstanding any provision of the
--------------------------------
Plan inconsistent herewith: (i) a Participant who terminates service with the
Company or the Bank during a Plan Year due to his death, his disability, his
Retirement, or within 12 months following a Change in Control shall be entitled
to a fraction of the Benefits otherwise payable for the Plan Year, with said
fraction being equal to the number of days for which the Participant was a
Director or Employee during the Plan Year, divided by 365, and (ii) a
Participant who terminates service with the Company or the Bank during a Plan
Year for a reason other than his death, his disability, his Retirement, or
within 12 months following a Change in Control shall be ineligible to receive
any Benefits for the Plan Year.
ARTICLE IV. Benefits
--------
4.01 Bonuses.
-------
(a) Amount of Bonuses. The aggregate Bonuses payable for each Plan Year
-----------------
shall equal the product of the total Compensation of eligible Participants and
the Bonus Percentage for the Plan Year. Said Bonuses shall be divided between
any Participants who are eligible, under Section 3.01 hereof, to receive a Bonus
based on their relative Compensation for the Plan Year.
(b) Capitalization Requirement. Notwithstanding anything herein to the
--------------------------
contrary, the aggregate amount of Bonuses payable in cash or in Options shall be
proportionately reduced (to zero, if necessary) to the extent that the payment
would cause the Bank and the Company on a consolidated financial basis to fail
to be a well-capitalized institution for the fiscal year, unless the Committee
determines, in the case of Employees and Key Employees, in its discretion that
such failure should be disregarded because of an extraordinary financial event.
4.02 Restricted Stock Awards
-----------------------
(a) Amount of Award. Except as otherwise provided in this Article, for each
---------------
Plan Year, the Company shall make a Restricted Stock Award to those Participants
who receive Bonuses for the Plan Year, according to the following schedule,
unless in the case of Employees, the Committee determines, by resolution adopted
before the first day of the Plan Year to which a particular Restricted Stock
Award relates, to lower the percentage set forth below for determining the
Restricted Stock Awards made to Employees hereunder:
3
<PAGE>
<TABLE>
<CAPTION>
Class of Participants Restricted Stock Award
--------------------- ----------------------
<S> <C>
Each Non-employee Director An equal number of Shares of Restricted Stock
having an aggregate fair market value equal to
7% of the total Bonuses paid to Directors and
Key Employees for the Plan Year.
Each Key Employee A number of Shares of Restricted Stock,
apportioned based on the relative Compensation
of Key Employees, that have an aggregate fair
market value equal to 14% of the total Bonuses
paid to Directors and Key Employees for the
Plan Year.
Each non-Key Employee Ineligible for Restricted Stock Awards.
</TABLE>
For purposes hereof, the Committee shall determine fair market value in
accordance with the Stock Option Plan.
(b) Vesting: General Schedule. The Shares subject to Restricted Stock Awards
-------------------------
made hereunder shall become earned and non-forfeitable by the Participant at the
rate of one-third per Year of Service; provided that each Participant may elect
before any Plan Year to have his Restricted Stock Award (if any) for such Plan
Year transferred into the Company's Deferred Compensation Plan for deferred
distribution in accordance with its terms.
(c) Vesting: Exception for Termination Due to Retirement, Death, or
---------------------------------------------------------------
Disability. Notwithstanding the vesting schedule set forth in Section 4.02(b)
- ----------
above, all Shares subject to a Restricted Stock Award held by a Participant
whose service with the Company terminates due to Retirement, death, or is
discharged from service as an Employee for a reason other than Cause (as defined
in Section 4.04 hereof) shall be deemed earned as of the Participant's last day
of employment with the Company and shall be distributed as soon as practicable
thereafter.
(d) Vesting: Exception for a Change in Control. Notwithstanding the vesting
------------------------------------------
schedule set forth in Section 4.02(b) above, all Shares subject to a Restricted
Stock Award held by a Participant shall be deemed to be immediately 100% earned
and non-forfeitable in the event of a Change in Control. The decision of the
Committee as to whether a Change in Control has occurred shall be conclusive and
binding as to all affected Participants.
(e) Form of Distribution. As soon as practicable after a Participant becomes
--------------------
entitled to receive a Restricted Stock Award, the Participant shall receive
Common Stock subject to the forfeiture provisions set forth in Sections 4.02(b)
through (d) hereof. The Common Stock associated with Restricted Stock Awards may
be authorized but unissued or treasury shares, and the certificates for such
Common Stock shall be issued in the name of the Participant, whereupon the
Participant shall become a stockholder of the Company with respect to such
Common Stock and shall have all the rights of a stockholder, including but not
limited to the right to receive all dividends paid on such Shares and the right
to vote such Shares. In addition, the certificates for such Common Stock shall
bear the following legend reflecting that the Shares represented thereby are
subject to restrictions against transfer and to forfeiture in accordance with
the Plan and the Participant's Restricted Stock Award:
"The transferability of this certificate and the shares of stock represented
thereby are subject to the terms and conditions (including forfeiture)
contained in the FirstFed Bancorp, Inc. Incentive Compensation Plan, and a
Restricted Stock Award made thereunder by the FirstFed Bancorp, Inc.
Incentive Compensation Plan Committee. Copies of such Plan and Restricted
Stock Award are on file in the offices of the Secretary of FirstFed Bancorp,
Inc., 1630 Fourth Avenue, North, Bessemer, Alabama 35020-5711."
4
<PAGE>
As a Participant earns the Restricted Stock subject to a Restricted Stock
Award, the Participant (or, in the event of the Participant's death, the legal
representative of his estate, or if the personal representative of the
Participant's estate shall have assigned the estate's interest in the Restricted
Stock, to the person or persons to whom his rights under such Common Stock shall
have passed by assignment pursuant to his will or to the laws of descent and
distribution) may surrender the Common Stock certificates bearing the foregoing
legend, whereupon the Company shall cause such certificates to be reissued
without the legend. If a Participant who has received Restricted Stock hereunder
forfeits any or all of such Restricted Stock, the Participant shall, within 30
days after terminating service as a Director or Employee, pay the Company an
amount equal to the dividends attributable to the forfeited Restricted Stock.
(f) Six-Month Holding Period. In no event may Restricted Stock be sold
------------------------
within the six-month period following the underlying Restricted Stock Award,
except in the event of the Participant's Retirement, death or disability, a
Change in Control (as defined in the Company's 1991 Incentive Stock Option
Plan), or such other event as the Board may specifically deem appropriate.
4.03 Stock Option Grants. For each Plan Year, the Company shall grant to
-------------------
each Participant Options to purchase five times the number of Shares subject to
a Restricted Stock Award for the Plan Year, unless the Committee determines, by
resolution adopted before the first day of the Plan Year to which a particular
grant or grants relate, that such Options shall relate to a lesser number of
Shares. To the extent not inconsistent with the Plan, the terms and conditions
of the Options shall be determined by the Committee in accordance with the Stock
Option Plan.
Notwithstanding any other provision of this Plan to the contrary, Common
Stock that is purchased upon exercise of an Option may not be sold within the
six-month period following the grant date of that Option, except in the event of
the Participant's Retirement, death or disability, a Change in Control (as
defined in the Company's 1991 Incentive Stock Option Plan), or such other event
as the Board may specifically deem appropriate.
4.04 Revocation for Misconduct. Notwithstanding anything herein to the
-------------------------
contrary, the Company's Board of Directors may, by resolution, immediately
revoke, rescind and terminate any Benefits earned by Employees, to the extent
the Employee has not collected a Bonus, exercised an Option, or received Shares,
as the case may be, if the Employee is discharged from the employ of the Company
or the Bank for Cause (as hereinafter defined), or is discovered after
termination of employment to have engaged in conduct that would have justified
termination for Cause. "Cause" is defined as personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profits,
intentional failure to perform stated duties, willful violation of any law, rule
or regulation (other than traffic violations or similar offenses), or a final
cease-and-desist order, or a material breach of the Participant's employment
agreement (if any) with the Bank. A determination of Cause shall be made by the
Company's Board of Directors within its sole discretion.
4.05 Payment of Benefits. All Benefits under this Plan shall be provided by
-------------------
the Company directly to Participants, and the Committee shall have no
responsibility thereto other than (i) to inform the Company, as soon as
practicable after the end of each calendar year, in writing as to the Benefits
to be provided, and (ii) with respect to Restricted Stock Awards, to follow such
reasonable directions as the Company shall make as to the payment of Shares to
Participants.
4.06 Source of Benefits.
------------------
(a) Shares Subject to the Plan. Except as otherwise required by the
--------------------------
provisions of Section 4.06(b) hereof, the aggregate number of Shares deliverable
to Participants pursuant to the Plan shall not exceed 24,000 Shares. Such Shares
may either be authorized but unissued Shares or Shares held in treasury.
If Options should expire, become unexercisable or be forfeited for any
reason without having been exercised in full, or if a Restricted Stock Award
should be forfeited for any reason, the Shares subject to such Options or
5
<PAGE>
Restricted Stock Award shall, unless the Plan shall have been terminated, be
available for the grant of additional Options or Restricted Share Awards under
the Plan.
(b) Effect of Change in Common Shares Subject to the Plan. In the event
-----------------------------------------------------
that each of the outstanding Shares (other than Shares held by dissenting
shareholders) shall be changed into or exchanged for a different number or kind
of shares of capital stock of the Company or of another corporation (whether by
reason of merger, consolidation, recapitalization, reclassification, stock
dividend, split-up, combination of shares, or otherwise), then there shall be
substituted for each Share of Common Stock then under Option or subject to a
Restricted Stock Award, or available for grant or award under the Plan, the
number and kind of shares of capital stock into which each out-standing Share of
Common Stock (other than Shares held by dissenting stockholders) shall be so
changed or for which each such Share shall be so exchanged, together with an
appropriate adjustment of the Option Price (in the case of Options).
In the event there shall be any change in the number of, or kind of, issued
shares of Common Stock, or of any capital stock or other securities into which
such Common Stock shall have been changed, or for which it shall have been
exchanged, then if the Committee shall, in its discretion, determine that such
change equitably requires an adjustment in the number or kind of Shares then
subject to an Option (including the Option Price) or a Restricted Stock Award,
or otherwise available for grant or award under the Plan, such adjustment shall
be made by the Committee and shall be effective and binding for all purposes of
the Plan.
(c) No Trust or Trust Fund. The Benefits payable under the Plan shall be
----------------------
paid by the Company out of its general assets and shall not be funded by trust
or otherwise, except to the extent Section 4.02 requires the Company to transfer
to the Committee Shares subject to Restricted Stock Awards. Nothing contained in
this Plan shall constitute, or be treated as, a trust or create any fiduciary
relationship. The Company shall be under no obligation to segregate any assets
for the purpose of providing Benefits under the Plan and no person or entity
which is entitled to payment under the terms of the Plan shall have any claim,
right, security interest, or other interest in any fund, trust, account,
insurance contract, or asset of the Company. To the extent that a Participant or
any other person acquires a right to receive any Benefit under the Plan, such
right shall be limited to that of a recipient of an unfunded, unsecured promise
to pay amounts in the future and the Participant's (or other person's) position
with respect to such amounts shall be that of a general unsecured creditor of
the Company.
4.07 Minority, Disability, or Incompetency. If any Benefit becomes payable
-------------------------------------
under this Plan to a minor, to a person under legal disability or to a person
not adjudicated incompetent but who the Committee in its discretion determines
to be incapable by reason of illness or mental or physical disability of
managing his financial affairs, the Committee may direct that such Benefit shall
be paid to the legal representative or custodian of such person or to any
relative or friend of such person, or that such amount be paid directly for such
person's support and maintenance. Payments so made in good faith shall
completely discharge the Committee and the Company of any and all obligations
and liabilities with respect to such payments.
4.08 Designation of Beneficiary. A Participant may file with the Committee a
--------------------------
written designation of a Beneficiary who is to receive his vested benefits in
the event of the Participant's death prior to his or her collection of said
benefits. Such designation of Beneficiary may be changed at any time by written
notice to the Committee. The designation last filed with the Committee shall be
controlling. In the event of the death of a Participant and in the absence of a
beneficiary validly designated under the Plan who is living at the time of the
Participant's death, the Participant's estate shall be deemed to be the
Beneficiary for purposes of this Plan.
ARTICLE V. Plan Administration
-------------------
5.01 The Committee. In its sole and absolute discretion, which discretion
-------------
when exercised shall be final and binding on all parties, the Committee shall
have the responsibility and authority to control the operation and
6
<PAGE>
administration of the Plan in accordance with its terms including, without
limiting the generality of the foregoing, the powers and duties: (i) to
interpret, apply, and administer the Plan, to decide all questions of
eligibility, participation, status, benefits, and rights of Participants and
Beneficiaries under the Plan; (ii) to establish and amend such rules and
procedures as it deems necessary or appropriate to the proper administration of
the Plan; (iii) to employ or retain such agents as it deems necessary or
advisable to assist in the administration of the Plan, and to delegate to the
extent permitted by applicable law such powers and duties as it deems necessary
or advisable, (iv) to prepare and file all statements, returns, and reports
required to be filed by the Plan with any agency of government; (v) to comply
with all disclosure requirements of all applicable state and federal law; and
(vi) to perform all functions otherwise assigned to it under the terms of the
Plan.
5.02 Claims Procedure. Claims for Benefits under the Plan shall be filed in
----------------
writing with the Committee. Written notice of the Committee's disposition of a
claim generally shall be furnished to the claimant within 60 days after the
application therefor is filed. However, if special circumstances exist of which
the Committee notifies the claimant within such 60 day period, the Committee may
extend such period to the extent necessary, but in no event beyond 180 days
after the claim is filed. In the event the claim is denied, the reasons for the
denial shall be specifically set forth in writing, pertinent provisions of the
Plan shall be cited and, where appropriate, an explanation as to how the
claimant can perfect the claim will be provided. Any claimant who has been
denied a Benefit shall be entitled, upon request to the Committee, to appeal the
denial of his claim within 60 days following the Committee's determination
described in the preceding sentence. Upon such appeal, the claimant, or his
representative, shall be entitled to examine pertinent documents, submit issues
and comments in writing to the Committee, and meet with the Committee. The
Committee shall review its decision and issue a final decision to the claimant
in writing, generally within 60 days following such appeal. However, if special
circumstances exist of which the Committee notifies the claimant within such 60
day period, the Committee may extend such period to the extent necessary, but in
no event beyond 120 days following such appeal.
ARTICLE VI. Amendment and Termination
-------------------------
6.01 Right to Amend or Terminate. The Board of Directors of the Company
---------------------------
reserves the right at any time to terminate or amend the Plan in any manner and
for any reason; provided, that no amendment or termination shall, without the
consent of the Participant or, if applicable, the Beneficiary, adversely affect
such Participant's or Beneficiary's rights with respect to Benefits accrued as
of the date of such amendment or termination. In the event of a Change in
Control, each Employee who is a Participant on the date of the Change in Control
shall be entitled to receive Benefits for the Plan Year in which the Change in
Control closes in an amount not less than the product of (i) a fraction with a
numerator equal to the number of days during which the Plan was in effect during
the Plan Year, and a denominator equal to 365, and (ii) the highest Benefits
paid to the Participant during the preceding three Plan Years.
ARTICLE VII. General Provisions
------------------
7.01 Transferability. Options and Restricted Stock Awards (together,
---------------
"Awards") may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, or any other provision of this
Plan, a Participant who holds Awards may transfer such Awards (but not incentive
stock options) to his or her spouse, lineal ascendants, lineal descendants, or
to a duly established trust for the benefit of one or more of these individuals.
Awards so transferred may thereafter be transferred only to the Participant who
originally received the grant or to an individual or trust to whom the
Participant could have initially transferred the Awards pursuant to this Section
7.01. Awards which are transferred pursuant to this Section 7.01 shall be
exercisable by the transferee according to the same terms and conditions as
applied to the Participant.
7
<PAGE>
7.02 No Enlargement of Employment Rights. Nothing contained in this Plan
-----------------------------------
shall give or be construed as giving any Employee the right to be retained in
the service of the Bank or the Company, or shall interfere with the right of the
Bank or the Company to discharge or otherwise terminate any Employee's
employment at any time.
7.03 Gender. Whenever any masculine terminology is used in this Plan, it
------
shall be taken to include the feminine, unless the context otherwise indicates.
7.04 Applicable Law. This Plan shall be construed and regulated, and its
--------------
validity and effect and the rights hereunder of all parties interested shall at
all times be determined, in accordance with the laws of the State of Alabama,
except to the extent such state law is preempted by federal law.
7.05 Titles and Headings. The titles and headings included herein are
-------------------
included for convenience only and shall not be construed as in any way affecting
or modifying the text of this Plan, which text shall control.
7.06 Withholding. The Company reserves the right to withhold from payments
-----------
of Benefits such amounts of income, payroll, and other taxes as it deems
advisable, and if the amount of such cash payment is not sufficient, the Company
may require the Participant or Beneficiary to pay the amount required to be
withheld as a condition of delivering Benefits under the Plan.
8
<PAGE>
EXHIBIT "A"
FIRSTFED BANCORP, INC.
INCENTIVE COMPENSATION PLAN
----------------------------
EXHIBIT REGARDING BONUS POOL
----------------------------
For each plan year, the Bonus Percentage shall equal the sum of the Safe ROA
Bonus Percentage and the Growth Rewards (as established by the Board of
Directors prior to the beginning of each plan year). The Safe ROA Bonus
Percentage shall be determined in the manner set forth below, unless, before a
new plan year begins, the Board exercises its discretion to revise any or all of
the performance goals referenced below, or expands (or reduces) the factors
being considered.
<TABLE>
<CAPTION>
<S> <C>
Safe ROA Bonus Equals the Safe Performance Factor times the ROAA*
Percentage Percentage determined in accordance with the following
schedule:
ROAA ROAA
Ratio* * Percentage
----------- ----------
75% or Less 0%
[ ----- pro rata in between ----- ]
125% or More 20%
* Means return-on-average assets (i) as determined in
accordance with generally accepted accounting
principles, and (ii) after consideration of the amount
of Safe ROA Bonus Percentage payable.
** Determined by dividing the Company's ROAA for the
plan year by the ROAA of the companies in the Peer Group
for the 12-month period ending on the June 30 within
such plan year.
Safe Performance Equals the NPA Factor times the CAMEL Factor
Factor
NPA Factor NPA NPA
Ratio*** Factor
---------- ------
1% or Less 1.2
[pro rata reduction in between]
3% or More .4
***Represents the ratio of the Company's and the Bank's
nonperforming loans (loans over 90 days delinquent and
still accruing, non-accrual loans, and real estate
owned) as a percentage of their total assets as of the
last day of the plan year, as determined in accordance
with generally accepted accounting principles.
CAMEL Factor
CAMEL Rating CAMEL Factor
------------ ------------
1 1.20
2 1.00
3 .50
4 or 5 0
</TABLE>
9
<PAGE>
EXHIBIT 10.08
EMPLOYMENT AGREEMENT
--------------------
(as amended June 17, 1998)
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 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 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 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.
<PAGE>
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 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. 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:
-2-
<PAGE>
(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, 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 Thrift 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, 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 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, 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
-3-
<PAGE>
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, in the
event that (1) 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, or (2) the Employee voluntarily terminates employment for any reason
within the 30-day period beginning on the date of any change in control, 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, 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 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 in 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 in Control; (ii) a material
reduction without reasonable cause in the Employee's base compensation 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
-4-
<PAGE>
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 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 nominate 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. 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.
(d) Special Distribution Elections. Notwithstanding the foregoing,
------------------------------
any severance benefits that became payable under this Section 11 shall be paid
in the manner selected by the Employee in a duly executed election in the form
attached hereto as Exhibit "A"; provided that such an election will be honored
and given effect only if it is properly made and delivered to the Company more
than 90 days before the closing date of the Change in Control. The Employee may
specify on the attached election form the manner of payment to his beneficiary,
and may at any time or from time to time change the identity or manner of
payment to his beneficiary. In the absence of a valid election, severance
benefits will be paid in accordance with the terms of Section 11(a) hereof.
Present value determinations and interest accruals on present value sums that
are paid in installments over a fixed period of years shall be calculated at a
rate equal to 120% of the applicable federal rate, compounded semiannually, as
determined under Section 1274(d) of the Code, and the regulations thereunder.
(e) Trust. Not later than three business days after a change in
-----
control as defined in Section 11(a) of this Agreement, the Company shall (i)
deposit in the FirstFed Bancorp, Inc. Grantor Trust (the "Trust") that was
approved by the Board of Directors of the Company on June 17, 1998, an amount
that the Company reasonably projects to be sufficient to fund the payment of all
severance benefits that are or may become payable, pursuant to this Section,
after the closing date of the change in control, and (ii) provide the trustee of
the Trust with a written direction both 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. The provisions of this Section shall be null and void
only if the Employee provides a written release of all claims under this
Agreement.
During the fifteen (15) consecutive month period after a change in
control, the Employee may provide the trustee of the Trust with a written notice
directing the trustee to pay to the Employee an amount designated in the notice
as being payable pursuant to this Agreement. Within three business days after
receiving said notice, the trustee of the Trust shall pay such amount to the
Employee, and coincidentally shall provide the Company or its successor with
notice of such payment. Upon the earlier of the Trust's final payment of all
amounts due under the preceding paragraph or the date 15 months after the change
in control, the trustee of the Trust shall pay to the Company 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.
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 of Employee for Enforcement Proceedings. 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 defend
against any action taken
-5-
<PAGE>
by the Company 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 obtains either a written
settlement or a final judgement by a court of competent jurisdiction
substantially in his favor. Such reimbursement shall be paid within ten days of
the Employee's furnishing to the Company written evidence, which may be in the
form, among other things, of a canceled 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.
(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.
-6-
<PAGE>
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
-7-
<PAGE>
EXHIBIT "A"
FIRSTFED BANCORP, INC.
EMPLOYMENT AGREEMENT WITH B. K. GOODWIN, III
-------------------------------
ELECTION OF PAYMENT METHOD
AFTER A CHANGE IN CONTROL
-------------------------------
AGREEMENT, made this ____ day of ________, 19__, by and between B. K.
Goodwin, III (the "Employee") and FirstFed Bancorp, Inc. (the "Company"), with
respect to distribution of the Employee's benefits ("Benefits") that have
accrued under the Employment Agreement entered into between the Company and the
Employee on January 1, 1996 (the "Agreement") and have or become payable due to
a Change in Control (as defined in the Agreement).
NOW THEREFORE, it is mutually agreed as follows:
1. Form of Payment. The Employee shall receive his Benefits in cash that
---------------
is paid --
[_] in one lump sum equal to the present value of his accrued but
unpaid Benefits.
[_] in substantially equal annual payments over a period of _____
years (no more than 10), with interest accruing, in accordance
with the Agreement, on the unpaid present value of his Benefits.
2. Time of Payment. The Employee shall begin to receive Benefits as soon
---------------
as practicable after --
[_] A Change in Control closes.
[_] the January 1/st/ after a Change in Control closes.
[_] the _________ annual anniversary of the January 1st after a
Change in Control closes.
3. Frequency of Payment. The Employee shall receive Benefits on a ______
--------------------
monthly, ______ quarterly, _____ semi-annual, or _____ annual basis.
-8-
<PAGE>
4. Form of Payment to Beneficiary. In the event of the Employee's death,
------------------------------
his benefits shall be distributed --
[_] in one lump sum payment, determined in the manner described in
paragraph 1 hereof.
[_] in accordance with the payment schedule selected in paragraphs
1, 2, and 3 hereof (with payments made as though the Employee
survived to collect all benefits, and as though the Employee
terminated service on the date of his death, if payments had not
already begun).
5. Designation of Beneficiary. In the event of the Employee's death
--------------------------
before he has collected all of the benefits payable under the Agreement, the
Employee hereby directs that any amounts unpaid under the Agreement be
distributed to the beneficiary or beneficiaries designated under subparagraphs
a and b of this paragraph 5 in the manner elected pursuant to paragraph 4 above:
a. Primary Beneficiary. The Employee hereby designates the person(s)
-------------------
named below to be his primary beneficiary and to receive the balance of any
unpaid benefits under the Agreement.
<TABLE>
<CAPTION>
================================================================================
Name of Percentage of
Primary Beneficiary Mailing Address Death Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
%
- --------------------------------------------------------------------------------
%
================================================================================
</TABLE>
b. Contingent Beneficiary. In the event that the primary
----------------------
beneficiary or beneficiaries named above are not living at the time of the
Employee's death, the Employee hereby designates the following person(s) to be
his contingent beneficiary for purposes of the Agreement:
<TABLE>
<CAPTION>
================================================================================
Name of Percentage of
Contingent Beneficiary Mailing Address Death Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
%
- --------------------------------------------------------------------------------
%
================================================================================
</TABLE>
6. Effect of Election. The elections made in paragraphs 1, 2, and 3
------------------
hereof shall become irrevocable on the date 90 days before the closing of a
Change in Control. The Employee may at any time and from time to time change his
designation of, and manner of payment to, a beneficiary. Such election shall,
however, become irrevocable upon the Employee's death.
-9-
<PAGE>
7. Mutual Commitments. The Company agrees to make payment of all amounts
------------------
due the Employee in accordance with the terms of the Agreement and the elections
made by the Employee herein. The Employee agrees to be bound by the terms of the
Agreement, as in effect on the date hereof and as properly amended hereafter.
The parties recognize and agree that this Agreement supersedes and nullifies any
prior distribution election to the extent it is inconsistent herewith.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above-written.
EMPLOYEE
Witnessed by:
- ------------------------- -------------------------
B .K. Goodwin, III
FIRSTFED BANCORP, INC.
Witnessed by:
By
- ------------------------- -----------------------
An authorized Director
-10-
<PAGE>
EXHIBIT 10.09
EMPLOYMENT AGREEMENT
--------------------
(as amended June 17, 1998)
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.
(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)
<PAGE>
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 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.
(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
-2-
<PAGE>
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 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 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, 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
that 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 third
sentence of this Subsection (c) and specifying the particulars thereof in
-3-
<PAGE>
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 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.
-4-
<PAGE>
(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, in the event that (1) 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, or (2) the
Employee voluntarily terminates employment for any reason within the 30-day
period beginning on the date of any change in control, 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 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.
-5-
<PAGE>
(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 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
-6-
<PAGE>
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) Special Distribution Elections. Notwithstanding the foregoing,
------------------------------
any severance benefits that became payable under this Section 11 shall be paid
in the manner selected by the Employee in a duly executed election in the form
attached hereto as Exhibit "A"; provided that such an election will be honored
and given effect only if it is properly made and delivered to the Bank more than
90 days before the closing date of the Change in Control. The Employee may
specify on the attached election form the manner of payment to his beneficiary,
and may at any time or from time to time change the identity or manner of
payment to his beneficiary. In the absence of a valid election, severance
benefits will be paid in accordance with the terms of Section 11(a) hereof.
Present value determinations and interest accruals on present value sums that
are paid in installments over a fixed period of years shall be calculated at a
rate equal to 120% of the applicable federal rate, compounded semiannually, as
determined under Section 1274(d) of the Code, and the regulations thereunder.
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.
-7-
<PAGE>
(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.
19. Reimbursement of Employee for Enforcement Proceedings. 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 defend against any
action taken by the Bank, 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 obtains either a written
settlement or a final judgement by a court of competent jurisdiction
substantially in his favor. Such reimbursement shall be paid within ten days of
the Employee's furnishing to the Bank written evidence, which may be in the
form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by the Employee.
-8-
<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
-9-
<PAGE>
EXHIBIT "A"
FIRST FEDERAL SAVINGS BANK
EMPLOYMENT AGREEMENT WITH B. K. GOODWIN, III
-------------------------------
ELECTION OF PAYMENT METHOD
AFTER A CHANGE IN CONTROL
-------------------------------
AGREEMENT, made this ____ day of ________, 19__, by and between B. K.
Goodwin, III (the "Employee") and First Federal Savings Bank (the "Bank"), with
respect to distribution of the Employee's benefits ("Benefits") that have
accrued under the Employment Agreement entered into between the Bank and the
Employee on January 1, 1996 (the "Agreement") and have or become payable due to
a Change in Control (as defined in the Agreement).
NOW THEREFORE, it is mutually agreed as follows:
1. Form of Payment. The Employee shall receive his Benefits in cash that
---------------
is paid --
[_] in one lump sum equal to the present value of his accrued but
unpaid Benefits.
[_] in substantially equal annual payments over a period of _____
years (no more than 10), with interest accruing, in accordance
with the Agreement, on the unpaid present value of his Benefits.
2. Time of Payment. The Employee shall begin to receive Benefits as soon
---------------
as practicable after --
[_] a Change in Control closes.
[_] the January 1st after a Change in Control closes.
[_] the _________ annual anniversary of the January 1st after a
Change in Control closes.
3. Frequency of Payment. The Employee shall receive Benefits on a ______
--------------------
monthly, ______ quarterly, _____ semi-annual, or _____ annual basis.
-1-
<PAGE>
Employment Agreement
Payment Election Form
Page 2
4. Form of Payment to Beneficiary. In the event of the Employee's death,
his Benefits shall be distributed --
[_] in one lump sum payment, determined in the manner described in
paragraph 1 hereof.
[_] in accordance with the payment schedule selected in paragraphs
1, 2, and 3 hereof (with payments made as though the Employee
survived to collect all benefits, and as though the Employee
terminated service on the date of his death, if payments had not
already begun).
5. Designation of Beneficiary. In the event of the Employee's death
--------------------------
before he has collected all of the benefits payable under the Agreement, the
Employee hereby directs that any amounts unpaid under the Agreement be
distributed to the beneficiary or beneficiaries designated under subparagraphs a
and b of this paragraph 5 in the manner elected pursuant to paragraph 4 above:
a. Primary Beneficiary. The Employee hereby designates the person(s)
-------------------
named below to be his primary beneficiary and to receive the balance of any
unpaid benefits under the Agreement.
<TABLE>
<CAPTION>
================================================================================
Name of Percentage of
Primary Beneficiary Mailing Address Death Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
%
- --------------------------------------------------------------------------------
%
================================================================================
</TABLE>
b. Contingent Beneficiary. In the event that the primary beneficiary or
----------------------
beneficiaries named above are not living at the time of the Employee's death,
the Employee hereby designates the following person(s) to be his contingent
beneficiary for purposes of the Agreement:
<TABLE>
<CAPTION>
================================================================================
Name of Percentage of
Contingent Beneficiary Mailing Address Death Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
%
- --------------------------------------------------------------------------------
%
================================================================================
</TABLE>
-2-
<PAGE>
Employment Agreement
Payment Election Form
Page 3
6. Effect of Election. The elections made in paragraphs 1, 2, and 3
------------------
hereof shall become irrevocable on the date 90 days before the closing of a
Change in Control. The Employee may at any time and from time to time change his
designation of, and manner of payment to, a beneficiary. Such election shall,
however, become irrevocable upon the Employee's death.
7. Mutual Commitments. The Bank agrees to make payment of all amounts
------------------
due the Employee in accordance with the terms of the Agreement and the elections
made by the Employee herein. The Employee agrees to be bound by the terms of the
Agreement, as in effect on the date hereof and as properly amended hereafter.
The parties recognize and agree that this Agreement supersedes and nullifies any
prior distribution election to the extent it is inconsistent herewith.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above-written.
EMPLOYEE
Witnessed by:
- ------------------------------ ------------------------------
B. K. Goodwin, III
FIRST FEDERAL SAVINGS BANK
Witnessed by:
- ------------------------------
By
----------------------------
An authorized Director
-3-
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
BETWEEN
FIRST FEDERAL SAVINGS BANK,
FIRSTFED BANCORP, INC.,
AND C. LARRY SEALE
---------------------
Amendment and Restatement
---------------------
(as amended June 17, 1998)
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 realization of such
goals. In no
<PAGE>
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
2
<PAGE>
a manner that will reflect credit on the Savings Bank, and will carry out the
duties assigned to him by the Board of Directors.
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, (ii)
the Executive voluntarily terminates employment for any reason within the 30-day
period beginning on the date of any change in control, or (iii) 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
4
<PAGE>
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 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
5
<PAGE>
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. Any severance benefits that become payable under this Section 7 shall be
paid in the manner selected by the Executive in a duly executed election in the
form attached hereto as Exhibit "A" (the "Election Form"); provided that such an
election will be honored and given effect only if it is properly made and
delivered to the Savings Bank more than 90 days before said closing date. The
Executive may specify on the attached Election Form the manner of payment to his
beneficiary, and may at any time or from time to time change the identify or
manner of payment to his beneficiary. Present value determinations and interest
accruals on present value sums that are paid in installments over a fixed period
of years shall be calculated at a rate equal to 120% of the applicable federal
rate, compounded semiannually, as determined under Section 1274(d) of the Code,
and the regulations thereunder. 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 her 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.
Not later than three business days after a change in control as defined in
Section 7 of this Agreement, the Holding Company shall (i) deposit in the
FirstFed Bancorp, Inc. Grantor Trust (the "Trust") that was approved by the
Board of Directors of the Company on June 17, 1998, an amount that the Holding
Company reasonably projects to be
6
<PAGE>
sufficient to fund the payment of all severance benefits that are or may become
payable, pursuant to this Section, after the closing date of the change in
control, and (ii) provide the trustee of the Trust with a written direction both
to hold said amount and any investment return thereon in a segregated account
for the benefit of the Executive, and to follow the procedures set forth in the
next paragraph as to the payment of such amounts from the Trust. The provisions
of this Section shall be null and void only if the Executive provides a written
release of all claims under this Agreement.
During the fifteen (15) consecutive month period after a change in control,
the Executive may provide the trustee of the Trust with a written notice
directing the trustee to pay to the Executive an amount designated in the notice
as being payable pursuant to this Agreement. Within three business days after
receiving said notice, the trustee of the Trust shall pay such amount to the
Executive, and coincidentally shall provide the Holding Company or its successor
with notice of such payment. Upon the earlier of the Trust's final payment of
all amounts due under the preceding paragraph or the date 15 months after the
change in control, the trustee of the Trust shall pay to the Holding Company the
entire balance remaining in the segregated account maintained for the benefit of
the Executive. The Executive shall thereafter have no further interest in the
Trust.
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
7
<PAGE>
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.
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
8
<PAGE>
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.
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 "A"
FIRST FEDERAL SAVINGS BANK &
FIRSTFED BANCORP, INC.
EMPLOYMENT AGREEMENT
-------------------------------
ELECTION OF PAYMENT METHOD
AFTER A CHANGE IN CONTROL
-------------------------------
AGREEMENT, made this ____ day of ________, 19__, by and between the
undersigned officer (the "Employee"), First Federal Savings Bank (the "Bank"),
and FirstFed Bancorp, Inc. (the "Company"), with respect to distribution of the
Employee's benefits ("Benefits") that have accrued under the Employment
Agreement entered into between the Bank, the Company, and the Employee on
January 1, 1996 (the "Agreement") and have or become payable due to a change in
control (as defined in the Agreement).
NOW THEREFORE, it is mutually agreed as follows:
1. Form of Payment. The Employee shall receive Benefits in cash that
---------------
is paid --
[ ] in one lump sum equal to the present value of the Employee's accrued
but unpaid Benefits.
[ ] in substantially equal annual payments over a period of _____ years
(no more than 10), with interest accruing, on the unpaid present value
of the Employee's Benefits, at a rate equal to 120% of the applicable
federal rate, compounded semiannually, as determined under Section
1274(d) of the Code, and the regulations thereunder.
2. Time of Payment. The Employee shall begin to receive Benefits as soon
---------------
as practicable after --
[ ] a Change in Control closes.
[ ] the January 1st after a Change in Control closes.
[ ] the _________ annual anniversary of the January 1st after a Change in
Control closes.
1
<PAGE>
Employment Agreement
Payment Election Form
Page 2
3. Frequency of Payment. The Employee shall receive Benefits on a ______
--------------------
monthly, ______ quarterly, _____ semi-annual, or _____ annual basis.
4. Form of Payment to Beneficiary. In the event of the Employee's death,
------------------------------
Benefits shall be distributed --
[ ] in one lump sum payment, determined in the manner described in
paragraph 1 hereof.
[ ] in accordance with the payment schedule selected in paragraphs 1, 2,
and 3 hereof (with payments made as though the Employee survived to
collect all benefits, and as though the Employee terminated service
on the date of death, if payments had not already begun).
5. Designation of Beneficiary. In the event of the Employee's death
--------------------------
before payment of all benefits due under the Agreement, the Employee hereby
directs that any amounts unpaid under the Agreement be distributed to the
beneficiary or beneficiaries designated under subparagraphs a and b of this
paragraph 5 in the manner elected pursuant to paragraph 4 above:
a. Primary Beneficiary. The Employee hereby designates the person(s)
-------------------
named below to be primary beneficiary and to receive the balance of any unpaid
benefits under the Agreement.
<TABLE>
<CAPTION>
================================================================================
Name of Percentage of
Primary Beneficiary Mailing Address Death Benefit:
- --------------------------------------------------------------------------------
<S> <C> <C>
%
- --------------------------------------------------------------------------------
%
================================================================================
</TABLE>
2
<PAGE>
Employment Agreeement
Payment Election Form
Page 3
b. Contingent Beneficiary. In the event that the primary beneficiary
----------------------
or beneficiaries named above are not living at the time of the Employee's death,
the Employee hereby designates the following person(s) to be contingent
beneficiary for purposes of the Agreement:
<TABLE>
<CAPTION>
================================================================================
Name of Percentage of
Contingent Beneficiary Mailing Address Death Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
%
- --------------------------------------------------------------------------------
%
================================================================================
</TABLE>
6. Effect of Election. The elections made in paragraphs 1, 2, and 3
------------------
hereof shall become irrevocable on the date 90 days before the closing of a
change in control. The Employee may at any time and from time to time change any
designation of, and manner of payment to, a beneficiary. Such election shall,
however, become irrevocable upon the Employee's death.
7. Mutual Commitments. The Bank and the Company agree to make payment of
------------------
all amounts due the Employee in accordance with the terms of the Agreement and
the elections made by the Employee herein. The Employee agrees to be bound by
the terms of the Agreement, as in effect on the date hereof and as properly
amended hereafter. The parties recognize and agree that this Agreement
supersedes and nullifies any prior distribution election to the extent it is
inconsistent herewith.
3
<PAGE>
Employment Agreement
Payment Election Form
Page 4
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above-written.
FIRST FEDERAL SAVINGS BANK
Witnessed by:
By
- --------------------------- -----------------------------------
An authorized Director
FIRSTFED BANCORP, INC.
Witnessed by:
By
- --------------------------- -----------------------------------
An authorized Director
EMPLOYEE
Witnessed by:
By
- --------------------------- -----------------------------------
An authorized Director
4
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
BETWEEN
FIRST FEDERAL SAVINGS BANK,
FIRSTFED BANCORP, INC.,
AND LYNN J. JOYCE
(as amended June 17, 1998)
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 Bank will not, without
<PAGE>
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 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
3
<PAGE>
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, (ii)
the Executive voluntarily terminates employment for any reason within the 30-day
period beginning on the date of any change in control, or (iii) 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 promptly thereof. Within five (5)
business days of the earlier of the Savings Bank's receipt of the Executive's
determination pursuant to this
4
<PAGE>
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. Any severance benefits that become payable under this Section 7 shall be
paid in the manner selected by the Executive in a duly executed election in the
form attached hereto as Exhibit "A" (the "Election Form"); provided that such an
election will be honored and given effect only if it is properly made and
delivered to the Savings Bank more than 90 days before said closing date. The
Executive may specify on the attached Election Form the manner of payment to his
beneficiary, and may at any time or from time to time change the identify or
manner of payment to his beneficiary. Present value determinations and interest
accruals on present value sums that are paid in installments over a fixed period
of years shall
5
<PAGE>
be calculated at a rate equal to 120% of the applicable federal rate, compounded
semiannually, as determined under Section 1274(d) of the Code, and the
regulations thereunder. 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 her
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.
Not later than three business days after a change in control as
defined in Section 7 of this Agreement, the Holding Company shall (i) deposit in
the FirstFed Bancorp, Inc. Grantor Trust (the "Trust") that was approved by the
Board of Directors of the Company on June 17, 1998, an amount that the Holding
Company reasonably projects to be sufficient to fund the payment of all
severance benefits that are or may become payable, pursuant to this Section,
after the closing date of the change in control, and (ii) provide the trustee of
the Trust with a written direction both to hold said amount and any investment
return thereon in a segregated account for the benefit of the Executive, and to
follow the procedures set forth in the next paragraph as to the payment of such
amounts from the Trust. The provisions of this Section shall be null and void
only if the Executive provides a written release of all claims under this
Agreement.
During the fifteen (15) consecutive month period after a change in control,
the Executive may provide the trustee of the Trust with a written notice
directing the trustee to pay to the Executive an amount designated in the notice
as being payable pursuant to this Agreement. Within three business days after
receiving said notice, the trustee of the Trust shall pay such amount to the
Executive, and coincidentally shall provide the Holding Company or its successor
with notice of such payment. Upon the earlier of the Trust's final payment of
all amounts due under the preceding paragraph or the date 15 months after the
change in control, the trustee of the Trust shall pay to the Holding Company the
entire balance remaining in the segregated account maintained for the benefit of
the Executive. The Executive shall thereafter have no further interest in the
trust.
6
<PAGE>
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.
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.
7
<PAGE>
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 her
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 her 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 her heirs, executors and administrators)
to the fullest extent permitted under Alabama law against all expenses and
liabilities reasonably incurred by her in connection with or arising out of any
action, suit or proceeding in which she may be involved by reason of her having
been a director or officer of the Savings Bank (whether or not she continues to
be a director or officer at the time of incurring such expenses or liabilities);
such expenses and liabilities to include, but not 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 her 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 her 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
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
9
<PAGE>
EXHIBIT "A"
FIRST FEDERAL SAVINGS BANK &
FIRSTFED BANCORP, INC.
EMPLOYMENT AGREEMENT
-------------------------------
ELECTION OF PAYMENT METHOD
AFTER A CHANGE IN CONTROL
-------------------------------
AGREEMENT, made this ____ day of ________, 19__, by and between the
undersigned officer (the "Employee"), First Federal Savings Bank (the "Bank"),
and FirstFed Bancorp, Inc. (the "Company"), with respect to distribution of the
Employee's benefits ("Benefits") that have accrued under the Employment
Agreement entered into between the Bank, the Company, and the Employee on
January 1, 1996 (the "Agreement") and have or become payable due to a change in
control (as defined in the Agreement).
NOW THEREFORE, it is mutually agreed as follows:
1. Form of Payment. The Employee shall receive Benefits in cash that is
---------------
paid --
[_] in one lump sum equal to the present value of the Employee's
accrued but unpaid Benefits.
[_] in substantially equal annual payments over a period of _____
years (no more than 10), with interest accruing, on the unpaid
present value of the Employee's Benefits, at a rate equal to
120% of the applicable federal rate, compounded semiannually, as
determined under Section 1274(d) of the Code, and the
regulations thereunder.
2. Time of Payment. The Employee shall begin to receive Benefits as soon
---------------
as practicable after --
[_] a Change in Control closes.
[_] the January 1st after a Change in Control closes.
[_] the _________ annual anniversary of the January 1st after a
Change in Control closes.
1
<PAGE>
Employment Agreement
Payment Election Form
Page 2
3. Frequency of Payment. The Employee shall receive Benefits on a ______
--------------------
monthly, ______ quarterly, _____ semi-annual, or _____ annual basis.
4. Form of Payment to Beneficiary. In the event of the Employee's death,
------------------------------
Benefits shall be distributed --
[_] in one lump sum payment, determined in the manner described in
paragraph 1 hereof.
[_] in accordance with the payment schedule selected in paragraphs
1, 2, and 3 hereof (with payments made as though the Employee
survived to collect all benefits, and as though the Employee
terminated service on the date of death, if payments had not
already begun).
5. Designation of Beneficiary. In the event of the Employee's death
--------------------------
before payment of all benefits due under the Agreement, the Employee hereby
directs that any amounts unpaid under the Agreement be distributed to the
beneficiary or beneficiaries designated under subparagraphs a and b of this
paragraph 5 in the manner elected pursuant to paragraph 4 above:
a. Primary Beneficiary. The Employee hereby designates the person(s)
-------------------
named below to be primary beneficiary and to receive the balance of any unpaid
benefits under the Agreement.
<TABLE>
<CAPTION>
================================================================================
Name of Percentage of
Primary Beneficiary Mailing Address Death Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
%
- --------------------------------------------------------------------------------
%
================================================================================
</TABLE>
b. Contingent Beneficiary. In the event that the primary beneficiary or
----------------------
beneficiaries named above are not living at the time of the Employee's death,
the Employee hereby designates the following person(s) to be contingent
beneficiary for purposes of the Agreement:
2
<PAGE>
Employment Agreement
Payment Election Form
Page 3
<TABLE>
<CAPTION>
================================================================================
Name of Percentage of
Contingent Beneficiary Mailing Address Death Benefit
- --------------------------------------------------------------------------------
<S> <C> <C>
%
- --------------------------------------------------------------------------------
%
================================================================================
</TABLE>
6. Effect of Election. The elections made in paragraphs 1, 2, and 3
------------------
hereof shall become irrevocable on the date 90 days before the closing of a
change in control. The Employee may at any time and from time to time change any
designation of, and manner of payment to, a beneficiary. Such election shall,
however, become irrevocable upon the Employee's death.
7. Mutual Commitments. The Bank and the Company agree to make payment of
------------------
all amounts due the Employee in accordance with the terms of the Agreement and
the elections made by the Employee herein. The Employee agrees to be bound by
the terms of the Agreement, as in effect on the date hereof and as properly
amended hereafter. The parties recognize and agree that this Agreement
supersedes and nullifies any prior distribution election to the extent it is
inconsistent herewith.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first above-written.
FIRST FEDERAL SAVINGS BANK
Witnessed by:
- -------------------------------------
By
-----------------------------------
An authorized Director
FIRSTFED BANCORP, INC.
Witnessed by:
- -------------------------------------
By
-----------------------------------
An authorized Director
EMPLOYEE
Witnessed by:
- ------------------------------------- -------------------------------------
3
<PAGE>
EXHIBIT 10.14
FIRSTFED BANCORP, INC.
1995 STOCK OPTION AND INCENTIVE PLAN
---------------------------------
Working Copy Inclusive of
1996, 1997, and 1998 Amendments
---------------------------------
1. PURPOSE OF THE PLAN.
The purpose of this FirstFed Bancorp, Inc. 1995 Stock Option and Incentive
Plan (the "Plan") is to advance the interests of the Company through providing
select key Employees and Directors of the Bank, the Company, and their
Affiliates with the opportunity to acquire Shares. By encouraging such stock
ownership, the Company seeks to attract, retain and motivate the best available
personnel for positions of substantial responsibility and to provide additional
incentive to Directors and key Employees of the Company or any Affiliate to
promote the success of the business.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered into in accordance
with Paragraph 5(c).
(c) "Awards" shall mean, collectively, Options, SARs, and Restricted
Stock, unless the context clearly indicates a different meaning.
(d) "Bank" shall mean First Federal Savings Bank.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with Paragraph 5(a) hereof.
(h) "Common Stock" shall mean the common stock, par value $.01 per share,
of the Company.
(i) "Company" shall mean FirstFed Bancorp, Inc.
<PAGE>
(j) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the case of
sick leave, military leave or any other leave of absence approved by the
Company, in the case of transfers between payroll locations of the Company or
between the Company, an Affiliate or a successor, or in the case of a Director's
performance of services in an emeritus or advisory capacity.
(k) "Director" shall mean any member of the Board, and any member of the
board of directors of any Affiliate that the Board has by resolution designated
as being eligible for participation in this Plan.
(l) "Disability" shall mean a physical or mental condition, which in the
sole and absolute discretion of the Committee, is reasonably expected to be of
indefinite duration and to substantially prevent a Participant from fulfilling
his or her duties or responsibilities to the Company or an Affiliate.
(m) "Effective Date" shall mean the date specified in Paragraph 14 hereof.
(n) "Employee" shall mean any person employed by the Company, the Bank, or
an Affiliate.
(o) "Exercise Price" shall mean the price per Optioned Share at which an
Option or SAR may be exercised.
(p) "ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan, and which is intended to be and is
identified as an "incentive stock option" within the meaning of Section 422 of
the Code.
(q) "Market Value" shall mean the fair market value of the Common Stock,
as determined under Paragraph 7(b) hereof.
(r) "Non-Employee Director" shall have the meaning provided in Rule 16b-3.
(s) "Non-ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan but which is not intended to be and is not
identified as an ISO.
(t) "Option" means an ISO and/or a Non-ISO.
(u) "Optioned Shares" shall mean Shares subject to an Award granted
pursuant to this Plan.
(v) "Participant" shall mean any person who receives an Award pursuant to
the Plan.
<PAGE>
(w) "Plan" shall mean this FirstFed Bancorp, Inc. 1995 Stock Option and
Incentive Plan.
(x) "Restricted Stock" means Common Stock which is subject to restrictions
against transfer and forfeiture and such other terms and conditions determined
by the Committee, as provided in Paragraph 11.
(y) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(z) "Share" shall mean one share of Common Stock.
(aa) "SAR" (or "Stock Appreciation Right") means a right to receive the
appreciation in value, or a portion of the appreciation in value, of a specified
number of shares of Common Stock.
(bb) "Year of Service" shall mean a full twelve-month period, measured from
the date of an Award and each annual anniversary of that date, during which a
Participant has continuously been an Employee or Director of the Company or an
Affiliate.
3. TERM OF THE PLAN AND AWARDS.
(a) Term of the Plan. The Plan shall continue in effect for a term of ten
years from the Effective Date, unless sooner terminated pursuant to Paragraph 16
hereof. No Award shall be granted under the Plan after ten years from the
Effective Date.
(b) Term of Awards. The term of each Award granted under the Plan shall be
established by the Committee, but shall not exceed 10 years; provided, however,
that in the case of an Employee who owns Shares representing more than 10% of
the outstanding Common Stock at the time an ISO is granted, the term of such ISO
shall not exceed five years.
4. SHARES SUBJECT TO THE PLAN.
(a) General Rule. The aggregate number of Shares deliverable pursuant to
Awards shall not exceed 30,000 Shares, as such number may be adjusted on and
after the Effective Date pursuant to Paragraph 11 hereof. The aggregate number
of shares deliverable pursuant to Awards shall be increased by 12,000 Shares, as
such number may be hereafter adjusted pursuant to Paragraph 11 hereof. Such
Shares may either be authorized but unissued Shares, Shares held in treasury, or
Shares held in a grantor trust created by the Company. If any Awards should
expire, become unexercisable, or be forfeited for any reason without having been
exercised, the Optioned Shares shall, unless the Plan shall have been
terminated, be available for the grant of additional Awards under the Plan.
(b) Special Rule for SARs. The number of Shares with respect to which an
SAR is granted, but not the number of Shares which the Company delivers or could
deliver to an
<PAGE>
Employee or individual upon exercise of an SAR, shall be charged against the
aggregate number of Shares remaining available under the Plan; provided,
however, that in the case of an SAR granted in conjunction with an Option, under
circumstances in which the exercise of the SAR results in termination of the
Option and vice versa, only the number of Shares subject to the Option shall be
charged against the aggregate number of Shares remaining available under the
Plan. The Shares involved in an Option as to which option rights have terminated
by reason of the exercise of a related SAR, as provided in Paragraph 10 hereof,
shall not be available for the grant of further Options under the Plan.
5. ADMINISTRATION OF THE PLAN.
(a) Composition of the Committee. The Plan shall be administered by the
Committee, which shall consist of not less than two (2) members of the Board who
are Non-Employee Directors. Members of the Committee shall serve at the pleasure
of the Board. In the absence at any time of a duly appointed Committee, the Plan
shall be administered by those members of the Board who are Non-Employee
Directors.
(b) Powers of the Committee. Except as limited by the express provisions
of the Plan or by resolutions adopted by the Board, the Committee shall have
sole and complete authority and discretion (i) to select Participants and grant
Awards, (ii) to determine the form and content of Awards to be issued in the
form of Agreements under the Plan, (iii) to interpret the Plan, (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan, and (v)
to make other determinations necessary or advisable for the administration of
the Plan. The Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to time. A majority
of the entire Committee shall constitute a quorum and the action of a majority
of the members present at any meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee without a meeting, shall be
deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee. Each such
Agreement shall constitute a binding contract between the Company and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The terms
of each such Agreement shall be in accordance with the Plan, but each Agreement
may include such additional provisions and restrictions determined by the
Committee, in its discretion, provided that such additional provisions and
restrictions are not inconsistent with the terms of the Plan. In particular, the
Committee shall set forth in each Agreement (i) the Exercise Price of an Option
or SAR, (ii) the number of Shares subject to, and the expiration date of, the
Award, (iii) the manner, time and rate (cumulative or otherwise) of exercise or
vesting of such Award, and (iv) the restrictions, if any, to be placed upon such
Award, or upon Shares which may be issued upon exercise of such Award.
The Chairman of the Committee and such other Directors and officers as
shall be designated by the Committee are hereby authorized to execute Agreements
on behalf of the Company and to cause them to be delivered to the recipients of
Awards.
<PAGE>
(d) Effect of the Committee's Decisions. All decisions, determinations and
interpretations of the Committee shall be final and conclusive on all persons
affected thereby.
(e) Indemnification. In addition to such other rights of indemnification
as they may have, the members of the Committee shall be indemnified by the
Company in connection with any claim, action, suit or proceeding relating to any
action taken or failure to act under or in connection with the Plan or any
Award, granted hereunder to the full extent provided for under the Company's
governing instruments with respect to the indemnification of Directors.
6. GRANT OF OPTIONS.
(a) General Rule. The Committee may grant Awards only to Employees and
Directors, including Directors of the Bank and First State Bank. In selecting
those Employees to whom Awards will be granted and the number of shares covered
by such Awards, the Committee shall consider the position, duties and
responsibilities of the eligible Employees, the value of their services to the
Company and its Affiliates, and any other factors the Committee may deem
relevant. Notwithstanding the foregoing, the Committee shall automatically make
the Awards specified in Sections 6(b) and 9 hereof.
(b) Automatic Grants to Employees. On the Effective Date, each of the
following Employees shall receive an Option (in the form of an ISO, to the
extent permissible under the Code) to purchase the number of Shares listed
below, at an Exercise Price per Share equal to the Market Value of a Share on
the Effective Date; provided that such grant shall not be made to an Employee
whose Continuous Service terminates on or before the Effective Date:
<TABLE>
<CAPTION>
Number of Shares
Participant Subject to Option
----------- -----------------
<S> <C>
B. K. Goodwin, III 7,500
Lynn J. Joyce 3,500
C. Larry Seale 2,500
Cathy N. Ackerman 500
W. Max Adams 500
Brenda M. Baswell 500
Robert Nelson, III 500
Martha A. Peeples 500
James E. Smith, Jr. 500
Rhonda T. Wannemuehler 500
</TABLE>
With respect to each of the above-named Participants, the Option granted to
the Participant hereunder (i) shall vest in accordance with the general rule set
forth in Paragraph 8(a) of the Plan, (ii) shall have a term of ten years from
the Effective Date, and (iii) shall be subject to the general rule set forth in
Paragraph 8(c) with respect to the effect of a
<PAGE>
Participant's termination of Continuous Service on the Participant's right to
exercise his Options.
(c) Special Rules for ISOs. The aggregate Market Value, as of the date the
Option is granted, of the Shares with respect to which ISOs are exercisable for
the first time by an Employee during any calendar year (under all incentive
stock option plans, as defined in Section 422 of the Code, of the Company or any
present or future Affiliate of the Company) shall not exceed $100,000.
Notwithstanding the foregoing, the Committee may grant Options in excess of the
foregoing limitations, in which case such Options granted in excess of such
limitation shall be Options which are Non-ISOs.
7. EXERCISE PRICE FOR OPTIONS.
(a) Limits on Committee Discretion. The Exercise Price as to any
particular Option shall not be less than 100% of the Market Value of the
Optioned Shares on the date of grant. In the case of an Employee who owns Shares
representing more than 10% of the Company's outstanding Shares of Common Stock
at the time an ISO is granted, the Exercise Price shall not be less than 110% of
the Market Value of the Optioned Shares at the time the ISO is granted.
(b) Standards for Determining Exercise Price. If the Common Stock is
listed on a national securities exchange (including the NASDAQ National Market
System) on the date in question, then the Market Value per Share shall be the
average of the highest and lowest selling price on such exchange on such date,
or if there were no sales on such date, then the Exercise Price shall be the
mean between the bid and asked price on such date. If the Common Stock is traded
otherwise than on a national securities exchange on the date in question, then
the Market Value per Share shall be the mean between the bid and asked price on
such date, or, if there is no bid and asked price on such date, then on the next
prior business day on which there was a bid and asked price. If no such bid and
asked price is available, then the Market Value per Share shall be its fair
market value as determined by the Committee, in its sole and absolute
discretion. Notwithstanding the foregoing, in the event that either (i) the
Committee exercises its discretion to impose transfer (or other) restrictions on
the Shares subject to an Option, or (ii) the Plan requires specified transfer
restrictions, the Committee shall make an appropriate adjustment in determining
the Market Value of the Shares subject to such an Option (in order to take into
account that their fair market value may be less than the fair market value of
unrestricted Shares).
8. EXERCISE OF OPTIONS.
(a) Generally. Unless otherwise provided by the Committee pursuant to an
applicable Agreement, each Option shall be fully (100%) exercisable immediately
upon the date of its grant, subject to Paragraph 13 hereof.
(b) Procedure for Exercise. A Participant may exercise Options, subject to
provisions relative to its termination and any limitations on its exercise, only
by (1) written notice of
<PAGE>
intent to exercise the Option with respect to a specified number of Shares, and
(2) payment to the Company (contemporaneously with delivery of such notice) in
cash, in Common Stock, or a combination of cash and Common Stock, of the amount
of the Exercise Price for the number of Shares with respect to which the Option
is then being exercised. Each such notice (and payment where required) shall be
delivered, or mailed by prepaid registered or certified mail, addressed to the
Treasurer of the Company at the Company's executive offices. Common Stock
utilized in full or partial payment of the Exercise Price for Options shall be
valued at its Market Value at the date of exercise, and may consist of Shares
subject to the Option being exercised. A Participant who exercises Non-ISOs
pursuant to this Paragraph may satisfy all applicable federal, state and local
income and employment tax withholding obligations, in whole or in part, by
irrevocably electing to have the Company withhold shares of Common Stock, or to
deliver to the Company shares of Common Stock that he already owns, having a
value equal to the amount required to be withheld; provided that to the extent
not inconsistent herewith, such election otherwise complies with those
requirements of Paragraphs 8 and 19 hereof.
(c) Period of Exercisability. Except to the extent otherwise provided in
the terms of an Agreement, an Option may be exercised by a Participant only
while he is an Employee and has maintained Continuous Service from the date of
the grant of the Option, or within three months after termination of such
Continuous Service (but not later than the date on which the Option would
otherwise expire), except if the Employee's Continuous Service terminates by
reason of--
(1) "Just Cause" which for purposes hereof shall have the meaning set
forth in any unexpired employment or severance agreement between the
Participant and the Bank and/or the Company (and, in the absence of any
such agreement, shall mean termination because of 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), then the
Participant's rights to exercise such Option shall expire on the date of
such termination;
(2) death, then to the extent that the Participant would have been
entitled to exercise the Option immediately prior to his death, such Option
of the deceased Participant may be exercised within two years from the date
of his death (but not later than the date on which the Option would
otherwise expire) by the personal representatives of his estate or person
or persons to whom his rights under such Option shall have passed by will
or by laws of descent and distribution;
(3) Disability, then to the extent that the Participant would have
been entitled to exercise the Option immediately prior to his or her
Disability, such Option may be exercised within one year from the date of
termination of employment due to Disability, but not later than the date on
which the Option would otherwise expire.
<PAGE>
(d) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
(e) Six-Month Holding Period. Notwithstanding any other provision of this
Plan to the contrary, Common Stock that is purchased upon exercise of an Option
or SAR may not be sold within the six-month period following the grant date of
that Option or SAR, except in the event of a Participant's death, Disability or
retirement at or after age 65, or such other event as the Board may specifically
deem appropriate.
9. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Automatic Grants. Notwithstanding any other provisions of this Plan,
each Director who is not an Employee but is a Director on the Effective Date
shall receive, on said date, Non-ISOs to purchase 1,125 of the Shares reserved
under Paragraph 4(a) hereof. Such Non-ISOs shall have an Exercise Price per
Share equal to the Market Value of a Share on the date of grant. Each Director
who joins the Board after the Effective Date and who is not then an Employee
shall receive, on the date of joining the Board, Non-ISOs to purchase 1,000 of
the Shares reserved under Paragraph 4(a) of the Plan, at an Exercise Price per
Share equal to its Market Value on the date of grant.
(b) Terms of Exercise. Options received under the provisions of this
Paragraph will become exercisable in accordance with the general rule set forth
in Paragraph 8(a) hereof, and may be exercised from time to time by (a) written
notice of intent to exercise the Option with respect to all or a specified
number of the Optioned Shares, and (b) payment to the Company (contemporaneously
with the delivery of such notice), in cash, in Common Stock, or a combination of
cash and Common Stock, of the amount of the Exercise Price for the number of the
Optioned Shares with respect to which the Option is then being exercised. Each
such notice and payment shall be delivered, or mailed by prepaid registered or
certified mail, addressed to the Treasurer of the Company at the Company's
executive offices. A Director who exercises Options pursuant to this Paragraph
may satisfy all applicable federal, state and local income and employment tax
withholding obligations, in whole or in part, by irrevocably electing to have
the Company withhold shares of Common Stock, or to deliver to the Company shares
of Common Stock that he already owns, having a value equal to the amount
required to be withheld; provided that to the extent not inconsistent herewith,
such election otherwise complies with those requirements of Paragraphs 8 and 19
hereof.
Options granted under this Paragraph shall have a term of ten years;
provided that Options granted under this Paragraph shall expire one year after
the date on which a Director terminates Continuous Service on the Board, but in
no event later than the date on which such Options would otherwise expire. In
the event of such Director's death during the term of his directorship, Options
granted under this Paragraph shall become immediately exercisable, and may be
exercised within two years from the date of his death by the personal
representatives of his estate or person or persons to whom his rights under such
Option shall have passed by will or by laws of descent and distribution, but in
no event later than the date on which such
<PAGE>
Options would otherwise expire. In the event of such Director's Disability
during his or her directorship, the Director's Option shall become immediately
exercisable, and such Option may be exercised within one year of the termination
of directorship due to Disability, but not later than the date that the Option
would otherwise expire. Unless otherwise inapplicable or inconsistent with the
provisions of this Paragraph, the Options to be granted to Directors hereunder
shall be subject to all other provisions of this Plan.
(c) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
10. SARS (STOCK APPRECIATION RIGHTS)
(a) Granting of SARs. In its sole discretion, the Committee may from time
to time grant SARs to Employees either in conjunction with, or independently of,
any Options granted under the Plan. An SAR granted in conjunction with an Option
may be an alternative right wherein the exercise of the Option terminates the
SAR to the extent of the number of shares purchased upon exercise of the Option
and, correspondingly, the exercise of the SAR terminates the Option to the
extent of the number of Shares with respect to which the SAR is exercised.
Alternatively, an SAR granted in conjunction with an Option may be an additional
right wherein both the SAR and the Option may be exercised. An SAR may not be
granted in conjunction with an ISO under circumstances in which the exercise of
the SAR affects the right to exercise the ISO or vice versa, unless the SAR, by
its terms, meets all of the following requirements:
(1) The SAR will expire no later than the ISO;
(2) The SAR may be for no more than the difference between the Exercise
Price of the ISO and the Market Value of the Shares subject to the ISO at
the time the SAR is exercised;
(3) The SAR is transferable only when the ISO is transferable, and under
the same conditions;
(4) The SAR may be exercised only when the ISO may be exercised; and
(5) The SAR may be exercised only when the Market Value of the Shares
subject to the ISO exceeds the Exercise Price of the ISO.
(b) Exercise Price. The Exercise Price as to any particular SAR shall not
be less than the Market Value of the Optioned Shares on the date of grant.
(c) Timing of Exercise. Any election by a Participant to exercise SARs
shall be made during the period beginning on the 3rd business day following the
release for publication of quarterly or annual financial information and ending
on the 12th business day following
<PAGE>
such date. This condition shall be deemed to be satisfied when the specified
financial data is first made publicly available.
The provisions of Paragraph 8(c) regarding the period of exercisability of
Options are incorporated by reference herein, and shall determine the period of
exercisability of SARs.
(d) Exercise of SARs. An SAR granted hereunder shall be exercisable at
such times and under such conditions as shall be permissible under the terms of
the Plan and of the Agreement granted to a Participant, provided that an SAR may
not be exercised for a fractional Share. Upon exercise of an SAR, the
Participant shall be entitled to receive, without payment to the Company except
for applicable withholding taxes, an amount equal to the excess of (or, in the
discretion of the Committee if provided in the Agreement, a portion of) the
excess of the then aggregate Market Value of the number of Optioned Shares with
respect to which the Participant exercises the SAR, over the aggregate Exercise
Price of such number of Optioned Shares. This amount shall be payable by the
Company, in the discretion of the Committee, in cash or in Shares valued at the
then Market Value thereof, or any combination thereof.
(e) Procedure for Exercising SARs. To the extent not inconsistent
herewith, the provisions of Paragraph 8(b) as to the procedure for exercising
Options are incorporated by reference, and shall determine the procedure for
exercising SARs.
11. RESTRICTED STOCK AWARDS.
Any Share of Restricted Stock which the Committee may grant shall be
subject to the following terms and conditions, and to such other terms and
conditions as are either applicable generally to Awards, or prescribed by the
Committee in an Agreement with the Participant.
(a) Discretionary Awards. At any time, the Committee may at its discretion
--------------------
impose a restriction period for the Restricted Stock ("Restricted Period"). The
Restriction Period may differ among Participants and may have different
expiration dates with respect to portions of shares of Restricted Stock covered
by the same award. The Committee shall determine the restrictions applicable to
the award of Restricted Stock, including, but not limited to, requirements of
Continuous Service for a specified term, or the attainment of specific
corporate, divisional or individual performance standards or goals, which
restrictions may differ with respect to each Participant. The Agreement shall
provide for forfeiture of Shares covered thereby if the specified restrictions
are not met during the Restriction Period, and may provide for early termination
of any Restriction Period in the event of satisfaction of the specified
restrictions prior to expiration of the Restricted Period.
(b) Automatic Awards. On the date of Board approval of this Paragraph 11
----------------
of the Plan, each Director on such date shall receive a Restricted Stock Award
that covers 1,000 Shares, that vests at the rate of 10% per year of the
Director's Continuous Service after the date of the Award, and that accelerates
vesting to 100% immediately upon a Change in Control or termination of the
Participant's Continuous Service due to death, Disability, or retirement after
age 65.
<PAGE>
(c) Accelerated Vesting. The Committee shall set forth in the Agreement
-------------------
the percentage, if any, of the award of Restricted Stock which shall vest in the
Participant in the event of death, Disability, or retirement prior to the
expiration of the Restriction Period or the satisfaction of the restrictions
applicable to an award of Restricted Stock. Notwithstanding the Restriction
Period and the restrictions imposed on the Restricted Stock, as set forth in any
Agreement, the Committee may shorten the Restriction Period or waive any
restrictions, if the Committee concludes that it is in the best interests of the
Company to do so.
(d) Ownership; Voting. Stock certificates shall be issued in respect of
-----------------
Restricted Stock awarded hereunder and shall be registered in the name of the
Participant, whereupon the Participant shall become a stockholder of the Company
with respect to such Restricted Stock and shall, to the extent not inconsistent
with express provisions of the Plan, have all the rights of a stockholder,
including but not limited to the right to receive all dividends paid on such
Shares and the right to vote such Shares. Said stock certificates may be
transferred to the Participant or be deposited with the Company or its designee,
together with a stock power endorsed in blank, and the following legend shall be
placed upon such certificates reflecting that the shares represented thereby are
subject to restrictions against transfer and forfeiture:
"The transferability of this certificate and the shares of stock
represented thereby are subject to the terms and conditions (including
forfeiture) contained in the 1995 Stock Option and Incentive Plan of
FirstFed Bancorp, Inc., and an agreement entered into between the
registered owner and FirstFed Bancorp, Inc. Copies of such Plan and
Agreement are on file in the offices of the Secretary of FirstFed
Bancorp, Inc., 1630 Fourth Avenue, North, Bessemer, Alabama
35020-5711."
(d) Lapse of Restrictions. At the expiration of the Restricted Period
---------------------
applicable to the Restricted Stock, the Company shall deliver to the
Participant, or the legal representative of the Participant's estate, or if the
personal representative of the Participant's estate shall have assigned the
estate's interest in the Restricted Stock, to the person or persons to whom his
rights under such Stock shall have passed by assignment pursuant to his will or
to the laws of descent and distribution, the stock certificates deposited with
it or its designee and as to which the Restricted Period has expired and the
requirements of the restrictions have been met. If a legend has been placed on
such certificates, the Company shall cause such certificates to be reissued
without the legend.
(e) Forfeiture of Restricted Stock. The Agreement shall provide for
------------------------------
forfeiture of any Restricted Stock which is not vested in the Participant or for
which the restrictions have not been satisfied during the Restriction Period.
12. DEFERRAL ELECTIONS BY HOLDERS OF RESTRICTED STOCK AWARDS.
(a) Elections to Defer. At any time more than 120 days prior to the date
------------------
on which a Participant becomes vested in any Shares subject to a Restricted
Stock Award granted pursuant to the Plan, a Participant who is a member of a
select group of management or highly
<PAGE>
compensated employees (within the meaning of the Employees' Retirement Income
Security Act of 1973) may irrevocably elect, on the form attached hereto as
Exhibit "A" (the "Election Form"), to defer the receipt of all or a percentage
of the Shares that would otherwise be transferred to the Participant upon the
vesting of such Restricted Stock Award (the "Deferred Shares").
(b) Transfer to Deferred Compensation Plan. The Committee shall transfer
--------------------------------------
any Deferred Shares directly to the Participant's account under the Company's
Deferred Compensation Plan, the terms of which shall thereafter govern and
control future maintenance and distribution of the Deferred Shares and any
earnings attributable to cash dividends paid on Deferred Shares.
13. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN.
(a) Recapitalizations; Stock Splits, Etc. The number and kind of shares
reserved for issuance under the Plan, and the number and kind of shares subject
to outstanding Awards, and the Exercise Price thereof, shall be proportionately
adjusted for any increase, decrease, change or exchange of Shares for a
different number or kind of shares or other securities of the Company which
results from a merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of shares, or similar
event in which the number or kind of shares is changed without the receipt or
payment of consideration by the Company.
(b) Transactions in which the Company is Not the Surviving Entity. In the
event of (i) the liquidation or dissolution of the Company, (ii) a merger or
consolidation in which the Company is not the surviving entity, or (iii) the
sale or disposition of all or substantially all of the Company's assets (any of
the foregoing to be referred to herein as a "Transaction"), all outstanding
Awards, together with the Exercise Prices thereof, shall be equitably adjusted
for any change or exchange of Shares for a different number or kind of shares or
other securities which results from the Transaction.
(c) Special Rule for ISOs. Any adjustment made pursuant to subparagraphs
(a) or (b)(1) hereof shall be made in such a manner as not to constitute a
modification, within the meaning of Section 424(h) of the Code, of outstanding
ISOs.
(d) Conditions and Restrictions on New, Additional, or Different Shares or
Securities. If, by reason of any adjustment made pursuant to this Paragraph, a
Participant becomes entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the Shares pursuant to the Award before the adjustment was made.
(e) Other Issuances. Except as expressly provided in this Paragraph, the
issuance by the Company or an Affiliate of shares of stock of any class, or of
securities convertible into Shares or stock of another class, for cash or
property or for labor or services either upon direct
<PAGE>
sale or upon the exercise of rights or warrants to subscribe therefor, shall not
affect, and no adjustment shall be made with respect to, the number, class, or
Exercise Price of Shares then subject to Awards or reserved for issuance under
the Plan.
14. NON-TRANSFERABILITY OF AWARDS.
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution. Notwithstanding any other provision of this Plan to the contrary,
to the extent permissible under Rule 16b-3, a Participant who is granted Non-
ISOs pursuant to this Plan may transfer such Non-ISOs to his or her spouse,
lineal ascendants, lineal descendants, or to a duly established trust, provided
that Non-ISOs so transferred may not again be transferred other than (i) to the
Participant originally receiving the grant of Non-ISOs, or (ii) to an individual
or trust to whom such Participant could have transferred Non-ISOs pursuant to
this Paragraph 12. Non-ISOs which are transferred pursuant to this Paragraph 12
shall be exercisable by the transferee subject to the same terms and conditions
as would have applied to such Non-ISOs in the hands of the Participant
originally receiving the grant of such Non-ISOs.
15. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be the later of the
date on which the Committee makes the determination of granting such Award, and
the Effective Date; provided that no Option shall be exercisable before the Plan
receives stockholder approval in accordance with Paragraph 14 hereof. Notice of
the determination shall be given to each Participant to whom an Award is so
granted within a reasonable time after the date of such grant.
16. EFFECTIVE DATE.
The Plan shall become effective immediately upon its approval by the Board,
provided that, only to the extent required for the Plan to be in conformity with
Rule 16b-3, the effectiveness of the Plan and any Awards shall be contingent
upon a favorable vote of stockholders owning at least a majority of the total
votes cast at a duly called meeting of the Company's stockholders held in
accordance with applicable laws.
17. MODIFICATION OF AWARDS.
At any time, and from time to time, the Board may authorize the Committee
to direct execution of an instrument providing for the modification of any
outstanding Award, provided no such modification shall confer on the holder of
said Award any right or benefit which could not be conferred on him by the grant
of a new Award at such time, or impair the Award without the consent of the
holder of the Award.
<PAGE>
18. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the Plan and, with
respect to any Shares at the time not subject to Awards, suspend or terminate
the Plans. No amendment, suspension or termination of the Plan shall, without
the consent of any affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
19. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Compliance with Securities Laws. Shares of Common Stock shall not be
issued with respect to any Award unless the issuance and delivery of such Shares
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities law, and the requirements of any
stock exchange upon which the Shares may then be listed.
(b) Special Circumstances. The inability of the Company to obtain approval
from any regulatory body or authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of such
Shares. As a condition to the exercise of an Option or SAR, the Company may
require the person exercising the Option or SAR to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.
(c) Committee Discretion. The Committee shall have the discretionary
authority to impose in Agreements such restrictions on Shares as it may deem
appropriate or desirable, including but not limited to the authority to impose a
right of first refusal or to establish repurchase rights or both of these
restrictions.
20. RESERVATION OF SHARES.
The Company, during the term of the Plan, will reserve and keep available a
number of Shares sufficient to satisfy the requirements of the Plan.
21. WITHHOLDING TAX.
The Company's obligation to deliver Shares upon exercise of Options and/or
SARs shall be subject to the Participant's satisfaction of all applicable
federal, state and local income and employment tax withholding obligations.
22. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's or Director's eligibility to participate or
participation in the Plan create or be deemed to create any legal or equitable
right of the Employee, Director, or any other party to continue service with the
Company, the Bank, or any Affiliate of such corporations. Except to the extent
provided in Paragraphs 6(b) and 9(a), no Employee
<PAGE>
or Director shall have a right to be granted an Award or, having received an
Award, the right to again be granted an Award. However, an Employee or Director
who has been granted an Award may, if otherwise eligible, be granted an
additional Award or Awards.
23. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws of
the State of Alabama, except to the extent that federal law shall be deemed to
apply.
<PAGE>
EXHIBIT A
FIRSTFED BANCORP, INC.
1995 STOCK OPTION AND INCENTIVE PLAN
-------------------------------
DEFERRAL ELECTION AGREEMENT
-------------------------------
AGREEMENT, made this ____ day of ________, 199_, by and between ____________
(the "Participant"), and FirstFed Bancorp, Inc. (the "Company").
WHEREAS, the Company has established the FirstFed Bancorp, Inc. 1995 Stock
Option and Incentive Plan (the "Plan"), and the Participant is a recipient of
Restricted Stock Awards (the "Awards") for ________ shares ("Shares") of common
stock of the Company, to be issued to the Participant over a period of _____
years vesting ___% per year; and
WHEREAS, Participant desires to defer receipt of certain Awards (and any
earnings thereon) to which Participant is entitled upon the vesting of such
Awards.
NOW THEREFORE, the Participant hereby elects to defer the receipt, when
vesting occurs, of the following Shares subject to his or her Awards:
Number of Shares
Vesting Date Deferred
------------ ----------------
IN WITNESS WHEREOF, the Participant makes this election on the day and year
first above-written above, and agrees that all deferrals pursuant to the Plan
after the date of this Agreement shall be held and distributed in accordance
with the Company's Deferred Compensation Plan and any elections that the
Participant makes thereunder.
PARTICIPANT
----------------------------
Signature
AGREED TO AND ACCEPTED, effective as of the day and year first written
above, by:
FIRSTFED BANCORP, INC.
By
---------------------------
Its
------------------------
<PAGE>
EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended
March 31, 1998
---------------------
Earnings
Shares Per Share
---------- ---------
<S> <C> <C>
Basic Weighted average shares outstanding 1,170,402 $1.41
========= =====
Diluted
Average shares outstanding 1,170,402
Common Stock equivalents 53,305
---------
1,223,707 $1.35
========= =====
Year Ended
March 31, 1998
---------------------
Earnings
Shares Per Share
---------- ---------
<S> <C> <C>
Basic Weighted average shares outstanding 1,223,052 $0.83
========= =====
Diluted
Average shares outstanding 1,223,052
Common Stock equivalents 34,775
---------
1,257,827 $0.81
========= =====
</TABLE>
<PAGE>
EXHIBIT 13
FIRSTFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF MARCH 31, 1998 AND 1997
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash on hand and in banks $ 3,443 $ 5,411
Interest-bearing deposits in other banks 5,592 4,354
Federal funds sold 19,050 4,200
--------------- ---------------
28,085 13,965
--------------- ---------------
Securities available for sale 9,191 10,330
Assets held for sale 778 331
Securities held to maturity, fair value of $19,291 and $19,777, respectively 19,118 19,702
Loans receivable, net of allowance for loan losses of $1,106 and $733,
respectively 117,541 126,849
Land, buildings and equipment, less accumulated depreciation of
$2,055 and $1,893, respectively 2,922 2,642
Goodwill 1,389 1,487
Real estate owned and held for investment 665 1,062
Accrued interest receivable 1,399 1,450
Other assets 380 306
--------------- ---------------
$ 181,468 $ 178,124
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 162,859 $ 157,970
Borrowed funds - 1,000
Accrued interest payable 197 156
Income taxes payable 111 318
Dividend payable 150 123
Other liabilities 518 634
--------------- ---------------
163,835 160,201
--------------- ---------------
Commitments and contingencies (Notes 3, 9, 10, 11 and 13)
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, 1,490,848 issued
and 1,200,897 outstanding in 1998 and 1,477,530 issued and 1,231,582
outstanding in 1997 14 14
Paid-in capital 7,098 6,601
Retained earnings 15,204 14,256
Treasury stock, at cost (289,951 and 245,948 shares, respectively) (3,752) (2,781)
Unearned compensation (948) (95)
Unrealized gain (loss) on securities available for sale, net 17 (72)
--------------- ---------------
17,633 17,923
--------------- ---------------
$ 181,468 $ 178,124
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
FIRSTFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
(Dollar amounts in thousands, except per share amounts)
1998 1997
---------- ----------
INTEREST INCOME
Interest and fees on loans $ 11,084 $ 11,339
Interest and dividends on securities 1,789 1,583
Other interest income 644 399
---------- ----------
Total interest income 13,517 13,321
---------- ----------
INTEREST EXPENSE
Interest on deposits 7,252 7,208
Interest on other borrowings 37 98
---------- ----------
Total interest expense 7,289 7,306
---------- ----------
Net interest income 6,228 6,015
Provision for loan losses 532 186
---------- ----------
Net interest income after provision for loan losses 5,696 5,829
---------- ----------
NONINTEREST INCOME
Fees for customer services 700 626
Net gain on sale of real estate 491 -
Miscellaneous income, net 183 282
---------- ----------
Total noninterest income 1,374 908
---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits 2,456 2,198
Office building and equipment expense 562 546
Deposit insurance expense 90 220
Net loss on real estate owned - 20
Amortization of goodwill 108 111
Other operating expenses 1,276 1,169
Special deposit insurance assessment - 704
Litigation expense - 250
---------- ----------
Total noninterest expense 4,492 5,218
---------- ----------
Income before provision for income taxes 2,578 1,519
Provision for income taxes 925 506
---------- ----------
NET INCOME $ 1,653 $ 1,013
========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC 1,170,402 1,223,052
BASIC EARNINGS PER SHARE $ 1.41 $ .83
========== ==========
AVERAGE NUMBER OF SHARES
OUTSTANDING - DILUTED 1,223,707 1,257,827
DILUTED EARNINGS PER SHARE $ 1.35 $ .81
========== ==========
DIVIDENDS DECLARED PER SHARE $ .60 $ .48
========== ==========
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
FIRSTFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998 and 1997
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Unrealized
Gain (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, 1996 $ 7 $ 6,457 $ 13,831 $ (2,774) $ (204) $ (86)
Amortization of unearned
compensation - - - - 115 -
Awards under stock plans - 6 - - (6) -
Net income - - 1,013 - - -
Dividends declared ($.48 per share) - - (588) - - -
Exercise of stock options - 145 - - - -
Purchase of treasury stock - - - (7) - -
Change in unrealized gain (loss) on
securities available for sale, net - - - - - 14
Two-for-one stock split 7 (7) - - - -
--------- ---------- --------- --------- --------- ----------
BALANCE, March 31, 1997 14 6,601 14,256 (2,781) (95) (72)
Amortization of unearned
compensation - - - - 102 -
Awards under stock plans - 5 - - (5) -
Net income - - 1,653 - - -
Dividends declared ($.60 per share) - - (705) - - -
Exercise of stock options - 80 - - - -
Purchase of treasury stock - - - (1,539) - -
Change in unrealized gain (loss) on
securities available for sale, net - - - - - 89
Stock issued under Dividend
Reinvestment Plan - 30 - - - -
Issuance of treasury stock
to Employee Stock Ownership Plan - 382 - 568 (950) -
--------- ---------- --------- --------- --------- ----------
BALANCE, March 31, 1998 $ 14 $ 7,098 $ 15,204 $ (3,752) $ (948) $ 17
========= ========== ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
FIRSTFED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 and 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(Dollars amounts in thousands)
1998 1997
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,653 $ 1,013
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 250 252
Amortization of unearned compensation 102 115
Amortization of purchase premiums, net 53 91
Accretion of deferred income (expense),
net 41 (33)
Credit for deferred income taxes (258) (74)
Provisions for loan losses 532 186
Loan fees (cost) deferred, net (35) (127)
(Gain) loss on sale of real estate, net (491) 19
Origination of loans held for sale (9,569) (7,541)
Proceeds from loans held for sale 9,122 8,792
Amortization of goodwill 108 111
Changes in assets and liabilities
(Increase) decrease in accrued interest
receivable 51 (124)
(Increase) decrease in other assets (74) 25
Increase (decrease) in accrued interest
payable 41 (16)
Increase (decrease) in current income
taxes payable (18) 155
Increase (decrease) in other liabilities (116) 42
------------ ------------
Net cash provided by operating activities 1,392 2,886
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities
available for sale 5,692 2,250
Proceeds from the sale of securities
available
Proceeds from maturities of
securities held to maturity 3,127 1,626
Purchase of securities held to maturity (3,100) (4,202)
Purchase of securities available for sale (4,396) (2,591)
Purchase of mortgage-backed securities (2,777) (10,967)
Principal payments received on
mortgage-backed securities 3,272 2,342
Proceeds from sale of real estate
and repossessed assets 1,906 75
Net loan repayments (originations) 7,819 (823)
Capital expenditures (597) (288)
------------ ------------
Net cash provided by (used in)
investing activities 10,946 (11,721)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net 4,889 12,112
Payments of FHLB advances (1,000) (1,002)
Proceeds from exercise of stock options 80 145
Proceeds from dividend reinvestment 30 -
Cash dividends paid (678) (562)
Purchase of treasury stock (1,539) (7)
------------ ------------
Net cash provided by financing activities 1,782 10,686
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14,120 1,851
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,965 12,114
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 28,085 $ 13,965
============ ============
The accompanying notes are an integral part of these consolidated statements
<PAGE>
FIRSTFED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 and 1997
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 collectively as the "Banks".
There are no material assets in FSC except for the investment in First State.
The accompanying consolidated financial statements include the accounts of the
Company, First Federal, FSC and First State. All significant inter-company
balances and transactions have been eliminated in consolidation.
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform to the 1998 presentation. Such reclassification had no
effect on net income or total assets.
Nature of Operations
The Banks, through eight 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. The primary estimate is the allowance for
loan losses.
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 and the
Company's ability to hold such securities to maturity.
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. Federal Home Loan Bank and Federal Reserve stock are required stock
holdings and are carried at cost, as there is no market for these shares. There
are no securities classified as trading as of March 31, 1998 or 1997.
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,
1998 and 1997, assets held for sale consisted of mortgage loans in the process
of being sold to third-party investors.
Loans Receivable
Loans receivable are stated at unpaid principal balances, net of the
allowance for loan losses and deferred loan origination fees and costs. Interest
is credited to income based upon the recorded investment.
<PAGE>
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.
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,
the estimated value of underlying collateral, and the balance of any impaired
loans (generally considered to be nonperforming loans, excluding residential
mortgages and other homogeneous loans). Though management believes the allowance
for loan losses to be adequate, ultimate losses may vary from 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. Specific allowances for impaired loans are based on comparisons of the
carrying values of the loans to the present value of the loans' estimated cash
flows at each loan's effective interest rate, the fair value of the collateral,
or the loans' observable market prices. The Company had no loans designated as
impaired at March 31, 1998 or 1997.
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.
Long-Lived Assets
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.
Goodwill is amortized on a straight-line basis over 15 years.
The Company continually evaluates whether events and circumstances have
occured that indicate that such long-lived assets have been impaired.
Measurement of any impairment of such long-lived assets is based on those
assets' fair values and is recognized through a valuation allowance with the
resulting charge recorded as a loss. There were no significant impairment losses
recorded during either 1998 or 1997.
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 consolidated 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.
<PAGE>
1998 1997
------ ------
SUPPLEMENTAL CASH FLOW INFORMATION: (In Thousands)
Cash paid during the period for-
Income taxes $1,201 $ 425
Interest 7,248 7,322
Non-cash transactions-
Transfers of loans receivable to real estate owned 951 147
Noncash compensation under stock plans 5 6
Declaration of cash dividend payable 150 123
Earnings Per Share
During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" which had been issued by the
Financial Accounting Standards Board ("FASB") in February 1997. This Statement
established standards for computing and presenting earnings per share, ("EPS").
This Statement simplified the standards for computing EPS previously found in
APB Opinion No. 15, "Earnings per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS and requires dual presentation of basic and diluted
EPS on the face of the income statement and disclosure of a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. Such disclosure is as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------- --------------------------------------
Dilutive Dilutive
Effect of Effect of
Basic Options Diluted Basic Options Diluted
Issued Issued
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Income $1,653,000 - $1,653,000 $1,013,000 - $1,013,000
Shares available to
common shareholders 1,170,402 53,305 1,223,707 1,223,052 34,775 1,257,827
---------- ---------- ---------- ---------- ---------- ----------
Earnings Per Share $ 1.41 - $ 1.35 $ 0.83 - $ 0.81
========== ========== ========== ========== ========== ==========
</TABLE>
As required by this Statement, all prior-period EPS data presented has been
restated.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting of Comprehensive
Income." Comprehensive income is the total of net income and all other nonowner
changes in equity. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. It requires that all items that are to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997. The Company adopted the provisions of this Statement on
April 1, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement establishes standards for
the way that public business enterprises report information about operating
segments in interim financial reports issued to shareholders. This Statement is
effective for fiscal years beginning after December 15, 1997. The Company
adopted the provisions of this Statement on April 1, 1998. Based on the
Company's current operating activities, management does not believe that
adoption of this Statement will have a material impact on the presentation of
the Company's financial condition or results of operations.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This Statement revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans. It standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer useful. This
Statement is effective for fiscal years beginning after December 15, 1997. The
Company adopted the requirements of this Statement on April 1, 1998.
Stock Split
On February 18, 1997, the Board of Directors declared a two-for-one stock
split, effected in the form of a 100% stock dividend on the Company's
outstanding common stock to stockholders of record on April 1, 1997. Common
stock and paid-in capital as of March 31, 1997, have been restated to reflect
the split. All share and per share data included in this Annual Report have been
restated to reflect the split.
<PAGE>
2. SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY:
The amortized cost, approximate fair value and gross unrealized gains and
losses of the Banks' securities as of March 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY
--------------------------------------------------------------------------------------------------
March 31, 1998 March 31, 1997
------------------------------------------------ -----------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gain (Loss) Value Cost Gain (Loss) Value
--------- ---------- ---------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
U. S. Government Agency
securities $ 3,990 $ 39 $ -- $ 4,029 $ 3,990 $ -- $ -- $ 3,990
FHLB and Federal Reserve
stock, at cost 1,391 -- -- 1,391 1,393 -- -- 1,393
Obligations of states and
political subdivisions 965 42 -- 1,007 990 23 (1) 1,012
Mortgage-backed securities 12,772 137 (45) 12,864 13,329 107 (54) 13,382
-------- -------- -------- -------- -------- -------- -------- --------
$ 19,118 $ 218 $ (45) $ 19,291 $ 19,702 $ 130 $ (55) $ 19,777
======== ======== ======== ======== ======== ======== ======== ========
<CAPTION>
SECURITIES AVAILABLE FOR SALE
---------------------------------------------------------------------------------------------------
March 31, 1998 March 31, 1997
------------------------------------------------- ----------------------------------------------
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 $ 9,160 $ 42 $ (11) $ 9,191 $ 10,456 $ - $ (126) $ 10,330
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The amortized cost and estimated fair value of securities held to maturity
and securities available for sale at March 31, 1998, 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 $ -- $ -- $ 2,372 $ 2,368
Due after one year through five years 5,435 5,520 6,092 6,125
Due after five years through ten years 12,292 12,380 696 698
------------ ------------ ------------ ------------
17,727 17,900 9,160 9,191
FHLB and Federal Reserve stock 1,391 1,391 -- --
------------ ------------ ------------ ------------
$ 19,118 $ 19,291 $ 9,160 $ 9,191
============ ============ ============ ============
</TABLE>
Securities totaling $8,136,000 have been pledged as collateral against
certain large public deposits at March 31, 1998. Deposits associated with
pledged securities had an aggregate balance of $7,944,000 at March 31, 1998.
Proceeds from sales of securities available for sale were $857,000 in 1997.
Gross gains of $5,017 and gross losses of $5,811 were realized on those sales in
1997. There were no sales of securities available for sale during fiscal 1998.
<PAGE>
3. LOANS RECEIVABLE:
Loans receivable at March 31, 1998 and 1997, consisted of the following:
1998 1997
--------- ---------
(In thousands)
Mortgage loans:
One to four family residential $ 86,965 $ 95,451
Commercial real estate 14,127 12,849
Other 1,052 1,741
Commercial loans 7,912 7,804
Consumer loans 12,189 12,407
--------- ---------
122,245 130,252
Less--
Undisbursed portion of
mortgage loans 3,459 2,523
Escrow, net 143 177
Discount on loans purchased 1 3
Allowance for loan losses 1,106 733
Net deferred loan fees (costs) (5) (33)
--------- ---------
$ 117,541 $ 126,849
========= =========
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, Centreville, 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, 1998 and 1997, were
$2,299,000 and $2,254,000, respectively. During fiscal 1998, new loans totalled
$1,881,000, repayments were $1,776,000 and loans that are no longer related
totalled $60,000.
An analysis of the allowance for loan losses is detailed below:
For the Year Ended March 31,
----------------------------
1998 1997
--------- ----------
Balance, beginning (In thousands)
of year $ 733 $ 621
Provision 532 186
Charge-offs (225) (242)
Recoveries 66 168
--------- ----------
Balance, end of year $ 1,106 $ 733
========= ==========
4. LAND, BUILDINGS AND EQUIPMENT:
Land, buildings and equipment at March 31 are summarized as follows:
1998 1997
------- --------
(In thousands)
Land $ 585 $ 566
Buildings and improvements 2,740 2,379
Equipment 1,652 1,590
------- --------
4,977 4,535
Less: Accumulated depreciation 2,055 1,893
------- --------
Net carrying amounts $ 2,922 $ 2,642
======= ========
<PAGE>
5. REAL ESTATE OWNED AND HELD FOR INVESTMENT:
Real estate owned was $665,000 and $131,000 at March 31, 1998 and 1997,
respectively. Real estate held for investment was $0 and $931,000 at March 31,
1998 and 1997, respectively. Foreclosed real estate owned is carried at the
lower of the recorded investment in the loan or fair value of the property, less
estimated costs of disposition. Real estate held for investment was recorded at
cost which did not exceed fair value and primarily represented commercial
property located in Hoover, Alabama, which was under a lease contract with a
purchase option. This property was sold during fiscal 1998. Holding costs
related to real estate owned and real estate 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.
6. ACCRUED INTEREST RECEIVABLE:
Accrued interest receivable at March 31 is summarized as follows:
1998 1997
-------- --------
(In thousands)
Securities held to maturity $ 209 $ 202
Securities available for sale 118 100
Loans receivable 1,072 1,148
-------- --------
$ 1,399 $ 1,450
======== ========
7. DEPOSITS:
Deposits at March 31 were as follows:
1998 1997
-------- --------
(In thousands)
Transaction accounts $ 32,932 $ 26,803
Passbook savings 25,752 26,093
Savings certificates 104,175 105,074
-------- --------
$162,859 $157,970
======== ========
The aggregate amount of jumbo savings certificates with a minimum denomination
of $100,000 was $20,260,000 and $21,772,000 at March 31, 1998 and 1997,
respectively.
Interest on deposits for the fiscal years ended March 31, 1998 and 1997,
consisted of the following:
1998 1997
-------- --------
(In thousands)
Transaction accounts $ 426 $ 389
Passbook savings 791 819
Savings certificates 6,035 6,000
-------- --------
$ 7,252 $ 7,208
======== ========
At March 31, 1998 and 1997, the scheduled maturities of savings certificates
were as follows:
1998 1997
-------- --------
(In thousands)
Within one year $ 65,839 $ 66,027
One to three years 35,463 26,006
Three to five years 2,873 13,041
-------- --------
$104,175 $105,074
======== ========
<PAGE>
8. BORROWED FUNDS:
The Company had short-term FHLB advances outstanding at March 31, 1998 and
1997, of $0 and $1,000,000, respectively. The rate of the advance was 7.26% and
matured during fiscal 1998.
9. INCENTIVE COMPENSATION AND EMPLOYEE BENEFITS:
Defined Benefit Pension Plan
First Federal has a noncontributory defined benefit pension plan available to
all eligible employees. First State employees were added to the plan on January
1, 1998. The following table sets forth the plan's funded status as of March 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of ($906) and ($754) at March 31, 1998 and 1997,
respectively $ (971) $ (808)
======= =======
Projected benefit obligation for services rendered to date $(1,468) $(1,241)
Plan assets at fair value, primarily pooled stock and bond funds 1,343 989
------- -------
Projected benefit obligation in excess of plan assets (125) (252)
Unrecognized transitional asset (16) (18)
Unrecognized prior service cost 2 2
Unrecognized net loss 146 157
------- -------
Prepaid (accrued) pension expense $ 7 $ (111)
======= =======
</TABLE>
The components of net pension expense consist of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Service cost $ 104 $ 76
Interest cost 94 75
Actual return on assets (181) (91)
Net amortization and deferral 86 67
------- -------
Net periodic pension expense $ 103 $ 127
======= =======
</TABLE>
In determining the actuarial present value of the projected benefit
obligation, the weighted-average discount rate was 7.25% for 1998 and 7% for
1997 and the rate of increase in future compensation levels was 5% for 1998 and
1997. The expected long-term rate of return on assets was 9.0% for 1998 and
1997.
Employee Stock Ownership Plan
During fiscal 1992, the Company established an Employee Stock Ownership Plan
(ESOP) for eligible employees. First State employees were added to the ESOP on
January 1, 1998. The ESOP purchased 82,800 shares of the Company's common stock
with the proceeds from a $414,000 loan. The balance on the note at March 31,
1997, was $80,100 and was repaid during fiscal 1998. During the current year the
ESOP purchased 43,931 shares from treasury with the proceeds from a $950,000
note from the Company. The note is secured by the common stock owned by the ESOP
and has been eliminated in consolidation. Principal payments under the note are
due in equal and annual installments through December 2007; interest is payable
at a rate of prime + 1%. The compensation expense related to the ESOP for fiscal
1998 and 1997 was approximately $81,000 and $59,000, respectively. During 1997,
unearned compensation was also reduced by $38,000 representing a payment on the
note with dividends paid on unallocated ESOP shares. Unearned compensation
related to the ESOP was approximately $930,000 and $61,000 at March 31, 1998 and
1997, 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 33,796 shares of the Company's common stock issued
in the Conversion and 21,404 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
<PAGE>
participants. During fiscal 1996, an additional 2,040 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 compensation expense related to
the RRPs for fiscal 1998 and 1997 was approximately $5,000, and $7,000,
respectively. At March 31, 1998 and 1997, unearned compensation related to the
RRPs was approximately $7,000 and $12,000, respectively, and is shown as a
reduction to stockholders' equity in the accompanying consolidated statements of
financial condition.
Directors' Retirement Plan
The Company maintains a Directors' Retirement Plan (DRP) whereby directors or
their beneficiaries will be provided specific amounts of annual retirement
benefits for a period of 10 years following retirement. The funds for the DRP
are held in a trust. There was no compensation expense for the DRP for fiscal
1998 and 1997 due to appreciation of trust assets. As of March 31, 1998 and
1997, the trust was fully funded.
Stock Option Plans
The Company has three stockholder-approved stock option plans; the Incentive
Stock Option Plan for senior officers and key employees (the "Stock Plan"), the
Stock Option Plan for Outside Directors (the "Directors' Plan") and the 1995
Stock Option and Incentive Plan (the "1995 Plan"). All 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 and 1995 Plan are immediately exercisable. Options under all plans expire
no later than 10 years from date of grant.
<TABLE>
<CAPTION>
1998 1997
--------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 108,508 $ 9.60 63,908 $ 7.07
Granted 8,000 18.78 57,000 11.98
Exercised (10,450) 6.48 (12,400) 7.50
Forfeited -- -- -- --
------- -------
Outstanding at end of year 106,058 10.70 108,508 9.60
======= =======
Exercisable at end of year 103,458 10.70 101,608 9.47
Weighted average fair value
of options granted $ 4.66 $ 2.39
</TABLE>
22,400 of the 106,058 options outstanding at March 31, 1998, have an exercise
price of $5.00 and a weighted average remaining contractual life of 3.75 years.
All of these options are exercisable. The remaining 83,658 options have exercise
prices between $10.50 and $24.75, with a weighted average remaining contractual
life of 7.50 years. 81,058 of these options are exercisable; their weighted
average exercise price is $12.28.
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 271 and 492 shares of
restricted stock awarded in fiscal 1998 and 1997, respectively. The compensation
expense related to the Restricted Stock awards for fiscal 1998 and 1997 was
approximately $16,000, and $11,000, respectively. At March 31, 1998 and 1997,
unearned compensation related to the Restricted Stock awards was approximately
$11,000 and $22,000, respectively, and is shown as a reduction to stockholders'
equity in the accompanying consolidated statements of financial condition.
<PAGE>
The stock option 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>
1998 1997
----------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 14,250 $ 11.64 16,580 $ 11.50
Granted 1,355 17.75 2,460 12.50
Exercised (1,010) 12.30 (4,470) 11.55
Forfeited -- -- (320) 11.88
------- -------
Outstanding at end of year 14,595 12.16 14,250 11.64
======= =======
Exercisable at end of year 14,595 12.16 14,250 11.64
Weighted average fair value
of options granted $ 4.28 $ 2.55
</TABLE>
The Company reserved 48,000 shares of common stock for issuance to
participants as options and restricted stock awards. There were 23,045 and
24,620 shares available for future grants at March 31, 1998 and 1997.
Savings Plan
First State sponsored a 401(k) savings plan covering substantially all of its
employees and made matching contributions up to 4% of employee contributions.
First State's matching contributions for the year ended March 31, 1998 and 1997,
totalled $9,103 and $12,676, respectively. As of January 1, 1998, the plan was
terminated. The employees of First State were added to the ESOP and Pension Plan
on January 1, 1998.
Stock-Based Compensation
In accordance with the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company has elected to continue to apply APB Opinion 25 and
related Interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost for options granted at market
value. If the Company had elected to recognize compensation cost for options
granted in 1998 and 1997, based on the fair value of the options granted at
grant date as permitted by SFAS No. 123, net income and earnings per share would
have been reduced to the pro forma amounts indicated below (in thousands except
per share amounts):
1998 1997
----------- -----------
Net income - as reported $ 1,653 $ 1,013
Net income - pro forma 1,620 891
Earnings per share - as reported - basic 1.41 .83
Earnings per share - pro forma - basic 1.38 .73
Earnings per share - as reported - diluted 1.35 .81
Earnings per share - pro forma - diluted 1.32 .70
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to April 1, 1995, the resulting pro-forma compensation cost may
not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:
1998 1997
------ ------
Expected dividend yield 3.38% 3.69%
Expected stock price volatility 24% 23%
Risk-free interest rate 6.11% 6.48%
Expected life of options 5 years 4 years
<PAGE>
10. 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, 1998, the Banks' off-balance sheet
activities include outstanding commitments to originate and fund single-family
mortgage loans, commercial loans, home equity loans and lines of credit of $7.0
million.
Leases
First Federal has a lease agreement for the building in which a branch office
is located. Rental expense under this lease was $27,000 and $26,000 for the
years ended March 31, 1998 and 1997, respectively. The lease agreement expires
May 31, 1999. Future minimum lease payments under the lease in effect at March
31, 1998, are $29,000 for 1999 and $5,000 for 2000.
Special Dividend Declared
Subsequent to year-end, the Company declared a special dividend of $.125 per
share payable on June 10, 1998, to stockholders of record on June 1, 1998. The
total cash payments required for this dividend will be approximately $151,000.
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, 2000, and the maximum aggregate liability to the Company at
March 31, 1998, is approximately $1,148,000.
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.
11. EQUITY:
In December 1991, the Company sold 690,000 shares (1,380,000 after 2-for-1
split effected on April 1, 1997) 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.
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.
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 $2.4 million was available for dividend at March 31,
1998, without prior OTS approval.
<PAGE>
Banking laws and other regulations limit the amount of dividends a bank
subsidiary may pay without prior regulatory approval. At March 31, 1998,
approximately $420,000 was available for dividend payment from First State
without such prior approval.
Effective January 1, 1998, the Company established the Dividend Reinvestment
and Stock Purchase Plan. Under this plan, participating stockholders may elect
to reinvest dividends into additional shares of the Company's common stock. In
addition, monthly optional cash payments, not less than $50 and up to $2,000 per
month, may be made into the plan by participating shareholders to purchase
shares of the Company's common stock. There were 250,000 shares of common stock
reserved for participants of the plan. At March 31, 1998, 1,587 shares had been
purchased for participants under the plan. The costs associated with this plan
were immaterial during 1998.
12. 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, 1998 March 31, 1997
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks $ 3,443 $ 3,433 $ 5,411 $ 5,411
Interest bearing deposits in banks 5,592 5,592 4,354 4,354
Federal funds sold 19,050 19,050 4,200 4,200
Securities available for sale 9,191 9,191 10,330 10,330
Securities held to maturity 19,118 19,291 19,702 19,777
Loans, net 117,541 119,789 126,849 127,392
Accrued interest receivable 1,399 1,399 1,450 1,450
FINANCIAL LIABILITIES:
Deposits $162,859 $163,522 $157,970 $159,251
Borrowed funds -- -- 1,000 1,000
Accrued interest payable 197 197 156 156
</TABLE>
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 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 Held to Maturity
Substantially all of the Company's securities 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.
The carrying amount of accrued interest on securities approximates fair value.
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. The
carrying amount of accrued interest on loans approximates fair value.
<PAGE>
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. The carrying
amount of accrued interest on deposits approximates fair value.
Borrowed Funds
The carrying amounts of borrowed funds approximates fair values due to their
short-term nature. The carrying amount of accrued interest on borrowed funds
approximates fair value.
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 have no
significant credit exposure.
13. INCOME TAXES:
The provision for income taxes was as follows:
For the Year Ended
March 31,
--------------------------
1998 1997
---------- ----------
(In thousands)
Current:
Federal $ 1,048 $ 508
State 135 72
------- -------
1,183 580
Deferred, net (258) (74)
------- -------
Totals $ 925 $ 506
======= =======
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:
For the Year Ended
March 31,
------------------------
1998 1997
-------- --------
(In thousands)
Pre-tax income at statutory rates $ 877 $ 516
Add (deduct):
State income tax, net of federal
tax benefit 70 39
Other, net (22) (49)
----- -----
Totals $ 925 $ 506
===== =====
<PAGE>
The components of the net deferred tax asset (liability) as of March 31, 1998
and 1997, were as follows:
1998 1997
-------- --------
(In thousands)
Deferred tax asset:
Retirement and other benefit plans $ 258 $ 196
Allowance for loan losses 265 92
Unrealized loss on securities
available for sale -- 53
Other 22 18
----- -----
Total deferred tax asset 545 359
Deferred tax liability:
Deferred loan fees (194) (194)
FHLB stock dividend (203) (203)
Depreciation (40) (51)
Unrealized gain on securities
available for sale (14) --
Other (64) (70)
----- -----
Total deferred tax liability (515) (518)
----- -----
Net deferred tax asset (liability) $ 30 $(159)
===== =====
Thrift institutions, in determining taxable income, have historically been
allowed special bad debt deductions based on a specified experience formula or
on a percentage of taxable income before such deductions. The bad debt deduction
based on the latter has been gradually reduced to 8%. On August 2, 1996,
Congress passed the Small Business Job Protection Act that will, among other
things, repeal the tax bad debt reserve method for thrifts effective for taxable
years beginning after December 31, 1995. As a result, thrifts must recapture
into taxable income the amount of their post-1987 tax bad debt reserves over a
six-year period beginning after 1995. This recapture can be deferred for up to
two years if the thrift satisfies a residential loan portfolio test. The Bank is
expected to recapture approximately $545,000, $338,000 tax effected, of its tax
bad debt reserves into taxable income over six years as a result of this new
law. The recapture will not have any effect on the Company's net income because
the related tax expense has already been accrued.
Because of such repeal, thrifts such as First Federal may only use the same
tax bad debt reserve that is allowed for commercial banks. Accordingly, a thrift
with assets of $500 million or less may only add to its tax bad debt reserves
based upon its moving six-year average experience of actual loan losses (i.e.,
the experience method).
The portion of a thrift's tax bad debt reserve that is not recaptured under
this new law is only subject to recapture at a later date under certain
circumstances. These include stock repurchases, redemptions by the thrift or if
the thrift converts to a type of institution (such as credit union) that is not
considered a commercial bank for tax purposes. However, no further recapture
would be required if the thrift converted to a commercial bank charter or was
acquired by a commercial bank.
14. SUPPLEMENTAL INCOME STATEMENT INFORMATION:
The following provides further analysis of other operating expenses for the
years ended March 31:
1998 1997
-------- --------
(In thousands)
Professional services $ 126 $ 216
Computer services 289 246
Advertising 81 82
Stationary and supplies 126 114
Other 654 511
------ ------
$1,276 $1,169
------ ------
<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, 1998 and 1997, are presented
below:
STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1998 AND 1997
(In thousands)
ASSETS: 1998 1997
-------- --------
Interest-bearing deposits $ 1,897 $ 1,487
Investment in subsidiaries 15,946 15,548
Real estate held for investment -- 931
Other assets 42 270
-------- --------
Total assets $ 17,885 $ 18,236
======== ========
LIABILITIES:
Dividend payable $ 150 $ 123
Other liabilities 102 190
-------- --------
Total liabilities 252 313
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock 14 14
Paid-in-capital 7,098 6,601
Retained earnings 15,204 14,256
Treasury stock (3,752) (2,781)
Unearned compensation (948) (95)
Unrealized gain (loss) on securities available
for sale, net 17 (72)
-------- --------
Total stockholders' equity 17,633 17,923
-------- --------
Total liabilities and stockholders'
equity $ 17,885 $ 18,236
======== ========
STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1998 and 1997
(In thousands)
1998 1997
------- -------
Income from subsidiaries:
Dividends $ 1,200 $ --
Interest 57 50
Interest income -- 13
Gain on sale of real estate held for investment 511 --
Rental income 90 129
------- -------
Total income 1,858 192
Operating expense (385) (302)
------- -------
Income (loss) before income taxes and equity in
undistributed current
year subsidiaries' earnings 1,473 (110)
Income taxes (167) 35
------- -------
Income (loss) before equity in undistributed
current year subsidiaries' earnings 1,306 (75)
Equity in undistributed current year
subsidiaries' earnings 347 1,088
------- -------
Net income $ 1,653 $ 1,013
======= =======
<PAGE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
Operating Activities: 1998 1997
------- -------
<S> <C> <C>
Net income $ 1,653 $ 1,013
Equity in undistributed
current year earnings of subsidiaries' (347) (1,088)
------- -------
1,306 (75)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of unearned compensation 102 115
Gain on sale of real estate held for investment (511) --
Other, net 178 (11)
------- -------
Net cash provided by operating activities 1,075 29
------- -------
Investing Activities:
Proceeds from the sale of real estate held for investment 1,442 50
------- -------
Net cash provided by investing activities 1,442 50
------- -------
Financing Activities:
Proceeds from exercise of stock options 80 145
Proceeds from dividend reinvestment 30 --
Dividends paid (678) (562)
Purchase of treasury stock (1,539) (7)
------- -------
Net cash used in financing activities (2,107) (424)
------- -------
Increase (decrease) in cash and cash equivalents 410 (345)
Cash and cash equivalents at beginning of year 1,487 1,832
------- -------
Cash and cash equivalents at end of year $ 1,897 $ 1,487
======= =======
</TABLE>
16. REGULATORY MATTERS:
The Company is subject to various regulatory capital requirements administered
by the federal and state banking agencies. The quantitative measures to ensure
capital adequacy require the Company to maintain minimum amounts and ratios, set
forth in the table below, of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier I capital (as
defined) to average assets (as defined). Failure to meet minimum capital
requirements can initiate certain actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial statements.
Management believes, as of March 31, 1998 and 1997, that the Company meets all
capital adequacy requirements to which it is subject.
As of March 31, 1998 and 1997, the most recent notification from the
regulatory agencies categorized the Company and the Banks as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized, the Company and the Banks must maintain minimum total
risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that management
believes have changed the institution's category.
Actual capital amounts in addition to required amounts and amounts needed to
be well capitalized for Tier I, Total and Tier I Leverage ratios as of March 31
for the Company and bank subsidiaries are as follows:
<PAGE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------------
(Dollar amounts in thousands)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ -----------------
Amount Rate Amount Rate Amount Rate
------- ------ ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Tier I Risk-Based Capital
Consolidated $16,228 16.3% $ 3,977 4.0% N/A N/A
First Federal Savings Bank 10,679 13.3% 3,217 4.0% $ 4,826 6.0%
First State Bank 2,895 12.3% 943 4.0% 1,415 6.0%
Total Risk-Based Capital
Consolidated $17,334 17.4% $ 7,954 8.0% N/A N/A
First Federal Savings Bank 11,470 14.3% 6,435 8.0% $ 8,043 10.0%
First State Bank 3,190 13.5% 1,886 8.0% 2,358 10.0%
Tier I Leverage
Consolidated $16,228 9.0% $ 7,205 4.0% N/A N/A
First Federal Savings Bank 10,679 7.7% 5,545 4.0% $ 6,931 5.0%
First State Bank 2,895 7.1% 1,635 4.0% 2,044 5.0%
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------------------------
(Dollar amounts in thousands)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------ -----------------
Amount Rate Amount Rate Amount Rate
------- ------ ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Tier I Risk-Based Capital
Consolidated $16,508 15.9% $ 4,139 4.0% N/A N/A
First Federal Savings Bank 10,934 13.3% 3,298 4.0% $ 4,947 6.0%
First State Bank 3,113 15.0% 830 4.0% 1,246 6.0%
Total Risk-Based Capital
Consolidated $17,241 16.7% $ 8,278 8.0% N/A N/A
First Federal Savings Bank 11,361 13.8% 6,596 8.0% $ 8,246 10.0%
First State Bank 3,373 16.2% 1,662 8.0% 2,077 10.0%
Tier I Leverage
Consolidated $16,508 9.4% $ 7,050 4.0% N/A N/A
First Federal Savings Bank 10,934 7.8% 5,618 4.0% $ 7,022 5.0%
First State Bank 3,113 8.8% 1,414 4.0% 1,767 5.0%
</TABLE>
17. NONRECURRING EXPENSES:
FDIC Assessment
On September 30, 1996, an omnibus appropriations bill was signed into law to
fund a number of government agencies in the 1997 fiscal year. Banking provisions
to resolve the deposit insurance premium disparity between the Savings
Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF") were
included in the legislation. The deposits of First Federal are insured by SAIF
while the deposits of First State are insured by BIF. The banking provisions
also included extensive regulatory relief for thrifts and banks. The major
banking provisions contained in the bill included a one-time special assessment
on SAIF deposits to bring the fund's reserve ratio to the statutorily required
minimum level of 1.25 percent of deposits. The assessment rate for First Federal
was 65.7 basis points and was applied to First Federal's deposits as of March
31, 1995. First Federal paid $704,000 for the special assessment.
The bill also provided that pro-rata sharing of the Financing Corporation
("FICO") obligation among BIF and SAIF members will begin by January 1, 2000.
From 1997 through 1999, partial sharing will occur, with SAIF deposits assessed
6.44 basis points and BIF deposits assessed 1.30 basis points. The new
assessment rate for institutions with SAIF deposits represents a reduction from
the existing rate of 23 basis points for First Federal, which will have a
positive impact on future earnings. In addition, under the bill, the BIF and
SAIF will merge to form the Deposit Insurance Fund on January 1, 1999, if there
are no savings associations (not including state savings banks) in existence on
that date. Also, the Treasury Department has been directed to report to Congress
with its recommendations on a common charter for banks and savings institutions.
<PAGE>
Litigation Expense
During fiscal 1997, a jury verdict was rendered in the Circuit Court of
Jefferson County, Alabama, against First Federal in connection with a civil
lawsuit. The total amount of the damages was $325,000. First Federal settled the
lawsuit for $250,000 after a motion for judgement notwithstanding the verdict
or, in the alternative, for a new trial was filed. The lawsuit arose from a
customer's claim for disability insurance benefits to be paid by an insurance
company to cover monthly mortgage payments.
18. SUBSEQUENT EVENT:
The Board of Directors has changed the fiscal year-end of the Company from
March 31 to December 31 of each year, effective December 31, 1998. Such a change
will, among other things, permit the Company to report results of operations at
the same time as most bank holding companies.
<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, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended. 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, 1998 and 1997, and the results of
their operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Birmingham, Alabama
May 5, 1998
<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, and liquid investments.
COMPARISON OF FINANCIAL CONDITION AS
OF MARCH 31, 1998 AND 1997, AND RESULTS
OF OPERATIONS FOR THE YEARS ENDED
MARCH 31, 1998 AND 1997
CHANGES IN FINANCIAL CONDITION
Total deposits grew to $162.9 million at March 31, 1998, compared to $158.0
million at March 31, 1997. The increase was primarily in transaction NOW
accounts as the result of normal growth, including additional local municipal
accounts. Total assets increased to $181.5 million at March 31, 1998, compared
to $178.1 million at March 31, 1997. Loan originations for fiscal 1998 were
slightly higher than fiscal 1997; however, fixed-rate loans sold into the
secondary market represented a higher percentage of the loan originations. The
result was a decrease in loans held in portfolio. This operating activity
created an increase of $14.8 million in fed funds to a total of $19.0 million at
March 31, 1998. The purchase of securities approximated pay-offs received which
resulted in a slight decrease in securities to $28.3 million at March 31, 1998.
In summary, funds generated from the increase in deposits and decrease in loan
balances were primarily invested in fed funds.
Stockholders' equity decreased $290,000 to $17.6 million at March 31, 1998.
The net decrease in equity during fiscal 1998 was primarily attributable to the
purchase of treasury stock totaling $1,539,000, and dividends declared of
$705,000, or $.60 per share, offset by earnings of $1,653,000. Diluted earnings
per share were $1.35 for the year ended March 31, 1998.
The Banks meet all 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. See Notes 11 and 16 of the "Notes to Consolidated Financial
Statements" regarding liquidity and capital resources.
GENERAL RESULTS OF OPERATIONS
Net income for the year ended March 31, 1998, was $1,653,000, an increase
of 63.2% from the prior year's amount of $1,013,000. The increase was primarily
attributable to two nonrecurring expense items recorded in the prior year: the
SAIF special assessment of approximately $461,000 (after taxes) and the accrual
of a lawsuit judgement in the amount of $165,000 (after taxes). See Note 17 of
the "Notes to Consolidated Financial Statements".
INTEREST INCOME
Total interest income increased $200,000 to $13.5 million for fiscal 1998
from $13.3 million for fiscal 1997. This increase was primarily due to an
increase in the average yield on interest earning assets to 8.3% during fiscal
1998 from 8.1% for fiscal 1997, net of a 0.5% decrease in the average balance of
interest earning assets. There was a slight increase in the average yield on
mortgage loans to 8.6% in fiscal 1998 from 8.5% in fiscal 1997 and an increase
in the average yield on other loans to 12.0% from 10.6%. Interest earned on
securities increased $206,000 to $1,789,000 in fiscal 1998 from $1,583,000 in
fiscal 1997. The increase was primarily the result of an 11.7% increase in the
average balance.
INTEREST EXPENSE
Total interest expense for fiscal 1998 of $7.3 million remained the same as
fiscal 1997. The average level of deposits increased $3.7 million, or 2.4%, to
$155.9 million in fiscal 1998 from the fiscal 1997 average level of $152.2
million, while the average rate paid on deposits decreased slightly to 4.67% in
fiscal 1998 from 4.73% in fiscal 1997.
NET INTEREST INCOME
Net interest income for the year ended March 31, 1998, increased
approximately $200,000, or 3.3%, to $6.2 million from the fiscal 1997 level of
$6.0 million. This increase was primarily due to the increase in the average
yield on interest-earning assets, net of a slight decline in average total
interest-earning assets to $163.8 million for fiscal 1998, from $165.6 million
for fiscal 1997. Average deposits increased in fiscal 1998 over 1997 but the
average rate paid on deposits decreased. The interest rate spread was 3.6% in
fiscal 1998, up from 3.3% in fiscal 1997.
PROVISION FOR LOAN LOSSES
Management recorded a provision for loan losses of $532,000 during fiscal
1998 as compared to $186,000 during fiscal 1997. The 1998 provision raised the
Company's allowance for loan losses to a higher level within its estimated range
of loss exposure. During 1998 management reevaluated its methodology for
establishing the allowance, and the resulting increase was considered
appropriate given a change in loan portfolio mix. The Company has some-
<PAGE>
what broadened its lending, resulting in a shift from a traditional thrift
portfolio to a community bank portfolio. Consumer and commercial real estate
loans have risen to comprise a consistently higher percentage of the loan
portfolio. After the provision, the ratio of the allowance to total loans of
0.94% is considered reasonable in relation to estimated loss exposure. The
allowance for loan losses is based on management's evaluation of possible losses
inherent in the loan portfolio, and considers, among other factors, historical
loss experience, current economic conditions, distribution of the loan portfolio
by risk class and the estimated value of the underlying collateral.
NONINTEREST INCOME
Noninterest income for fiscal 1998 totaled $1,374,000 as compared to $908,000
for fiscal 1997. The increase was primarily the result of a gain of $511,000
recorded on the sale of real estate held for investment.
NONINTEREST EXPENSE
Noninterest expense for fiscal 1998 totaled $4.5 million as compared to $5.2
million for fiscal 1997. Included in noninterest expense for fiscal 1997 were
two nonrecurring expenses: the payment of the SAIF special assessment by First
Federal of $704,000 and the payment of litigation expense of $250,000. Without
these two nonrecurring expense items, noninterest expense would have been $4.3
million for fiscal 1997. The increase, net of nonrecurring items, is primarily
the result of added operating expenses of the Vance branch opened by First
Federal in July 1997. See Notes 14 and 17 to the "Notes to Consolidated
Financial Statements" for an analysis of significant other operating expense
items and the FDIC assessment.
INCOME TAXES
Federal and state income taxes increased $419,000, or 82.8%, to $925,000 in
fiscal 1998 from $506,000 in fiscal 1997. The increase was primarily the result
of the approximate 70.0% increase in income before tax for fiscal 1998 compared
to fiscal 1997. The Company's effective tax rate for fiscal 1998 was 36%
compared to 33% in fiscal 1997.
COMPARISON OF FINANCIAL CONDITION
AS OF MARCH 31, 1997 AND 1996,
AND RESULTS OF OPERATIONS
FOR THE YEARS ENDED
MARCH 31, 1997 AND 1996
CHANGES IN FINANCIAL CONDITION
Total assets were $178.1 million at March 31, 1997, compared to $166.2
million at March 31, 1996. This increase was primarily the result of additional
investment by the Company in mortgage-backed securities and securities of $8.6
million and $2.6 million, respectively. Loans increased only slightly from
fiscal 1996. Loan originations for fiscal 1997 were consistent with fiscal 1996;
however, payoffs of adjustable rate loans increased from the prior year.
Deposits grew $12.1 million to $158.0 million at March 31, 1997. The increase
was primarily related to a 60th Anniversary certificate of deposit program
implemented and completed during the first quarter of fiscal 1997. In summary,
funds generated from the increase in deposits were invested primarily in
securities and mortgage-backed securities.
Stockholders' equity increased $692,000, to $17.9 million at March 31, 1997.
The increase in equity during fiscal 1997 was primarily due to earnings of
$1,013,000 partially offset by dividends declared of $588,000. Earnings per
share were $.81 for the year ended March 31, 1997.
The Banks meet all 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 $53 million at March 31, 1997. See Notes 11 and 16
of the "Notes to Consolidated Financial Statements" regarding liquidity and
capital resources.
GENERAL RESULTS OF OPERATIONS
Net income for the year ended March 31, 1997, was $1,013,000, an increase of
1.0% from the prior year's amount of $1,002,000. This increase was the result of
owning First State for a full year, an increase in interest rate spread and an
increase in fee income, largely offset by the impact of $626,000 (net of tax) of
nonrecurring expenses recorded during the current year. See Note 17 of the
"Notes to Consolidated Financial Statements".
INTEREST INCOME
Total interest income increased $2.8 million to $13.3 million for fiscal 1997
from $10.5 million for fiscal 1996. This increase was primarily due to an
increase in the average yield on interest earning assets to 8.1% during fiscal
1997 from 7.9% for fiscal 1996, and a 22.7% increase in the average balance of
interest earning assets. The higher average balance of loans during fiscal 1997
as compared to fiscal 1996 resulted from including First State's average loan
balance for a full year and consistent loan volumes. There was an increase in
the average yield on mortgage loans to 8.5% in fiscal 1997 from 8.0% in fiscal
1996, and an increase in the average yield on other loans to 10.6% from 10.3%.
Interest earned on securities increased $551,000, to $1,047,000 in fiscal 1997
from $496,000 in fiscal 1996. The increase was primarily the
<PAGE>
result of a 112.7% increase in the average balance resulting from First State
being included for a full year and purchases of additional securities. Interest
earned on mortgage-backed securities increased in fiscal 1997 to $536,000, from
$345,000 in fiscal 1996. This reflected a 70.4% increase in the average balance
of mortgage-backed securities to $8.5 million during fiscal 1997, from $5.0
million during fiscal 1996, as a result of purchases net of principal repayments
and prepayments during fiscal 1997. The yield on mortgage-backed securities
increased slightly from fiscal 1996.
INTEREST EXPENSE
Total interest expense for fiscal 1997 increased $1.5 million to $7.3 million
in 1997 from $5.8 million in fiscal 1996. The increase was the result of a
higher level of deposits, net of a decline in rates paid on deposits in fiscal
1997. The average level of deposits increased $36.8 million, or 31.9%, to $152.2
million in fiscal 1997 from the fiscal 1996 average level of $115.4 million,
while the average rate paid on deposits decreased to 4.73% in fiscal 1997 from
4.81% in fiscal 1996. Average borrowings were $1.4 million at an average rate of
6.9%.
NET INTEREST INCOME
Net interest income for the year ended March 31, 1997, increased $1.3 million,
or 26.6%, to $6.0 million from the fiscal 1996 level of $4.8 million. This
increase was primarily due to the increase in average total interest-earning
assets to $165.6 million for fiscal 1997, an increase of $31.5 million from
fiscal 1996. Average deposits also increased $36.8 million in fiscal 1997 over
1996. The interest rate spread was 3.3% in fiscal 1997, up from 3.0% in fiscal
1996. The increase in the average balance of interest-earning assets and
deposits is primarily the result of owning First State for a full year.
PROVISION FOR LOAN LOSSES
During fiscal 1997, the provision made to the allowance for loan losses was
$186,000 as compared to $75,000 in fiscal 1996. The 1997 provision was based on
historical loss experience, current economic conditions and distribution of
portfolio loans by risk class. The $242,000 in gross charge-offs for fiscal 1997
were partially offset by recoveries of $168,000. In the opinion of management,
the $733,000 allowance for loan losses at March 31, 1997, was adequate to cover
losses inherent in the loan portfolios of First Federal and First State. See
Note 3 of the "Notes to Consolidated Financial Statements".
NONINTEREST INCOME
Noninterest income for fiscal 1997 totalled $908,000, as compared to
$496,000 for fiscal 1996. The increase was the result of an increase in services
offered and service charge rates, plus the addition of First State for a full
year.
NONINTEREST EXPENSE
Noninterest expense for fiscal 1997 totalled $5.2 million as compared to $3.6
million for fiscal 1996. Included in noninterest expense is the payment of the
SAIF special assessment by First Federal of $704,000 and the payment of
litigation expense of $250,000. Without these two nonrecurring expense items,
noninterest expense would have been $4.3 million for fiscal 1997 compared to
$3.6 million for fiscal 1996. The increase, net of nonrecurring items, is solely
the result of including First State for a full year in fiscal 1997 compared to
three months in fiscal 1996. Noninterest expense decreased slightly for First
Federal in response to an expense reduction strategy. See Notes 14 and 17 to the
"Notes to Consolidated Financial Statements" for an analysis of significant
other operating expense items and the FDIC assessment.
INCOME TAXES
Federal and state income taxes decreased $48,000, or 8.7%, to $506,000 in
fiscal 1997 from $554,000 in fiscal 1996. The Company's effective tax rate for
fiscal 1997 was 33%, compared to 36% in fiscal 1996.
OTHER MATTERS
YEAR 2000
The Company uses various software and related technologies in its business
that will be affected by the date change in the year 2000. The date change will
require modifications to some software and computer systems so that dates beyond
December 31, 1999, will be properly recognized. The primary data processing
functions are through a third party processor. The Company believes that
upgrades, modifications or conversion of software planned by the Company and the
third party processor will properly address the year 2000 issues.
The Company has applied the appropriate internal and external resources to the
Year 2000 project. There was no specific expense associated with the Year 2000
project in fiscal 1998 and is not estimated to be material in the next fiscal
year, although costs for improvements in technologies are continually incurred
in the normal course of business. The primary computer functions are expected to
be Year 2000 compliant by December 31, 1998.
<PAGE>
COMMON STOCK DATA
The Company's common stock is traded on the NASDAQ SmallCap Market under the
symbol "FFDB". Trading information regarding the common stock appears in The
Wall Street Journal under the abbreviation "FirstFedB". There currently are
1,204,598 shares of common stock outstanding and approximately 350 holders of
record of the common stock. The following table sets forth the stock market
price ranges of FirstFed Bancorp, Inc. as reported by NASDAQ SmallCap Market
Systems and cash dividends declared per share of common stock for the calendar
quarters as indicated.
Stock Market
Price Range Dividends
--------------- Declared
Low High Per Share
-------- ------- ----------
Fiscal 1998
First Quarter $15.25 $ 19.00 $ .225
Second Quarter 16.75 18.25 .125
Third Quarter 19.75 25.00 .125
Fourth Quarter 21.00 25.50 .125
Prior to April 1, 1997, the Company's common stock was traded through the
National Daily Quotation Service "Pink Sheets" published by the National
Quotation Bureau, Inc. The following table sets forth information known to
management as to the range of the high and low bid prices for the Company's
common stock.
Dividends
Declared
Low Bid (1) High Bid(1) Per Share
------------ ----------- ---------
Fiscal 1997
First Quarter $ 12.00 $ 12.625 $ .18
Second Quarter 12.125 13.50 .10
Third Quarter 12.25 13.50 .10
Fourth Quarter 12.875 16.00 .10
- -------------
(1) Quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
<PAGE>
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.
<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-KSB, into the Company's
previously filed Registration Statements (file nos. 33-51662, 33-58260, 33-
81798, and 33-40559).
/s/ Arthur Andersen LLP
- --------------------------
Arthur Andersen LLP
Birmingham, Alabama
June 22, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 3,443
<INT-BEARING-DEPOSITS> 5,592
<FED-FUNDS-SOLD> 19,050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,969
<INVESTMENTS-CARRYING> 19,118
<INVESTMENTS-MARKET> 19,291
<LOANS> 117,541
<ALLOWANCE> 1,106
<TOTAL-ASSETS> 181,468
<DEPOSITS> 162,859
<SHORT-TERM> 0
<LIABILITIES-OTHER> 976
<LONG-TERM> 0
0
0
<COMMON> 14
<OTHER-SE> 17,619
<TOTAL-LIABILITIES-AND-EQUITY> 181,468
<INTEREST-LOAN> 11,084
<INTEREST-INVEST> 1,789
<INTEREST-OTHER> 644
<INTEREST-TOTAL> 13,517
<INTEREST-DEPOSIT> 7,252
<INTEREST-EXPENSE> 7,289
<INTEREST-INCOME-NET> 6,228
<LOAN-LOSSES> 532
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,492
<INCOME-PRETAX> 2,578
<INCOME-PRE-EXTRAORDINARY> 2,578
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,653
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.35
<YIELD-ACTUAL> 8.25
<LOANS-NON> 1,207
<LOANS-PAST> 528
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 733
<CHARGE-OFFS> 225
<RECOVERIES> 66
<ALLOWANCE-CLOSE> 1,106
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,106
</TABLE>
