<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1999
------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-24024
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First Community Financial Group, Inc.
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(Exact name of registrant as specified in its charter)
Washington 91 -1277503
--------------- -------------------
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
721 College Street. SE, P.O. Box 3800, Lacey, WA 98509
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(Address of principal executive offices)
Registrant's telephone number: (360) 459-1100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.
Title of Class Outstanding at September 30, 1999
-------------- ---------------------------------
Common Stock, $2.50 par value 2,175,667
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC.
Table of Contents
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S>
<C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income and Comprehensive Income 4
Condensed Consolidated Statement of Stockholders' Equity 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion of Financial Condition and
Analysis or Plan of Operations 8
Item 3 Year 2000 Issues 13
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
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FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------
September 30 December 31
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,394 $ 12,315
Interest bearing deposits in banks 139 127
Federal funds sold 2,600 2,815
Securities available for sale 30,403 35,418
Securities held to maturity 677 677
Loans held for sale 3,746 4,456
Loans 219,113 194,361
Less allowance for credit losses 2,535 2,290
NET LOANS 216,578 192,071
Premises and equipment 9,287 9,474
Intangible assets 7,187 7,493
Other assets 6,613 6,720
TOTAL ASSETS $287,624 $271,566
LIABILITIES
Deposits:
Non-interest bearing $ 45,302 $ 46,538
Interest bearing 199,436 189,049
TOTAL DEPOSITS 244,738 235,587
Short term borrowing 6,676 500
Long term debt 2,075 2,808
Other liabilities 2,169 2,330
TOTAL LIABILITIES 255,658 241,225
STOCKHOLDERS' EQUITY
Common stock, par value $2.50 per share; 5,439 5,315
10,000,000 shares authorized, 2,175,667 shares issued
in 1999, and 2,108,560 shares issued in 1998
Surplus 23,240 22,849
Retained earnings 4,091 2,757
Accumulated other comprehensive income (379) 28
Guaranteed KSOP obligation (425) (608)
TOTAL STOCKHOLDERS' EQUITY 31,966 30,341
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $287,624 $271,566
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30 September 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $5,312 $4,945 $15,097 $14,815
Federal funds sold and deposits in banks 14 62 88 433
Investments 478 863 1,488 2,395
TOTAL INTEREST INCOME 5,804 5,870 16,673 17,643
INTEREST EXPENSE
Deposits 1,718 2,079 5,166 6,587
Other 188 50 297 163
TOTAL INTEREST EXPENSE 1,906 2,129 5,463 6,750
NET INTEREST INCOME 3,898 3,741 11,210 10,893
PROVISION FOR CREDIT LOSSES 120 65 360 325
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 3,778 3,676 10,850 10,568
NON-INTEREST INCOME
Service charges on deposit accounts 491 477 1,443 1,448
Origination fees on mortgage loans sold 284 277 873 922
Other income 412 493 1,106 1,189
TOTAL NON-INTEREST INCOME 1,187 1,247 3,422 3,559
NON-INTEREST EXPENSE
Salaries and employee benefits 1,963 1,982 5,976 5,968
Occupancy and equipment 573 541 1,667 1,655
Other expense 1,039 1,132 3,107 3,153
TOTAL NON-INTEREST EXPENSE 3,575 3,655 10,750 10,776
OPERATING INCOME BEFORE INCOME TAXES 1,390 1,268 3,522 3,351
Income Taxes 434 332 1,123 947
NET INCOME $ 956 $ 936 $ 2,399 $ 2,404
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized holding gains (losses) on securities (270) 290 (407) 234
arising during the period
COMPREHENSIVE INCOME $ 686 $ 1,226 $ 1,992 $ 2,638
EARNINGS PER SHARE DATA
BASIC EARNINGS PER SHARE $0.44 $0.44 $1.13 $1.17
DILUTED EARNINGS PER SHARE $0.41 $0.41 $1.06 $1.09
Weighted average number of common shares 2,175,667 2,108,560 2,130,239 2,052,890
Weighted average number of common shares
- including dilutive stock options 2,317,196 2,264,719 2,271,767 2,209,049
Return on average assets 1.33% 1.31% 1.15% 1.12%
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Year Ended December 31, 1998 and Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------
Accumulated
Other Guaranteed
Common Retained Comprehensive KSOP
Stock Surplus Earnings Income Obligation Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $4,988 $20,459 $1,596 $ 68 $ (946) $26,165
Net income - - - - 3,605 - - - - 3,605
Stock options exercised 89 188 - - - - - - 277
5% stock dividend 248 2,182 (2,444) - - - - (14)
Stock repurchased (10) (70) - - - - - - (80)
Other comprehensive income - - - - - - (40) - - (40)
Income tax benefit from exercise
of stock options - - 80 - - - - - - 80
Compensation expense for
issuance of stock options - - 10 - - - - - - 10
Net decrease in guaranteed
KSOP obligation - - - - - - - - 338 338
BALANCE DECEMBER 31, 1998 5,315 22,849 2,757 28 (608) 30,341
Net income - - - - 2,399 - - - - 2,399
Stock options exercised 124 391 - - - - - - 515
Cash dividends - - - - (1,065) - - - - (1,065)
Other comprehensive income - - - - - - (407) - - (407)
Net decrease in guaranteed
KSOP obligation - - - - - - - - 183 183
BALANCE, SEPTEMBER 30, 1999 $5,439 $23,240 $4,091 $(379) ($425) $31,966
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
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FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------
Nine months ended
September 30
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,399 $ 2,404
Adjustments to reconcile net income to net cash provided by (used in)
Operating activities:
Provision for credit losses 360 325
Depreciation and amortization 808 949
Amortization of intangible assets 306 289
Other - net 176 2,498
Originations of loans held for sale (37,081) (33,236)
Proceeds from sales of loans held for sale 37,791 33,407
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,759 6,636
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest bearing deposits in banks (12) 5,604
Net decrease in Federal funds sold 215 8,700
Proceeds from maturities of available-for-sale securities 18,344 25,943
Purchase of available-for-sale securities (13,783) (32,522)
Proceeds from maturities of held-to-maturity securities 0 150
Net (increase) decrease in loans (24,867) 4,102
Additions to premises and equipment (621) (394)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (20,724) 11,583
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 9,151 (17,519)
Net increase in short-term borrowings 6,176 3,000
Sale of common stock 515 137
Repurchase of common stock 0 (79)
Repayment of long-term borrowings (733) (806)
Payment for dividends (1,065) (15)
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,044 (15,282)
NET CHANGE IN CASH AND DUE FROM BANKS (1,921) 2,937
CASH AND DUE FROM BANKS:
Beginning of period 12,315 11,620
END OF PERIOD $10,394 $14,557
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAYMENTS FOR:
Interest $5,545 $6,846
Taxes 1,005 790
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
Other real estate acquired in settlement of loans 334 2,279
Increase (decrease) in guarantee of KSOP obligation (183) (134)
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
adjustments considered necessary for a fair presentation (consisting of
normally recurring accruals) have been included. Operating results for the
three months and nine months ended September 30, 1999 are not necessarily
indicative of the results anticipated for the year ending December 31, 1999.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share are calculated by dividing net income by
the weighted average number of common shares outstanding during the periods
presented. Diluted earnings per share assumes that all dilutive stock options
outstanding are exercised such that their dilutive effect is maximized.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results and the timing of
certain events could differ materially from those projected in the
forward-looking statements due to a number of factors. Such risks and
uncertainties with respect to the Company include those related to the
economic environment, particularly in the region in which the Company
operates, competitive products and pricing, fiscal and monetary policies of
the federal government, changes in government regulations affecting financial
institutions, including regulatory fees and capital requirements, changes in
prevailing interest rates, acquisitions and the integration of acquired
businesses, credit risk management and asset/liability management, the
financial and securities markets, the availability of and costs associated
with sources of liquidity, and uncertainties associated with the impact of
Year 2000 issues.
FINANCIAL CONDITION
OVERVIEW
The Company's consolidated total assets at September 30, 1999 experienced a
growth 5.9% over December 31, 1998 assets of $271,566,000 to $287,624,000.
Asset growth has been most significant in the loan portfolio. Loan portfolio
growth has exceeded the aggregate asset growth and as such has caused a
reduction in the securities portfolio as these resources are utilized in the
funding of the loan growth. Deposit growth of 3.9%, or $9,151,000, as well as
utilizing short term borrowing of an additional $6,176,000 since December 31,
1998 have also been a source of funding for the loan growth.
Loan portfolio balances have increased by $24,742,000, or 12.7%, to
$219,113,000. The total loan to deposit ratio increased to 91.7% from 84.4% at
December 31, 1998. The average loan to deposit ratio for the nine months ended
September 30, 1999 was 87.7%. The bank is operating in a competitive market and
an environment of, while rising, historically low rates. In spite of these
conditions, loan balances were able to record such sizable increases with
emphasis on maintaining the credit quality of the portfolio and the addition to
the portfolio of loans that satisfy desired rates and terms.
Non-performing assets were as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
<S> <C> <C>
Non-accrual loans $1,221 $2,492
Accruing loans past due 90 days or more 484 471
Foreclosed real estate 1,561 2,096
Other assets 12 0
$3,278 $5,059
</TABLE>
Total non-performing assets were decreased by $1,781,000 or 35.2%. The
reduction in these non-performing assets were most prevalent in non-accrual
loans and the amount of foreclosed real estate. Accruing loans past due 90
days or more number only three but the balance increased in the quarter to a
level similar to December 31, 1998.
The allowance for credit losses reflects management's current estimate of the
amount required to absorb losses on existing loans and commitments to extend
credit. Determination of the appropriate level of the allowance is based on
an analysis of various factors including historical loss experience based on
volumes and types of loans; volumes and trends in delinquencies and
non-accrual loans; trends in portfolio volume; results of internal and
independent external credit reviews; and anticipated economic conditions. An
analysis of the adequacy of the allowance is subject to quarterly review by
the Board of Directors. Based on this analysis, management considers the
allowance for credit losses to be adequate.
The allowance for credit losses increased $245,000 in the first three
quarters of 1999. The ratio of allowance for credit losses to total loans was
decreased from 1.18% to 1.16% on September 30, 1999 due to loan growth and
improvements in non-performing assets. The dollar value change in the
allowance consisted of $360,000 of provisions, offset by $115,000 in net
chargeoffs.
Investment securities have decreased by $5,015,000, or 13.9% during the first
three quarters of 1999 to total $31,080,000. Portfolio balances have
decreased as a result of the maturity of securities in the portfolio and
principal payments on mortgage backed and related issues. Portfolio balances
are managed in conjunction with the remainder of the balance sheet and
support the lending and depository functions of the Bank. Balances will
increase and decrease as resource demands and liquidity dictates. The
securities are highly marketable and are a primary source of liquidity for
the Company.
8
<PAGE>
LIQUIDITY AND RATE SENSITIVITY
The Company's assets and liabilities are managed to maximize long-term
shareholder returns by optimizing net interest income within the constraints
of maintaining high credit quality, conservative interest rate risk
disciplines and prudent levels of liquidity. The Asset/Liability Committee
meets regularly to monitor the composition of the balance sheet, to assess
current and projected interest rate trends, and to formulate strategies
consistent with established objectives for liquidity, interest rate risk and
capital adequacy.
Liquidity management involves the ability to meet cash flow requirements of
customers who may be either depositors wanting to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their
credit needs. Liquidity is generated from both internal and external sources.
Internal sources are those assets that can be converted to cash with little
or no risk of loss. These include overnight investments in federal funds sold
and investment securities, particularly those of shorter maturity, and are
the principal source of asset liquidity. At September 30, 1999, cash,
deposits in banks, Federal funds sold and securities available for sale
totaled $43,536,000. External sources refer to the ability to attract new
liabilities and capital. They include increasing savings and demand deposits,
federal funds purchased, and the issuance of capital and debt securities. At
September 30, 1999, federal funds borrowing lines of credit totaled
$19,546,000. The Bank also has preestablished borrowing lines available with
the Federal Home Loan Bank of approximately $13,546,000 (5% of total assets).
These credit facilities have been used regularly as a source of funds in 1999
as a result of loan balance growth.
Management believes the Bank's liquidity position at September 30, 1999, was
adequate to meet its short term funding requirements.
Interest rate sensitivity is closely related to liquidity, as each is
directly affected by the maturity of assets and liabilities. The Company's
net interest margin is affected by changes in the level of market interest
rates. Management's objectives are to monitor and control interest rate risk
and ensure predictable and consistent growth in net interest income.
Management considers any asset or liability which matures, or is subject to
repricing within one year to be interest sensitive, although continual
monitoring is performed for other time intervals as well. The difference
between interest sensitive assets and liabilities for a defined period of
time is known as the interest sensitivity "gap", and may be either positive
or negative. If positive, more assets reprice before liabilities. If
negative, the reverse is true. Gap analysis provides a general measure of
interest rate risk but does not address complexities such as prepayment risk,
interest rate floors and ceilings imposed on financial instruments, interest
rate dynamics and customers' response to interest rate changes. Currently the
Banks' interest sensitivity gap is negative within one year. Assuming that
general market interest rate changes affected the repricing of assets and
liabilities in equal magnitudes, this indicates that the effects of rising
interest rates on the Company would be a decrease in the net interest margin,
whereas falling interest rates would cause a corresponding increase in the
margin.
CAPITAL
Consolidated capital of FCFG increased $1,625,000 during the first three
quarters of 1999. This increase primarily resulted from year-to-date net
income of $2,399,000. The exercising of stock options and payments on the
KSOP obligation, which is guaranteed by the Company, contributed $515,000 and
$183,000, respectively, to the increased capital. Two items reduced the
capital accounts. Cash dividend payments amounted to $1,065,000. Other
comprehensive income, which consists of the after-tax market value adjustment
to available for sale securities, decreased the consolidated capital by
$407,000 during the first three quarters of 1999. This unrealized adjustment
to the securities portfolio is a reflection of the increase in market
interest rates experienced in the second and third quarters, and will not be
realized if securities are not sold prior to maturity.
There are regulatory constraints placed upon capital adequacy, and it is
necessary to maintain an appropriate ratio between capital and assets.
Regulations require banks and holding companies to maintain a minimum
"leverage" ratio (primary capital ratio) of total assets. For the most highly
rated holding companies this ratio must be at least 3%, and for others it
must be 4% to 5%. At September 30, 1999, the Company's leverage ratio was
8.75%, compared to 8.59% at December 31, 1998. For regulatory purposes,
certain intangible assets are treated as a reduction of capital. In addition,
banks and holding companies are required to meet minimum risk-based capital
guidelines under which risk percentages are assigned to various categories of
assets and off-balance-sheet items to calculate a risk-adjusted capital
ratio. Tier I capital generally consists of common stockholders' equity, less
goodwill, while total capital includes the allowance for credit losses,
subject to 1.25% limitation of risk-adjusted assets. The rules require Tier I
capital of 4% of risk-adjusted assets and total capital of 8%. At September
30, 1999, the Tier I capital ratio was 9.65%, and total capital was 10.62%.
The comparable ratios at December 31, 1998 were a Tier I capital ratio of
10.60% and a total capital ratio of 11.64%.
9
<PAGE>
RESULTS OF OPERATIONS
GENERAL
Net income for the nine months ended September 30, 1999 was $2,399,000,
compared to $2,404,000 for the same period in 1998. Pre-tax operating income,
however, increased by 5% to $3,522,000. The income tax expense increase of
19% created the difference between the increased pre-tax income and after-tax
decrease to net income.
Net income for the three months ended September 30, 1999 was $956,000,
compared to $936,000 for the three months ended September 30, 1998. This
represents a 2% increase in net income for the two periods. Pre-tax operating
income for the three month period also increased over the three months ended
September 30, 1998. Pre-tax income in the third quarter increased by 10% to
$1,390,000. Income taxes increased by 31% compared to 1998 to partially
offset this operational increase. Income tax expense was reduced in 1998 due
to tax advantages realized on the exercise of certain stock options in 1998.
Another factor that has affected the increased tax rate has been the higher
level of provision for credit losses and the lower level of actual writeoffs,
both of which provide less tax advantage over the previous period.
Net interest income increased $317,000 for the nine months ended September
30, 1999 over the same period for 1998. This represents a 3% increase from
prior year. Interest rates realized on assets and liabilities were lower
during the first nine months of 1999 than 1998, although the interest rate
trend on new activity has been increasing. This had an effect of reducing
both the income generated as well as reducing the interest expense paid on
deposits and other liabilities. Despite the comparative reduction in interest
rates realized between these time periods, increasing loan balances, and
their greater balance as a percentage of assets, enabled the net interest
margin to increase to 6.13% from 5.78%. The three months ended September 30,
1999 provided $157,000 of the year-to-date increase in net interest income
and was 4% more than was earned in the same period in 1998.
Interest income for the nine months ended September 30, 1999 decreased
$970,000 over the nine months ended September 30, 1998. Of this decrease,
approximately $29,000 is attributed to a decrease in the average volume of
earning assets. Average earning assets for the first nine months of 1999
amount to $7,415,000 less than 1998. The reduction in the average rate earned
on assets, which went from 9.36% to 9.12% for the nine month period,
decreased interest income by $941,000. The percentage of average loans to
total average earning assets increased to 85% from 77% in the first three
quarters of 1998. The average rate of return on assets decreased 24 basis
points, even though the average loan rate decreased 60 basis points and
investments decreased 57 basis points. The overall rate benefited from a
greater balance of loans, which offer a higher yield than investments.
Interest income for the three months ended September 30, 1999 was $66,000
lower than the same period in the previous year.
Total interest expense for the nine months ended September 30, 1999 decreased
$1,287,000, or 19%, from the comparable period of the prior year. The
reduction in interest expense has been from a combination of interest rate
reductions and a decrease in the volume of interest bearing liabilities. The
reduction in interest rates paid on deposits accounted for $662,000 in
expense reduction while lower average deposit balances, particularly in time
deposits, accounted for an additional $625,000 in reduced expenses. Interest
expense on other borrowings, incurred in the funding of the loan growth,
increased by $134,000 over the first nine months of 1998. The increased
volume of borrowing increased the interest expense by $165,000 while the rate
reduction due to the shorter term borrowing saved $31,000 in interest
expense. The average rate paid on all interest bearing liabilities declined
by 51 basis points to 3.65% from 4.16% in the first three quarters of 1998.
Total interest expense for the three months ended September 30, 1999 were
$223,000 lower than the third quarter of 1998.
Net interest margin, defined as net interest income as a percentage of average
earning assets, increased by 35 basis points to 6.13% from 5.78% in the first
three quarters of 1998.
10
<PAGE>
The yield and cost of funds for earning assets and interest bearing
liabilities were as follows as of and for the nine months ended September 30
(dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
Interest Interest Average
Average Income Average Average Income Rates
Balance (Expense) Rates Balance (Expense)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans (Interest and fees) $209,037 $15,097 9.66% $193,108 $14,815 10.26%
Federal funds sold 2,443 88 4.82% 10,249 433 5.65%
Investment securities 33,041 1,488 6.02% 48,579 2,395 6.59%
Total earning assets
and interest income $244,521 $16,673 9.12% $251,936 $17,643 9.36%
Interest bearing liabilities:
Deposits:
Savings, NOW, and
Money Market Deposits $111,633 $(2,121) 2.54% $114,053 $(2,372) 2.78%
Time deposits 81,187 (3,045) 5.01% 100,090 (4,215) 5.63%
Total interest bearing deposits 192,820 (5,166) 3.58% 214,143 (6,587) 4.11%
Other borrowings 7,205 (297) 5.51% 2,699 (163) 8.08%
Total interest bearing liabilities
and interest expense $200,025 $(5,463) 3.65% $216,842 $(6,750) 4.16%
Net interest income $11,210 $10,893
------- -------
Net interest margin as a percent
percentage of average earning assets: 6.13% 5.78%
</TABLE>
An analysis of the change in net interest income is as follows for the nine
months ended September 30 (dollars in thousands):
<TABLE>
<CAPTION>
1999 compared to 1998
Increase (decrease) due to
Volume Rate Net
<S> <C> <C> <C>
Interest earned on:
Loans $ 974 $(692) $282
Federal funds sold and deposits in banks (289) (56) (345)
Investment securities (714) (193) (907)
Total interest income (29) (941) (970)
Interest paid on:
Savings, NOW and MMA (49) (202) (251)
Time deposits (741) (429) (1,170)
Other borrowings 165 (31) 134
Total Interest expense (625) (662) (1,287)
Net interest income $596 $(279) $317
</TABLE>
The change in interest due to both rate and volume has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
11
<PAGE>
Non-interest income has decreased by $137,000, or 4%, from the first three
quarters of 1998. The primary reason for this reduction is a decrease of
$225,000 in gains realized on the sale of properties and credit card
portfolio that occurred in 1998. Mortgage refinancing has slowed dramatically
in the industry as a result of the rapid increase in market interest rates
making refinancing less favorable to the consumer. Total origination fees on
mortgage loans have decreased by $49,000 in the first three quarters as
compared to 1998. Despite less favorable market conditions, the three months
ended September 30, 1999 exceeded the prior year by $7,000. Additionally, ATM
network fee income increased by $57,000 due to the implementation of a
convenience fee charged to non-customers for the use of the Bank's ATMs, and
due to a 15% expansion in the number of ATMs deployed. Total non-interest
income for the three months ended September 30, 1999 decreased 5% to
$1,187,0000 from the same period in 1998.
Non-interest expenses for the first three quarters of 1999 decreased by
$26,000 to $10,750,000 from $10,776,000 during the first three quarters of
1998. Total non-interest expense for the third quarter of 1999 accounted for
this positive variance as they were $80,000 less than those of the prior
year. Salary and benefit expenses are $8,000 higher than the first three
quarters of 1998, but third quarter expenses alone were $19,000 less than
prior year. The ratio of non-interest expense to average assets increased to
5.21% for the nine months ended September 30, 1999 from 4.97% in 1998 due to
a reduction in average assets for 1999 as compared to 1998. The ratio of net
overhead (non-interest expense minus non-interest income) divided by average
total assets increased to 3.50% for the nine months ended September 30, 1999
from 3.33% for the same period in 1998, also due to a decline in the balance
of average assets in 1999.
12
<PAGE>
YEAR 2000 ISSUES
The century date change for the Year 2000 is a serious issue that may impact
virtually every organization, including FCFG. Many software programs are not
able to recognize the year 2000, since most programs and systems were designed
to store calender years in the 1900s by assuming the "19" and storing only the
last two digits of the year. The problem is especially important to financial
institutions since many transactions, such as interest accruals and payments,
are date sensitive, and because FCFG and the Bank interact with numerous
customers, vendors and third party service providers who must also address the
Year 2000 issue. The problem is not limited to computer systems. Year 2000
issues will also potentially affect every system that has an embedded microchip,
such as automated teller machines, elevators and vaults.
FCFG'S STATE OF READINESS
FCFG and the Bank are committed to addressing Year 2000 issues in a prompt and
responsible manner, and have dedicated resources to do so. Management has
completed an assessment of its automated systems and has implemented a program
consistent with applicable regulatory guidelines, to complete all steps
necessary to resolve identified issues. FCFG's compliance program has several
phases, including (1) project management; (2) assessment; (3) testing; and (4)
remediation and implementation.
PROJECT MANAGEMENT FCFG has formed a Year 2000 compliance committee consisting
of senior management and departmental representatives. Planning for Year 2000
compliance began in 1997, with a formal committee being formed in early 1998. A
Year 2000 compliance plan was developed and regular meetings have been held to
discuss the process, assign tasks, determine priorities and monitor progress.
The committee regularly reports to the Company's Board.
ASSESSMENT All of FCFG's and its subsidiary bank's computer equipment and
mission critical software programs have been identified. This phase is complete.
FCFG's primary software vendors were also assessed during this phase, and
vendors who provide mission critical software have been contacted. FCFG has
obtained written certification from providers of material services that such
providers are, or will be, Year 2000 compliant. Based upon its ongoing
assessment of the readiness of its vendors, suppliers and service providers,
FCFG has developed contingency plans addressing the most likely worst case
scenarios. FCFG will continue to monitor and work with these vendors. FCFG has
also identified the subsidiary bank's significant borrowers and funds providers
and has assessed the extent to which they may be affected by Year 2000 issues.
TESTING Updating and testing of FCFG and the Bank's automated systems has been
completed. All testing of mission critical systems has been completed.
REMEDIATION AND IMPLEMENTATION This phase involves obtaining and implementing
renovated software applications provided by FCFG's vendors. As these
applications are received and implemented, FCFG has tested them for Year 2000
compliance. This phase also involves upgrading and replacing automated systems
where appropriate. This phase is also complete.
ESTIMATED COSTS TO ADDRESS FCFG'S YEAR 2000 ISSUES
The total financial effect that Year 2000 will have on FCFG cannot be predicted
with any certainty at this time. In fact, in spite of all efforts being made to
rectify these problems, the success of FCFG's efforts will not be fully known
until the year 2000 actually arrives. However, based on its initial assessment
to date, FCFG does not believe that expenses related to meeting Year 2000
challenges will have a material effect on the operations or consolidated
financial condition of FCFG. Year 2000 challenges facing vendors of mission
critical software and systems, and facing FCFG's customers, could have a
material effect on the operations or consolidated financial condition of FCFG,
to the extent such parties are materially effected by such challenges.
RISKS RELATED TO YEAR 2000 ISSUES
The year 2000 poses certain risks to FCFG and the Bank and their operations.
Some of these risks are present because FCFG purchases technology and
information systems applications from other parties who face Year 2000
challenges. Other risks are inherent in the business of banking or are risks
faced by many companies. Although it is impossible to identify all possible
risks that FCFG may face moving into the millennium, management has identified
the following significant potential risks:
FCFG lends significant amounts to businesses in its market area, If these
businesses are adversely effected by the Year 2000 problems, their ability to
repay loans could be impaired. This increased credit risk could adversely effect
FCFG's financial performance. During the assessment phase of FCFG's Year 2000
program, each of the Bank's substantial borrowers were identified, and the Bank
is working with such borrowers to ascertain their levels of exposure to Year
2000 problems. To the extent that the Bank is unable to assure itself of the
Year 2000 readiness of such borrowers, it intends to
13
<PAGE>
apply additional risk assessment criteria to the indebtedness of such
borrowers and make any necessary related adjustments to FCFG's provision for
loan losses.
FCFG and the Bank, like many other companies, can be adversely effected by
the Year 2000 triggered failures of other companies upon whom FCFG and the
Bank depend for the functioning of their automated systems. Accordingly,
FCFG's and the Bank's operations could be materially effected if the
operations of mission critical third party service providers are adversely
effected. As described above, FCFG has identified its mission critical
vendors and is monitoring their Year 2000 compliance programs and is
developing contingency plans.
FCFG'S CONTINGENCY PLANS
FCFG has developed specific contingency plans related to Year 2000 issues that
address the most likely "worst case" scenarios. Certain circumstances, as
described above in "RISKS", may occur for which there are no completely
satisfactory contingency plans.
14
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC.
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 j. Executive Supplemental Income Agreement for Ken F. Parsons
10 k. Executive Supplemental Income Agreement for James F. Arneson
10 l. Executive Supplemental Income Agreement for Jon M. Jones
10 m. Employment Agreement Amendment for Ken F. Parsons
27 Financial Data Schedule
(b) Reports on Form 8-K None
15
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST COMMUNITY FINANCIAL GROUP, INC.
(Registrant)
Date: November 15, 1999 By: /s/ Ken F. Parsons
---------------------------------------
Ken F. Parsons
President, Chief Executive Officer
By: /s/ James F. Arneson
---------------------------------------
James F. Arneson
Executive Vice President,
Chief Financial Officer
(Principal Accounting Officer)
16
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC.
LACEY, WASHINGTON
EXECUTIVE SUPPLEMENTAL INCOME AGREEMENT
THIS AGREEMENT is effective on the 1st day of April, 1992, and is hereby
modified on this 4th day of November, 1999, by and between FIRST COMMUNITY
FINANCIAL GROUP, INC., LACEY, WASHINGTON, a Washington corporation (the
"Company"), and KEN F. PARSONS, SR. (the "Officer").
W I T N E S S E T H :
WHEREAS, the Officer is currently employed by the Company in an executive
capacity;
WHEREAS, the Company desires to retain the valuable services and business
counsel of the Officer and to induce the Officer to remain in an executive
capacity with the Company;
WHEREAS, the Company wishes to retain the Officer in order to prevent the
substantial financial loss which the Company could incur if the Officer were to
leave and were to enter the employment of a competitor;
WHEREAS, the Officer is considered a highly compensated Officer or member
of a select management group of the Company;
WHEREAS, the Company desires to pay the Officer the benefits provided
herein, and desires to pay the Officer the benefits described in any current
employment agreement;
WHEREAS, the Company desires to continue the benefits provided in the
Executive Supplemental Agreement with the Officer originally dated April 1,
1992, and desires to modify the Agreement to clarify the terms of those
benefits;
NOW, THEREFORE, for and in consideration of the above premises, and of the
following terms, conditions and mutual covenants of the parties hereto, IT IS
HEREBY AGREED:
<PAGE>
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the capitalized terms shall have the
following meanings:
1.01. "ADDENDUM" shall mean the attachment to this Agreement entitled
"Addendum to Executive Supplemental Income Agreement" which shall be executed by
the Officer and a representative of the Company.
1.02. "BENEFICIARY" shall mean the person or persons the Officer has
most recently designated on a duly executed beneficiary form received by the
Company; if the Officer has not designated a Beneficiary, then any payments due
under this Agreement shall be paid to the Officer's estate.
1.03. "BENEFIT" shall mean the Retirement Benefit, the Early Retirement
Benefit, the Disability Benefit, or the Pre-Retirement Death Benefit, as the
case may be.
1.04. "BENEFIT ACCRUAL ACCOUNT" shall mean the aggregate of the accrued
liability entries made or required to be made to the Company's accounting
records in order to record the Company's obligation to pay Benefits under this
Agreement pursuant to generally accepted accounting principles during the
Benefit Accrual Period and compound interest due under this Agreement. The
Benefit Accrual Period begins with the effective date of this Agreement and ends
at the date all benefits are paid under this Agreement.
1.05. "BOARD OF DIRECTORS" shall mean the Board of Directors of First
Community Bank of Washington and First Community Financial Group, Inc., as the
case may be.
1.06. "BUYOUT" shall mean a transaction or series of related
transactions by which the Company is sold, either through the sale of a
Controlling Interest in the Company's voting stock or through the sale of
substantially all of the Company's assets, to a party not having a Controlling
Interest in the Company's voting stock on the date of execution of this
Agreement.
1.07. "CHANGE IN CONTROL" shall mean a Buyout, Merger, or Substantial
Change in Ownership and shall occur on the date the transaction is legally
consummated.
2
<PAGE>
1.08. "COMPENSATION" shall mean the total base salary paid to Officer
by Company for any calendar year, as reflected on the payroll records of the
Company.
1.09. "CONTROLLING INTEREST" shall mean ownership, either directly or
indirectly, of more than thirty percent (30%) of the voting stock of the Company
or a parent company of the Company which is a member of the same "affiliated
group" as defined in 26 U.S.C. Section 1504(a).
1.10. "DISABLED" shall mean a permanent physical or mental condition
whereby the Officer is or will be unable to perform the duties of the Officer's
customary position of employment with the Company or any other employer
controlled by or under common control with the Company. The Board of Directors
shall determine whether the Officer is declared Disabled within this definition
and may require the Officer to submit to a physical examination in order to
declare the Officer Disabled.
1.11. "DISABILITY BENEFIT" shall mean, at the Disabled Officer's
election, a period certain not less than six (6) months nor more than one
hundred eighty (180) months, in an amount necessary to amortize the Benefit
Accrual Account at the Interest Rate.
1.12. "EARLY RETIREMENT AGE" shall mean age fifty-five (55).
1.13. "EARLY RETIREMENT BENEFIT" shall mean, at the Retiring Officer's
election, a monthly payment over a period certain not less than twelve (12)
months nor more than one hundred eighty (180) months, in an amount necessary to
amortize the Benefit Accrual Account at the Interest Rate.
1.14. "ESI TRUST" is the Trust established to receive and hold the
assets and liabilities associated with this Agreement in the event of a Change
in Control.
1.15. "INTEREST RATE" shall mean eight percent (8.0%). In the event
eight percent (8.0%) should fail to be an appropriate rate, the Interest Rate
shall be determined by the Board of Directors.
3
<PAGE>
1.16. "MERGER" shall mean a transaction or series of transactions
wherein the Company is combined with another business entity, and after which
the persons or entities who had owned, either directly or indirectly, a
Controlling Interest in the Company's voting stock on the effective date of this
Agreement own less than a Controlling Interest in the voting stock of the
combined entity.
1.17. "PRE-RETIREMENT DEATH BENEFIT" shall mean the Annual
Pre-Retirement Death Benefit amount set forth in the Addendum to this Agreement.
1.18. "RETIREMENT AGE" shall mean age sixty-five (65). The Board of
Directors and the Officer may, by mutual written consent, elect to postpone the
Retirement Age.
1.19. "RETIREMENT BENEFIT" shall mean the Annual Retirement Benefit
amount set forth in the Addendum to this Agreement. At the Officer's election,
the Retirement Benefit may be recalculated and paid as a Life Annuity.
1.20. "SUBSTANTIAL CHANGE IN OWNERSHIP" shall mean a transaction or
series of transactions in which a Controlling Interest in the Company is
acquired by or for a person or business entity, either of which did not own,
either directly or indirectly, a Controlling Interest in the Company on the
effective date of this Agreement. The above shall not apply to stock acquired
and held by First Community Financial Group, Inc. Employee Stock Ownership Plan
with 401(k) Provisions (KSOP).
ARTICLE II
PAYMENT OF PRE-RETIREMENT DEATH BENEFIT
2.01. PRE-RETIREMENT DEATH.
The Company agrees that if the Officer dies while covered by the
provisions of this Agreement and prior to commencement of Benefit payments
under Article III below, the Company will pay the Officer's Beneficiary the
Pre-Retirement Death Benefit. The Pre-Retirement Death Benefit shall be
divided by twelve (12) and paid in monthly payments commencing on the first
business day of the month following the month in which the Officer dies. The
payment of such Pre-Retirement Death Benefit will be subject to the
conditions and limitations set forth elsewhere in this Agreement. If the
Officer's Beneficiary is entitled to receipt of the Pre-Retirement Death
Benefit, the Officer's Beneficiary shall not be entitled to any other
payments under this Agreement.
4
<PAGE>
ARTICLE III
PAYMENT OF RETIREMENT BENEFIT
3.01. RETIREMENT.
After attaining Retirement Age, the Officer may elect to commence
receipt of the Retirement Benefit. The Retirement Benefit shall be divided by
twelve (12) and paid in monthly payments commencing on the first business day of
the month after such election. Payment of the Retirement Benefit is conditioned
upon the Officer's compliance with this Agreement and upon the Officer receiving
no other payments under this Agreement.
3.02. EARLY RETIREMENT.
The Company agrees that the Officer may at any time subsequent to
attaining Early Retirement Age request in writing to the Board of Directors to
retire early. The Board of Directors may grant early retirement termination of
employment. Upon the Board's grant, and at the Officer's election the payment
of the Early Retirement Benefit will commence on the first business day of the
month following the later of the Officer's termination of employment or election
to receive the Early Retirement Benefit. The Officer may make the election to
begin receiving the Early Retirement Benefit at any time after the Board's grant
of early retirement but before the Officer attains Retirement Age. If the
election is not made, benefits will be paid as indicated in 3.01 of this
Agreement. Payment of the Early Retirement Benefit is conditioned upon the
Officer's compliance with this Agreement and upon the Officer receiving no other
payments under this Agreement.
3.03. POSTPONED RETIREMENT BENEFIT.
In the event Retirement Age is postponed, the postponed retirement
benefit shall be equal to the Retirement Benefit, unless the Board of Directors,
in the exercise of its sole discretion, elects to increase the Retirement
Benefit. Payment of the postponed Retirement Benefit shall commence on the
first business day of the month after the Officer attains the postponed
Retirement Age.
3.04. POST-RETIREMENT DEATH BENEFIT.
In the event the Officer dies on or after commencement of Benefit
5
<PAGE>
payments under this Article III, the Officer's remaining Benefit payments shall
continue to be paid to the Officer's Beneficiary.
ARTICLE IV
PAYMENT OF DISABILITY BENEFIT
4.01. DISABILITY.
The Company agrees that if the Officer is declared Disabled while
covered by the provisions of this Agreement, the Disability Benefit and the
Pre-Retirement Death Benefit shall be fully vested. The Disabled Officer may
elect to begin receipt of the Disability Benefit at any time subsequent to
being declared Disabled.
4.02. POST-DISABILITY DEATH BENEFIT.
The Company agrees that if the Officer dies after commencement of the
Disability Benefit and before Retirement Age, the Company shall pay to the
Officers' Beneficiary the Pre-Retirement Death Benefit determined under
Paragraph 2.01 of this Agreement, with each monthly payment reduced by an amount
equal to the sum of all Disability Benefit payments previously paid to the
Officer under this Agreement divided by the period certain elected by the
Disabled Officer. Payment of the Post-Disability Death Benefit shall commence
on the first business day of the month following the month in which the Officer
dies.
In the event the Officer dies after commencement of the Disability
Benefit and on or after Retirement Age, the remaining Disability Benefit
payments due under Paragraph 4.01 of this Agreement shall be paid to the
Disabled Officer's Beneficiary.
ARTICLE V
CONDITIONS
5.01. VESTING RIGHTS.
The Company agrees that subject to Paragraph 5.04 of this Agreement,
upon execution of this Agreement, the Officer shall be fully vested in the
Benefit.
5.02. COVERAGE BY THIS AGREEMENT.
6
<PAGE>
Coverage by the provisions of this Agreement is conditioned upon the
Officer's continuous employment in an eligible capacity (periods of temporary
disability and authorized leave of absence shall be considered as periods of
employment) with the Company from the effective date of this Agreement until the
earlier of the date the Officer retires, is declared Disabled or dies. Benefit
payments are conditioned upon the Officer's compliance with the terms of this
Agreement so long as the Officer lives and payments are due under the provisions
of this Agreement.
5.03. SERVICES.
Payment of the Retirement Benefit or Early Retirement Benefit is
further conditioned upon the Officer rendering such reasonable business
consulting and advisory services as the Company's Board of Directors may call
upon the Officer to provide while receiving payments under this Agreement.
(a) It is understood that such services shall not require the
Officer to be active in the Company's day-to-day activities,
and that the Officer shall perform services as requested by
management.
(b) The Officer shall be compensated for services performed and
reimbursed for all expenses incurred in performing such
services.
5.04. NONCOMPETITION.
Coverage by the provisions of this Agreement is further conditioned
upon the Officer not engaging in any activity or similar employment capacity for
any business enterprise which competes to a substantial degree with the Company
during employment with the Company or while receiving Benefit coverage or
payments. In the event of violation of this provision, all future Benefit
coverage or payments shall be canceled and discontinued. The Board of Directors
shall determine whether violations have occurred and may also waive these
conditions.
5.05. CHANGE IN CONTROL.
The Company agrees that prior to the effective date of a Change in
Control to transfer to the ESI Trust the adjusted Benefit Accrual Account and
any and all assets that the Company may have acquired in connection with the
liabilities it has assumed under this Agreement. The Company, successors, and
assigns agrees to continue the Benefit Accrual Period and the Pre-Retirement
Death Benefit.
7
<PAGE>
5.06. TERMINATION OF EMPLOYMENT.
In the event of termination of employment prior to a Change in Control
and prior to the commencement of Benefit payments under any provision of this
Agreement, the Officer and the Company agree that the Retirement Benefit, the
Pre-Retirement Death Benefit and all other provisions except Paragraphs 5.02 and
5.03 shall remain in full force and effect.
In the event of termination of employment subsequent to a Change in
Control and prior to the commencement of Benefit payments under any provision of
this Agreement, the Officer and the Company, successors, and assigns agree that
the Retirement Benefit, the Pre-Retirement Death Benefit and all other
provisions of this Agreement except Paragraph 5.02 and 5.03 shall remain in full
force and effect.
5.07. ACCELERATION OF PAYMENT.
In the event the Officer and the Company, successors, and assigns
agree to accelerate payment as set forth in Article VIII, the Pre-Retirement
Death Benefit is null and void. The Officer shall have an exclusive option to
purchase (the "Option") any and all assets that the Company may have acquired in
connection with the liabilities it has assumed under this Agreement in whole or
in part. The Option is exercisable no later than thirty (30) days after the
Officer's receipt of the single payment amount, at a price equal to the carrying
value of the assets on the books and records of the Company, determined under
generally accepted accounting principles. The conditions set forth in Paragraph
5.04 shall not be applicable.
ARTICLE VI
FUNDING
6.01. The Company's obligations under this Agreement shall be an
unfunded and unsecured promise to pay. The Company shall not be required under
any circumstances to fund its obligations under this Agreement.
ARTICLE VII
OFFICER RIGHT TO ASSETS
7.01. The rights of the Officer or the Beneficiary shall be solely
those of an unsecured general creditor of the Company. The Officer or the
Beneficiary shall only
8
<PAGE>
have the right to receive from the Company those payments as specified under
this Agreement. The Officer or the Beneficiary shall have no rights or
interests whatsoever in any assets of the Company. Any asset used or
acquired by the Company in connection with the liabilities the Company has
assumed under this Agreement shall not be deemed to be held under any trust
for the benefit of the Officer or the Beneficiary, nor shall it be considered
security for the performance of the obligations of the Company. It shall be,
and remain, a general, unpledged, and unrestricted asset of the Company.
ARTICLE VIII
ACCELERATION OF PAYMENT
8.01. The Company may accelerate to a single payment any Benefits
payable under this Agreement with the written consent of the Officer or the
Beneficiary. In the event it is agreed to accelerate payment, the single
payment amount shall equal the Benefit Accrual Account at the date of payment.
ARTICLE IX
LEAVES OF ABSENCE
9.01. The Company may, in its sole discretion, permit the Officer to
take a leave of absence; each such period shall not exceed one (1) year in
length. During such leave, the Officer shall be considered to be in the
continuous employment of the Company for purposes of this Agreement.
ARTICLE X
ASSIGNABILITY
10.01. Except insofar as this provision may be contrary to applicable
law, no sale, transfer, alienation, assignment, pledge, collateralization, or
attachment of any Benefits under this Agreement shall be valid or recognized by
the Company.
ARTICLE XI
AMENDMENT/REVOCATION
11.01. This Agreement shall not be amended, modified, or revoked at any
time, in whole or in part, without the mutual written consent of the Officer and
the Company.
9
<PAGE>
ARTICLE XII
FIDUCIARY
12.01. NAMED FIDUCIARY AND ADMINISTRATOR.
The Board of Directors shall be the Named Fiduciary and Agreement
Administrator (the "Administrator") of this Agreement. The Administrator
shall be responsible for the management, control, and administration of this
Agreement as established herein. The Administrator shall possess and
exercise discretionary authority to make determinations as to an Officer's
eligibility for benefits and to construe the terms of this Agreement. The
Administrator may delegate to others certain aspects of the management and
operation responsibilities of this Agreement including the employment of
advisors and the delegation of ministerial duties to qualified individuals.
12.02. CLAIMS PROCEDURE.
In the event that benefits under this Agreement are not paid to the
Officer (or the Beneficiary in the case of the Officer's death) and such
claimants feel they are entitled to receive such benefits, then a written
claim must be made to the Administrator named above within sixty (60) days
from the date payments are refused. The Administrator shall review the
written claim and, if the claim is denied, in whole or in part, they shall
provide in writing within ninety (90) days of receipt of such claim their
specific reasons for such denial, reference to the provision of this
Agreement upon which the denial is based and any additional material or
information necessary to perfect the claim. The Administrator and Officer
agree that any unresolved claims or disputes under this Agreement shall be
submitted to a mutually acceptable arbitrator for resolution.
ARTICLE XIII
INCOMPETENCY
13.01. If the Company shall find that any person to whom any payment
is payable under this Agreement is unable to care for their affairs because
of illness or
10
<PAGE>
injury, or is a minor, any payment due (unless a prior claim shall have been
made by a duly appointed guardian, committee, or other legal representative)
may be paid to the Spouse, a child, a parent, a brother or sister, or a
custodian determined pursuant to the Uniform Gift to Minors Act (or similar
law), or to any person deemed by the Company to have incurred expense for
such person otherwise entitled to payment, in such manner and proportions as
the Company may determine. Any such payment shall be a complete discharge of
the liabilities of the Company under this Agreement.
ARTICLE XIV
NO EMPLOYMENT CONTRACT
14.01. This Agreement shall in no way be construed to create an
employment contract between the Company and the Officer.
ARTICLE XV
PRIOR AGREEMENTS
15.01. This Agreement sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby, and any previous
Agreements or understandings between the parties hereto regarding the subject
matter hereof are merged into and superseded by this Agreement.
ARTICLE XVI
SEVERABILITY
16.01. In the event that any of the provisions of this Agreement or
portion thereof, are held to be inoperative or invalid by any court of competent
jurisdiction, then: (a) insofar as is reasonable, effect will be given to the
intent manifested in the provision held invalid or inoperative; and (b) the
validity and enforceability of the remaining provisions will not be affected
thereby.
ARTICLE XVII
MISCELLANEOUS
17.01. LAWS GOVERNING.
This Agreement shall be governed by the laws of the State of
Washington.
17.02. ENFORCEMENT.
This Agreement is solely between the Company and the Officer.
11
<PAGE>
Furthermore, the Officer or the Beneficiary shall only have recourse against the
Company for enforcement of this Agreement. However, it shall be binding upon
the Beneficiary, heirs, executors and administrators of the Officer, and upon
any and all successors and assigns of the Company.
IN WITNESS WHEREOF, the parties acknowledge receipt of an executed
original of this Agreement signed this 4th day of November, 1999.
/s/ Ken F. Parsons
-------------------------------
KEN F. PARSONS, SR.
FIRST COMMUNITY FINANCIAL GROUP, INC.
LACEY, WASHINGTON
By: /s/ Patrick Martin
---------------------------------
Chair, Compensation Committee
----------------------------------
Title
12
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC.
LACEY, WASHINGTON
ADDENDUM TO
EXECUTIVE SUPPLEMENTAL INCOME AGREEMENT
This addendum to the Executive Supplemental Income Agreement covering KEN F.
PARSONS enumerates the dollar amount of Benefits payable under the Executive
Supplemental Income Agreement. All rights and payment provisions are controlled
by the Executive Supplemental Income Agreement effective on the 1st day of
April, 1992. This addendum revokes any previously dated Addendum.
ANNUAL PRE-RETIREMENT DEATH BENEFIT:
<TABLE>
<S> <C>
Year 1 $180,000
Years 2-5 $135,000
Years 6-15 $90,000
</TABLE>
ANNUAL RETIREMENT BENEFIT:
$125,000 payable for fifteen (15) years
IN WITNESS WHEREOF, the parties hereto have executed this Addendum this 4th day
of November, 1999, each acknowledging receipt of a fully signed original hereof.
/s/ Ken F. Parsons
-------------------------------
KEN F. PARSONS
FIRST COMMUNITY FINANCIAL GROUP, INC.
LACEY, WASHINGTON
By: /s/ Patrick Martin, Chair, Compensation Committee
---------------------------------------------------
Title
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC.
LACEY, WASHINGTON
EXECUTIVE SUPPLEMENTAL INCOME AGREEMENT
THIS AGREEMENT is effective on the 1st day of April 1993, and is hereby
modified on the 5th day of November, 1999, by and between FIRST COMMUNITY
FINANCIAL GROUP, INC., LACEY, WASHINGTON, a Washington corporation (the
"Company"), and JAMES F. ARNESON (the "Officer").
W I T N E S S E T H :
WHEREAS, the Officer is currently employed by the Company in an executive
capacity;
WHEREAS, the Company desires to retain the valuable services and business
counsel of the Officer and to induce the Officer to remain in an executive
capacity with the Company;
WHEREAS, the Company wishes to retain the Officer in order to prevent the
substantial financial loss which the Company could incur if the Officer were to
leave and were to enter the employment of a competitor;
WHEREAS, the Officer is considered a highly compensated Officer or member
of a select management group of the Company;
WHEREAS, the Company recognizes the increasing value of the Officer the
longer the period of service and desires to provide a benefit to Officer which
will encourage continuous service until Retirement Age by providing increased
benefit levels as years of service increase; and
WHEREAS, the Company desires to continue the benefits provided in the
Executive Supplemental Agreement with the Officer originally dated April 1,
1993, and desires to modify the Agreement to clarify the terms of those
benefits;
WHEREAS, the Company desires to pay the Officer the benefits provided
herein, subject to the terms and conditions set forth hereinbelow.
NOW, THEREFORE, for and in consideration of the above premises, and of the
following terms, conditions and mutual covenants of the parties hereto, IT IS
HEREBY AGREED:
<PAGE>
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the capitalized terms shall have the
following meanings:
1.01. "ADDENDUM" shall mean the attachment to this Agreement entitled
"Addendum to Executive Supplemental Income Agreement" which shall be executed by
the Officer and a representative of the Company.
1.02. "BENEFICIARY" shall mean the person or persons the Officer has
most recently designated on a duly executed beneficiary form received by the
Company; if the Officer has not designated a Beneficiary, then any payments due
under this Agreement shall be paid to the Officer's estate.
1.03. "BENEFIT" shall mean the Retirement Benefit, the Early Retirement
Benefit, the Disability Benefit, or the Pre-Retirement Death Benefit, as the
case may be.
1.04. "BENEFIT ACCRUAL ACCOUNT" shall mean the aggregate of the accrued
liability entries made or required to be made to the Company's accounting
records in order to record the Company's obligation to pay Benefits under this
Agreement pursuant to generally accepted accounting principles during the
Benefit Accrual Period and compound interest due under this Agreement. The
Benefit Accrual Period begins with the effective date of this Agreement and ends
at the earlier of the date of the Officer's termination of employment or the
date the Officer begins receiving payments under this Agreement.
1.05. "BOARD OF DIRECTORS" shall mean the Board of Directors of First
Community Bank of Washington and First Community Financial Group, Inc., as the
case may be.
1.06. "BUYOUT" shall mean a transaction or series of related
transactions by which the Company is sold, either through the sale of a
Controlling Interest in the Company's voting stock or through the sale of
substantially all of the Company's assets, to a party not having a Controlling
Interest in the Company's voting stock on the date of execution of this
Agreement.
1.07. "CHANGE IN CONTROL" shall mean a Buyout, Merger, or Substantial
Change in Ownership and shall occur on the date the transaction is legally
consummated.
1.08. "COMPENSATION" shall mean the total base salary paid to Officer
by Company for any calendar year, as reflected on the payroll records of the
Company.
1.09. "CONTROLLING INTEREST" shall mean ownership, either directly or
indirectly, of more than thirty percent (30%) of the voting stock of the Company
or a parent company of the Company which is a member of the same "affiliated
group" as
<PAGE>
defined in 26 U.S.C. Section 1504(a).
1.10. "DISABLED" shall mean a permanent physical or mental condition
whereby the Officer is or will be unable to perform the duties of the Officer's
customary position of employment with the Company or any other employer
controlled by or under common control with the Company. The Board of Directors
shall determine whether the Officer is declared Disabled within this definition
and may require the Officer to submit to a physical examination in order to
declare the Officer Disabled.
1.11. "DISABILITY BENEFIT" shall mean, at the Disabled Officer's
election, a period certain not less than six (6) months nor more than one
hundred eighty (180) months, in an amount necessary to amortize the Benefit
Accrual Account at the Interest Rate.
1.12. "EARLY RETIREMENT AGE" shall mean age fifty-five (55).
1.13. "EARLY RETIREMENT BENEFIT" shall mean, at the Retiring Officer's
election, a period certain not less than twelve (12) months nor more than one
hundred eighty (180) months, in an amount necessary to amortize the Benefit
Accrual Account at the Interest Rate.
1.14. "ESI TRUST" is the Trust established to receive and hold the
assets and liabilities associated with this Agreement in the event of a Change
in Control.
1.15. "INTEREST RATE" shall mean eight percent (8.0%). In the event
eight percent (8.0%) should fail to be an appropriate rate, the Interest Rate
shall be determined by the Board of Directors.
1.16. "JUST CAUSE" shall mean personal dishonesty, willful misconduct,
willful malfeasance, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law,
rule, regulation (other than traffic violations or similar offenses), or final
cease-and-desist order, material breach of any provision of this Agreement, or
gross negligence in matters of material importance to the Company. The
existence of Just Cause shall be determined upon recommendation by a majority
vote of the Board of Directors.
1.17. "LIFE ANNUITY" shall mean equal monthly payments for the life of
the Officer such that using the UP 84 Mortality Table and the Interest Rate, the
present value of such annuity is equal to the Benefit Accrual Account.
1.18. "MERGER" shall mean a transaction or series of transactions
wherein the
<PAGE>
Company is combined with another business entity, and after which the persons
or entities who had owned, either directly or indirectly, a Controlling
Interest in the Company's voting stock on the effective date of this
Agreement own less than a Controlling Interest in the voting stock of the
combined entity.
1.19. "PRE-RETIREMENT DEATH BENEFIT" shall mean the Annual
Pre-Retirement Death Benefit amount set forth in the Addendum to this
Agreement.
1.20. "RETIREMENT AGE" shall mean age sixty-five (65). The Board of
Directors and the Officer may, by mutual written consent, elect to postpone the
Retirement Age.
1.21. "RETIREMENT BENEFIT" shall mean the Annual Retirement Benefit
amount set forth in the Addendum to this Agreement. At the Officer's election,
the Retirement Benefit may be recalculated and paid as a Life Annuity.
1.22. "SUBSTANTIAL CHANGE IN OWNERSHIP" shall mean a transaction or
series of transactions in which a Controlling Interest in the Company is
acquired by or for a person or business entity, either of which did not own,
either directly or indirectly, a Controlling Interest in the Company on the
effective date of this Agreement. The above shall not apply to stock acquired
and held by First Community Financial Group, Inc. Employee Stock Ownership Plan
with 401(k) Provisions (KSOP).
ARTICLE II
PAYMENT OF PRE-RETIREMENT DEATH BENEFIT
2.01. PRE-RETIREMENT DEATH.
The Company agrees that if the Officer dies while covered by
the provisions of this Agreement and prior to commencement of Benefit
payments under Article III below, the Company will pay the Officer's
Beneficiary the Pre-Retirement Death Benefit. The Pre-Retirement Death
Benefit shall be divided by twelve (12) and paid in monthly payments
commencing on the first business day of the month following the month in
which the Officer dies. The payment of such Pre-Retirement Death Benefit
will be subject to the conditions and limitations set forth elsewhere in this
Agreement. If the Officer's Beneficiary is entitled to receipt of the
Pre-Retirement Death Benefit, the Officer's Beneficiary shall not be entitled
to any other payments under this Agreement.
<PAGE>
ARTICLE III
PAYMENT OF RETIREMENT BENEFIT
3.01. RETIREMENT.
The Company agrees that if the Officer attains Retirement Age
while covered by the provisions of this Agreement, the Retirement Benefit
shall be fully vested. After attaining Retirement Age, the Officer may elect
to terminate employment and commence receipt of the Retirement Benefit. The
Retirement Benefit shall be divided by twelve (12) and paid in monthly
payments commencing on the first business day of the month after such
termination of employment. Payment of the Retirement Benefit is conditioned
upon the Officer's compliance with this Agreement and upon the Officer
receiving no other payments under this Agreement.
3.02. EARLY RETIREMENT.
The Company agrees that the Officer may at any time subsequent
to attaining Early Retirement Age request in writing to the Board of
Directors to retire early. The Board of Directors may grant early retirement
termination of employment and the payment of the Early Retirement Benefit
commencing on the first business day of the month following the Officer's
termination of employment. Payment of the Early Retirement Benefit is
conditioned upon the Officer's compliance with this Agreement and upon the
Officer receiving no other payments under this Agreement.
3.03. POSTPONED RETIREMENT BENEFIT.
In the event Retirement Age is postponed, the postponed
retirement benefit shall be equal to the Retirement Benefit, unless the Board
of Directors, in the exercise of its sole discretion, elects to increase the
Retirement Benefit. Payment of the postponed Retirement Benefit shall
commence on the first business day of the month after the Officer attains the
postponed Retirement Age.
3.04. POST-RETIREMENT DEATH BENEFIT.
In the event the Officer dies on or after commencement of
Benefit payments under this Article III, the Officer's remaining Benefit
payments shall continue to be paid to the Officer's Beneficiary.
ARTICLE IV
<PAGE>
PAYMENT OF DISABILITY BENEFIT
4.01. DISABILITY.
The Company agrees that if the Officer is declared Disabled
while covered by the provisions of this Agreement, the Disability Benefit and
the Pre-Retirement Death Benefit shall be fully vested. The Disabled Officer
may elect to begin receipt of the Disability Benefit at any time subsequent
to being declared Disabled.
4.02. POST-DISABILITY DEATH BENEFIT.
The Company agrees that if the Officer dies after commencement
of the Disability Benefit and before Retirement Age, the Company shall pay to
the Officers' Beneficiary the Pre-Retirement Death Benefit determined under
Paragraph 2.01 of this Agreement, with each monthly payment reduced by an
amount equal to the sum of all Disability Benefit payments previously paid to
the Officer under this Agreement divided by the period certain elected by the
Disabled Officer. Payment of the Post-Disability Death Benefit shall
commence on the first business day of the month following the month in which
the Officer dies.
In the event the Officer dies after commencement of the
Disability Benefit and on or after Retirement Age, the remaining Disability
Benefit payments due under Paragraph 4.01 of this Agreement shall be paid to
the Disabled Officer's Beneficiary.
ARTICLE V
CONDITIONS
5.01. VESTING RIGHTS.
The Company agrees that subject to Paragraph 5.04, and any
other applicable provisions of this Agreement, upon execution of this
Agreement, the Officer shall be fully vested in the Benefit Accrual Account
and the Pre-Retirement Death Benefit.
5.02. COVERAGE BY THIS AGREEMENT.
Coverage by the provisions of this Agreement is conditioned
upon the Officer's continuous employment in an eligible capacity (periods of
temporary disability and authorized leave of absence shall be considered as
periods of employment) with the Company from the effective date of this
Agreement until the
<PAGE>
earlier of the date the Officer attains Retirement Age, is granted Early
Retirement by the Board of Directors, is declared Disabled or dies. Benefit
payments are conditioned upon the Officer's compliance with the terms of this
Agreement so long as the Officer lives and payments are due under the
provisions of this Agreement.
5.03. SERVICES.
Payment of the Retirement Benefit or Early Retirement Benefit
is further conditioned upon the Officer rendering such reasonable business
consulting and advisory services as the Company's Board of Directors may call
upon the Officer to provide while receiving payments under this Agreement.
(a) It is understood that such services shall not require the
Officer to be active in the Company's day-to-day
activities, and that the Officer shall perform services as
requested by management.
(b) The Officer shall be compensated for services performed
and reimbursed for all expenses incurred in performing
such services.
5.04. NONCOMPETITION.
Coverage by the provisions of this Agreement is further
conditioned upon the Officer not engaging in any activity or similar
employment capacity for any business enterprise which competes to a
substantial degree with the Company during employment with the Company or
while receiving Benefit coverage or payments. In the event of violation of
this provision, all future Benefit coverage or payments shall be canceled and
discontinued. The Board of Directors shall determine whether violations have
occurred and may also waive these conditions.
5.05. CHANGE IN CONTROL.
The Company agrees that upon a Change in Control the Officer
shall be fully vested in the Benefit. The Benefit Accrual Account shall be
adjusted to equal the present value of the Retirement Benefit at the Interest
Rate as of the effective date of the Change in Control.
The Company agrees that prior to the effective date of a
Change in Control to transfer to the ESI Trust the adjusted Benefit Accrual
Account and any and all assets that the Company may have acquired in
connection with the liabilities it has assumed under this Agreement. The
Company, successors, and assigns agrees to
<PAGE>
continue the Benefit Accrual Period and the Pre-Retirement Death Benefit.
5.06. TERMINATION OF EMPLOYMENT.
In the event of termination of employment prior to a Change in
Control and prior to the commencement of Benefit payments under any provision
of this Agreement, the Officer and the Company agree to end the Benefit
Accrual Period and commence compounding the Benefit Accrual Account balance
annually at the Interest Rate. The Pre-Retirement Death Benefit and all
other provisions except Paragraph 5.02 5.03 shall remain in full force and
effect.
In the event of termination of employment subsequent to a
Change in Control and prior to the commencement of Benefit payments under any
provision of this Agreement, the Officer and the Company, successors, and
assigns agree to end the Benefit Accrual Period and commence compounding the
Benefit Accrual Account balance annually at the Interest Rate. The
Pre-Retirement Death Benefit and all other provisions of this Agreement
except Paragraph 5.02 and 5.03 shall remain in full force and effect.
5.07. ACCELERATION OF PAYMENT.
In the event the Officer and the Company, successors, and
assigns agree to accelerate payment as set forth in Article VIII, the
Pre-Retirement Death Benefit is null and void. The Officer shall have an
exclusive option to purchase (the "Option") any and all assets that the
Company may have acquired in connection with the liabilities it has assumed
under this Agreement in whole or in part. The Option is exercisable no later
than thirty (30) days after the Officer's receipt of the single payment
amount, at a price equal to the carrying value of the assets on the books and
records of the Company, determined under generally accepted accounting
principles. The conditions set forth in Paragraph 5.04 shall not be
applicable.
ARTICLE VI
FUNDING
6.01. The Company's obligations under this Agreement shall be an
unfunded and unsecured promise to pay. The Company shall not be required under
any circumstances to fund its obligations under this Agreement.
<PAGE>
ARTICLE VII
OFFICER RIGHT TO ASSETS
7.01. The rights of the Officer or the Beneficiary shall be solely
those of an unsecured general creditor of the Company. The Officer or the
Beneficiary shall only have the right to receive from the Company those payments
as specified under this Agreement. The Officer or the Beneficiary shall have no
rights or interests whatsoever in any assets of the Company. Any asset used or
acquired by the Company in connection with the liabilities the Company has
assumed under this Agreement shall not be deemed to be held under any trust for
the benefit of the Officer or the Beneficiary, nor shall it be considered
security for the performance of the obligations of the Company. It shall be,
and remain, a general, unpledged, and unrestricted asset of the Company.
ARTICLE VIII
ACCELERATION OF PAYMENT
8.01. The Company may accelerate to a single payment any Benefits
payable under this Agreement with the written consent of the Officer or the
Beneficiary. In the event it is agreed to accelerate payment, the single
payment amount shall equal the Benefit Accrual Account at the date of payment.
ARTICLE IX
LEAVES OF ABSENCE
9.01. The Company may, in its sole discretion, permit the Officer to
take a leave of absence; each such period shall not exceed one (1) year in
length. During such leave, the Officer shall be considered to be in the
continuous employment of the Company for purposes of this Agreement.
ARTICLE X
ASSIGNABILITY
10.01. Except insofar as this provision may be contrary to applicable
law, no sale, transfer, alienation, assignment, pledge, collateralization, or
attachment of any Benefits under this Agreement shall be valid or recognized by
the Company.
<PAGE>
ARTICLE XI
AMENDMENT/REVOCATION
11.01. This Agreement shall not be amended, modified, or revoked at any
time, in whole or in part, without the mutual written consent of the Officer and
the Company.
ARTICLE XII
TERMINATION OF AGREEMENT
12.01. In the event the Officer is discharged for Just Cause, this
Agreement shall be terminated and considered null and void with neither the
Officer nor the Officer's Beneficiary having any claim or right against the
Company. The provisions of this Article shall be superior to and take
precedence over any other provisions of this Agreement.
ARTICLE XIII
FIDUCIARY
13.01. NAMED FIDUCIARY AND ADMINISTRATOR.
The Board of Directors shall be the Named Fiduciary and
Agreement Administrator (the "Administrator") of this Agreement. The
Administrator shall be responsible for the management, control, and
administration of this Agreement as established herein. The Administrator
shall possess and exercise discretionary authority to make determinations as
to an Officer's eligibility for benefits and to construe the terms of this
Agreement. The Administrator may delegate to others certain aspects of the
management and operation responsibilities of this Agreement including the
employment of advisors and the delegation of ministerial duties to qualified
individuals.
13.02. CLAIMS PROCEDURE.
In the event that benefits under this Agreement are not paid
to the Officer (or the Beneficiary in the case of the Officer's death) and
such claimants feel they are entitled to receive such benefits, then a
written claim must be made to the Administrator named above within sixty (60)
days from the date payments are refused. The Administrator shall review the
written claim and, if the claim is denied, in whole or in part, they shall
provide in writing within ninety (90) days of receipt of such claim their
specific reasons for such denial, reference to the provision of this
Agreement upon which the denial is based and any additional material or
information necessary to perfect the claim. The Administrator and Officer
agree that any unresolved claims or disputes under this Agreement shall be
submitted to a mutually acceptable arbitrator
<PAGE>
for resolution.
ARTICLE XIV
INCOMPETENCY
14.01. If the Company shall find that any person to whom any payment is
payable under this Agreement is unable to care for their affairs because of
illness or injury, or is a minor, any payment due (unless a prior claim shall
have been made by a duly appointed guardian, committee, or other legal
representative) may be paid to the Spouse, a child, a parent, a brother or
sister, or a custodian determined pursuant to the Uniform Gift to Minors Act (or
similar law), or to any person deemed by the Company to have incurred expense
for such person otherwise entitled to payment, in such manner and proportions as
the Company may determine. Any such payment shall be a complete discharge of
the liabilities of the Company under this Agreement.
ARTICLE XV
NO EMPLOYMENT CONTRACT
15.01. This Agreement shall in no way be construed to create an
employment contract between the Company and the Officer.
ARTICLE XVI
PRIOR AGREEMENTS
16.01. This Agreement sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby, and any previous
Agreements or understandings between the parties hereto regarding the subject
matter hereof are merged into and superseded by this Agreement.
ARTICLE XVII
SEVERABILITY
17.01. In the event that any of the provisions of this Agreement or
portion thereof, are held to be inoperative or invalid by any court of competent
jurisdiction, then: (a) insofar as is reasonable, effect will be given to the
intent manifested in the provision held invalid or inoperative; and (b) the
validity and enforceability of the remaining provisions will not be affected
thereby.
<PAGE>
ARTICLE XVIII
MISCELLANEOUS
18.01. LAWS GOVERNING.
This Agreement shall be governed by the laws of the State of
Washington.
18.02. ENFORCEMENT.
This Agreement is solely between the Company and the Officer.
Furthermore, the Officer or the Beneficiary shall only have recourse against the
Company for enforcement of this Agreement. However, it shall be binding upon
the Beneficiary, heirs, executors and administrators of the Officer, and upon
any and all successors and assigns of the Company.
IN WITNESS WHEREOF, the parties acknowledge receipt of an executed
original of this Agreement signed this 5th day of November, 1999.
/s/ James F. Arneson
-------------------------------------
JAMES F. ARNESON
FIRST COMMUNITY FINANCIAL GROUP, INC.
LACEY, WASHINGTON
By: /s/ Ken F. Parsons CEO
----------------------------------
Title
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC.
LACEY, WASHINGTON
ADDENDUM TO
EXECUTIVE SUPPLEMENTAL INCOME AGREEMENT
This addendum to the Executive Supplemental Income Agreement covering JAMES F.
ARNESON enumerates the dollar amount of Benefits payable under the Executive
Supplemental Income Agreement. All rights and payment provisions are controlled
by the Executive Supplemental Income Agreement effective on the 1st day of
April, 1993. This addendum revokes any previously dated Addendum.
ANNUAL PRE-RETIREMENT DEATH BENEFIT:
Year 1 $100,000
Years 2-15 $50,000
ANNUAL RETIREMENT BENEFIT:
$42,569 payable for fifteen (15) years
IN WITNESS WHEREOF, the parties hereto have executed this Addendum this 5th day
of November, 1999, each acknowledging receipt of a fully signed original hereof.
/s/ James F. Arneson
-------------------------------------
JAMES F. ARNESON
FIRST COMMUNITY FINANCIAL GROUP, INC.
LACEY, WASHINGTON
By: /s/ Ken F. Parsons CEO
----------------------------------
Title
<PAGE>
FIRST COMMUNITY BANK OF WASHINGTON
LACEY, WASHINGTON
EXECUTIVE SUPPLEMENTAL INCOME AGREEMENT
THIS AGREEMENT is effective on the1st day of April, 1992, and is hereby
modified on the 5th day of November, 1999, by and between FIRST COMMUNITY BANK
OF WASHINGTON, LACEY, WASHINGTON, a state banking association (the "Bank"), and
JON M. JONES (the "Officer").
W I T N E S S E T H :
WHEREAS, the Officer is currently employed by the Bank in an executive
capacity;
WHEREAS, the Bank desires to retain the valuable services and business
counsel of the Officer and to induce the Officer to remain in an executive
capacity with the Bank;
WHEREAS, the Bank wishes to retain the Officer in order to prevent the
substantial financial loss which the Bank could incur if the Officer were to
leave and were to enter the employment of a competitor;
WHEREAS, the Officer is considered a highly compensated Officer or
member of a select management group of the Bank;
WHEREAS, the Bank recognizes the increasing value of the Officer the
longer the period of service and desires to provide a benefit to Officer
which will encourage continuous service until Retirement Age by providing
increased benefit levels as years of service increase;
WHEREAS, the Company desires to continue the benefits provided in the
Executive Supplemental Agreement with the Officer originally dated April 1,
1992, and desires to modify the Agreement to clarify the terms of those
benefits; and
WHEREAS, the Bank desires to pay the Officer the benefits provided
herein, subject to the terms and conditions set forth hereinbelow.
NOW, THEREFORE, for and in consideration of the above premises, and of
the following terms, conditions and mutual covenants of the parties hereto,
IT IS HEREBY AGREED:
<PAGE>
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the capitalized terms shall have the
following meanings:
1.01. "ADDENDUM" shall mean the attachment to this Agreement
entitled "Addendum to Executive Supplemental Income Agreement" which shall be
executed by the Officer and a representative of the Bank.
1.02. "BENEFICIARY" shall mean the person or persons the Officer has
most recently designated on a duly executed beneficiary form received by the
Bank; if the Officer has not designated a Beneficiary, then any payments due
under this Agreement shall be paid to the Officer's estate.
1.03. "BENEFIT" shall mean the Retirement Benefit, the Early
Retirement Benefit, the Disability Benefit, or the Pre-Retirement Death
Benefit, as the case may be.
1.04. "BENEFIT ACCRUAL ACCOUNT" shall mean the aggregate of the
accrued liability entries made or required to be made to the Bank's
accounting records in order to record the Bank's obligation to pay Benefits
under this Agreement pursuant to generally accepted accounting principles
during the Benefit Accrual Period and compound interest due under this
Agreement. The Benefit Accrual Period begins with the effective date of this
Agreement and ends at the earlier of the date of the Officer's termination of
employment or the date the Officer begins receiving payments under this
Agreement.
1.05. "BOARD OF DIRECTORS" shall mean the Board of Directors of
First Community Bank of Washington and First Community Financial Group, Inc.,
as the case may be.
1.06. "BUYOUT" shall mean a transaction or series of related
transactions by which the Bank is sold, either through the sale of a
Controlling Interest in the Bank's voting stock or through the sale of
substantially all of the Bank's assets, to a party not having a Controlling
Interest in the Bank's voting stock on the date of execution of this
Agreement.
1.07. "CHANGE IN CONTROL" shall mean a Buyout, Merger, or
Substantial Change in Ownership and shall occur when the transaction is
legally consummated.
1.08. "COMPENSATION" shall mean, for purposes of calculating
benefits under this Agreement, base compensation.
1.09. "CONTROLLING INTEREST" shall mean ownership, either directly
or indirectly, of more than thirty percent (30%) of the voting stock of the
Bank or a parent company of the Bank which is a member of the same
"affiliated group" as
<PAGE>
defined in 26 U.S.C. Section 1504(a).
1.10. "DISABLED" shall mean a permanent physical or mental condition
whereby the Officer is or will be unable to perform the duties of the
Officer's customary position of employment with the Bank or any other
employer controlled by or under common control with the Bank. The Board of
Directors shall determine whether the Officer is declared Disabled within
this definition and may require the Officer to submit to a physical
examination in order to declare the Officer Disabled.
1.11. "DISABILITY BENEFIT" shall mean, at the Disabled Officer's
election, a period certain not less than six (6) months nor more than one
hundred eighty (180) months, in an amount necessary to amortize the Benefit
Accrual Account at the Interest Rate.
1.12. "EARLY RETIREMENT AGE" shall mean age fifty-five (55).
1.13. "EARLY RETIREMENT BENEFIT" shall mean, at the Retiring
Officer's election, a period certain not less than twelve (12) months nor
more than one hundred eighty (180) months, in an amount necessary to amortize
the Benefit Accrual Account at the Interest Rate.
1.14. "ESI TRUST" is the Trust established to receive and hold the
assets and liabilities associated with this Agreement in the event of a
Change in Control.
1.15. "INTEREST RATE" shall mean eight percent (8%) on the date of
commencement of Benefit payments under this Agreement. In the event eight
percent (8%) should fail to be an appropriate rate, the Interest Rate shall
be determined by the Board of Directors.
1.16. "JUST CAUSE" shall mean personal dishonesty, willful
misconduct, willful malfeasance, 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), final cease-and-desist order, material breach of any provision of
this Agreement, or gross negligence in matters of material importance to the
Bank. The existence of Just Cause shall be determined upon recommendation by
a majority vote of the Board of Directors.
1.17. "LIFE ANNUITY" shall mean equal monthly payments for the life
of the Officer such that using the UP 84 Mortality Table and the Interest
Rate, the present value of such annuity is equal to the Benefit Accrual
Account.
1.18. "MERGER" shall mean a transaction or series of transactions
wherein the Bank is combined with another business entity, and after which
the persons or entities who had owned, either directly or indirectly, a
Controlling Interest in the Bank's voting stock on the effective date of this
Agreement own less than a Controlling Interest in the voting stock of the
combined entity.
<PAGE>
1.19. "PRE-RETIREMENT DEATH BENEFIT" shall mean the Annual
Pre-Retirement Death Benefit amount set forth in the Addendum to this
Agreement.
1.20. "RETIREMENT AGE" shall mean age sixty-five (65). The Board of
Directors and the Officer may, by mutual written consent, elect to postpone
the Retirement Age.
1.21. "RETIREMENT BENEFIT" shall mean the Annual Retirement Benefit
amount set forth in the Addendum to this Agreement. At the Officer's
election, the Retirement Benefit may be recalculated and paid as a Life
Annuity.
1.22. "SUBSTANTIAL CHANGE IN OWNERSHIP" shall mean a transaction or
series of transactions in which a Controlling Interest in the Bank is
acquired by or for a person or business entity, either of which did not own,
either directly or indirectly, a Controlling Interest in the Bank on the
effective date of this Agreement. The above shall not apply to stock
acquired and held by First Community Financial Group, Inc. Employee Stock
Ownership Plan with 401(k) Provisions ("KSOP").
ARTICLE II
PAYMENT OF PRE-RETIREMENT DEATH BENEFIT
2.01. PRE-RETIREMENT DEATH.
The Bank agrees that if the Officer dies while covered by the
provisions of this Agreement and prior to commencement of Benefit payments
under Article III below, the Bank will pay the Officer's Beneficiary the
Pre-Retirement Death Benefit. The Pre-Retirement Death Benefit shall be
divided by twelve (12) and paid in monthly payments commencing on the first
business day of the month following the month in which the Officer dies. The
payment of such Pre-Retirement Death Benefit will be subject to the
conditions and limitations set forth elsewhere in this Agreement. If the
Officer's Beneficiary is entitled to receipt of the Pre-Retirement Death
Benefit, the Officer's Beneficiary shall not be entitled to any other
payments under this Agreement.
ARTICLE III
PAYMENT OF RETIREMENT BENEFIT
3.01. RETIREMENT.
The Bank agrees that if the Officer attains Retirement Age
while covered by the provisions of this Agreement, the Retirement Benefit
shall be fully vested and nonforfeitable. After attaining Retirement Age,
the Officer may elect to terminate employment and commence receipt of the
Retirement Benefit. The Retirement Benefit shall be divided by twelve (12)
and paid in monthly payments commencing on the first business day of the
month after such termination of employment. Payment of the Retirement Benefit
is conditioned upon the Officer's compliance with this Agreement and upon the
Officer receiving no other payments
<PAGE>
under this Agreement.
3.02. EARLY RETIREMENT.
The Bank agrees that the Officer may at any time subsequent to
attaining Early Retirement Age request in writing to the Board of Directors
to retire early. The Board of Directors may grant nonforfeitable vesting in
the Benefit Accrual Account and the payment of the Early Retirement Benefit
commencing on the first business day of the month following the Officer's
termination of employment. Payment of the Early Retirement Benefit is
conditioned upon the Officer's compliance with this Agreement and upon the
Officer receiving no other payments under this Agreement.
3.03. POSTPONED RETIREMENT BENEFIT.
In the event Retirement Age is postponed, the postponed
retirement benefit shall be equal to the Retirement Benefit, unless the Board
of Directors, in the exercise of its sole discretion, elects to increase the
Retirement Benefit. Payment of the postponed Retirement Benefit shall
commence on the first business day of the month after the Officer attains the
postponed Retirement Age.
3.04. POST-RETIREMENT DEATH BENEFIT.
In the event the Officer dies on or after commencement of
Benefit payments under this Article III, the Officer's remaining Benefit
payments shall continue to be paid to the Officer's Beneficiary.
ARTICLE IV
PAYMENT OF DISABILITY BENEFIT
4.01. The Bank agrees that if the Officer is declared Disabled while
covered by the provisions of this Agreement, the Disability Benefit and the
Pre-Retirement Death Benefit shall be fully vested and nonforfeitable. The
Disabled Officer may elect to begin receipt of the Disability Benefit at any
time subsequent to being declared Disabled.
4.02. POST-DISABILITY DEATH BENEFIT.
The Bank agrees that if the Officer dies after commencement of the
Disability Benefit and before Retirement Age, the Bank shall pay to the
Officers' Beneficiary the monthly Pre-Retirement Death Benefit determined
under Paragraph 2.01 of this Agreement, reduced by an amount equal to the sum
of all Disability Benefit payments previously paid to the Officer under this
Agreement divided by the period certain elected by the Disabled Officer.
Payment of the Post-Disability Death Benefit shall commence on the first
business day of the month following the month in which the Officer dies.
<PAGE>
In the event the Officer dies after commencement of the Disability
Benefit and on or after Retirement Age, the remaining Disability Benefit
payments due under Paragraph 4.01 of this Agreement shall be paid to the
Disabled Officer's Beneficiary.
ARTICLE V
CONDITIONS
5.01. COVERAGE BY THIS AGREEMENT.
Coverage by the provisions of this Agreement is conditioned
upon the Officer's continuous employment in an eligible capacity (periods of
temporary disability and authorized leave of absence shall be considered as
periods of employment) with the Bank from the effective date of this
Agreement until the earlier of the date the Officer attains Retirement Age,
is granted Early Retirement by the Board of Directors, is declared Disabled
or dies. Benefit payments are conditioned upon the Officer's compliance with
the terms of this Agreement so long as the Officer lives and payments are due
under the provisions of this Agreement.
5.02. SERVICES.
Payment of the Retirement Benefit or Early Retirement Benefit
is further conditioned upon the Officer rendering such reasonable business
consulting and advisory services as the Bank's Board of Directors may call
upon the Officer to provide while receiving payments under this Agreement.
(a) It is understood that such services shall not require the
Officer to be active in the Bank's day-to-day activities,
and that the Officer shall perform services as requested
by management.
(b) The Officer shall be compensated for services performed
and reimbursed for all expenses incurred in performing such
services.
5.03. NONCOMPETITION.
Coverage by the provisions of this Agreement is further
conditioned upon the Officer not engaging in any activity or similar
employment capacity for any business enterprise which competes to a
substantial degree with the Bank during employment with the Bank or while
receiving Benefit coverage or payments. In the event of violation of this
provision, all future Benefit coverage or payments shall be
<PAGE>
canceled and discontinued. The Board of Directors shall determine whether
violations have occurred and may also waive these conditions.
5.04. CHANGE IN CONTROL.
The Bank agrees that upon a Change in Control the Officer
shall be fully vested in the Benefit Accrual Account and the Pre-Retirement
Death Benefit. Mutual written consent of the Officer and the Bank,
successors, and assigns shall be required to amend, modify, or revoke this
Agreement on the date of or on any date subsequent to the Change in Control.
The Bank agrees, prior to the effective date of a Change in
Control, to transfer to the ESI Trust the Benefit Accrual Account and any and
all assets that the Bank may have acquired in connection with the liabilities
it has assumed under this Agreement. The Bank, successors, and assigns agree
to continue the Benefit Accrual Period and the Pre-Retirement Death Benefit.
5.05. TERMINATION OF EMPLOYMENT.
In the event of termination of employment subsequent to a
Change in Control and prior to the commencement of Benefit payments under any
provision of this Agreement, the Officer and the Bank, successors, and
assigns agree to end the Benefit Accrual Period and commence compounding the
Benefit Accrual Account balance annually at the Interest Rate. The
Pre-Retirement Death Benefit and all other provisions of this Agreement
except Paragraph 5.01 and 5.02 shall be in full force and effect.
5.06. ACCELERATION OF PAYMENT.
In the event the Officer and the Bank, successors, and assigns
agree to accelerate payment as set forth in Article VIII, the Pre-Retirement
Death Benefit is null and void. The Officer shall have an exclusive option
to purchase (the "Option") any and all assets that the Bank may have acquired
in connection with the liabilities it has assumed under this Agreement in
whole or in part. The Option is exercisable no later than thirty (30) days
after the Officer's receipt of the single payment amount, at a price equal to
the carrying value of the assets on the books and records of the Bank,
determined under generally accepted accounting principles. Upon acceleration
of payment, the Officer agrees to be bound by a non-competition agreement for
one (1) year from the date of termination of employment. The non-competition
agreement will provide that the Officer shall not engage in any activity or
similar employment capacity for any business enterprise which competes to a
substantial degree with the
<PAGE>
Bank.
ARTICLE VI
FUNDING
6.01. The Bank's obligations under this Agreement shall be an
unfunded and unsecured promise to pay. The Bank shall not be required under
any circumstances to fund its obligations under this Agreement. The Bank
may, however, in its sole and absolute discretion, elect to fund this
Agreement in whole or in part.
ARTICLE VII
OFFICER RIGHT TO ASSETS
7.01. The rights of the Officer or the Beneficiary shall be solely
those of an unsecured general creditor of the Bank. The Officer or the
Beneficiary shall only have the right to receive from the Bank those payments
as specified under this Agreement. The Officer or the Beneficiary shall have
no rights or interests whatsoever in any assets of the Bank. Any asset used
or acquired by the Bank in connection with the liabilities the Bank has
assumed under this Agreement shall not be deemed to be held under any trust
for the benefit of the Officer or the Beneficiary, nor shall it be considered
security for the performance of the obligations of the Bank. It shall be,
and remain, a general, unpledged, and unrestricted asset of the Bank.
ARTICLE VIII
ACCELERATION OF PAYMENT
8.01. The Bank may accelerate to a single payment any Benefits
payable under this Agreement with the written consent of the Officer or the
Beneficiary. In the event it is agreed to accelerate payment, the single
payment amount shall equal the Benefit Accrual Account at the date of payment.
ARTICLE IX
LEAVES OF ABSENCE
<PAGE>
9.01. The Bank may, in its sole discretion, permit the Officer to
take a leave of absence; each such period shall not exceed one (1) year in
length. During such leave, the Officer shall be considered to be in the
continuous employment of the Bank for purposes of this Agreement.
ARTICLE X
ASSIGNABILITY
10.01. Except insofar as this provision may be contrary to applicable
law, no sale, transfer, alienation, assignment, pledge, collateralization, or
attachment of any Benefits under this Agreement shall be valid or recognized by
the Bank.
ARTICLE XI
AMENDMENT/REVOCATION
11.01. Notwithstanding the provisions of Article XII below, the Bank in
its sole discretion may amend, modify, or revoke this Agreement in whole or in
part at any time except under the following circumstances:
(1) The Officer has attained Retirement Age, and is entitled to
payment of the Retirement Benefit pursuant to Paragraph 3.01;
(2) The Officer has been granted Early Retirement, and is entitled
to payment of the Early Retirement Benefit pursuant to
Paragraph 3.02;
(3) The Officer has been declared Disabled and is entitled to
payment of the Disability Benefit pursuant to Article IV;
(4) The Officer has died and the Officer's Beneficiary is entitled
to payment of the Pre-Retirement Death Benefit pursuant to
Article II; or
(5) The Board of Directors has entered into discussions which
result in a Change in Control.
ARTICLE XII
TERMINATION OF AGREEMENT
12.01. In the event the Officer is discharged for Just Cause, this
Agreement shall be terminated and considered null and void with neither the
Officer nor the Officer's Beneficiary having any claim or right against the
Bank. The provisions of this Article shall be superior to and take
precedence over any other provisions of this Agreement.
<PAGE>
ARTICLE XIII
FIDUCIARY
13.01. NAMED FIDUCIARY AND ADMINISTRATOR.
The Board of Directors shall be the Named Fiduciary and
Agreement Administrator (the "Administrator") of this Agreement. The
Administrator shall be responsible for the management, control, and
administration of this Agreement as established herein. The Administrator
shall possess and exercise discretionary authority to make determinations as
to an Officer's eligibility for benefits and to construe the terms of this
Agreement. The Administrator may delegate to others certain aspects of the
management and operation responsibilities of this Agreement including the
employment of advisors and the delegation of ministerial duties to qualified
individuals.
13.02. CLAIMS PROCEDURE.
In the event that benefits under this Agreement are not paid
to the Officer (or the Beneficiary in the case of the Officer's death) and
such claimants feel they are entitled to receive such benefits, then a
written claim must be made to the Administrator named above within sixty (60)
days from the date payments are refused. The Administrator shall review the
written claim and, if the claim is denied, in whole or in part, they shall
provide in writing within ninety (90) days of receipt of such claim their
specific reasons for such denial, reference to the provision of this
Agreement upon which the denial is based and any additional material or
information necessary to perfect the claim. The Administrator and Officer
agree that any unresolved claims or disputes under this Agreement shall be
submitted to a mutually acceptable arbitrator for resolution.
ARTICLE XIV
INCOMPETENCY
14.01. If the Bank shall find that any person to whom any payment is
payable under this Agreement is unable to care for their affairs because of
illness or injury, or is a minor, any payment due (unless a prior claim shall
have been made by a duly appointed guardian, committee, or other legal
representative) may be paid to the Spouse, a child, a parent, a brother or
sister, or a custodian determined pursuant to the Uniform Gift to Minors Act
(or similar law), or to any person deemed by the Bank to have incurred
expense for such person otherwise entitled to payment, in such manner
<PAGE>
and proportions as the Bank may determine. Any such payment shall be a
complete discharge of the liabilities of the Bank under this Agreement.
ARTICLE XV
NO EMPLOYMENT CONTRACT
15.01. This Agreement shall in no way be construed to create an
employment contract between the Bank and the Officer.
ARTICLE XVI
PRIOR AGREEMENTS
16.01. This Agreement sets forth the entire understanding of the parties
hereto with respect to the transactions contemplated hereby, and any previous
Agreements or understandings between the parties hereto regarding the subject
matter hereof are merged into and superseded by this Agreement.
ARTICLE XVII
SEVERABILITY
17.01. In the event that any of the provisions of this Agreement or
portion thereof, are held to be inoperative or invalid by any court of competent
jurisdiction, then: (a) insofar as is reasonable, effect will be given to the
intent manifested in the provision held invalid or inoperative; and (b) the
validity and enforceability of the remaining provisions will not be affected
thereby.
ARTICLE XVIII
MISCELLANEOUS
18.01. LAWS GOVERNING.
<PAGE>
This Agreement shall be governed by the laws of the State of Washington.
18.02. ENFORCEMENT.
This Agreement is solely between the Bank and the Officer. Furthermore,
the Officer or the Beneficiary shall only have recourse against the Bank for
enforcement of this Agreement. However, it shall be binding upon the
Beneficiary, heirs, executors and administrators of the Officer, and upon any
and all successors and assigns of the Bank.
IN WITNESS WHEREOF, the parties acknowledge receipt of an executed
original of this Agreement signed this 5th day of November, 1999.
/s/ Jon M. Jones
--------------------
JON M. JONES
FIRST COMMUNITY BANK OF WASHINGTON
LACEY, WASHINGTON
By: /s/ James F. Arneson Executive Vice President
---------------------------------------------------
Title
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP, INC.
LACEY, WASHINGTON
ADDENDUM TO
EXECUTIVE SUPPLEMENTAL INCOME AGREEMENT
This addendum to the Executive Supplemental Income Agreement covering JON M.
JONES enumerates the dollar amount of Benefits payable under the Executive
Supplemental Income Agreement. All rights and payment provisions are
controlled by the Executive Supplemental Income Agreement effective on the
1st day of April, 1992. This addendum revokes any previously dated Addendum.
ANNUAL PRE-RETIREMENT DEATH BENEFIT:
Year 1 $75,000
Years 2-15 $37,500
ANNUAL RETIREMENT BENEFIT:
$27,569 payable for fifteen (15) years
IN WITNESS WHEREOF, the parties hereto have executed this Addendum this 5th day
of November, 1999, each acknowledging receipt of a fully signed original hereof.
/s/ Jon M. Jones
------------------------
JON M. JONES
FIRST COMMUNITY FINANCIAL GROUP, INC.
LACEY, WASHINGTON
By: /s/ James F. Arneson Executive Vice
------------------------------------------
President
---------
Title
<PAGE>
FIRST COMMUNITY FINANCIAL GROUP
EMPLOYMENT AGREEMENT AMENDMENT
KEN F. PARSONS, SR.
This is Amendment number one (1) to the Agreement made and entered into
as of September 1, 1996, by and between FIRST COMMUNITY FINANCIAL GROUP, a
Washington Corporation, and FIRST COMMUNITY BANK, a Washington Corporation
(the "Company"); and KEN F. PARSONS, SR. ("Parsons").
This Employment Agreement Amendment number one (1) is made and entered
into to be effective January 1, 1999, by and between FIRST COMMUNITY
FINANCIAL GROUP, a Washington Corporation, and FIRST COMMUNITY BANK, a
Washington Corporation, (the "Company"); and KEN F. PARSONS, SR. ("Parsons")
with the following revisions:
PAGE 2, PARAGRAPH 3.B COMPENSATION: Parsons shall be entitled to paid
vacation and sick leave, all as more fully specified in the Company's Policy
Manual and modified from time to time. Parsons' annual paid vacation accrual
shall not be less than seven (7) weeks, and not less than eight (8) weeks
after ten years of employment.
PAGE 2, PARAGRAPH 3.C COMPENSATION: The Company may provide additional
stock option opportunities to Parsons, from time to time, at the discretion
of the Board of Directors. All unexpired options granted under the Company's
Employee Stock Option and Restricted Stock Award Plan "Plan" will vest in the
event of a Change of Control or upon termination of Parsons without Cause.
If terminated within the Change in Control Period, but prior to the Change in
Control, any options that may have expired as a result of the termination
will be reinstated upon the consummation of the Change in Control such that
the option or the related right as defined in the option plan may be
exercised in accordance with the plan.
PAGE 3, PARAGRAPH 7 RETIREMENT: The Company shall enter into an updated
Executive Supplemental Income ("ESI") Agreement with Parsons, a copy of which
is attached hereto as Exhibit A. The ESI Agreement provides for a pre-age 65
Death Benefit (as defined in the ESI Agreement) payable to Parsons'
designated beneficiary in the amount of $180,000 for the first 12 month
period after Parsons' death; $135,000 per year for the second through fifth
years following Parsons' death; and $90,000 per year for the sixth through
fifteenth years following Parsons' death. The ESI Agreement also provides
that should Parsons live to age 65 the Company will pay an annual
Compensation (as defined in the Addendum to the ESI Agreement) to Parsons in
the amount of $125,000 per year (or the actuarially reduced amount should
Parsons select either a lump sum or a joint and survivor payment option) for
a period of fifteen years. Parsons is vested at all times in the Benefit (as
defined in the ESI Agreement). Parsons shall
<PAGE>
have a nonforfeitable right to the Annual Compensation or the Death Benefit,
at all times (as defined in the ESI Agreement).
PAGE 5, PARAGRAPH 10.C TERM OF EMPLOYMENT: If this Agreement is
terminated (i) by the Company without "cause" (as defined in Section 11,
below), or (ii) by Parsons for "good reason" (as defined in paragraph 10.D
below), or (iii) by Parsons for any reason within Change in Control Period,
Parsons will be entitled to receive the following:
DEFINITION OF "CHANGE IN CONTROL PERIOD." "Change in Control Period" shall
be defined as any time during a period beginning twelve (12) months prior to
the earlier of a public announcement of a Change in Control if public
announcement is made, or the date on which the Board of Directors know, or
should reasonably know of an impending Change in Control, and ending thirty
six (36) months subsequent to the consummation of a Change in Control.
NEW, PARAGRAPH 10.G TERM OF EMPLOYMENT: Regardless of Parsons continued
employment and after medical coverage period provided by the Company, the
Company will make medical coverage available to Parsons and his dependents
(as long as such coverage can be provided), at his expense, until he reaches
age 65. This medical coverage will be the same as that provided or made
available to senior executives of the Company and their dependents.
PAGE 7, PARAGRAPH 14.B RESTRICTIVE COVENANT: If Parsons voluntarily
terminates his employment without "good reason" or the Company terminates
Parsons for "cause", then Parsons shall not, for a period of 12 months that
commences on the date of termination (the "noncompete period"), be employed
or act in any capacity, either directly or indirectly, or by or for himself
or for any partnership, corporation, trust, or company, "participate" (as
defined below), in any business similar to the type of business conducted by
the Company at the time of termination of employment in any market area in
which the Company or it's affiliates conduct business at the time of
termination. For purposes of this Agreement, the term "participate"
includes, without limitation, any direct or indirect interest in any
business, whether as an officer, director, consultant, employee, partner,
sole proprietor, stockholder, owner, or otherwise, other than by ownership of
less than one percent (1%) of the stock of a publicly held corporation whose
stock is traded on a national securities exchange or on the over-the-counter
market. The term "participate" shall also include participation, planning,
or consulting for any startup financial organization. During the noncompete
period, Parsons will be entitled to receive his base compensation, other
benefits as defined in Section 4, and his membership dues in the Olympia
Country and Golf Club.
IN WITNESS WHEREOF, the parties have signed this Agreement on the day and
year first above written.
FIRST COMMUNITY FINANCIAL GROUP
/s/ Ken F. Parsons
- ----------------------- -------------------------------
Ken F. Parsons, Sr.
FIRST COMMUNITY BANK
-------------------------------
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