FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 1997
or
[ ] Transaction Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File Number 0-21108
MARION CAPITAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1872393
(State or other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) Number)
100 West Third Street, P.O. Box 367, Marion, Indiana 46952
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (765) 664-0556
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, without par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
The aggregate market value of the issuer's voting stock held by non-affiliates,
as of August 22, 1997, was $36,798,758.
The number of shares of the Registrant's Common Stock, without par value,
outstanding as of August 22, 1997, was 1,773,356 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended June 30, 1997
are incorporated into Part II. Portions of the Proxy Statement for the 1997
Annual Meeting of Shareholders are incorporated into Part III.
Exhibit Index on Page 39
Page 1 of 39 Pages
<PAGE>
MARION CAPITAL HOLDINGS, INC.
Form 10-K
INDEX
Page
Forward Looking Statements................................................. 1
PART 1
Item 1. Business..................................................... 1
Item 2. Properties................................................... 31
Item 3. Legal Proceedings............................................ 31
Item 4. Submission of Matters to a Vote of Security Holders.......... 31
Item 4.5. Executive Officers of MCHI................................... 31
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 32
Item 6. Selected Consolidated Financial Data......................... 33
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 33
Item 7A. Quantitative and Qualtative Disclosures About Market Risk.... 33
Item 8. Financial Statements and Supplementary Data.................. 34
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 34
PART III
Item 10. Directors and Executive Officers of the Registrant........... 34
Item 11. Executive Compensation....................................... 34
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................... 34
Item 13. Certain Relationships and Related Transactions............... 34
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.............................................. 35
Signatures ......................................................... 36
<PAGE>
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K ("Form 10-K") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Company. Readers of this Form 10-K are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-K
identifies important factors that could cause such differences. These factors
include changes in interest rates; loss of deposits and loan demand to other
savings and financial institutions; substantial changes in financial markets;
changes in real estate values and the real estate market; regulatory changes; or
unanticipated results in pending legal proceedings.
PART I
Item 1. Business.
General
Marion Capital Holdings, Inc. ("MCHI") is an Indiana corporation
organized on November 23, 1992, to become a unitary savings and loan holding
company. MCHI became a unitary savings and loan holding company upon the
conversion (the "Conversion") of First Federal Savings Bank of Marion (the
"Bank" and together with MCHI, the "Company") from a federal mutual savings bank
to a federal stock savings bank on March 18, 1993. The principal asset of MCHI
consists of 100% of the issued and outstanding shares of common stock, $0.01 par
value per share, of the Bank. The Bank began operations in Marion, Indiana, as a
federal savings and loan association in 1936, and converted to a federal mutual
savings bank in 1986.
The Bank offers a number of consumer and commercial financial services.
These services include: (i) residential and commercial real estate loans; (ii)
multi-family loans; (iii) construction loans; (iv) installment loans; (v) loans
secured by deposits; (vi) auto loans; (vii) NOW accounts; (viii) consumer and
commercial demand deposit accounts; (ix) individual retirement accounts; and (x)
tax deferred annuities and mutual funds through its service corporation
subsidiary, First Marion Service Corporation ("First Marion"). The Bank provides
these services at two full-service offices, one in Marion and one in Decatur,
Indiana. The Bank's market area for loans and deposits consists of Grant and
surrounding counties and Adams County in Indiana. The Bank will open a branch
office in the Marion Wal-Mart Supercenter in October, 1997 and acquire an NBD
branch facility in Gas City, Indiana in December, 1997.
The Company's primary source of revenue is interest income from the
Bank's lending activities. The Bank's principal lending activity is the
origination of conventional mortgage loans to enable borrowers to purchase or
refinance one- to four-family residential real property. At June 30, 1997, 63.3%
of the Company's total loan and mortgage-backed securities portfolio consisted
of conventional mortgage loans on residential real property. These loans are
generally secured by first mortgages on the property. Substantially all of the
residential real estate loans originated by the Bank are secured by properties
located in Grant and Adams Counties. The Bank also offers secured and unsecured
consumer-related loans (including installment loans, loans secured by deposits,
home equity loans, and auto loans). The Company has a significant commercial
real estate portfolio, with a balance of $31.1 million at June 30, 1997, or
20.3% of total loans and mortgage-backed securities. The Bank also makes a
limited number of construction loans, which constituted $4.7 million or 3.1% of
the Company's total loans and mortgage-backed securities at June 30, 1997, and a
limited number of commercial loans which are not secured by real estate.
<PAGE>
In the early 1980s most savings institutions' loan portfolios consisted
of long-term fixed-rate loans which then carried low interest rates. At the same
time, most savings associations had to pay competitive and high market interest
rates in order to maintain deposits. This resulted in a "negative" interest
spread. The Bank experienced these problems, but responded to them as changes in
regulations over the period permitted, and has been quite successful in managing
its interest rate risk. Among its strategies has been an emphasis on originating
adjustable-rate mortgage loans ("ARMs") which permit the Bank to better match
the interest it earns on mortgage loans with the interest it pays on deposits,
with interest rate minimums. As of June 30, 1997, ARMs constituted 89.3% of the
Company's total mortgage loan portfolio. Additionally, the Bank attempts to
lengthen liability repricing by aggressively pricing longer term certificates of
deposit during periods of relatively low interest rates and investing in
intermediate-term or variable-rate investment securities.
Lending Activities
Loan Portfolio Data. The following table sets forth the composition of
the Company's loan portfolio by loan type and security type as of the dates
indicated, including a reconciliation of gross loans receivable after
consideration of the allowance for possible loan losses and deferred net loan
fees on loans.
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ------------------ ---------------- ---------------- -------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
(Dollars In Thousands)
TYPE OF LOAN
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential.................. $ 97,017 63.33% $ 87,106 58.26% $ 81,651 56.21%$ 76,573 55.72%$ 76,806 54.41%
Commercial real estate....... 31,122 20.31 36,170 24.19 35,937 24.74 35,003 25.47 39,348 27.87
Multi-family................. 11,394 7.44 15,573 10.42 14,495 9.98 12,039 8.76 12,686 8.99
Construction:
Residential.................. 3,555 2.32 3,904 2.61 3,448 2.37 3,164 2.30 2,479 1.76
Commercial real
estate..................... 1,144 .75 506 .34 1,257 .87 1,159 .84 1,479 1.05
Multi-family................. --- --- 584 .39 2,627 1.81 3,809 2.77 2,784 1.97
Consumer loans:
Installment loans............ 3,613 2.36 2,725 1.82 1,897 1.30 1,340 .98 1,557 1.10
Loans secured by deposits.... 895 .58 883 .59 797 .55 822 .60 806 .57
Home equity loans............ 1,376 .90 399 .27 405 .27 494 .36 584 .42
Auto loans................... 325 .21 169 .11 120 .08 113 .08 130 .09
Home improvement loans....... --- --- --- --- --- --- 1 .00 4 .00
Education loans.............. --- --- --- --- --- --- --- --- 1 .00
Commercial loans................ 2,525 1.65 7 .00 9 .01 14 .01 57 .04
Mortgage-backed securities...... 237 .15 1,491 1.00 2,630 1.81 2,905 2.11 2,446 1.73
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Gross loans receivable and
mortgage-backed securities $153,203 100.00% $149,517 100.00% $145,273 100.00% $137,436 100.00% $141,167 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
TYPE OF SECURITY
Residential (1).............. $102,185 66.70% $ 92,888 62.13% $ 88,109 60.65% $ 83,108 60.47%$ 81,636 57.83%
Commercial real estate....... 32,266 21.06 36,688 24.54 37,219 25.62 36,191 26.33 40,922 28.99
Multi-family................. 11,394 7.44 16,157 10.81 17,122 11.79 15,848 11.53 15,470 10.96
Autos........................ 325 .21 169 .11 120 .08 113 .08 130 .09
Deposits..................... 895 .58 883 .59 797 .55 822 .60 806 .57
Other security............... 2,525 1.65 7 .00 9 .01 14 .01 12 .01
Unsecured.................... 3,613 2.36 2,725 1.82 1,897 1.30 1,340 .98 2,191 1.55
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Gross loans receivable
and mortgage-backed
securities.............. 153,203 100.00 149,517 100.00 145,273 100.00 137,436 100.00 141,167 100.00
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
<PAGE>
Deduct:
Allowance for possible losses
on loans..................... 2,032 1.33 2,009 1.34 2,013 1.39 2,050 1.49 2,051 1.45
Deferred net loan fees.......... 277 .18 313 .21 303 .21 333 .24 435 .31
Loans in process................ 2,626 1.71 2,539 1.70 4,004 2.75 5,056 3.68 3,235 2.29
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Net loans receivable including
mortgage-backed securities. $148,268 96.78 % $144,656 96.75% $138,953 95.65% $129,997 94.59% $135,446 95.95%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
Mortgage Loans
Adjustable rate.............. $128,799 89.30 % $128,811 89.55 $120,496 86.43% $113,184 85.91% $116,872 86.20%
Fixed rate................... 15,433 10.70 15,032 10.45 18,919 13.57 18,563 14.09 18,710 13.80
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total...................... $144,232 100.00% $143,843 100.00% $139,415 100.00% $131,747 100.00% $135,582 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
- -----------------
</TABLE>
(1) Includes majority of mortgage-backed securities, home equity loans and home
improvement loans.
<PAGE>
The following table sets forth certain information at June 30, 1997,
regarding the dollar amount of loans maturing in the Company's loan portfolio
based on the date that final payment is due under the terms of the loan. Demand
loans having no stated schedule of repayments and no stated maturity and
overdrafts are reported as due in one year or less. This schedule does not
reflect the effects of possible prepayments or enforcement of due-on-sale
clauses. Management expects prepayments will cause actual maturities to be
shorter.
<TABLE>
<CAPTION>
Due During Years Ended June 30,
Outstanding
Balance 2001 2003 2008 2013
At June 30, to to to and
1997 1998 1999 2000 2002 2007 2012 following
---------- ------ ------ ------ ------ ------- ------- ----------
(In Thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential............ $ 100,572 $ 965 $ 693 $ 269 $2,105 $13,847 $34,783 $47,910
Multi-family........... 11,394 640 476 --- 195 883 6,351 2,849
Commercial real
estate............... 32,266 194 6,149 636 1,700 7,540 6,848 9,199
Consumer loans:
Home improvement ...... --- --- --- --- --- --- --- ---
Home equity............ 1,376 122 30 5 --- 1,219 --- ---
Auto................... 325 38 53 105 129 --- --- ---
Installment............ 3,613 2,181 319 194 553 291 75 ---
Loans secured
by deposits.......... 895 666 75 60 50 44 --- ---
Mortgage-backed
securities ............ 237 108 --- --- 129 --- --- ---
Commercial loans.......... 2,525 25 --- --- --- 2,500 --- ---
---------- ------ ------ ------ ------ ------- ------- -------
Total.................. $ 153,203 $4,939 $7,795 $1,269 $4,861 $26,324 $48,057 $59,958
========== ====== ====== ====== ====== ======= ======= =======
</TABLE>
The following table sets forth, as of June 30, 1997, the dollar amount of
all loans due after one year which have fixed interest rates and floating or
adjustable interest rates.
Due After June 30, 1998
Fixed Rates Variable Rates Total
----------- -------------- -----
(In Thousands)
Mortgage loans:
Residential................... $ 8,829 $ 90,778 $ 99,607
Multi-family....................... 864 9,890 10,754
Commercial real estate........ 4,574 27,498 32,072
Consumer loans:
Home improvement ............. --- --- ---
Home equity................... --- 1,254 1,254
Auto.......................... 287 --- 287
Installment................... 938 494 1,432
Loan secured by deposits...... --- 229 229
Mortgage-backed securties ........ 129 --- 129
Commercial loans .................. 2,500 --- 2,500
------- -------- --------
Total......................... $18,121 $130,143 $148,264
======= ======== ========
<PAGE>
Residential Loans. Residential loans consist of one-to-four family
loans. Approximately $97.0 million, or 63.3%, of the Company's portfolio of
loans and mortgage-backed securities at June 30, 1997, consisted of one- to
four-family mortgage loans, of which approximately 89.3% had adjustable rates.
In the past, the Company sold to the Federal Home Loan Mortgage Corporation (the
"FHLMC") 95% of the principal balance on a few fixed rate loans originated with
terms in excess of 15 years or with annual interest rates lower than 8.5% and
retained all of the servicing rights on all such loans. Currently, the Company
is opting to keep most of these fixed rate loans in its portfolio since the
value of fixed rate loans remains low. The option to retain or sell fixed rate
loans will be evaluated from time to time. No loans were sold to FHLMC during
the year ended June 30, 1997.
The Bank originates fixed-rate loans with terms of up to 25 years. Some
loans are originated in accordance with guidelines established by FHLMC to
facilitate the sale of such loans to FHLMC in the secondary market. These loans
amortize on a monthly basis with principal and interest due each month. As
mentioned above, a few of these loans originated with terms in excess of 15
years, or annual interest rates below 8.5%, were sold to FHLMC promptly after
they were originated. The Bank retained 5% of the principal balance of such sold
loans as well as the servicing on all of such sold loans. Recently, the Bank has
decided to selectively retain these fixed rate loans in its portfolio. At June
30, 1997, the Company had $8.8 million of fixed rate residential mortgage loans
which were originated in prior years in its portfolio, none of which were held
for sale.
Most ARMs adjust on an annual basis, although the Bank currently offers
a five-year ARM which has a fixed rate for five years, and adjusts annually
thereafter. Currently, the ARMs have an interest rate average minimum of 6% and
average maximum of 13.5%. The interest rate adjustment for substantially all of
the Bank's ARMs is indexed to the One-Year Treasury Constant Maturity Index. On
new residential mortgage loans, the margin above such index currently is 2.75%.
The Bank offers ARMs with maximum rate changes of 2% per adjustment, and an
average of 6% over the life of the loan. Generally made for terms of up to 25
years, the Bank's ARMs are not made on terms that conform with the standard
underwriting criteria of FHLMC or the Federal National Mortgage Association (the
"FNMA"), thereby making resale of such loans difficult. To better protect the
Company against rising interest rates, the Bank underwrites its residential ARMs
based on the borrower's ability to repay the loan assuming a rate equal to
approximately 4% above the initial rate payable if the loan remained constant
during the loan term.
Although the Bank's residential mortgage loans are generally amortized
over a 20-year period, residential mortgage loans generally are paid off before
maturity. Substantially all of the residential mortgage loans that the Bank has
originated include "due on sale" clauses, which give the Bank the right to
declare a loan immediately due and payable in the event that, among other
things, the borrower sells or otherwise disposes of the real property subject to
the mortgage and the loan is not repaid.
The Bank generally requires private mortgage insurance on all
conventional residential single-family mortgage loans with loan-to-value ratios
in excess of 80%. The Bank generally will not lend more than 95% of the lower of
current cost or appraised value of a residential single family property. In July
1995, the Bank's wholly-owned subsidiary, First Marion, began a 100% financing
program pursuant to which the Bank would originate an 80% loan-to-value first
mortgage loan using its normal underwriting standard and First Marion would
finance the remaining 20%. The second mortgage loan originated by First Marion
is a fixed rate mortgage loan with an interest rate of 12% and a term not to
exceed 15 years. At June 30, 1997, these loans amounted to $1.4 million.
Residential mortgage loans in excess of $500,000 must be approved in
advance by the Bank's Board of Directors. Such loans under that amount must be
approved by the Bank's Loan Committee.
At June 30, 1997, residential mortgage loans amounting to $1.2 million,
or 0.8% of total loans, were included in non-performing assets. See
"--Non-performing and Problem Assets."
<PAGE>
Commercial Real Estate Loans. At June 30, 1997, $31.1 million, or
20.3%, of the Company's total loan and mortgage-backed securities portfolio
consisted of mortgage loans secured by commercial real estate. The properties
securing these loans consist primarily of nursing homes, office buildings,
hotels, churches, warehouses and shopping centers. The commercial real estate
loans, substantially all adjustable rate, are made for terms not exceeding 25
years, and generally require an 80% or lower loan-to-value ratio. Some require
balloon payments after 5, 10 or 15 years. A number of different indices,
including the prime rate as announced by NBD Bank, Indianapolis, Indiana, are
used as the interest rate index for these loans. The commercial real estate
loans generally have minimum interest rates of 9% and maximum interest rates of
15%. Most of these loans adjust annually, but the Company has some 3-year and
5-year commercial real estate adjustable rate loans in its portfolio. The
largest commercial real estate loan as of June 30, 1997, had a balance of $2.6
million.
Because of certain credit problems it was experiencing in its
commercial real estate and multi-family loan portfolio, the Bank has since the
summer of 1991 limited the size of any commercial real estate or multi-family
loan or participation originated or purchased to $500,000, wherever practicable.
The Company held in its portfolio 23 commercial and multi-family real estate
loans with balances in excess of $500,000 at June 30, 1997. The average loan
balance for all such loans was $1.0 million. A significant proportion of the
Company's commercial real estate loan portfolio consists of loans secured by
nursing home properties. The balance of such loans totaled $13.0 million at June
30, 1997.
Current federal law limits a savings association's investment in
commercial real estate loans to 400% of its capital. In addition, the
application of the Qualified Thrift Lender Test has had the effect of limiting
the aggregate investment in commercial real estate loans made by the Bank. See
"Regulation -- Qualified Thrift Lender." The Bank currently complies with the
limitations on investments in commercial real estate loans.
Commercial real estate loans involve greater risk than residential
mortgage loans because payments on loans secured by income properties are often
dependent on the successful operation or management of the properties and are
generally larger. As a result, repayment of such loans may be subject to a
greater extent than residential real estate loans to adverse conditions in the
real estate market or the economy. At June 30, 1997, the Company had not
classified any of its commercial real estate and multi-family portfolio as
substandard and no loans were classified as special mention.
The Company has a high concentration of loans secured by nursing homes.
Like other commercial real estate loans, nursing home loans often involve large
loan balances to single borrowers or groups of related borrowers, and have a
higher degree of credit risk than residential mortgage lending. Loan payments
are often dependent on the operation of the nursing home, the success of which
is dependent upon the long-term health care industry. The risks inherent in such
industry include the federal, state and local licensure and certification laws
which regulate, among other things, the number of beds for which nursing care
can be provided and the construction, acquisition and operation of such nursing
facilities. The failure to obtain or maintain a required regulatory approval or
license could prevent the nursing home from being reimbursed for costs incurred
in offering its services or expanding its business. Moreover, a large percentage
of nursing home revenues is derived from reimbursement by third party payors.
Both governmental and other third party payors have adopted and are continuing
to adopt cost containment measures designed to limit payment to health care
providers, and changes in federal and state regulations in these areas could
adversely affect such homes. Because of the Company's concentration in this
area, a decline in the nursing home industry could have a substantial adverse
effect on the Company's commercial real estate portfolio and, therefore, a
substantial adverse effect on its operating results.
<PAGE>
Commercial real estate loans in excess of $500,000 must be approved in
advance by the Bank's Board of Directors. Commercial real estate loans under
that amount must be approved by the Bank's Loan Committee.
Multi-Family Loans. At June 30, 1997, $11.4 millon, or 7.4%, of the
Company's total loan and mortgage-backed securities portfolio consisted of
mortgage loans secured by multi-family dwellings (those consisting of more than
four units). All of the Company's multi-family loans are secured by apartment
complexes located in Indiana or Ohio. The average balance of all such
multi-family mortgage loans was $279,000 as of June 30, 1997. The largest such
multi-family mortgage loan as of June 30, 1997, had a balance of $1.2 million.
As with the Bank's commercial real estate loans, multi-family mortgage loans are
substantially all adjustable-rate loans, are written for terms not exceeding 25
years, and require at least an 80% loan-to-value ratio. At June 30, 1997, the
Company had no loans secured by multi-family dwellings which were classified as
substandard or included in non-performing assets.
Multi-family loans, like commercial real estate loans, involve a
greater risk than do residential loans. Also, the more stringent loans-to-one
borrower limitation limits the ability of the Bank to make loans to developers
of apartment complexes and other multi-family units.
Construction Loans. The Bank offers construction loans with respect to
owner-occupied residential and commercial real estate property and, in certain
cases, to builders or developers constructing such properties on an investment
basis (i.e., before the builder/developer obtains a commitment from a buyer).
Most construction loans are made to owners who occupy the premises.
At June 30, 1997, $4.7 million, or 3.1%, of the Company's total loan
and mortgage-backed securities portfolio consisted of construction loans, of
which approximately $3.6 million were residential construction loans and $1.1
million related to construction of commercial real estate projects. The largest
construction loan on June 30, 1997, was $600,000. No construction loans were
included in non-performing assets on that date.
For most construction loans, the loan is actually a 20-year mortgage
loan, but interest only is payable during the construction phase of the loan up
to 18 months, and such interest is charged only on the money disbursed under the
loan. After the construction phase (typically 6 to 12 months), regular mortgage
loan payments of principal and interest are due. Appraisals for these loans are
completed, subject to completion of building plans and specifications.
Interest rates and fees vary for these loans. While construction is
progressing, periodic inspections are performed for which the Bank assesses a
fee.
While providing the Company with a higher yield than a conventional
mortgage loan, construction loans involve a higher level of risk. For example,
if a project is not completed and the borrower defaults, the Bank may have to
hire another contractor to complete the project at a higher cost. Also, a house
may be completed, but may not be salable, resulting in the borrower defaulting
and the Bank taking title to the house.
Consumer Loans. Federal laws and regulations permit federally chartered
savings associations to make secured and unsecured consumer loans in an
aggregate amount of up to 35% of the association's total assets. In addition, a
federally chartered savings association has lending authority above the 35%
limit for certain consumer loans, such as property improvement loans and deposit
account secured loans. However, the Qualified Thrift Lender test places
additional limitations on a savings association's ability to make consumer
loans.
<PAGE>
The Company's consumer loans, consisting primarily of installment
loans, loans secured by deposits, and auto loans, aggregated $6.2 million as of
June 30, 1997, or 4.1% of the Company's total loan and mortgage-backed
securities portfolio. Although consumer loans are currently only a small portion
of its lending business, the Bank consistently originates consumer loans to meet
the needs of its customers, and the Bank intends to originate more such loans to
assist in meeting its asset/liability management goals.
The Bank makes installment loans of up to three years, which consisted
of $3.6 million, or 2.4% of the Company's total loan and mortgage-backed
securities portfolio at June 30, 1997. Loans secured by deposits, totaling
$895,000 at June 30, 1997, are made up to 90% of the original account balance
and accrue at a rate of 2% over the underlying certificate of deposit rate.
Variable rate home equity loans of up to 10 years, secured by second mortgages
on the underlying residential property totaled $1.4 million, or 0.9% of the
Company's total loan and mortgage-backed securities portfolio at June 30, 1997.
Automobile loans totaled only $325,000 and are made at variable and fixed rates
for terms of up to five years depending on the age of the automobile and the
loan-to-value ratio for the loan. The Bank does not make indirect automobile
loans.
Although consumer loans generally involve a higher level of risk than
one- to four-family residential mortgage loans, their relatively higher yields
and shorter terms to maturity are believed to be helpful in reducing the
interest-rate risk of the loan portfolio. The Bank has thus far been successful
in managing consumer loan risk. As of June 30, 1997, $34,000 of consumer loans
were included in non-performing assets.
Mortgage-Backed Securities. At June 30, 1997, the Company had $237,000
of mortgage-backed securities outstanding, or 0.2% of the Company's total loan
and mortgage-backed securities portfolio. These mortgage-backed securities have
an average estimated remaining life of approximately three years, and may be
used as collateral for borrowings and as a source of liquidity.
Origination, Purchase and Sale of Loans. The Bank currently does not
originate its ARMs in conformity with the standard criteria of the FHLMC or
FNMA. The Bank would therefore experience some difficulty selling such loans in
the secondary market, although most loans could be brought into conformity. The
Bank has no intention, however, of attempting to sell such loans. The Bank's
ARMs vary from secondary market criteria because the Bank does not use the
standard loan form, does not require current property surveys in most cases, and
does not permit the conversion of those loans to fixed-rate loans in the first
three years of their term. These practices allow the Bank to keep the loan
closing costs down.
Although the Bank currently has authority to lend anywhere in the
United States, it has confined its loan origination activities primarily in
Grant and contiguous counties and in Adams County. The Bank's loan originations
are generated from referrals from builders, developers, real estate brokers and
existing customers, newspaper, radio and periodical advertising, and walk-in
customers. Loans are originated at either the main or branch office. All loan
applications are processed and underwritten at the Bank's main office.
<PAGE>
Under current federal law, a savings association generally may not make
any loan or extend credit to a borrower or its related entities if the total of
all such loans by the savings association exceeds 15% of its unimpaired capital
and surplus. Additional amounts may be lent, not in excess of 10% of unimpaired
capital and surplus, if such loans or extensions of credit are fully secured by
readily marketable collateral, including certain debt and equity securities but
not including real estate. In some cases, a savings association may lend up to
30% of unimpaired capital and surplus to one borrower for purposes of developing
domestic residential housing, provided that the association meets its regulatory
capital requirements and the OTS authorizes the association to use this expanded
lending authority. The maximum amount which the Bank could have loaned to one
borrower and the borrower's related entities under the 15% of capital limitation
was $5.2 million at June 30, 1997.
The Bank's loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. To assess the borrower's
ability to repay, the Bank studies the employment and credit history and
information on the historical and projected income and expenses of its
individual and corporate mortgagors.
The Bank uses independent appraisers to appraise the property securing
its loans and requires title insurance or an abstract and a valid lien on its
mortgaged real estate. Appraisals on real estate securing most real estate loans
in excess of $250,000, are performed by either state-licensed or state-certified
appraisers, depending on the type and size of the loan. The Bank requires fire
and extended coverage insurance in amounts at least equal to the principal
amount of the loan. It also requires flood insurance to protect the property
securing its interest if the property is in a flood plain. Tax and insurance
payments are required to be escrowed by the Bank on all loans subject to private
mortgage insurance, but this service is offered to all borrowers. Annual site
visitations are made by licensed architects with respect to all commercial real
estate loans in excess of $500,000.
The Bank's Executive Committee approves all consumer loans and its Loan
Committee approves all mortgage loans. Commercial real estate loans in excess of
$500,000 and residential mortgage loans in excess of $500,000 must be approved
in advance by the Bank's Board of Directors.
The Bank applies consistent underwriting standards to the several types
of consumer loans it makes to protect the Bank against the risks inherent in
making such loans. Borrower character, credit history, net worth and underlying
collateral are important considerations.
The Bank has historically participated in the secondary market as a
seller of 95% of the principal balance of its long-term fixed rate mortgage
loans, as described above, although the Bank has recently begun retaining such
loans in the Company's portfolio. The loans the Bank sells are designated for
sale when originated. During the fiscal year ended June 30, 1997, the Bank sold
none of its fixed-rate mortgage loans, and at June 30, 1997, held no such loans
for sale. The Bank obtains commitments from investors for the sale of such loans
at their outstanding principal balance and these commitments are obtained prior
to origination of the loans.
<PAGE>
When it sells mortgage loans, the Bank generally retains the
responsibility for collecting and remitting loan payments, inspecting the
properties that secure the loans, making certain that monthly principal and
interest payments and real estate tax and insurance payments are made on behalf
of borrowers, and otherwise servicing the loans. The Company receives a
servicing fee for performing these services. The amount of fees received by the
Company varies, but is generally calculated as an amount equal to a rate of .25%
per annum for commercial loans and .375% per annum for residential loans on the
outstanding principal amount of the loans serviced. At June 30, 1997, the
Company serviced $34.6 million of loans sold to other parties of which $6.6
million or 19.1% were for loans sold to FHLMC.
The Company occasionally purchases participations to diversify its
portfolio, to supplement local loan demand and to obtain more favorable yields.
The participations purchased normally represent a portion of residential or
commercial real estate loans originated by other Indiana financial institutions,
most of which are secured by property located in Indiana. As of June 30, 1997,
the Company held in its loan portfolio, participations in mortgage loans
aggregating $6.5 million that it had purchased, all of which were serviced by
others. The largest such participation it held at June 30, 1997, was in a loan
secured by an apartment complex.
The Company's portion of the outstanding balance on that date was approximately
$1.2 million.
Also during the year ended June 30, 1997, MCHI extended a $2.5 million
loan to a non-related bank holding company.
<PAGE>
The following table shows loan origination, purchase, sale and
repayment activity for the Bank during the periods indicated:
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
---------------------------------------
(In Thousands)
<S> <C> <C> <C>
Gross loans receivable and mortgage-backed
securities at beginning of period...................... $149,517 $145,273 $137,436
-------- -------- --------
Originations:
Mortgage loans:
Residential.......................................... 33,646 28,841 21,489
Commercial real estate and multi-family.............. 11,483 8,655 10,758
-------- -------- --------
Total mortgage loans................................. 45,129 37,496 32,247
-------- -------- --------
Consumer loans:
Installment loans.................................... 4,528 3,492 2,206
Loans secured by deposits............................ 449 763 521
-------- -------- --------
Total consumer loans................................ 4,977 4,255 2,727
-------- -------- --------
Commercial loans....................................... 2,558 146 21
-------- -------- --------
Total originations................................... 52,664 41,897 34,995
-------- -------- --------
Purchases:
Mortgage-backed securities............................. --- --- ---
Mortgage loans:
Residential.......................................... --- 500 ---
Commercial real estate and
multi-family.................................... --- 1,508 1,200
-------- -------- --------
Total originations and purchases..................... 52,664 43,905 36,195
-------- -------- --------
Sales:
Mortgage loans:
Residential.......................................... 76 1,426 464
Commercial real estate and multi-family.............. 7,133 4,239 1,950
Mortgage-backed securities........................... --- --- ---
-------- -------- --------
Total sales........................................ 7,209 5,665 2,414
-------- -------- --------
Repayments and other deductions........................... 41,769 33,996 25,944
-------- -------- --------
Gross loans receivable and mortgage-backed
securities at end of period.......................... $153,203 $149,517 $145,273
======== ======== ========
</TABLE>
<PAGE>
Origination and Other Fees. The Company realizes income from fees for
originating commercial real estate loans (equal to one or one-half of a
percentage of the total principal amount of the loan), late charges, checking
and NOW account service charges, fees for the sale of mortgage life insurance by
the Bank, fees for servicing loans, rental income from the lease of space to
Director W. Gordon Coryea, and fees for other miscellaneous services including
money orders and travelers checks. In order to increase its competitive position
with respect to other mortgage lenders, the Bank does not charge points on
residential mortgage loans, but does so on its commercial real estate loans.
Late charges are assessed if payment is not received within 15 days after it is
due.
The Bank charges miscellaneous fees for appraisals, inspections
(including an inspection fee for construction loans), obtaining credit reports,
certain loan applications, recording and similar services. The Company also
collects fees for Visa applications which it refers to another financial
institution. The Company does not underwrite any of these credit card loans.
Non-Performing and Problem Assets
Mortgage loans are reviewed by the Company on a regular basis and are
generally placed on a non-accrual status when the loans become contractually
past due 90 days or more. Once a mortgage loan is fifteen days past due, a
reminder is mailed to the borrower requesting payment by a specified date. At
the end of each month, late notices are sent with respect to all mortgage loans
at least 20 days delinquent. When loans are 30 days in default, a third notice
imposing a late charge equal to 5% of the late principal and interest payment is
imposed. Contact by phone or in person is made, if feasible, with respect to all
mortgage loans 30 days or more in default. By the time a mortgage loan is 90
days past due, a letter is sent to the borrower demanding payment by a certain
date and indicating that a foreclosure suit will be filed if this deadline is
not met. The Board of Directors normally confers foreclosure authority at that
time, but management may continue to work with the borrower if circumstances
warrant.
Consumer and commercial loans other than mortgage loans are treated
similarly. Interest income on consumer and other nonmortgage loans is accrued
over the term of the loan except when serious doubt exists as to the
collectibility of a loan, in which case the accrual of interest is discontinued.
It is the Company's policy to recognize losses on these loans as soon as they
become apparent.
Non-performing assets. At June 30, 1997, $1.4 million, or 0.8% of the
Company's total assets, were non-performing assets (non-accrual loans, real
estate owned and troubled debt restructurings), compared to $7.1 million, or
4.1% of the Company's total assets, at June 30, 1993. At June 30, 1997,
residential loans, commercial real estate loans and consumer loans accounted for
87.7%, 9.9% and 2.4%, respectively, of non-performing assets.
The June 30, 1997, non-performing assets included no real estate
acquired as a result of foreclosure, voluntary deed, or other means, compared to
$1.8 million at June 30, 1993. Such real estate acquired is classified by the
Company as "real estate owned" or "REO" until it is sold. When property is so
acquired, the value of the asset is recorded on the books of the Company at the
lower of the unpaid principal balance at the date of acquisition plus
foreclosure and other related costs or at fair value. Interest accrual ceases
when the collection of interest becomes doubtful, usually after the loan has
been delinquent for 90 days or more. All costs incurred from the date of
acquisition in maintaining the property are expensed.
<PAGE>
The following table sets forth the amounts and categories of the
Company's non-performing assets (non-accrual loans, real estate owned and
troubled debt restructurings). It is the policy of the Company that all earned
but uncollected interest on all loans be reviewed monthly to determine if any
portion thereof should be classified as uncollectible for any loan past due in
excess of 90 days.
<TABLE>
<CAPTION>
At June 30,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Accruing loans delinquent
more than 90 days ........................ $ --- $ --- $ --- $ --- $ ---
Non-accruing loans (1):
Residential............................... 1,238 1,658 1,698 2,054 2,362
Multi-family.............................. --- --- --- --- ---
Commercial real estate......................... 139 47 --- 2,580 2,870
Consumer.................................. 34 11 54 3 104
Troubled debt restructurings .................. --- --- --- --- ---
------ ------ ------ ------ ------
Total non-performing loans................ 1,411 1,716 1,752 4,637 5,336
------ ------ ------ ------ ------
Real estate owned, net......................... --- 183 206 830 1,795
------ ------ ------ ------ ------
Total non-performing assets .............. $1,411 $1,899 $1,958 $5,467 $7,131
====== ====== ====== ====== ======
Non-performing loans to total
loans, net (2) ........................... .94% 1.18% 1.27% 3.59% 3.95%
Non-performing assets to total assets ......... .81% 1.07% 1.13% 3.20% 4.10%
</TABLE>
(1) The Company generally places mortgage loans on a nonaccrual status when
the loans become contractually past due 90 days or more. Interest
income prevously accrued but not deemed collectible is reversed and
charged against current income. Interest on these loans is then
recognized as income when collected. At June 30, 1997, $1.2 million of
nonaccrual loans were residential loans, $139,000 were commercial real
estate loans, and $34,000 were consumer loans. For the year ended June
30, 1997, the income that would have been recorded had the non-accrual
loans not been in a non-performing status totaled $118,000 compared to
actual income recorded of $76,000.
(2) Total loans less deferred net loan fees and loans in process.
<PAGE>
Classified Assets. Federal regulations provide for the classification
of loans and other assets, such as debt and equity securities considered by the
Office of Thrift Supervision ("OTS") to be of lesser quality, as "substandard,"
"doubtful" or "loss." An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the insured institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as "doubtful" have all
of the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
which do not currently expose the insured institution to sufficient risk to
warrant classification in one of the aforementioned categories but possess
weaknesses are required to be designated "special mention" by management.
When an insured institution classifies problem assets as either
substandard or doubtful, it must establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the institution's principal supervisory agent, who may
order the establishment of additional general or specific loss allowances.
In connection with the filing of its periodic reports with the OTS and
in accordance with its classification of assets policy, the Company regularly
reviews the problem loans in its portfolio to determine whether any loans
require classification in accordance with applicable regulations. Total
classified assets at June 30, 1997, were $1.5 million.
The following table sets forth the aggregate amount of the Company's
classified assets, and of the general and specific loss allowances as of the
dates indicated.
<TABLE>
<CAPTION>
At June 30,
1997 1996 1995 1994 1993
------------------ ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Substandard assets (1)......... $1,546 $1,226 $1,574 $5,111 $7,375
Doubtful assets ............... --- --- --- --- ---
Loss assets.................... --- --- --- --- ---
Special mention................ --- --- --- --- 2,500
------ ------ ------ ------ ------
Total classified assets..... $1,546 $1,226 $1,574 $5,111 $9,875
====== ====== ====== ====== ======
General loss allowances........ $2,032 $2,009 $2,013 $2,050 $2,051
Specific loss allowances....... --- --- --- --- ---
------ ------ ------ ------ ------
Total allowances............ $2,032 $2,009 $2,013 $2,050 $2,051
====== ====== ====== ====== ======
</TABLE>
- --------------
(1) Includes REO, net, of $0.0, $0.2, $0.2, $0.8, and $1.8 million,
respectively.
<PAGE>
The Company regularly reviews its loan portfolio to determine whether any
loans require classification in accordance with applicable regulations. Not all
assets classified by the Company as substandard, doubtful or loss are included
as non-performing assets, and not all of the Company's non-performing assets
constitute classified assets.
Substandard Assets. At June 30, 1997, the Company had 85 loans classified
as substandard totaling approximately $1.5 million. Included in substandard
assets are certain loans to facilitate the sale of the real estate owned,
totaling $157,000 at June 30, 1997. These are former REO properties sold on
contract that are included as substandard assets to the extent the loan balance
exceeds the appraised value of the property.
Also included in substandard assets at June 30, 1997, are slow mortgage
loans (loans or contracts delinquent for generally 90 days or more) aggregating
$1,347,000, and slow consumer loans totaling $42,000.
Special Mention Assets. The Company classified no assets as special
mention at June 30, 1997, 1996, 1995 and 1994. The Company's assets subject to
special mention at June 30, 1993 totaled $2.5 million.
Allowance for Loan Losses
The allowance for loan losses is maintained through the provision for
losses on loans, which is charged to earnings. The provision is determined in
conjunction with management's review and evaluation of current economic
conditions (including those of the Bank's lending area), changes in the
character and size of the loan portfolio, loan delinquencies (current status as
well as past and anticipated trends) and adequacy of collateral securing loan
delinquencies, historical and estimated net charge-offs, and other pertinent
information derived from a review of the loan portfolio. The Company has
increased the provision for losses on loans partly in recognition of changing
economic conditions and its increased perception of risks inherent in its
commercial real estate and multi-family loan portfolio. Loans or portions
thereof are charged to the allowance when losses are considered probable. In
management's opinion, the Company's allowance for possible loan losses is
adequate to absorb anticipated future losses from loans at June 30, 1997.
<PAGE>
<PAGE>
Summary of Loan Loss Experience. The following table analyzes changes
in the allowance for loan losses during the past five years ended June 30, 1997.
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance at
beginning of period....................... $2,009 $2,013 $2,050 $2,051 $2,305
------ ------ ------ ------ ------
Add Recoveries of loans previously
charged off -- residential real
estate loans.............................. --- 2 12 17 1
Less charge-offs:
Residential real estate loans............. 35 37 93 82 22
Commercial real estate loans.............. --- 3 2 --- 598
Consumer loans............................ --- --- 22 1 2
------ ------ ------ ------ ------
Net charge-offs.............................. 35 38 105 66 621
------ ------ ------ ------ ------
Provisions for losses on loans............... 58 34 68 65 367
------ ------ ------ ------ ------
Balance of allowance at end
of period................................. $2,032 $2,009 $2,013 $2,050 $2,051
====== ====== ====== ====== ======
Net charge-offs to total average
loans outstanding for period.............. .02% .03% .08% .05% .46%
Allowance at end of period to
loans receivable at end of period......... 1.35 1.38 1.45 1.59 1.52
Allowance to total non-performing
loans at end of period.................... 143.98 117.07 114.87 44.21 38.44
</TABLE>
Allocation of Allowance for Loan Losses. The following table presents
an analysis of the allocation of the Company's allowance for loan losses at the
dates indicated.
<TABLE>
<CAPTION>
June 30,
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
category category category category category
to total to total to total to total to total
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to:
Residential..................$ --- 63.42% $ --- 59.11% $ 10 57.53% $ 48 57.29% $ 194 55.79%
Commercial real estate....... --- 20.35 29 24.44 30 25.19 438 26.02 478 28.36
Multi-family................. 72 7.45 264 10.52 264 10.16 264 8.95 264 9.15
Construction loans........... --- 3.07 --- 3.37 --- 5.14 --- 6.04 --- 4.86
Commercial loans............. --- 1.65 --- .01 --- .01 --- .01 --- 0.04
Consumer loans............... 33 4.06 24 2.55 20 1.97 39 1.69 37 1.80
Unallocated.................. 1,927 --- 1,692 --- 1,689 --- 1,261 --- 1,078 ---
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total................... $2,032 100.00% $2,009 100.00% $2,013 100.00% $2,050 100.00% $2,051 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE>
Investments
Federally chartered savings associations have the authority to invest
in various types of liquid assets, including U.S. Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds sold. Subject to various restrictions, federally
chartered savings associations may also invest a portion of their assets in
commercial paper, corporate debt securities and asset-backed securities. The
investment policy of MCHI, which is established by the Board of Directors and is
implemented by the Executive Committee, is designed primarily to maximize the
yield on the investment portfolio subject to minimal liquidity risk, default
risk, interest rate risk, and prudent asset/liability management.
Specifically, MCHI's policies generally limit investments in corporate
debt obligations to those which are rated in the two highest rating categories
by a nationally recognized rating agency at the time of the investment and such
obligations must continue to be rated in one of the four highest rating
categories. Commercial bank obligations, such as certificates of deposit,
brokers acceptances, and federal funds must be rated "C" or better by a major
rating service. Commercial paper must be rated A-1 by Standard and Poor's and
P-1 by Moody's. The policies also allow investments in obligations of federal
agencies such as the Government National Mortgage Association ("GNMA"), FNMA,
and FHLMC, and obligations issued by state and local governments. MCHI does not
utilize options or financial or futures contracts.
The Company's investment portfolio consists of marketable equity
securities, U.S. Treasury and agency securities, state and municipal bonds,
investment in two Indiana limited partnerships and FHLB stock. At June 30, 1997,
approximately $10.1 million, including securities at market value for those
classified as available for sale and at amortized cost for those classified as
held to maturity, or 5.8% of the Company's total assets, consisted of such
investments.
<PAGE>
The following tables set forth the carrying value and market value of
the Company's investments at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------
1997 1996 1995
-------------------- --------------------- ----------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
-------- ------ -------- ------ -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale (1):
Federal agencies.................$ 3,001 $2,998 $ 1,000 $1,000 $ 3,000 $ 2,985
Marketable equity securities..... --- --- --- --- --- ---
-------- ------ -------- ------ -------- --------
Total securities available
for sale....................... 3,001 2,998 1,000 1,000 3,000 2,985
-------- ------ -------- ------ -------- --------
Securities held to maturity (2):
U.S. Treasury.................... 2,001 1,988 3,015 2,975 3,035 2,978
Federal agencies................. 2,000 1,991 6,954 6,917 11,000 10,744
State and municipal.............. 610 610 610 605 610 592
Other ........................... --- --- 988 1,000 --- ---
-------- ------ -------- ------ -------- --------
Total securities held
to maturity.................... 4,611 4,589 11,567 11,497 14,645 14,314
-------- ------ -------- ------ -------- --------
Real estate limited partnerships.... 1,449 (4) 1,624 (4) 1,527 (4)
FHLB stock (3)...................... 1,047 1,047 988 988 909 909
------- ------- -------
Total investments.............. $10,108 $15,179 $20,081
======= ======= =======
</TABLE>
(1) In accordance with SFAS No. 115, securities available for sale are
recorded at market value in the financial statements.
(2) Mortgage-backed securities included in securities held to maturity in
the financial statements are included in the gross loans receivable
table on page 2 of this Form 10-K.
(3) Market value approximates carrying value.
(4) Market values are not available, nor have there been recent appraisals
of the apartment complexes invested in by the partnerships.
<PAGE>
The following table sets forth investment securities and FHLB stock
which mature during each of the periods indicated and the weighted average
yields for each range of maturities at June 30, 1997.
<TABLE>
<CAPTION>
Amount at June 30, 1997 which matures in
--------------------------------------------------------------------------
One One to Over
Year or less Five Years Ten Years and Stock
--------------------- ---------------------- ---------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
Securities available for sale (1):
<S> <C> <C> <C> <C> <C> <C>
Federal agencies.................$ --- ---% $3,001 6.43% $ --- ---%
------ ---- ------ ---- ------ ----
Total securities available
for sale....................... --- --- 3,001 6.43 --- ---
------ ---- ------ ---- ------ ----
Securities held to maturity (2):
U.S. Treasury.................... 1,002 5.19 999 5.13 --- ---
Federal agencies................. --- --- 2,000 6.36 --- ---
State and municipal.............. 610 4.85 --- --- --- ---
Other ........................... --- --- --- --- --- ---
------ ---- ------ ---- ------ ----
Total securities held
to maturity.................... 1,612 5.06 2,999 5.95 --- ---
------ ---- ------ ---- ------ ----
FHLB stock.......................... --- --- --- --- 1,047 7.81
------ ---- ------ ---- ------ ----
Total investments.............. $1,612 5.06% $6,000 6.19% $1,047 7.81%
====== ==== ====== ==== ====== ====
</TABLE>
(1) Securities available for sale are set forth at amortized cost for
purposes of this table.
(2) Mortgage-backed securities included in securities held to maturity in
the financial statements are included in the gross loans receivable
table on page 2.
The Bank owns 99% of the limited partnership interests in Pedcor
Investments 1987-II, an Indiana limited partnership ("Pedcor") organized to
build, own, operate and lease a 144-unit apartment complex in Indianapolis,
Indiana. The project, operated as multi-family, low/moderate income housing
project, is complete and performing as planned. A low/moderate income housing
project qualifies for certain tax credits if (i) it is a residential rental
property, (ii) the units are used on a nontransient basis, and (iii) 20% or more
of the units in the project are occupied by tenants whose incomes are 50% or
less of the area median gross income, adjusted for family size, or,
alternatively, at least 40% of the units in the project are occupied by tenants
whose incomes are 60% of the area median gross income. Qualified low income
housing projects generally must comply with these and other rules for 15 years,
beginning with the first year the project qualifies for the tax credit, or some
or all of the tax credit together with interest may be recaptured. The tax
credit is subject to limitations on the use of the general business credit, but
no basis reduction is required for any portion of the tax credit claimed.
<PAGE>
The Bank committed to invest approximately $3.41 million in Pedcor at
inception of the project in January, 1988. Through June 30, 1997, the Bank has
invested approximately $3.41 million in Pedcor with no additional annual capital
contribution remaining to be paid. The tax credits resulting from Pedcor's
operation of a low/moderate income housing project will be available to the
Company through 1998. Although the Company has reduced income tax expense by the
full amount of the tax credit available each year, it has not been able to fully
utilize available tax credits to reduce income taxes payable because it is not
allowed to use tax credits that would reduce its regular corporate tax liability
below its alternative minimum tax liability. The Bank may carryforward unused
tax credits for a period of 15 years and believes it will be able to utilize
available tax credits during the carryforward period.
Pedcor has incurred operating losses from its operations primarily due to
rent limitations for subsidized housing, increased operating costs and other
factors. Certain fees to the general partner not recorded or estimable to date
by the partnership under provisions of the partnership agreement could adversely
affect future operating results when accrued or paid. The Bank has accounted for
its investment in Pedcor on the equity method, and, accordingly, has recorded
its shares of these losses as reductions to its investment in Pedcor, which at
June 30, 1997, was $1.4 million.
The following summarizes the Bank's equity in Pedcor's losses and tax
credits recognized in the Company's consolidated financial statements:
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Investment in Pedcor:
Accumulated contributions....... $3,410 $3,280 $2,990 $2,700 $2,405
Net of equity in losses......... 1,449 1,624 1,527 1,422 1,354
Equity in losses, net
of income tax effect............ (184) (117) (111) (137) (104)
Tax credit........................... 405 405 405 405 405
------ ------ ------ ------ ------
Increase in after-tax net income
from Pedcor investment.......... $221 $ 288 $ 294 $ 268 $ 301
====== ====== ====== ====== ======
</TABLE>
In August 1997, the Bank entered into another limited partnership with
Pedcor Investments organized to build, own, operate and lease a 72 unit
apartment complex in Berrien Springs, Michigan. The Bank will contribute $3.6
million over 10 years and will receive an estimated $3.7 million in tax credits.
<PAGE>
Federal regulations require an FHLB-member savings association to maintain
an average daily balance of liquid assets equal to a monthly average of not less
than a specified percentage of its net withdrawable savings deposits plus
short-term borrowings. Liquid assets include cash, certain time deposits,
certain bankers' acceptances, specified U.S. government, state or federal agency
obligations, certain corporate debt securities, commercial paper, certain mutual
funds, certain mortgage-related securities, and certain first lien residential
mortgage loans. This liquidity requirement may be changed from time to time by
the OTS to any amount within the range of 4% to 10%, and is currently 5%,
although the OTS has proposed a reduction of the percentage to 4%. Also, a
savings association currently must maintain short-term liquid assets
constituting at least 1% of its average daily balance of net withdrawable
deposit accounts and current borrowings. Monetary penalties may be imposed for
failure to meet these liquidity requirements. At June 30, 1997, the Bank had
liquid assets of $10.9 million, and a regulatory liquidity ratio of 8.8%, of
which 3.7% constituted short-term investments.
Sources of Funds
General. Deposits with the Bank have traditionally been the Company's
primary source of funds for use in lending and investment activities. In
addition to deposits, the Company derives funds from loan amortization,
prepayments, retained earnings and income on earning assets. While loan
amortization and income on earning assets are relatively stable sources of
funds, deposit inflows and outflows can vary widely and are influenced by
prevailing interest rates, market conditions and levels of competition. The
Company also relies on borrowings from the Federal Home Loan Bank ("FHLB") of
Indianapolis to support the Bank's loan originations and to assist in
asset/liability management.
Deposits. Deposits are attracted, principally from within Grant and
contiguous counties and Adams County, through the offering of a broad selection
of deposit instruments including NOW and other transaction accounts, fixed-rate
certificates of deposit, individual retirement accounts, and savings accounts.
The Bank does not actively solicit or advertise for deposits outside of Grant
and Adams Counties. Substantially all of the Bank's depositors are residents of
those counties. Deposit account terms vary, with the principal differences being
the minimum balance required, the amount of time the funds remain on deposit and
the interest rate. The Bank has no brokered deposits.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by the Bank on a periodic basis. Determination of
rates and terms are predicated on funds acquisition and liquidity requirements,
rates paid by competitors, growth goals, and federal regulations. The Bank
relies, in part, on customer service and long-standing relationships with
customers to attract and retain its deposits, but also aggressively prices its
deposits in relation to rates offered by its competitors.
<PAGE>
An analysis of the Bank deposit accounts by type, maturity, and rate at
June 30, 1997, is as follows:
<TABLE>
<CAPTION>
Minimum Balance at Weighted
Opening June 30, % of Average
Type of Account Balance 1997 Deposits Rate
- --------------- ------- ---- -------- ----
(Dollars in Thousands)
Withdrawable:
<S> <C> <C> <C> <C>
Savings accounts....................... $ 10.00 $ 15,683 12.88% 2.75%
NOW and other transactions accounts.... 10.00 21,230 17.43 3.19
------ ----- ----
Total withdrawable........................ 36,913 30.31 3.00
------ ----- ----
Certificates (original terms):............
28 days................................ 1,000 97 .08 3.74
91 days................................ 1,000 1,089 .89 4.40
182 days............................... 1,000 9,307 7.64 4.83
12 months.............................. 1,000 14,484 11.89 5.10
18 months.............................. 1,000 1,781 1.46 5.42
24 months.............................. 1,000 2,032 1.67 5.85
30 months.............................. 1,000 7,703 6.33 5.95
36 months.............................. 1,000 1,425 1.17 5.52
48 months.............................. 1,000 5,746 4.72 7.21
60 months.............................. 1,000 11,082 9.10 6.16
72 months.............................. 1,000 28 .02 5.45
96 months.............................. 1,000 377 .31 6.43
IRAs
28 days................................ 500 2 .00 3.76
91 days................................ 500 23 .02 4.39
182 days............................... 500 174 .14 4.74
12 months.............................. 500 617 .51 5.01
18 months.............................. 500 238 .20 5.62
24 months.............................. 500 1,534 1.26 6.04
30 months.............................. 500 880 .72 5.83
36 months.............................. 500 38 .03 5.84
48 months.............................. 500 4,815 3.95 7.58
60 months.............................. 500 19,917 16.36 6.45
72 months.............................. 500 585 .48 5.44
96 months.............................. 500 883 .72 6.32
-------- ------ ----
Total certificates (1).................... 84,857 69.69 5.97
-------- ------ ----
Total deposits............................ $121,770 100.00% 5.07
======== ====== ====
</TABLE>
(1) Including $11.7 million in certificates of deposit of $100,000 or more.
<PAGE>
The following table sets forth by various interest rate categories the
composition of time deposits of the Bank at the dates indicated:
At June 30,
---------------------------------------------
1997 1996 1995
------- ------- -------
(In Thousands)
Under 5%............. $15,970 $14,088 $15,072
5.00 - 6.99%......... 45,722 50,836 41,070
7.00 - 8.99%......... 23,165 22,961 27,254
9.00% and over....... --- --- ---
------- ------- -------
Total................ $84,857 $87,885 $83,396
======= ======= =======
The following table represents, by various interest rate categories, the
amounts of time deposits maturing during each of the three years indicated, and
the total maturing thereafter. Matured certificates which have not been renewed
as of June 30, 1997, have been allocated based upon certain rollover
assumptions.
<TABLE>
<CAPTION>
Amounts At
June 30, 1997, Maturing in
---------------------------------------------------------------
One Year Two Three Greater Than
or Less Years Years Three Years
------- ------- ------- -------------
(In Thousands)
<S> <C> <C> <C> <C>
Under 5%......... $15,686 $ 284 $ --- $ ---
5.00 - 6.99% .... 18,100 9,127 9,018 9,477
7.00 - 8.99% .... 3,305 8,550 10,944 366
------- ------- ------- ------
Total ........... $37,091 $17,961 $19,962 $9,843
======= ======= ======= ======
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of June 30,
1997.
Maturity Period (In Thousands)
- ------------------ --------------
Three months of less............................. $ 1,850
Greater than three months through six months..... 719
Greater than six months through twelve months.... 528
Over twelve months............................... 8,612
-------
Total............................................ $11,709
=======
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Bank at the dates
indicated, and the amount of increase or decrease in such deposits as compared
to the previous period.
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
Increase Increase
(Decrease) (Decrease)
Balance at from Balance at from
June 30, % of June 30, June 30, % of June 30,
1997 Deposits 1996 1996 Deposits 1995
---- -------- ---- ---- -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Withdrawable:
Savings accounts.............. $15,683 12.88% $(1,889) $ 17,572 13.92% $(1,207)
NOW and other transactions
accounts.................... 21,230 17.43 427 20,803 16.47 2,365
------- ----- ------- --------- ----- -------
Total withdrawable............... 36,913 30.31 (1,462) 38,375 30.39 1,158
------- ----- ------- --------- ----- -------
Certificates (original terms):
28 days....................... 97 .08 (224) 321 .25 18
91 days....................... 1,089 .89 119 970 .77 (72)
182 days...................... 9,307 7.64 (260) 9,567 7.58 (2,062)
12 months..................... 14,484 11.89 (499) 14,983 11.87 5,842
18 months..................... 1,781 1.46 522 1,259 1.00 (486)
24 months..................... 2,032 1.67 470 1,562 1.24 (420)
30 months..................... 7,703 6.33 (2,239) 9,942 7.87 (1,029)
36 months..................... 1,425 1.17 (349) 1,774 1.41 302
48 months..................... 5,746 4.72 (385) 6,131 4.86 (60)
60 months..................... 11,082 9.10 (778) 11,860 9.39 619
72 months..................... 28 .02 (11) 39 .03 (1)
96 months..................... 377 .31 8 369 .29 (15)
IRAs
28 days....................... 2 .00 1 1 .00 (24)
91 days....................... 23 .02 (159) 182 .14 208
182 days...................... 174 .14 13 161 .13 (88)
12 months..................... 617 .51 151 466 .37 132
18 months..................... 238 .20 182 56 .04 (78)
24 months..................... 1,534 1.26 1,496 38 .03 ---
30 months..................... 880 .72 (103) 983 .78 (170)
36 months..................... 38 .03 (25) 63 .05 29
48 months..................... 4,815 3.95 47 4,768 3.78 325
60 months..................... 19,917 16.36 (858) 20,775 16.45 1,721
72 months..................... 585 .48 (30) 615 .49 (8)
96 months..................... 883 .72 (117) 1,000 .79 (6)
-------- ------ ------- -------- ------ -------
Total certificates............... 84,857 69.69 (3,028) 87,885 69.61 4,489
-------- ------ ------- -------- ------ -------
Total deposits................... $121,770 100.00% $(4,490) $126,260 100.00% $ 5,647
======== ====== ======= ======== ====== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEPOSIT ACTIVITY
Increase
(Decrease)
Balance at from Balance at
June 30, % of June 30, June 30, % of
1995 Deposits 1994 1994 Deposits
----------------------------------------------------------------------------
(Dollars in Thousands)
Withdrawable:
<S> <C> <C> <C> <C> <C>
Savings accounts............... $ 18,779 15.57% $(6,620) $ 25,399 21.00%
NOW and other transaction
accounts..................... 18,438 15.29 (1,120) 19,558 16.17
-------- ------ -------- -------- ------
Total withdrawable................ 37,217 30.86 (7,740) 44,957 37.17
-------- ------ -------- -------- ------
Certificates (original terms):
28 days........................ 303 .25 235 68 .06
91 days........................ 1,042 .86 (47) 1,089 .90
182 days....................... 11,629 9.64 (452) 12,081 9.99
12 months...................... 9,141 7.58 1,015 8,126 6.72
18 months...................... 1,745 1.45 (442) 2,187 1.81
24 months...................... 1,982 1.64 (698) 2,680 2.22
30 months...................... 10,971 9.10 1,471 9,500 7.85
36 months...................... 1,472 1.22 (113) 1,585 1.31
48 months...................... 6,191 5.13 3,229 2,962 2.45
60 months...................... 11,241 9.32 1,866 9,375 7.75
72 months...................... 40 .03 3 37 .03
96 months...................... 384 .32 (483) 867 .72
IRAs
28 days........................ 25 .02 9 16 .01
91 days........................ 162 .13 68 94 .07
182 days....................... 249 .21 9 240 .20
12 months...................... 334 .28 (126) 460 .38
18 months...................... 134 .11 (89) 223 .18
24 months...................... 38 .03 (14) 52 .04
30 months...................... 1,153 .96 (158) 1,311 1.08
36 months...................... 34 .03 (26) 60 .05
48 months...................... 4,443 3.68 4,024 419 .35
60 months...................... 19,054 15.80 (1,358) 20,412 16.87
72 months...................... 623 .52 (18) 641 .53
96 months...................... 1,006 .83 (517) 1,523 1.26
-------- ------ -------- -------- ------
Total certificates................ 83,396 69.14 7,388 76,008 62.83
-------- ------ -------- -------- ------
Total deposits.................... $120,613 100.00% $ (352) $120,965 100.00%
======== ====== ======== ======== ======
</TABLE>
<PAGE>
Borrowings. Although deposits are the Company's primary source of
funds, the Company's policy has been to utilize borrowings when they are a less
costly source of funds than deposits (taking into consideration the FDIC
insurance premiums payable on deposits) or can be invested at a positive spread.
The Bank often funds originations of its commercial real estate loans with a
simultaneous borrowing from the FHLB of Indianapolis to assure a profit above
its cost of funds.
The Company's borrowings consist of advances from the FHLB of
Indianapolis upon the security of FHLB stock and certain mortgage loans. Such
advances are made pursuant to several different credit programs each of which
has its own interest rate and range of maturities. The maximum amount that the
FHLB-Indianapolis will advance to member associations, including the Bank, for
purposes other than meeting withdrawals, fluctuates from time to time in
accordance with policies of the FHLB of Indianapolis. At June 30, 1997, FHLB of
Indianapolis advances totaled $8.2 million, representing 4.7% of total assets.
The following table sets forth the maximum month-end balance and
average balance of FHLB advances for the periods indicated, and weighted average
interest rates paid during the periods indicated and as of the end of each of
the periods indicated.
<TABLE>
<CAPTION>
At or for the Year
Ended June 30,
1997 1996 1995
---------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB Advances:
Average balance outstanding.................... $7,382 $6,694 $5,574
Maximum amount outstanding at any month-end
during the period......................... 8,233 6,963 7,963
Weighted average interest rate
during the period......................... 6.27% 6.83% 6.85%
Weighted average interest rate at
end of period............................. 6.14% 6.50% 6.78%
</TABLE>
There are regulatory restrictions on advances from the FHLBs. See
"Regulation - Federal Home Loan Bank System" and "Qualified Thrift Leader."
These limitations are not expected to have any impact on the Company's ability
to borrow from the FHLB of Indianapolis. The Company does not anticipate any
problem obtaining advances appropriate to meet its requirements in the future,
if such advances should become necessary.
Service Corporation Subsidiary
OTS regulations permit federal savings associations to invest in the
capital stock, obligations, or other specified types of securities of
subsidiaries (referred to as "service corporations") and to make loans to such
subsidiaries and joint ventures in which such subsidiaries are participants in
an aggregate amount not exceeding 2% of an association's assets, plus an
additional 1% of assets if the amount over 2% is used for specified community or
inner-city development purposes. In addition, federal regulations permit
associations to make specified types of loans to such subsidiaries (other than
special-purpose finance subsidiaries), in which the association owns more than
10% of the stock, in an aggregate amount not exceeding 50% of the association's
regulatory capital if the association's regulatory capital is in compliance with
applicable regulations. Current law requires a savings association that acquires
a non-savings association subsidiary, or that elects to conduct a new activity
within a subsidiary, to give the FDIC and the OTS at least 30 days advance
written notice. The FDIC may, after consultation with the OTS, prohibit specific
activities if it determines such activities pose a serious threat to the Savings
Association Insurance Fund ("SAIF").
<PAGE>
The Bank's only subsidiary, First Marion Service Corporation ("First
Marion") was organized in 1971 and currently is engaged in the sale of tax
deferred annuities pursuant to an arrangement with One System, Inc., a licensed
insurance broker, in Indianapolis. It also sells mutual funds through an
arrangement with Independent Financial Securities, Inc., a licensed securities
broker, in White Plains, New York. First Marion has one licensed employee
engaged in such sales of tax deferred annuities and mutual funds. In addition,
beginning in July 1995, First Marion began providing 100% financing to borrowers
of the Bank by providing a 20% second mortgage behind the Bank's 80% mortgage.
Such loans amounted to $1.4 million at June 30, 1997.
At June 30, 1997, the Bank's investment in First Marion totaled $1.3
million. During the year ended June 30, 1997, First Marion had net income of
$33,000.
Employees
As of June 30, 1997, the Bank employed 31 persons on a full-time basis
and three persons on a part-time basis. None of the Bank's employees are
represented by a collective bargaining group. Management considers its employee
relations to be good.
Competition
The Bank originates most of its loans to and accepts most of its
deposits from residents of Grant and Adams Counties, Indiana.
The Bank is subject to competition from various financial institutions,
including state and national banks, state and federal savings institutions,
credit unions, certain non-banking consumer lenders, and other companies or
firms, including brokerage houses and mortgage brokers, that provide similar
services in Grant and Adams Counties. The Bank must also compete with money
market funds and with insurance companies with respect to its individual
retirement accounts.
Under current law, bank holding companies may acquire savings
associations. Savings associations may also acquire banks under federal law. To
date, several bank holding company acquisitions of savings associations in
Indiana have been completed. Affiliations between banks and healthy savings
associations based in Indiana may also increase the competition faced by the
Bank and MCHI.
In addition, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to
acquire banks in other states and, with state consent to certain limitations,
allows banks to acquire out-of-state branches either through merger or de novo
expansion. The State of Indiana recently passed a law establishing interstate
branching provisions for Indiana state chartered banks consistent with those
established by the Riegle-Neal Act (the "Indiana Branching Law"). The Indiana
Branching Law authorizes Indiana banks to branch interstate by merger or de novo
expansion and authorizes out-of-state banks meeting certain requirements to
branch into Indiana by merger or de novo expansion. The Indiana Branching Law
became effective March 15, 1996, provided that interstate mergers and de novo
branches are not permitted to out-of-state banks unless the laws of their home
states permit Indiana banks to merge or establish de novo branches on a
reciprocal basis. This new legislation may also result in increased competition
for the Bank and MCHI.
<PAGE>
Because of recent changes in Federal law, interstate acquisitions of
banks are less restricted than they were under prior law. Savings associations
have certain powers to acquire savings associations based in other states, and
Indiana law expressly permits reciprocal acquisition of Indiana savings
associations. In addition, Federal savings associations are permitted to branch
on an interstate basis. See "Regulation -- Acquisitions or Dispositions and
Branching."
The primary factors in competing for deposits are interest rates and
convenience of office locations. The Bank competes for loan originations
primarily through the efficiency and quality of services it provides borrowers
through interest rates and loan fees it charges. Competition is affected by,
among other things, the general availability of lendable funds, general and
local economic conditions, current interest rate levels, and other factors which
are not readily predictable.
REGULATION
General
The Bank, as a federally chartered savings bank, is a member of the
Federal Home Loan Bank System ("FHLB System") and its deposits are insured by
the FDIC and it is a member of the Savings Association Insurance Fund (the
"SAIF") which is adminsitered by the FDIC. The Bank is subject to extensive
regulation by the OTS. Federal associations may not enter into certain
transactions unless certain regulatory tests are met or they obtain prior
governmental approval and the associations must file reports with the OTS about
their activities and their financial condition. Periodic compliance examinations
of the Bank are conducted by the OTS which has, in conjunction with the FDIC in
certain situations, examination and enforcement powers. This supervision and
regulation are intended primarily for the protection of depositors and federal
deposit insurance funds. The Bank is also subject to certain reserve
requirements under regulations of the Board of Governors of the Federal Reserve
System ("FRB").
An OTS regulation establishes a schedule for the assessment of fees
upon all savings associations to fund the operations of the OTS. The regulation
also establishes a schedule of fees for the various types of applications and
filings made by savings associations with the OTS. The general assessment, to be
paid on a semiannual basis, is based upon the savings association's total
assets, including consolidated subsidiaries, as reported in a recent quarterly
thrift financial report. Currently, the assessment rates range from .0172761% of
assets for associations with assets of $67 million or less to .0045864% for
associations with assets in excess of $35 billion. The Bank's semiannual
assessment under this assessment scheme, based upon its total assets at March
31, 1997, was $25,168.
The Bank is also subject to federal and state regulation as to such
matters as loans to officers, directors, or principal shareholders, required
reserves, limitations as to the nature and amount of its loans and investments,
regulatory approval of any merger or consolidation, issuance or retirements of
their own securities, and limitations upon other aspects of banking operations.
In addition, the activities and operations of the Bank are subject to a number
of additional detailed, complex and sometimes overlapping federal and state laws
and regulations. These include state usury and consumer credit laws, state laws
relating to fiduciaries, the Federal Truth-In-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Community Reinvestment Act, anti-redlining legislation and anti-trust
laws.
<PAGE>
The United States Congress is considering legislation that would
require all federal savings associations, such as the Bank, to either convert to
a national bank or a state-chartered financial institution by a specified date
to be determined. In addition, under the legislation, the Holding Company likely
would not be regulated as a savings and loan holding company, but rather as a
bank holding company. The OTS would also be abolished and its functions
transferred among the other federal banking regulators. Certain aspects of the
legislation remain to be resolved and therefore no assurance can be given as to
whether or in what form the legislation will be enacted or its effect on the
Holding Company and the Bank.
Federal Home Loan Bank System
The Bank is a member of the FHLB System, which consists of 12 regional
banks. The Federal Housing Finance Board ("FHFB"), an independent agency,
controls the FHLB System including the FHLB of Indianapolis. The FHLB System
provides a central credit facility primarily for member savings associations and
other member financial institutions. The Bank is required to hold shares of
capital stock in the FHLB of Indianapolis in an amount at least equal to the
greater of 1% of the aggregate principal amount of its unpaid residential
mortgage loans, home purchase contracts and similar obligations at the end of
each calendar year, .3% of its assets or 1/20 (or such greater fraction
established by the FHLB) of outstanding FHLB advances, commitments, lines of
credit and letters of credit. The Bank is currently in compliance with this
requirement. At June 30, 1997, the Bank's investment in stock of the FHLB of
Indianapolis was $1,047,300.
In past years, the Bank received dividends on its FHLB stock. All 12
FHLB's are required by law to provide funds for the resolution of troubled
savings associations and to establish affordable housing programs through direct
loans or interest subsidies on advances to members to be used for lending at
subsidized interest rates for low- and moderate-income, owner-occupied housing
projects, affordable rental housing, and certain other community projects. These
contributions and obligations could adversely affect the FHLB's ability to pay
dividends and the value of FHLB stock in the future. For the year ending June
30, 1997, dividends paid to the Bank totaled $79,000, for an annual rate of
7.88%.
The FHLB of Indianapolis serves as a reserve or central bank for member
institutions within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
advances to members in accordance with policies and procedures established by
the FHLB and the Board of Directors of the FHLB of Indianapolis.
All FHLB advances must be fully secured by sufficient collateral as
determined by the FHLB. Current law prescribes eligible collateral as first
mortgage loans less than 90 days delinquent or securities evidencing interests
therein, securities (including mortgage-backed securities) issued, insured or
guaranteed by the federal government or any agency thereof, FHLB deposits and,
to a limited extent, real estate with readily ascertainable value in which a
perfected security interest may be obtained. Other forms of collateral may be
accepted as over collateralization or, under certain circumstances, to renew
outstanding advances. All long-term advances are required to provide funds for
residential home financing and the FHLB has established standards of community
service that members must meet to maintain access to long-term advances.
Interest rates charged for advances vary depending upon maturity, the
cost of funds to the FHLB of Indianapolis and the purpose of the borrowing.
Under current law, savings associations which cease to be Qualified Thrift
Lenders are ineligible to receive advances from their FHLB.
<PAGE>
Liquidity
For each calendar month, the Bank is required to maintain an average
daily balance of liquid assets (cash, certain time deposits, bankers'
acceptances, specified United States Government, state or federal agency
obligations, shares of certain mutual funds and certain corporate debt
securities and commercial paper) equal to an amount not less than a specified
percentage of its net withdrawable deposit accounts plus short-term borrowings
during the preceding calendar month. This liquidity requirement may be changed
from time to time by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the savings flows of member institutions,
and is currently 5%, although the OTS has proposed a reduction of the percentage
to 4%. OTS regulations also require each member savings institution to maintain
an average daily balance of short-term liquid assets at a specified percentage
(currently 1%) of the total of its net withdrawable deposit accounts and
short-term borrowings during the preceding calendar month. Monetary penalties
may be imposed for failure to meet these liquidity requirements. The daily
average liquidity of the Bank for June, 1997, was 8.8% which exceeded the then
applicable 5% liquidity requirement. Its average short-term liquidity ratio for
June, 1997, was 3.7%. The Bank has never been subject to monetary penalties for
failure to meet its liquidity requirements.
Insurance of Deposits
The FDIC is an independent federal agency that insures the deposits, up
to prescribed statutory limits, of banks and thrifts and safeguards the safety
and soundness of the banking and thrift industries. The FDIC administers two
separate insurance funds, the BIF for commercial banks and state savings banks
and the SAIF for savings associations and banks that have acquired deposits from
savings associations. The FDIC is required to maintain designated levels of
reserves in each fund. Currently, thrifts may convert from one insurance fund to
the other upon payment of certain exit and entrance fees. Such fees need not be
paid if a SAIF member converts to a bank charter or merges with a bank, as long
as the resulting bank continues to pay the applicable insurance assessments to
the SAIF during such period and as long as certain other conditions are met.
The FDIC is authorized to establish separate annual assessment rates
for deposit insurance for members of the BIF and members of the SAIF. The FDIC
may increase assessment rates for either fund if necessary to restore the fund's
ratio of reserves to insured deposits to the target level within a reasonable
time and may decrease such rates if such target level has been met. The FDIC has
established a risk-based assessment system for both SAIF and BIF members. Under
this system, assessments vary depending on the risk the institution poses to its
deposit insurance fund. Such risk level is determined based on the institution's
capital level and the FDIC's level of supervisory concern about the institution.
For the first six months of 1995, the assessment schedule for BIF
members and SAIF members ranged from .23% to .31% of deposits. As is the case
with the SAIF, the FDIC is authorized to adjust the insurance premium rates for
banks that are insured by the BIF of the FDIC in order to maintain the reserve
ratio of the BIF at 1.25% of BIF-insured deposits. As a result of the BIF
reaching its statutory reserve ratio, the FDIC in 1995 revised the premium
schedule for BIF insured institutions to provide a range of .04% to .31% of
deposits. The revisions became effective in the third quarter of 1995. At that
time, healthy BIF-insured banks paid premiums of approximately $.04 per $100 in
deposits compared to $.23 per $100 in deposits paid by healthy SAIF-insured
institutions. The BIF rates were further revised, effective January 1996, to
provide a range of 0% to .27%, eliminating insurance premiums for healthy
BIF-insured banks. The SAIF rates, however, were not adjusted. At the time the
FDIC revised the BIF premium schedule, it noted that, absent legislative action
(as discussed below), the SAIF would not attain its designated reserve ratio
until the year 2002. As a result, SAIF-insured members would continue to be
generally subject to higher deposit insurance premiums than BIF-insured
institutions until, all things being equal, the SAIF attained its required
reserve ratio of 1.25% of BIF-insured deposits.
<PAGE>
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provided for a one time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provided for the merger of the BIF and the SAIF on January 1,
1999, if no savings associations then exist. The special assessment rate was
established by the FDIC at .657% of deposits, and the resulting assessment of
$776,717 on the Bank was accrued in September, 1996. This special assessment
significantly increased noninterest expense and adversely affected the MCHI's
results of operations for the three months ended September 30, 1996. As a result
of the special assessment, the Bank's deposit insurance premiums were reduced to
6.48 basis points based upon its current risk classification and the new
assessment schedule for SAIF-insured institutions. These premiums are subject to
change in future periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has equalized the SAIF
assessment schedule with the BIF assessment schedule, SAIF-insured institutions
remain subject to a FICO assessment as a result of this continuing obligation.
Although the legislation also now requires assessments to be made on
BIF-assessable deposits for this purpose, effective January 1, 1997, that
assessment is limited to 20% of the rate imposed on SAIF assessable deposits
until the earlier of September 30, 1999, or when no savings association
continues to exist, thereby imposing a greater burden on SAIF member
institutions such as the Bank. Thereafter, however, assessments on BIF-member
institutions are expected to be made on the same basis as SAIF-member
institutions.
Regulatory Capital
Currently, savings associations are subject to three separate minimum
capital-to-assets requirements: (i) a leverage limit, (ii) a tangible capital
requirement, and (iii) a risk-based capital requirement. The leverage limit
requires that savings associations maintain "core capital" of at least 3% of
total assets. Core capital is generally defined as common stockholders' equity
(including retained income), noncumulative perpetual preferred stock and related
surplus, certain minority equity interests in subsidiaries, qualifying
supervisory goodwill (on a declining basis until 1995), purchased mortgage
servicing rights (which may be included in an amount up to 50% of core capital,
but which are to be reported on an association's balance sheet at the lesser of
90% of their fair market value, 90% of their original purchase price, or 100% of
their remaining unamortized book value), and purchased credit card relationships
(which may be included in an amount up to 25% of core capital) less
nonqualifying intangibles. Under the tangible capital requirement, a savings
association must maintain tangible capital (core capital less all intangible
assets except purchased mortgage servicing rights which may be included after
making the above-noted adjustments up to 100% of tangible capital) of at least
1.5% of total assets. Under the risk-based capital requirements, a minimum
amount of capital must be maintained by a savings association to account for the
relative risks inherent in the type and amount of assets held by the savings
association. The risk-based capital requirement requires a savings association
to maintain capital (defined generally for these purposes as core capital plus
general valuation allowances and permanent or maturing capital instruments such
as preferred stock and subordinated debt less assets required to be deducted)
equal to 8.0% of risk-weighted assets. Assets are ranked as to risk in one of
four categories (0-100%) with a credit risk-free asset such as cash requiring no
risk-based capital and an asset with a significant credit risk such as a
non-accrual loan being assigned a factor of 100%. At June 30, 1997, the Bank was
in compliance with all capital requirements.
<PAGE>
The OTS has promulgated a rule which sets forth the methodology for
calculating an interest rate risk component to be used by savings associations
in calculating regulatory capital. Under the rule, only savings associations
with "above normal" interest rate risk (institutions whose portfolio equity
would decline in value by more than 2% of assets in the event of a hypothetical
200-basis-point move in interest rates) will be required to maintain additional
capital for interest rate risk under the risk-based capital framework. An
institution with an "above normal" level of exposure will have to maintain
additional capital equal to one-half the difference between its measured
interest rate risk (the most adverse change in the market value of its portfolio
resulting from a 200-basis point move in interest rates divided by the estimated
market value of its assets) and 2%, multiplied by the market value of its
assets. That dollar amount of capital is in addition to an institution's
existing risk-based capital requirement. Although the OTS has decided to delay
implementation of this rule, it will continue to closely monitor the level of
interest rate risk at individual institutions and it retains the authority, on a
case-by-case basis, to impose additional capital requirements for individual
institutions with significant interest rate risk.
If an association is not in compliance with its capital requirements,
the OTS is required to prohibit asset growth and to impose a capital directive
that may restrict, among other things, the payment of dividends and officers'
compensation. In addition to specific sanctions provided in Financial
Institutions Reform, Recovery, and Enforcement Act ("FIRREA") for failing to
meet capital requirements, the OTS and the FDIC generally are authorized to take
enforcement actions against a savings association that fails to meet its capital
requirements, which actions may include restrictions on operations and banking
activities, the imposition of a capital directive, a cease and desist order,
civil money penalties or harsher measures such as the appointment of a receiver
or conservator or a forced merger into another institution.
Prompt Corrective Action
Federal Deposit Insurance Corporation Improvement Act of 1991, as
amended ("FedICIA") requires, among other things, federal bank regulatory
authorities to take "prompt corrective action" with respect to institutions that
do not meet minimum capital requirements. For these purposes, FedICIA
establishes five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. At June 30, 1997, the Bank was categorized as "well
capitalized."
An institution is deemed to be "well capitalized" if it has a total
risk-based capital ratio of 10% or greater, a Tier I risk-based capital ratio of
6% or greater, and a leverage ratio of 5% or greater, and is not subject to a
regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure.
"Undercapitalized" institutions are subject to growth limitations and
are required to submit a capital restoration plan. If an "undercapitalized"
institution fails to submit, or fails to implement in a material respect, an
acceptable plan, it is treated as if it is "significantly undercapitalized."
"Significantly undercapitalized" institutions are subject to one or more of a
number of requirements and restrictions, including an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cease receipt of deposits from correspondent banks, and
restrictions on compensation of executive officers. "Critically
undercapitalized" institutions may not, beginning 60 days after becoming
"critically undercapitalized," make any payment of principal or interest on
certain subordinated debt or extend credit for a highly leveraged transaction or
enter into any transaction outside the ordinary course of business. In addition,
"critically undercapitalized" institutions are subject to appointment of a
receiver or conservator.
<PAGE>
Capital Distributions Regulation
An OTS regulation imposes restrictions upon all "capital distributions"
by savings associations, including cash dividends, payments by an institution to
repurchase or otherwise acquire its shares, payments to shareholders of another
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system of regulation, with
the greatest flexibility being afforded to well-capitalized institutions. A
savings association which has total capital (immediately prior to and after
giving effect to the capital distribution) that is at least equal to its fully
phased-in capital requirements would be a Tier 1 institution ("Tier 1
Institution"). An institution that has total capital at least equal to its
minimum capital requirements, but less than its fully phased-in capital
requirements, would be a Tier 2 institution ("Tier 2 Institution"). An
institution having total capital that is less than its minimum capital
requirements would be a Tier 3 institution ("Tier 3 Institution"). However, an
institution which otherwise qualifies as a Tier 1 institution may be designated
by the OTS as a Tier 2 or Tier 3 institution if the OTS determines that the
institution is "in need of more than normal supervision." The Bank is currently
a Tier 1 Institution.
A Tier 1 Institution could, after prior notice but without the approval
of the OTS, make capital distributions during a calendar year up to the greater
of (a) 100% of its net income to date during the calendar year plus an amount
that would reduce by one-half its "surplus capital ratio" (the excess over its
capital requirements) at the beginning of the calendar year; or (b) 75% of its
net income for the most recent four quarter period. Any additional amount of
capital distributions would require prior regulatory approval.
The OTS has proposed revisions to these regulations which would permit
savings associations to declare dividends in amounts which would assure that
they remain adequately capitalized following the dividend declaration. Savings
associations in a holding company system which are rated Camel 1 or 2 and which
are not in troubled condition would need to file a prior notice with the OTS
concerning such dividend declaration.
Safety and Soundness Standards
On February 2, 1995, the federal banking agencies adopted final safety
and soundness standards for all insured depository institutions. The standards,
which were issued in the form of guidelines rather than regulations, relate to
internal controls, information systems, internal audit systems, loan
underwriting and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking agencies in
identifying and addressing problems at insured depository institutions before
capital becomes impaired. If an institution fails to meet these standards, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result in enforcement
proceedings. Additional standards on earnings and classified assets are expected
to be issued in the near future.
Real Estate Lending Standards
<PAGE>
OTS regulations require savings associations to establish and maintain
written internal real estate lending policies. Each association's lending
policies must be consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its
operations. The policies must establish loan portfolio diversification
standards; establish prudent underwriting standards, including loan-to-value
limits, that are clear and measurable; establish loan administration procedures
for the association's real estate portfolio; and establish documentation,
approval, and reporting requirements to monitor compliance with the
association's real estate lending policies.
The association's written real estate lending policies must be reviewed
and approved by the association's board of directors at least annually. Further,
each association is expected to monitor conditions in its real estate market to
ensure that its lending policies continue to be appropriate for current market
conditions.
Federal Reserve System
Under FRB regulations, the Bank is required to maintain reserves
against its transaction accounts (primarily checking and NOW accounts) and
non-personal money market deposit accounts. The effects of these reserve
requirements is to increase the Bank's cost of funds. The Bank is in compliance
with its reserve requirements. A federal savings association, like other
depository institutions maintaining reservable accounts, may borrow from the
Federal Reserve Bank "discount window," but the FRB's regulations require the
savings association to exhaust other reasonable alternative sources, including
borrowing from its regional FHLB, before borrowing from the Federal Reserve
Bank. Current law imposes certain limitations on the ability of undercapitalized
depository institutions to borrow from Federal Reserve Banks.
Transactions with Affiliates
The Bank and MCHI are subject to Sections 22(h), 23A and 23B of the
Federal Reserve Act, which restrict financial transactions between banks and
affiliated companies. The statute limits credit transactions between a bank and
its executive officers and its affiliates, prescribes terms and conditions for
bank affiliate transactions deemed to be consistent with safe and sound banking
practices, and restricts the types of collateral security permitted in
connection with a bank's extension of credit to an affiliate.
Holding Company Regulation
MCHI is regulated as a "non-diversified unitary savings and loan
holding company" within the meaning of the Home Owners' Loan Act, as amended
("HOLA"), and subject to regulatory oversight of the Director of the OTS. As
such, MCHI is registered with the OTS and thereby subject to OTS regulations,
examinations, supervision and reporting requirements. As a subsidiary of a
savings and loan holding company, the Bank is subject to certain restrictions in
its dealings with MCHI and with other companies affiliated with MCHI.
HOLA generally prohibits a savings and loan holding company, without
prior approval of the Director of the OTS, from (i) acquiring control of any
other savings association or savings and loan holding company or controlling the
assets thereof or (ii) acquiring or retaining more than 5 percent of the voting
shares of a savings association or holding company thereof which is not a
subsidiary. Additionally, under certain circumstances a savings and loan holding
company is permitted to acquire, with the approval of the Director of the OTS,
up to 15% of previously unissued voting shares of an under-capitalized savings
association for cash without that savings association being deemed controlled by
the holding company. Except with the prior approval of the Director of the OTS,
no director or officer of a savings and loan holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's stock may also
acquire control of any savings institution, other than a subsidiary institution,
or any other savings and loan holding company.
<PAGE>
MCHI's Board of Directors presently intends to continue to operate MCHI
as a unitary savings and loan holding company. There are generally no
restrictions on the permissible business activities of a unitary savings and
loan holding company. However, if the Director of OTS determines that there is
reasonable case to believe that the continuation by a savings and loan holding
company of an activity constitutes a serious risk to the financial safety,
soundness, or stability of its subsidiary savings association, the Director of
the OTS may impose such restrictions as deemed necessary to address such risk
and limiting (i) payment of dividends by the savings association, (ii)
transactions between the savings association and its affiliates, and (iii) any
activities of the savings association that might create a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings association.
Notwithstanding the above rules as to permissible business activities
of unitary savings and loan holding companies, if the savings association
subsidiary of such a holding company fails to meet the Qualified Thrift Lender
("QTL") test, then such unitary holding company would become subject to the
activities restrictions applicable to multiple holding companies. (Additional
restrictions on securing advances from the FHLB also apply). See "--Qualified
Thrift Lender." At June 30, 1997, the Bank's asset composition was in excess of
that required to qualify the Bank as a Qualified Thrift Lender.
If MCHI were to acquire control of another savings institution other
than through a merger or other business combination with the Bank, MCHI would
thereupon become a multiple savings and loan holding company. Except where such
acquisition is pursuant to the authority to approve emergency thrift
acquisitions and where each subsidiary savings association meets the QTL test,
the activities of MCHI and any of its subsidiaries (other than the Bank or other
subsidiary savings associations) would thereafter be subject to further
restrictions. HOLA provides that, among other things, no multiple savings and
loan holding company or subsidiary thereof which is not a savings association
shall commence or continue for a limited period of time after becoming a
multiple savings and loan holding company or subsidiary thereof, any business
activity other than (i) furnishing or performing management services for a
subsidiary savings association, (ii) conducting an insurance agency or escrow
business, (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary savings institution, (iv) holding or managing properties used
or occupied by a subsidiary savings institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by the
FSLIC by regulation as of March 5, 1987, to be engaged in by multiple holding
companies or (vii) those activities authorized by the FRB as permissible for
bank holding companies, unless the Director of the OTS by regulation prohibits
or limits such activities for savings and loan holding companies. Those
activities described in (vii) above must also be approved by the Director of the
OTS prior to being engaged in by a multiple holding company.
The Director of the OTS may also approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state, if the multiple savings and loan holding
company involved controls a savings association which operated a home or branch
office in the state of the association to be acquired as of March 5,1987, or if
the laws of the state in which the institution to be acquired is located
specifically permit institutions to be acquired by state-chartered institutions
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings institutions). Also, the Director of the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings
associations in more than one state in the case of certain emergency thrift
acquisitions.
<PAGE>
Indiana law permits federal and state savings association holding
companies with their home offices located outside of Indiana to acquire savings
associations whose home offices are located in Indiana and savings association
holding companies with their principal place of business in Indiana ("Indiana
Savings Association Holding Companies") upon receipt of approval by the Indiana
Department of Financial Institutions. Moreover, Indiana Savings Association
Holding Companies may acquire savings associations with their home offices
located outside of Indiana and savings associations holding companies with their
principal place of business located outside of Indiana upon receipt of approval
by the Indiana Department of Financial Institutions.
No subsidiary savings association of a savings and loan holding company
may declare or pay a dividend on its permanent or nonwithdrawable stock unless
it first gives the Director of the OTS 30 days advance notice of such
declaration and payment. Any dividend declared during such period or without the
giving of such notice shall be invalid.
Federal Securities Law
The shares of Common Stock of MCHI are registered with the SEC under
the 1934 Act. MCHI is subject to the information, proxy solicitation, insider
trading restrictions and other requirements of the 1934 Act and the rules of the
SEC thereunder. If MCHI has fewer than 300 shareholders, it may deregister the
shares under the 1934 Act and cease to be subject to the foregoing requirements.
Shares of Common Stock held by persons who are affiliates of MCHI may
not be resold without registration or unless sold in accordance with the resale
restrictions of Rule 144 under the 1933 Act. If MCHI meets the current public
information requirements under Rule 144, each affiliate of MCHI who complies
with the other conditions of Rule 144 (including conditions that require the
affiliate's sale to be aggregated with those of certain other persons) would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of MCHI or (ii) the average weekly volume of trading in such shares
during the preceding four calendar weeks.
Qualified Thrift Lender
Under current OTS regulations, the QTL test requires that a savings
association have at least 65% of its portfolio assets invested in "qualified
thrift investments" on a monthly average basis in 9 out of every 12 months.
Qualified thrift investments under the QTL test consist primarily of housing
related loans and investments.
A savings association which fails to meet the QTL test must either
convert to a bank (but its deposit insurance assessments and payments will be
those of and paid to SAIF) or be subject to the following penalties: (i) it may
not enter into any new activity except for those permissible for a national bank
and for a savings association; (ii) its branching activities shall be limited to
those of a national bank; (iii) it shall not be eligible for any new FHLB
advances; and (iv) it shall be bound by regulations applicable to national banks
respecting payment of dividends. Three years after failing the QTL test the
association must (i) dispose of any investment or activity not permissible for a
national bank and a savings association and (ii) repay all outstanding FHLB
advances. If such a savings association is controlled by a savings and loan
holding company, then such holding company must, within a prescribed time
period, become registered as a bank holding company and become subject to all
rules and regulations applicable to bank holding companies (including
restrictions as to the scope of permissible business activities).
<PAGE>
A savings association failing to meet the QTL test may requalify as a
QTL if it thereafter meets the QTL test. In the event of such requalification it
shall not be subject to the penalties described above. A savings association
which subsequently again fails to qualify under the QTL test shall become
subject to all of the described penalties without application of any waiting
period.
At June 30, 1997, 83.48% of the Bank's portfolio assets (as defined on
that date) were invested in qualified thrift investments (as defined on that
date), and therefore the Bank's asset composition was in excess of that required
to qualify the Bank as a QTL. Also, the Bank does not expect to significantly
change its lending or investment activities in the near future. The Bank expects
to continue to qualify as a QTL, although there can be no such assurance.
Acquisitions or Dispositions and Branching
Bank holding companies, upon receipt of appropriate approvals from the
FRB and the Director of the OTS, may acquire control of any savings association
or holding company thereof wherever located. Similarly, a savings and loan
holding company may now acquire control of a bank. Moreover, federal savings
associations may acquire or be acquired by any insured depository institution.
Pursuant to rules promulgated by the FRB, a savings association acquired by a
bank holding company (i) may, so long as the savings association continues to
meet the QTL test, continue to branch to the same extent as permitted to other
non-affiliated savings associations similarly chartered in the state, and (ii)
cannot continue any non-banking activities not authorized for bank holding
companies. Saving associations acquired by a bank holding company may, if
located in a state where the bank holding company is legally authorized to
acquire a bank, be converted to the status of a bank but deposit insurance
assessments and payments continue to be paid by the association to the SAIF. A
savings association so converted to a bank becomes subject to the branching
restrictions applicable to banks. Also any insured depository institution may
merge with, acquire the assets of, or assume the liabilities of any other
insured depository institution with the appropriate regularity approvals if (i)
continued payments of deposit insurance are made on the acquired depository
institution's deposits (including an assumed rate of growth in such deposits) to
SAIF (if the acquired institution was a SAIF member) or to BIF (if the acquired
institution was a BIF member), and (ii) the acquiring institution and any
holding company in control thereof meet all applicable capital requirements at
the time of the transaction.
Subject to certain exceptions, commonly controlled banks and savings
associations must reimburse the FDIC for any losses suffered in connection with
a failed bank or savings association affiliate. Institutions are commonly
controlled if one is owned by another or if both are owned by the same holding
company. Such claims by the FDIC under this provision are subordinate to claims
of depositors, secured creditors, and holders of subordinated debt, other than
affiliates.
The OTS has adopted regulations which permit nationwide branching to
the extent permitted by federal statute. Federal statutes permit federal savings
associations to branch outside of their home state if the association meets the
domestic building and loan test in ss.7701(a)(19) of the Code or the asset
composition test of ss.7701(c) of the Code. Branching that would result in the
formation of a multiple savings and loan holding company controlling savings
associations in more than one state is permitted if the law of the state in
which the savings association to be acquired is located specifically authorizes
acquisitions of its state-chartered associations by state- chartered
associations or their holding companies in the state where the acquiring
association or holding company is located.
<PAGE>
Moreover, Indiana banks and savings associations are permitted to
acquire other Indiana banks and savings associations and to establish branches
throughout Indiana.
In addition, The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act") permits bank holding companies to
acquire banks in other states and, with state consent and subject to certain
limitations, allows banks to acquire out-of-state branches either through merger
or de novo expansion. The State of Indiana recently passed a law establishing
interstate branching provisions for Indiana state-chartered banks consistent
with those established by the Riegle-Neal Act (the "Indiana Branching Law"). The
Indiana Branching Law authorizes Indiana banks to branch interstate by merger or
de novo expansion. The Indiana Branching Law became effective March 15, 1996,
provided that interstate mergers and de novo branches are not permitted to
out-of-state banks unless the laws of their home states permit Indiana banks to
merge or establish de novo branches on a reciprocal basis.
Community Reinvestment Act Matters
Federal law requires that ratings of depository institutions under the
Community Reinvestment Act of 1977 ("CRA") be disclosed. The disclosure includes
both a four-unit descriptive rating -- outstanding, statisfactory,
unsatisfactory and needs imporvement -- and a written evaluation of each
institution's performance. Each FHLB is required to establish standards of
community investment or service that its members must maintain for continued
access to long-term advances from the FHLBs. The standards take into account a
member's performance under the CRA and its record of lending to first-time home
buyers. The FHLBs have established an "Affordable Housing Program" to subsidize
the interest rate of advances to member associations engaged in lending for
long-term, low- and moderate-income, owner-occupied and affordable rental
housing at subsidized rates. The Bank is participating in this program. The
examiners have determined that the Bank has an outstanding record of meeting
community credit needs.
TAXATION
Federal Taxation
Historically, savings associations, such as the Bank, have been
permitted to compute bad debt deductions using either the bank experience method
or the percentage of taxable income method. However, for years beginning after
December 31, 1995, the Bank is not able to use the percentage of taxable income
method of computing its allowable tax bad debt deduction. The Bank will be
required to compute its allowable deduction using the experience method. As a
result of the repeal of the percentage of taxable income method, reserves taken
after 1987 using the percentage of taxable income method generally must be
included in future taxable income over a six-year period, although a two-year
delay may be permitted for institutions meeting a residential mortgage loan
origination test. In addition, the pre-1988 reserve, for which no deferred taxes
have been recorded, will not have to be recaptured into income unless (i) the
Bank no longer qualifies as a bank under the Code, or (ii) excess dividends are
paid out by the Bank.
<PAGE>
Depending on the composition of its items of income and expense, a
savings association may be subject to the alternative minimum tax. A savings
association must pay an alternative minimum tax equal to the amount (if any) by
which 20% of alternative minimum taxable income ("AMTI"), as reduced by an
exemption varying with AMTI, exceeds the regular tax due. AMTI equals regular
taxable income increased or decreased by certain tax preferences and
adjustments, including depreciation deductions in excess of that allowable for
alternative minimum tax purposes, tax-exempt interest on most private activity
bonds issued after August 7, 1986 (reduced by any related interest expense
disallowed for regular tax purposes), the amount of the bad debt reserve
deduction claimed in excess of the deduction based on the experience method and
75% of the excess of adjusted current earnings over AMTI (before this adjustment
and before any alternative tax net operating loss). AMTI may be reduced only up
to 90% by net operating loss carryovers, but alternative minimum tax paid that
is attributable to most preferences can be credited against regular tax due in
later years.
State Taxation
The Bank is subject to Indiana's Financial Institutions Tax ("FIT"),
which is imposed at a flat rate of 8.5% on "adjusted gross income." "Adjusted
gross income," for purposes of FIT, begins with taxable income as defined by
Section 63 of the Code and, thus, incorporates federal tax law to the extent
that it affects the computation of taxable income. Federal taxable income is
then adjusted by several Indiana modifications the most notable of which is the
required addback of interest that is tax-free for federal income tax purposes.
Other applicable state taxes include generally applicable sales and use taxes
plus real and personal property taxes.
MCHI's (or previously the Bank's) state income tax returns have not
been audited in the last five years.
Item 2. Properties.
At June 30, 1997, the Company conducted its business from its main
office at 100 West Third Street, Marion, Indiana, and one branch office. Both
offices are full-service offices owned by the Company.
The following table provides certain information with respect to the
Company's offices as of June 30, 1997:
<PAGE>
<TABLE>
<CAPTION>
Net Book Value
Total Deposits of Property,
at Furniture
Owned or Year June 30, & Approximate
Description and Address Leased Opened 1997 Fixtures Square Footage
- ----------------------- ------------------- ---- -------- --------------
(Dollars in Thousands)
Main Office in Marion
<S> <C> <C> <C> <C> <C>
100 West Third Street.................. Owned 1936 $112,929 $1,375 17,949
Location in Decatur
1045 South 13th Street................. Owned 1974 8,841 145 3,611
</TABLE>
The Company opened its first automated teller machine in May, 1995 at
its Marion branch.
The Company owns computer and data processing equipment which is used
for transaction processing and accounting. The net book value of electronic data
processing equipment owned by the Company was $136,000 at June 30, 1997.
The Company also has contracted for the data processing and reporting
services of BISYS, Inc. in Houston, Texas. The cost of these data processing
services is approximately $12,800 per month.
Item 3. Legal Proceedings.
The Company is not a party to any material pending legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of MCHI's shareholders during the quarter
ended June 30, 1997.
Item 4.5. Executive Officers of MCHI.
Presented below is certain information regarding the executive officers of
MCHI:
Name Position
John M. Dalton President
Steven L. Banks Executive Vice President
Larry G. Phillips Sr. Vice President, Secretary and Treasurer
Tim D. Canode Vice President
John M. Dalton (age 63) has been employed by MCHI since November, 1992.
He became President of the Bank in 1996 and Executive Vice President of First
Marion in 1996. Mr. Dalton served as Executive Vice President of the Bank from
1983 to 1996.
Larry G. Phillips (age 49) has been employed by MCHI since November,
1992. He became Sr. Vice President of the Bank in 1996 and has served as
Treasurer of the Bank since 1983, Secretary of the Bank since 1989 and Secretary
and Treasurer of First Marion since 1989. Mr. Phillips served as Vice President
and Treasurer of the Bank from 1983 to 1996.
Steven L. Banks (age 47) became Executive Vice President of both MCHI
and the Bank on September 1, 1996. Prior to his affiliation with MCHI and the
Bank, Mr. Banks served as President and CEO of Fidelity Federal Savings Bank of
Marion.
Tim D. Canode (age 52) became Vice President of MCHI in 1996 and has
been Vice President of the Bank since 1983. Mr. Canode has also served as
Assistant Vice President of First Marion since 1983.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Bank converted from a federally charted mutual savings bank to a
federally charted stock savings bank effective March 18, 1993 (the "Conversion")
and simultaneously formed a savings and loan holding company, MCHI. MCHI's
common stock, without par value ("Common Stock"), is quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"),
National Market System, under the symbol "MARN." The following table sets forth
the high and low prices, as reported by NASDAQ, and dividends paid per share for
Common Stock for the quarter indicated. Such over-the-counter quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
Quarter Dividends
Ended High Low Declared
June 30, 1997......... $23 1/4 $23 1/4 $22 1/2 $.22
March 31, 1997........ 22 22 19 1/4 .20
December 31, 1996..... 19 1/4 21 1/2 19 1/4 .20
September 30, 1996.... 20 1/2 21 20 .20
June 30, 1996......... 20 3/4 21 19 3/4 .20
March 31, 1996........ 20 7/16 20 3/4 19 1/4 .18
December 31, 1995..... 20 20 5/8 19 1/4 .18
September 30, 1995.... 19 3/4 20 5/8 18 1/2 .18
As of August 22, 1997, there were 447 record holders of MCHI's Common
Stock. MCHI estimates that, as of that date, there were approximately 1,062
additional shareholders in "street" name. The Company's percentage of dividends
per share to net income per share was 63.1%, 60.7% and 56.8% for the years ended
June 30, 1997, 1996 and 1995, respectively.
Since MCHI has no independent operations or other subsidiaries to generate
income, its ability to accumulate earnings for the payment of cash dividends to
its shareholders is directly dependent upon the earnings on its investment
securities and ability of the Bank to pay dividends to MCHI.
Under OTS regulations, a converted savings association may not declare or
pay a cash dividend if the effect would be to reduce its net worth below the
amount required for the liquidation account created at the time it converted. In
addition, under OTS regulations, the extent to which a savings association may
make a "capital distribution," which includes, among other things, cash
dividends, will depend upon in which one of three categories, based upon levels
of capital, that savings association is classified. The Bank is now and expects
to continue to be a "tier one institution" and therefore would be able to pay
cash dividends to MCHI during any calendar year up to 100% of its net income
during that calendar year plus the amount that would reduce by one half its
"surplus capital ratio" (the excess over its fully phased-in capital
requirements) at the beginning of the calendar year. Prior notice of any
dividend to be paid by the Bank will have to be given to the OTS.
<PAGE>
Under current federal income tax law, dividend distributions with respect
to the Common Stock, to the extent that such dividends paid are from the current
or accumulated earnings and profits of the Bank (as calculated for federal
income tax purposes), will be taxable as ordinary income to the recipient and
will not be deductible by the Bank. Any dividend distributions in excess of
current or accumulated earnings and profits will be treated for federal income
tax purposes as a distribution from the Bank's accumulated bad debt reserves,
which could result in increased federal income taxes liability for the Bank.
Unlike the Bank, generally there is no regulatory restriction on the
payment of dividends by MCHI, subject to the determination of the director of
the OTS that there is reasonable cause to believe that the payment of dividends
constitutes a serious risk to the financial safety, soundness or stability of
the Bank. Indiana law, however, would prohibit MCHI from paying a dividend if,
after giving effect to the payment of that dividend, MCHI would not be able to
pay its debts as they become due in the ordinary course of business or if MCHI's
total assets would be less that the sum of its total liabilities plus
preferential rights of holders of preferred stock, if any.
Item 6. Selected Consolidated Financial Data
The information required by this item is incorporated by reference to the
material under the heading "Selected Consolidated Financial Information" on page
2 of MCHI's Shareholder Annual Report for its fiscal year ended June 30, 1997
(the "Shareholder Annual Report").
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information required by this item is incorporated by reference to pages
3 through 15 of the Shareholder Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Bank is subject to interest rate risk to the degree that its
interest-bearing liabilities, primarily deposits with short- and medium-term
maturities, mature or reprice at different rates than our interest-earning
assets. Although having liabilities that mature or reprice less frequently on
average than assets will be beneficial in times of rising interest rates, such
an asset/liability structure will result in lower net income during periods of
declining interest rates, unless offset by other factors.
The Bank protects against problems arising in a falling interest rate
environment by requiring interest rate miniums on its residential and commercial
real estate adjustable-rate mortgages and against problems arising in a rising
interest rate environment by having in excess of 89% of its mortgage loans with
adjustable rate features. Management believes that these minimums, which
establish floors below which the loan interest rate cannot decline, will
continue to reduce its interest rate vulnerability in a declining interest rate
environment. For the loans which do not adjust because of the interest rate
minimums, there is an increased risk of prepayment.
<PAGE>
The Bank believes it is critical to manage the relationship between
interest rates and the effect on its net portfolio value ("NPV"). This approach
calculates the difference between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash flows from off-balance sheet contracts. The Bank manages assets and
liabilities within the context of the marketplace, regulatory limitations and
within its limits on the amount of change in NPV which is acceptable given
certain interest rate changes.
The OTS issued a regulation, which uses a net market value methodology to
measure the interest rate risk exposure of savings associations. Under this OTS
regulation, an institution's "normal" level of interest rate risk in the event
of an assumed change in interest rates is a decrease in the institution's NPV in
an amount not exceeding 2% of the present value of its assets. Savings
associations with over $300 million in assets or less than a 12% risk-based
capital ratio are required to file OTS Schedule CMR. Data from Schedule CMR is
used by the OTS to calculate changes in NPV (and the related "normal" level of
interest rate risk) based upon certain interest rate changes (discussed below).
Associations which do not meet either of the filing requirements are not
required to file OTS Schedule CMR, but may do so voluntarily. As the Bank does
not meet either of these requirements, it is not required to file Schedule CMR,
although it does so voluntarily. Under the regulation, associations which must
file are required to take a deduction (the interest rate risk capital component)
from their total capital available to calculate their risk based capital
requirement if their interest rate exposure is greater than "normal." The amount
of that deduction is one-half of the difference between (a) the institution's
actual calculated exposure to a 200 basis point interest rate increase or
decrease (whichever results in the greater pro forma decrease in NPV) and (b)
its "normal" level of exposure which is 2% of the present value of its assets.
Presented below, as of June 30, 1997, is an analysis performed by the OTS
of the Bank's interest rate risk as measured by changes in NPV for instantaneous
and sustained parallel shifts in the yield curve, in 100 basis point increments,
up and down 400 basis points. At June 30, 1997, 2% of the present value of the
Bank's assets was approximately $3.5 million. Because the interest rate risk of
a 200 basis point decrease in market rates (which was greater than the interest
rate risk of a 200 basis point increase) was $1.6 million at June 30, 1997, the
Bank would not have been required to make a deduction from its total capital
available to calculate its risk based capital requirement if it had been subject
to the OTS's reporting requirements under this methodology.
<PAGE>
<TABLE>
<CAPTION>
Change Net Portfolio Value NPV as % of Present Value of Assets
In Rates $ Amount $ Change % Change NPV Ratio Change
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+ 400 bp * $37,509 $(3,023) (7)% 22.46% (64) bp
+ 300 bp 38,899 (1,633) (4)% 22.93% (17) bp
+ 200 bp 40,000 (532) (1)% 23.24% 14 bp
+ 100 bp 40,606 74 0% 23.32% 22 bp
0 bp 40,532 --- ---% 23.10% --- bp
- 100 bp 39,809 (723) (2)% 22.59% (51) bp
- 200 bp 38,899 (1,633) (4)% 21.99% (111) bp
- 300 bp 38,510 (2,022) (5)% 21.62% (148) bp
- 400 bp 38,377 (2,155) (5)% 21.37% (173) bp
</TABLE>
- ----------
* Basis points.
As with any method of measuring interest rate risk, certain short comings
are inherent in the methods of analysis presented above. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable-rate loans, have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. Most of the
Bank's adjustable-rate loans have interest rate minimums of 6.00% for
residential loans and 9.00% for commercial real estate loans. Currently,
originations of residential adjustable-rate-mortgages have interest rate
minimums of 6.00%. Further, in the event of a change in interest rates, expected
rates of prepayments on loans and early withdrawals from certificates could
likely deviate significantly from those assumed in calculating the table.
Finally, the ability of many borrowers to service their debt may decrease in the
event of an interest rate increase although the Bank does underwrite these
mortgages at approximately 4.0% above the origination rate. The Company
considers all of these factors in monitoring its exposure to interest rate risk.
Item 8. Financial Statements and Supplementary Data.
MCHI's Consolidated Financial Statements and Notes thereto contained on
pages 17 through 41 in the Shareholder Annual Report are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There were no such changes or disagreements during the applicable
period.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item with respect to directors is
incorporated by reference to pages 2 and 3 of MCHI's Proxy Statement for its
1997 Annual Shareholder Meeting (the "1997 Proxy Statement"). Information
concerning MCHI's executive officers is included in Item 4.5 in Part I of this
report. Information concerning compliance by such persons with Section 16(a) of
the 1934 Act is incorporated by reference to page 6 of the 1997 Proxy Statement.
Item 11. Executive Compensation.
The information required by this item with respect to executive
compensation is incorporated by reference to pages 4 through 6 of the 1997 Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to
page 5 of the 1997 Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is incorporated by reference to
page 6 of the 1997 Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following financial statements are filed as part of this report:
Financial Statements
Consolidated Statement of Financial Condition at June 30, 1997, and
1996
Consolidated Statement of Income for the Fiscal Years ended June 30,
1997, 1996 and 1995
Consolidated Statement of Changes in Shareholders' Equity for the
Fiscal Years ended June 30, 1997, 1996 and 1995
Consolidated Statement of Cash Flows for the Fiscal Years ended June
30, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
(b) MCHI filed no reports on Form 8-K during the fourth quarter ended June 30,
1997.
(c) The exhibits filed herewith or incorporated by reference herein are set
forth on the Exhibit Index on page E-1.
(d) All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or
related notes.
<PAGE>
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant had duly caused this report to
be signed on behalf of the undersigned, thereto duly authorized.
MARION CAPITAL HOLDINGS, INC.
Date: September 22, 1997 /s/ John M. Dalton
---------------------------
John M. Dalton, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 22nd day of September,
1997.
/s/ John M. Dalton /s/ Steven L. Banks
- ---------------------------- -----------------------------
John M. Dalton Steven L. Banks, Director
President, Director
(Principal Executive Officer)
/s/ Larry G. Phillips /s/ W. Gordon Coryea
- ---------------------------- -----------------------------
Larry G. Phillips W. Gordon Coryea, Director
Senior Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer)
/s/ Jerry D. McVicker
-----------------------------
Jerry D. McVicker, Director
/s/ Jack O. Murrell
-----------------------------
Jack O. Murrell, Director
/s/ George L. Thomas
-----------------------------
George L. Thomas, Director
/s/ Jon R. Marler
-----------------------------
Jon R. Marler, Director
<PAGE>
EXHIBIT INDEX
Exhibit Index* Page
3(1) The Articles of Incorporation of the Registrant is
incorporated by reference to Exhibit 3(1) to the
Registration Statement on Form S-1 (Registration No.
33-55052).
3(2) The Code of By-Laws of the Registrant is incorporated by
reference to Exhibit 3(2) to Registration Statement on Form
S-I (Registration No. 33-55052).
10(1) Marion Capital Holdings, Inc. Stock Option Plan is
incorporated by reference to Exhibit A to the Registrants
definitive Proxy Statement in respect of its 1993 Annual
Shareholder meeting.
10(2) Recognition and Retention Plans and Trusts are incorporated
by reference to Exhibit B to the Registrants definitive
Proxy Statement in respect of its 1993 Annual Shareholder
meeting.
10(3) Director Deferred Compensation Agreement effective May 1,
1992, between the Bank and Merritt B. McVicker is
incorporated by reference to Exhibit 10(6) to the
Registration Statement on Form S-1 (Registration No.
33-55052). First Amendment to Director Deferred Compensation
Agreement of Merritt B. McVicker dated December 1, 1996 ____
10(4) Director Deferred Compensation Agreement effective May 1,
1992, between the Bank and John M. Dalton is incorporated by
reference to Exhibit 10(7) to the Registration Statement on
Form S-1 (Registration No. 33-55052). First Amendment to
Director Deferred Compensation Agreement of John M. Dalton
dated December 1, 1996. ____
10(5) Director Deferred Compensation Agreement effective May 1,
1992, between the Bank and Robert D. Burchard is
incorporated by reference to Exhibit 10(8) to the
Registration Statement on Form S-1 (Registration No.
33-55052). First Amendment to Director Deferred Compensation
Agreement of Robert D. Burchard dated December 1, 1996. ____
10(6) Director Deferred Compensation Agreement effective May 1,
1992, between the Bank and James O. Murrell is incorporated
by reference to Exhibit 10(9) to the Registration Statement
on Form S-1 (Registration No. 33-55052). First Amendment to
Director Deferred Compensation Agreement of James (Jack ) O.
Murrell dated December 1, 1996. ____
10(7) Director Deferred Compensation Agreement effective May 1,
1992, between the Bank and Gordon Coryea is incorporated by
reference to Exhibit 10(10) to the Registration Statement on
Form S-1 (Registration No. 33-55052). First Amendment to
Director Deferred Compensation Agreement of W. Gordon Coryea
dated December 1, 1996. ____
<PAGE>
Exhibit Index Page
10(8) Director Deferred Compensation Agreement effective May 1,
1992, between the Bank and George Thomas is
incorporated by reference to Exhibit 10(11) to the
Registration Statement on Form S-1 (Registration No.
33-55052). First Amendment to Director Deferred Compensation
Agreement of George L. Thomas dated December 1, 1996. ____
10(9) Director Deferred Compensation Agreement effective May 1,
1992, between the Bank and James Gartland is incorporated by
reference to Exhibit 10(12) to the Registration Statement on
Form S-1 (Registration No. 33-55052). First Amendment to
Deferred Compensation Agreement of James Gartland dated May
23, 1994 is incorporated by reference to Exhibit 10(9) to
the Annual Report on Form 10-K for fiscal year ended June
30, 1994.
10(10) Defered Compensation Agreement between the Bank and Gordon
Coryea dated April 30, 1988, as amended as of May 1, 1992,
is incorporated by reference to Exhibit 10(13) to the
Registration Statement on Form S-1 (Registration No.
33-55052).
10(11) Deferred Compensation Agreement between the Bank and Merritt
V. McVicker dated April 30, 1988, as amended as of May 1,
1992, is incorporated by reference to Exhibit 10(14) to the
Registration Statement on Form S-1 (Registration No.
33-55052).
10(12) Restated Executive Supplemental Retirement Agreement
effective December 1, 1996 between the Bank and John M.
Dalton. ____
10(13) Restated Executive Supplemental Retirement Agreement
effective December 1, 1996 between the Bank and Robert D.
Burchard. ____
10(14) Restated Executive Supplemental Retirement Agreement
effective December 1, 1996 between the Bank and Jackie
Noble. ____
10(15) Restated Executive Supplemental Retirement Agreement
effective December 1, 1996 between the Bank and Nora Kuntz. ____
10(16) Executive Supplemental Retirement Agreement effective
December 1, 1996 between the Bank and Larry G. Phillips. ____
10(17) Death Benefit Agreement between the Bank and Tim Canode
dated August 25, 1992, is incorporated by reference to
Exhibit 10(19) to the Registration Statement on Form S-1
(Registration No. 33-55052).
10(18) Death Benefit Agreement between the Bank and Steven L. Banks
dated December 1, 1996. ____
10(19) Excess Benefit Agreement dated as of Februry 28, 1996
between the Bank and John M. Dalton is incorporated by
reference to Exhibit 10(18) to the Annual Report on Form
10-K for the fiscal year ended June 30, 1996. First
Amendment to Excess Benefit Agreement of John M. Dalton
dated December 1, 1996. ____
<PAGE>
Exhibit Index Page
10(20) Excess Benefit Agreement dated as of Februry 28, 1996
between the Bank and Robert D. Burchard is incorporated by
reference to Exhibit 10(19) to the Annual Report on Form
10-K for the fiscal year ended June 30, 1996. First
Amendment to Excess Benefit Agreement of Robert D. Burchard
dated December 1, 1996. ____
10(21) Director Emeritus Agreement dated March 1, 1996 between the
Bank and W. Gordon Coryea and First Amendment to such
agreement dated December 1, 1996. ____
10(22) Director Emeritus Agreement dated March 1, 1996 between the
Bank and George L. Thomas and First Amendment to such
agreement dated December 1, 1996. ____
10(23) Director Emeritus Agreement dated March 1, 1996 between the
Bank and John M. Dalton and First Amendment to such
agreement dated December 1, 1996. ____
10(24) Director Emeritus Agreement dated March 1, 1996 between the
Bank and Jack O. Murrell and First Amendment to such
agreement dated December 1, 1996. ____
10(25) Contingent Executive Supplemental Retirement Income
Agreement between the Bank and Steven L. Banks dated
December 1, 1996. ____
10(26) Rabbi Trust for the Director Deferred Compensation Master
Agreement and Director Emeritus Plan dated December 1, 1996. ____
10(27) Rabbi Trust for the Executive Supplemental Retirement Income
Plans and Excess Benefit Plans dated December 1, 1996. ____
11 Statement regarding computation of per share earnings. ____
13 1997 Shareholder Annual Report. ____
21 Subsidiaries of the Registrant is incorporated by reference
to Exhibit 22 to the Registration Statement on Form S-1
(Registration No. 33-55052).
23 Consent of Auditors ____
27 Financial Data Schedule ____
- -------------------
* Management contracts and plans required to be filed as
exhibits are included as Exhibits 10(1)-10(27).
Exhibit 10(3)
FIRST AMENDMENT
TO THE
DIRECTOR DEFERRED COMPENSATION AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Director Deferred Compensation Agreement ("Agreement") dated May 1,
1992, between First Federal Savings Bank of Marion ("Bank") and Merritt
McVicker, as follows:
The following Section II is added to the Agreement with all subsequent Sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Director and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here above:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
Title President
Exhibit 10(4)
FIRST AMENDMENT
TO THE
DIRECTOR DEFERRED COMPENSATION AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Director Deferred Compensation Agreement ("Agreement") dated May 1,
1992, between First Federal Savings Bank of Marion ("Bank") and John M. Dalton,
as follows:
The following Section II is added to the Agreement with all subsequent Sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Director and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here above:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ Steven L. Banks
Title Executive Vice President
Exhibit 10(5)
FIRST AMENDMENT
TO THE
DIRECTOR DEFERRED COMPENSATION AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Director Deferred Compensation Agreement ("Agreement") dated May 1,
1992, between First Federal Savings Bank of Marion ("Bank") and Robert D.
Burchard, as follows:
The following Section II is added to the Agreement with all subsequent Sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Director and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here above:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
Title President
Exhibit 10(6)
FIRST AMENDMENT
TO THE
DIRECTOR DEFERRED COMPENSATION AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Director Deferred Compensation Agreement ("Agreement") dated May 1,
1992, between First Federal Savings Bank of Marion ("Bank") and Jack O. Murrell,
as follows:
The following Section II is added to the Agreement with all subsequent Sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Director and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here above:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
Title President
Exhibit 10(7)
FIRST AMENDMENT
TO THE
DIRECTOR DEFERRED COMPENSATION AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Director Deferred Compensation Agreement ("Agreement") dated May 1,
1992, between First Federal Savings Bank of Marion ("Bank") and W. Gordon
Coryea, as follows:
The following Section II is added to the Agreement with all subsequent Sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Director and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here above:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
Title President
Exhibit 10(8)
FIRST AMENDMENT
TO THE
DIRECTOR DEFERRED COMPENSATION AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Director Deferred Compensation Agreement ("Agreement") dated May 1,
1992, between First Federal Savings Bank of Marion ("Bank") and George L.
Thomas, as follows:
The following Section II is added to the Agreement with all subsequent Sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Director and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here above:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
Title President
RESTATED EXECUTIVE SUPPLEMENTAL
RETIREMENT AGREEMENT
BETWEEN
FIRST FEDERAL SAVINGS BANK OF MARION
AND
JOHN M. DALTON
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL
RETIREMENT INCOME AGREEMENT
This Executive Supplemental Retirement Income Master Agreement (the
"Agreement"), effective as of the 1st day of December 1996, formalizes the
understanding by and between FIRST FEDERAL SAVINGS BANK OF MARION (the "Bank"),
a federally chartered savings bank, and certain key employees, hereinafter
referred to as "Executive" or "Employee," who shall be approved, or who has
previously been approved, by the Bank to participate and who shall elect to
become a party to this Restated Executive Supplemental Retirement Income
Agreement. This agreement also amends and restates the previous "Deferred
Compensation Agreement" dated April 30, 1988, between the Executive and the
Bank. However, this agreement is not intended to amend or restate any Director
Deferred Compensation Agreement, Director Emeritus Agreement or Excess Benefit
Plan Agreement which may exist between the Executive and the Bank.
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Bank and is currently
employed in an executive capacity;
WHEREAS, the Bank desires to retain the valuable services and business
counsel of the Employee and to induce the Employee to remain in an executive
capacity with the Bank;
WHEREAS, the Employee is considered a highly compensated Employee or
member of a select management group of the Bank;
NOW, THEREFORE, the Bank promises to pay the benefits provided herein,
subject to the terms and conditions of this Agreement, in consideration for the
Employee's promise to remain in the continuous employment of the Bank until
retirement. The parties hereto agree that the following shall constitute the
terms of this Agreement.
SECTION 1. Definitions
For the purposes of this Agreement, whenever the context so indicates,
the singular or plural number and the masculine, feminine, or neuter gender
shall be deemed to include the other. The definitions below shall apply only to
this Agreement and shall not be construed as
<PAGE>
applying to a qualified employee benefit plan under Section 401(a) of the
Internal Revenue Code of 1954, as amended.
1.1 Beneficiary
Beneficiary shall mean the person or persons the Employee has
designated in writing to the Bank, if none, the Employee's Spouse,
Children, or Estate (in that order).
1.2 Deferred Compensation Benefit
Deferred Compensation Benefit shall mean the benefit provided to the
Employee at his Retirement Age, provided he has satisfied the
conditions and terms of this Agreement.
1.3 Discount Rate
The Discount Rate shall mean 7.89%.
1.4 Estate
Estate shall mean the estate of the Employee.
1.5 Retirement Age
Retirement Age shall mean age 65, or later if permitted by the Bank's
Board of Directors.
1.6 Spouse
Spouse shall mean the person to whom the Employee is legally married at
the time of the Employee's death.
SECTION 2. Establishment of Rabbi Trust
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the
<PAGE>
event of the Bank's "Insolvency" as defined in the rabbi trust agreement, until
the trust assets are paid to the Executive and his Beneficiary in such manner
and at such times as specified in this Agreement. Contribution(s) to the rabbi
trust shall be made in accordance with the rabbi trust agreement.
SECTION 3. Conditions
(a) Normal Employment: The payment of benefits under this
Agreement to the Employee or Beneficiary are conditioned upon
the continuous employment (including periods of disability and
authorized leaves of absence as described by this Agreement)
of the Employee to the Bank from date of execution of this
Agreement until attaining Retirement Age.
(b) Noncompetition: Payment of benefits is further conditioned
upon the Employee not acting in any similar employment
capacity for any business enterprise which competes to a
substantial degree with the Bank, nor engaging in any activity
involving substantial competition with the Bank during
employment or after retirement, while receiving benefits under
this Agreement without the prior written consent of the Bank.
In the event of violation of these provisions, all future
payments shall be canceled and discontinued.
SECTION 4. Deferred Compensation
(a) Retirement Benefit: At Retirement Age, if the Employee is
still covered by this Agreement, the Bank shall commence
payments as provided in this section. The Bank shall pay to
the Employee a monthly benefit which shall commence the first
day of the month next following the Employee's Retirement Date
and shall be payable monthly thereafter until 180 payments
have been made. The amount of such benefit will be determined
as of the Employee's date of retirement as follows:
Once the Employee reaches Retirement Age and has maintained
<PAGE>
continuous Years of Service with the Bank from the date of
execution of this Agreement to the Retirement Age (including
periods of disability and authorized leaves of absence as
described in this Agreement), he shall receive compensation at
the annualized rate of $90,000 per year. This compensation is
to be paid on a monthly basis as set forth above.
(b) Early Retirement Benefit: Employee shall have the right to
receive early retirement benefits, provided he shall have
attained the age of fifty-five (55) and remained in continuous
service from the date of execution of this Agreement. Approval
of the Board of Directors of the Bank is required as a
condition for receiving a reduced early retirement benefit.
Upon Employee's election to receive such benefit and obtaining
the requisite Board approval, the Employee shall be entitled
to receive the Accrued Benefit. The Accrued Benefit shall
represent that portion of the Deferred Compensation Benefit
which is required to be expensed and accrued under generally
accepted accounting principles by any appropriate methodology
which the Board of Directors may require in the exercise of
its sole discretion. Such Accrued Benefit shall be paid to
Employee in one hundred eighty (180) equal monthly
installments. The interest factor used to annuitize the
Accrued Benefit shall be the Discount Rate as defined in
Section 1.3. Payment of this early retirement benefit shall
commence on the first day of the month next following the
Employee's early retirement date.
(c) Termination: In the event the Employee is involuntarily
terminated for any reason other than willful misconduct prior
to reaching Retirement Age, then the Employee will immediately
become eligible to receive benefits set forth hereunder upon
reaching age fifty-five (55), that being annualized
compensation of $90,000 a year for a period of 15 years.
Payments are to be made monthly for a total of 180 payments.
<PAGE>
SECTION 5. Death Benefit
(a) In the event of the death of the Employee prior to retirement
and the conditions of Section 3 of this Agreement being
effective up to the time of death, the Beneficiary shall
receive 180 monthly payments which will represent an
annualized payment equal to his salary for his last actual
year of service before death per year beginning no later that
the latest of:
(i) January 1 of the year after the death of the
Employee, or
(ii) The first day of the third month after the death of
the Employee.
(b) In the event of the death of the Employee after retirement,
the Beneficiary shall receive the balance of the payments to
which the Employee would have been entitled had he survived.
The payments shall be made in the same manner and form as
provided for in Section 4.
SECTION 6. Disability Benefit
In case of disability, the Employee shall be entitled to receive the
benefit specified in Subsection 4(a), reduced by three per cent (3%) per year
for each year that the disability precedes Retirement Age, 65 years of age. Such
benefit shall be further reduced by any disability benefit payments received by
Employee from any policy whose premiums were paid by the Bank. Such payments
shall cease on the earliest occurrence of:
(i) reaching Normal Retirement Age, or
(ii) return to active employment, or
(iii) a determination by a Physician of the Bank's choice
that the Employee is no longer Disabled as defined by
Section 11(b) of this Agreement.
SECTION 7. Named Fiduciary and Claims Procedure
(a) The Bank is hereby designated as the named fiduciary under
this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this
Agreement, and it shall be responsible for establishing and
carrying out a funding policy and method consistent with the
objectives of this Agreement.
<PAGE>
(b) Any decision by the Bank denying a claim by the Employee or a
Beneficiary for benefits under this Agreement shall be in
writing and delivered or mailed to the Employee or
Beneficiary. Such statement shall set forth the specific
reasons for the denial. In addition the Bank shall afford a
reasonable opportunity to the Employee or Beneficiary for a
full and fair review of the decision denying such claim.
SECTION 8. Funding
This Bank's obligations under this Agreement shall be an unfunded and
unsecured promise to pay. The Bank shall not be obligated under any
circumstances to fund its obligations under this Agreement. The Bank may,
however, at its sole and exclusive option, elect to fund this Agreement in whole
or in part.
SECTION 9. Employee Right to Assets
The rights of the Employee or his Beneficiaries shall be solely those
of an unsecured general creditor of the Bank. The Employee or his Beneficiaries
shall only have the right to receive from the Bank those payments as specified
under this Agreement. The Employee agrees that neither he nor his Beneficiaries
shall have any 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, except as expressly provided, shall not be
deemed to be held under any Trust for the benefit of the Employee or his
Beneficiaries, 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.
SECTION 10. Acceleration of Payment
The Bank may at its option, accelerate the payment of any benefits
payable under this Agreement with the consent of the Employee or his
Beneficiaries. In the event it is agreed to accelerate these payments, the
present value of all future payments shall be paid to the Employee
<PAGE>
or his Beneficiaries. The Discount Rate set forth in Section 1.3 shall be used
in discounting any payments as determined by the Bank.
SECTION 11. Leaves of Absence and Disability
(a) The Bank may, in its sole discretion, permit the Employee to
take a leave of absence for a period not to exceed one year.
During such leave, the Employee shall be considered to be in
the continuous employment of the Bank for the purposes of this
Agreement.
(b) For the purposes of this Agreement, disabled shall mean a
physical or mental condition of the Employee resulting from
bodily injury, disease, or mental disorder which renders him
incapable of continuing his usual and customary employment
with the Bank. The status of disability of the Employee shall
be determined by an independent licensed physician chosen by
the Bank. During such disability, the Employee shall be
considered to be in the continuous employment of the Bank for
the purposes of the Deferred Compensation Benefit at Normal
Retirement and shall be entitled to Disability Benefits under
Section 6 of this Agreement.
SECTION 12. Assignability
Except insofar as this provision may be contrary to applicable law, no
sale, transfer, alienation, or assignment, pledge, collateralization,
or attachment of any benefits under this Agreement shall be valid or
recognized by the Bank.
SECTION 13. Amendment
This Agreement shall be amended only by the mutual written Agreement of
both parties.
SECTION 14. Enforcement
This Agreement shall be governed by the laws of the State of Indiana.
This Agreement is solely between the Bank and the Employee. Furthermore, the
Employee or his Beneficiaries
<PAGE>
shall only have recourse against the Bank for enforcement of the Agreement.
However, it shall be binding upon the Beneficiaries, heirs, executors, and
administrators of the Employee, and upon any and all successors and assigns of
the Bank.
SECTION 15. Severability
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 (1) insofar as is reasonable, effect will be given to the
intent manifested in the provisions held invalid or inoperative and (2) the
validity and enforceability of the remaining provisions will not be affected
thereby.
SECTION 16. Payments to Beneficiaries
For the purposes of this Agreement, Beneficiaries shall mean the person
or persons designated by the Employee in writing on forms furnished by the Bank.
Such Employee may then from time to time change the designated Beneficiaries by
written notice to the Bank, and upon such change the rights of all previously
designated Beneficiaries to receive any benefits under this Agreement shall
cease. If, at the date of death of the Employee, no properly designated
Beneficiary exists, then for the purposes of this Agreement, the legally
recognized Spouse of the Employee living at his death, shall be the Beneficiary;
if none, then the Children, natural and adopted, then living of the Employee; if
none, then the Employee's Estate.
SECTION 17. Incompetency
If the Bank shall find that any person to whom any payment is payable
under this Agreement is unable to care for their affairs due to illness or
accident, or is a minor, any payment due (unless a prior claim therefore 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
to any person deemed by the Bank to have incurred expense for such person
otherwise entitled to payment, in such manner and proportions as the Bank may
determine. Any such payments made under this Section in good faith shall be a
complete discharge of the liabilities of the Bank under this Agreement.
<PAGE>
SECTION 18. Right of Employment
Nothing contained in this Agreement shall be construed to be a contract
of employment for any term of years, nor as conferring upon the Employee the
right to continue in the employment of the Bank in the employee's present
capacity, or in any other capacity. It is expressly understood by the parties
hereto that this Agreement relates exclusively to additional compensation for
the Employee's services, which compensation is payable after the end of active
employment service and is not intended to be an employment contract.
SECTION 19. Execution
IN WITNESS WHEREOF, the parties have, caused this Agreement to be
executed this _____ day of _______________, _____.
/s/ John Dalton
John M. Dalton - Executive
FIRST FEDERAL SAVINGS BANK OF MARION
By /s/ Steven L. Banks
Title
RESTATED EXECUTIVE SUPPLEMENTAL
RETIREMENT AGREEMENT
BETWEEN
FIRST FEDERAL SAVINGS BANK OF MARION
AND
ROBERT D. BURCHARD
-1-
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL
RETIREMENT INCOME AGREEMENT
This Executive Supplemental Retirement Income Master Agreement (the
"Agreement"), effective as of the 1st day of December 1996, formalizes the
understanding by and between FIRST FEDERAL SAVINGS BANK OF MARION (the "Bank"),
a federally chartered savings bank, and certain key employees, hereinafter
referred to as "Executive" or "Employee," who shall be approved, or who has
previously been approved, by the Bank to participate and who shall elect to
become a party to this Restated Executive Supplemental Retirement Income
Agreement. This agreement also amends and restates the previous "Deferred
Compensation Agreement" dated April 30, 1988, between the Executive and the
Bank. However, this agreement is not intended to amend or restate any Director
Deferred Compensation Agreement, Director Emeritus Agreement or Excess Benefit
Plan Agreement which may exist between the Executive and the Bank.
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Bank and is currently
employed in an executive capacity;
WHEREAS, the Bank desires to retain the valuable services and business
counsel of the Employee and to induce the Employee to remain in an executive
capacity with the Bank;
WHEREAS, the Employee is considered a highly compensated Employee or
member of a select management group of the Bank;
NOW, THEREFORE, the Bank promises to pay the benefits provided herein,
subject to the terms and conditions of this Agreement, in consideration for the
Employee's promise to remain in the continuous employment of the Bank until
retirement. The parties hereto agree that the following shall constitute the
terms of this Agreement.
SECTION 1. Definitions
For the purposes of this Agreement, whenever the context so indicates,
the singular or plural number and the masculine, feminine, or neuter gender
shall be deemed to include the other. The definitions below shall apply only to
this Agreement and shall not be construed as applying to a
-1-
<PAGE>
qualified employee benefit plan under Section 401(a) of the Internal Revenue
Code of 1954, as amended.
1.1 Beneficiary
Beneficiary shall mean the person or persons the Employee has
designated in writing to the Bank, if none, the Employee's Spouse,
Children, or Estate (in that order).
1.2 Deferred Compensation Benefit
Deferred Compensation Benefit shall mean the benefit provided to the
Employee at his Retirement Age, provided he has satisfied the
conditions and terms of this Agreement.
1.3 Discount Rate
The Discount Rate shall mean 7.89%.
1.4 Estate
Estate shall mean the estate of the Employee.
1.5 Retirement Age
Retirement Age shall mean age 65, or later if permitted by the Bank's
Board of Directors.
1.6 Spouse
Spouse shall mean the person to whom the Employee is legally married at
the time of the Employee's death.
SECTION 2. Establishment of Rabbi Trust
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement.
-2-
<PAGE>
The trust assets shall be subject to the claims of the Bank's creditors in the
event of the Bank's "Insolvency" as defined in the rabbi trust agreement, until
the trust assets are paid to the Executive and his Beneficiary in such manner
and at such times as specified in this Agreement. Contribution(s) to the rabbi
trust shall be made in accordance with the rabbi trust agreement.
SECTION 3. Conditions
(a) Normal Employment: The payment of benefits under this
Agreement to the Employee or Beneficiary are conditioned upon
the continuous employment (including periods of disability and
authorized leaves of absence as described by this Agreement)
of the Employee to the Bank from date of execution of this
Agreement until attaining Retirement Age.
(b) Noncompetition: Payment of benefits is further conditioned
upon the Employee not acting in any similar employment
capacity for any business enterprise which competes to a
substantial degree with the Bank, nor engaging in any activity
involving substantial competition with the Bank during
employment or after retirement, while receiving benefits under
this Agreement without the prior written consent of the Bank.
In the event of violation of these provisions, all future
payments shall be canceled and discontinued.
SECTION 4. Deferred Compensation
(a) Retirement Benefit: At Retirement Age, if the Employee is
still covered by this Agreement, the Bank shall commence
payments as provided in this section. The Bank shall pay to
the Employee a monthly benefit which shall commence the first
day of the month next following the Employee's Retirement Date
and shall be payable monthly thereafter until 180 payments
have been made. The amount of such benefit will be determined
as of the Employee's date of retirement as follows:
-3-
<PAGE>
Once the Employee reaches Retirement Age and has maintained
continuous Years of Service with the Bank from the date of
execution of this Agreement to the Retirement Age (including
periods of disability and authorized leaves of absence as
described in this Agreement), he shall receive compensation at
the annualized rate of $90,000 per year. This compensation is
to be paid on a monthly basis as set forth above.
(b) Early Retirement Benefit: Employee shall have the right to
receive early retirement benefits, provided he shall have
attained the age of fifty-five (55) and remained in continuous
service from the date of execution of this Agreement. Approval
of the Board of Directors of the Bank is required as a
condition for receiving a reduced early retirement benefit.
Upon Employee's election to receive such benefit and obtaining
the requisite Board approval, the Employee shall be entitled
to receive the Accrued Benefit. The Accrued Benefit shall
represent that portion of the Deferred Compensation Benefit
which is required to be expensed and accrued under generally
accepted accounting principles by any appropriate methodology
which the Board of Directors may require in the exercise of
its sole discretion. Such Accrued Benefit shall be paid to
Employee in one hundred eighty (180) equal monthly
installments. The interest factor used to annuitize the
Accrued Benefit shall be the Discount Rate as defined in
Section 1.3. Payment of this early retirement benefit shall
commence on the first day of the month next following the
Employee's early retirement date.
(c) Termination: In the event the Employee is involuntarily
terminated for any reason other than willful misconduct prior
to reaching Retirement Age, then the Employee will immediately
become eligible to receive benefits set forth hereunder upon
reaching age fifty-five (55), that being annualized
compensation of $90,000 a year for a period of 15 years.
Payments are to be made monthly for a total of 180 payments.
-4-
<PAGE>
SECTION 5. Death Benefit
(a) In the event of the death of the Employee prior to retirement
and the conditions of Section 3 of this Agreement being
effective up to the time of death, the Beneficiary shall
receive 180 monthly payments which will represent an
annualized payment equal to his salary for his last actual
year of service before death per year beginning no later that
the latest of: (i) January 1 of the year after the death of
the Employee, or (ii) The first day of the third month after
the death of the Employee.
(b) In the event of the death of the Employee after retirement,
the Beneficiary shall receive the balance of the payments to
which the Employee would have been entitled had he survived.
The payments shall be made in the same manner and form as
provided for in Section 4.
SECTION 6. Disability Benefit
In case of disability, the Employee shall be entitled to receive the
benefit specified in Subsection 4(a), reduced by three per cent (3%) per year
for each year that the disability precedes Retirement Age, 65 years of age. Such
benefit shall be further reduced by any disability benefit payments received by
Employee from any policy whose premiums were paid by the Bank. Such payments
shall cease on the earliest occurrence of:
(i) reaching Normal Retirement Age, or
(ii) return to active employment, or
(iii) a determination by a Physician of the Bank's choice
that the Employee is no longer Disabled as defined by
Section 11(b) of this Agreement.
SECTION 7. Named Fiduciary and Claims Procedure
(a) The Bank is hereby designated as the named fiduciary under
this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this
Agreement, and it shall be responsible for establishing and
-5-
<PAGE>
carrying out a funding policy and method consistent with the
objectives of this Agreement.
(b) Any decision by the Bank denying a claim by the Employee or a
Beneficiary for benefits under this Agreement shall be in
writing and delivered or mailed to the Employee or
Beneficiary. Such statement shall set forth the specific
reasons for the denial. In addition the Bank shall afford a
reasonable opportunity to the Employee or Beneficiary for a
full and fair review of the decision denying such claim.
SECTION 8. Funding
This Bank's obligations under this Agreement shall be an unfunded and
unsecured promise to pay. The Bank shall not be obligated under any
circumstances to fund its obligations under this Agreement. The Bank may,
however, at its sole and exclusive option, elect to fund this Agreement in whole
or in part.
SECTION 9. Employee Right to Assets
The rights of the Employee or his Beneficiaries shall be solely those
of an unsecured general creditor of the Bank. The Employee or his Beneficiaries
shall only have the right to receive from the Bank those payments as specified
under this Agreement. The Employee agrees that neither he nor his Beneficiaries
shall have any 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, except as expressly provided, shall not be
deemed to be held under any Trust for the benefit of the Employee or his
Beneficiaries, 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.
SECTION 10. Acceleration of Payment
The Bank may at its option, accelerate the payment of any benefits
payable under this Agreement with the consent of the Employee or his
Beneficiaries. In the event it is agreed to
-6-
<PAGE>
accelerate these payments, the present value of all future payments shall be
paid to the Employee or his Beneficiaries. The Discount Rate set forth in
Section 1.3 shall be used in discounting any payments as determined by the Bank.
SECTION 11. Leaves of Absence and Disability
(a) The Bank may, in its sole discretion, permit the Employee to
take a leave of absence for a period not to exceed one year.
During such leave, the Employee shall be considered to be in
the continuous employment of the Bank for the purposes of this
Agreement.
(b) For the purposes of this Agreement, disabled shall mean a
physical or mental condition of the Employee resulting from
bodily injury, disease, or mental disorder which renders him
incapable of continuing his usual and customary employment
with the Bank. The status of disability of the Employee shall
be determined by an independent licensed physician chosen by
the Bank. During such disability, the Employee shall be
considered to be in the continuous employment of the Bank for
the purposes of the Deferred Compensation Benefit at Normal
Retirement and shall be entitled to Disability Benefits under
Section 6 of this Agreement.
SECTION 12. Assignability
Except insofar as this provision may be contrary to applicable law, no
sale, transfer, alienation, or assignment, pledge, collateralization,
or attachment of any benefits under this Agreement shall be valid or
recognized by the Bank.
SECTION 13. Amendment
This Agreement shall be amended only by the mutual written Agreement of
both parties.
-7-
<PAGE>
SECTION 14. Enforcement
This Agreement shall be governed by the laws of the State of Indiana.
This Agreement is solely between the Bank and the Employee. Furthermore, the
Employee or his Beneficiaries shall only have recourse against the Bank for
enforcement of the Agreement. However, it shall be binding upon the
Beneficiaries, heirs, executors, and administrators of the Employee, and upon
any and all successors and assigns of the Bank.
SECTION 15. Severability
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 (1) insofar as is reasonable, effect will be given to the
intent manifested in the provisions held invalid or inoperative and (2) the
validity and enforceability of the remaining provisions will not be affected
thereby.
SECTION 16. Payments to Beneficiaries
For the purposes of this Agreement, Beneficiaries shall mean the person
or persons designated by the Employee in writing on forms furnished by the Bank.
Such Employee may then from time to time change the designated Beneficiaries by
written notice to the Bank, and upon such change the rights of all previously
designated Beneficiaries to receive any benefits under this Agreement shall
cease. If, at the date of death of the Employee, no properly designated
Beneficiary exists, then for the purposes of this Agreement, the legally
recognized Spouse of the Employee living at his death, shall be the Beneficiary;
if none, then the Children, natural and adopted, then living of the Employee; if
none, then the Employee's Estate.
SECTION 17. Incompetency
If the Bank shall find that any person to whom any payment is payable
under this Agreement is unable to care for their affairs due to illness or
accident, or is a minor, any payment due (unless a prior claim therefore 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
to any person deemed by the Bank to
-8-
<PAGE>
have incurred expense for such person otherwise entitled to payment, in such
manner and proportions as the Bank may determine. Any such payments made under
this Section in good faith shall be a complete discharge of the liabilities of
the Bank under this Agreement.
SECTION 18. Right of Employment
Nothing contained in this Agreement shall be construed to be a contract
of employment for any term of years, nor as conferring upon the Employee the
right to continue in the employment of the Bank in the employee's present
capacity, or in any other capacity. It is expressly understood by the parties
hereto that this Agreement relates exclusively to additional compensation for
the Employee's services, which compensation is payable after the end of active
employment service and is not intended to be an employment contract.
SECTION 19. Execution
IN WITNESS WHEREOF, the parties have, caused this Agreement to be
executed this 20th day of March, 1997.
/s/ Robert D. Burchard
Robert D. Burchard - Executive
FIRST FEDERAL SAVINGS BANK OF MARION
By /s/ John Dalton
Title President
-9-
RESTATED EXECUTIVE SUPPLEMENTAL
RETIREMENT AGREEMENT
BETWEEN
FIRST FEDERAL SAVINGS BANK OF MARION
AND
JACKIE NOBLE
-1-
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL
RETIREMENT INCOME AGREEMENT
This Executive Supplemental Retirement Income Master Agreement (the
"Agreement"), effective as of the 1st day of December 1996, formalizes the
understanding by and between FIRST FEDERAL SAVINGS BANK OF MARION (the "Bank"),
a federally chartered savings bank, and certain key employees, hereinafter
referred to as "Executive" or "Employee," who shall be approved, or who has
previously been approved, by the Bank to participate and who shall elect to
become a party to this Restated Executive Supplemental Retirement Income
Agreement. This agreement also amends and restates the previous "Deferred
Compensation Agreement" dated April 30, 1988, between the Executive and the
Bank. However, this agreement is not intended to amend or restate any Director
Deferred Compensation Agreement, Director Emeritus Agreement or Excess Benefit
Plan Agreement which may exist between the Executive and the Bank.
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Bank and is currently
employed in an executive capacity;
WHEREAS, the Bank desires to retain the valuable services and business
counsel of the Employee and to induce the Employee to remain in an executive
capacity with the Bank;
WHEREAS, the Employee is considered a highly compensated Employee or
member of a select management group of the Bank;
NOW, THEREFORE, the Bank promises to pay the benefits provided herein,
subject to the terms and conditions of this Agreement, in consideration for the
Employee's promise to remain in the continuous employment of the Bank until
retirement. The parties hereto agree that the following shall constitute the
terms of this Agreement.
SECTION 1. Definitions
For the purposes of this Agreement, whenever the context so indicates,
the singular or plural number and the masculine, feminine, or neuter gender
shall be deemed to include the other. The definitions below shall apply only to
this Agreement and shall not be construed as applying to a
-1-
<PAGE>
qualified employee benefit plan under Section 401(a) of the Internal Revenue
Code of 1954, as amended.
1.1 Beneficiary
Beneficiary shall mean the person or persons the Employee has
designated in writing to the Bank, if none, the Employee's Spouse,
Children, or Estate (in that order).
1.2 Deferred Compensation Benefit
Deferred Compensation Benefit shall mean the benefit provided to the
Employee at his Retirement Age, provided he has satisfied the
conditions and terms of this Agreement.
1.3 Discount Rate
The Discount Rate shall mean 7.89%.
1.4 Estate
Estate shall mean the estate of the Employee.
1.5 Retirement Age
Retirement Age shall mean age 65, or later if permitted by the Bank's
Board of Directors.
1.6 Spouse
Spouse shall mean the person to whom the Employee is legally married at
the time of the Employee's death.
SECTION 2. Establishment of Rabbi Trust
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement.
-2-
<PAGE>
The trust assets shall be subject to the claims of the Bank's creditors in the
event of the Bank's "Insolvency" as defined in the rabbi trust agreement, until
the trust assets are paid to the Executive and his Beneficiary in such manner
and at such times as specified in this Agreement. Contribution(s) to the rabbi
trust shall be made in accordance with the rabbi trust agreement.
SECTION 3. Conditions
(a) Normal Employment: The payment of benefits under this
Agreement to the Employee or Beneficiary are conditioned upon
the continuous employment (including periods of disability and
authorized leaves of absence as described by this Agreement)
of the Employee to the Bank from date of execution of this
Agreement until attaining Retirement Age.
(b) Noncompetition: Payment of benefits is further conditioned
upon the Employee not acting in any similar employment
capacity for any business enterprise which competes to a
substantial degree with the Bank, nor engaging in any activity
involving substantial competition with the Bank during
employment or after retirement, while receiving benefits under
this Agreement without the prior written consent of the Bank.
In the event of violation of these provisions, all future
payments shall be canceled and discontinued.
SECTION 4. Deferred Compensation
(a) Retirement Benefit: At Retirement Age, if the Employee is
still covered by this Agreement, the Bank shall commence
payments as provided in this section. The Bank shall pay to
the Employee a monthly benefit which shall commence the first
day of the month next following the Employee's Retirement Date
and shall be payable monthly thereafter until 180 payments
have been made. The amount of such benefit will be determined
as of the Employee's date of retirement as follows:
-3-
<PAGE>
Once the Employee reaches Retirement Age and has maintained
continuous Years of Service with the Bank from the date of
execution of this Agreement to the Retirement Age (including
periods of disability and authorized leaves of absence as
described in this Agreement), he shall receive compensation at
the annualized rate of $90,000 per year. This compensation is
to be paid on a monthly basis as set forth above.
(b) Early Retirement Benefit: Employee shall have the right to
receive early retirement benefits, provided he shall have
attained the age of fifty-five (55) and remained in continuous
service from the date of execution of this Agreement. Approval
of the Board of Directors of the Bank is required as a
condition for receiving a reduced early retirement benefit.
Upon Employee's election to receive such benefit and obtaining
the requisite Board approval, the Employee shall be entitled
to receive the Accrued Benefit. The Accrued Benefit shall
represent that portion of the Deferred Compensation Benefit
which is required to be expensed and accrued under generally
accepted accounting principles by any appropriate methodology
which the Board of Directors may require in the exercise of
its sole discretion. Such Accrued Benefit shall be paid to
Employee in one hundred eighty (180) equal monthly
installments. The interest factor used to annuitize the
Accrued Benefit shall be the Discount Rate as defined in
Section 1.3. Payment of this early retirement benefit shall
commence on the first day of the month next following the
Employee's early retirement date.
(c) Termination: In the event the Employee is involuntarily
terminated for any reason other than willful misconduct prior
to reaching Retirement Age, then the Employee will immediately
become eligible to receive benefits set forth hereunder upon
reaching age fifty-five (55), that being annualized
compensation of $90,000 a year for a period of 15 years.
Payments are to be made monthly for a total of 180 payments.
-4-
<PAGE>
SECTION 5. Death Benefit
(a) In the event of the death of the Employee prior to retirement
and the conditions of Section 3 of this Agreement being
effective up to the time of death, the Beneficiary shall
receive 180 monthly payments which will represent an
annualized payment equal to his salary for his last actual
year of service before death per year beginning no later that
the latest of: (i) January 1 of the year after the death of
the Employee, or (ii) The first day of the third month after
the death of the Employee.
(b) In the event of the death of the Employee after retirement,
the Beneficiary shall receive the balance of the payments to
which the Employee would have been entitled had he survived.
The payments shall be made in the same manner and form as
provided for in Section 4.
SECTION 6. Disability Benefit
In case of disability, the Employee shall be entitled to receive the
benefit specified in Subsection 4(a), reduced by three per cent (3%) per year
for each year that the disability precedes Retirement Age, 65 years of age. Such
benefit shall be further reduced by any disability benefit payments received by
Employee from any policy whose premiums were paid by the Bank. Such payments
shall cease on the earliest occurrence of:
(i) reaching Normal Retirement Age, or
(ii) return to active employment, or
(iii) a determination by a Physician of the Bank's choice
that the Employee is no longer Disabled as defined by
Section 11(b) of this Agreement.
SECTION 7. Named Fiduciary and Claims Procedure
(a) The Bank is hereby designated as the named fiduciary under
this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this
Agreement, and it shall be responsible for establishing and
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<PAGE>
carrying out a funding policy and method consistent with the
objectives of this Agreement.
(b) Any decision by the Bank denying a claim by the Employee or a
Beneficiary for benefits under this Agreement shall be in
writing and delivered or mailed to the Employee or
Beneficiary. Such statement shall set forth the specific
reasons for the denial. In addition the Bank shall afford a
reasonable opportunity to the Employee or Beneficiary for a
full and fair review of the decision denying such claim.
SECTION 8. Funding
This Bank's obligations under this Agreement shall be an unfunded and
unsecured promise to pay. The Bank shall not be obligated under any
circumstances to fund its obligations under this Agreement. The Bank may,
however, at its sole and exclusive option, elect to fund this Agreement in whole
or in part.
SECTION 9. Employee Right to Assets
The rights of the Employee or his Beneficiaries shall be solely those
of an unsecured general creditor of the Bank. The Employee or his Beneficiaries
shall only have the right to receive from the Bank those payments as specified
under this Agreement. The Employee agrees that neither he nor his Beneficiaries
shall have any 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, except as expressly provided, shall not be
deemed to be held under any Trust for the benefit of the Employee or his
Beneficiaries, 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.
SECTION 10. Acceleration of Payment
The Bank may at its option, accelerate the payment of any benefits
payable under this Agreement with the consent of the Employee or his
Beneficiaries. In the event it is agreed to
-6-
<PAGE>
accelerate these payments, the present value of all future payments shall be
paid to the Employee or his Beneficiaries. The Discount Rate set forth in
Section 1.3 shall be used in discounting any payments as determined by the Bank.
SECTION 11. Leaves of Absence and Disability
(a) The Bank may, in its sole discretion, permit the Employee to
take a leave of absence for a period not to exceed one year.
During such leave, the Employee shall be considered to be in
the continuous employment of the Bank for the purposes of this
Agreement.
(b) For the purposes of this Agreement, disabled shall mean a
physical or mental condition of the Employee resulting from
bodily injury, disease, or mental disorder which renders him
incapable of continuing his usual and customary employment
with the Bank. The status of disability of the Employee shall
be determined by an independent licensed physician chosen by
the Bank. During such disability, the Employee shall be
considered to be in the continuous employment of the Bank for
the purposes of the Deferred Compensation Benefit at Normal
Retirement and shall be entitled to Disability Benefits under
Section 6 of this Agreement.
SECTION 12. Assignability
Except insofar as this provision may be contrary to applicable law, no
sale, transfer, alienation, or assignment, pledge, collateralization,
or attachment of any benefits under this Agreement shall be valid or
recognized by the Bank.
SECTION 13. Amendment
This Agreement shall be amended only by the mutual written Agreement of
both parties.
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<PAGE>
SECTION 14. Enforcement
This Agreement shall be governed by the laws of the State of Indiana.
This Agreement is solely between the Bank and the Employee. Furthermore, the
Employee or his Beneficiaries shall only have recourse against the Bank for
enforcement of the Agreement. However, it shall be binding upon the
Beneficiaries, heirs, executors, and administrators of the Employee, and upon
any and all successors and assigns of the Bank.
SECTION 15. Severability
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 (1) insofar as is reasonable, effect will be given to the
intent manifested in the provisions held invalid or inoperative and (2) the
validity and enforceability of the remaining provisions will not be affected
thereby.
SECTION 16. Payments to Beneficiaries
For the purposes of this Agreement, Beneficiaries shall mean the person
or persons designated by the Employee in writing on forms furnished by the Bank.
Such Employee may then from time to time change the designated Beneficiaries by
written notice to the Bank, and upon such change the rights of all previously
designated Beneficiaries to receive any benefits under this Agreement shall
cease. If, at the date of death of the Employee, no properly designated
Beneficiary exists, then for the purposes of this Agreement, the legally
recognized Spouse of the Employee living at his death, shall be the Beneficiary;
if none, then the Children, natural and adopted, then living of the Employee; if
none, then the Employee's Estate.
SECTION 17. Incompetency
If the Bank shall find that any person to whom any payment is payable
under this Agreement is unable to care for their affairs due to illness or
accident, or is a minor, any payment due (unless a prior claim therefore 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
to any person deemed by the Bank to
-8-
<PAGE>
have incurred expense for such person otherwise entitled to payment, in such
manner and proportions as the Bank may determine. Any such payments made under
this Section in good faith shall be a complete discharge of the liabilities of
the Bank under this Agreement.
SECTION 18. Right of Employment
Nothing contained in this Agreement shall be construed to be a contract
of employment for any term of years, nor as conferring upon the Employee the
right to continue in the employment of the Bank in the employee's present
capacity, or in any other capacity. It is expressly understood by the parties
hereto that this Agreement relates exclusively to additional compensation for
the Employee's services, which compensation is payable after the end of active
employment service and is not intended to be an employment contract.
SECTION 19. Execution
IN WITNESS WHEREOF, the parties have, caused this Agreement to be
executed this 18th day of March, 1997.
/s/ Jackie Noble
Jackie Noble - Executive
FIRST FEDERAL SAVINGS BANK OF MARION
By /s/ John Dalton
Title
-9-
RESTATED EXECUTIVE SUPPLEMENTAL
RETIREMENT AGREEMENT
BETWEEN
FIRST FEDERAL SAVINGS BANK OF MARION
AND
NORA KUNTZ
-1-
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL
RETIREMENT INCOME AGREEMENT
This Executive Supplemental Retirement Income Master Agreement (the
"Agreement"), effective as of the 1st day of December 1996, formalizes the
understanding by and between FIRST FEDERAL SAVINGS BANK OF MARION (the "Bank"),
a federally chartered savings bank, and certain key employees, hereinafter
referred to as "Executive" or "Employee," who shall be approved, or who has
previously been approved, by the Bank to participate and who shall elect to
become a party to this Restated Executive Supplemental Retirement Income
Agreement. This agreement also amends and restates the previous "Deferred
Compensation Agreement" dated April 30, 1988, between the Executive and the
Bank. However, this agreement is not intended to amend or restate any Director
Deferred Compensation Agreement, Director Emeritus Agreement or Excess Benefit
Plan Agreement which may exist between the Executive and the Bank.
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Bank and is currently
employed in an executive capacity;
WHEREAS, the Bank desires to retain the valuable services and business
counsel of the Employee and to induce the Employee to remain in an executive
capacity with the Bank;
WHEREAS, the Employee is considered a highly compensated Employee or
member of a select management group of the Bank;
NOW, THEREFORE, the Bank promises to pay the benefits provided herein,
subject to the terms and conditions of this Agreement, in consideration for the
Employee's promise to remain in the continuous employment of the Bank until
retirement. The parties hereto agree that the following shall constitute the
terms of this Agreement.
SECTION 1. Definitions
For the purposes of this Agreement, whenever the context so indicates,
the singular or plural number and the masculine, feminine, or neuter gender
shall be deemed to include the other. The definitions below shall apply only to
this Agreement and shall not be construed as applying to a
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<PAGE>
qualified employee benefit plan under Section 401(a) of the Internal Revenue
Code of 1954, as amended.
1.1 Beneficiary
Beneficiary shall mean the person or persons the Employee has
designated in writing to the Bank, if none, the Employee's Spouse,
Children, or Estate (in that order).
1.2 Deferred Compensation Benefit
Deferred Compensation Benefit shall mean the benefit provided to the
Employee at his Retirement Age, provided he has satisfied the
conditions and terms of this Agreement.
1.3 Discount Rate
The Discount Rate shall mean 7.89%.
1.4 Estate
Estate shall mean the estate of the Employee.
1.5 Retirement Age
Retirement Age shall mean age 65, or later if permitted by the Bank's
Board of Directors.
1.6 Spouse
Spouse shall mean the person to whom the Employee is legally married at
the time of the Employee's death.
SECTION 2. Establishment of Rabbi Trust
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement.
-2-
<PAGE>
The trust assets shall be subject to the claims of the Bank's creditors in the
event of the Bank's "Insolvency" as defined in the rabbi trust agreement, until
the trust assets are paid to the Executive and his Beneficiary in such manner
and at such times as specified in this Agreement. Contribution(s) to the rabbi
trust shall be made in accordance with the rabbi trust agreement.
SECTION 3. Conditions
(a) Normal Employment: The payment of benefits under this
Agreement to the Employee or Beneficiary are conditioned upon
the continuous employment (including periods of disability and
authorized leaves of absence as described by this Agreement)
of the Employee to the Bank from date of execution of this
Agreement until attaining Retirement Age.
(b) Noncompetition: Payment of benefits is further conditioned
upon the Employee not acting in any similar employment
capacity for any business enterprise which competes to a
substantial degree with the Bank, nor engaging in any activity
involving substantial competition with the Bank during
employment or after retirement, while receiving benefits under
this Agreement without the prior written consent of the Bank.
In the event of violation of these provisions, all future
payments shall be canceled and discontinued.
SECTION 4. Deferred Compensation
(a) Retirement Benefit: At Retirement Age, if the Employee is
still covered by this Agreement, the Bank shall commence
payments as provided in this section. The Bank shall pay to
the Employee a monthly benefit which shall commence the first
day of the month next following the Employee's Retirement Date
and shall be payable monthly thereafter until 180 payments
have been made. The amount of such benefit will be determined
as of the Employee's date of retirement as follows:
-3-
<PAGE>
Once the Employee reaches Retirement Age and has maintained
continuous Years of Service with the Bank from the date of
execution of this Agreement to the Retirement Age (including
periods of disability and authorized leaves of absence as
described in this Agreement), he shall receive compensation at
the annualized rate of $90,000 per year. This compensation is
to be paid on a monthly basis as set forth above.
(b) Early Retirement Benefit: Employee shall have the right to
receive early retirement benefits, provided he shall have
attained the age of fifty-five (55) and remained in continuous
service from the date of execution of this Agreement. Approval
of the Board of Directors of the Bank is required as a
condition for receiving a reduced early retirement benefit.
Upon Employee's election to receive such benefit and obtaining
the requisite Board approval, the Employee shall be entitled
to receive the Accrued Benefit. The Accrued Benefit shall
represent that portion of the Deferred Compensation Benefit
which is required to be expensed and accrued under generally
accepted accounting principles by any appropriate methodology
which the Board of Directors may require in the exercise of
its sole discretion. Such Accrued Benefit shall be paid to
Employee in one hundred eighty (180) equal monthly
installments. The interest factor used to annuitize the
Accrued Benefit shall be the Discount Rate as defined in
Section 1.3. Payment of this early retirement benefit shall
commence on the first day of the month next following the
Employee's early retirement date.
(c) Termination: In the event the Employee is involuntarily
terminated for any reason other than willful misconduct prior
to reaching Retirement Age, then the Employee will immediately
become eligible to receive benefits set forth hereunder upon
reaching age fifty-five (55), that being annualized
compensation of $90,000 a year for a period of 15 years.
Payments are to be made monthly for a total of 180 payments.
-4-
<PAGE>
SECTION 5. Death Benefit
(a) In the event of the death of the Employee prior to retirement
and the conditions of Section 3 of this Agreement being
effective up to the time of death, the Beneficiary shall
receive 180 monthly payments which will represent an
annualized payment equal to his salary for his last actual
year of service before death per year beginning no later that
the latest of: (i) January 1 of the year after the death of
the Employee, or (ii) The first day of the third month after
the death of the Employee.
(b) In the event of the death of the Employee after retirement,
the Beneficiary shall receive the balance of the payments to
which the Employee would have been entitled had he survived.
The payments shall be made in the same manner and form as
provided for in Section 4.
SECTION 6. Disability Benefit
In case of disability, the Employee shall be entitled to receive the
benefit specified in Subsection 4(a), reduced by three per cent (3%) per year
for each year that the disability precedes Retirement Age, 65 years of age. Such
benefit shall be further reduced by any disability benefit payments received by
Employee from any policy whose premiums were paid by the Bank. Such payments
shall cease on the earliest occurrence of:
(i) reaching Normal Retirement Age, or
(ii) return to active employment, or
(iii) a determination by a Physician of the Bank's choice
that the Employee is no longer Disabled as defined by
Section 11(b) of this Agreement.
SECTION 7. Named Fiduciary and Claims Procedure
(a) The Bank is hereby designated as the named fiduciary under
this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this
Agreement, and it shall be responsible for establishing and
-5-
<PAGE>
carrying out a funding policy and method consistent with the
objectives of this Agreement.
(b) Any decision by the Bank denying a claim by the Employee or a
Beneficiary for benefits under this Agreement shall be in
writing and delivered or mailed to the Employee or
Beneficiary. Such statement shall set forth the specific
reasons for the denial. In addition the Bank shall afford a
reasonable opportunity to the Employee or Beneficiary for a
full and fair review of the decision denying such claim.
SECTION 8. Funding
This Bank's obligations under this Agreement shall be an unfunded and
unsecured promise to pay. The Bank shall not be obligated under any
circumstances to fund its obligations under this Agreement. The Bank may,
however, at its sole and exclusive option, elect to fund this Agreement in whole
or in part.
SECTION 9. Employee Right to Assets
The rights of the Employee or his Beneficiaries shall be solely those
of an unsecured general creditor of the Bank. The Employee or his Beneficiaries
shall only have the right to receive from the Bank those payments as specified
under this Agreement. The Employee agrees that neither he nor his Beneficiaries
shall have any 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, except as expressly provided, shall not be
deemed to be held under any Trust for the benefit of the Employee or his
Beneficiaries, 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.
SECTION 10. Acceleration of Payment
The Bank may at its option, accelerate the payment of any benefits
payable under this Agreement with the consent of the Employee or his
Beneficiaries. In the event it is agreed to
-6-
<PAGE>
accelerate these payments, the present value of all future payments shall be
paid to the Employee or his Beneficiaries. The Discount Rate set forth in
Section 1.3 shall be used in discounting any payments as determined by the Bank.
SECTION 11. Leaves of Absence and Disability
(a) The Bank may, in its sole discretion, permit the Employee to
take a leave of absence for a period not to exceed one year.
During such leave, the Employee shall be considered to be in
the continuous employment of the Bank for the purposes of this
Agreement.
(b) For the purposes of this Agreement, disabled shall mean a
physical or mental condition of the Employee resulting from
bodily injury, disease, or mental disorder which renders him
incapable of continuing his usual and customary employment
with the Bank. The status of disability of the Employee shall
be determined by an independent licensed physician chosen by
the Bank. During such disability, the Employee shall be
considered to be in the continuous employment of the Bank for
the purposes of the Deferred Compensation Benefit at Normal
Retirement and shall be entitled to Disability Benefits under
Section 6 of this Agreement.
SECTION 12. Assignability
Except insofar as this provision may be contrary to applicable law, no
sale, transfer, alienation, or assignment, pledge, collateralization,
or attachment of any benefits under this Agreement shall be valid or
recognized by the Bank.
SECTION 13. Amendment
This Agreement shall be amended only by the mutual written Agreement of
both parties.
-7-
<PAGE>
SECTION 14. Enforcement
This Agreement shall be governed by the laws of the State of Indiana.
This Agreement is solely between the Bank and the Employee. Furthermore, the
Employee or his Beneficiaries shall only have recourse against the Bank for
enforcement of the Agreement. However, it shall be binding upon the
Beneficiaries, heirs, executors, and administrators of the Employee, and upon
any and all successors and assigns of the Bank.
SECTION 15. Severability
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 (1) insofar as is reasonable, effect will be given to the
intent manifested in the provisions held invalid or inoperative and (2) the
validity and enforceability of the remaining provisions will not be affected
thereby.
SECTION 16. Payments to Beneficiaries
For the purposes of this Agreement, Beneficiaries shall mean the person
or persons designated by the Employee in writing on forms furnished by the Bank.
Such Employee may then from time to time change the designated Beneficiaries by
written notice to the Bank, and upon such change the rights of all previously
designated Beneficiaries to receive any benefits under this Agreement shall
cease. If, at the date of death of the Employee, no properly designated
Beneficiary exists, then for the purposes of this Agreement, the legally
recognized Spouse of the Employee living at his death, shall be the Beneficiary;
if none, then the Children, natural and adopted, then living of the Employee; if
none, then the Employee's Estate.
SECTION 17. Incompetency
If the Bank shall find that any person to whom any payment is payable
under this Agreement is unable to care for their affairs due to illness or
accident, or is a minor, any payment due (unless a prior claim therefore 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
to any person deemed by the Bank to
-8-
<PAGE>
have incurred expense for such person otherwise entitled to payment, in such
manner and proportions as the Bank may determine. Any such payments made under
this Section in good faith shall be a complete discharge of the liabilities of
the Bank under this Agreement.
SECTION 18. Right of Employment
Nothing contained in this Agreement shall be construed to be a contract
of employment for any term of years, nor as conferring upon the Employee the
right to continue in the employment of the Bank in the employee's present
capacity, or in any other capacity. It is expressly understood by the parties
hereto that this Agreement relates exclusively to additional compensation for
the Employee's services, which compensation is payable after the end of active
employment service and is not intended to be an employment contract.
SECTION 19. Execution
IN WITNESS WHEREOF, the parties have, caused this Agreement to be
executed this 19th day of March, 1997.
/s/ Nora Kuntz
Nora Kuntz - Executive
FIRST FEDERAL SAVINGS BANK OF MARION
By /s/ John Dalton
Title
-9-
EXECUTIVE SUPPLEMENTAL
RETIREMENT AGREEMENT
BETWEEN
FIRST FEDERAL SAVINGS BANK OF MARION
AND
LARRY G. PHILLIPS
-1-
<PAGE>
EXECUTIVE SUPPLEMENTAL
RETIREMENT INCOME AGREEMENT
This Executive Supplemental Retirement Income Agreement (the
"Agreement"), effective as of the 1st day of December 1996, formalizes the
understanding by and between FIRST FEDERAL SAVINGS BANK OF MARION (the "Bank"),
a federally chartered savings bank, and certain key employees, hereinafter
referred to as "Executive" or "Employee," who shall be approved, or who has
previously been approved, by the Bank to participate and who shall elect to
become a party to this Executive Supplemental Retirement Income Agreement.
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Bank and is currently
employed in an executive capacity;
WHEREAS, the Bank desires to retain the valuable services and business
counsel of the Employee and to induce the Employee to remain in an executive
capacity with the Bank;
WHEREAS, the Employee is considered a highly compensated Employee or
member of a select management group of the Bank;
NOW, THEREFORE, the Bank promises to pay the benefits provided herein,
subject to the terms and conditions of this Agreement, in consideration for the
Employee's promise to remain in the continuous employment of the Bank until
retirement. The parties hereto agree that the following shall constitute the
terms of this Agreement.
SECTION 1. Definitions
For the purposes of this Agreement, whenever the context so indicates,
the singular or plural number and the masculine, feminine, or neuter gender
shall be deemed to include the other. The definitions below shall apply only to
this Agreement and shall not be construed as applying to a qualified employee
benefit plan under Section 401(a) of the Internal Revenue Code of 1954, as
amended.
-1-
<PAGE>
1.1 Beneficiary
Beneficiary shall mean the person or persons the Employee has
designated in writing to the Bank, if none, the Employee's Spouse,
Children, or Estate (in that order).
1.2 Deferred Compensation Benefit
Deferred Compensation Benefit shall mean the benefit provided to the
Employee at his Retirement Age, provided he has satisfied the
conditions and terms of this Agreement.
1.3 Discount Rate
The Discount Rate shall mean 7.89%.
1.4 Estate
Estate shall mean the estate of the Employee.
1.5 Retirement Age
Retirement Age shall mean age 65, or later if permitted by the Bank's
Board of Directors.
1.6 Spouse
Spouse shall mean the person to whom the Employee is legally married at
the time of the Employee's death.
SECTION 2. Establishment of Rabbi Trust
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Executive
-2-
<PAGE>
and his Beneficiary in such manner and at such times as specified in this
Agreement. Contribution(s) to the rabbi trust shall be made in accordance with
the rabbi trust agreement.
SECTION 3. Conditions
(a) Normal Employment: The payment of benefits under this
Agreement to the Employee or Beneficiary are conditioned upon
the continuous employment (including periods of disability and
authorized leaves of absence as described by this Agreement)
of the Employee to the Bank from date of execution of this
Agreement until attaining Retirement Age.
(b) Noncompetition: Payment of benefits is further conditioned
upon the Employee not acting in any similar employment
capacity for any business enterprise which competes to a
substantial degree with the Bank, nor engaging in any activity
involving substantial competition with the Bank during
employment or after retirement, while receiving benefits under
this Agreement without the prior written consent of the Bank.
In the event of violation of these provisions, all future
payments shall be canceled and discontinued.
SECTION 4. Deferred Compensation
(a) Retirement Benefit: At Retirement Age, if the Employee is
still covered by this Agreement, the Bank shall commence
payments as provided in this section. The Bank shall pay to
the Employee a monthly benefit which shall commence the first
day of the month next following the Employee's Retirement Date
and shall be payable monthly thereafter until 180 payments
have been made. The amount of such benefit will be determined
as of the Employee's date of retirement as follows:
Once the Employee reaches Retirement Age and has maintained
continuous Years of Service with the Bank from the date of
execution of this Agreement to the Retirement Age (including
periods of disability and authorized leaves
-3-
<PAGE>
of absence as described in this Agreement), he shall receive
compensation at the annualized rate of $90,000 per year. This
compensation is to be paid on a monthly basis as set forth
above.
(b) Early Retirement Benefit: Employee shall have the right to
receive early retirement benefits, provided he shall have
attained the age of fifty-five (55) and remained in continuous
service from the date of execution of this Agreement. Approval
of the Board of Directors of the Bank is required as a
condition for receiving a reduced early retirement benefit.
Upon Employee's election to receive such benefit and obtaining
the requisite Board approval, the Employee shall be entitled
to receive the Accrued Benefit. The Accrued Benefit shall
represent that portion of the Deferred Compensation Benefit
which is required to be expensed and accrued under generally
accepted accounting principles by any appropriate methodology
which the Board of Directors may require in the exercise of
its sole discretion. Such Accrued Benefit shall be paid to
Employee in one hundred eighty (180) equal monthly
installments. The interest factor used to annuitize the
Accrued Benefit shall be the Discount Rate as defined in
Section 1.3. Payment of this early retirement benefit shall
commence on the first day of the month next following the
Employee's early retirement date.
(c) Termination: In the event the Employee is involuntarily
terminated for any reason other than willful misconduct prior
to reaching Retirement Age, then the Employee will immediately
become eligible to receive benefits set forth hereunder upon
reaching age fifty-five (55), that being annualized
compensation of $90,000 a year for a period of 15 years.
Payments are to be made monthly for a total of 180 payments.
SECTION 5. Death Benefit
(a) In the event of the death of the Employee prior to retirement
and the conditions of Section 3 of this Agreement being
effective up to the time of death, the Beneficiary
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<PAGE>
shall receive 180 monthly payments which will represent an
annualized payment equal to his salary for his last actual
year of service before death per year beginning no later that
the latest of: (i) January 1 of the year after the death of
the Employee, or (ii) The first day of the third month after
the death of the Employee.
(b) In the event of the death of the Employee after retirement,
the Beneficiary shall receive the balance of the payments to
which the Employee would have been entitled had he survived.
The payments shall be made in the same manner and form as
provided for in Section 4.
SECTION 6. Disability Benefit
In case of disability, the Employee shall be entitled to receive the
benefit specified in Subsection 4(a), reduced by three per cent (3%) per year
for each year that the disability precedes Retirement Age, 65 years of age. Such
benefit shall be further reduced by any disability benefit payments received by
Employee from any policy whose premiums were paid by the Bank. Such payments
shall cease on the earliest occurrence of:
(i) reaching Normal Retirement Age, or
(ii) return to active employment, or
(iii) a determination by a Physician of the Bank's choice
that the Employee is no longer Disabled as defined by
Section 11(b) of this Agreement.
SECTION 7. Named Fiduciary and Claims Procedure
(a) The Bank is hereby designated as the named fiduciary under
this Agreement. The named fiduciary shall have authority to
control and manage the operation and administration of this
Agreement, and it shall be responsible for establishing and
carrying out a funding policy and method consistent with the
objectives of this Agreement.
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<PAGE>
(b) Any decision by the Bank denying a claim by the Employee or a
Beneficiary for benefits under this Agreement shall be in
writing and delivered or mailed to the Employee or
Beneficiary. Such statement shall set forth the specific
reasons for the denial. In addition the Bank shall afford a
reasonable opportunity to the Employee or Beneficiary for a
full and fair review of the decision denying such claim.
SECTION 8. Funding
This Bank's obligations under this Agreement shall be an unfunded and
unsecured promise to pay. The Bank shall not be obligated under any
circumstances to fund its obligations under this Agreement. The Bank may,
however, at its sole and exclusive option, elect to fund this Agreement in whole
or in part.
SECTION 9. Employee Right to Assets
The rights of the Employee or his Beneficiaries shall be solely those
of an unsecured general creditor of the Bank. The Employee or his Beneficiaries
shall only have the right to receive from the Bank those payments as specified
under this Agreement. The Employee agrees that neither he nor his Beneficiaries
shall have any 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, except as expressly provided, shall not be
deemed to be held under any Trust for the benefit of the Employee or his
Beneficiaries, 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.
SECTION 10. Acceleration of Payment
The Bank may at its option, accelerate the payment of any benefits
payable under this Agreement with the consent of the Employee or his
Beneficiaries. In the event it is agreed to accelerate these payments, the
present value of all future payments shall be paid to the Employee or his
Beneficiaries. The Discount Rate set forth in Section 1.3 shall be used in
discounting any payments as determined by the Bank.
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SECTION 11. Leaves of Absence and Disability
(a) The Bank may, in its sole discretion, permit the Employee to
take a leave of absence for a period not to exceed one year.
During such leave, the Employee shall be considered to be in
the continuous employment of the Bank for the purposes of this
Agreement.
(b) For the purposes of this Agreement, disabled shall mean a
physical or mental condition of the Employee resulting from
bodily injury, disease, or mental disorder which renders him
incapable of continuing his usual and customary employment
with the Bank. The status of disability of the Employee shall
be determined by an independent licensed physician chosen by
the Bank. During such disability, the Employee shall be
considered to be in the continuous employment of the Bank for
the purposes of the Deferred Compensation Benefit at Normal
Retirement and shall be entitled to Disability Benefits under
Section 6 of this Agreement.
SECTION 12. Assignability
Except insofar as this provision may be contrary to applicable law, no
sale, transfer, alienation, or assignment, pledge, collateralization,
or attachment of any benefits under this Agreement shall be valid or
recognized by the Bank.
SECTION 13. Amendment
This Agreement shall be amended only by the mutual written Agreement of
both parties.
SECTION 14. Enforcement
This Agreement shall be governed by the laws of the State of Indiana.
This Agreement is solely between the Bank and the Employee. Furthermore, the
Employee or his Beneficiaries shall only have recourse against the Bank for
enforcement of the Agreement. However, it shall be binding upon the
Beneficiaries, heirs, executors, and administrators of the Employee, and upon
any and all successors and assigns of the Bank.
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<PAGE>
SECTION 15. Severability
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 (1) insofar as is reasonable, effect will be given to the
intent manifested in the provisions held invalid or inoperative and (2) the
validity and enforceability of the remaining provisions will not be affected
thereby.
SECTION 16. Payments to Beneficiaries
For the purposes of this Agreement, Beneficiaries shall mean the person
or persons designated by the Employee in writing on forms furnished by the Bank.
Such Employee may then from time to time change the designated Beneficiaries by
written notice to the Bank, and upon such change the rights of all previously
designated Beneficiaries to receive any benefits under this Agreement shall
cease. If, at the date of death of the Employee, no properly designated
Beneficiary exists, then for the purposes of this Agreement, the legally
recognized Spouse of the Employee living at his death, shall be the Beneficiary;
if none, then the Children, natural and adopted, then living of the Employee; if
none, then the Employee's Estate.
SECTION 17. Incompetency
If the Bank shall find that any person to whom any payment is payable
under this Agreement is unable to care for their affairs due to illness or
accident, or is a minor, any payment due (unless a prior claim therefore 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
to any person deemed by the Bank to have incurred expense for such person
otherwise entitled to payment, in such manner and proportions as the Bank may
determine. Any such payments made under this Section in good faith shall be a
complete discharge of the liabilities of the Bank under this Agreement.
SECTION 18. Right of Employment
Nothing contained in this Agreement shall be construed to be a contract
of employment for any term of years, nor as conferring upon the Employee the
right to continue in the employment of
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the Bank in the employee's present capacity, or in any other capacity. It is
expressly understood by the parties hereto that this Agreement relates
exclusively to additional compensation for the Employee's services, which
compensation is payable after the end of active employment service and is not
intended to be an employment contract.
SECTION 19. Execution
IN WITNESS WHEREOF, the parties have, caused this Agreement to be
executed this 18th day of March, 1997.
/s/ Larry G. Phillips
Larry G. Phillips - Executive
FIRST FEDERAL SAVINGS BANK OF MARION
By /s/ John Dalton
Title
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Exhibit 10(18)
DEATH BENEFIT AGREEMENT
THIS AGREEMENT, made this 1st day of December, 1996, by and between
FIRST FEDERAL SAVINGS BANK OF MARION, a Federal savings association organized
and existing under the laws of the United States of America, hereinafter
referred to as "Association," and STEVEN L. BANKS, hereinafter referred to as
"Employee."
WITNESSETH:
WHEREAS, the Employee is currently employed by the Association;
WHEREAS, the Association recognizes the valuable services heretofore
performed for it by Employee;
WHEREAS, the Association desires to retain the valuable service and
loyalty of Employee and to induce the Employee to remain with the Association;
WHEREAS, the Employee wishes to be assured that his beneficiary will be
entitled to a certain benefit for some definite period of time from and after
Employee's death;
WHEREAS, the Association desires to provide a death benefit payable to
the designated beneficiary of Employee in the event of his death under certain
circumstances and other such benefits as set forth herein, and both parties
desire to enter into this Agreement to evidence the terms and conditions of such
benefits;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, it is agreed as follows:
1. Various terms used herein are defined in paragraph 3.
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<PAGE>
2. If Employee dies while in Active Employment, a death benefit
will be payable to his designated beneficiary. The death
benefit payable pursuant to this subparagraph shall be an
amount equal to the difference between four times Employee's
date of death annual salary and the death benefit payable to
Employee's beneficiary under the Financial Institution
Retirement Fund defined benefit pension plan.
3. Wherever used, the following terms shall have the meanings set
forth herein:
(a) "Active Employment" shall mean a period of time
during which Employee is rendering services to the
Association after the date hereof.
(b) "Association" means FIRST FEDERAL SAVINGS BANK OF
MARION and any successor thereto.
(c) "Annual Salary" shall mean the total amount of
compensation subject to Form W-2 reporting
requirements paid to Employee during Employee's last
twelve (12) months of full-time employment.
4. The death benefit payable pursuant to paragraph 2 above shall
be paid to the beneficiary or beneficiaries irrevocably
designated by Employee by written instrument delivered to the
Association within six (6) months of the date hereof. If no
such designation is made within said time period, or if all
designated beneficiaries predecease Employee, such death
benefit shall be paid as follows:
(a) To Employee's spouse, if living; or if not,
(b) To Employee's lawful descendants, per stirpes, then
living; or if none,
(c) To the duly appointed legal representative of
Employee; or
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<PAGE>
(d) If there shall be no such legal representative duly
appointed and qualified within six (6) months of the
date of death of Employee, then to such persons as,
at the date of his death, would be entitled to share
in the distribution of his personal estate under the
provisions of the Indiana statute then in force
governing the descent of intestate property, in the
proportions specified in such statute.
5. Every notice or other communication required by or appropriate
to this Agreement from any party shall be in writing addressed
to the Association at 100 W. 3rd Street, Marion, Indiana
46952, or to Financial Institution Consulting Corporation, 700
Colonial Road, Suite 260, Memphis, Tennessee 38117 or to such
other addresses as shall have been specified by notice given
as provided herein. Any such notice or other communication
shall be deemed to have been given on the third business day
after it is sent by certified mail, postage prepaid, addressed
as aforesaid.
6. Suicide. Notwithstanding anything to the contrary in this
Agreement, the benefits otherwise provided herein shall not be
payable if the Employee's death results from suicide, whether
sane or insane, within two years after the execution of this
Agreement.
7. This document sets forth the entire Agreement and
understanding between the parties hereto representing the
death benefit payable by the Association upon the death of
Employee, and merges all prior discussions between them with
respect to that subject matter only, and no party shall be
bound by any representation, definition, condition or
provision other than as expressly stated in this Agreement or
as subsequently set forth in an amendment hereto adopted in
the manner provided above.
8. Employee agrees on behalf of himself, his heirs, executors and
administrators and any other person or persons claiming any
benefit under his by virtue of this
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<PAGE>
Agreement that their agreement and all rights, interests and
benefits hereunder shall not be assigned, transferred, pledged
or hypothecated in any way by Employee or by any beneficiary,
heir, executor, administrator or other person claiming under
Employee by way of this Agreement and shall not be subject to
execution, attachment or similar process. Any attempted
assignment, transfer, pledge or hypothecation or any other
disposition of such rights, interests and benefits contrary to
the foregoing provisions or the levy or any execution,
attachment or similar process thereon shall be null and void
and without effect.
9. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, personal
representatives and successors, and any successor to the
Association shall be deemed substituted for the Association
under the terms of this Agreement. As used herein, the term
"successor" shall include any person, firm, corporation or any
other business entity which, at any time, whether by
consolidation, mergers purchase or otherwise, acquires all or
substantially all of the assets or business of the
Association.
10. The validity, construction and enforceability of this
Agreement shall be governed in all respects by the law of the
State of Indiana.
11. Nothing contained in this Agreement shall be construed to be a
contract for employment for any term of years nor as
conferring upon Employee the right to continue employment with
the Association, in Employee's present capacity, or in any
other capacity except as Employee. It is not intended as a
current employment contract.
12. Notwithstanding any of the preceding provisions of this
Agreement, neither the Association, nor any individual acting
as an employee or agent of the Association or as a member of
the Board of Directors shall be liable to any Employee, former
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<PAGE>
Employee, or any other person for any claim, loss, liability
or expense incurred in connection with this Agreement.
13. Nothing contained in this Agreement shall affect the right of
the Employee to participate in, or be covered by, any
qualified or non-qualified pension, profit sharing, group,
bonus or other supplemental compensation or fringe benefit
agreement constituting a part of the Association's existing or
future compensation structure.
14. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original and which shall
constitute but one and the same agreement, which shall be
sufficiently evidenced for all purposes by any one executed
counterpart.
15. This Agreement cannot be amended except by the written mutual
consent of both parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on this 1st day of December, 1996.
/s/ Steven L. Banks
Steven L. Banks - Employee
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
Title President
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Exhibit 10(19)
FIRST AMENDMENT
TO THE
EXCESS BENEFIT AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Excess Benefit Agreement ("Agreement") dated February 28, 1996,
between First Federal Savings Bank of Marion and John M. Dalton as follows:
The following Section II is added to the Agreement with all subsequent sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Executive and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here below:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ Steven L. Banks
Executive Vice President
Title
/s/ John Dalton
Executive
Exhibit 10(20)
FIRST AMENDMENT
TO THE
EXCESS BENEFIT AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Excess Benefit Agreement ("Agreement") dated February 28, 1996,
between First Federal Savings Bank of Marion and Robert D. Burchard as follows:
The following Section II is added to the Agreement with all subsequent sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Executive and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here below:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
President
Title
/s/ Robert D. Burchard
Executive
Exhibit 10(21)
FIRST FEDERAL SAVINGS BANK OF MARION
DIRECTOR EMERITUS PLAN
This Director Emeritus Plan (the "Plan"), effective as of the 1st day
of March, 1996, formalizes the understanding by and between FIRST FEDERAL
SAVINGS BANK OF MARION (the "Bank"), a federally chartered savings bank, and W.
GORDON CORYEA, hereinafter referred to as "Participant."
SECTION I
PURPOSE
The purpose of the Plan is (i) to honor, reward and recognize directors
who have provided long and faithful service to the Bank, (ii) to ensure
continued service on the board by such directors until retirement age, (iii) to
encourage such long-term directors to relinquish their formal positions on the
board, upon reaching retirement age, and instead to provide on-going Advisory
Services to the Bank via their role as Emeritus Directors and (iv) generally, to
create a structure which will facilitate orderly transitions as new directors
replace retiring directors.
SECTION II
DEFINITIONS
2.1 "Advisory Services" means (i) advice and consultation provided to the
Bank by the Director Emeritus, as requested from time to time by the
Board of Directors or by any officer designated by the Board of
Directors and (ii) attendance at a minimum of four formal meetings held
by the Board of Directors during each consecutive twelve (12) month
period following commencement of his Advisory Services. A Participant
shall commence providing Advisory Services upon the later of: (i) the
first day of the month following the date of the Participant's
designation as Director Emeritus or (ii) the first day of April, 1998
and shall continue for the remainder of the Participant's life, unless
such Participant becomes unwilling or unable to provide such Advisory
Services.
2.2 "Bank" means FIRST FEDERAL SAVINGS BANK OF MARION or any company
successor or predecessor thereto by merger, consolidation, liquidation
or other reorganization.
23 "Beneficiary" means the individual(s) (and their heirs) or entity(ies)
designated as Beneficiary in Exhibit A of the Plan to whom certain
benefits are payable under this Plan. The Beneficiary designation may
be changed at any time by submitting to the Administrator, in
substantially the form attached hereto as Exhibit A, a written
designation of the primary and/or secondary Beneficiaries to whom
payment shall be made under the Plan. If no Beneficiary is so
designated, then the Participant's Spouse, if living, will be deemed
the Beneficiary. If the Participant's Spouse is not living, then the
Children of the Participant will
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be deemed the Beneficiaries and will take on a per stirpes basis. If
there are no Children, then the Estate of the Participant will be
deemed the Beneficiary.
2.4 "Benefit Period" shall mean the period of time during which the
Director Emeritus shall be entitled to receive Director Emeritus Fees.
Benefit payments shall be made in equal monthly installments,
commencing on the date the Participant begins providing Advisory
Services and ceasing on the date the Participant discontinues his
Advisory Services.
2.5 "Burial Benefit" means a one-time lump sum death benefit in the amount
of Ten Thousand ($10,000.00) Dollars. This benefit is specifically for
the purpose of providing payment for burial and/or funeral expenses of
the Participant. Such benefit shall be payable to the Participant's
Beneficiary within thirty (30) days of the Participant's death.
2.6 "Children" means all natural or adopted children of the Participant,
and issue of any predeceased child or children.
2.7 "Director Emeritus" means a Participant who (i) has terminated service
on the Board of Directors (for any reason other than Removal For
Cause), (ii) has attained the eligibility requirements set forth in
Section III of the Plan, and (iii) shall serve as an adviser and
consultant to the Board of Directors following designation as a
Director Emeritus by the Board of Directors. In providing Advisory
Services to the Board of Directors, it is acknowledged that the
Director Emeritus is not bound by the fiduciary duties of a director,
but rather to the lesser duties required of an adviser or consultant.
2.8 "Director Emeritus Fee" means Fifty Percent (50%) of the monthly Board
fee which the Participant was receiving most recently prior to his
designation as a Director Emeritus. The Director Emeritus Fee shall be
paid annually, in equal monthly installments, and shall be payable for
the Benefit Period.
2.9 "Effective Date" of the Plan is March 1st, 1996.
2.10 "Estate" means the estate of the Participant.
2.11 "Participant" means any director who is a member of the Board of
Directors of the Bank on the Effective Date of this Plan and who is
designated by the Board of Directors to participate in the Plan. Any
Participant subject to a Removal For Cause from the Board of Directors
shall no longer be a Participant in the Plan and shall have no rights
to any benefits covered by this Agreement.
2.12 "Removal For Cause" shall mean termination of the Participant's service
on the Board of Directors prior to his designation as a Director
Emeritus, due to the Participant's personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than
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<PAGE>
traffic violations or infractions), or final cease-and-desist order, or
gross negligence in matters of material importance to the Bank.
2.13 "Spouse" means the individual to whom the Participant is legally
married at the time of the Participant's death.
SECTION III
BENEFITS
3.1 Director Emeritus. A Participant shall become a Director Emeritus if
such Participant retires from service on the Board of Directors after
having attained the eligibility requirements of sixty (60) years of age
with twenty (20) years of continuous service on the Board of Directors.
Such Director Emeritus shall be entitled to receive the Director
Emeritus Fee during the Benefit Period in exchange for his Advisory
Services. The Beneficiary of a Director Emeritus shall receive the
Burial Benefit on behalf of the Director Emeritus. No other benefits
shall be due to the Participant (or his Beneficiary) under this
Agreement.
3.2 Participant. A Participant not receiving benefits under Subsection 3.1
above, shall be covered by this Subsection 3.2. The Beneficiary of such
Participant shall receive the Burial Benefit on the Participant's
behalf. No other benefits shall be due to the Participant (or his
Beneficiary) under this Agreement.
SECTION IV
ADMINISTRATION
The Board of Directors of the Bank shall be the Administrator of the
Plan. All answers to questions of interpretation regarding the Plan which are
issued by the Board of Directors shall be final and binding upon all persons
having an interest in the Plan.
SECTION V
REGULATORY EXCLUSIONS
Notwithstanding anything herein to the contrary, any payments made
hereunder pursuant to the Plan, or otherwise, shall be subject to and
conditioned upon compliance with 12 U.S.C.ss. 1828(k) and any regulations
promulgated thereunder.
Notwithstanding any other provision, any non-vested Director Emeritus
Fees shall not be paid to a Participant who has been removed from the Board of
Directors pursuant to 12 U.S.C.ss. 1818(e).
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<PAGE>
SECTION VI
PARTICIPANT'S RIGHT TO ASSETS
The rights of the Participant, any Beneficiary, or any other person
claiming through the Participant under this Plan, shall be solely those of an
unsecured general creditor of the Bank. The Participant, him Beneficiary, or any
other person claiming through the Participant, shall only have the right to
receive from the Bank those payments so specified under this Plan. The
Participant agrees that he, his Beneficiary, or any other person claiming
through him shall have no rights or interests whatsoever in any asset of the
Bank, including any insurance policies or contracts, which the Bank may possess
or obtain to informally fund this Plan. Any asset used or acquired by the Bank
in connection with the liabilities it has assumed under this Plan, unless
expressly provided herein, shall not be deemed to be held under any trust for
the benefit of the Participant or his Beneficiaries, nor shall any asset be
considered security for the performance of the obligations of the Bank. Any such
asset shall be and remain, a general, unpledged, and unrestricted asset of the
Bank.
SECTION VII
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Plan. The
Participant, his Beneficiary or any successor in interest to him shall be and
remain simply a general unsecured creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation. The
Bank reserves the absolute right in its sole discretion to either purchase
assets to meet its obligations undertaken by this Plan or to refrain from the
same and to determine the extent, nature, and method of such asset purchases.
Should the Bank decide to purchase assets such as life insurance, mutual funds,
disability policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such assets at any time, in whole or in part. At
no time shall the Participant be deemed to have any lien, right, title or
interest in or to any specific investment or to any assets of the Bank. If the
Bank elects to invest in a life insurance, disability or annuity policy upon the
life of the Participant, then the Participant shall assist the Bank by freely
submitting to a physical examination and by supplying such additional
information necessary to obtain such insurance or annuities.
SECTION VIII
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Participant nor any Beneficiary under this Plan shall have
any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Participant
or his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Participant or any
Beneficiary attempts assignment, communication,
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<PAGE>
hypothecation, transfer or disposal of the benefits hereunder, the Bank's
liabilities shall forthwith cease and terminate.
SECTION IX
CLAIMS PROCEDURE AND ARBITRATION
In the event that benefits under this Plan are not paid to the
Participant (or to his Beneficiary in the case of the Participant's death) and
such claimants feel they are entitled to receive such benefits, then a written
claim must be made to the Administrator 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, it shall provide in writing, within
ninety (90) days of receipt of such claim, the specific reasons for such denial,
reference to the provisions of this Plan upon which the denial is based, and any
additional material or information necessary to perfect the claim. Such writing
by the Administrator shall further indicate the additional steps which must be
undertaken by claimants if an additional review of the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim denial.
Claimants may review this Plan, any documents relating thereto and submit any
issues and comments, in writing, they may feel appropriate. In its sole
discretion, the Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such claim. This decision
shall state the specific reasons for the decision and shall include reference to
specific provisions of this Plan upon which the decision is based. If such
determination is favorable to the claimant, it shall be binding and conclusive.
If such determination is adverse to such claimant, it shall be binding and
conclusive unless the claimant (i) notifies the Administrator within 90 days
after receipt by the claimant of the Administrator's determination, that the
claimant intends to institute legal proceedings challenging the determination of
the Administrator, and (ii) actually institutes such legal proceedings within
180 days of receipt by the claimant of the Administrator's determination.
SECTION X
LIMITATIONS ON LIABILITY
Notwithstanding any of the preceding provisions of the Plan, no
individual acting as an employee or agent of the Bank, or as a member of the
Board of Directors, shall be liable to the Participant or any other person for
any claim, loss, liability or expense incurred in connection with the Plan,
except that in the event that the Bank denies a claim for a benefit hereunder
and it is later determined that such benefit is due and payable to Participant,
either under the procedures provided for herein or by a court of appropriate
jurisdiction or otherwise, then Participant shall be entitled to reimbursement
by the Bank of any cost incurred by Participant in obtaining such benefit,
including reasonable attorneys' fees.
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SECTION XI
SUCCESSORS AND ASSIGNS
This Plan shall be a contractual obligation of any successor(s) to the
Bank and shall be legally enforceable as if it were in force by the Bank at all
times.
SECTION XII
GOVERNING LAW
This Plan shall be governed and construed in accordance with the laws
of the state of Indiana.
SECTION XIII
SEVERABILITY
In the event any provision of this Plan shall be held illegal, invalid
or unenforceable such holding or determination shall not invalidate or render
unenforceable any other provision herein.
SECTION XIV
GENDER
Whenever in this Plan words are used in the masculine or neuter gender,
they shall be read and construed as in the masculine, feminine, or neuter
gender, whenever they should so apply.
SECTION XV
HEADING
Headings and sub-headings in this Plan are inserted for reference and
convenience only and shall not be deemed a part of this Plan.
SECTION XVI
AMENDMENT/TERMINATION
The Board of Directors may amend, modify, suspend or terminate this
Plan at any time, provided, however, that any amendment, modification,
suspension or termination shall not affect the rights of participants to
payments to which they are otherwise entitled pursuant to Section III of the
Plan.
-6-
<PAGE>
SECTION XVII
EXECUTION
17.1 This Plan 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 Plan.
17.2 This Plan shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies
together shall constitute one and the same instrument.
[Remainder of page intentionally left blank]
-7-
<PAGE>
IN WITNESS WHEREOF, the Bank and the Participant have caused this Plan
to be executed on this 18th day of March, 1996.
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
President
(Title)
March 18, 1996
Date
By: /s/ W. Gordon Coryea
Participant
March 18, 1996
Date
-8-
<PAGE>
FIRST AMENDMENT
TO THE
DIRECTOR EMERITUS AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Director Emeritus Agreement ("Agreement") dated March 1, 1996,
between First Federal Savings Bank of Marion and W. Gordon Coryea as follows:
The following Section II is added to the Agreement with all subsequent sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Director and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here above:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
Title: President
-9-
Exhibit 10(22)
FIRST FEDERAL SAVINGS BANK OF MARION
DIRECTOR EMERITUS PLAN
This Director Emeritus Plan (the "Plan"), effective as of the 1st day
of March, 1996, formalizes the understanding by and between FIRST FEDERAL
SAVINGS BANK OF MARION (the "Bank"), a federally chartered savings bank, and
GEORGE L. THOMAS hereinafter referred to as "Participant."
SECTION I
PURPOSE
The purpose of the Plan is (i) to honor, reward and recognize directors
who have provided long and faithful service to the Bank, (ii) to ensure
continued service on the board by such directors until retirement age, (iii) to
encourage such long-term directors to relinquish their formal positions on the
board, upon reaching retirement age, and instead to provide on-going Advisory
Services to the Bank via their role as Emeritus Directors and (iv) generally, to
create a structure which will facilitate orderly transitions as new directors
replace retiring directors.
SECTION II
DEFINITIONS
2.1 "Advisory Services" means (i) advice and consultation provided to the
Bank by the Director Emeritus, as requested from time to time by the
Board of Directors or by any officer designated by the Board of
Directors and (ii) attendance at a minimum of four formal meetings held
by the Board of Directors during each consecutive twelve (12) month
period following commencement of his Advisory Services. A Participant
shall commence providing Advisory Services upon the later of: (i) the
first day of the month following the date of the Participant's
designation as Director Emeritus or (ii) the first day of April, 1998
and shall continue for the remainder of the Participant's life, unless
such Participant becomes unwilling or unable to provide such Advisory
Services.
2.2 "Bank" means FIRST FEDERAL SAVINGS BANK OF MARION or any company
successor or predecessor thereto by merger, consolidation, liquidation
or other reorganization.
23 "Beneficiary" means the individual(s) (and their heirs) or entity(ies)
designated as Beneficiary in Exhibit A of the Plan to whom certain
benefits are payable under this Plan. The Beneficiary designation may
be changed at any time by submitting to the Administrator, in
substantially the form attached hereto as Exhibit A, a written
designation of the primary and/or secondary Beneficiaries to whom
payment shall be made under the Plan. If no Beneficiary is so
designated, then the Participant's Spouse, if living, will be deemed
the Beneficiary. If the Participant's Spouse is not living, then the
Children of the Participant will
-1-
<PAGE>
be deemed the Beneficiaries and will take on a per stirpes basis. If
there are no Children, then the Estate of the Participant will be
deemed the Beneficiary.
2.4 "Benefit Period" shall mean the period of time during which the
Director Emeritus shall be entitled to receive Director Emeritus Fees.
Benefit payments shall be made in equal monthly installments,
commencing on the date the Participant begins providing Advisory
Services and ceasing on the date the Participant discontinues his
Advisory Services.
2.5 "Burial Benefit" means a one-time lump sum death benefit in the amount
of Ten Thousand ($10,000.00) Dollars. This benefit is specifically for
the purpose of providing payment for burial and/or funeral expenses of
the Participant. Such benefit shall be payable to the Participant's
Beneficiary within thirty (30) days of the Participant's death.
2.6 "Children" means all natural or adopted children of the Participant,
and issue of any predeceased child or children.
2.7 "Director Emeritus" means a Participant who (i) has terminated service
on the Board of Directors (for any reason other than Removal For
Cause), (ii) has attained the eligibility requirements set forth in
Section III of the Plan, and (iii) shall serve as an adviser and
consultant to the Board of Directors following designation as a
Director Emeritus by the Board of Directors. In providing Advisory
Services to the Board of Directors, it is acknowledged that the
Director Emeritus is not bound by the fiduciary duties of a director,
but rather to the lesser duties required of an adviser or consultant.
2.8 "Director Emeritus Fee" means Fifty Percent (50%) of the monthly Board
fee which the Participant was receiving most recently prior to his
designation as a Director Emeritus. The Director Emeritus Fee shall be
paid annually, in equal monthly installments, and shall be payable for
the Benefit Period.
2.9 "Effective Date" of the Plan is March 1st, 1996.
2.10 "Estate" means the estate of the Participant.
2.11 "Participant" means any director who is a member of the Board of
Directors of the Bank on the Effective Date of this Plan and who is
designated by the Board of Directors to participate in the Plan. Any
Participant subject to a Removal For Cause from the Board of Directors
shall no longer be a Participant in the Plan and shall have no rights
to any benefits covered by this Agreement.
2.12 "Removal For Cause" shall mean termination of the Participant's service
on the Board of Directors prior to his designation as a Director
Emeritus, due to the Participant's personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than
-2-
<PAGE>
traffic violations or infractions), or final cease-and-desist order, or
gross negligence in matters of material importance to the Bank.
2.13 "Spouse" means the individual to whom the Participant is legally
married at the time of the Participant's death.
SECTION III
BENEFITS
3.1 Director Emeritus. A Participant shall become a Director Emeritus if
such Participant retires from service on the Board of Directors after
having attained the eligibility requirements of sixty (60) years of age
with twenty (20) years of continuous service on the Board of Directors.
Such Director Emeritus shall be entitled to receive the Director
Emeritus Fee during the Benefit Period in exchange for his Advisory
Services. The Beneficiary of a Director Emeritus shall receive the
Burial Benefit on behalf of the Director Emeritus. No other benefits
shall be due to the Participant (or his Beneficiary) under this
Agreement.
3.2 Participant. A Participant not receiving benefits under Subsection 3.1
above, shall be covered by this Subsection 3.2. The Beneficiary of such
Participant shall receive the Burial Benefit on the Participant's
behalf. No other benefits shall be due to the Participant (or his
Beneficiary) under this Agreement.
SECTION IV
ADMINISTRATION
The Board of Directors of the Bank shall be the Administrator of the
Plan. All answers to questions of interpretation regarding the Plan which are
issued by the Board of Directors shall be final and binding upon all persons
having an interest in the Plan.
SECTION V
REGULATORY EXCLUSIONS
Notwithstanding anything herein to the contrary, any payments made
hereunder pursuant to the Plan, or otherwise, shall be subject to and
conditioned upon compliance with 12 U.S.C.ss. 1828(k) and any regulations
promulgated thereunder.
Notwithstanding any other provision, any non-vested Director Emeritus
Fees shall not be paid to a Participant who has been removed from the Board of
Directors pursuant to 12 U.S.C.ss. 1818(e).
-3-
<PAGE>
SECTION VI
PARTICIPANT'S RIGHT TO ASSETS
The rights of the Participant, any Beneficiary, or any other person
claiming through the Participant under this Plan, shall be solely those of an
unsecured general creditor of the Bank. The Participant, him Beneficiary, or any
other person claiming through the Participant, shall only have the right to
receive from the Bank those payments so specified under this Plan. The
Participant agrees that he, his Beneficiary, or any other person claiming
through him shall have no rights or interests whatsoever in any asset of the
Bank, including any insurance policies or contracts, which the Bank may possess
or obtain to informally fund this Plan. Any asset used or acquired by the Bank
in connection with the liabilities it has assumed under this Plan, unless
expressly provided herein, shall not be deemed to be held under any trust for
the benefit of the Participant or his Beneficiaries, nor shall any asset be
considered security for the performance of the obligations of the Bank. Any such
asset shall be and remain, a general, unpledged, and unrestricted asset of the
Bank.
SECTION VII
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Plan. The
Participant, his Beneficiary or any successor in interest to him shall be and
remain simply a general unsecured creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation. The
Bank reserves the absolute right in its sole discretion to either purchase
assets to meet its obligations undertaken by this Plan or to refrain from the
same and to determine the extent, nature, and method of such asset purchases.
Should the Bank decide to purchase assets such as life insurance, mutual funds,
disability policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such assets at any time, in whole or in part. At
no time shall the Participant be deemed to have any lien, right, title or
interest in or to any specific investment or to any assets of the Bank. If the
Bank elects to invest in a life insurance, disability or annuity policy upon the
life of the Participant, then the Participant shall assist the Bank by freely
submitting to a physical examination and by supplying such additional
information necessary to obtain such insurance or annuities.
SECTION VIII
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Participant nor any Beneficiary under this Plan shall have
any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Participant
or his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Participant or any
Beneficiary attempts assignment, communication,
-4-
<PAGE>
hypothecation, transfer or disposal of the benefits hereunder, the Bank's
liabilities shall forthwith cease and terminate.
SECTION IX
CLAIMS PROCEDURE AND ARBITRATION
In the event that benefits under this Plan are not paid to the
Participant (or to his Beneficiary in the case of the Participant's death) and
such claimants feel they are entitled to receive such benefits, then a written
claim must be made to the Administrator 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, it shall provide in writing, within
ninety (90) days of receipt of such claim, the specific reasons for such denial,
reference to the provisions of this Plan upon which the denial is based, and any
additional material or information necessary to perfect the claim. Such writing
by the Administrator shall further indicate the additional steps which must be
undertaken by claimants if an additional review of the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim denial.
Claimants may review this Plan, any documents relating thereto and submit any
issues and comments, in writing, they may feel appropriate. In its sole
discretion, the Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such claim. This decision
shall state the specific reasons for the decision and shall include reference to
specific provisions of this Plan upon which the decision is based. If such
determination is favorable to the claimant, it shall be binding and conclusive.
If such determination is adverse to such claimant, it shall be binding and
conclusive unless the claimant (i) notifies the Administrator within 90 days
after receipt by the claimant of the Administrator's determination, that the
claimant intends to institute legal proceedings challenging the determination of
the Administrator, and (ii) actually institutes such legal proceedings within
180 days of receipt by the claimant of the Administrator's determination.
SECTION X
LIMITATIONS ON LIABILITY
Notwithstanding any of the preceding provisions of the Plan, no
individual acting as an employee or agent of the Bank, or as a member of the
Board of Directors, shall be liable to the Participant or any other person for
any claim, loss, liability or expense incurred in connection with the Plan,
except that in the event that the Bank denies a claim for a benefit hereunder
and it is later determined that such benefit is due and payable to Participant,
either under the procedures provided for herein or by a court of appropriate
jurisdiction or otherwise, then Participant shall be entitled to reimbursement
by the Bank of any cost incurred by Participant in obtaining such benefit,
including reasonable attorneys' fees.
-5-
<PAGE>
SECTION XI
SUCCESSORS AND ASSIGNS
This Plan shall be a contractual obligation of any successor(s) to the
Bank and shall be legally enforceable as if it were in force by the Bank at all
times.
SECTION XII
GOVERNING LAW
This Plan shall be governed and construed in accordance with the laws
of the state of Indiana.
SECTION XIII
SEVERABILITY
In the event any provision of this Plan shall be held illegal, invalid
or unenforceable such holding or determination shall not invalidate or render
unenforceable any other provision herein.
SECTION XIV
GENDER
Whenever in this Plan words are used in the masculine or neuter gender,
they shall be read and construed as in the masculine, feminine, or neuter
gender, whenever they should so apply.
SECTION XV
HEADING
Headings and sub-headings in this Plan are inserted for reference and
convenience only and shall not be deemed a part of this Plan.
SECTION XVI
AMENDMENT/TERMINATION
The Board of Directors may amend, modify, suspend or terminate this
Plan at any time, provided, however, that any amendment, modification,
suspension or termination shall not affect the rights of participants to
payments to which they are otherwise entitled pursuant to Section III of the
Plan.
-6-
<PAGE>
SECTION XVII
EXECUTION
17.1 This Plan 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 Plan.
17.2 This Plan shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies
together shall constitute one and the same instrument.
[Remainder of page intentionally left blank]
-7-
<PAGE>
IN WITNESS WHEREOF, the Bank and the Participant have caused this Plan
to be executed on this 18th day of March, 1996.
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
President
(Title)
March 18, 1996
Date
By: /s/ George L. Thomas
Participant
Date
-8-
<PAGE>
FIRST AMENDMENT
TO THE
DIRECTOR EMERITUS AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Director Emeritus Agreement ("Agreement") dated March 1, 1996,
between First Federal Savings Bank of Marion and George L. Thomas as follows:
The following Section II is added to the Agreement with all subsequent sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Director and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here above:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
Title: President
-9-
Exhibit 10(23)
FIRST FEDERAL SAVINGS BANK OF MARION
DIRECTOR EMERITUS PLAN
This Director Emeritus Plan (the "Plan"), effective as of the 1st day
of March, 1996, formalizes the understanding by and between FIRST FEDERAL
SAVINGS BANK OF MARION (the "Bank"), a federally chartered savings bank, and
JOHN M. DALTON, hereinafter referred to as "Participant."
SECTION I
PURPOSE
The purpose of the Plan is (i) to honor, reward and recognize directors
who have provided long and faithful service to the Bank, (ii) to ensure
continued service on the board by such directors until retirement age, (iii) to
encourage such long-term directors to relinquish their formal positions on the
board, upon reaching retirement age, and instead to provide on-going Advisory
Services to the Bank via their role as Emeritus Directors and (iv) generally, to
create a structure which will facilitate orderly transitions as new directors
replace retiring directors.
SECTION II
DEFINITIONS
2.1 "Advisory Services" means (i) advice and consultation provided to the
Bank by the Director Emeritus, as requested from time to time by the
Board of Directors or by any officer designated by the Board of
Directors and (ii) attendance at a minimum of four formal meetings held
by the Board of Directors during each consecutive twelve (12) month
period following commencement of his Advisory Services. A Participant
shall commence providing Advisory Services upon the later of: (i) the
first day of the month following the date of the Participant's
designation as Director Emeritus or (ii) the first day of April, 1998
and shall continue for the remainder of the Participant's life, unless
such Participant becomes unwilling or unable to provide such Advisory
Services.
2.2 "Bank" means FIRST FEDERAL SAVINGS BANK OF MARION or any company
successor or predecessor thereto by merger, consolidation, liquidation
or other reorganization.
23 "Beneficiary" means the individual(s) (and their heirs) or entity(ies)
designated as Beneficiary in Exhibit A of the Plan to whom certain
benefits are payable under this Plan. The Beneficiary designation may
be changed at any time by submitting to the Administrator, in
substantially the form attached hereto as Exhibit A, a written
designation of the primary and/or secondary Beneficiaries to whom
payment shall be made under the Plan. If no Beneficiary is so
designated, then the Participant's Spouse, if living, will be deemed
the Beneficiary. If the Participant's Spouse is not living, then the
Children of the Participant will
-1-
<PAGE>
be deemed the Beneficiaries and will take on a per stirpes basis. If
there are no Children, then the Estate of the Participant will be
deemed the Beneficiary.
2.4 "Benefit Period" shall mean the period of time during which the
Director Emeritus shall be entitled to receive Director Emeritus Fees.
Benefit payments shall be made in equal monthly installments,
commencing on the date the Participant begins providing Advisory
Services and ceasing on the date the Participant discontinues his
Advisory Services.
2.5 "Burial Benefit" means a one-time lump sum death benefit in the amount
of Ten Thousand ($10,000.00) Dollars. This benefit is specifically for
the purpose of providing payment for burial and/or funeral expenses of
the Participant. Such benefit shall be payable to the Participant's
Beneficiary within thirty (30) days of the Participant's death.
2.6 "Children" means all natural or adopted children of the Participant,
and issue of any predeceased child or children.
2.7 "Director Emeritus" means a Participant who (i) has terminated service
on the Board of Directors (for any reason other than Removal For
Cause), (ii) has attained the eligibility requirements set forth in
Section III of the Plan, and (iii) shall serve as an adviser and
consultant to the Board of Directors following designation as a
Director Emeritus by the Board of Directors. In providing Advisory
Services to the Board of Directors, it is acknowledged that the
Director Emeritus is not bound by the fiduciary duties of a director,
but rather to the lesser duties required of an adviser or consultant.
2.8 "Director Emeritus Fee" means Fifty Percent (50%) of the monthly Board
fee which the Participant was receiving most recently prior to his
designation as a Director Emeritus. The Director Emeritus Fee shall be
paid annually, in equal monthly installments, and shall be payable for
the Benefit Period.
2.9 "Effective Date" of the Plan is March 1st, 1996.
2.10 "Estate" means the estate of the Participant.
2.11 "Participant" means any director who is a member of the Board of
Directors of the Bank on the Effective Date of this Plan and who is
designated by the Board of Directors to participate in the Plan. Any
Participant subject to a Removal For Cause from the Board of Directors
shall no longer be a Participant in the Plan and shall have no rights
to any benefits covered by this Agreement.
2.12 "Removal For Cause" shall mean termination of the Participant's service
on the Board of Directors prior to his designation as a Director
Emeritus, due to the Participant's personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than
-2-
<PAGE>
traffic violations or infractions), or final cease-and-desist order, or
gross negligence in matters of material importance to the Bank.
2.13 "Spouse" means the individual to whom the Participant is legally
married at the time of the Participant's death.
SECTION III
BENEFITS
3.1 Director Emeritus. A Participant shall become a Director Emeritus if
such Participant retires from service on the Board of Directors after
having attained the eligibility requirements of sixty (60) years of age
with twenty (20) years of continuous service on the Board of Directors.
Such Director Emeritus shall be entitled to receive the Director
Emeritus Fee during the Benefit Period in exchange for his Advisory
Services. The Beneficiary of a Director Emeritus shall receive the
Burial Benefit on behalf of the Director Emeritus. No other benefits
shall be due to the Participant (or his Beneficiary) under this
Agreement.
3.2 Participant. A Participant not receiving benefits under Subsection 3.1
above, shall be covered by this Subsection 3.2. The Beneficiary of such
Participant shall receive the Burial Benefit on the Participant's
behalf. No other benefits shall be due to the Participant (or his
Beneficiary) under this Agreement.
SECTION IV
ADMINISTRATION
The Board of Directors of the Bank shall be the Administrator of the
Plan. All answers to questions of interpretation regarding the Plan which are
issued by the Board of Directors shall be final and binding upon all persons
having an interest in the Plan.
SECTION V
REGULATORY EXCLUSIONS
Notwithstanding anything herein to the contrary, any payments made
hereunder pursuant to the Plan, or otherwise, shall be subject to and
conditioned upon compliance with 12 U.S.C.ss. 1828(k) and any regulations
promulgated thereunder.
Notwithstanding any other provision, any non-vested Director Emeritus
Fees shall not be paid to a Participant who has been removed from the Board of
Directors pursuant to 12 U.S.C.ss. 1818(e).
-3-
<PAGE>
SECTION VI
PARTICIPANT'S RIGHT TO ASSETS
The rights of the Participant, any Beneficiary, or any other person
claiming through the Participant under this Plan, shall be solely those of an
unsecured general creditor of the Bank. The Participant, him Beneficiary, or any
other person claiming through the Participant, shall only have the right to
receive from the Bank those payments so specified under this Plan. The
Participant agrees that he, his Beneficiary, or any other person claiming
through him shall have no rights or interests whatsoever in any asset of the
Bank, including any insurance policies or contracts, which the Bank may possess
or obtain to informally fund this Plan. Any asset used or acquired by the Bank
in connection with the liabilities it has assumed under this Plan, unless
expressly provided herein, shall not be deemed to be held under any trust for
the benefit of the Participant or his Beneficiaries, nor shall any asset be
considered security for the performance of the obligations of the Bank. Any such
asset shall be and remain, a general, unpledged, and unrestricted asset of the
Bank.
SECTION VII
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Plan. The
Participant, his Beneficiary or any successor in interest to him shall be and
remain simply a general unsecured creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation. The
Bank reserves the absolute right in its sole discretion to either purchase
assets to meet its obligations undertaken by this Plan or to refrain from the
same and to determine the extent, nature, and method of such asset purchases.
Should the Bank decide to purchase assets such as life insurance, mutual funds,
disability policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such assets at any time, in whole or in part. At
no time shall the Participant be deemed to have any lien, right, title or
interest in or to any specific investment or to any assets of the Bank. If the
Bank elects to invest in a life insurance, disability or annuity policy upon the
life of the Participant, then the Participant shall assist the Bank by freely
submitting to a physical examination and by supplying such additional
information necessary to obtain such insurance or annuities.
SECTION VIII
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Participant nor any Beneficiary under this Plan shall have
any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Participant
or his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Participant or any
Beneficiary attempts assignment, communication,
-4-
<PAGE>
hypothecation, transfer or disposal of the benefits hereunder, the Bank's
liabilities shall forthwith cease and terminate.
SECTION IX
CLAIMS PROCEDURE AND ARBITRATION
In the event that benefits under this Plan are not paid to the
Participant (or to his Beneficiary in the case of the Participant's death) and
such claimants feel they are entitled to receive such benefits, then a written
claim must be made to the Administrator 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, it shall provide in writing, within
ninety (90) days of receipt of such claim, the specific reasons for such denial,
reference to the provisions of this Plan upon which the denial is based, and any
additional material or information necessary to perfect the claim. Such writing
by the Administrator shall further indicate the additional steps which must be
undertaken by claimants if an additional review of the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim denial.
Claimants may review this Plan, any documents relating thereto and submit any
issues and comments, in writing, they may feel appropriate. In its sole
discretion, the Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such claim. This decision
shall state the specific reasons for the decision and shall include reference to
specific provisions of this Plan upon which the decision is based. If such
determination is favorable to the claimant, it shall be binding and conclusive.
If such determination is adverse to such claimant, it shall be binding and
conclusive unless the claimant (i) notifies the Administrator within 90 days
after receipt by the claimant of the Administrator's determination, that the
claimant intends to institute legal proceedings challenging the determination of
the Administrator, and (ii) actually institutes such legal proceedings within
180 days of receipt by the claimant of the Administrator's determination.
SECTION X
LIMITATIONS ON LIABILITY
Notwithstanding any of the preceding provisions of the Plan, no
individual acting as an employee or agent of the Bank, or as a member of the
Board of Directors, shall be liable to the Participant or any other person for
any claim, loss, liability or expense incurred in connection with the Plan,
except that in the event that the Bank denies a claim for a benefit hereunder
and it is later determined that such benefit is due and payable to Participant,
either under the procedures provided for herein or by a court of appropriate
jurisdiction or otherwise, then Participant shall be entitled to reimbursement
by the Bank of any cost incurred by Participant in obtaining such benefit,
including reasonable attorneys' fees.
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SECTION XI
SUCCESSORS AND ASSIGNS
This Plan shall be a contractual obligation of any successor(s) to the
Bank and shall be legally enforceable as if it were in force by the Bank at all
times.
SECTION XII
GOVERNING LAW
This Plan shall be governed and construed in accordance with the laws
of the state of Indiana.
SECTION XIII
SEVERABILITY
In the event any provision of this Plan shall be held illegal, invalid
or unenforceable such holding or determination shall not invalidate or render
unenforceable any other provision herein.
SECTION XIV
GENDER
Whenever in this Plan words are used in the masculine or neuter gender,
they shall be read and construed as in the masculine, feminine, or neuter
gender, whenever they should so apply.
SECTION XV
HEADING
Headings and sub-headings in this Plan are inserted for reference and
convenience only and shall not be deemed a part of this Plan.
SECTION XVI
AMENDMENT/TERMINATION
The Board of Directors may amend, modify, suspend or terminate this
Plan at any time, provided, however, that any amendment, modification,
suspension or termination shall not affect the rights of participants to
payments to which they are otherwise entitled pursuant to Section III of the
Plan.
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<PAGE>
SECTION XVII
EXECUTION
17.1 This Plan 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 Plan.
17.2 This Plan shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies
together shall constitute one and the same instrument.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the Bank and the Participant have caused this Plan
to be executed on this 18th day of March, 1996.
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ Steven L. Banks
President
(Title)
Date
By: /s/ John Dalton
Participant
March 18, 1997
Date
-8-
<PAGE>
FIRST AMENDMENT
TO THE
DIRECTOR EMERITUS AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Director Emeritus Agreement ("Agreement") dated March 1, 1996,
between First Federal Savings Bank of Marion and John M. Dalton as follows:
The following Section II is added to the Agreement with all subsequent sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Director and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here above:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ Steven L. Banks
Title: Executive Vice President
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Exhibit 10(24)
FIRST FEDERAL SAVINGS BANK OF MARION
DIRECTOR EMERITUS PLAN
This Director Emeritus Plan (the "Plan"), effective as of the 1st day
of March, 1996, formalizes the understanding by and between FIRST FEDERAL
SAVINGS BANK OF MARION (the "Bank"), a federally chartered savings bank, and
JACK O. MURRELL, hereinafter referred to as "Participant."
SECTION I
PURPOSE
The purpose of the Plan is (i) to honor, reward and recognize directors
who have provided long and faithful service to the Bank, (ii) to ensure
continued service on the board by such directors until retirement age, (iii) to
encourage such long-term directors to relinquish their formal positions on the
board, upon reaching retirement age, and instead to provide on-going Advisory
Services to the Bank via their role as Emeritus Directors and (iv) generally, to
create a structure which will facilitate orderly transitions as new directors
replace retiring directors.
SECTION II
DEFINITIONS
2.1 "Advisory Services" means (i) advice and consultation provided to the
Bank by the Director Emeritus, as requested from time to time by the
Board of Directors or by any officer designated by the Board of
Directors and (ii) attendance at a minimum of four formal meetings held
by the Board of Directors during each consecutive twelve (12) month
period following commencement of his Advisory Services. A Participant
shall commence providing Advisory Services upon the later of: (i) the
first day of the month following the date of the Participant's
designation as Director Emeritus or (ii) the first day of April, 1998
and shall continue for the remainder of the Participant's life, unless
such Participant becomes unwilling or unable to provide such Advisory
Services.
2.2 "Bank" means FIRST FEDERAL SAVINGS BANK OF MARION or any company
successor or predecessor thereto by merger, consolidation, liquidation
or other reorganization.
23 "Beneficiary" means the individual(s) (and their heirs) or entity(ies)
designated as Beneficiary in Exhibit A of the Plan to whom certain
benefits are payable under this Plan. The Beneficiary designation may
be changed at any time by submitting to the Administrator, in
substantially the form attached hereto as Exhibit A, a written
designation of the primary and/or secondary Beneficiaries to whom
payment shall be made under the Plan. If no Beneficiary is so
designated, then the Participant's Spouse, if living, will be deemed
the Beneficiary. If the Participant's Spouse is not living, then the
Children of the Participant will
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be deemed the Beneficiaries and will take on a per stirpes basis. If
there are no Children, then the Estate of the Participant will be
deemed the Beneficiary.
2.4 "Benefit Period" shall mean the period of time during which the
Director Emeritus shall be entitled to receive Director Emeritus Fees.
Benefit payments shall be made in equal monthly installments,
commencing on the date the Participant begins providing Advisory
Services and ceasing on the date the Participant discontinues his
Advisory Services.
2.5 "Burial Benefit" means a one-time lump sum death benefit in the amount
of Ten Thousand ($10,000.00) Dollars. This benefit is specifically for
the purpose of providing payment for burial and/or funeral expenses of
the Participant. Such benefit shall be payable to the Participant's
Beneficiary within thirty (30) days of the Participant's death.
2.6 "Children" means all natural or adopted children of the Participant,
and issue of any predeceased child or children.
2.7 "Director Emeritus" means a Participant who (i) has terminated service
on the Board of Directors (for any reason other than Removal For
Cause), (ii) has attained the eligibility requirements set forth in
Section III of the Plan, and (iii) shall serve as an adviser and
consultant to the Board of Directors following designation as a
Director Emeritus by the Board of Directors. In providing Advisory
Services to the Board of Directors, it is acknowledged that the
Director Emeritus is not bound by the fiduciary duties of a director,
but rather to the lesser duties required of an adviser or consultant.
2.8 "Director Emeritus Fee" means Fifty Percent (50%) of the monthly Board
fee which the Participant was receiving most recently prior to his
designation as a Director Emeritus. The Director Emeritus Fee shall be
paid annually, in equal monthly installments, and shall be payable for
the Benefit Period.
2.9 "Effective Date" of the Plan is March 1st, 1996.
2.10 "Estate" means the estate of the Participant.
2.11 "Participant" means any director who is a member of the Board of
Directors of the Bank on the Effective Date of this Plan and who is
designated by the Board of Directors to participate in the Plan. Any
Participant subject to a Removal For Cause from the Board of Directors
shall no longer be a Participant in the Plan and shall have no rights
to any benefits covered by this Agreement.
2.12 "Removal For Cause" shall mean termination of the Participant's service
on the Board of Directors prior to his designation as a Director
Emeritus, due to the Participant's personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than
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<PAGE>
traffic violations or infractions), or final cease-and-desist order, or
gross negligence in matters of material importance to the Bank.
2.13 "Spouse" means the individual to whom the Participant is legally
married at the time of the Participant's death.
SECTION III
BENEFITS
3.1 Director Emeritus. A Participant shall become a Director Emeritus if
such Participant retires from service on the Board of Directors after
having attained the eligibility requirements of sixty (60) years of age
with twenty (20) years of continuous service on the Board of Directors.
Such Director Emeritus shall be entitled to receive the Director
Emeritus Fee during the Benefit Period in exchange for his Advisory
Services. The Beneficiary of a Director Emeritus shall receive the
Burial Benefit on behalf of the Director Emeritus. No other benefits
shall be due to the Participant (or his Beneficiary) under this
Agreement.
3.2 Participant. A Participant not receiving benefits under Subsection 3.1
above, shall be covered by this Subsection 3.2. The Beneficiary of such
Participant shall receive the Burial Benefit on the Participant's
behalf. No other benefits shall be due to the Participant (or his
Beneficiary) under this Agreement.
SECTION IV
ADMINISTRATION
The Board of Directors of the Bank shall be the Administrator of the
Plan. All answers to questions of interpretation regarding the Plan which are
issued by the Board of Directors shall be final and binding upon all persons
having an interest in the Plan.
SECTION V
REGULATORY EXCLUSIONS
Notwithstanding anything herein to the contrary, any payments made
hereunder pursuant to the Plan, or otherwise, shall be subject to and
conditioned upon compliance with 12 U.S.C.ss. 1828(k) and any regulations
promulgated thereunder.
Notwithstanding any other provision, any non-vested Director Emeritus
Fees shall not be paid to a Participant who has been removed from the Board of
Directors pursuant to 12 U.S.C.ss. 1818(e).
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<PAGE>
SECTION VI
PARTICIPANT'S RIGHT TO ASSETS
The rights of the Participant, any Beneficiary, or any other person
claiming through the Participant under this Plan, shall be solely those of an
unsecured general creditor of the Bank. The Participant, him Beneficiary, or any
other person claiming through the Participant, shall only have the right to
receive from the Bank those payments so specified under this Plan. The
Participant agrees that he, his Beneficiary, or any other person claiming
through him shall have no rights or interests whatsoever in any asset of the
Bank, including any insurance policies or contracts, which the Bank may possess
or obtain to informally fund this Plan. Any asset used or acquired by the Bank
in connection with the liabilities it has assumed under this Plan, unless
expressly provided herein, shall not be deemed to be held under any trust for
the benefit of the Participant or his Beneficiaries, nor shall any asset be
considered security for the performance of the obligations of the Bank. Any such
asset shall be and remain, a general, unpledged, and unrestricted asset of the
Bank.
SECTION VII
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Plan. The
Participant, his Beneficiary or any successor in interest to him shall be and
remain simply a general unsecured creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation. The
Bank reserves the absolute right in its sole discretion to either purchase
assets to meet its obligations undertaken by this Plan or to refrain from the
same and to determine the extent, nature, and method of such asset purchases.
Should the Bank decide to purchase assets such as life insurance, mutual funds,
disability policies or annuities, the Bank reserves the absolute right, in its
sole discretion, to terminate such assets at any time, in whole or in part. At
no time shall the Participant be deemed to have any lien, right, title or
interest in or to any specific investment or to any assets of the Bank. If the
Bank elects to invest in a life insurance, disability or annuity policy upon the
life of the Participant, then the Participant shall assist the Bank by freely
submitting to a physical examination and by supplying such additional
information necessary to obtain such insurance or annuities.
SECTION VIII
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Participant nor any Beneficiary under this Plan shall have
any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber in advance any of the benefits payable
hereunder, nor shall any of said benefits be subject to seizure for the payment
of any debts, judgments, alimony or separate maintenance owed by the Participant
or his Beneficiary, nor be transferable by operation of law in the event of
bankruptcy, insolvency or otherwise. In the event the Participant or any
Beneficiary attempts assignment, communication,
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<PAGE>
hypothecation, transfer or disposal of the benefits hereunder, the Bank's
liabilities shall forthwith cease and terminate.
SECTION IX
CLAIMS PROCEDURE AND ARBITRATION
In the event that benefits under this Plan are not paid to the
Participant (or to his Beneficiary in the case of the Participant's death) and
such claimants feel they are entitled to receive such benefits, then a written
claim must be made to the Administrator 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, it shall provide in writing, within
ninety (90) days of receipt of such claim, the specific reasons for such denial,
reference to the provisions of this Plan upon which the denial is based, and any
additional material or information necessary to perfect the claim. Such writing
by the Administrator shall further indicate the additional steps which must be
undertaken by claimants if an additional review of the claim denial is desired.
If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim denial.
Claimants may review this Plan, any documents relating thereto and submit any
issues and comments, in writing, they may feel appropriate. In its sole
discretion, the Administrator shall then review the second claim and provide a
written decision within sixty (60) days of receipt of such claim. This decision
shall state the specific reasons for the decision and shall include reference to
specific provisions of this Plan upon which the decision is based. If such
determination is favorable to the claimant, it shall be binding and conclusive.
If such determination is adverse to such claimant, it shall be binding and
conclusive unless the claimant (i) notifies the Administrator within 90 days
after receipt by the claimant of the Administrator's determination, that the
claimant intends to institute legal proceedings challenging the determination of
the Administrator, and (ii) actually institutes such legal proceedings within
180 days of receipt by the claimant of the Administrator's determination.
SECTION X
LIMITATIONS ON LIABILITY
Notwithstanding any of the preceding provisions of the Plan, no
individual acting as an employee or agent of the Bank, or as a member of the
Board of Directors, shall be liable to the Participant or any other person for
any claim, loss, liability or expense incurred in connection with the Plan,
except that in the event that the Bank denies a claim for a benefit hereunder
and it is later determined that such benefit is due and payable to Participant,
either under the procedures provided for herein or by a court of appropriate
jurisdiction or otherwise, then Participant shall be entitled to reimbursement
by the Bank of any cost incurred by Participant in obtaining such benefit,
including reasonable attorneys' fees.
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<PAGE>
SECTION XI
SUCCESSORS AND ASSIGNS
This Plan shall be a contractual obligation of any successor(s) to the
Bank and shall be legally enforceable as if it were in force by the Bank at all
times.
SECTION XII
GOVERNING LAW
This Plan shall be governed and construed in accordance with the laws
of the state of Indiana.
SECTION XIII
SEVERABILITY
In the event any provision of this Plan shall be held illegal, invalid
or unenforceable such holding or determination shall not invalidate or render
unenforceable any other provision herein.
SECTION XIV
GENDER
Whenever in this Plan words are used in the masculine or neuter gender,
they shall be read and construed as in the masculine, feminine, or neuter
gender, whenever they should so apply.
SECTION XV
HEADING
Headings and sub-headings in this Plan are inserted for reference and
convenience only and shall not be deemed a part of this Plan.
SECTION XVI
AMENDMENT/TERMINATION
The Board of Directors may amend, modify, suspend or terminate this
Plan at any time, provided, however, that any amendment, modification,
suspension or termination shall not affect the rights of participants to
payments to which they are otherwise entitled pursuant to Section III of the
Plan.
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<PAGE>
SECTION XVII
EXECUTION
17.1 This Plan 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 Plan.
17.2 This Plan shall be executed in triplicate, each copy of which, when so
executed and delivered, shall be an original, but all three copies
together shall constitute one and the same instrument.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the Bank and the Participant have caused this Plan
to be executed on this 18th day of March, 1996.
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
President
(Title)
March 18, 1997
Date
By: /s/ Jack Murrell
Participant
Date
-8-
<PAGE>
FIRST AMENDMENT
TO THE
DIRECTOR EMERITUS AGREEMENT
OF
FIRST FEDERAL SAVINGS BANK OF MARION
MARION, INDIANA
This First Amendment ("Amendment"), dated the 1st day of December, 1996, hereby
amends the Director Emeritus Agreement ("Agreement") dated March 1, 1996,
between First Federal Savings Bank of Marion and Jack O. Murrell as follows:
The following Section II is added to the Agreement with all subsequent sections
renumbered accordingly:
SECTION II
ESTABLISHMENT OF RABBI TRUST
The Bank shall establish a rabbi trust into which the Bank shall
contribute assets which shall be held, managed and invested, pursuant to the
agreement which establishes such rabbi trust (the "rabbi trust agreement"). The
Bank intends to make a contribution or contributions to the rabbi trust to
provide the Bank with a source of funds to assist it in meeting obligations
under this Agreement. The trust assets shall be subject to the claims of the
Bank's creditors in the event of the Bank's "Insolvency" as defined in the rabbi
trust agreement, until the trust assets are paid to the Director and his
Beneficiary in such manner and at such times as specified in this Agreement.
Contribution(s) to the rabbi trust shall be made in accordance with the rabbi
trust agreement.
IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed
in triplicate, the day and year written here above:
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
Title: President
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Exhibit 10(25)
CONTINGENT EXECUTIVE SUPPLEMENTAL
RETIREMENT INCOME AGREEMENT
This Executive Supplemental Retirement Income Agreement (the
"Agreement"), effective as of the 1st day of December, 1996, formalizes the
understanding by and between First Federal Savings Bank of Marion (the "Bank"),
a federally chartered savings bank, and Steven L. Banks, hereinafter referred to
as "Executive."
WITNESSETH:
WHEREAS, the Executive is employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed
for it by such Executive and wishes to encourage continued employment; and
WHEREAS, the Bank wishes to provide the Executive with retirement
benefits to which he would otherwise be entitled under the Bank's tax-qualified
pension plan but for the Executives' Termination of Service followed by a Change
in Control; and
WHEREAS, the Bank and the Executive wish to provide the terms and
conditions upon which the Bank shall pay such additional compensation to the
Executive subsequent to his Termination of Service followed by a Change in
Control; and
WHEREAS, the Bank and the Executive intend this Agreement to be
considered an unfunded arrangement, maintained primarily to provide supplemental
retirement income for such Executive, a member of a select group of management
or a highly compensated employee of the Bank, for tax purposes and for purposes
of the Employee Retirement Income Security Act of 1974, as amended; and
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<PAGE>
WHEREAS, the Bank has adopted this Agreement which controls all issues
relating to the Benefit as described herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein contained, the Bank and the Executive agree as follows:
SECTION I
DEFINITIONS
When used herein, the following words and phrases shall have the
meanings below unless the contact clearly indicates otherwise:
1.1 "Accrued Benefit" means any portion of the Benefit which is required to
be expensed and accrued under generally accepted accounting principles
(GAAP) by any appropriate method which the Bank's Board of Directors
may require in the exercise of its sole discretion.
1.2 "Act" means the Employee Retirement Security Act of 1974, as amended
from time to time.
1.3 "Bank" means First Federal Savings Bank of Marion and any successor
thereto.
1.4 "Beneficiary" means the person or persons (and their heirs) designated
as Beneficiary in Exhibit A of this Agreement to whom the deceased
Executive's benefits are payable. If no Beneficiary is so designated,
then the Executive's Spouse, if living, will be deemed the Beneficiary.
If the Executive's Spouse is not living, then the Children of the
Executive will be deemed the Beneficiaries and will take on a per
stirpes basis. If there are no Children, then the Estate of the
Executive will be deemed the Beneficiary.
1.5 "Benefit Age" means the Executive's sixty-fifth (65th) birthday.
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<PAGE>
1.6 "Benefit Eligibility Date" means the date on which the Executive is
entitled to receive any benefit(s) pursuant to Subsection 2.1 or 2.2 of
this Agreement. It shall be the first day of the month following the
month in which the Executive attains his Benefit Age.
1.7 "Cause" means 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 Bank.
1.8 "Change in Control" of the Bank shall mean and include the following:
(1) a Change in Control of a nature that would be required to be
reported in response to Item 1 (a) of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or
(2) a change in control of the Bank within the meaning of 12
C.F.R. 574.4; or
(3) a Change in Control at such time as
(i) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule l3d-3 under
the Exchange Act), directly or indirectly, of
securities of the Bank representing Twenty (20.0%)
Percent or more of the combined voting power of the'
Bank's outstanding securities ordinarily having the
right to vote at the election of Directors, except
for any stock purchased by the Bank's Employee Stock
Ownership Plan and/or trust; or
(ii) individuals who constitute the board of directors on
the date hereof (the "Incumbent Board") cease for any
reason to constitute at least a majority thereof,
provided that any person becoming a director
subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose
nomination for election
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by the Bank's shareholders was approved by the Bank's
nominating committee which is comprised of members of
the Incumbent Board, shall be, for purposes of this
clause (ii), considered as though he were a member of
the Incumbent board; or
(iii) merger, consolidation, or sale of all or
substantially all of the assets of the Bank occurs;
or
(iv) a proxy statement is issued soliciting proxies from
the stockholders of the Bank by someone other than
the current management of the Bank, seeking
stockholder approval of a plan of reorganization,
merger, or consolidation of the Bank with one or more
corporations as a result of which the outstanding
shares of the class of the Bank's securities are
exchanged for or converted into cash or property or
securities not issued by the Bank.
1.9 "Children" means all natural and adopted children of the Executive, and
issue of any predeceased child or children.
1.10 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
1.11 "Effective Date" of this Agreement shall be December 1, 1996.
1.12 "Estate" means the estate of the Executive.
1.13 "Benefit" means an annual amount equal to what the Executive would have
been entitled to under the Bank's qualified pension plan but for the
Executive's Termination of Service followed by a Change in Control.
1.14 "Interest Factor" means monthly compounding, discounting, or
annuitizing as applicable, at Seven and 89/100th's Percent (7.89%) per
annum.
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1.15 "Payout Period" means the time frame during which certain benefits
payable hereunder shall be distributed. Payments shall be made in equal
monthly installments commencing on the first day of the month following
the occurrence of the event which triggers distribution and continuing
for a period of one hundred eighty (180) months.
1.16 "Spouse" means the individual to whom the Executive is legally married
at the time of the Executive's death.
SECTION II
BENEFITS
2.1 Benefit - Termination Other than for Cause. If the Executive's
Termination of Service is prior to his reaching his Benefit Age, for
any reason other than for (i) Cause (which is covered in subsection
2.3) or (ii) related to a Change in Control (which is covered in
Subsection 2.2), the Executive (or his Beneficiary) shall be entitled
to a stream of monthly installments based on the Executive's Benefit.
(a) If, after such Termination of Service, the Executive dies
prior to attaining his Benefit Age, the stream of monthly
installments payable to the Beneficiary shall commence within
thirty (30) days of the Executive's death.
(b) If, after such termination, the Executive lives until
attaining his Benefit Age, the stream of monthly installments
payable to the Executive shall commence on the Executive's
Benefit Eligibility Date. In the event the Executive dies
prior to completion of all such monthly installments, the Bank
shall pay to the Executive's Beneficiary a continuation of the
monthly installments for the remainder of the Payout Period.
2.2 Termination of Service Related to a Change in Control.
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(a) If the Executive's Termination of Service (as defined in this
Subsection) is related to a Change in Control, the Executive
shall be entitled to receive his Benefit upon attainment of
his Benefit Age, payment of which shall commence on his
benefit Eligibility Date. In the event the Executive dies at
any time after attaining his Benefit Age, but prior to
completion of all such payments due and owing hereunder, the
Bank shall pay to the Executive's Beneficiary a continuation
of the monthly installments for the remainder of the Payout
Period.
(b) For purposes of this Subsection, "Termination of Service"
shall include the following:
If, at any time following said Change in Control, (i)
the employment of the Executive is involuntarily
terminated by the Bank, or (ii) voluntarily
terminated by the Executive after: (a) a material
change in the Executive's function, duties, or
responsibilities, which change would cause the
Executive's position to become one of lesser
responsibility, importance, or scope from the
position the Executive held at the time of the Change
in Control, (b) a relocation of the Executive's
principal place of employment by more than thirty
(30) miles from its location prior to the Change in
Control, or (c) a material reduction in the benefits
and perquisites to the Executive from those being
provided at the time of the Change in Control.
(c) Should the Executive die after being terminated following a
Change in Control, but prior to commencement of the Excess
Benefit, his Beneficiary shall be entitled to receive the
Survivor's Benefit, payment of which shall commence within
thirty (30) days following the Executive's death.
2.3 Termination for Cause. If the Executive is terminated for Cause, all
benefits under this Agreement shall be forfeited and this Agreement shall become
null and void.
2.4 Non-Competition During and After Employment. In consideration of the
agreements of the Bank contained herein and of the payments to be made by the
Bank pursuant hereto, the Executive
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<PAGE>
hereby agrees that, so long as he remains employed by the Bank, he will devote
substantially all of his time, skill, diligence and attention to the business of
the Bank, and will not actively engage, either directly or indirectly, in any
business or other activity which is or may be deemed to be in any way
competitive with or adverse to the best interests of the business of the Bank.
SECTION III
BENEFICIARY DESIGNATION
The Executive shall make an initial designation of primary and
secondary Beneficiaries upon execution of this Agreement and shall have the
right to change such designation, at any subsequent time, by submitting to the
Administrator in substantially the form attached as Exhibit to this Agreement, a
written designation of primary and secondary Beneficiaries. Any Beneficiary
designation made subsequent to execution of this Agreement shall become
effective only when receipt thereof is acknowledged in writing by the
Administrator.
SECTION IV
EXECUTIVE'S RIGHT TO ASSETS
The rights of the Executive, any Beneficiary, or other person claiming
through the Executive under this Agreement, shall be solely those of an
unsecured general creditor of the Bank. The Executive, the Beneficiary, or any
other person claiming through the Executive, shall only have the right to
receive from the Bank those payments so specified under this Agreement. The
Executive agrees that he, his Beneficiary or any other person claiming through
him shall have no rights or interests whatsoever in any asset of the bank,
including any insurance policies or contracts which the Bank may possess or
obtain to informally fund this Agreement. Any asset used or acquired by the Bank
in connection with the liabilities it has assumed under this Agreement, unless
expressly provided herein, shall not be deemed to be held under any trust for
the benefit of the Executive or his Beneficiaries, nor shall any asset be
considered security for the performance of the obligations
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of the Bank. Any such asset shall be and remain, a general, unpledged, and
unrestricted asset of the Bank.
SECTION V
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement. The
Executive, his Beneficiaries or any successor in interest to him shall be and
remain simply a general unsecured creditor of the Bank in the same manner as any
other creditor having a general claim for matured and unpaid compensation. The
Bank reserves the absolute right in its sole discretion to either purchase
assets to meet its obligations undertaken by this Agreement or to refrain from
the same and to determine the extent, nature, and method of such asset
purchases. Should the Bank decide to purchase assets such as life insurance,
mutual funds, disability policies or annuities, the Bank reserves the absolute
right, in its sole discretion, to terminate such assets at any time, in whole or
In part. At no time shall the Executive be deemed to have any lien, right, title
or interest in or to any specific investment or to any assets of the Bank. If
the Bank elects to invest in a life insurance, disability or annuity policy upon
the life of the Executive, then the Executive shall assist the Bank by freely
submitting to a physical examination and by supplying such additional
information necessary to obtain such insurance or annuities.
SECTION VI
ALIENABILITY AND ASSIGNMENT PROHIBITION
Neither the Executive nor any Beneficiary under this Agreement shall
have any power or right to transfer, assign, anticipate, hypothecate, mortgage,
commute, modify or otherwise encumber
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in advance any of the benefits payable hereunder, nor shall any of said benefits
be subject to seizure for the payment of any debts, judgments, alimony or
separate maintenance owed by the Executive or his Beneficiary, nor be
transferable by operation of law in the event of bankruptcy, insolvency or
otherwise. In the event the Executive or any Beneficiary attempts assignment,
communication, hypothecation, transfer or disposal of the benefits hereunder,
the Bank's liabilities shall forthwith cease and terminate.
SECTION VII
ACT PROVISIONS
7.1 Named Fiduciary and Administrator. The Bank shall be the Named
Fiduciary and Administrator (the "Administrator") of this Agreement. As
Administrator, the Bank shall be responsible for the management,
control and administration of the Agreement as established herein. The
Administrator may delegate to others certain aspects of the management
and operational responsibilities of the Agreement, including the
employment of advisors and the delegation of ministerial duties to
qualified individuals.
7.2 Claims Procedure and Arbitration. In the event that benefits under this
Agreement are not paid to the Executive (or to his Beneficiary in the
case of the Executive's death) and such claimants feel they are
entitled to receive such benefits, then a written claim must be made to
the Administrator within sixty (60) days from the date payments are
refused. The Bank and its Board of Directors shall provide in writing,
within ninety (90) days of receipt of such claim, their specific
reasons for such denial, reference to the provisions of this Agreement
upon which the denial is based, and any additional material or
information necessary to perfect the claim. Such writing by the Bank
and its Board of Directors shall further indicate the additional steps
which must be undertaken by claimants if an additional review of the
claim denial is desired.
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If claimants desire a second review, they shall notify the
Administrator in writing within sixty (60) days of the first claim
denial. Claimants may review this Agreement or any documents relating
thereto and submit any issues and comments, in writing, they may feel
appropriate. In its sole discretion, the Administrator shall then
review the second claim and provide a written decision within sixty
(60) days of receipt of such claim. This decision shall state the
specific reasons for the decision and shall include reference to
specific provisions of this Agreement upon which the decision is based.
If claimants continue to dispute the benefit denial based upon
completed performance of this Agreement or the meaning and effect of
the terms and conditions thereof, then claimants may submit the dispute
to a Board of Arbitration for final arbitration. Said Board of
Arbitration shall consist of one member selected by the claimant, one
member selected by the Bank, and the third member selected by the first
two members. The Board of Arbitration shall operate under any generally
recognized set of arbitration rules. The parties hereto agree that
they, their heirs, personal representatives, successors and assigns
shall be bound by the decision of such Board of Arbitration with
respect to any controversy properly submitted to it for determination.
SECTION VIII
MISCELLANEOUS
8.1 No Effect on Employment Rights. Nothing contained herein will confer
upon the Executive the right to be retained in the service of the Bank
nor limit the right of the Bank to discharge or otherwise deal with the
Executive without regard to the existence of the Agreement. Pursuant to
12 C.F.R. ss. 563.39(b), the following conditions shall apply to this
agreement:
(1) The Bank's Board of Directors may terminate the Executive at
any time, but any termination by the Bank's Board of directors
other than termination for Cause shall not prejudice the
Executive's vested right to compensation or other benefits
under the contract. As provided in Section 2.3, the Executive
shall forfeit his right to all
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benefits provided for in the Agreement in the event he is
terminated for Cause. He shall have no right to receive
additional compensation or other benefits for any period after
termination for Cause.
(2) If the Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a
notice served under Section 8(e)(3) or (g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1) the
Bank's obligations under the contract shall be suspended
(except vested rights) as of the date of termination of
service unless stayed by appropriate proceedings. If the
charges in the notice are dismissed, the Bank may in its
discretion (i) pay the Executive all or part of the
compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its
obligations which were suspended.
(3) If the Executive is terminated and/or permanently prohibited
from participating in the conduct of the Bank's affairs by an
order issued under Section 8(e)(4) or (g)(1) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1), all
non-vested obligations of the Bank under the contract shall
terminate as of the effective date of the order.
(4) If the Bank is in default (as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act), all non-vested obligations
under the contract shall terminate as of the date of default.
(5) All non-vested obligations under the contract shall be
terminated, except to the extent determined that continuation
of the contract is necessary for the continued operation of
the Bank.
(i) by the Director [of the Office of Thrift Supervision
or any successor agency] or his designee at the time
the Federal Deposit Insurance corporation or the
Resolution Trust Corporation enters into an agreement
to provide assistance to or on behalf of the Bank
under the authority contained in ss.13(c) of the
Federal Deposit Insurance Act; or
(ii) by the Director [of the Office of Thrift Supervision
or any successor agency] or his designee, at the time
the Director or his designee approves a
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supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined
by the Director to be in an unsafe or unsound
condition.
Any rights of the parties that have already vested, (i.e., the
Executive's Accrued Benefit), however, shall not be affected
by such action.
8.2 State Law. The Agreement is established under, and will be construed
according to, the laws of the State of Indiana, to the extent such laws
are not preempted by the Act and valid regulations published
thereunder.
8.3 Severability. 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: (1) insofar as is reasonable, effect
will be given to the intent manifested in the provisions held invalid
or inoperative, and (2) the validity and enforceability of the
remaining provisions will not be affected thereby.
8.4 Incapacity of Recipient. In the event the Executive is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the
agreement to which such Executive is entitled shall be paid to such
conservator or other person legally charged with the care of his person
or Estate.
8.5 Unclaimed Benefit. The Executive shall keep the Bank informed of his
current address and the current address of his beneficiaries. If the
location of the Executive is not made known to the Bank within three
(3) years after the date on which any payment of the Excess Benefit may
first be made, payment may be made as though the Executive had died at
the end of the three (3) year period. If, within one (l) additional
year after such three (3) year period has elapsed, or, within three (3)
years after the actual death of the Executive, whichever comes first,
the Bank is unable to locate any Beneficiary of the Executive, the Bank
may fully discharge its obligation by payment to the Estate.
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8.6 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Agreement, no individual acting as an employee or
agent of the Bank, or as a member of the board of directors shall be
personally liable to the Executive or any other person for any claim,
loss, liability or expense incurred in connection with the Agreement.
8.7 Gender. Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
8.8 Effect on Other Corporate Benefit Agreements. Nothing contained in this
Agreement shall affect the right of the Executive to participate in or
be covered by any qualified or non-qualified pension, profit sharing,
group, bonus or other supplemental compensation or fringe benefit
agreement constituting a part of the Bank's existing or future
compensation structure.
8.9 Inurement. This Agreement shall be binding upon and shall inure to the
benefit of the Bank, its successors and assigns, and the Executive, his
successors, heirs, executors, administrators, and Beneficiaries.
8.10 Tax Withholding. The Bank may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as shall be
required pursuant to any law or governmental regulation then in effect.
8.11 Headings. Headings and sub-headings in this agreement are inserted for
reference and convenience only and shall not be deemed a part of this
Agreement.
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SECTION IX
AMENDMENT/REVOCATION
This Agreement shall not be amended, modified or revoked at any time,
in whole or part, without the mutual written consent of the Executive and the
Bank, and such mutual written consent shall be required even if the Executive is
no longer employed by the Bank.
SECTION X
EXECUTION
10.1 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
the Agreement.
10.2 This Agreement shall be executed in triplicate, each copy of which,
when so executed and delivered, shall be an original, but all three
copies shall together constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
on this 1st day of December, 1996.
FIRST FEDERAL SAVINGS BANK OF MARION
By: /s/ John Dalton
By: /s/ Steven L. Banks
Executive - Steven L. Banks
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Exhibit 10(26)
FIRST FEDERAL SAVINGS BANK OF MARION
RABBI TRUST FOR THE
DIRECTOR DEFERRED COMPENSATION MASTER AGREEMENT
AND
DIRECTOR EMERITUS PLAN
This Agreement is made this lst day of December, 1996 by and between
FIRST FEDERAL SAVINGS BANK OF MARION, a federally chartered savings bank, having
its principal place of business in Marion, Indiana, (the "Bank"), and INDIANA
FEDERAL BANK FOR SAVINGS, a banking organization organized under the laws of the
state of Indiana, (the "Trustee").
WHEREAS, the Bank has adopted the Director Deferred Compensation Plan,
as amended, and the Director Emeritus Plan, as amended, (both plans hereinafter
collectively referred to as "Director Plans") with such plans having been made
effective as of the 1st day of May 1992 and the lst day of March 1996,
respectively.
WHEREAS, Bank has incurred or expects to incur liability under the
terms of the Director Plans with respect to the individual(s) participating in
the Director Plans.
WHEREAS, Bank wishes to establish a trust (the "Trust") and to
contribute to the Trust assets that shall be held therein, subject to the claims
of Bank's creditors in the event of Bank's Insolvency, as herein defined, until
paid to Director Plans participants and their beneficiaries in such manner and
at such times as specified in the Director Plans.
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Director Plans as an unfunded Director Plans, maintained primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees, for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended.
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WHEREAS, it is the intention of Bank to make contributions to the Trust
to provide itself with a source of funds to assist it in the meeting of its
liabilities under the Director Plans.
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
1. ESTABLISHMENT OF TRUST.
(A) Bank hereby deposits with Trustee in trust assets which shall
become the principal of the Trust to be held, administered and
disposed of by Trustee as provided in this Trust Agreement.
(B) The Trust hereby established shall be irrevocable.
(C) The Trust is intended to be a grantor trust, of which Bank is
grantor, within the meaning of subpart E. part I, subchapter
J, subtitle A of the Internal Revenue Code of 1986, as
amended, and shall be construed accordingly.
(D) The principal of the Trust, and any earnings thereon shall be
held separate and apart from other funds of Bank and shall be
used exclusively for the uses and purposes of Director Plans
participants and general creditors as herein set forth.
Director Plans participants and their beneficiaries shall have
no preferred claim on, or any beneficial ownership interest
in, any assets of the Trust. Any rights created under the
Director Plants and this Trust Agreement shall be mere
unsecured contractual rights of Director Plans participants
and their beneficiaries against Bank. Any assets held by the
Trust will be subject to the claims of Bank's general
creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(E) Within seventy-five (75) days following the end of each
calendar year, Bank shall be required to irrevocably deposit
additional cash or other property to the Trust in an amount
sufficient to pay each Director Plans participant or
beneficiary the benefits payable pursuant to the terms of the
Director Plans as of the close of the calendar year.
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(F) Upon (i) a Change in Control (as defined herein) or (ii) the
death of a participant during service but prior to "Benefit
Age" (as such term is defined in the Director Plans), Bank
shall as soon as possible, but in no event longer than
seventy-five (75) days following such event, make an
additional irrevocable contribution to the Trust in an amount
that is sufficient to pay each Director Plans participant or
beneficiary the benefits to which Plan participants or their
beneficiaries would be entitled pursuant to the terms of the
Director Plans as of the date such event occurred.
2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
(A) Bank shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of
each Director Plans participant (and his or her
beneficiaries), that provides a formula or other instructions
acceptable to Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for
or available under the Director Plans), and the time of
commencement for payment of such amounts. Except as otherwise
provided herein, Trustee shall make payments to the Director
Plans participants and their beneficiaries in accordance with
such Payment Schedule. The Trustee shall make provision for
the reporting and withholding of any federal, state, or local
taxes that may be required to be withheld with respect to the
payment of benefits pursuant to the terms of the Director
Plans and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported,
withheld and paid by Bank.
(B) The entitlement of a Director Plans participant or his or her
beneficiaries to benefits under the Director Plans shall be
determined by Bank or such party as it shall designate under
the Director Plans, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the
Director Plans.
(C) Bank may make payment of benefits directly to Director Plans
participants or their beneficiaries as they become due under
the terms of the Director Plans. Bank shall notify Trustee of
its decision to make payment of benefits directly prior to the
time
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amounts are payable to participants or their beneficiaries. In
addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in
accordance with the terms of the Director Plans, Bank shall
make the balance of each such payment as it falls due. Trustee
shall notify Bank where principal and earnings are not
sufficient.
3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARY WHEN BANK IS INSOLVENT
(A) Trustee shall cease payment of benefits to Director Plans
participants and their beneficiaries if the Bank is Insolvent.
Bank shall be considered "Insolvent" for purposes of this
Trust Agreement if (i) Bank is unable to pay its debts as they
become due, (ii) Bank is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code, or (iii) Bank
is determined to be insolvent by the Director of the Federal
Deposit Insurance Corporation or the Resolution Trust
Corporation.
(B) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of Bank under
federal and state law as set forth below.
(i) The Board of Directors and the Chief Executive
Officer of Bank shall have the duty to inform Trustee
in writing of Bank's Insolvency. If a person claiming
to be a creditor of Bank alleges in writing to
Trustee that Bank has become Insolvent, Trustee shall
determine whether Bank is Insolvent and, pending such
determination, Trustee shall discontinue payment of
benefits to Director Plans participants or their
beneficiaries.
(ii) Unless Trustee has actual knowledge of Bank's
Insolvency, or has received notice from Bank or
person claiming to be a creditor alleging that Bank
is Insolvent, Trustee shall have no duty to inquire
whether Bank is Insolvent. Trustee may in all events
rely on such evidence concerning Bank's solvency
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as may be furnished to Trustee and that provides
Trustee with a reasonable basis for making a
determination concerning Bank's solvency.
(iii) If at any time Trustee has determined that Bank is
Insolvent, Trustee shall discontinue payments to
Director Plans participants or their beneficiaries
and shall hold the assets of the Trust for the
benefit of Bank's general creditors. Nothing in this
Trust Agreement shall in any way diminish any rights
of Director Plans participants or their beneficiaries
to pursue their rights as general creditors of Bank
with respect to benefits due under the Director Plans
or otherwise.
(iv) Trustee shall resume the payment of benefits to
Director Plans participants or their beneficiaries in
accordance with Section 2 of this Trust Agreement
only after Trustee has determined that Bank is not
Insolvent (or is no longer Insolvent).
(C) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant
to Section 3(b) hereof and subsequently resumes such payments,
the first payment following such discontinuance shall include
the aggregate amount of all payments due to Director Plans
participants or their beneficiaries under the terms of the
Director Plans for the period of such discontinuance, less the
aggregate amount of any payments made to Director Plans
participants or their beneficiaries by Bank in lieu of the
payments provided for hereunder during any such period of
discontinuance.
4. PAYMENTS TO BANK.
Except as provided in Sections 3 or 12 hereof, after the Trust has
become irrevocable, Bank shall have no right or power to direct Trustee to
return to Bank or to divert to others any of the Trust assets before all payment
of benefits have been made to Director Plans participants and their
beneficiaries pursuant to the terms of the Director Plans.
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5. INVESTMENT AUTHORITY.
Trustee shall maintain all investments deposited upon establishment of
the trust (and listed on Exhibit A), until such time as the investments reach
maturity. Liquidation of such investments prior to maturity shall only be
allowable by the Trustee if (i) there is insufficient cash in the trust at the
time a benefit payment is due under the Director Plans and (ii) with knowledge
of such insufficiency, the Bank affirmatively chooses not to pay any or all of
the benefit payment due from Bank assets held outside the trust itself. As the
investments listed on Exhibit A mature, the Trustee's investment authority, with
respect to the proceeds from such investments, shall be subject to the
following:
(A) In no event may Trustee invest in securities (including stock
or rights to acquire stock) or obligations issued by Bank,
other than a de minimis amount held in common investment
vehicles in which Trustee invests, except where such de
minimis investment is prohibited by applicable banking
regulations. All rights associated with assets of the Trust
shall be exercised by Trustee or the person designated by
Trustee, and shall in no event be exercisable by or rest with
Director Plans participants.
(B) Trustee shall have the following powers and authority in the
administration of the assets of Trust, in addition to those
vested in it elsewhere in this Trust or by law:
(i) To invest and reinvest the assets of Trust, without
distinction between principal and income, in any kind
of property, real, personal or mixed, tangible or
intangible, and in any kind of investment, security
or obligation suitable for the investment of Trust
assets, including federal, state and municipal
tax-free obligations and other tax-free investment
vehicles, insurance policies and annuity contracts,
and any common trust fund, group trust, pooled fund,
or other commingled investment fund maintained by the
Trustee or any other bank or entity for trust
investment purposes;
(ii) To purchase, and maintain as owner, life insurance
policies with respect to participants;
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(iii) To sell for cash or on credit, to grant options,
convert, redeem, exchange for other securities or
other property, or otherwise to dispose of, any
security or other property at any time held;
(iv) To settle, compromise or submit to arbitration, any
claims, debts or damages, due or owing to or from the
Trust, to commence or defend suits or legal
proceedings and to represent the Trust in all suits
or legal proceedings;
(v) To exercise any conversion privilege and/or
subscription right available in connection with
securities or other property at any time held, to
oppose or to consent to the reorganization,
consolidation, merger or readjustment of the finances
of any corporation, Bank or association or to the
sale, mortgage, pledge or lease of the property of an
corporation, Bank or association any of the
securities of which may at any time be held and to do
any act with reference thereto, including the
exercise of options, the making of agreement or
subscription, which may be deemed necessary or
advisable in connection therewith, and to hold and
retain any securities or other properties so
acquired;
(vi) To hold cash uninvested for a reasonable period of
time (not in excess of ten (10) days) under the
circumstances without liability for interest, pending
investment thereof or the payment of expenses or
making distributions therewith;
(vii) To form corporations and to create trusts to hold
title to any securities or other property, all upon
such terms and conditions as may be deemed advisable;
(viii) To register any securities held hereunder in the name
of the Trustee or in the name of a nominee with or
without the addition of words indicating that such
securities are held in a fiduciary capacity and to
hold any securities in bearer form;
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(ix) To make, execute and deliver, as Trustee, any and all
conveyances, contracts, waivers, releases or other
instruments in writing necessary or proper for the
accomplishment of any of the foregoing powers;
(x) To employ suitable agents and counsel and to pay
their reasonable expenses and compensation; and
(xi) To have any and all other power of authority, under
the laws of the state in which the Trustee's
principal executive offices are located, relevant to
performance in the capacity as Trustee.
6 . DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
7. ACCOUNTING BY TRUSTEE.
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between Bank
and Trustee. Within ninety (90) days following the close of each calendar year
and within sixty (60) days after the removal or resignation of Trustee, Trustee
shall deliver to Bank a written account of its administration of the Trust
during such year or during the period from the close of the last preceding year
to the date of such removal or resignation, setting forth all investments,
receipts, disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest paid or receivable
being shown separately), and showing all cash, securities and other property
held in the Trust at the end of such year or as of the date of such removal or
resignation, as the case may be.
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8. RESPONSIBILITY OF TRUSTEE.
(A) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person
acting in like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and
with like aims, provided, however, that Trustee shall incur no
liability to any person for any action taken pursuant to a
direction, request or approval given by Bank which is
contemplated by, and in conformity with, the terms of the
Director Plans or this Trust and is given in writing by Bank.
In the event of a dispute between Bank and a party, Trustee
may apply to a court of competent jurisdiction to resolve the
dispute.
(B) If Trustee undertakes or defends any litigation arising in
connection with this Trust, except litigation arising out of
the Trustee's negligence or breach of fiduciary duty, Bank
agrees to indemnify Trustee against Trustee's costs, expenses
and liabilities (including, without limitation, attorney's
fees and expenses) relating thereto and to be primarily liable
for such payments. If Bank does not pay such costs, expenses
and liabilities in a reasonable manner, Trustee may obtain
payment from the Trust.
(C) Trustee may consult with legal counsel (who may also be
counsel for Bank generally) with respect to any of its duties
or obligations hereunder.
(D) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to
assist it in performing any of its duties or obligations
hereunder.
(E) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided
otherwise herein, provided, however, that if an insurance
policy is held as an asset of the Trust, Trustee shall have no
power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of
the policy to a different form) other than to a successor
Trustee, or to loan to any person the proceeds of any
borrowing against such policy.
(F) Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have
any power that could give this Trust the
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objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant
to the Internal Revenue Code.
9. FEES AND EXPENSES OF TRUSTEE.
Bank shall pay all administrative and Trustee's fees and expenses. If
not so paid, the fees and expenses shall be paid from the Trust.
10. RESIGNATION AND REMOVAL OF TRUSTEE.
(A) Trustee may resign at any time by written notice to Bank,
which shall be effective sixty (60) days after receipt of such
notice unless Bank and Trustee agree otherwise.
(B) Trustee may be removed by Bank on sixty (60) days prior
written notice or upon shorter notice accepted by Trustee.
(C) Upon a Change of Control, as defined herein, Trustee may not
be removed by Bank for two (2) years following the date of
such Change in Control, nor may such Trustee be removed by
Bank in anticipation of a Change of Control.
(D) If Trustee resigns at any time following a Change in Control,
or if Trustee is removed by Bank at any time following the
expiration of the two (2) year period (as described in Subpart
(c) above) following a Change in Control, Trustee shall select
a successor Trustee in accordance with the provisions of 11(a)
hereof prior to the effective date of Trustee's resignation or
removal. In all other instances of resignation or removal,
Bank shall select a successor Trustee in accordance with the
provisions of 11(a) hereof prior to the effective date of
Trustee's resignation or removal.
(E) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within fifteen (15) days after receipt of notice of
resignation, removal or transfer, unless Bank extends the time
limit.
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(F) If Trustee resigns or is removed under paragraph (a), (b), or
(d) of this Section 10, a successor shall be appointed in
accordance with Section 11 hereof, by the effective date of
resignation or removal. If no such appointment has been made,
Trustee or Bank (as specified above) may apply to a court of
competent jurisdiction for appointment of a successor or for
instructions. Should the Trustee be required to apply to a
court of competent jurisdiction for such purpose, all expenses
of Trustee in connection with the proceeding shall be allowed
as administrative expenses of the Trust.
11. APPOINTMENT OF SUCCESSOR.
(A) If Trustee resigns or is removed pursuant to the provisions of
Section 10 hereof, Bank or Trustee (as specified above) may
appoint any third party, such as a bank trust department or
other party that may be granted corporate trustee powers under
state law, as a successor to replace Trustee upon resignation
or removal. The appointment of a successor Trustee shall be
effective when accepted in writing by the new Trustee. The new
Trustee shall have all of the rights and powers of the former
Trustee, including ownership rights in the Trust assets. The
former Trustee shall execute any instrument necessary or
reasonably requested by the successor Trustee to evidence the
transfer.
(B) The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing Trust
assets, subject to Sections 7 and 8 hereof. The successor
Trustee shall not be responsible for and Bank shall indemnify
and defend the successor Trustee from any claim or liability
resulting from any action or inaction of any prior Trustee or
from any other past event, or any condition existing at the
time it becomes successor Trustee.
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<PAGE>
12. AMENDMENT OR TERMINATION.
(A) This Trust Agreement may be amended by a written instrument
executed by Trustee and Bank. Notwithstanding the foregoing,
no such amendment shall conflict with the terms of the
Director Plans or shall make the Trust revocable after it has
become irrevocable in accordance with Section 1(b) hereof.
(B) The Trust shall not terminate until the date on which Director
Plans participants and their beneficiaries are no longer
entitled to benefits pursuant to the terms of the Director
Plans. Upon termination of the Trust any assets remaining in
the Trust shall be returned to Bank.
(C) Upon written approval of participants or beneficiaries
entitled to payment of benefits pursuant to the terms of the
Director Plans, Bank may terminate this Trust prior to the
time all benefit payments under the Director Plans have been
made. All assets in the Trust at termination shall be returned
to Bank.
(D) Sections 1 (one), 2 (two), 6 (six), 10 (ten) and 12 (twelve)
of this Trust Agreement may not be amended by Bank (i) in
anticipation of or (ii) for two (2) years following a Change
of Control, as defined herein.
13. MISCELLANEOUS.
(A) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(B) Benefits payable to Director Plans participants and their
beneficiaries under this Trust Agreement may not be
anticipated, assigned (either at law or in equity), alienated,
pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(C) This Trust Agreement shall be governed by and construed in
accordance with the laws of the state in which the Trustee's
principal executive offices are located.
(D) For purposes of this Trust, Change of Control shall mean:
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(i) a change of control of a nature that would be
required to be reported in response to Item 1 of the
current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (hereinafter the
"Exchange Act"); or
(ii) a change of control of the Bank within the meaning of
12 C.F.R.ss.574.4; or
(iii) a change of control at such time as:
(a) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities
of the Bank representing Twenty Percent
(20%) or more of the combined voting power
of the Bank's outstanding securities
ordinarily having the right to vote at the
elections of Directors except for (i) any
stock of the Bank purchased by the Holding
Company in connection with the conversion of
the Bank to stock form, and (ii) any stock
purchased by any Employee Stock Ownership
Director Plans and/or trust sponsored by the
Bank; or
(b) individuals who constitute the Board of
Directors on the date hereof (hereinafter
the "Incumbent Board") cease for any reason
to constitute at least a majority thereof,
provided that any person becoming a Director
subsequent to the date hereof whose election
was approved by a vote of at least
three-quarters of the Directors comprising
the Incumbent Board, or whose nomination for
election by the Bank's members (or
stockholders) was approved by the Bank's
Nominating Committee which is comprised of
members of the Incumbent Board, shall be,
for purposes of this clause (ii), considered
as though he were a member of the Incumbent
Board; or
(c) merger, consolidation, or sale of all or
substantially all the assets of the Bank
occurs; or
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<PAGE>
(d) a proxy statement is issued soliciting
proxies from the members (or stockholders)
of the Bank by someone other than the
current management of the Bank, seeking
member (or stockholder) approval of a
Director Plans of reorganization, merger, or
consolidation of the Bank with one or more
corporations as a result of which the
outstanding shares of the class of the
Bank's securities are exchanged for or
converted into cash or property or
securities not issued by the Bank. For these
purposes, the terms "stockholders(s)" and
"member(s)" shall be considered one and the
same. The term "Holding Company" shall mean
the holding company (including any successor
thereto) organized to acquire the capital
stock of the Bank upon the Bank's conversion
from mutual to stock form.
14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be the 1st day of
December, 1996.
IN WITNESS WHEREOF, this instrument has been executed as of the day and
year first written above.
FIRST FEDERAL SAVINGS BANK
(Bank)
Attest: /s/ Larry G. Phillips By:/s/ John Dalton
(Title:)President
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<PAGE>
INDIANA FEDERAL BANK FOR SAVINGS
(Trustee)
Attest: /s/ B. Hall By:/s/ Timothy Scamell
(Title:)
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Exhibit 10(27)
FIRST FEDERAL SAVINGS BANK OF MARION
RABBI TRUST FOR THE
EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME PLANS
AND
EXCESS BENEFIT PLANS
This Agreement is made this 1st day of December, 1996 by and between
FIRST FEDERAL SAVINGS BANK OF MARION, a federally chartered savings institution,
having its principal place of business in Marion, Indiana, (the "Bank"), and
INDIANA FEDERAL BANK FOR SAVINGS, a banking organization organized under the
laws of the state of Indiana, (the "Trustee").
WHEREAS, the Bank has adopted the Restated Executive Supplemental
Retirement Income Plan, the Executive Supplemental Retirement Income Plans
(collectively the "SERPs") and the Excess Benefit Plan ("Excess Plan") with the
SERPs, effective as of the 1st day of December and Excess Plans effective as of
the 28th day of February, 1996, respectively, which all are non-qualified
deferred compensation plan.
WHEREAS, Bank has incurred or expects to incur liability under the
terms of the Plan with respect to the individual(s) participating in the Plan.
WHEREAS, Bank wishes to establish a trust (the "Trust") and to
contribute to the Trust assets that shall be held therein, subject to the claims
of Bank's creditors in the event of Bank's Insolvency, as herein defined, until
paid to Plan participants and their beneficiaries in such manner and at such
times as specified in the Plan.
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan, maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees,
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended.
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<PAGE>
WHEREAS, it is the intention of Bank to make contributions to the Trust
to provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plan.
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
1. ESTABLISHMENT OF TRUST.
(A) Bank hereby deposits with Trustee in trust assets which shall
become the principal of the Trust to be held, administered and
disposed of by Trustee as provided in this Trust Agreement.
(B) The Trust hereby established shall be irrevocable.
(C) The Trust is intended to be a grantor trust, of which Bank is
grantor, within the meaning of subpart E. part I, subchapter
J, chapter 1, subtitle A of the Internal Revenue Code of 1986,
as amended, and shall be construed accordingly.
(D) The principal of the Trust, and any earnings thereon shall be
held separate and part from other funds of Bank and shall be
used exclusively for the uses and purposes of Plan
participants and general creditors as herein set forth. Plan
participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets
of the Trust. Any rights created under the Plan and this Trust
Agreement shall be mere unsecured contractual rights of Plan
participants and their beneficiaries against Bank. Any assets
held by the Trust will be subject to the claims of Bank's
general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(E) Within seventy-five (75) days following the end of each
calendar year, Bank shall be required to irrevocably deposit
additional cash or other property to the Trust in an amount
sufficient to pay each Plan participant or beneficiary the
benefits payable pursuant to the terms of the Plan as of the
close of the calendar year.
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<PAGE>
(F) Upon (i) a Change in Control (as defined herein) or (ii) the
death of a participant during service but prior to "Benefit
Age" (as such term is defined in the Plan), Bank shall as soon
a possible, but in no event longer than seventy-five (75) days
following such event, make an additional irrevocable
contribution to the Trust in an amount that is sufficient to
pay each Plan participant or beneficiary the benefits to which
Plan participants or their beneficiaries would be entitled
pursuant to the terms of the Plan as of the date such event
occurred.
2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
(A) Bank shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of
each Plan participant (and his or her beneficiaries), that
provides a formula or other instructions acceptable to Trustee
for determining the amounts so payable, the form in which such
amount is to be paid (as provided for or available under the
Plan), and the time of commencement for payment of such
amounts. Except as otherwise provided herein, Trustee shall
make payments to the Plan participants and their beneficiaries
in accordance with such Payment Schedule. The Trustee shall
make provision for the reporting and withholding of any
federal, state, or local taxes that may be required to be
withheld with respect to the payment of benefits pursuant to
the terms of the Plan and shall pay amounts withheld to the
appropriate taxing authorities or determine that such amounts
have been reported, withheld and paid by Bank.
(B) The entitlement of a Plan participant or his or her
beneficiaries to benefits under the Plan shall be determined
by Bank or such party as it shall designate under the Plan,
and any claim for such benefits shall be considered and
reviewed under the procedures set out in the Plan.
(C) Bank may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under
the terms of the Plan. Bank shall notify Trustee of its
decision to make payment of benefits directly prior to the
time amounts
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<PAGE>
are payable to participants or their beneficiaries. In
addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in
accordance with the terms of the Plan, Bank shall make the
balance of each such payment as it falls due. Trustee shall
notify Bank where principal and earnings are not sufficient.
3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARY WHEN BANK IS INSOLVENT.
(A) Trustee shall cease payment of benefits to Plan participants
and their beneficiaries if the Bank is Insolvent. Bank shall
be considered "Insolvent" for purposes of this Trust Agreement
if (i) Bank is unable to pay its debts as they become due,
(ii) Bank is subject to a pending proceeding as a debtor under
the United States Bankruptcy Code, or (iii) Bank is determined
to be insolvent by the Director of the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation.
(B) At all times during the continuance of this Trust, as provided
in Section 1 (d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of Bank under
federal and state law as set forth below.
(i) The Board of Directors and the Chief Executive
Officer of Bank shall have the duty to inform Trustee
in writing of Bank's Insolvency. If a person claiming
to be a creditor of Bank alleges in writing to
Trustee that Bank has become Insolvent, Trustee shall
determine whether Bank is Insolvent and, pending such
determination, Trustee shall discontinue payment of
benefits to Plan participants or their beneficiaries.
(ii) Unless Trustee has actual knowledge of Bank's
Insolvency, or has received notice from Bank or
person claiming to be a creditor alleging that Bank
is Insolvent, Trustee shall have no duty to inquire
whether Bank is Insolvent. Trustee may in all events
rely on such evidence concerning Bank's solvency
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<PAGE>
as may be furnished to Trustee and that provides
Trustee with a reasonable basis for making a
determination concerning Bank's solvency.
(iii) If at any time Trustee has determined that Bank is
Insolvent, Trustee shall discontinue payments to Plan
participants or their beneficiaries and shall hold
the assets of the Trust for the benefit of Bank's
general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of Plan
participants or their beneficiaries and shall hold
the assets of the Trust for the benefit of Bank's
general creditors. Plan participants or their
beneficiaries to pursue their rights as general
creditors of Bank with respect to benefits due under
the Plan or otherwise.
(iv) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance
with Section 2 of this Trust Agreement only after
Trustee has determined that Bank is not Insolvent (or
is no longer Insolvent).
(C) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant
to Section 3(b) hereof and subsequently resumes such payments,
the first payment following such discontinuance shall include
the aggregate amount of all payments due to Plan participants
or their beneficiaries under the terms, of the Plan for the
period of such discontinuance, less the aggregate amount of
any payments made to Plan participants or their beneficiaries
by Bank in lieu of the payments provided for hereunder during
any such period of discontinuance.
4. PAYMENTS TO BANK.
Except as provided in Sections 3 or 12 hereof, after the Trust has
become irrevocable, Bank shall have no right or power to direct Trustee to
return to Bank or to divert to others any of the Trust assets before all payment
of benefits have been made to Plan participants and their beneficiaries pursuant
to the terms of the Plan.
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<PAGE>
5. INVESTMENT AUTHORITY.
Trustee shall maintain all investments deposited upon establishment of
the trust (and listed on Exhibit A), until such time as the investments reach
maturity. Liquidation of such investments prior to maturity shall only be
allowable by the Trustee if (i) there is insufficient cash in the trust at the
time a benefit payment is due under the Plan and (ii) with knowledge of such
insufficiency, the Bank affirmatively chooses not to pay any or all of the
benefit payment due from Bank assets held outside the trust itself. As the
investments listed on Exhibit A mature, the Trustee's investment authority, with
respect to the proceeds from such investments, shall be subject to the
following:
(A) In no event may Trustee invest in securities (including stock
or rights to acquire stock) or obligations issued by Bank,
other than a de minimis amount held in common investment
vehicles in which Trustee invests, except where such de
minimis investment is prohibited by applicable banking
regulations. All rights associated with assets of the Trust
shall be exercised by Trustee or the person designated by
Trustee, and shall in no event be exercisable by or rest with
Plan participants.
(B) Trustee shall have the following powers and authority in the
administration of the assets of Trust, in addition to those
vested in it elsewhere in this Trust or by law:
(i) To invest and reinvest the assets of Trust, without
distinction between principal and income, in any kind
of property, real, personal or mixed, tangible or
intangible, and in any kind of investment, security
or obligation suitable for the investment of Trust
assets, including federal, state and municipal
tax-free obligations and other tax-free investment
vehicles, insurance policies and annuity contracts,
and any common trust fund, group trust, pooled fund,
or other commingled investment fund maintained by the
Trustee or any other bank or entity for trust
investment purposes;
(ii) To purchase, and maintain as owner, life insurance
policies with respect to participants;
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<PAGE>
(iii) To sell for cash or on credit, to grant options,
convert, redeem, exchange for other securities or
other property, or otherwise to dispose of, any
security or other property at any time held;
(iv) To settle, compromise or submit to arbitration, any
claims, debts or damages, due or owing to or from the
Trust, to commence or defend suits or legal
proceedings and to represent the Trust in all suits
or legal proceedings;
(v) To exercise any conversion privilege and/or
subscription right available in connection with
securities or other property at any time held, to
oppose or to consent to the reorganization,
consolidation, merger or readjustment of the finances
of any corporation, Bank or association or to the
sale, mortgage, pledge or lease of the property of an
corporation, Bank or association any of the
securities of which may at any time be held and to do
any act with reference thereto, including the
exercise of options, the making of agreement or
subscription, which may be deemed necessary or
advisable in connection therewith, and to hold and
retain any securities or other properties so
acquired;
(vi) To hold cash uninvested for a reasonable period of
time (not in excess of ten (10) days) under the
circumstances without liability for interest, pending
investment thereof or the payment of expenses or
making distributions therewith;
(vii) To form corporations and to create trusts to hold
title to any securities or other property, all upon
such terms and conditions as may be deemed advisable;
(viii) To register any securities held hereunder in the name
of the Trustee or in the name of a nominee with or
without the addition of words indicating that such
securities are held in a fiduciary capacity and to
hold any securities in bearer form;
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<PAGE>
(ix) To make, execute and deliver, as Trustee, any and all
conveyances, contracts, waivers, releases or other
instruments in writing necessary or proper for the
accomplishment of any of the foregoing powers;
(x) To employ suitable agents and counsel and to pay
their reasonable expenses and compensation; and
(xi) To have any and all other power of authority, under
the laws of the state in which the Trustee's
principal executive offices are located, relevant to
performance in the capacity as Trustee.
6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
7. ACCOUNTING BY TRUSTEE.
Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between Bank
and Trustee. Within ninety (90) days following the close of each calendar year
and within sixty (60) days after the removal or resignation of Trustee, Trustee
shall deliver to Bank a written account of its administration of the Trust
during such year or during the period from the close of the last preceding year
to the date of such removal or resignation, setting forth all investments,
receipts, disbursements and other transactions effected by it, including a
description of all securities and investments purchased and sold with the cost
or net proceeds of such purchases or sales (accrued interest paid or receivable
being shown separately), and showing all cash, securities and other property
held in the Trust at the end of such year or as of the date of such removal or
resignation, as the case may be.
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<PAGE>
8. RESPONSIBILITY OF TRUSTEE.
(A) Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person
acting in like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character and
with like aims, provided, however, that Trustee shall incur no
liability to any person for any action taken pursuant to a
direction, request or approval given by Bank which is
contemplated by, and in conformity with, the terms of the Plan
or this Trust and is given in writing by Bank. In the event of
a dispute between Bank and a party, Trustee may apply to a
court of competent jurisdiction to resolve the dispute.
(B) If Trustee undertakes or defends any litigation arising in
connection with this Trust, except litigation arising out of
the Trustee's negligence or breach of fiduciary duty, Bank
agrees to indemnify Trustee against Trustee's costs, expenses
and liabilities (including, without limitation, attorney's
fees and expenses) relating thereto and to be primarily liable
for such payments. If Bank does not pay such costs, expenses
and liabilities in a reasonable manner, Trustee may obtain
payment from the Trust.
(C) Trustee may consult with legal counsel (who may also be
counsel for Bank generally) with respect to any of its duties
or obligations hereunder.
(D) Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to
assist it in performing any of its duties or obligations
hereunder.
(E) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided
otherwise herein, provided, however, that if an insurance
policy is held as an asset of the Trust, Trustee shall have no
power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of
the policy to a different form) other than to a successor
Trustee, or to loan to any person the proceeds of any
borrowing against such policy.
(F) Notwithstanding any powers granted to Trustee pursuant to this
Trust Agreement or to applicable law, Trustee shall not have
any power that could give this Trust the
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objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant
to the Internal Revenue Code.
9. FEES AND EXPENSES OF TRUSTEE.
Bank shall pay all administrative and Trustee's fees and expenses. If
not so paid, the fees and expenses shall be paid from the Trust.
10. RESIGNATION AND REMOVAL OF TRUSTEE.
(A) Trustee may resign at any time by written notice to Bank,
which shall be effective sixty (60) days after receipt of such
notice unless Bank and Trustee agree otherwise.
(B) Trustee may be removed by Bank on sixty (60) days prior
written notice or upon shorter notice accepted by Trustee.
(C) Upon a Change of Control, as defined herein, Trustee may not
be removed by Bank for two (2) years following the date of
such Change in Control, nor may such Trustee be removed by
Bank in anticipation of a Change of Control.
(D) If Trustee resigns at any time following a Change in Control,
or if Trustee is removed by Bank at any time following the
expiration of the two (2) year period (as described in Subpart
(c) above) following a Change in Control, Trustee shall select
a successor Trustee in accordance with the provisions of 11(a)
hereof prior to the effective date of Trustee's resignation or
removal. In all other instances of resignation or removal,
Bank shall select a successor Trustee in accordance with the
provisions of 11(a) hereof prior to the effective date of
Trustee's resignation or removal.
(E) Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within fifteen (15) days after receipt of notice of
resignation, removal or transfer, unless Bank extends the time
limit.
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<PAGE>
(F) If Trustee resigns or is removed under paragraph (a), (b), or
(d) of this Section 10, a successor shall be appointed in
accordance with Section 11 hereof, by the effective date of
resignation or removal. If no such appointment has been made,
Trustee or Bank (as specified above) may apply to a court of
competent jurisdiction for appointment of a successor or for
instructions. Should the Trustee be required to apply to a
court of competent jurisdiction for such purpose, all expenses
of Trustee in connection with the proceeding shall be allowed
as administrative expenses of the Trust.
11. APPOINTMENT OF SUCCESSOR.
(A) If Trustee resigns or is removed pursuant to the provisions of
Section 10 hereof, Bank or Trustee (as specified above) may
appoint any third party, such as a bank trust department or
other party that may be granted corporate trustee powers under
state law, as a successor to replace Trustee upon resignation
or removal. The appointment of a successor Trustee shall be
effective when accepted in writing by the new Trustee. The new
Trustee shall have all of the rights and powers of the former
Trustee, including ownership rights in the Trust assets. The
former Trustee shall execute any instrument necessary or
reasonably requested by the successor Trustee to evidence the
transfer.
(B) The successor Trustee need not examine the records and acts of
any prior Trustee and may retain or dispose of existing Trust
assets, subject to Sections 7 and 8 hereof. The successor
Trustee shall not be responsible for and Bank shall indemnify
and defend the successor Trustee from any claim or liability
resulting from any action or inaction of any prior Trustee or
from any other past event, or any condition existing at the
time it becomes successor Trustee.
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12. AMENDMENT OR TERMINATION.
(A) This Trust Agreement may be amended by a written instrument
executed by Trustee and Bank. Notwithstanding the foregoing,
no such amendment shall conflict with the terms of the Plan or
shall make the Trust revocable after it has become irrevocable
in accordance with Section 1(b) hereof.
(B) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to
benefits pursuant to the terms of the Plan. Upon termination
of the Trust any assets remaining in the Trust shall be
returned to Bank.
(C) Upon written approval of participants or beneficiaries
entitled to payment of benefits pursuant to the terms of the
Plan, Bank may terminate this Trust prior to the time all
benefit payments under the Plan have been made. All assets in
the Trust at termination shall be returned to Bank.
(D) Sections l (one), 2 (two), 6 (six), 10 (ten) and 12 (twelve)
of this Trust Agreement may not be amended by Bank (i) in
anticipation of or (ii) for two (2) years following a Change
of Control, as defined herein.
13. MISCELLANEOUS.
(A) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(B) Benefits payable to Plan participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered
or subjected to attachment, garnishment, levy, execution or
other legal or equitable process.
(C) This Trust Agreement shall be governed by and construed in
accordance with the laws of the state in which the Trustee's
principal executive offices are located.
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<PAGE>
(D) For purposes of this Trust, Change of Control shall mean and
include the following with respect to the Bank and/or
Northeast Indiana Bancorp, Inc., a bank holding company which
owns all of the stock of the Bank (in this section 13(d)
referred to collectively and individually as the Bank):
(i) a change of control of a nature that would be
required to be reported in response to Item 1 of the
current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (hereinafter the
"Exchange Act"); or
(ii) a change of control of the Bank within the meaning of
12 C.F.R.ss.574.4; or
(iii) a change of control at such time as
(a) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities
of the Bank representing Twenty Percent
(20%) or more of the combined voting power
of the Bank's outstanding securities
ordinarily having the right to vote at the
elections of Directors except for (i) any
stock of the Bank purchased by the Holding
Company in connection with the conversion of
the Bank to stock form, and (ii) any stock
purchased by any Employee Stock Ownership
Plan and/or trust sponsored by the Bank; or
(b) individuals who constitute the Board of
Directors on the date hereof (hereinafter
the "Incumbent Board") cease for any reason
to constitute at least a majority thereof,
provided that any person becoming a Director
subsequent to the date hereof whose election
was approved by a vote of at least
three-quarters of the Directors comprising
the Incumbent Board, or whose nomination for
election by the Bank's members (or
stockholders) was approved by the Bank's
Nominating Committee which is comprised of
members of the Incumbent Board,
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<PAGE>
shall be, for purposes of this clause (ii),
considered as though he were a member of the
Incumbent Board; or
(c) merger, consolidation, or sale of all or
substantially all the assets of the Bank
occurs; or
(d) a proxy statement is issued soliciting
proxies from the members (or stockholders)
of the Bank by someone other than the
current management of the Bank, seeking
member (or stockholder) approval of a plan
of reorganization, merger, or consolidation
of the Bank with one or more corporations as
a result of which the outstanding shares of
the class of the Bank's securities are
exchanged for or converted into cash or
property or securities not issued by the
Bank. For these purposes, the terms
"stockholders(s)" and "member(s)" shall be
considered one and the same. The term
"Holding Company" shall mean the holding
company (including any successor thereto)
organized to acquire the capital stock of
the Bank upon the Bank's conversion from
mutual to stock form.
14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be the 1st day of
December, 1996.
IN WITNESS WHEREOF, this instrument has been executed as of the day and
year first written above.
FIRST FEDERAL SAVINGS BANK
(Bank)
Attest: /s/ Larry G. Phillips By: /s/ John Dalton
(Title:) President
<PAGE>
INDIANA FEDERAL BANK FOR SAVINGS
(Trustee)
Attest: /s/ B. Hall By: /s/ Timothy M. Scamell
(Title:)
-15-
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
---------- ---------- ----------
Primary
<S> <C> <C> <C>
Net income $2,440,194 $2,481,414 $2,429,948
Average number of common shares
outstanding 1,833,493 1,986,376 2,090,600
Add incremental shares for stock options 37,942 47,579 95,537
---------- ---------- ----------
Adjusted average shares 1,871,435 2,033,955 2,186,137
Primary earnings per share $ 1.30 $ 1.22 $ 1.11
========== ========== ==========
Fully Diluted
Net income $2,440,194 $2,481,414 $2,429,948
Average number of common shares
outstanding 1,833,493 1,986,376 2,090,600
Add incremental shares for stock options 42,706 49,624 97,129
---------- ---------- ----------
Adjusted average shares 1,876,199 2,036,000 2,187,729
Fully diluted earnings per share $ 1.30 $ 1.22 $ 1.11
========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Message to Shareholders.................................................... 1
Selected Consolidated Financial Data....................................... 2
Management's Discussion and Analysis....................................... 3
Independent Auditor's Report............................................... 16
Consolidated Statement of Financial Condition.............................. 17
Consolidated Statement of Income........................................... 18
Consolidated Statement of Changes in Shareholders' Equity.................. 19
Consolidated Statement of Cash Flows....................................... 20
Notes to Consolidated Financial Statements................................. 22
Directors and Officers..................................................... 42
Shareholder Information.................................................... 44
- --------------------------------------------------------------------------------
DESCRIPTION OF BUSINESS
- --------------------------------------------------------------------------------
Marion Capital Holdings, Inc. ("MCHI"), an Indiana corporation, became a unitary
savings and loan holding company upon the conversion of First Federal Savings
Bank of Marion ("First Federal" and, together with MCHI, the "Company") from a
federally chartered mutual savings bank to a federally chartered stock savings
bank in March, 1993. The Company conducts business from a single office in
Marion, Grant County, Indiana, and First Federal has a branch office in Decatur,
Indiana. In addition, First Federal anticipates the opening of a branch inside
the Wal-Mart Supercenter in Marion and also expects a branch acquisition in Gas
City, Grant County, Indiana to be completed during fiscal year end June 30,
1998. First Federal is and historically has been among the top real estate
mortgage lenders in Grant County and is the largest independent financial
institution headquartered in Grant County. First Federal offers a variety of
lending, deposit and other financial services to its retail and commercial
customers. MCHI has no other business activity than being the holding company
for First Federal, except that during the year ended June 30, 1997, MCHI
extended a $2.5 million loan to a non-related bank holding company. MCHI is the
sole shareholder of First Federal.
<PAGE>
To Our Shareholders
On June 30, 1997, Marion Capital Holdings, Inc. ended its fourth full year of
operations as a unitary savings and loan holding company. The Company began
operations on March 18, 1993 when First Federal - Marion converted to a federal
stock savings bank. First Federal completed its 61st year on July 20, 1997.
Our net income for the year ended June 30, 1997 was $2,440,000, a decrease of
$41,000 or 1.7% compared to the results for the year ended June 30, 1996. The
decrease in earnings is attributable to the signing of the Omnibus
Appropriations Bill on September 30, 1996, that imposed a special FDIC
assessment for all SAIF-insured deposits. This assessment amounted to $777,000
and is included in other expense for the twelve months ended June 30, 1997. The
after-tax effect on net income was $469,000. Since January 1, 1997, and in
future periods, the Company will benefit from a reduction in FDIC premiums which
should have a positive effect on future earnings. Earnings per share for the
year ended June 30, 1997, was $1.30, an increase of 6.6% over 1996. In June
1997, the Board of Directors increased the quarterly dividend to $.22 per share
from $.20 per share. Net interest income increased in the past year to
$7,026,000 from $6,887,000, an increase of 2.0%. The interest rate spread
increased to 3.21% for the year ended June 30, 1997, from 3.01% for the year
ended June 30, 1996.
Shareholders' equity was $39,066,000 on June 30, 1997, a decrease of $2,445,000
due to the Company's continual repurchase of its common stock in the open
market. During the past year Marion Capital retired 188,887 shares at an average
cost of $21.17. Book value has now increased to $22.09 per share at June 30,
1997 from $21.47 per share on June 30, 1996.
Loans remained strong for this past year, increasing to over $148,000,000 from
$143,000,000 or 3.4%. This was the major reason for the net yield on weighted
average interest-earning assets increasing to 4.29% from 4.17% even though the
yield on mortgage loans decreased from 8.78% for the year ended June 30, 1996 to
8.62% for the year ended June 30, 1997. In June 1997, Marion Capital lost a true
friend of this organization, Robert D. Burchard. Bob passed away on June 26. He
had been Chairman of the Board since August, 1996 and had served First Federal
since 1959. His financial wisdom will be difficult to replace. He is missed by
his family, friends and business associates. He was a friend to the undersigned
for 50 years. All of us are deeply saddened by his passing.
On July 21, 1997 Jon R. Marler was appointed a director to fill the unexpired
term of Robert D. Burchard. Mr. Marler, 47 years of age, is currently Sr. Vice
President of Ralph M. Williams & Associates of Marion, Indiana. He is a lifetime
resident of the Marion area and brings a broad business background to our
organization. Also, during July, 1997 the undersigned, John M. Dalton, was
elected Chairman of the Board.
Looking to the future, we are very enthusiastic with our opportunities. In the
spring of 1997 we asked for and received permission to establish a full-time
sales office in the new Wal-Mart Supercenter in Marion. We were selected over
other financial institutions, and we will be the first full-service, seven days
per week, bank in Grant County, Indiana. We could not build a branch anywhere
with this kind of foot traffic. This sales office should be open in October,
1997. In addition, we will be acquiring the branch office of NBD Bank in Gas
City, Indiana, which is our second largest customer area. It is a natural
expansion of our franchise. We will be receiving approximately $10 million in
deposits and a ten year old facility. This is a strategic location to better
serve our communities.
We appreciate the continued support and confidence of our customers and
shareholders as we proceed into the future. Remember, this is your Bank so be
sure to use it for all your personal and business needs and recommend it to your
friends and neighbors.
/s/ John Dalton
President & Chairman of the Board
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
The following selected consolidated financial data of MCHl and its
subsidiaries is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements, including notes thereto, included
elsewhere in this Annual Report.
<TABLE>
<CAPTION>
AT JUNE 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In Thousands)
Summary of Financial Condition:
<S> <C> <C> <C> <C> <C>
Total assets......................................... $173,304 $177,767 $172,711 $170,799 $173,861
Loans, net........................................... 148,031 143,165 136,323 127,092 133,000
Cash and investment securities....................... 11,468 21,578 23,743 30,863 27,531
Real estate limited partnerships..................... 1,449 1,624 1,527 1,422 1,363
Deposits............................................. 121,770 126,260 120,613 120,965 121,944
Advances from FHLB of Indianapolis................... 8,229 6,241 6,963 3,200 3,075
Shareholders' equity................................. 39,066 41,511 41,864 44,331 46,773
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In Thousands)
Summary of Operating Results:
<S> <C> <C> <C> <C> <C>
Interest income...................................... $13,733 $13,740 $ 12,786 $ 12,391 $ 12,885
Interest expense..................................... 6,707 6,853 5,922 5,872 6,936
--------- --------- ---------- ---------- ----------
Net interest income............................... 7,026 6,887 6,864 6,519 5,949
Provision for losses on loans........................ 58 34 68 65 367
Net interest income after
provision for losses on loans................... 6,968 6,853 6,796 6,454 5,582
--------- --------- ---------- ---------- ----------
Other income:
Net loan servicing fees........................... 86 81 69 62 51
Annuity and other commissions..................... 153 147 144 211 194
Other income...................................... 181 95 76 83 91
Equity in losses of limited partnerships.......... (305) (193) (185) (236) (190)
Gains (losses) on sale of investments ............ -- -- -- 15 (16)
Life insurance income and death benefits.......... 808 117 108 21 205
--------- --------- ---------- ---------- ----------
Total other income................................ 923 247 213 155 335
--------- --------- ---------- ---------- ----------
Other expense:
Salaries and employee benefits.................... 2,881 2,413 2,447 1,991 1,779
Other............................................. 2,170 1,293 1,216 1,634 1,470
--------- --------- ---------- ---------- ----------
Total other expense............................. 5,051 3,706 3,663 3,625 3,249
--------- --------- ---------- ---------- ----------
Income before income tax and accounting
method changes.................................... 2,840 3,394 3,346 2,984 2,668
Income tax expense................................... 400 913 916 715 578
Accounting method changes............................ -- -- -- -- 98
--------- --------- ---------- ---------- ----------
Net Income........................................ $ 2,440 $ 2,481 $ 2,430 $ 2,269 $ 1,992
========= ========= ========== ========== ==========
Supplemental Data:
Book value per common share at end of year........... $ 22.09 $ 21.47 $ 21.08 $ 20.20 $ 19.37
Return on assets (1)................................. 1.40% 1.41% 1.41% 1.29% 1.19%
Return on equity (2)................................. 6.09 5.86 5.58 5.00 6.45
Interest rate spread (3)............................. 3.21 3.01 3.20 2.96 3.08
Net yield on interest earning assets (4)............. 4.29 4.17 4.28 3.97 3.82
Operating expenses to average assets (5)............. 2.89 2.11 2.12 2.05 1.95
Net interest income to operating expenses (6)........ 1.39x 1.86x 1.87x 1.80x 1.83x
Equity-to-assets at end of year (7).................. 22.54 23.35 24.24 25.96 26.90
Average equity to average total assets............... 22.89 24.09 25.27 25.72 18.52
Average interest-earning assets to average
interest-bearing liabilities...................... 126.34 127.93 129.08 128.37 116.65
Non-performing assets to total assets................ .81 1.07 1.13 3.20 4.10
Non-performing loans to total loans.................. .94 1.18 1.27 3.59 3.95
Loan loss reserve to total loans..................... 1.35 1.38 1.45 1.59 1.52
Loan loss reserve to non-performing loans............ 143.98 117.07 114.87 44.21 38.44
Net charge-offs to average loans..................... .02 .03 .08 .05 .46
Number of full service offices....................... 2 2 2 2 2
</TABLE>
(1) Net income divided by average total assets.
(2) Net income divided by average total equity.
(3) Interest rate spread is calculated by subtracting combincd weighted average
interest rate cost from combined weighted average interest rate earned for
the period indicated.
(4) Net interest income divided by average interest-earnings assets.
(5) Other expense divided by average total assets.
(6) Net interest income divided by other expense.
(7) Total equity divided by assets.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The principal business of thrift institutions, including First Federal, has
historically consisted of attracting deposits from the general public and making
loans secured by residential and commercial real estate. First Federal and all
other savings associations are significantly affected by prevailing economic
conditions, as well as government policies and regulations concerning, among
other things, monetary and fiscal affairs, housing and financial institutions.
Deposit flows are influenced by a number of factors, including interest rates
paid on competing investments, account maturities and level of personal income
and savings. In addition, deposit growth is affected by how customers perceive
the stability of the financial services industry amid various current events
such as regulatory changes, failures of other financial institutions and
financing of the deposit insurance fund. Lending activities are influenced by
the demand for and supply of housing lenders, the availability and cost of funds
and various other items. Sources of funds for lending activities include
deposits, payments on loans, proceeds from sale of loans, borrowings, and funds
provided from operations. The Company's earnings are primarily dependent upon
net interest income, the difference between interest income and interest
expense.
Interest income is a function of the balances of loans and investments
outstanding during a given period and the yield earned on such loans and
investments. Interest expense is a function of the amounts of deposits and
borrowings outstanding during the same period and rates paid on such deposits
and borrowings. The Company's earnings are also affected by provisions for loan
and real estate losses, service charges, income from subsidiary activities,
operating expenses and income taxes.
Asset/Liability Management
First Federal, like other savings associations, is subject to interest rate
risk to the degree that its interest-bearing liabilities, primarily deposits
with short and medium-term maturities, mature or reprice at different rates than
its interest-earning assets. Although having liabilities that mature or reprice
less frequently on average than assets will be beneficial in times of rising
interest rates, such an asset/liability structure will result in lower net
income during periods of declining interest rates, unless offset by other
factors.
Since the early 1980's, First Federal's asset/liability management strategy
has been directed toward reducing its exposure to a rise in interest rates. At
June 30, 1997, First Federal's cumulative One-Year Gap, based on total assets,
was a positive 8.22% and has been positive at the end of each quarter since
September 30, 1988. A positive interest rate gap can be expected to have a
favorable effect on the Company's earnings in periods of rising interest rates
because during such periods interest income earned on assets will generally
increase more rapidly than the interest expense paid on liabilities. Conversely,
in a falling interest rate environment, the interest earned on assets will
generally decline more rapidly than the total expense paid on liabilities. A
negative interest rate gap will have the opposite effects. First Federal
protects against problems arising in a falling interest rate environment by
requiring interest rate minimums on its residential and commercial real estate
adjustable-rate mortgages ("ARMs") and against problems arising in a rising
interest rate environment by having in excess of 89% of its mortgage loans with
adjustable rate features. Due to the interest rate minimums, the Company has not
experienced a significant decline in net interest yield in recent periods of
declining interest rates. First Federal's management believes that the interest
rate gap measurement does not accurately depict its interest sensitivity due to
its success in utilizing interest rate minimums. As noted in the table on the
following page, $67.2 million, or 42.8%, of the Company's interest-earning
assets reprice or mature in the 12 months ending June 30, 1998, which could have
a significant impact on future yields and net interest margin. First Federal
includes interest rate minimums on almost all loans originated, and management
believes that these minimums, which establish floors below which the loan
interest rate cannot decline, will continue to reduce its interest rate
vulnerability in a declining interest rate environment. For the loans which do
not adjust because of the interest rate minimums, there is an increased risk of
prepayment. In periods of rising interest rates, the impact on the Company's
yields and net interest margin should be favorable because interest income
earned on its assets will generally increase more rapidly than interest paid on
its liabilities.
<PAGE>
Loan prepayments increased in the year ended June 30, 1997, compared to the
prior fiscal year. Although less than 11% of the Company's residential mortgage
portfolio consists of fixed-rate loans, prepayments could have an impact on
yields and net interest margins in periods of falling interest rates. The net
yield on loans for the year ended June 30, 1997, was 8.62%, a decrease from
8.78% for the the year ended June 30, 1996. While loan yields decreased during
these periods, the net interest margin increased to 4.29% for the year ended
June 30, 1997, from 4.17% in the prior fiscal year. First Federal believes its
asset/liability strategy of maintaining over 89% of the Company's residential
portfolio in ARMs and requiring interest rate minimums on these loans will
continue to protect net interest margins.
The Company's mortgage-backed security portfolio is subject to prepayments,
and for those mortgage-backed securities with variable interest rates, to
changing yields. These prepayments have increased in recent years as the
underlying mortgages have been refinanced at lower interest rates, and interest
rate changes on adjustable-rate mortgage-backed securities could have an effect
on First Federal's asset/liability management strategy. Since the Company's
mortgage-backed security portfolio only represents .14% of the Company's total
assets at June 30, 1997, management believes that such impact would be
insignificant.
The following table illustrates the projected maturities and the repricing
of the major asset and liability categories of First Federal as of June 30,
1997. Maturity and repricing dates have been projected by applying the
assumptions set forth below to contractual maturity and repricing dates.
Classifications of such items in the table below are different from those
presented in other schedules and financial statements included herein and do not
reflect non-performing loans.
<TABLE>
<CAPTION>
At June 30, 1997
Maturing or Repricing Within
----------------------------------------------------------------------------------------
6 Months
0 to 3 3 to 6 to 1 to 3 3 to 5 5 to 10 10 to 20 Over 20
Months Months 1 Year Years Years Years Years Years Total
------ ------ ------ ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustable-rate mortgages $14,461 $18,189 $26,000 $22,725 $40,927 $ 3,377 $ 202 $ 126 $126,007
Fixed-rate mortgages 703 390 1,183 3,521 2,626 4,097 2,311 196 15,027
Nonmortgage loans 2,237 790 625 570 461 2,566 75 --- 7,324
Nonmortgage investments 1,340 --- 1,100 3,000 3,129 --- --- --- 8,569
Mortgage investments 54 48 81 70 (24) (18) (6) --- 205
Off balance sheet assets (1) (4,577) 152 4,425 --- --- --- --- --- ---
Unamortized yield
adjustments (6) (6) (12) (49) (24) (58) (102) (2) (259)
------- ------- ------- ---------- ------- ------- ------- ----- -------
Total interest-earning
assets 14,212 19,563 33,402 29,837 47,095 9,964 2,480 320 156,873
------- ------- ------- ---------- ------- ------- ------- ----- -------
Interest-bearing liabilities
Fixed maturity deposits 14,471 12,038 10,582 37,923 8,839 1,004 --- --- 84,857
Other deposits 4,320 3,447 5,158 9,556 4,375 5,553 3,546 975 36,930
FHLB advances 3,000 196 5 1,671 2,890 40 427 --- 8,229
------- ------- ------- ---------- ------- ------- ------- ----- -------
Total interest-bearing
liabilities 21,791 15,681 15,745 49,150 16,104 6,597 3,973 975 130,016
------- ------- ------- ---------- ------- ------- ------- ----- -------
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities $(7,579) $ 3,882 $17,657 $ (19,313) $30,991 $ 3,367 $(1,493) $(655) $26,857
======= ======= ======= ========== ======= ======= ======= ===== =======
Cumulative excess (deficiency)
of interest-earning assets over
interest-bearing liabilities $(7,579) $(3,697) $13,960 $(5,353) $25,638 $29,005 $27,512 $26,857 $26,857
Cumulative interest rate gap (4.46)% (2.18)% 8.22% (3.15)% 15.09% 17.07% 16.19% 15.81% 15.81%
</TABLE>
(1) Includes loan commitments and loans in process.
<PAGE>
In preparing the table above it has been assumed, in assessing the interest
rate sensitivity of savings institutions, that (i) adjustable-rate first
mortgage loans will prepay at the rate of 12% per year; (ii) fixed-rate first
mortgage loans will prepay at the rate of 10% per maturity classification, and
(iii) nonmortgage loans and investments will not prepay.
In addition, it is assumed that fixed maturity deposits are not withdrawn
prior to maturity, and that other deposits are withdrawn or repriced as follows:
<TABLE>
<CAPTION>
0 to 3 3 to 6 6 months 1 to 3 3 to 5 5 to 10 10 to 20 Over 20
Type months months to 1 year years years years years years
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook (1)................. 4.55% 4.34% 8.11% 25.82% 16.83% 21.37% 14.78% 4.20%
Money market
accounts (1).............. 32.31 21.87 24.82 11.00 5.24 4.01 .72 .03
Interest-bearing
transaction
accounts.................. 10.91 9.72 16.37 33.87 9.06 12.16 6.68 1.22
Noninterest-bearing
transaction
accounts.................. 2.60 2.53 4.87 17.10 13.85 24.18 22.71 12.16
</TABLE>
(1) Based on actual industry and historical experience, management has
determined that these deposit rates and balances respond slowly to changes
in market rates and that balances tend to remain with First Federal even
when market rates rise above deposit rates.
In evaluating the Company's exposure to interest rate movements, certain
shortcomings inherent in the method of analysis presented in the foregoing
tables must be considered. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as ARMs, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. In particular, most of First Federal's ARMs and adjustable-rate loans
have interest rate minimums of 6.00% for residential loans and 7.0% for
commercial real estate loans. Currently, originations of residential ARMs have
interest rate minimums of 6.00%. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate significantly
from those assumed in calculating the table. Finally, the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase although First Federal does underwrite these mortgages at approximately
4.0% above the origination rate. The Company considers all of these factors in
monitoring its exposure to interest rate risk.
<PAGE>
Average Balances and Interest
The following table presents for the periods indicated the monthly average
balances of each category of the Company's interest-earning assets and
interest-bearing liabilities, the interest earned or paid on such amounts, and
the average yields earned and rates paid. Such yields and costs are determined
by dividing income or expense by the average balance of assets or liabilities,
respectively, for the periods presented. Management believes that the use of
month-end average balances instead of daily average balances has not caused any
material difference in the information presented.
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ------------------------------- -----------------------------
Average Average Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-earning deposits........ $ 3,937 $ 264 6.71% $ 4,972 $ 334 6.72% $ 2,531 $ 159 6.28%
Investment securities............ 9,517 528 5.55 17,306 877 5.07 22,674 1,111 4.90
Loans (1) .................... 149,170 12,862 8.62 141,946 12,456 8.78 134,428 11,451 8.52
Stock in FHLB of Indianapolis.... 1,002 79 7.88 927 73 7.87 909 65 7.15
-------- ------ -------- ------ -------- ------
Total interest-earning assets. 163,626 13,733 8.39 165,151 13,740 8.32 160,542 12,786 7.96
Non-interest earning assets........... 11,153 -- 10,762 -- 11,873 --
-------- ------ -------- ------ -------- ------
Total assets................... $174,779 13,733 $175,913 13,740 $172,415 12,786
======== ====== ======== ====== ======== ======
Liabilities and shareholders' equity:
Interest-bearing liabilities:
Savings accounts................. $ 16,681 483 2.90 $18,127 588 3.24 $ 22,582 726 3.21%
NOW and money market accounts.... 19,817 657 3.32 18,718 667 3.56 18,332 593 3.23
Certificates of deposit.......... 85,636 5,104 5.96 84,650 5,089 6.01 77,884 4,221 5.42
-------- ------ -------- ------ -------- ------
Total deposits................ 122,134 6,244 5.11 121,495 6,344 5.22 118,798 5,540 4.66
FHLB borrowings.................. 7,382 463 6.27 6,694 457 6.83 5,574 382 6.85
Other borrowings................. -- -- 901 52 5.77
-------- ------ -------- ------ -------- ------
Total interest-bearing
liabilities................. 129,516 6,707 5.18 129,090 6,853 5.31 124,372 5,922 4.76
Other liabilities .................... 5,259 -- 4,451 -- 4,469
-------- ------ -------- ------ -------- ------
Total liabilities.............. 134,775 -- 133,541 -- 128,841
Shareholders' equity.................. 40,004 -- 42,372 -- 43,574
-------- ------ -------- ------ -------- ------
Total liabilities and
shareholders' equity......... $174,779 6,707 $172,913 6,853 $172,415 5,922
======== ------ ======== ------ ======== ------
Net interest-earning assets........... $ 34,110 $ 36,061 $ 36,170
Net interest income................... $7,026 $ 6,887 $ 6,864
====== ======== ========
Interest rate spread (2).............. 3.21 3.01 3.20
Net yield on weighted average
interest-earning assets (3)...... 4.29 4.17 4.28
Average interest-earning assets
to average
interest-bearing liabilities..... 126.34% 127.93% 129.08%
====== ====== ======
</TABLE>
(1) Average balances include non-accrual loans.
(2) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Interest
Rate Spread."
(3) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated.
Interest Rate Spread
The following table sets forth the weighted average effective interest rate
earned by the Company on its loan and investment portfolios, the weighted
average effective cost of the Company's deposits, the interest rate spread of
the Company, and the net yield on weighted average interest-earning assets for
the period and as of the date shown. Average balances are based on month-end
average balances.
<TABLE>
<CAPTION>
Year Ended June 30,
At ---------------------------------------
June 30, 1997 1997 1996 1995
------------- ------ ---- -----
Weighted average interest rate earned on:
<S> <C> <C> <C> <C>
Interest-earning deposits................. 5.95% 6.71% 6.72% 6.28%
Investment securities..................... 5.94 5.55 5.07 4.90
Loans (1) ............................. 8.49 8.62 8.78 8.52
Stock in FHLB of Indianapolis............. 7.81 7.88 7.87 7.15
Total interest-earning assets......... 8.34 8.39 8.32 7.96
Weighted average interest rate cost of:
Savings accounts.......................... 2.75 2.90 3.24 3.21
NOW and money market accounts............. 3.19 3.32 3.56 3.2
Certificates of deposit................... 6.00 5.96 6.01 5.42
FHLB borrowings........................... 6.14 6.27 6.83 6.85
Other borrowings.......................... --- --- 5.77 ---
Total interest-bearing liabilities.... 5.16 5.18 5.31 4.76
Interest rate spread (2)....................... 3.18 3.21 3.01 3.20
Net yield on weighted average
interest-earning assets (3)............... --- 4.29 4.17 4.28
</TABLE>
(1) Average balances include non-accrual loans.
(2) Interest rate spread is calculated by subtracting combined weighted
average interest rate cost from combined weighted average interest rate
earned for the period indicated. Interest rate spread figures must be
considered in light of the relationship between the amounts of
interest-earning assets and interest-bearing liabilities. Since MCHI's
interest-earning assets exceeded its interest-bearing liabilities for
each of the three years shown above, a positive interest rate spread
resulted in net interest income.
(3) The net yield on weighted average interest-earning assets is calculated
by dividing net interest income by weighted average interest-earning
assets for the period indicated. No net yield figure is presented at June
30, 1997, because the computation of net yield is applicable only over a
period rather than at a specific date.
<PAGE>
The following table describes the extent to which changes in interest rates
and changes in volume of interest-related assets and liabilities have affected
the Company's interest income and expense during the periods indicated. For each
category of interest-earning asset and interest-bearing liability, information
is provided on changes attributable to (1) changes in rate (changes in rate
multiplied by old volume) and (2) changes in volume (changes in volume
multiplied by old rate). Changes attributable to both rate and volume that
cannot be segregated have been allocated proportionally to the change due to
volume and the change due to rate.
Increase (Decrease) in Net Interest Income
<TABLE>
<CAPTION>
Total
Net Due to Due to
Change Rate Volume
--------- --------- -------------
(In Thousands)
Year ended June 30, 1997
compared to year
ended June 30, 1996
Interest-earning assets:
<S> <C> <C> <C>
Interest-earning deposits................... $ (70) $ (1) $ (69)
Investment securities....................... (349) 77 (426)
Loans....................................... 406 (220) 626
Stock in FHLB of Indianapolis............... 6 --- 6
------ ------ -----
Total..................................... (7) (144) 137
------ ------ -----
Interest-bearing liabilities:
Savings accounts............................ (105) (60) (45)
NOW and money market accounts............... (10) (48) 38
Certificates of deposit..................... 15 (44) 59
FHLB advances............................... 6 (39) 45
Other borrowings............................ (52) --- (52)
------ ------ -----
Total..................................... (146) (191) 45
------ ------ -----
Change in net interest income................... $ 139 $ 47 $ 92
====== ====== =====
Year ended June 30, 1996
compared to year
ended June 30, 1995
Interest-earning assets:
Interest-earning deposits................... $ 175 $ 12 $ 163
Investment securities....................... (234) 37 (271)
Loans....................................... 1,005 352 653
Stock in FHLB of Indianapolis............... 8 7 1
------ ------ -----
Total..................................... 954 408 546
------ ------ -----
Interest-bearing liabilities:
Savings accounts............................ (138) 6 (144)
NOW and money market accounts............... 74 61 13
Certificates of deposit..................... 868 484 384
FHLB advances............................... 75 (1) 76
Other borrowings............................ 52 --- 52
------ ------ -----
Total..................................... 931 550 381
------ ------ -----
Change in net interest income................... $ 23 $(142) $ 165
====== ====== =====
</TABLE>
<PAGE>
Changes in Financial Position and Results of Operations - Year Ended June 30,
1997, Compared to Year Ended June 30, 1996:
General. MCHI's total assets were $173.3 million at June 30, 1997, a
decrease of $4.5 million or 2.5% from June 30, 1996. During 1997, average
interest-earnings assets decreased $1.5 million, or .9%, while average
interest-bearing liabilities increased $.4 million, or .3%, compared to June 30,
1996. Cash and cash equivalents and investment securities decreased $10.1
million, or 46.9%, primarily as a result of their use in funding increased loan
originations. Net loans increased $4.9 million, or 3.4%, primarily from
originations of 1- 4 family real estate loans, 1-4 family equity lending, and a
$2.5 million loan to a non-related bank holding company. Certain loans
originated during the year were sold to other investors. All such loan sales
were consummated at the time of origination of the loan, and at June 30, 1997
and 1996, no loans in the portfolio were held for sale. Deposits decreased $4.5
million, to $121.8 million, or 3.6%, at June 30, 1997 from the amount reported
last year.
MCHI's net income for the year ended June 30, 1997 was $2.4 million, a
decrease of $41,000, or 1.7% over the results for the year ended June 30, 1996.
Net interest income increased $139,000, or 2.0%, from the previous year, and
provision for losses on loans in the amount of $58,000 increasd $24,000 from
that recorded in 1996.
Stock Repurchases. During the year ended June 30, 1997, MCHI repurchased
188,887 shares of common stock in the open market at an average cost of $21.17,
or approximately 97.5% of average book value. This repurchase amounted to 9.8%
of the outstanding stock. In May, 1997, MCHI authorized another 87,905 shares,
or 5% of its outstanding stock, to be repurchased. As of June 30, 1997, no
shares had been repurchased. These open-market purchases are intended to enhance
the book value per share and enhance potential for growth in earnings per share.
Cash Dividends. Since First Federal's conversion in March 1993, MCHI has
paid quarterly dividends in each quarter, amounting to $.125 for each of the
first four quarters, $.15 per share for each of the second four quarters, $.18
per share for each of the third four quarters, $.20 per share for each of the
fourth four quarters, and $.22 in the most recent quarter ended June 30, 1997.
Interest Income. MCHI's total interest income for the year ended June 30,
1997 was $13.7 million, which was unchanged from interest income for the year
ended June 30, 1996.
Interest Expense. Total interest expense for the year ended June 30, 1997,
was $6.7 million, which was a decrease of $146,000, or 2.1% from interest
expense for the year ended June 30, 1996. This decrease resulted principally
from a decrease in the cost on interest bearing liabilities from 5.3% to 5.2%
while average interest earning liabilities remained relatively unchanged.
Provision for Losses on Loans. The provision for the year ended June 30,
1997, was 58,000, compared to $34,000 in 1996. The 1997 chargeoffs net of
recoveries totaled $35,000, compared to the prior year of $38,000. The ratio of
the allowance for loan losses to total loans decreased from 1.38% at June 30,
1996 to 1.35% at June 30, 1997, and the ratio of allowance for loan losses to
nonperforming loans increased from 117.07% at June 30, 1996, to 143.98% at June
30, 1997. The 1997 provision was to replenish the allowance for loan losses as a
result of chargeoffs and to maintain management's desired reserve ratios. In
determining the provision for loan losses for the years ended June 30, 1997 and
1996, MCHI considered past loan experience, changes in the composition of the
loan portfolio and the current condition and amount of loans outstanding.
Other Income. MCHI's other income for the year ended June 30, 1997, totaled
$923,000, compared to $247,000 for 1996, an increase of $676,000. This increase
was due primarily to a $691,000 increase in life insurance income and death
benefits. During the year ended June 30, 1997, the Company received death
benefit proceeds from key man life insurance policies in excess of cash
surrender value of the policies. This increase was in part offset by increased
losses from investment in limited partnerships.
<PAGE>
Other Expenses. MCHI's other expenses for the year ended June 30, 1997,
totaled $5.1 million, an increase of $1.3 million, or 36.3%, from the year ended
June 30, 1996. This increase is directly attributable to the signing of the
Omnibus Appropriations Bill September 30, 1996 which imposed a FDIC special
assessment for all institutions with SAIF-insured deposits. SAIF insured
institutions, like the Company, are benefiting from a reduction of FDIC premiums
which began January 1, 1997 and should have a positive effect on future
earnings. In addition, salaries and employee benefits expense increased
$468,000, or 12.6%, due to increases in deferred compensation expense and normal
increases in employee compensation and related payroll taxes.
Income Tax Expense. Income tax expense for the year ended June 30, 1997,
totaled $400,000, a decrease of $513,000 from the expense recorded in 1996. Tax
expense on earnings was offset by certain low-income housing tax credits which
totaled $423,000 for the years ended June 30, 1997 and 1996. Additional tax
credits are available through the year ended June 30, 1998. During the year
ended June 30, 1997, income before income tax decreased, and additional tax free
income from an increase in cash value of life insurance and death benefits was
recorded. As a result, the effective tax expense for the Company was reduced.
Changes in Financial Position and Results of Operations - Year Ended June 30,
1996, Compared to Year Ended June 30, 1995:
General. MCHI's total assets were $177.8 million at June 30, 1996, an
increase of $5.1 million or 2.9% from June 30, 1995. During 1996, average
interest-earnings assets increased $4.6 million, or 2.9%, while average
interest-bearing liabilities increased $4.7 million, or 3.8%, compared to June
30, 1995. Cash and cash equivalents and investment securities decreased $2.2
million, or 9.1%, primarily as a result of their use in funding increased loan
originations. Net loans increased $6.8 million, or 5.0%, primarily from
originations of 1-4 family and multi-family real estate loans. Certain loans
originated during the year were sold to other investors. All such loan sales
were consummated at the time of origination of the loan, and at June 30, 1996
and 1995, no loans in the portfolio were held for sale. Deposits increased $5.6
million, to $126.3 million, or 4.7%, at June 30, 1996 from the amount reported
last year.
MCHI's net income for the year ended June 30, 1996 was $2.5 million, an
increase of $51,000, or 2.1% over the results for the year ended June 30, 1995.
Net interest income increased $23,000, or .3%, from the previous year, and
provision for losses on loans in the amount of $34,200 decreasd $33,300 from
that recorded in 1995.
Stock Repurchases. During the year ended June 30, 1996, MCHI repurchased
100,658 shares of common stock in the open market at an average cost of $20.53,
or approximately 96% of average book value. This repurchase amounted to 5% of
the outstanding stock, the maximum amount of stock that could be repurchased
prior to March 18, 1996 under Office of Thrift Supervision ("OTS") regulations
then in effect, except in special circumstances. This 5% limitation expired on
March 18, 1996. In July, 1996, MCHI repurchased another 96,680 shares, or 5%, at
an average cost of $20.33, or approximately 95% of book value. These open-market
purchases are intended to enhance the book value per share and enhance potential
for growth in earnings per share.
Cash Dividends. Since First Federal's conversion in March 1993, MCHI has
paid quarterly dividends in each quarter, amounting to $.125 for each of the
first four quarters, $.15 per share for each of the second four quarters, $.18
per share for each of the third four quarters, and $.20 per share in the most
recent quarter ended June 30, 1996.
Interest Income. MCHI's total interest income for the year ended June 30,
1996 was $13.7 million, an increase of $954,000, or 7.5%, from interest income
for the year ended June 30, 1995. This increase resulted principally from an
increase in the yield on interest earning assets from 7.96% to 8.32% and an
increase in average interest earning assets of $4.6 million.
Interest Expense. Total interest expense for the year ended June 30, 1996,
was $6.9 million, which was an increase of $931,000, or 15.7% from interest
expense for the year ended June 30, 1995. This increase resulted principally
from an increase in the cost on interest bearing liabilities from 4.76% to 5.31%
and an increase in average interest earning liabilities of $4.7 million.
<PAGE>
Provision for Losses on Loans. The provision for the year ended June 30,
1996, was $34,200, compared to $67,500 in 1995. The 1996 chargeoffs net of
recoveries totaled $38,000, compared to the prior year of $105,000. The ratio of
the allowance for loan losses to total loans decreased from 1.45% at June 30,
1995 to 1.38% at June 30, 1996, and the ratio of allowance for loan losses to
nonperforming loans increased from 114.87% at June 30, 1995, to 117.07% at June
30, 1996. The 1996 provision was to replenish the allowance for loan losses as a
result of chargeoffs and to maintain management's desired reserve ratios. In
determining the provision for loan losses for the years ended June 30, 1996 and
1995, MCHI considered past loan experience, changes in the composition of the
loan portfolio and the current condition and amount of loans outstanding.
Other Income. MCHI's other income for the year ended June 30, 1996, totaled
$247,000, compared to $213,000 for 1995, an increase of $34,000, or 16.0%. This
increase was due in part from increased loan service fees of $12,000.
Other Expenses. MCHI's other expenses for the year ended June 30, 1996,
totaled $3.7 million which was unchanged from the previous year. This represents
the third consecutive year where other expenses have remained relatively
constant. There were no significant changes in any of the other expense
categories.
Income Tax Expense. Income tax expense for the year ended June 30, 1996,
totaled $913,000, a decrease of $3,000 from the expense recorded in 1995. Tax
expense on earnings was offset by certain low-income housing tax credits which
totaled $423,000 and $406,000 for the years ended June 30, 1996 and 1995.
Additional tax credits are available through the year ended June 30, 1998.
Liquidity and Capital Resources
The Company's primary source of funds is its deposits. To a lesser extent,
the Company has also relied upon loan payments and payoffs and Federal Home Loan
Bank ("FHLB") advances as sources of funds. Scheduled loan payments are a
relatively stable source of funds, but loan payoffs and deposit flows can
fluctuate significantly, being influenced by interest rates, general economic
conditions and competition. First Federal attempts to price its deposits to meet
its asset/liability management objectives consistent with local market
conditions. First Federal's access to FHLB advances is limited to approximately
62% of First Federal's available collateral. At June 30, 1997, such available
collateral totaled $98.0 million. Based on existing FHLB lending policies, the
Company could have obtained approximately $53.0 million in additional advances.
First Federal's deposits have remained relatively stable, averaging between
$126 and $121 million, for the three years in the period ended June 30, 1997.
The percentage of IRA deposits to total deposits has increased from 21.0% ($25.4
million) at June 30, 1994, to 24.4% ($29.7 million) at June 30, 1997. During the
same period, deposits in withdrawable accounts have decreased from 37.2% ($45.0
million) of total deposits at June 30, 1994, to 30.3% ($36.9 million) at June
30, 1997. This change in deposit composition, attributable to the higher
interest rates currently paid on longer term certificates, has not had a
significant effect on First Federal's liquidity. The impact on results of
operations from this change in deposit composition has been a reduction in
interest expense on deposits due to a decrease in the average cost of funds. It
is estimated that yields and net interest margin would increase in periods of
rising interest rates since short-term assets reprice more rapidly than
short-term liabilities. In periods of falling interest rates, little change in
yields or net interest margin is expected since First Federal has interest rate
minimums on a significant portion of its interest-earning assets.
Federal regulations have historically required First Federal to maintain
minimum levels of liquid assets. The required percentage has varied from time to
time based upon economic conditions and savings flows. At June 30, 1997, the
requirement was 5.0% subject to reduction for aggregate net withdrawals provided
such ratio is not reduced below 4.0%. Liquid assets for purposes of this ratio
include cash, cash equivalents consisting of short-term interest earning
deposits, certain other time deposits, and other obligations generally having
remaining maturities of less than five years. First Federal has historically
maintained its liquidity ratio at a level in excess of that required. At June
30, 1997, First Federal's liquidity ratio was 8.8% and has averaged 15.8% over
the past three years.
<PAGE>
Liquidity management is both a daily and long-term responsibility of
management. First Federal adjusts liquid assets based upon management's
assessment of (i) expected loan demand, (ii) projected loan sales, (iii)
expected deposit flows, (iv) yields available on interest-bearing deposits, and
(v) the objectives of its asset/liability management program. Excess liquidity
is invested generally in federal funds and mutual funds investing in government
obligations and adjustable-rate or short-term mortgage-related securities. If
First Federal requires funds beyond its ability to generate them internally, it
has additional borrowing capacity with the FHLB of Indianapolis and collateral
eligible for repurchase agreements.
Cash flows for the Company are of three major types. Cash flows from
operating activities consist primarily of net income generated by cash.
Investing activities generate cash flows through the origination, sale and
principal collections on loans as well as the purchases and sales of
investments. Cash flows from financing activities include savings deposits,
withdrawals and maturities and changes in borrowings. The following table
summarizes cash flows for each of the three years in the period ended June 30,
1997:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------
1997 1996 1995
------ ------ -------
(In Thousands)
<S> <C> <C> <C>
Operating activites......................................... $2,149 $3,232 $ 3,181
------- ------ -------
Investing activities:
Investment purchases................................... (6,191) (11,261) (2,418)
Investment maturities.................................. 12,242 17,132 6,684
Net change in loans.................................... (4,687) (6,918) (8,419)
Other investing activities............................. 275 69 183
------- ------ -------
1,639 (978) (3,968)
------- ------ -------
Financing activities:
Deposit increases (decreases).......................... (4,490) 5,647 (352)
Borrowings............................................. 5,000 3,500 5,000
Payments on borrowings................................. (3,012) (4,222) (1,237)
Repurchase of common stock............................. (3,998) (2,066) (3,889)
Dividends paid......................................... (1,495) (1,468) (1,333)
Other financing activities............................. 309 392 64
------- ------ -------
(7,686) 1,783 (1,747)
------- ------ -------
Net change in cash and cash equivalents..................... $(3,898) $4,037 $(2,534)
======= ====== =======
</TABLE>
Investing cash flows for the three years ended June 30, 1997 have resulted
primarily from investment and loan activities. The Company's cash flows from
investments resulted primarily from the purchases and maturities of term federal
funds and securities. Loan sales during the periods are predominantly from the
origination of commercial real estate loans where the principal balance in
excess of the Company's retained amount is sold to a participating financial
institution. These investors are obtained prior to the origination of the loan
and the sale of participating interests does not result in any gain or loss to
the Company.
The Company considers its liquidity and capital resources to be adequate to
meet its foreseeable short and long-term needs. First Federal anticipates that
it will have sufficient funds available to meet current loan commitments and to
fund or refinance, on a timely basis, its other material commitments and
long-term liabilities. At June 30, 1997, First Federal had outstanding
commitments to originate loans of $4.7 million. Certificates of deposit
scheduled to mature in one year or less at June 30, 1997, totalled $37.1
million. Based upon historical deposit flow data, First Federal's competitive
pricing in its market and management's experience, management believes that a
significant portion of such deposits will remain with First Federal. At June 30,
1997, the Company had $3.2 million of FHLB advances which mature in one year or
less.
First Federal has entered into agreements with certain officers and
directors which provide that, upon their death, their beneficiaries will be
entitled to receive certain benefits. These benefits are to be funded primarily
by the proceeds of insurance policies owned by First Federal on the lives of the
officers and directors. If the insurance companies issuing the policies are not
able to perform under the contracts at the dates of death of the officers or
directors, there would be an adverse effect on the Company's operating results,
financial condition and liquidity. Under currently effective capital
regulations, savings associations currently meet a 1.5% tangible capital
requirement, a 3.0% leverage ratio (or core capital) requirement and a total
risk-based capital to risk-weighted assets ratio of 8.0%. At June 30, 1997,
First Federal's tangible capital ratio was 20.6%, its leverage ratio was 20.6%
and its risk-based capital to risk-weighted assets ratio was 32.3%. Therefore,
First Federal's capital significantly exceeds all of the capital requirements
currently in effect.
<PAGE>
Impact of Inflation
The audited consolidated financial statements presented herein have been
prepared in accordance with generally accepted accounting principles. These
principles require the measurement of financial position and operating results
in terms of historical dollars, without considering changes in the relative
purchasing power of money over time due to inflation.
The primary assets and liabilities of savings institutions such as First
Federal are monetary in nature. As a result, interest rates have a more
significant impact on First Federal's performance than the effects of general
levels of inflation. Interest rates, however, do not necessarily move in the
same direction or with the same magnitude as the price of goods and services,
since such prices are affected by inflation. In a period of rapidly rising
interest rates, the liquidity and maturity structures of First Federal's assets
and liabilities are critical to the maintenance of acceptable performance
levels.
The principal effect of inflation, as distinct from levels of interest
rates, on earnings is in the area of other expense. Such expense items as
employee compensation, employee benefits, and occupancy and equipment costs may
be subject to increases as a result of inflation. An additional effect of
inflation is the possible increase in the dollar value of the collateral
securing loans made by First Federal .
New Accounting Pronouncements
Accounting for Transfer and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS No. 125 provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are considered secured borrowings.
A transfer of financial assets in which the transferor surrenders control
over those assets is accounted for as a sale to the extent that consideration
other than beneficial interests in the transferred assets is received in
exchange. The transferor has surrendered control over transferred assets only if
all of the following conditions are met:
o The transferred assets have been isolated from the transferor--put
presumptively beyond the reach of the transferor and its creditors,
even in bankruptcy or other receivership.
o Each transferee obtains the right--free of conditions that constrain it
from taking advantage of that right--to pledge or exchange the
transferred assets, or the transferee is a qualifying special-purpose
entity and the holders of beneficial interests in that entity have the
right--free of conditions that constrain them from taking advantage of
that right--to pledge or exchange those interests.
o The transferor does not maintain effective control over the transferred
assets through an agreement that both entitles and obligates the
transferor to repurchase or redeem them before their maturity, or an
agreement that entitles the transferor to repurchase or redeem
transferred assets that are not readily obtainable.
SFAS No. 125 provides detailed measurement standards for assets and
liabilities included in these transactions. It also includes implementation
guidance for assessing isolation of transferred assets and for accounting for
transfers of partial interests, servicing of financial assets, securitizations,
transfers of sales-type and direct financing lease receivables, securities
lending transactions, repurchase agreements, "wash sales," loan syndications and
participations, risk participations in banker's acceptances, factoring
arrangements, transfers of receivables with recourse, and extinguishments of
liabilities.
The Statement supersedes SFAS No. 76, Extinguishment of Debt, and No. 77,
Reporting by Transferors for Transfers of Receivables with Recourse, and No.
122, Accounting for Mortgage Servicing Rights and amends SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, in addition to
clarifying or amending a number of other statements and technical bulletins. As
issued, Statement No. 125 was effective for all transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996.
The Financial Accounting Standards Board ("FASB") was made aware that the
volume of certain transactions and the related changes to information systems
and accounting processes that are necessary to comply with the requirements of
SFAS No. 125 would make it extremely difficult, if not impossible, for some
affected enterprises to apply the transfer and collateral provisions of SFAS No.
125 to those transactions as soon as January 1, 1997. As a result, SFAS No. 127
defers for one year the effective date (a) of paragraph 15 of Statement No. 125
and (b) for repurchase agreement, dollar-roll, securities lending, and similar
transactions, of paragraphs 9-12 and 237(b) of SFAS No. 125.
<PAGE>
SFAS No. 127 provides additional guidance on the types of transactions for
which the effective date of No. 125 has been deferred. It also requires that if
it is not possible to determine whether a transfer occurring during
calendar-year 1997 is part of a repurchase agreement, dollar-roll, securities
lending, or similar transaction, then paragraphs 9-12 of SFAS No. 125 should be
applied to that transfer. All provisions of Statement No. 125 should continue to
be applied prospectively, and earlier or retroactive application is not
permitted.
Earnings per Share. SFAS No. 128, Earnings per Share, establishes standards
for computing and presenting earnings per share (EPS) and applies to entities
with publicly held common stock or potential common stock, as well as any other
entity that chooses to present EPS in its financial statements.
This Statement simplifies the current standards of APB Opinion No. 15,
Earnings per Share, and makes them comparable to international EPS standards. It
eliminates the presentation of primary EPS and requires presentation of basic
EPS (the principal difference being that common stock equivalents are not
considered in the computation of basic EPS). It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation.
Basic EPS includes no dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if the potential common shares were exercised or converted into
common stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Diluted EPS is computed similarly to that of fully
diluted EPS pursuant to Opinion No. 15.
The Statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier application
is not permitted. The Statement requires restatement of all prior-period EPS
data presented.
Disclosure of Information about Capital Structure. SFAS No. 129, Disclosure
of Information about Capital Structure, continues the current requirements to
disclose certain information about an entity's capital structure found in APB
Opinion No. 10, Omnibus Opinion--1966, Opinion No. 15, and SFAS No. 47,
Disclosure of Long-Term Obligations. It consolidates specific disclosure
requirements from those standards. SFAS No. 129 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods.
Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. It requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This Statement does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement.
SFAS No. 130 also requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
The Statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
<PAGE>
Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. This Statement supersedes SFAS No. 14, Financial Reporting for
Segments of a Business Enterprise, but retains the requirement to report
information about major customers. It amends SFAS No. 94, Consolidation of All
Majority-Owned Subsidiaries, to remove the special disclosure requirements for
previously unconsolidated subsidiaries. This Statement does not apply to
nonpublic business enterprises or to not-for-profit organizations.
SFAS No. 131 requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
This Statement requires that a public business enterprise report a measure
of segment profit or loss, certain specific revenue and expense items, and
segment assets. It requires reconciliations of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to corresponding amounts in the enterprise's general-purpose financial
statements. This Statement also requires that a public business enterprise
report descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period.
SFAS No. 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. This Statement need not be
applied to interim financial statements in the initial year of its application,
but comparative information for interim periods in the initial year of
application is to be reported in financial statements for interim periods in the
second year of application.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
June 30, 1997 and 1996
Independent Auditor's Report
Board of Directors
Marion Capital Holdings, Inc.
Marion, Indiana
We have audited the consolidated statement of financial condition of Marion
Capital Holdings, Inc. and subsidiary corporations as of June 30, 1997 and 1996,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of Marion
Capital Holdings, Inc. and subsidiary corporations as of June 30, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1997, in conformity with generally accepted
accounting principles.
GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
July 25, 1997
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Financial Condition
<TABLE>
<CAPTION>
June 30,
1997 1996
------------- -------------
Assets
<S> <C> <C>
Cash $ 2,328,605 $ 2,365,805
Short term interest bearing deposits 1,294,134 5,154,518
------------- -------------
Total cash and cash equivalents 3,622,739 7,520,323
Investment securities
Available for sale 2,997,500 999,750
Held to maturity 4,847,519 13,057,722
------------- -------------
Total investment securities 7,845,019 14,057,472
Loans 150,062,526 145,173,891
Allowance for loan losses (2,031,535) (2,009,250)
------------- -------------
Net loans 148,030,991 143,164,641
Foreclosed real estate 182,959
Premises and equipment 1,520,381 1,446,025
Federal Home Loan Bank of Indianapolis stock, at cost 1,047,300 988,400
Other assets 11,237,279 10,406,755
------------- -------------
Total assets $173,303,709 $177,766,575
============ ============
Liabilities
Deposits $121,770,013 $126,260,010
Advances from Federal Home Loan Bank of Indianapolis 8,228,976 6,241,474
Other liabilities 4,238,901 3,754,017
------------ ------------
Total liabilities 134,237,890 136,255,501
Commitments and contingent liabilities
Shareholders' Equity
Preferred stock
Authorized and unissued-2,000,000 shares
Common stock, without par value
Authorized--5,000,000 shares
Issued and outstanding--1,768,099
and 1,933,613 shares 10,126,365 13,814,937
Retained earnings--substantially restricted 29,074,055 28,128,458
Net unrealized loss on securities available for sale (1,961) (119)
Unearned compensation (132,640) (432,202)
------------ ------------
Total shareholders' equity 39,065,819 41,511,074
------------ ------------
Total liabilities and shareholders' equity $173,303,709 $177,766,575
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------
1997 1996 1995
----------- ----------- -----------
Interest Income
<S> <C> <C> <C>
Loans $12,862,390 $12,456,465 $11,451,350
Investment securities 528,070 876,326 1,110,742
Federal funds sold 14,234
Deposits with financial institutions 263,806 333,876 144,344
Dividend income 78,585 73,341 65,386
----------- ----------- -----------
Total interest income 13,732,851 13,740,008 12,786,056
----------- ----------- -----------
Interest Expense
Deposits 6,243,723 6,344,259 5,539,915
Repurchase agreements 52,159
Federal Home Loan Bank advances 463,288 456,484 381,770
----------- ----------- -----------
Total interest expense 6,707,011 6,852,902 5,921,685
----------- ----------- -----------
Net Interest Income 7,025,840 6,887,106 6,864,371
Provision for losses on loans 58,156 34,231 67,500
----------- ----------- -----------
Net Interest Income After Provision for
Losses on Loans 6,967,684 6,852,875 6,796,871
----------- ----------- -----------
Other Income
Net loan servicing fees 85,837 81,202 68,886
Annuity and other commissions 153,464 146,827 143,986
Equity in losses of limited partnerships (305,000) (193,139) (184,582)
Life insurance income and death benefits 808,424 116,500 108,000
Other income 181,261 94,993 76,312
----------- ----------- -----------
Total other income 923,986 246,383 212,602
----------- ----------- -----------
Other Expenses
Salaries and employee benefits 2,880,969 2,412,793 2,447,129
Net occupancy expenses 168,666 153,340 155,997
Equipment expenses 61,011 59,173 51,294
Deposit insurance expense 996,303 326,871 323,835
Foreclosed real estate expenses and losses, net (21,054) (12,643) (98,413)
Data processing expense 147,720 134,247 119,182
Advertising 153,685 105,060 86,526
Other expenses 663,794 525,674 577,869
----------- ----------- -----------
Total other expenses 5,051,094 3,704,515 3,663,419
----------- ----------- -----------
Income Before Income Tax 2,840,576 3,394,743 3,346,054
Income tax expense 400,382 913,329 916,106
----------- ----------- -----------
Net Income $2,440,194 $ 2,481,414 $ 2,429,948
========== =========== ===========
Primary and Fully Diluted Net Income Per Share $1.30 $1.22 $1.11
========== =========== ===========
Average Common and Equivalent Shares Outstanding 1,871,435 2,033,955 2,186,137
========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss)
Common Stock Retained Unearned on Securities
Shares Amount Earnings Compensation Available for Sale Total
------ ------ -------- ------------ ------------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balances, July 1, 1994 2,194,168 $19,314,526 $26,017,534 $(1,000,760) $44,331,300
Net income for 1995 2,429,948 2,429,948
Cash dividends ($.63 per share) (1,332,666) (1,332,666)
Cumulative effect of change in
accounting for securities $(58,085) (58,085)
Net change in unrealized gain (loss)
on securities available for sale 48,850 48,850
Repurchase of common stock (214,249) (3,888,880) (3,888,880)
Exercise of stock options 6,369 63,690 63,690
Amortization of unearned
compensation expense 269,868 269,868
--------- ----------- ----------- ------------ -------- -----------
Balances, June 30, 1995 1,986,288 15,489,336 27,114,816 (730,892) (9,235) 41,864,025
Net income for 1996 2,481,414 2,481,414
Cash dividends ($.74 per share) (1,467,772) (1,467,772)
Net change in unrealized gain (loss)
on securities available for sale 9,116 9,116
Repurchase of common stock (100,658) (2,066,332) (2,066,332)
Exercise of stock options 47,983 301,855 301,855
Amortization of unearned
compensation expense 298,690 298,690
Tax benefit of stock options
exercised and RRP 90,078 90,078
--------- ----------- ----------- ------------ -------- -----------
Balances, June 30, 1996 1,933,613 13,814,937 28,128,458 (432,202) (119) 41,511,074
Net income for 1997 2,440,194 2,440,194
Cash dividends ($.82 per share) (1,494,597) (1,494,597)
Net change in unrealized gain (loss)
on securities available for sale (1,842) (1,842)
Repurchase of common stock (188,887) (3,998,270) (3,998,270)
Exercise of stock options 23,373 176,210 176,210
Amortization of unearned
compensation expense 299,562 299,562
Tax benefit of stock options
exercised and RRP 133,488 133,488
--------- ----------- ----------- ------------ -------- -----------
Balances, June 30, 1997 1,768,099 $10,126,365 $29,074,055 $ (132,640) $ (1,961) $39,065,819
========= =========== =========== ============ ======== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MARION CAPITAL HOLDINGS, INC AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------
1997 1996 1995
--------- --------- ---------
Operating Activities
<S> <C> <C> <C>
Net income $2,440,194 $2,481,414 $2,429,948
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan losses 58,156 34,231 67,500
Adjustment for losses of foreclosed real estate (31,898) (19,136) (140,000)
Equity in losses of limited partnerships 305,000 193,139 184,582
Amortization of net loan origination costs (fees) (35,966) 10,467 (30,065)
Depreciation 83,968 77,321 64,706
Amortization of unearned compensation 299,562 298,690 269,868
Deferred income tax benefit (465,185) (174,865) (153,390)
Origination of loans for sale (7,208,207) (5,664,822) (2,414,254)
Proceeds from sale of loans 7,208,207 5,664,822 2,414,254
Changes in
Interest receivable (150,548) (64,299) (72,120)
Interest payable and other liabilities 484,884 491,704 583,878
Cash value of life insurance (808,424) (116,500) (108,000)
Prepaid expense and other assets 17,855 73,569 85,752
Other (48,177) (53,686) (1,202)
--------- --------- ---------
Net cash provided by operating activities 2,149,421 3,232,049 3,181,457
--------- --------- ---------
Investing Activities
Purchase of term federal funds (2,128,000)
Proceeds from term federal funds maturities 2,128,000
Purchase of securities available for sale (5,002,125)
Proceeds from maturities of
securities available for sale 3,000,000 2,000,000 2,000,000
Purchase of securities held to maturity (1,000,000) (10,891,992)
Proceeds from maturities of securities held to maturity 9,241,819 15,131,842 2,555,938
Contribution to limited partnership (130,000) (290,000) (290,000)
Net changes in loans (4,686,519) (6,918,405) (8,418,943)
Proceeds from real estate owned sales 30,722 98,850 291,421
Purchase of FHLB stock (58,900) (79,300)
Purchase of premises and equipment (158,324) (29,063) (106,957)
Proceeds from life insurance 1,261,987
Premiums paid on life insurance (860,000)
--------- --------- ---------
Net cash provided (used) by investing activities 1,638,660 (978,068) (3,968,541)
--------- --------- ---------
</TABLE>
(continued)
<PAGE>
MARION CAPITAL HOLDINGS, INC AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------
1997 1996 1995
--------- --------- ---------
Financing Activities
Net change in
<S> <C> <C> <C>
Interest-bearing demand and savings deposits (1,461,116) 1,157,963 (7,741,237)
Certificates of deposit (3,028,881) 4,489,044 7,388,768
Proceeds from Federal Home Loan Bank advances 5,000,000 3,500,000 5,000,000
Repayment of Fedral Home Loan Bank advances (3,012,498) (4,221,678) (1,236,848)
Dividends paid (1,494,597) (1,467,772) (1,332,666)
Exercise of stock options 309,697 391,933 63,690
Repurchase of common stock (3,998,270) (2,066,332) (3,888,880)
---------- --------- ----------
Net cash provided (used) by financing activities (7,685,665) 1,783,158 (1,747,173)
---------- --------- ----------
Net Change in Cash and Cash Equivalents (3,897,584) 4,037,139 (2,534,257)
Cash and Cash Equivalents, Beginning of Year 7,520,323 3,483,184 6,017,441
---------- --------- ----------
Cash and Cash Equivalents, End of Year $3,622,739 $7,520,323 $3,483,184
========== ========== ==========
Additional Cash Flows and Supplementary Information
Interest paid $6,704,766 $6,873,949 $5,875,374
Income tax paid 676,345 960,958 948,959
Loan balances transferred to foreclosed real estate 119,002 447,511 2,592,839
Loans to finance the sale of foreclosed real estate 321,023 415,000 3,442,850
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Nature of Operations and Summary of Significant Accounting Policies
The accounting and reporting policies of Marion Capital Holdings, Inc.
("Company") and its wholly owned subsidiary, First Federal Savings Bank of
Marion ("Bank") and the Bank's wholly owned subsidiary, First Marion Service
Corporation ("FMSC"), conform to generally accepted accounting principles and
reporting practices followed by the thrift industry. The more significant of the
policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a federal thrift
charter and provides full banking services. As a federally-chartered thrift, the
Bank is subject to regulation by the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation.
The Bank generates residential and commercial mortgage and consumer loans and
receives deposits from customers located primarily in central Indiana. The
Bank's loans are generally secured by specific items of collateral including
real property and consumer assets. FMSC is engaged in the selling of financial
services.
Consolidation--The consolidated financial statements include the accounts of the
Company, the Bank and the Bank's subsidiary after elimination of all material
intercompany transactions and accounts.
Investment Securities--Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost.
Debt securities not classified as held to maturity are classified as available
for sale. Securities available for sale are carried at fair value with
unrealized gains and losses reported separately, net of tax, in shareholders'
equity.
Amortization of premiums and accretion of discounts are recorded using the
interest method as interest income from securities. Realized gains and losses
are recorded as net security gains (losses). Gains and losses on sales of
securities are determined on the specific-identification method.
Loans are carried at the principal amount outstanding. A loan is impaired when,
based on current information or events, it is probable that the Bank will be
unable to collect all amounts due (principal and interest) according to the
contractual terms of the loan agreement. Payments with insignificant delays not
exceeding 90 days outstanding are not considered impaired. Certain nonaccrual
and substantially delinquent loans may be considered to be impaired. The Bank
considers its investment in one-to-four family residential loans and consumer
loans to be homogeneous and therefore excluded from separate identification for
evaluation of impairment. Interest income is accrued on the principal balances
of loans. The accrual of interest on impaired and nonaccrual loans is
discontinued when, in management's opinion, the borrower may be unable to meet
payments as they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed when considered uncollectible. Interest income is
subsequently recognized only to the extent cash payments are received. Certain
loan fees and direct costs are being deferred and amortized as an adjustment of
yield on the loans over the contractual lives of the loans. When a loan is paid
off or sold, any unamortized loan origination fee balance is credited to income.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Foreclosed real estate arises from loan foreclosure or deed in lieu of
foreclosure and is carried at the lower of cost or fair value less estimated
selling costs. Real estate has not been acquired for development or sale. Costs
relating to development and improvement of property are capitalized, whereas
costs relating to the holding of property, net of rental and other income are
expensed. Realized gains and losses are recorded upon the sale of real estate,
with gains deferred and recognized on the installment method for sales not
qualifying for the full accrual method.
Allowances for loan and real estate losses are maintained to absorb potential
loan and real estate losses based on management's continuing review and
evaluation of the loan and real estate portfolios and its judgment as to the
impact of economic conditions on the portfolios. The evaluation by management
includes consideration of past loss experience, changes in the composition of
the portfolios, the current condition and amount of loans and foreclosed real
estate outstanding, and the probability of collecting all amounts due. Impaired
loans are measured by the present value of expected future cash flows, or the
fair value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses and the
valuation of real estate is based on estimates that are particularly susceptible
to significant changes in the economic environment and market conditions.
Management believes that as of June 30, 1997, the allowance for loan losses and
carrying value of foreclosed real estate are adequate based on information
currently available. A worsening or protracted economic decline in the area
within which the Bank operates would increase the likelihood of additional
losses due to credit and market risks and could create the need for additional
loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based principally on the
estimated useful lives of the assets. Maintenance and repairs are expensed as
incurred while major additions and improvements are capitalized. Gains and
losses on dispositions are included in current operations.
Federal Home Loan Bank stock is a required investment for institutions that are
members of the Federal Home Loan Bank system. The required investment in the
common stock is based on a predetermined formula.
Pension plan costs are based on actuarial computations and charged to current
operations. The funding policy is to pay at least the minimum amounts required
by ERISA.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. Business
tax credits are deducted from federal income tax in the year the credits are
used to reduce income taxes payable. The Company files consolidated income tax
returns with its subsidiaries.
Primary earnings per share are computed by dividing net income by the weighted
average number of common and equivalent shares outstanding during the period.
Fully diluted earnings per share are the same as primary earnings per share.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Statement of Financial Accounting Standards No. 128, Earnings Per Share, is
effective for the Company for periods ending after December 15, 1997, including
interim periods. This Statement eliminates the presentation of primary earnings
per share (EPS) currently presented and requires presentation of basic EPS (the
principal difference being that common stock equivalents are not considered in
the computation of basic EPS). It also requires dual presentation of basic and
diluted EPS on the face of the income statement. Diluted EPS reflects the
potential dilution that could occur from common stock equivalents, and is
computed similarly to that of fully diluted EPS currently presented.
Reclassification of certain amounts in the 1996 and 1995 consolidated financial
statements have been made to conform to the 1997 presentation.
o Restriction on Cash
The Bank is required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at June 30, 1997, was $219,000.
o Investment Securities
<TABLE>
<CAPTION>
June 30, 1997
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
Available for sale
<S> <C> <C> <C>
Federal agencies $3,001 $ 3 $2,998
Held to maturity
U. S. Treasury 2,001 13 1,988
Federal agencies 2,000 9 1,991
State and municipal 610 610
Mortgage-backed securities 237 2 235
------ --- ------
Total held to maturity 4,848 24 4,824
------ --- ------
Total investment securities $7,849 $27 $7,822
====== === ======
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Available for sale
Federal agencies $ 1,000 $ 1,000
Held to maturity
U. S. Treasury 3,015 $ 40 2,975
Federal agencies 6,954 $ 8 45 6,917
State and municipal 610 5 605
Mortgage-backed securities 1,491 102 1,389
Other 988 12 1,000
------- --- ---- -------
Total held to maturity 13,058 20 192 12,886
------- --- ---- -------
Total investment securities $14,058 $20 $192 $13,886
======= === ==== =======
</TABLE>
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The amortized cost and fair value of securities held to maturity and available
for sale at June 30, 1997, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Maturity Distribution at June 30, 1997
Available for Sale Held to Maturity
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------ --------- ------
Within one year $3,001 $2,998 $1,612 $1,609
One to five years $3,001 $2,998 2,999 2,980
------ ------ ------ ------
3,001 2,998 4,611 4,589
Mortgage-backed securities 237 235
------ ------ ------ ------
Totals $3,001 $2,998 $4,848 $4,824
====== ====== ====== ======
o Loans
June 30,
---------------------------
1997 1996
-------- --------
Real estate mortgage loans
One-to-four family $ 98,393 $ 87,505
Multi-family 11,394 15,573
Commercial real estate 31,122 36,170
Real estate construction loans 4,699 4,994
Commercial 2,525 7
Consumer loans 4,833 3,777
-------- --------
Total loans 152,966 148,026
Undisbursed portion of loans (2,626) (2,539)
Deferred loan fees (277) (313)
-------- --------
$150,063 $145,174
======== ========
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
1997 1996 1995
------ ------ ------
Allowance for loan losses
Balances, July 1 $2,009 $2,013 $2,050
Provision for losses 58 34 68
Recoveries on loans 2 12
Loans charged off (35) (40) (117)
------ ------ ------
Balances, June 30 $2,032 $2,009 $2,013
====== ====== ======
No loans were considered impaired at June 30, 1997.
Mortgage loans serviced for others are not included in the accompanying
consolidated statement of financial condition. The unpaid principal balances
totaled $6,643,000, $7,825,000 and $7,586,000 at June 30, 1997, 1996 and 1995.
On July 1, 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 122, Accounting for Mortgage Servicing Rights. This Statement
requires the capitalization of retained mortgage servicing rights on originated
or purchased loans. The amount of servicing rights capitalized during the year
ended June 30, 1997, was not material.
o Forclosed Real Estate
June 30,
1996
--------
Real estate acquired in settlement of loans $ 199
Allowance for losses (16)
-----
$ 183
=====
1997 1996 1995
---- ---- ----
Allowance for losses on foreclosed real estate
Balances, July 1 $16 $64 $356
Provision (adjustment) for losses (32) (19) (140)
Real estate charged off (25) (49) (171)
Recoveries on real estate 41 20 19
---- --- ----
Balances, June 30 $ 0 $16 $ 64
==== === ====
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Premises and Equipment
June 30,
-------------------------
1997 1996
------ ------
Land $ 632 $ 632
Buildings and land improvements 1,458 1,417
Furniture and equipment 490 467
------ ------
Total cost 2,580 2,516
Accumulated depreciation (1,060) (1,070)
------ ------
Net $1,520 $1,446
====== ======
o Other Assets and Other Liabilities
June 30,
---------------------------
1997 1996
------- -------
Other assets
Interest receivable
Investment securities $ 129 $ 159
Loans 664 483
Cash value of life insurance 5,994 5,588
Deferred income tax asset 2,786 2,320
Investment in limited partnership 1,449 1,624
Prepaid expenses and other 215 233
------- -------
Total $11,237 $10,407
======= =======
Other liabilities
Interest payable
Deposits $ 97 $ 99
Other borrowings 21 17
Deferred compensation and fees payable 2,488 2,072
Deferred gain on sale of real estate owned 346 353
Advances by borrowers for taxes and insurance 224 392
Other 1,063 821
------- -------
Total $4,239 $3,754
======= =======
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Investment in Limited Partnership
Included in other assets is an investment of $1,448,869 and $1,623,869 at June
30, 1997 and 1996 representing 99 percent equity in a limited partnership
organized to build, own and operate an apartment complex. The Bank records its
equity in the net income or loss of the partnership. In 1997, the Bank also
recorded an additional loss of $170,000 for adjustments made to partners'
equity. Certain fees to the general partner not recorded or estimable to date by
the partnership under provisions of the partnership agreement could adversely
affect future operating results when accrued or paid. In addition to recording
its equity in the losses of the partnership, the Bank has recorded the benefit
of low income housing tax credits of $405,000 for 1997, 1996 and 1995. Condensed
financial statements of the partnership are as follows:
June 30,
-----------------------------
1997 1996
------ ------
(Unaudited)
Condensed statement of financial condition
Assets
Cash $ 72 $ 306
Land and property 3,764 3,711
Other assets 527 987
------ ------
Total assets $4,363 $5,004
------ ------
Liabilities
Notes payable $3,153 $3,289
Other liabilities 113 61
------ ------
Total liabilities 3,266 3,350
Partners' equity, net of general partner's
withdrawals of $385 for 1997 1,097 1,654
------ ------
Total liabilities and partners' equity $4,363 $5,004
====== ======
Year Ended June 30,
------------------------------------------
1997 1996 1995
----- ----- -----
(Unaudited)
Condensed statement of operations
Total revenue $670 $ 648 $ 662
Total expense 805 808 862
----- ----- -----
Net loss $(135) $(160) $(200)
===== ===== =====
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Deposits
June 30,
--------------------------
1997 1996
-------- --------
Interest-bearing demand $ 21,230 $ 20,803
Savings 15,683 17,572
Certificates and other time
deposits of $100,000 or more 11,709 11,761
Other certificates and time deposits 73,148 76,124
-------- --------
Total deposits $121,770 $126,260
======== ========
Certificates maturing in years ending June 30:
1998 $37,091
1999 17,961
2000 19,962
2001 6,623
2002 2,216
Thereafter 1,004
-------
$84,857
=======
o Federal Home Loan Bank Advances
June 30,
1997
---------------------
Weighted
Average
Amount Rate
------ ---------
Advances from FHLB Maturities in years ending June 30:
1998 $3,201 6.07%
1999 1,190 5.74
2000 481 6.57
2001 383 5.09
2002 2,506 6.27
Thereafter 468 7.33
------
$8,229 6.14%
======
The FHLB advances are secured by first mortgage loans and investment securities
totaling 98,034,000. Advances are subject to restrictions or penalties in the
event of prepayment.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Income Tax
Year Ended June 30,
---------------------------------------
1997 1996 1995
---- ---- ----
Currently payable
Federal $630 $765 $706
State 235 323 363
Deferred
Federal (418) (144) (100)
State (47) (31) (53)
---- ---- ----
Total income tax expense $400 $913 $916
==== ==== ====
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------
1997 1996 1995
---- ---- ----
Reconciliation of federal statutory to actual tax expense
<S> <C> <C> <C>
Federal statutory income tax at 34% $966 $1,154 $1,138
Increase in cash value of life insurance and death benefits (257) (40) (37)
Effect of state income taxes 124 193 205
Business income tax credits (423) (423) (406)
Other (10) 29 16
---- ------- ------
Actual tax expense $400 $ 913 $ 916
==== ======= ======
</TABLE>
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
A cumulative deferred tax asset of $2,786,000 and $2,320,000 is included in
other assets. The components of the asset are as follows:
<TABLE>
<CAPTION>
June 30,
1997 1996
------ ------
<S> <C> <C>
Differences in accounting for loan losses $ 990 $ 987
Deferred compensation 1,057 880
Deferred loan fees 69 127
Business income tax credits 553 309
Deferred state income taxes (164) (149)
Differences in accounting for pensions and other employee benefits 255 182
Differences in accounting for securities available for sale 1
FHLB of Indianapolis stock dividend (49) (49)
Other 74 33
------ ------
$2,786 $2,320
====== ======
Assets $2,999 $2,518
Liabilities (213) (198)
------ ------
$2,786 $2,320
====== ======
</TABLE>
No valuation allowance was considered necessary at June 30, 1997 and 1996.
At June 30, 1997, the Company had an unused business income tax credit
carryforward of $553,000. Credits of $423,000 expire in 2012 and $130,000 expire
in 2011.
Retained earnings include approximately $8,300,000 for which no deferred income
tax liability has been recognized. This amount represents an allocation of
income to bad debt deductions as of June 30, 1988 for tax purposes only.
Reduction of amounts so allocated for purposes other than tax bad debt losses
including redemption of bank stock or excess dividends, or loss of "bank"
status, would create income for tax purposes only, which income would be subject
to the then-current corporate income tax rate. At June 30, 1997, the unrecorded
deferred income tax liability on the above amount was approximately $3,300,000.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Restriction on Dividends
The Company is not subject to any regulatory restrictions on the payment of
dividends to its shareholders. The Office of Thrift Supervision ("OTS")
regulations provide that a savings association which meets fully phased-in
capital requirements (those in effect on December 31, 1994) and is subject only
to "normal supervision" may pay out, as a dividend, 100 percent of net income to
date over the calendar year and 50 percent of surplus capital existing at the
beginning of the calendar year without supervisory approval, but with 30 days
prior notice to the OTS. Any additional amount of capital distributions would
require prior regulatory approval.
At the time of the Bank's conversion to a stock savings bank, a liquidation
account was established in an amount equal to the Bank's net worth as reflected
in the latest statement of condition used in its final conversion offering
circular. The liquidation account is maintained for the benefit of eligible
deposit account holders who maintain their deposit account in the Bank after
conversion. In the event of a complete liquidation (and only in such event),
each eligible deposit account holder will be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
adjusted subaccount balance for deposit accounts then held, before any
liquidation distribution may be made to stockholders. Except for the repurchase
of stock and payment of dividends, the existence of the liquidation account will
not restrict the use or application of net worth. The initial balance of the
liquidation account was $24,100,000.
At June 30, 1997, total shareholder's equity of the Bank was $34,964,000, of
which a minimum of $10,864,000 was available for the payment of dividends.
o Stock Transactions
The Company's Board of Directors has approved periodically the repurchase of up
to 5 percent of the Company's outstanding shares of common stock. Such purchases
were made subject to market conditions in open market or block transactions.
During the years ended June 30, 1997, 1996 and 1995, the Company had repurchased
188,887, 100,658 and 214,249 of its outstanding shares.
o Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate actions by the regulatory agencies that, if undertaken, could have a
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
At June 30, 1997, the Bank believes that it meets all capital adequacy
requirements to which it is subject and the most recent notification from the
regulatory agency categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action.
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------------------------------------------
Required
for Adequate To Be Well
Actual Capital 1 Capitalized 1
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital 1
(to risk-weighted
assets) $36,341 32.3% $9,014 8.0% $11,267 10.0%
Core capital 1
(to adjusted tangible
assets) 34,925 20.6% 5,096 3.0% 10,193 6.0%
Core capital 1
(to adjusted total assets) 34,925 20.6% 5,096 3.0% 8,494 5.0%
</TABLE>
- --------
1 As defined by the regulatory agencies
The Bank's tangible capital at June 30, 1997 was $34,925, which amount was 20.6
percent of tangible assets and exceeded the required ratio of 1.5 percent.
o Benefit Plans
The Bank provides pension benefits for substantially all of the Bank's employees
and is a participant in a pension fund known as the Pentegra Group (formerly
known as the Financial Institutions Retirement Fund). This plan is a
multi-employer plan; separate actuarial valuations are not made with respect to
each participating employer. A supplemental plan provides for additional
benefits for certain employees. Pension expense was $174,611, $211,123, and
$108,417 for 1997, 1996 and 1995.
The Bank contributes up to 3 percent of employees' salaries for those
participating in a thrift plan. The Bank's contribution was $25,400, $23,300,
and $20,600 for 1997, 1996 and 1995.
The Bank has purchased life insurance on certain officers and directors, which
insurance had an approximate cash value of $5,994,000 and $5,588,000 at June 30,
1997 and 1996. The Bank has also approved arrangements that provide retirement
and death benefits to those officers and directors covered by the keyman
policies. The benefits to be paid will be funded primarily by the keyman
policies and are being accrued over the period of active service to eligibility
dates. The accrual of benefits totaled $625,000, $277,000, and $447,000 for
1997, 1996 and 1995.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Bank's Board of Directors has established Recognition and Retention Plans
and Trusts ("RRP"). The Bank contributed $1,349,340 to the RRPs for the purchase
of 96,600 shares of Company common stock, and in March, 1993, awards of grants
for these shares were issued to various directors, officers and employees of the
Bank. These awards generally are to vest and be earned by the recipient at a
rate of 20 percent per year, commencing March, 1994. The unearned portion of
these stock awards is presented as a reduction of shareholders' equity.
o Stock Option Plan
Under the Company's stock option plan, which is accounted for in accordance with
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees, and related interpretations, the Company grants stock option awards
to directors, selected executives and other key employees. Stock option awards
vest and become fully exercisable at the end of 6 months of continued
employment. The incentive stock option exercise price will not be less than the
fair market value of the common stock (or 85 percent of the fair market value of
common stock for non-qualified options) on the date of the grant of the option.
The date on which the options are first exercisable is determined by the Board
of Directors, and the terms of the stock options will not exceed ten years from
the date of grant. The exercise price of each option was equal to the market
price of the Company's stock on the date of grant; therefore, no compensation
expense was recognized.
SFAS No. 123, Stock-Based Compensation, is effective for the Company for the
year ended June 30, 1997. This Statement establishes a fair value based method
of accounting for stock-based compensation plans. Although the Company has
elected to follow APB No. 25, SFAS No. 123 requires pro forma disclosures of net
income and earnings per share as if the Company had accounted for its employee
stock options under that Statement. The fair value of each option grant was
estimated on the grant date using an option-pricing model with the following
assumptions:
June 30,
1997
----------
Risk-free interest rates 6.4%
Dividend yields 3.9
Expected volatility factor of market price of common stock 11.0
Weighted-average expected life of the options 7 years
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this Statement are as follows:
June 30,
1997
-----------------------------
Net income As reported $2,440
Pro forma 2,389
Primary earnings per share As reported 1.30
Pro forma 1.28
Fully diluted earnings per share As reported 1.30
Pro forma 1.27
The following is a summary of the status of the Company's stock option plan and
changes in that plan as of and for the years ended June 30, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Year Ended June 30,
1997 1996 1995
Weighted- Weighted- Weighted-
Average Average Average
Options Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 106,790 $10.00 171,969 $10.00 178,338 $10.00
Granted 20,166 20.25
Exercised (27,862) 10.00 (65,179) 10.00 (6,369) 10.00
------ ------- -------
Outstanding, end of year 99,094 12.09 106,790 10.00 171,969 10.00
====== ======= =======
Options exercisable at year end 99,094 106,790 171,969
Weighted-average fair value of
options granted during the year $ 3.14
</TABLE>
As of June 30, 1997, options outstanding totaling 78,928 have an exercise price
of $10 and a weighted-average remaining contractual life of 5.7 years, and
options outstanding totaling 20,166 have an exercise price of $20.25 and a
weighted-average remaining contractual life of 9.2 years.
For the years ended June 30, 1997 and 1996, 4,489 and 17,196 shares were
tendered as partial payment for options exercised. At June 30, 1997, 28,133
shares were available for grant.
o Postretirement Plan
The Bank sponsors a defined benefit postretirement plan that covers both
salaried and nonsalaried employees. The plan provides postretirement health care
coverage to eligible retirees. An eligible retiree is an employee who retires
from the Bank on or after attaining age 65 and who has rendered at least 15
years of service.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
The Bank continues to fund benefit costs on a pay-as-you-go basis, and, for
1997, 1996 and 1995, the Bank made benefit payments totaling $5,619, $3,842 and
$2,986. The following table sets forth the plan's funded status, and amounts
recognized in the consolidated statement of financial condition:
June 30,
-------------------------
1997 1996
------- ------
Accumulated postretirement benefit obligation
Retirees $62 $100
Other active plan participants 91 80
---- ----
Accumulated postretirement benefit obligation 153 180
Unrecognized net gain from past experience
different from that assumed
and from changes in assumptions 127 84
---- ----
Accrued postretirement benefit cost $280 $264
==== ====
June 30,
------------------------
1997 1996 1995
---- ---- ----
Net periodic postretirement cost
included the following
components
Service cost--benefits attributed to service
during the period $15 $13 $21
Interest cost on accumulated postretirement
benefit obligation 14 12 16
Net amortization and deferral (8) (9)
--- --- ---
Net periodic postretirement benefit cost $21 $16 $37
=== === ===
At June 30, 1997 and 1996, there were no plan assets. The assumed health care
cost trend rate used in measuring the accumulated postretirement benefit
obligation was 12 percent in 1997, gradually declining to 6 percent in the year
2012. The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75 percent.
If the health care cost trend rate assumptions were increased by 1 percent, the
accumulated postretirement benefit obligation as of June 30, 1997 would have
increased by 15 percent. The effect of this change on the sum of the service
cost and interest would be an increase of 18 percent.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and letters of
credit, which are not included in the accompanying consolidated financial
statements. The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend credit is
represented by the contractual or notional amount of those instruments. The Bank
uses the same credit policies in making such commitments as it does for
instruments that are included in the consolidated statement of financial
condition.
Financial instruments whose contract amount represents credit risk as of June 30
were as follows:
1997 1996
------ ------
Mortgage loan commitments at variable rates $4,734 $3,211
Consumer and commercial loan commitments 2,564 1,365
Standby letters of credit 3,239 3,239
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies, but may include residential real estate,
income-producing commercial properties, or other assets of the borrower. Standby
letters of credit are conditional commitments issued by the Bank to guarantee
the performance of the customer to a third party.
A significant portion of the Bank's loan portfolio consists of commercial real
estate loans, including loans secured by nursing homes. These commercial real
estate loans, totaling $31,122,000 and $36,170,000 at June 30, 1997 and 1996,
have a significantly higher degree of credit risk than residential mortgage
loans. Loan payments on the nursing home loans are often dependent on the
operation of the collateral, and risks inherent in the nursing home industry
include licensure and certification laws and changes affecting payments from
third party payors.
The Company and subsidiaries are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. Based on information presently
available, it is the opinion of management that the disposition or ultimate
determination of such possible claims or lawsuits will not have a material
adverse effect on the consolidated financial position of the Company.
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents--The fair value of cash and cash equivalents
approximates carrying value.
Investment Securities--Fair values are based on quoted market prices.
Loans--The fair value for loans is estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Interest Receivable/Payable--The fair values of accrued interest
receivable/payable approximates carrying values.
FHLB Stock--Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
Deposits--Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on such time deposits.
Federal Home Loan Bank Advances--The fair value of these borrowings are
estimated using a discounted cash flow calculation, based on current rates for
similar debt.
Advances by Borrowers for Taxes and Insurance--The fair value approximates
carrying value.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets -------- ------- --------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents $3,623 $3,623 $7,520 $7,520
Securities available for sale 2,998 2,998 1,000 1,000
Securities held to maturity 4,848 4,824 13,058 12,886
Loans, net 148,031 150,524 143,165 145,788
Interest receivable 793 793 642 642
Stock in FHLB 1,047 1,047 988 988
Liabilities
Deposits 121,770 121,773 126,260 127,210
FHLB advances 8,229 8,089 6,241 6,261
Interest payable 118 118 116 116
Advances by borrowers for
taxes and insurance 224 224 392 392
</TABLE>
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Condensed Financial Information (Parent Company Only)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
Condensed Balance Sheet
June 30,
----------------------
1997 1996
--------- --------
Assets
Cash and cash equivalents $ 591 $ 3,048
Investment securities held to maturity 2,978
Loans 3,500
Investment in subsidiary 34,963 35,519
Other assets 63 5
------- -------
Total assets $39,117 $41,550
======= =======
Liabilities $ 51 $ 39
Shareholders' Equity 39,066 41,511
------- -------
Total liabilities and shareholders' equity $39,117 $41,550
======= =======
Condensed Statement of Income
Year Ended June 30,
--------------------------------
1997 1996 1995
------ ------ ------
Income
Dividends from Bank $3,250 $8,600 $2,000
Other 300 120 96
Expenses 114 85 132
------ ------ ------
Income before income tax and
equity in undistributed
income of subsidiary 3,436 8,635 1,964
Income tax expense (benefit) 74 14 (14)
------ ------ ------
Income before equity in undistributed
income of subsidiary 3,362 8,621 1,978
Equity in undistributed
(distribution in excess of)
income of subsidiary (922) (6,140) 452
------ ------ ------
Net Income $2,440 $2,481 $2,430
====== ====== ======
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------
1997 1996 1995
------- ------ ------
Operating Activities
<S> <C> <C> <C>
Net income $2,440 $2,481 $2,430
Adjustments to reconcile net income to net cash provided
by operating activities 786 6,057 (434)
------- ------ ------
Net cash provided by operating activities 3,226 8,538 1,996
------- ------ ------
Investing Activities
Purchase of securities held to maturity (5,951)
Proceeds from maturities of securities held to maturity 3,000 3,000
Net change in loans (3,500)
------- ------
Net cash used by investing activities (500) (2,951)
------- ------
Financing Activities
Exercise of stock options 310 392 64
Cash dividends (1,495) (1,468) (1,333)
Repurchase of common stock (3,998) (2,066) (3,889)
------- ------ ------
Net cash used by financing activities (5,183) (3,142) (5,158)
------- ------ ------
Net Change in Cash and Cash Equivalents (2,457) 2,445 (3,162)
------- ------ ------
Cash and Cash Equivalents at Beginning of Year 3,048 603 3,765
------- ------ ------
Cash and Cash Equivalents at End of Year $ 591 $3,048 $ 603
======= ====== ======
</TABLE>
<PAGE>
MARION CAPITAL HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
o Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
Year Ended June 30, 1997
------------------------------------------------
June March December September
1997 1997 1996 1996
------ ------- -------- ---------
<S> <C> <C> <C> <C>
Interest income $3,416 $3,455 $3,431 $3,431
Interest expense 1,652 1,658 1,683 1,714
----- ------ ------ ------
Net interest income 1,764 1,797 1,748 1,717
Provision for losses on loans 11 37 6 4
----- ------ ------ ------
Net interest income after
provisions for losses on loans 1,753 1,760 1,742 1,713
Other income 258 346 113 206
Other expenses 1,099 985 956 2,011
----- ------ ------ ------
Income (loss) before income tax 912 1,121 899 (92)
Income tax expense (benefit) 166 218 236 (220)
----- ------ ------ ------
Net Income $ 746 $ 903 $ 663 $ 128
===== ====== ====== ======
Per share
Net income $.40 $.48 $.35 $.07
Dividends $.22 $.20 $.20 $.20
</TABLE>
Life insurance income and death benefits of $180,000, $35,000, $325,000 and
$268,000 for the first through fourth quarters of 1997 have been reclassified
from other expenses to other income. Amounts for 1996 of $27,000, $28,000,
$30,000 and $32,000 have also been reclassified.
<TABLE>
<CAPTION>
Year Ended June 30, 1996
-----------------------------------------------
June March December September
1996 1996 1995 1995
------ ------ -------- ---------
<S> <C> <C> <C> <C>
Interest income $3,416 $3,442 $3,465 $3,417
Interest expense 1,706 1,714 1,721 1,712
------ ------ ------ ------
Net interest income 1,710 1,728 1,744 1,705
Provision for losses on loans 10 24
------ ------ ------ ------
Net interest income after provisions for losses on loans 1,700 1,728 1,720 1,705
Other income 55 53 53 85
Other expenses 903 957 902 943
------ ------ ------ ------
Income before income tax 852 824 871 847
Income tax expense 223 216 233 241
------ ------ ------ ------
Net Income $ 629 $ 608 $ 638 $ 606
====== ====== ====== ======
Per share
Net income $.33 $.29 $.31 $.29
Dividends $.20 $.18 $.18 $.18
</TABLE>
<PAGE>
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
John M. Dalton Steven L. Banks Jack O. Murrell
President Executive Vice President Retired, Murrell and Keal
Chairman of the Board
Jerry D. McVicker W. Gordon Coryea George L. Thomas
Director of Operations Attorney Retired, Foster-Forbes
Marion Community Schools
Jon R. Marler
Sr. Vice President
Ralph M. Williams & Associates
</TABLE>
OFFICERS OF MARION CAPITAL HOLDINGS, INC.
John M. Dalton Steven L. Banks
President Executive Vice President
Larry G. Phillips Jackie Noble
Sr. Vice President and Assistant Secretary and
Secretary-Treasurer Assistant Treasurer
Tim D. Canode
Vice President
OFFICERS OF FIRST FEDERAL SAVINGS BANK OF MARION
John M. Dalton Larry G. Phillips Steven L. Banks
President Sr. Vice President and Executive Vice President
Secretary-Treasurer
Stephen A. Smithley James E. Adkins Charles N. Sponhauer
Vice President Vice President Vice President
Jackie Noble Chris Bradford Kathy Kuntz
Assistant Secretary and Assistant Vice President Assistant Secretary
Assistant Treasurer
Tim D. Canode Randy J. Sizemore
Vice President Assistant Treasurer
<PAGE>
DIRECTORS AND OFFICERS
Robert D. Burchard (age 66) was a Director of Marion Capital Holdings, Inc.
and served as President of Marion Capital Holdings, Inc. from its formation
until his death in June 1997. Mr. Burchard also served as President of First
Federal from 1983 until 1996, President of First Marion Service Corporation in
1996, and became Chairman of the Boards of Marion Captial Holdings, Inc. and
First Federal in 1996.
W. Gordon Coryea (age 72) is a Director of Marion Capital Holdings, Inc. He
is also an attorney at law based in Marion, Indiana, and has served as attorney
for First Federal since 1965.
John M. Dalton (age 63) is a Director of Marion Capital Holdings, Inc. and
has served as its President since 1996. Prior to that, he served as Marion
Capital Holdings, Inc.'s Executive Vice President. He has also served as
President of First Federal since 1996 and as President of First Marion Service
Corporation since 1997. Mr. Dalton was the Executive Vice President of First
Federal from 1983 to 1996. He became Chairman of the Boards of Marion Capital
Holdings, Inc. and First Federal in 1997.
Jack O. Murrell (age 74) is a Director of Marion Capital Holdings, Inc. He
had also served as President of Murrell and Keal, Inc. since 1958 (a retailer
located in Marion, Indiana).
George L. Thomas (age 80) is a Director of Marion Capital Holdings, Inc. He
also served as Chairman of Foster-Forbes Glass Co., a division of the National
Can Corporation, located in Marion, Indiana until his retirement in 1984.
Steven L. Banks (age 47) is a Director of Marion Capital Holdings, Inc. and
has served as its Executive Vice President since 1996. He has also served as
Executive Vice President of First Federal since 1996 and as Executive Vice
President of First Marion Service Corporation since 1997.
Jerry D. McVicker (age 52) is a Director of Marion Capital Holdings, Inc.
He also currently serves as Director of Operations for Marion Community Schools.
Jon R. Marler (age 47) is Senior Vice President of Ralph M. Williams and
Associates. On July 21, 1997, he assumed the duties of Director of Marion
Capital Holdings, Inc. and First Federal.
Larry G. Phillips (age 48) is Sr. Vice President, Secretary and Treasurer
of Marion Capital Holdings, Inc. He has also served as Sr. Vice President and
Treasurer of First Federal since 1996, as Secretary of First Federal since 1989,
and as Secretary and Treasurer of First Marion since 1989. Mr. Phillips was Vice
President and Treasurer of First Federal from 1983 to 1996.
Tim D. Canode (age 52) has served as Vice President of Marion Capital
Holdings, Inc. since 1996 and as Vice President of First Federal since 1983 and
as Assistant Vice President of First Marion since 1983.
Jacquelin Ann Noble (age 56) is Assistant Secretary and Assistant Treasurer
of Marion Capital Holdings, Inc. She has served as Assistant Secretary and
Assistant Treasurer of First Federal since 1967. She has also served as
Assistant Secretary and Assistant Treasurer of First Marion since 1971.
<PAGE>
SHAREHOLDER INFORMATION
Market Information
The common stock of Marion Capital Holdings, Inc. is traded on the National
Association of Securities Dealers Automated Quotation System, National Market
System, under the symbol "MARN," and is listed in the Wall Street Journal under
the abbreviation "MarionCap." As of June 30, 1997, there were approximately 442
shareholders of record and MCHI estimates that, as of that date, there were an
additional 1,100 in "street" name. The following table sets forth market price
information for MCHI's common stock for the periods indicated.
Fiscal Quarter Ended High Low Dividend Per Share
September 30, 1995 $20.625 $18.500 $.18
December 31, 1995 20.625 19.250 .18
March 31, 1996 20.750 19.250 .18
June 30, 1996 21.000 19.750 .20
September 30, 1996 21.000 20.000 .20
December 31, 1996 21.500 19.250 .20
March 31, 1997 22.000 19.250 .20
June 30, 1997 23.250 22.500 .22
Transfer Agent and Registrar General Counsel
Fifth Third Bank Barnes & Thornburg
38 Fountain Square 11 South Meridian Street
Cincinnati, Ohio 45263 Indianapolis, Indiana 46204
Shareholders and General Inquiries
MCHI is required to file an Annual Report on Form 10-K for its fiscal year
ended June 30, 1997 with the Securities and Exchange Commission. Copies of this
annual report may be obtained without charge upon written request to:
Larry Phillips
Sr. Vice President, Secretary and Treasurer
Marion Capital Holdings, Inc.
100 West Third Street
Marion, Indiana 46952
Office Location Branch Location
100 West Third Street 1045 South 13th Street
Marion, Indiana 46952 Decatur, Indiana 46733
Telephone: (765) 664-0556 Telephone: (219) 728-2106
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in a Registration Statement on Form
S-8 (Registration No. 33-69538) of our report dated July 25, 1997, on the
consolidated financial statements of Marion Capital Holdings, Inc. and
subsidiaries contained in the 1997 Annual Report to Shareholders of Marion
Capital Holdings, Inc., which is incorporated by reference in this Form 10-K.
Geo. S. Olive & Co. LLC
/s/ Geo. S. Olive & Co. LLC
Indianapolis, Indiana
September 23, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000894372
<NAME> Marion Capital Holdings, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 2,329
<INT-BEARING-DEPOSITS> 1,294
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,000
<INVESTMENTS-CARRYING> 4,848
<INVESTMENTS-MARKET> 4,824
<LOANS> 150,063
<ALLOWANCE> 2,032
<TOTAL-ASSETS> 173,304
<DEPOSITS> 121,770
<SHORT-TERM> 3,201
<LIABILITIES-OTHER> 4,239
<LONG-TERM> 5,028
<COMMON> 10,126
0
0
<OTHER-SE> 28,940
<TOTAL-LIABILITIES-AND-EQUITY> 173,304
<INTEREST-LOAN> 12,862
<INTEREST-INVEST> 528
<INTEREST-OTHER> 343
<INTEREST-TOTAL> 13,733
<INTEREST-DEPOSIT> 6,244
<INTEREST-EXPENSE> 6,707
<INTEREST-INCOME-NET> 7,026
<LOAN-LOSSES> 58
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,051
<INCOME-PRETAX> 2,841
<INCOME-PRE-EXTRAORDINARY> 2,440
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,440
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 4.29
<LOANS-NON> 1,411
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,546
<ALLOWANCE-OPEN> 2,009
<CHARGE-OFFS> 35
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 2,032
<ALLOWANCE-DOMESTIC> 105
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,927
</TABLE>
