<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Annual report pursuant to Section 13 of the
Securities Exchange Act of 1934
For the fiscal year ended September 30, 1996
Commission File No.: 0-21942
FIRST PALM BEACH BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 65-0418027
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
215 SOUTH OLIVE AVENUE, WEST PALM BEACH, FLORIDA 33401
(Address of principal executive offices)
Registrant's telephone number, including area code: (561) 655-8511
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK PAR VALUE $0.01 PER SHARE
(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 is not considered herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K.
------
The aggregate market value of the voting stock held by non-affiliates of
the registrant, i.e., persons other than directors and executive officers of
the registrant, is $115,599,474 and is based upon the last trade price as
reported by NASDAQ National Market System for December 5, 1996.
The Registrant had 5,069,097 shares outstanding as of November 25, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
THE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
JANUARY 21, 1997 IS INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
Item 1. Description of Business................................................................ 1
Safe Harbor Statement............................................................... 1
Business............................................................................ 1
Market Area and Competition......................................................... 2
Lending Activities.................................................................. 3
Asset Quality....................................................................... 12
Mortgage-Backed and Related Securities.............................................. 20
Investment Activities............................................................... 21
Sources of Funds.................................................................... 24
Borrowings.......................................................................... 28
Subsidiary Activities............................................................... 30
Personnel........................................................................... 30
Regulation and Supervision.......................................................... 31
Federal and State Taxation.......................................................... 46
Item 2. Description of Property................................................................ 49
Item 3. Legal Proceedings...................................................................... 55
Item 4. Submission of Matters to a Vote of Security Holders.................................... 55
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 55
Item 6. Selected Financial Data................................................................ 56
Item 7. Management's Discussion of Financial Condition and Results of Operations............... 58
Item 8. Financial Statements and Supplementary Data............................................ 74
Item 9. Change In and Disagreements with Accountants on Accounting
and Financial Disclosure...............................................................110
PART III
Item 10. Directors and Executive Officers of the Registrant.....................................111
Item 11. Executive Compensation.................................................................111
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................111
Item 13. Certain Relationships and Related Transactions.........................................111
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................112
</TABLE>
<PAGE> 3
PART I
ITEM 1. DESCRIPTION OF BUSINESS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 FOR FORWARD-LOOKING INFORMATION
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Bank is hereby filing
cautionary statements identifying important factors that could cause the Bank's
actual results to differ materially from those projected in "forward-looking
statements" (as such term is defined in the Reform Act) of the Bank made by or
on behalf of the Bank which are made orally, whether in presentations, in
response to questions or otherwise, or in writing in this report or any other
future filings by the Bank with the Securities and Exchange Commission, in the
Bank's press releases or other public or shareholder communications. Any
statements that express, or involve discussions as to, expectations, beliefs,
plans, objectives, assumptions or future events or performance (often, but not
always, through the use of words or phrases such as "will likely result," "are
expected to," "will continue," "is anticipated," "estimated," "projection,"
"outlook") are not historical facts and may be forward-looking and,
accordingly, such statements involve estimates, assumptions, and uncertainties
which could cause actual results to differ materially from those expressed in
the forward-looking statements. Accordingly, any such statements are qualified
in their entirety by reference to, and are accompanied by, the following
important factors that could cause the Bank's actual results to differ
materially from those contained in forward-looking statements of the Bank made
by or on behalf of the Bank.
The Bank cautions that the following important factors could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements of the Bank made by or on behalf of the Bank. Any
forward-looking statement speaks only as of the date on which such statement is
made, and the Bank undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained
in any forward-looking statements.
Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements
include those related to the national economic environment, particularly in the
region in which the Bank operates, competition, fiscal and monetary policies of
the U.S. government, changes in governmental legislation and regulations
affecting financial institutions, including regulatory fees and capital
requirements, changes in prevailing interest rates, credit risk management and
asset/liability management, the financial and securities markets, deposit
flows, changes in the quality or composition of the Bank's loan and investment
portfolios, and the availability of and costs associated with sources of
liquidity.
All such factors are difficult to predict, contain uncertainties which may
materially affect actual results and are beyond the control of the Bank.
BUSINESS
On September 29, 1993, the Registrant, First Palm Beach Bancorp, Inc.
(also referred to herein as the "Company"), closed its public offering for
5,284,775 shares of its Common Stock and acquired First Bank of Florida (the
"Bank"), formerly First Federal Savings and Loan Association of the Palm
Beaches (the "Association") as part of the Bank's conversion from a mutual to a
stock federally chartered savings association. Additionally, the Recognition
and Retention Plans ("RRPs") implemented during the conversion purchased
211,600 shares of the Company's Common Stock, making the total shares
outstanding equal 5,496,375. The Registrant was incorporated under
1
<PAGE> 4
Delaware law on May 27, 1993. The Registrant is a savings and loan holding
company subject to regulation by the Office of Thrift Supervision ("OTS"), the
Federal Deposit Insurance Corporation ("FDIC") and the Securities and Exchange
Commission ("SEC"). Currently, the Registrant does not transact any material
business other than through its subsidiary, the Bank. The net conversion
proceeds totalled $52.5 million of which $25.2 million was invested in the Bank
and $27.3 million was retained by the Registrant. The Registrant loaned $4.2
million to the Employee Stock Ownership Plan ("ESOP") of the Bank and the
remaining $23.1 million was loaned to the Bank. At September 30, 1996, the
loan to the ESOP had a balance of $1,769,000 and the loan to the Bank had a
balance of $7,364,000.
The Bank was established in 1934 as a mutual federally chartered and
insured savings and loan association. The Bank is a member of the Federal Home
Loan Bank ("FHLB") System, and its deposit accounts are insured to the maximum
amount allowed by the FDIC. At September 30, 1996, the Bank had total assets
of $1.487 billion and stockholders' equity of $91.1 million.
On December 8, 1995 (the "Effective Date"), the Company completed the
acquisition of PBS Financial Corp. ("PBS") by means of the merger (the
"Merger") of PBS with and into the Company, pursuant to an Agreement and Plan
of Merger between the Company and PBS dated as of May 31, 1995 (the
"Agreement"). Concurrently with the Merger, Palm Beach Savings and Loan,
F.S.A. ("Palm Beach Savings"), the savings and loan subsidiary of PBS, merged
with and into the Bank in accordance with the Plan of Merger and Combination
dated May 31, 1995 between Palm Beach Savings and the Bank. In conjunction
with and as a part of the Merger, each of the 283,700 shares of PBS Class A
common stock issued and outstanding and 419,300 shares of PBS Class B common
stock issued and outstanding as of the Effective Date was converted into (i)
.426 of a share of the Company's Common Stock and (ii) a cash payment of $0.75
per share of PBS common stock. Based on an aggregate of 703,000 shares of PBS
Class A and Class B common stock issued and outstanding, the Company issued in
the aggregate 299,478 shares of the Company's Common Stock and made $527,250 in
cash payments. Also in conjunction with the Merger, the Company paid $88,544
in exchange for all outstanding PBS options and $459,536 in exchange for all
outstanding PBS warrants.
The Bank's principal business is attracting retail deposits from the
general public and investing those deposits, together with funds generated from
operations and borrowings, primarily in one- to four- family, owner-occupied,
residential mortgage loans and, to a lesser extent, consumer loans and other
loans, construction loans, commercial real estate loans and multi-family
residential mortgage loans. In addition, the Bank invests in mortgage-backed
and related securities, securities issued by the U.S. Government and agencies
thereof, and other investments in which the Bank is permitted to invest under
federal laws and regulations. The Bank's revenues are derived principally from
interest on its portfolio of mortgage and consumer loans, mortgage-backed and
related securities, and interest and dividends on its investment securities and
securities available-for-sale portfolios. The Bank's primary sources of funds
are deposits, principal and interest payments on loans and mortgage-backed and
related securities and, to a much lesser extent, borrowings.
MARKET AREA AND COMPETITION
The Bank has been, and continues to be, a community-oriented savings
institution offering a variety of financial services to meet the needs of the
communities it serves. The Bank's deposit gathering and lending markets are
primarily concentrated in the communities surrounding its full service and
lending offices in Palm Beach, Martin, Broward and Dade Counties in southeast
Florida. Also, two full-service offices have been opened in Lee County in
southwest Florida. Management believes that its offices are located in
communities that generally can be characterized as residential neighborhoods of
predominately one- to four- family residences.
The economy of the Palm Beach County area has derived its strength
primarily from government, tourism, retirement communities, agriculture,
service industries and foreign trade. In addition, unemployment in Palm Beach
County is higher than the national and State of Florida
2
<PAGE> 5
averages. Major private employers in the Bank's market area include Pratt &
Whitney, Motorola, Good Samaritan and St. Mary's Medical Center, Florida Power
& Light Company and BellSouth.
The Bank is the oldest and largest (by asset size) locally-based financial
institution in Palm Beach County. The Bank's market area in southeast Florida
has a high density of financial institutions, many of which are significantly
larger and have greater financial resources than the Bank, and all of which are
competitors of the Bank to varying degrees. The Bank's competition for loans
comes principally from savings and loan associations, savings banks, mortgage
banking companies and commercial banks. The Bank's most direct competition for
savings deposits has historically come from savings and loan associations,
savings banks, commercial banks, and credit unions. The Bank faces additional
competition for savings deposits from money market mutual funds and other
corporate and government securities funds. The Bank also faces increased
competition for deposits from other financial intermediaries such as brokerage
firms and insurance companies. Prospective competition for the Bank may
increase as a result of the Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 and the Florida Interstate Banking Act which permit bank
holding companies to acquire control of banks in any state, and the Florida
Interstate Branching Act which permits out-of-state banks to acquire and
operate branches in Florida. See "Regulation and Supervision - Federal Savings
Institution Regulation - Interstate Banking; Branching."
The Bank serves its market area with a wide selection of residential loans
and other retail financial services. Management considers the Bank's
reputation for financial strength and customer service as its major competitive
advantage in attracting and retaining customers in its market area. The Bank
also believes it benefits from its community orientation as well as its
established deposit base and levels of core deposits.
LENDING ACTIVITIES
Loans and Mortgage-Backed and Related Securities Portfolio. The Bank's
loan portfolio consists primarily of conventional first mortgage loans secured
by one- to four- family residences. At September 30, 1996, the Bank's total
loans outstanding were $1,071.0 million, of which $652.6 million or 60.9% of
the Bank's total loan portfolio were one- to four- family residential first and
second mortgage loans. Of the one- to four- family residential mortgage loans
outstanding at that date, 35.0% were fixed-rate loans, and 65.0% were
adjustable rate mortgage ("ARM") loans as described on page 8. At the same
date, construction and land loans totaled $155.0 million or 14.5% of the Bank's
total loan portfolio; commercial real estate loans totaled $51.8 million or
4.8% of the Bank's total loan portfolio; and multi-family mortgage loans
totaled $17.6 million or 1.6% of the Bank's total loan portfolio. Consumer and
other loans held by the Bank, which principally consist of direct and indirect
automobile loans, home equity loans, and other consumer loans, totaled $194.1
million or 18.1% of the Bank's total loan portfolio at September 30, 1996. At
September 30, 1996, $148.2 million of consumer and other loans consisted of
indirect automobile loans. The Bank had $169.2 million of loans serviced for
others at September 30, 1996 which included $99.8 million of loans subserviced
on a short-term basis in connection with a sale of loans and servicing.
At September 30, 1996, $10.3 million or 1.0% of the Bank's total loan
portfolio consisted of purchased mortgage loans or loan participations, which
consisted primarily of one- to four- family residential mortgage loans.
At September 30, 1996, the Bank's mortgage-backed and related securities
held-to-maturity and available-for-sale, a vast majority of which were
collateralized mortgage obligations ("CMOs") or real estate mortgage investment
conduits ("REMICs"), aggregated $232.3 million or 15.6% of the Bank's total
assets. Mortgage-backed and related securities available-for-sale are
reflected at fair value in accordance with Statement of Financial Accounting
Standard No. 115 ("SFAS No. 115").
3
<PAGE> 6
The following table sets forth the composition of the Bank's loan and
mortgage-backed and related securities held-to-maturity and mortgage-backed and
related securities available-for-sale portfolios, in dollar amounts and in
percentages of the respective portfolios at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------------------
1992 1993 1994 1995
------------------ ------------------ ------------------- --------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS:
One- to four- family.................. $351,208 74.66% $335,750 72.48% $436,135 68.88% $587,598 67.82%
Construction and land................. 45,784 9.73 61,233 13.22 104,324 16.47 118,799 13.71
Commercial real estate................ 39,732 8.45 29,930 6.46 30,802 4.86 35,610 4.11
Multi-family.......................... 6,085 1.29 11,720 2.53 11,515 1.82 11,837 1.37
-------- ------- -------- ------- -------- ------- -------- -------
Total mortgage loans................. 442,809 94.13 438,633 94.69 582,776 92.03 753,844 87.01
Consumer loans......................... 24,459 5.20 22,184 4.78 48,611 7.68 110,384 12.74
Other loans............................ 3,137 0.67 2,436 0.53 1,848 0.29 2,155 0.25
-------- ------- -------- ------- -------- ------- -------- -------
Total loans receivable............... 470,405 100.00% 463,253 100.00% 633,235 100.00% 866,383 100.00%
======= ======= ======= =======
LESS:
Loans in process...................... 20,516 31,320 54,856 43,967
Unearned discounts (premiums) and
deferred loan fees, net.............. 2,590 943 (308) (4,765)
Allowance for loan losses............. 2,334 1,886 1,956 2,157
-------- -------- -------- --------
Loans receivable, net................. $444,965 $429,104 $576,731 $825,024
======== ======== ======== ========
MORTGAGE-BACKED AND RELATED SECURITIES
HELD-TO-MATURITY AND MORTGAGE-BACKED
AND RELATED SECURITIES
AVAILABLE-FOR-SALE:
CMOs (includes REMICs)................ $184,404 $282,460 $258,166 $145,879
FHLMC................................. 8,670 -- 3,595 12,023
FNMA.................................. -- -- 34,025 49,837
GNMA.................................. 187 153 30,169 33,035
Net premiums and (discounts).......... 1,527 1,399 (1,911) (2,332)
-------- -------- -------- --------
Total mortgage-backed and related
securities held-to-maturity and
mortgage-backed and related
securities available-for-sale....... $194,788 $284,012 $324,044 $238,442
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION> At September 30,
--------------------
1996
--------------------
Percent
Amount of Total
---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
MORTGAGE LOANS:
One- to four- family.................. $ 652,606 60.93%
Construction and land................. 154,988 14.47
Commercial real estate................ 51,754 4.83
Multi-family.......................... 17,564 1.64
---------- -------
Total mortgage loans................. 876,912 81.87
Consumer loans......................... 191,654 17.90
Other loans............................ 2,434 0.23
---------- -------
Total loans receivable............... 1,071,000 100.00%
=======
LESS:
Loans in process...................... 61,633
Unearned discounts (premiums) and
deferred loan fees, net.............. (10,369)
Allowance for loan losses............. 11,855
----------
Loans receivable, net................. $1,007,881
==========
MORTGAGE-BACKED AND RELATED SECURITIES
HELD-TO-MATURITY AND MORTGAGE-BACKED
AND RELATED SECURITIES
AVAILABLE-FOR-SALE:
CMOs (includes REMICs)................ $ 132,067
FHLMC................................. 23,739
FNMA.................................. 49,512
GNMA.................................. 29,222
Net premiums and (discounts).......... (2,267)
----------
Total mortgage-backed and related
securities held-to-maturity and
mortgage-backed and related
securities available-for-sale....... $ 232,273
==========
</TABLE>
4
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The following table sets forth the Bank's loan originations and loan and
mortgage-backed and related securities purchases, sales and principal
repayments for the periods indicated:
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------
1994 1995 1996
---- ---- ----
(In thousands)
<C> <C> <C>
MORTGAGE LOANS (GROSS):
At the beginning of period........................... $ 438,633 $582,776 $ 753,844
--------- -------- ---------
Mortgage loans originated:
One- to four- family.............................. 125,970 135,875 192,524
Construction and land............................. 88,945 120,234 163,097
Commercial real estate............................ 4,455 5,556 3,563
Multi-family...................................... 1,403 830 1,877
--------- -------- ---------
Total mortgage loans originated...................... 220,773 262,495 361,061
--------- -------- ---------
Mortgage loans purchased:
One- to four- family.............................. 6,639 5,450 47,854
Construction and land............................. -- -- 16,323
Commercial real estate............................ 20 237 19,519
Multi-family...................................... -- -- 5,626
--------- -------- ---------
Total mortgage loans purchased....................... 6,659 5,687 89,322
--------- -------- ---------
Total mortgage loans originated and purchased......... 227,432 268,182 450,383
Transfer of mortgage loans to real estate owned....... 1,595 1,057 961
Principal repayments.................................. 74,303 82,151 162,053
Sales of loans........................................ 7,391 13,906 164,301
--------- -------- ---------
At end of period...................................... $ 582,776 $753,844 $ 876,912
========= ======== =========
CONSUMER LOANS (GROSS):
At beginning of period............................... $ 22,184 $ 48,611 $ 110,384
Consumer loans originated............................ 49,233 99,251 177,466
Consumer loans purchased............................. -- -- 357
Transfer of loans to repossessed automobiles......... -- 765 21,122
Principal repayments................................. 22,806 36,713 75,431
--------- -------- ---------
At end of period..................................... $ 48,611 $110,384 $ 191,654
========= ======== =========
OTHER LOANS (GROSS):
At beginning of period............................... $ 2,436 $ 1,848 $ 2,155
Other loans originated............................... 1,907 2,457 1,056
Principal repayments................................. 2,495 2,150 777
--------- -------- ---------
At end of period..................................... $ 1,848 $ 2,155 $ 2,434
========= ======== =========
MORTGAGE-BACKED AND RELATED SECURITIES:(1)
At beginning of period............................... $ 284,012 $324,044 $ 238,442
Mortgage-backed and related securities
purchased........................................... 261,169 49,883 46,873
Mortgage-backed and related securities sold.......... 63,950 95,751 18,040
Increase (decrease) in unrealized loss on
available-for-sale securities....................... 8,043 (2,342) (2,178)
Amortization and repayments.......................... 149,144 42,076 37,180
--------- -------- ---------
At end of period..................................... $ 324,044 $238,442 $ 232,273
========= ======== =========
</TABLE>
- ------------------------------------------------
(1) Consists of held-to-maturity and available-for-sale portfolios.
5
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Maturity of Loans and Mortgage-Backed and Related Securities. The
following table shows the maturity of the Bank's loan and mortgage-backed and
related securities, which includes mortgage-backed and related securities
held-to-maturity and available-for-sale, at September 30, 1996. Loans that
have adjustable rates are shown as amortizing to final maturity rather than
when the interest rates are next subject to change. The table does not include
prepayments or scheduled principal amortization. Prepayments and scheduled
principal amortization on the Bank's loans totaled $99.6 million, $121.0
million and $238.6 million for the years ended September 30, 1994, 1995 and
1996, respectively.
<TABLE>
<CAPTION>
At September 30, 1996
----------------------------------------------------------------------------------------------
Mortgage Loans Totals
------------------ -----------------------
Mortgage- Mortgage-
Backed Backed
and Related and Related
One Total Securities Securities
to Four- Consumer Other Loans Held-to- Available-
Family Other Loans Loans Receivable Maturity for-Sale Total
-------- -------- -------- ------ ------------ ----------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AMOUNTS DUE:
Within 1 year $ 2,616 $ 33,470 $ 9,119 $1,421 $ 46,626 $ -- $ 484 $ 47,110
-------- -------- -------- ------ ------------ ----------- ----------- ----------
1 to 2 years 1,358 21,698 7,680 541 31,277 1,420 -- 32,697
2 to 3 years 3,780 9,352 22,901 261 36,294 1,764 -- 38,058
3 to 5 years 19,784 14,800 116,952 211 151,747 10,851 -- 162,598
5 to 10 years 28,494 19,306 34,904 -- 82,704 11,051 10,110 103,865
10 to 15 years 103,082 17,708 77 -- 120,867 34,335 54,067 209,269
Over 15 years 493,492 107,972 21 -- 601,485 68,639 41,819 711,943
-------- -------- -------- ------ ------------ ----------- ----------- ----------
Total due after 1 year 649,990 190,836 182,535 1,013 1,024,374 128,060 105,996 1,258,430
-------- -------- -------- ------ ------------ ----------- ----------- ----------
Total amounts due 652,606 224,306 191,654 2,434 1,071,000 128,060 106,480 1,305,540
LESS:
Loans in process 61,393 -- 240 -- 61,633 -- -- 61,633
Unearned discounts,
(premiums) and deferred
loan fees, net (3,022) -- (7,347) -- (10,369) 1,653 614 (8,102)
Allowance for loan losses 2,392 -- 9,463 -- 11,855 -- -- 11,855
-------- -------- -------- ------ ------------ ----------- ----------- ----------
Loans receivable and
mortgage-backed and
related securities, net $591,843 $224,306 $189,298 $2,434 $ 1,007,881 $ 126,407 $ 105,866 $1,240,154
======== ======== ======== ====== ============ =========== =========== ==========
</TABLE>
6
<PAGE> 9
The following table sets forth at September 30, 1996, the dollar amount of
all loans and mortgage-backed and related securities held-to-maturity and
mortgage-backed securities available-for-sale due after September 30, 1997, and
whether such loans have fixed interest rates or adjustable interest rates:
<TABLE>
<CAPTION>
Due after September 30, 1997
----------------------------------
Fixed Adjustable Total
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
MORTGAGE LOANS:
One- to four- family........................ $265,864 $384,126 $ 649,990
Construction and land....................... 100,634 27,421 128,055
Multi-family................................ 7,451 10,077 17,528
Commercial real estate...................... 8,654 36,599 45,253
CONSUMER LOANS..................................... 182,535 -- 182,535
OTHER LOANS........................................ 993 20 1,013
-------- -------- ----------
TOTAL LOANS RECEIVABLE............. 566,131 458,243 1,024,374
MORTGAGE-BACKED AND RELATED SECURITIES
HELD-TO-MATURITY AND AVAILABLE-FOR-SALE............ 131,270 102,786 234,056
-------- -------- ----------
TOTAL LOANS RECEIVABLE AND
MORTGAGE-BACKED AND RELATED
SECURITIES HELD-TO-MATURITY
AND AVAILABLE-FOR-SALE............. $697,401 $561,029 $1,258,430
======== ======== ==========
</TABLE>
7
<PAGE> 10
One-to Four-Family Mortgage Lending. The Bank's primary lending
emphasis is on the origination of first mortgage loans secured by one-to four-
family residences in its primary lending area. Mainly, these residences are
single family homes (including condominiums and townhomes) that serve as the
primary residence of the owner. To a lesser degree, the Bank makes loans on
residences used as a second home or as an investment.
Loan originations are generally obtained from existing or past customers,
members of the local community and referrals from local real estate agents and
builders. One-to four-family residential mortgage loans are mainly originated
through the Bank's mortgage brokerage subsidiary, First Bank of Florida
Mortgage Corp. ("FBMC"), formerly First Federal Mortgage Corporation, by its
nine loan originators who are compensated on a commission basis. Loan
applications originated by the FBMC's independent loan originators are made in
compliance with the Bank's policies and procedures, underwritten by the Bank in
accordance with its standard underwriting guidelines and presented for approval
to the appropriate Bank personnel or committees.
For the year ended September 30, 1996, the Bank's mortgage loans
originated through all sources totaled $361.1 million. FBMC accounted for
$189.9 million in mortgage loans originated, or 52.6% of this total. The Bank
has expanded the mortgage lending activities in its branch network by training
branch personnel and placing FBMC loan officers within certain branch offices.
The Bank obtains first mortgage loans through wholesale brokers in Martin,
Palm Beach, and Broward Counties. Prior to the Bank's commitment to fund such
loans, the loans are reviewed for compliance with the Bank's normal
underwriting guidelines. The Bank established a goal of supplementing its
retail production with wholesale production not to exceed 30% to 40% of total
production. Wholesale loans comprised approximately 34% of the total new
mortgage loans originated by the Bank in fiscal year 1996.
At September 30, 1996, 60.9% of mortgage loans receivable consisted of
one-to four-family residential loans, of which 65.0% were ARM loans. The Bank
currently offers ARM loans which have an initial adjustment after one, three
and five years and adjust annually thereafter. These ARM loans may carry an
initial interest rate which is less than the fully indexed rate for the loan.
The initial discounted rate is determined by the Bank in accordance with market
and competitive factors. The Bank currently offers ARM loans which adjust by a
maximum of 2% per year with a lifetime cap on increases of 4% to 6%, depending
upon the program chosen. ARM loans which have an initial adjustment after
seven or ten years totaled $95.4 million at September 30, 1996.
Generally, ARM loans pose credit risks somewhat greater than the risks
inherent in fixed rate loans primarily because as interest rates rise, the
underlying payments of the borrower rise, thereby increasing the potential for
default. At the same time, the marketability of the underlying property may be
adversely affected by higher interest rates. In order to minimize these risks,
borrowers of ARM loans are qualified at the fully indexed rate. The Bank does
not originate ARM loans which provide for negative amortization of deferred
interest. An ARM loan portfolio generally reduces the Bank's exposure to
adverse interest rate fluctuations.
The Bank also offers fixed-rate loans for terms up to 30 years which are
priced in accordance with secondary market conditions. In the past, the Bank
sold most of its fixed rate loans. During fiscal years 1995 and 1996, to
increase its loans outstanding, the Bank retained most fixed rate loans in its
portfolio.
Except as to loan amount, one-to four-family residential mortgage loans
are generally underwritten according to the guidelines of the Federal Home Loan
Mortgage Corporation ("FHLMC") or the Federal National Mortgage Association
("FNMA"). Presently, FHLMC and FNMA do not purchase loans over approximately
$207,000. Loans in excess of the FHLMC/FNMA conforming loan limits are made on
an adjustable or fixed rate basis to be held in the Bank's portfolio.
8
<PAGE> 11
The Bank's policy on one-to four-family residential mortgage loans
generally is to lend up to 80% of the appraised value of property securing the
loan or up to 95% if private mortgage insurance is obtained on the amount of
the loan which exceeds 80%. In recent years, to assist persons in
low-to-moderate income households to purchase homes, the Bank originated a
limited amount of one-to four-family loans with loan-to-value ratios above
90% without requiring private mortgage insurance. As of September 30, 1996,
the outstanding balance of such loans was $3.3 million. These loans may entail
more risk than loans with private mortgage insurance because if a borrower
defaults, the Bank would not be able to seek reimbursement for any portion of
the loan from a private mortgage insurer. As of September 30, 1996, the Bank
had not experienced any material difference between the delinquency rate for
those loans and the delinquency rate of the rest of its loan portfolio. The
Bank, however, has established a 0.50% allowance for possible loan losses
related to these loans due to the high level of their loan-to-value ratio.
Sale of Loans and Servicing Rights. During the fiscal year ended
September 30, 1996, the Bank sold approximately $164.3 million of mortgage
loans. In September 1996, the Bank entered into an agreement to sell loan
servicing rights in connection with a loan sale of $99.8 million of one-to-four
family loans. Also the Bank sold the servicing rights on approximately $40.0
million of mortgage loans. It is not anticipated that the Bank will adopt the
sale of servicing as an on-going operational strategy.
Commercial and Multi-Family Real Estate Lending. As of September 30,
1996, $51.8 million or 4.8% of the Bank's total loan portfolio consisted of
commercial loans, and $17.6 million or 1.6% of the Bank's total loan portfolio
consisted of multi-family loans. During the past few years, the Bank has
reduced the level of its lending in these areas as a percentage of total loan
portfolio due to deterioration of the market for these types of properties in
the Bank's market area. Presently, the Bank's activity in these lending areas
is generally limited to the refinancing or modification of existing commercial
loans and the origination of new loans to existing commercial customers.
During fiscal year 1996 commercial and multi-family loan balances increased
primarily due to the acquisition of PBS.
The commercial real estate loans in the Bank's portfolio consist of
fixed-rate, ARM and balloon loans which were originated at prevailing market
rates. Balloon loans generally are amortized over 25 years. The Bank's recent
policy has been to originate commercial or multi-family loans only in its
primary market area. All commercial and multi-family loans that are modified,
refinanced or made to facilitate the sale of real estate owned are ARM loans.
These loans are generally made in amounts not exceeding 75% of the appraised
value of the property. In making such loans, the Bank primarily considers the
net operating income generated by the real estate to support the debt service,
the financial resources, income level and managerial expertise of the borrower,
the marketability of the property and the Bank's lending experience with the
borrower. The Bank generally obtains personal guarantees from the principals
of the borrower on these loans.
Loans secured by commercial and multi-family real estate involve a greater
degree of risk than one-to four-family residential loans. This has been
particularly true for commercial real estate loans during recent years due to a
sharp increase in available space and a decrease in demand for commercial
properties in the Bank's market area.
Construction Loans. The Bank originates loans to finance the construction
of one-to four-family homes and, to a much lesser extent, multi-family and
commercial real estate properties. At September 30, 1996, construction loans
totaled $130.5 million, or 12.2% of the Bank's total loan portfolio.
The Bank's construction loans are principally made to finance the
construction of single-family, owner-occupied homes. Construction loans are
generally made on a "pre-sold" basis; however, contractors who have sufficient
financial strength and a proven track record are considered for loans for model
and speculative purposes, with preference given to contractors with whom the
Bank has had successful loan relationships. Construction loans generally
provide for interest-only payments at fixed rates of interest and have terms of
six to twelve months. At the end of the construction period, the loan
generally converts into a permanent loan with terms of up to 30 years
9
<PAGE> 12
with an adjustable or fixed rate of interest. Construction loans typically
have a conversion option at the end of the construction term to allow the
permanent borrower to choose a fixed or ARM loan at the then prevailing market
rate. Construction loans to borrowers who will occupy the home will be
considered for loan-to-value ratios of up to 95%. Loans to builders who have
pre-sold the home will be considered for loan-to-value ratios up to 80%.
Construction loans for speculative purposes, models and commercial properties
may be considered for loan-to-value ratios generally up to 75%. Loan proceeds
are disbursed in increments as construction progresses and as inspections
warrant. The Bank primarily uses in-house inspectors for construction loan
disbursement purposes. Substantially all construction loans outstanding at
September 30, 1996 were for loans on single family dwellings.
During the fiscal year ended September 30, 1994, the Bank began offering
to selected builders a revolving commitment. These commitments are for
speculative, model, and contract construction loans, the collateral for which
is individually analyzed and approved prior to closing. The commitment is a
pre-approval of the builder on a credit basis only to determine the maximum
level of exposure the Bank wishes to have. Because the Bank will require the
placement of all permanent loans through it, it will grant preferential rates
to the builder through these commitments.
Land Loans. The Bank also originates loans for the acquisition and
development of land (either unimproved land or improved lots) on which the
purchaser can then build. At September 30, 1996, land loans totaled $24.5
million, or 2.3% of the Bank's total loan portfolio.
Land acquisition and development loans are considered on a very selective
basis for builders and developers who have a proven track record with the Bank.
Due to the increased risk associated with land loans, the Bank uses a 75%
loan-to-value ratio maximum and requires full personal guarantees of all loans.
The one exception to these rules is a loan made to a major area builder with
whom the Bank has had a relationship in excess of ten years, in which case only
a corporate guarantee was required. The lending relationship with this builder
is currently a $12.0 million line of credit provided adequate collateral is
pledged. At September 30, 1996, this loan had an outstanding balance of $7.9
million.
Consumer and Other Lending. At September 30, 1996, $194.1 million or
18.1% of the Bank's total loan portfolio consisted of consumer and other loans,
including automobile, home equity loans and lines of credit for consumer
purposes, and to a lesser extent, home improvement, marine, airplane, and
secured and unsecured personal loans.
Until September 30, 1996 the Bank generated automobile loans from factory
franchised automobile dealerships in its market area on a nonrecourse basis
after conducting its own underwriting. At September 30, 1996, the Bank had
$148.2 million in automobile loans which were originated through dealers and
$15.5 million in such loans which it originated. The increase in automobile
loans originated through dealers was attributable to an aggressive effort to
expand the Bank's indirect automobile lending in Martin, St. Lucie and Indian
River Counties. Indirect loans typically carry more credit risk which may
produce higher delinquency rates and increased loan loss provisions. Higher
than anticipated charge-offs were experienced in the indirect automobile
lending portfolio, primarily during the latter part of the fiscal year ended
September 30, 1996. As a result, a $16.4 million provision for loan losses
related to consumer lending was recorded during fiscal year 1996. Based upon
an analysis of the overall performance of the indirect lending program,
management determined that effective September 30, 1996 no new applications for
indirect loans would be accepted, thereby discontinuing the indirect lending
program.
Consumer loans are offered on a fixed and adjustable rate basis. The
underwriting standards employed by the Bank for consumer loans include a
determination of the applicant's payment history on other debts and an
assessment of the applicant's ability to make payments on the proposed loan and
other indebtedness. In addition to the creditworthiness of the applicant, the
underwriting process also includes a comparison of the value of the security,
if any, in relation to the proposed loan amount. The Bank's consumer loans
tend to have higher interest rates and shorter maturities than
10
<PAGE> 13
one-to four-family mortgage loans, and involve a greater risk of default than
one-to four-family mortgage loans. See "Asset Quality - Allowance for Loan
Losses."
Credit Cards. In June 1996, the Bank entered into the second year of its
credit card program. The bank discontinued the MasterCard Program and now
offers Visa Classic, Visa Gold and Secured Visa Programs. The Bank also
introduced new credit card programs - among them, a Visa Classic card with an
introductory rate equal to the prime rate for the first six months and then
adjusted to a rate equal to "prime plus," and a Visa Gold Prime Option card
offering a rate guaranteed at prime with a $50 Annual Fee. The credit
applications for credit cards are underwritten and collected by the Bank, and
the payments and statement processing carried out by a third party.
As of September 30, 1996, the Bank had approved 2,704 credit card accounts
having an aggregate credit limit of $9.8 million. The outstanding balance on
these cards at September 30, 1996 was $4.1 million. The Bank also offers
unsecured personal lines of credit used in conjunction with customers' checking
accounts.
Home Equity. Home equity loans and credit lines are originated on one-to
four-family residences within our market area. These loans and credit lines
are limited to $25,000 for 100% loan-to-value ratio loans, and $500,000 for 80%
loan-to-value loans. Loans and credit lines with loan-to-value ratios of
between 80% and 100% are underwritten based on the creditworthiness of the
borrower and the amount of equity in the home. The interest rates on these
loans and credit lines are based on loan-to-value ratios and range from prime
plus 1% to prime plus 3%.
Loan Approval Procedures and Authority. Loan approval authority has been
granted by the Board of Directors to certain mortgage loan officers up to the
maximum amount allowed by FHLMC/FNMA on one-to four-family dwelling units and
lot loans to individuals. The Board has granted to certain officers the
authority to approve or disapprove mortgage loans up to $400,000. The approval
authority has been granted to certain members of senior management for loan
amounts up to $500,000. This loan approval authority excludes the authority to
approve employee and officer loans and loans to builders for residential units
not under contract with a buyer. All loans exceeding $500,000 must be approved
by either a majority of the Loan Committee or Commercial Loan Committee,
depending upon the collateral securing the loan. The Loan Committee, which
consists of members of senior management and other officers, regularly
considers for approval large one-to four-family residential loan applications.
The Commercial Loan Committee, which consists of all members of senior
management plus one additional officer of the Bank considers for approval
employee and officer loans, builder loans for residential units not under
contract with a buyer, and commercial loan applications. Loans that exceed $1
million must be authorized by the Bank's President or two Board members prior
to approval. All mortgage loan approvals are ratified by the Bank's Board of
Directors.
Upon receipt of a completed loan application from a prospective borrower,
the Bank orders a credit report, verifies income and other information and, if
necessary, obtains additional financial or credit-related information. An
appraisal of the real estate used for collateral is also obtained. All
appraisals are performed or reviewed by certified appraisers. Most appraisals
are performed by certified Bank appraisers. The Bank may utilize the services
of independent certified appraisers to perform certain real estate appraisals,
particularly those related to problem commercial loans, and the certified Bank
appraisers review such appraisals. The Bank's Board of Directors approves the
independent certified appraisers used by the Bank and reviews the Bank's
appraisal policy on an annual basis.
The Bank requires title and hazard insurance on all real estate loans. In
addition, borrowers generally are required to advance funds for such insurance,
and for real estate taxes and private mortgage insurance with each payment of
principal and interest to a mortgage impound account from which the Bank makes
disbursements for items such as real estate taxes, hazard insurance premiums
and private mortgage insurance premiums, as required.
11
<PAGE> 14
ASSET QUALITY
Loan Collection. When a borrower fails to make a required payment on a
loan, the Bank takes a number of steps to have the borrower cure the
delinquency and to restore the loan to current status. In the case of
residential mortgage loans and consumer loans, the Bank generally sends the
borrower a written notice of non-payment after the loan first becomes past due.
In the event payment is not received after the initial notice is sent,
additional letters and telephone calls generally are made. If the loan is
still not brought current and it becomes necessary for the Bank to take legal
action, which typically occurs after a loan is delinquent 90 days or more, the
Bank will commence foreclosure proceedings against the real property that
secures the loan and attempt to repossess the personal property, if any, that
secures a consumer loan. If a foreclosure action is instituted and the loan is
not brought current, paid in full or refinanced before the foreclosure sale,
the real property securing the loan generally is sold at foreclosure.
In the case of commercial real estate loans, construction loans and land
acquisition and development loans, the Bank generally attempts to contact the
borrower by telephone after a loan payment becomes 10 days past due. A senior
loan officer reviews all collection efforts made if payment is not received
after the loan is 30 days past due, and decisions as to when to commence
foreclosure actions for commercial real estate loans and construction loans are
made on a case-by-case basis. The Bank may consider loan work-out arrangements
with these types of borrowers in certain circumstances.
On mortgage loans or loan participations purchased by the Bank, the Bank
receives monthly reports from its loan servicers with which it monitors the
loan portfolio. Based upon servicing agreements with the servicers of the
loans, the Bank relies upon the servicer to contact delinquent borrowers,
collect delinquent amounts and to initiate foreclosure proceedings, when
necessary, all in accordance with applicable laws, regulations and the terms of
the servicing agreements between the Bank and its servicing agents.
Mortgage loan delinquencies of 90 days or more increased to $11.3 million
at September 30, 1996 from $1.8 million at September 30, 1995. The increase
was primarily the result of a $6.2 million loan relationship on a
marina/residential development in Charlotte County, Florida. See "Asset
Quality - Classified Assets." The increase was also caused by mortgage loans
acquired in the Palm Beach Savings acquisition on December 8, 1995. As of
September 30, 1996, the balance of mortgage loans acquired from Palm Beach
Savings, which are 90 days or more delinquent, totaled $2.4 million.
Defaults on closed-end consumer financing (auto loans) are pursued
aggressively after the grace period has expired. The Collections supervisor
may commence immediate repossession activities in the case of first payment
defaults or unresponsive borrowers. Upon repossession, the collateral is
evaluated to determine its condition. Repairs are made at the discretion of
the Collections supervisor. The Bank may attempt to sell the asset directly or
through an approved dealer or through various wholesale auctions held within
the state of Florida.
Accrual of Interest on Delinquent Loans. Generally, the Bank does not
accrue interest on loans past due 90 days or more. Loans also are placed on
non-accrual status when, in the judgment of the Bank's management, the
probability of collection of interest is deemed to be insufficient to warrant
further accrual. When a loan is placed on non-accrual status, previously
accrued but unpaid interest is deducted from interest income.
12
<PAGE> 15
At September 30, 1994, 1995 and 1996, delinquencies of 60 days or more in
the Bank's loan portfolio were as follows:
<TABLE>
<CAPTION>
At September 30, 1994 At September 30, 1995
---------------------------------------- ----------------------------------------
60 - 89 Days 90 Days or More 60 - 89 Days 90 Days or More
------------------- ------------------- ------------------- -------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family 42 $ 1,264 34 $ 1,772 10 $ 163 28 $ 1,172
Construction and land 4 332 2 122 -- -- 5 267
Commercial real estate -- -- -- -- -- -- 1 80
Multi-family 2 246 -- -- -- -- 2 243
-------- --------- -------- --------- -------- --------- -------- ---------
Total mortgage loans 48 1,842 36 1,894 10 163 36 1,762
Consumer and other loans 6 15 15 37 20 187 16 52
-------- --------- -------- --------- -------- --------- -------- ---------
Total loans 54 $ 1,857 51 $ 1,931 30 $ 350 52 $ 1,814
======== ========= ======== ========= ======== ========= ======== =========
Delinquent loans to total loans 0.29% 0.30% 0.04% 0.21%
</TABLE>
<TABLE>
<CAPTION>
At September 30, 1996
-----------------------------------------
60 - 89 Days 90 Days or More
------------------- --------------------
Principal Principal
Number Balance Number Balance
of Loans of Loans of Loans of Loans
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Mortgage Loans:
One- to four-family 19 $ 1,150 45 $ 2,621
Construction and land 3 742 13 8,658
Commercial real estate -- -- -- --
Multi-family -- -- -- --
-------- --------- -------- ---------
Total mortgage loans 22 1,892 58 11,279
Consumer and other loans 160 2,065 132 1,552
-------- --------- -------- ---------
Total loans 182 $ 3,957 190 $ 12,831
======== ========= ======== =========
Delinquent loans to total loans 0.37% 1.20%
</TABLE>
13
<PAGE> 16
Loans Delinquent 90 Days or More, Real Estate Owned and In-Substance
Foreclosed Loans. The following table sets forth information regarding
non-accrual loans and loans delinquent 90 days or more and still accruing
interest, real estate owned and in-substance foreclosed loans. At September
30, 1996, there were no restructured loans within the meaning of Statement of
Financial Accounting Standard No. 15.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-Accrual mortgage loans (1)(2)........................... $ 3,064 $ 2,633 $ 1,451 $ 1,743 $ 11,269
Mortgage loans delinquent 90 days or more and still
accruing(2)................................................. 248 25 443 18 10
Non-accrual consumer loans and other loans(1)(2)............ 3 -- -- 8 1,390
Consumer and other loans delinquent 90 days or more
and still accruing (2)..................................... 27 20 37 45 162
------- ------- ------- ------- --------
Total non-performing loans................................. 3,342 2,678 1,931 1,814 12,831
Real estate owned and in-substance foreclosed loans......... 4,769 1,403 529 549 1,626
Repossessed automobiles..................................... 48 -- 13 371 1,602
------- ------- ------- ------- --------
Total non-performing assets................................. $ 8,159 $ 4,081 $ 2,473 $ 2,734 $ 16,059
======= ======= ======= ======= ========
Non-performing loans to total loans......................... 0.71% 0.58% 0.30% 0.21% 1.20%
Total non-performing assets to total assets................. 1.00% 0.48% 0.23% 0.23% 1.08%
</TABLE>
- -----------------------------
(1) For the fiscal year ended September 30, 1996, $1,145,000 in gross
interest income would have been recorded if these loans had been current
in accordance with their original terms and had been outstanding
throughout the period or since origination, if held for part of the period
and $589,000 in interest income on these loans was included in net income.
(2) As to principal or interest.
Real estate acquired by the Bank as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as "real estate owned" until sold.
Automobiles acquired by the Bank as a result of repossession are classified as
"repossessed automobiles."
Non-accrual mortgage loans increased to $11.3 million at September 30,
1996 from $1.7 million at September 30, 1995. This increase was primarily the
result of a $6.2 million loan relationship on a marina/residential development
in Charlotte County, Florida. See "Asset Quality - Classified Assets." The
increase was also caused by mortgage loans acquired in the Palm Beach Savings
acquisition on December 8, 1995. As of September 30, 1996, the non-performing
mortgage loans acquired from Palm Beach Savings totaled $2.4 million.
Classified Assets. Federal regulations and the Bank's policy require the
classification of loans and other assets (such as debt and equity securities
considered to be of lesser quality) as "substandard," "doubtful" or "loss"
assets. 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 institution will sustain "some loss" if
the deficiencies are not corrected. Assets classified as "doubtful" have all
of the weaknesses inherent in those classified as "substandard" with the added
characteristic that the weaknesses 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
14
<PAGE> 17
Bank to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are required to be designated "special
mention" by the Bank's management.
If an asset is classified, an estimated value of the property securing the
loan is determined and if the unpaid balance of the loan is greater than such
estimated value, the difference is established as a specific reserve. The Bank
also establishes general valuation allowances which, as understood in the
industry, represent loss allowances that have been established to recognize the
inherent risk associated with lending activities, but have not been allocated
to particular problem assets.
The OTS utilizes guidelines which provide guidance for OTS examiners in
determining whether the levels of general valuation allowances for savings
institutions are adequate. The OTS guidelines may cause savings institutions
to increase their levels of general valuation allowances, thereby reducing
their tangible capital, and also to increase their allowance for loan losses,
which would affect GAAP capital. The guidelines specify that if a savings
institution's general valuation allowance policies and procedures are
inadequate, the savings institution may be required to modify its general
valuation allowances based on a comparison of certain ranges of acceptable
general valuation allowances and the savings institution's level of classified
assets.
The Bank's Asset Classification Committee reviews and classifies the
Bank's assets on a monthly basis and reports the results of their reviews to
the Board of Directors on a monthly basis.
At September 30, 1996, the Bank had two classified assets or groups of
assets with carrying values in excess of $1.0 million. Set forth below is a
brief description of each classified asset or group of assets with a carrying
value of $1.0 million or more at September 30, 1996.
Marina/Residential Development, Charlotte County, Florida. At September
30, 1996, the Bank's classified assets included two loans to one borrower and a
speculative loan on two models to a party related to the borrower. The loans
totaled $6.2 million at September 30, 1996 and are secured by first mortgages
on a marina/residential development, a beach-front lot and two speculative
model residences. The Bank has personal guarantees on the notes.
Office Warehouse Facility, Palm Beach County, Florida. At September 30,
1996, the Bank's classified assets included a loan classified as substandard,
which is secured by a first mortgage on an office warehouse facility. The
carrying value of the loan at September 30, 1996 is $1.0 million. This loan
was acquired in the purchase of Palm Beach Savings on December 8, 1995. At
September 30, 1996 the office warehouse facility was approximately 80%
occupied.
15
<PAGE> 18
The following table sets forth at September 30, 1996, the Bank's aggregate
carrying value of the assets classified as substandard, doubtful, loss and
special mention as follows:
<TABLE>
<CAPTION>
Substandard Doubtful Loss Special Mention
--------------- -------------- -------------- ------------------
Number Amount Number Amount Number Amount Number Amount
------ ------ ------- ------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASSIFIED ASSETS:
Loans:
One- to four-family............................. 36 $ 2,634 -- $ -- -- $ -- 2 $ 80
Multi-family.................................... -- -- -- -- -- -- -- --
Commercial real estate.......................... 6 7,401 -- -- 1 400 -- --
Construction and land........................... 12 2,885 -- -- -- -- -- --
Consumer and other loans........................ 137 1,439 2 34 8 44 -- --
------ ------- ------- ------ ------ ------ ------ ------
Total....................................... 191 14,359 2 34 9 444 2 80
Repossessed automobiles.......................... 194 1,602 -- -- 194 1,208 -- --
Other assets..................................... 1 236 1 55 1 167 -- --
Real estate owned:
One-to four-family.............................. 8 898 -- -- 3 47 -- --
Multi-family.................................... -- -- -- -- -- -- -- --
Commercial real estate.......................... 1 222 -- -- 1 103 -- --
Land............................................ 8 506 -- -- 5 211 -- --
------ ------- ------- ------ ------ ------ ------ ------
Total real estate owned..................... 17 1,626 -- -- 9 361 -- --
------ ------- ------- ------ ------ ------ ------ ------
Total for all Classified Assets............. 403 $17,823 3 $ 89 213 $2,180 2 $ 80
====== ======= ======= ====== ====== ====== ====== ======
</TABLE>
Allowance for Loan Losses. Provisions for loan losses, which increase the
allowance for loan losses, are established by charges to income. Such
allowance represents the amounts which, in management's judgment, are adequate
to absorb charge-offs of existing loans which may become uncollectible. The
adequacy of the allowance is determined by management's continuing evaluation
of the loan portfolio in light of past loss experience, present economic
conditions, and other factors considered relevant by management at the
financial statement date. Loan evaluation occurs on a monthly basis with loan
provisions adjusted quarterly. Anticipated changes in economic factors which
may influence the level of the allowance are considered in the evaluation by
management when the likelihood of the changes can be reasonably determined. In
estimating the allowance for losses, consideration is given to asset
performance, the financial condition of borrowers or guarantors, additional
collateral provided, current and anticipated economic conditions, appraisals,
cost of disposal, and holding costs. While management uses the best
information available to make such evaluations, future adjustments to the
allowance may be necessary, which may be material, if economic conditions
differ substantially from the assumptions used in making the evaluation. If
additions to the original estimate of the allowance for loan losses are deemed
necessary, they will be reported in earnings in the period in which they become
reasonably estimable.
Significant declines in non-performing assets during fiscal years 1993 and
1994 allowed the Bank to limit additions to the allowance for loan losses in
those years. From September 30, 1992
16
<PAGE> 19
through September 30, 1993, the level of the Bank's consumer loans consistently
declined. During fiscal 1994, by using a more competitive pricing structure,
indirect lending, promotional activities, and cross selling consumer products
through its branch offices, the Bank increased its consumer lending without
incurring unacceptable credit risks or reducing the Bank's overall asset
quality. During fiscal 1995 and 1996, the Bank significantly increased its
level of indirect lending through automobile dealers. Indirect lending
represented 66% and 83% of consumer loan production in fiscal 1995 and 1996,
respectively. These types of indirect loans carry more credit risk, produce
higher charge off and delinquency rates and, therefore, the Bank increased loan
loss provisions so that at September 30, 1996, general reserves on indirect
loans equaled 6.1% of outstanding indirect loan balances. Higher than
anticipated charge-offs were experienced in the indirect automobile lending
portfolio, primarily during the latter part of the fiscal year ended September
30, 1996. As a result, a $16.4 million provision for loan losses related to
consumer lending was recorded during fiscal year 1996. Based upon an analysis
of the overall performance of the indirect lending program, management
determined that effective September 30, 1996 no new applications for indirect
loans would be accepted, thereby discontinuing the indirect lending program.
As a result of the declines in regional real estate market values and the
significant losses experienced by many other financial institutions, there has
been a greater level of scrutiny of the loan portfolios of financial
institutions by the FDIC, the OTS and other federal or state regulators as part
of their overall examination of these institutions. Results of recent
examinations indicate that these regulators may be applying more conservative
criteria in evaluating real estate market values, thus requiring lending
institutions to increase significantly provisions for potential loan losses.
While the Bank believes it has established an adequate allowance for loan
losses, there can be no assurance that the Bank will not have to increase its
level of loan loss allowance in the future or that regulators, in reviewing the
Bank's loan portfolio, will not request that the Bank significantly increase
its allowance for loan losses, thereby negatively affecting the Bank's
financial condition and earnings.
The preceding sentence is a "forward-looking statement" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act")
which involves estimates, assumptions and uncertainties. The following
important factors, should they occur, could cause actual loan loss and reserve
experience as well as other related results to differ materially from the
expectations expressed in the forward-looking statement:
1. Unanticipated changes in general economic conditions, such
as unemployment and interest rates.
2. Unanticipated changes in the number of repossessions and
the loan balances outstanding at the time of repossession.
3. Unanticipated changes in the resale value of repossessed
automobiles.
4. Unanticipated changes in the ability of the borrowers to
maintain insurance on the collateral securing the Bank's
loan, the cost of such insurance, and the ability to
recover insurance proceeds.
This disclosure is intended to comply with the terms of the safe harbor for
forward-looking statements provided by the Act.
17
<PAGE> 20
The following table sets forth the Bank's allowance for loan losses at the
dates indicated:
<TABLE>
<CAPTION>
At or For the Fiscal Year Ended
-------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 2,521 $ 2,334 $ 1,886 $ 1,956 $ 2,157
Provision for loan losses....... 1,675 149 135 261 15,704
Increase in allowance due to
acquisition of PBS.............. -- -- -- -- 2,253
Less: Charge-offs:
One- to four-family........... 124 -- -- -- --
Construction and land......... -- -- -- -- --
Multi-family.................. 273 81 -- -- --
Commercial real estate........ 1,353 406 -- -- 668
Consumer loans................ 113 122 69 92 7,962
Other loans................... -- -- -- -- --
------- ------- ------- ------- -------
Total charge-offs.......... 1,863 609 69 92 8,630
Recoveries...................... 1 12 4 32 371
------- ------- ------- ------- -------
Balance at end of period........ $ 2,334 $ 1,886 $ 1,956 $ 2,157 $11,855
======= ======= ======= ======= =======
</TABLE>
18
<PAGE> 21
The following table sets forth the Bank's allocation of its allowance for
loan losses by loan category and the percentage of loans in each category to
total loans receivable, at the dates indicated. The portion of the loan loss
allowance allocated to each loan category does not necessarily represent the
total allowance available for future losses in a given category because the
total loan loss allowance is valued based upon the entire loan portfolio, and
allocation to a given loan category is not fixed.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
------------------ ------------------ ------------------ ------------------ -------------------
Amount Percentage Amount Percentage Amount Percentage Amount Percentage Amount Percentage
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At end of period allocated to:
One-to four-family........... $ 673 74.66% $ 589 72.48% $ 660 68.88% $ 556 67.82% $ 416 60.93%
Construction and land........ 1,016 9.73 876 13.22 1,000 16.47 490 13.71 768 14.47
Multi-family................. 7 1.29 8 2.53 8 1.82 12 1.37 24 4.83
Commercial real estate....... 538 8.45 320 6.46 35 4.86 472 4.11 1,163 1.64
Consumer loans............... 100 5.20 93 4.78 252 7.68 603 12.74 9,463 17.90
Other loans ................. -- 0.67 -- 0.53 1 0.29 24 0.25 21 0.23
------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Total..................... $2,334 100.00% $1,886 100.00% $1,956 100.00% $2,157 100.00% $11,855 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ======= ======
</TABLE>
19
<PAGE> 22
The following table sets forth the Bank's charge-off ratios and allowance
for loan loss ratios at or during the dates and periods indicated:
<TABLE>
<CAPTION>
At or During the Fiscal Year Ended September 30,
----------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of net charge-offs during the
period to average loans outstanding
during the period.......................... 0.38% 0.14% 0.01% 0.01% 0.81%
Ratio of allowance for loan losses to
total loans receivable, net, at the end
of period.................................. 0.52 0.44 0.34 0.26 1.18
Ratio of allowance for loan losses to
non-performing loans at end of
period..................................... 69.84 70.43 101.29 118.91 92.40
Ratio of allowance for loan losses to
total non-performing assets at end of
period..................................... 28.78 46.21 79.51 78.90 73.82
</TABLE>
MORTGAGE-BACKED AND RELATED SECURITIES
The Bank invests in mortgage-related securities such as CMOs and REMICs.
At September 30, 1996, the Bank had $131.4 million in CMOs/REMICs, or 8.8% of
total assets. Of this amount, $49.6 million are CMOs/REMICs classified as
held-to-maturity with an approximate fair value of $49.2 million, and $81.8
million are CMOs/REMICs classified as available-for-sale and reported at fair
value. Of the $131.4 million of CMOs/REMICs, $54.8 million, or 41.7%, had
floating rates with caps ranging from 9% to 11.6%. Most of these
mortgage-related securities adjust on a monthly basis. The Bank's CMOs/REMICs
may be subject to volatile price movements which typically result from changes
in prepayments on the underlying mortgages. The Bank's CMOs/REMICs have coupon
rates ranging from 5.0% to 7.5% and had a weighted average yield of 6.10% at
September 30, 1996. The Bank's current policy is to purchase CMOs/REMICs rated
AA or better by nationally recognized rating services. Market quotes are
impacted by key assumptions made when estimating fair value, including
prepayment speeds, spreads to treasury securities and interest rate caps.
Changes in key market assumptions may result in material fluctuation in the
fair value of the CMO/REMICs, and accordingly in the unrealized gain or loss on
such securities. The majority of the CMOs/REMICs owned by the Bank are insured
or guaranteed either directly or indirectly through mortgage-backed securities
underlying the obligations by either the FNMA, FHLMC or Government National
Mortgage Association ("GNMA"). Depending on the amount of the Bank's
mortgage-backed and related securities available-for-sale, fluctuations in the
interest rate environment and other factors, the Bank may experience material
effects on its stockholders' equity from categorizing these securities as
available-for-sale.
CMOs and REMICs are typically issued by a special purpose entity, which
may be organized in a variety of legal forms such as a trust, a corporation or
a partnership. The entity aggregates pools of pass-through securities, which
are used to collateralize the mortgage-related securities. Once combined, the
cash flows can be divided into "tranches" or "classes" of individual
securities, thereby creating more predictable average lives for each security
than the underlying pass-through pools. Accordingly, under this security
structure all principal paydowns from the various mortgage pools are allocated
to a mortgage-related securities' class or classes structured to have priority
until the class is paid off. These securities are intended to alleviate the
reinvestment problems that arise because mortgage-backed security pass-throughs
pay off when interest rates fall. Management believes CMOs and REMICs
represent attractive alternatives relative to other investments because of the
wide variety of maturity and repayment options available through such
investments. The Bank utilizes these investments as part of its interest rate
risk management strategy.
20
<PAGE> 23
The Bank held mortgage-backed and related securities with a total carrying
value in excess of 10% of the Bank's stockholders' equity at September 30, 1996
issued by the following entities:
<TABLE>
<CAPTION>
Issuer Book Value Fair Value
------ ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
1. FNMA $102,033 $101,597
2. G.E. Capital Mortgage Corporation $ 41,496 $ 40,019
3. FHLMC $ 31,767 $ 32,084
4. GNMA $ 28,269 $ 28,948
5. Prudential Home Mortgage
Securities Company, Inc. $ 26,017 $ 24,684
</TABLE>
INVESTMENT ACTIVITIES
The investment policy of the Bank, which is established by the Board of
Directors and implemented by the Asset Liability Committee, is designed
primarily to provide and maintain liquidity, to generate a favorable return on
investments without incurring undue interest rate and credit risk, and to
complement the Bank's lending activities. In establishing its investment
strategies, the Bank considers, among other factors, its business and growth
plans, the economic environment, and the types of securities to be held.
Federally-chartered savings institutions have the authority to invest in
various types of assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers acceptances, repurchase
agreements, loans on federal funds and, subject to certain limits, commercial
paper and mutual funds.
The Bank's Asset Liability Committee meets monthly to monitor the Bank's
securities transactions. The Asset Liability Committee also conducts a
quarterly review of the Bank's investment policies, strategies and accounting
guidelines relating to its investments. The Board of Directors reviews the
Bank's investment policy on an annual basis and the Bank's investment activity
on a monthly basis.
OTS guidelines regarding investment portfolio policy and accounting
require insured institutions to categorize securities as held-to-maturity,
available-for-sale or trading. The Bank's investment policy has policies and
strategies for each type of security. The portion of the investment securities
portfolio which is held-to-maturity is accounted for on an amortized cost
basis. At September 30, 1996, the Bank had $17.0 million in securities
held-to-maturity consisting of United States Government and agency obligations
and FHLB-Atlanta stock. Securities which are categorized as available-for-sale
are carried at fair value. At September 30, 1996, the Bank had $27.6 million
in securities available-for-sale consisting primarily of United States
Government and agency securities.
21
<PAGE> 24
The following table sets forth certain information regarding the carrying
and fair values of the Bank's investments at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------------------------------
1994 1995 1996
-------------------- --------------------- -------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING DEPOSITS $ 4,466 $ 4,466 $13,878 $13,878 $141,975 $141,975
======= ======= ======= ======= ======== ========
SECURITIES HELD-TO-MATURITY:
U.S. Government and
agency obligations 54,933 53,373 38,110 37,988 6,981 7,042
Municipal bonds -- -- 10,388 11,288 -- --
FHLB stock 8,610 8,610 8,558 8,558 10,053 10,053
------- ------- ------- ------- -------- --------
Total $63,543 $61,983 $57,056 $57,834 $ 17,034 $ 17,095
======= ======= ======= ======= ======== ========
SECURITIES AVAILABLE-FOR-SALE:
U.S. Government and
agency obligations $54,087 $54,087 $ 2,000 $ 2,000 $ 27,105 $ 27,105
Mutual funds 3,185 3,185 -- -- -- --
Securities purchased under
agreement to resell -- -- 30,443 30,443 -- --
Certificates of deposit
and other securities -- -- -- -- 446 446
------- ------- ------- ------- -------- --------
Total $57,272 $57,272 $32,443 $32,443 $ 27,551 $ 27,551
======= ======= ======= ======= ======== ========
TRADING SECURITIES:
U.S. Government and
agency obligations $ 4,917 $ 4,917 $ -- $ -- $ -- $ --
======= ======= ======= ======= ======== ========
</TABLE>
22
<PAGE> 25
The table below sets forth certain information regarding the carrying
value and weighted average yields of the Bank's investment securities at
September 30, 1996.
<TABLE>
<CAPTION>
At September 30, 1996
---------------------------------------------------------------------------------
1 Year or Less After 1 Through 5 Years After 5 Through 10 Years
-------------------- -------------------------- -------------------------------
Annualized Annualized Annualized
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
-------- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity
U.S. Government and agency obligations $ 2,000 6.60% $ 4,981 6.75% $ -- --
Municipal bonds -- -- -- -- -- --
FHLB stock -- -- -- -- -- --
-------- ------- -----
Total securities held-to-maturity $ 2,000 6.60% $ 4,981 6.75% $ -- --
======== ======= =====
Securities available-for-sale (1,2):
U.S. Government and agency obligations $ 11,988 4.75% $15,117 7.48% $ -- --
Certificates of deposit and
other securities 396 6.50% 50 7.88% -- --
-------- ------- -----
Total securities available-for-sale $ 12,384 4.81% $15,167 7.48% $ -- --
======== ======= =====
</TABLE>
<TABLE>
<CAPTION>
At September 30, 1996
-----------------------------------------------------
After 10 Years Total Securities
-------------------- -----------------------------
Annualized
Weighted Approximate
Carrying Average Carrying Fair
Value Yield Value Value
----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Securities held-to-maturity
U.S. Government and agency obligations $ -- -- $ 6,981 $ 7,042
Municipal bonds -- -- -- --
FHLB stock 10,053 7.25% 10,053 10,053
------- ------- -------
Total securities held-to-maturity $10,053 7.25% $17,034 $17,095
======= ======= =======
Securities available-for-sale (1,2):
U.S. Government and agency obligations $ -- -- $27,105 $27,105
Certificates of deposit and
other securities -- -- 446 446
------- ------- -------
Total securities available-for-sale $ -- -- $27,551 $27,551
======= ======= =======
</TABLE>
- --------------------------
(1) Carrying value is fair value of securities.
(2) Annualized weighted average yield is calculated utilizing the book value
of the securities prior to adjustment for unrealized gain or loss on
available-for-sale and trading securities.
23
<PAGE> 26
SOURCES OF FUNDS
General. Deposits, loan repayments, borrowings, and cashflows generated
from operations are the primary sources of the Bank's funds for use in lending,
investing, and for other general purposes.
Deposits. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits consist of regular savings,
non-interest bearing checking, NOW checking, money market, and certificate of
deposit accounts.
The Bank's flow of deposits is influenced significantly by general
economic conditions, changes in prevailing interest rates, pricing, and
competition. The Bank's deposits are primarily obtained from the market areas
surrounding its offices. New locations, pricing, and product-packaging are
used to attract new deposits. The Bank retains existing deposits through
maintaining long-standing customer relationships, emphasizing customer service,
developing convenience services and product enhancements. The Bank does not
currently use brokers to obtain deposits. During the past fiscal year, the
Bank's deposit accounts increased by 21,847 accounts or 25.8%. On December 8,
1995 the Bank acquired 8,764 accounts from Palm Beach Savings and Loan, F.S.A.
as part of the acquisition of PBS Financial Corp. by the Company.
Management considers local competition, U.S. Treasury security offerings,
and internal cashflows when setting the Bank's deposit rates. The Bank has
maintained a high percentage of core deposits (consisting of regular savings,
money market, non-interest bearing checking, and NOW checking) which has
contributed to lowering cost-of-funds. Core deposits represented 34.9% of
total deposits on September 30, 1994, 26.2% of total deposits on September 30,
1995 and 25.5% of total deposits on September 30, 1996. The decrease in core
deposits as a percentage of total deposits is primarily caused by an increase
in certificates of deposit. During fiscal years 1995 and 1996, the Bank became
more competitive in its pricing of certificates of deposit.
24
<PAGE> 27
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposit presented. Management does not believe that the
use of year-end balances instead of average balances resulted in any material
difference in the information presented.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------------------------------------
1994 1995 1996
---------------------------- --------------------------- --------------------------
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
of Total Nominal of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand accounts:
Non-interest bearing checking $30,512 4.25% 0.00% $31,912 3.63% 0.00% $ 39,649 3.49% 0.00%
NOW checking 61,124 8.51 1.47 57,464 6.54 1.41 59,716 5.25 1.41
Passbook and statement savings 86,972 12.11 1.92 89,967 10.24 2.56 150,433 13.24 3.62
Money market 71,497 9.95 2.43 50,853 5.79 2.41 39,667 3.49 2.41
------ ------ ------- ----- --------- -----
Total 250,105 34.82 1.71 230,196 26.20 1.87 289,465 25.47 2.47
------- ------ ------- ----- --------- -----
Certificate accounts by original maturity:
7-31 days 587 0.08 2.97 437 0.05 4.24 672 0.06 2.83
91 days 8,820 1.23 4.05 8,265 0.94 4.85 6,925 0.61 4.91
6 months 51,279 7.14 3.69 44,314 5.04 5.08 39,459 3.47 4.76
9 months 58,956 8.21 4.75 95,435 10.86 5.86 144,293 12.69 5.45
9-18 months 3,052 0.42 4.88 1,727 0.20 5.18 451 0.04 5.33
1 year 87,114 12.13 3.62 126,694 14.42 5.64 171,201 15.06 5.42
1 1/2 years 40,040 5.57 5.21 79,983 9.10 5.73 124,665 10.97 5.92
2 years 57,311 7.98 4.40 58,335 6.64 5.42 93,988 8.27 6.04
2 1/2 years 5,249 0.73 5.97 10,708 1.22 6.10 30,060 2.64 5.98
3 years 30,147 4.20 5.72 23,984 2.73 5.52 26,921 2.37 5.78
4 years 6,644 0.92 5.88 7,007 0.80 5.84 7,596 0.67 5.78
5 years 79,345 11.05 6.61 92,722 10.55 6.68 101,065 8.89 6.40
Jumbo (1) 39,633 5.52 4.23 98,863 11.25 5.86 99,961 8.79 5.43
------- ------ ------- ----- --------- -----
Total 468,177 65.18 4.77 648,474 73.80 5.80 847,257 74.53 5.61%
------- ------ ------- ----- --------- -----
Total deposits $718,282 100.00% 3.70 $878,670 100.00% 4.77 $1,136,722 100.00% 4.87%
======== ====== ======== ====== ========== ======
</TABLE>
- -------------------------
(1) Includes certificates of deposit of $50,000 and up which have negotiated
rates.
25
<PAGE> 28
The following table presents the deposit activity of the Bank for the
periods indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
---------------------------------------
1994 1995 1996
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Deposits........................... $1,318,083 $1,597,936 $2,095,914(1)
Withdrawals........................ 1,321,021 1,474,866 1,886,048
---------- ---------- ----------
Deposits greater (less) than
withdrawals....................... (2,938) 123,070 209,866
Interest credited on deposits...... 22,762 37,318 48,186
---------- ---------- ----------
Total increase (decrease)
in deposits........................ $ 19,824 $ 160,388 $ 258,052
========== ========== ==========
</TABLE>
- --------------
(1) Deposits include $103.8 million of deposits acquired in the acquisition of
PBS.
At September 30, 1996, the Bank had outstanding $99.7 million in
certificate of deposit accounts of $50,000 or more which have negotiated rates
("Jumbo") maturing as follows:
<TABLE>
<CAPTION>
Balance at September 30, 1996
----------------------------------------------
Origination Amount
----------------------------------
$50,000-$99,999 $100,000 and over Total
--------------- ----------------- ----------
<S> <C> <C> <C>
(In thousands)
MATURING PERIOD:
One month through three months.. $ 34,280 $ 17,566 $ 51,846
Three through six months........ 12,978 7,798 20,776
Six through 12 months........... 13,272 3,915 17,187
Over 12 months.................. 5,887 3,980 9,867
--------------- ----------------- ----------
Total.......................... $ 66,417 $ 33,259 $ 99,676
=============== ================= ==========
</TABLE>
26
<PAGE> 29
The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at September 30, 1994, 1995 and
1996 and the period to maturity of these accounts from September 30, 1996:
<TABLE>
<CAPTION>
At September 30, Period to Maturity from September 30, 1996
-------------------------- --------------------------------------------------------
Within One One to Two to
1994 1995 1996 Year Two Years Three Years Thereafter Total
---- ---- ---- --- --------- ----------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
Less than 3.00% .......... $ 486 $ 326 $ 833 $ 833 $ -- $ -- $ -- $ 833
3.00% to 3.99% .......... 131.554 5,184 303 301 2 -- -- 303
4.00% to 4.99% .......... 180,505 98,532 86,471 82,084 2,073 2,314 -- 86,471
5.00% to 5.99% .......... 83,515 266,157 595,436 427,568 128,013 19,953 19,902 595,436
6.00% to 6.99% .......... 35,159 224,788 131,927 68,499 40,323 5,796 17,309 131,927
7.00% to 7.99% .......... 27,251 49,477 32,151 14,063 159 72 17,857 32,151
8.00% or greater.......... 9,707 4,010 136 -- -- -- 136 136
-------- -------- -------- -------- -------- ------- ------- --------
Total ................. $468,177 $648,474 $847,257 $593,348 $170,570 $28,135 $55,204 $847,257
======== ======== ======== ======== ======== ======== ======= ========
</TABLE>
27
<PAGE> 30
BORROWINGS
From time to time, the Bank obtains advances from the FHLB-Atlanta which
generally are secured by a blanket lien against the Bank's mortgage portfolio.
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-Atlanta will advance to member institutions, including the Bank,
for purposes other than meeting withdrawals, fluctuates from time to time in
accordance with the policies of the OTS and of the FHLB-Atlanta. As of
September 30, 1996, the Bank had a total credit availability with the
FHLB-Atlanta of $350.0 million. With $201.0 million currently advanced,
remaining credit availability equals $149.0 million.
The Bank executes sales of its securities under agreements to repurchase
("Reverse Repurchase Agreements"). During the fiscal year ended September 30,
1996, all of the Bank's transactions were fixed-coupon Reverse Repurchase
Agreements. The dollar amount of securities underlying the agreements, which
have a carrying value of $12.2 million, remained in the Bank's asset accounts.
The securities underlying the agreements were book entry securities. During
the period of such agreements, the securities are delivered by appropriate
entry into the counter parties' balances. Securities sold under Reverse
Repurchase Agreements averaged $38.0, $40.3 million and $11.9 million during
the fiscal years ended September 30, 1994, 1995 and 1996, respectively. The
maximum amounts outstanding at any month end under such agreements were $63.2
million and $76.9 million during 1994 and 1995 and $28.4 million during 1996.
The weighted average interest rate on the Reverse Repurchase Agreements at
September 30, 1996 was 5.92%.
28
<PAGE> 31
The following table sets forth certain information relating to the Bank's
borrowings at September 30, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
At or for the Fiscal Year Ended September 30,
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
(Dollars in thousands)
FHLB advances:
Average balance outstanding....................... $121,048 $141,837 $200,158
Maximum amount outstanding at any month
end during the period............................ 172,175 171,125 226,100
Balance outstanding at end of period.............. 172,175 171,125 201,025
Weighted average interest rate during
the period....................................... 4.44% 6.13% 5.98%
Weighted average interest rate at
end of period.................................... 5.22 6.28 5.88
Reverse repurchase agreements:
Average balance outstanding....................... $ 38,004 $ 40,321 $ 11,935
Maximum amount outstanding at any
month end during the period...................... 63,163 76,947 28,408
Balance outstanding at end of period.............. 57,717 18,427 10,000
Weighted average interest rate during the
period........................................... 4.06% 5.84% 5.97%
Weighted average interest rate at end
of the period.................................... 4.85% 6.19% 5.92%
Total borrowings:
Average balance outstanding....................... $159,052 $182,158 $212,093
Maximum amount outstanding at any
month end during the period...................... 235,338 248,072 254,508
Balance outstanding at end of period.............. 229,892 189,552 211,025
Weighted average interest rate during
the period....................................... 4.35% 6.07% 5.98%
Weighted average interest rate at end
of period........................................ 5.13% 6.27% 5.88%
</TABLE>
29
<PAGE> 32
SUBSIDIARY ACTIVITIES
During fiscal year 1996, the Bank had three wholly-owned subsidiaries:
First Bank of Florida Mortgage Corporation ("FBMC"), formerly First Federal
Mortgage Corporation, The Big First, Inc. and First Corporate Center, Inc.
First Bank of Florida Mortgage Corporation is a wholly-owned subsidiary
of the Bank which solicits and processes mortgage loans which it then sells
only to the Bank. At September 30, 1996, the Bank's investment in FBMC was
$362,000 and its assets were $1,469,000. FBMC's earnings were $115,000 for the
fiscal year ended September 30, 1996.
The Big First, Inc. was formed in March 1981. The primary purpose of this
service corporation was the development of residential real estate. This
service corporation is currently inactive.
First Corporate Center, Inc. is a wholly-owned subsidiary of the Bank
established during fiscal year 1995 to engage in maintenance and management of
improved real estate. It currently manages the Reflections Office Centre owned
by the Company.
PERSONNEL
As of September 30, 1996, the Bank had 363 full-time employees and 39
part-time employees. The employees are not represented by a collective
bargaining unit, and the Bank considers its relationship with its employees to
be good.
30
<PAGE> 33
REGULATION AND SUPERVISION
GENERAL
The Bank is subject to extensive regulation, examination and supervision
by the OTS as its chartering agency and the FDIC as the deposit insurer. The
Bank is a member of the FHLB System and its deposit accounts are insured up to
applicable limits by the FDIC under the Savings Association Insurance Fund
("SAIF"). The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. There are periodic examinations
by the OTS and the FDIC to test the Bank's compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such regulation, whether by the OTS, the FDIC or the Congress, could
have a material adverse impact on the Company, the Bank and their operations.
The Company, as a savings and loan holding company, is also required to file
certain reports with and otherwise comply with the rules and regulations of the
OTS, and of the SEC under the federal securities laws. Certain of the
regulatory requirements applicable to the Bank and to the Company are referred
to below or elsewhere herein.
FEDERAL SAVINGS INSTITUTION REGULATION
Business Activities. The activities of savings institutions are governed
by the Home Owner's Loan Act, as amended (the "HOLA") and, in certain respects,
the Federal Deposit Insurance Corporation Act ("FDI Act"). The HOLA and the
FDI Act were amended by the Financial Institution Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). FIRREA was enacted for the
purpose of resolving problem savings institutions, establishing SAIF as a new
thrift insurance fund, reorganizing the regulatory structure applicable to
savings institutions and imposing bank-like standards on savings institutions.
FDICIA, among other things, requires that federal banking regulators intervene
promptly when a depository institution experiences financial difficulties,
mandates the establishment of a risk-based deposit insurance assessment system
and requires imposition of numerous additional safety and soundness operational
standards and restrictions. Both FIRREA and FDICIA contain provisions
affecting numerous aspects of the operations and regulations of
federally-insured savings associations and empower the OTS and the FDIC, among
other agencies, to promulgate regulations implementing its provisions. The
descriptions of statutory provisions and regulations applicable to savings
associations set forth in this document do not purport to be complete
descriptions of such statutes and regulations and their effects on the Bank.
Moreover, because some of the provisions of FDICIA are still being implemented
through the adoption of regulations by the various federal banking agencies,
the Bank cannot yet fully assess the impact of these provision on its
operations.
The federal banking statutes as amended by FIRREA and FDICIA (1) restrict
the use of brokered deposits by troubled savings institutions that are not
well-capitalized, (2) prohibit the acquisition of any corporate debt security
that is not rated in one of the four highest rating categories, (3) restrict
the aggregate amount of loans secured by non-residential real estate property
to 400% of capital, (4) permit savings and loan holding companies to acquire up
to 5% of the voting shares of non-subsidiary savings institutions or savings
and loan holding companies without prior approval, (5) permit bank holding
companies to acquire healthy savings institutions and (6) require the federal
banking agencies to establish by regulation loan-to-value limitations on real
estate lending. However, the Bank does have the authority under the HOLA to
make certain loans or investments not exceeding the greater of the Bank's
capital or 5% of its total assets on each of (i) non-conforming loans (loans in
excess of the specific limitations of the HOLA) and (ii) construction loans
without
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security for the purpose of financing what is or is expected to be residential
property. To assure repayment of such loans, the Bank relies substantially on
the borrower's general credit standing, personal guarantees and projected
future income on the properties.
Capital Requirements. Both OTS and FDIC have promulgated regulations
setting forth capital requirements applicable to savings institutions. The OTS
capital regulations require savings institutions to meet three capital
standards: a 1.5% tangible capital ratio (defined as the ratio of tangible
capital to adjusted total assets), a 3% leverage (core capital) ratio (defined
as the ratio of core capital to adjusted total assets) and an 8% risk-based
capital standard as defined below. Core capital is defined as common
stockholder's equity (including retained earnings), certain noncumulative
perpetual preferred stock and related surplus, minority interests in equity
accounts of consolidated subsidiaries, certain goodwill and certain mortgage
servicing rights less certain intangible assets, mortgage servicing rights and
investments in nonincludable subsidiaries. Tangible capital is defined in the
same manner as core capital, except that all intangible assets (excluding
certain mortgage servicing rights) must be deducted. Adjusted total assets is
defined as GAAP total assets, minus intangible assets (except those included in
core capital). The OTS regulations also require that in calculating the
leverage ratio, tangible and risk-based capital standards, institutions must
deduct investments in and loans to subsidiaries engaged in activities not
permissible for a national bank. The Bank currently has no subsidiaries
engaged in such activities.
The OTS risk-based capital standard for savings institutions requires that
total capital (which is defined as core capital and supplementary capital less
reciprocal holdings of depository institution capital instruments, prescribed
percentages of equity investments and that portion of land loans and
non-residential construction loans in excess of 80% loan-to-value ratio minus
an interest rate risk component, if any) be at least 8% of risk-weighted
assets. In determining risk-weighted assets, all assets, including certain
off-balance sheet assets, are multiplied by a risk-weight of 0% to 100%, as
assigned by the OTS capital regulation based on the risks OTS believes are
inherent in the type of asset. Generally, zero weight is assigned to risk-free
assets, such as cash and unconditionally guaranteed United States government
securities. A weight of 20% is assigned to, among other things, certain
obligations of United States government-sponsored agencies (such as the FNMA
and the FHLMC) and certain high quality mortgage-related securities. A weight
of 50% is assigned to qualifying mortgage loans and certain other
mortgage-related securities, and a weight of 100% is assigned to consumer,
commercial and other loans, repossessed assets and assets that are 90 days or
more past due. The components of core capital are equivalent to those
discussed above. The components of supplementary capital include permanent
capital instruments (such as cumulative perpetual preferred stock, mandatory
convertible subordinated debt and perpetual subordinated debt), maturing
capital instruments (such as mandatory convertible subordinated debt and
intermediate-term preferred stock) and the allowance for loan and lease losses.
Allowance for loan and lease losses includable in supplementary capital is
limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
capital counted toward supplementary capital cannot exceed 100% of core
capital.
On August 31, 1995, the OTS issued an interim rule providing that the
amount of risk-based capital that may be required to be maintained by an
institution for recourse assets cannot be greater than the total of the
recourse liability. The interim rule provides that whenever the calculation of
risk-based assets (including assets sold with recourse) would result in a
capital charge greater than the institution's maximum recourse liability on the
assets sold, instead of including the assets sold in the institution's
risk-weighted assets, the institution may increase its risk-based capital by
its maximum recourse liability. In addition, qualified savings associations
may include in their risk-weighted assets for the purpose of capital standards
and other capital measures, only the amount of retained recourse of small
business obligation transfers multiplied by the appropriate risk weight
percentage. The interim rule sets reserve requirements and aggregate limits
for recourse held under the modified treatment. Only well-capitalized
institutions and adequately capitalized institutions with OTS permission may
use this reduced capital treatment.
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On August 16, 1996, the federal banking agencies jointly proposed to
revise their respective risk-based capital rules relating to treatment of
certain collateralized transactions. These types of transactions generally
include claims held by banks (such as loans and repurchase agreements) that are
collateralized by cash or securities issued by the U.S. Treasury or U.S.
Government agencies. If adopted, the proposal would permit certain partially
collateralized claims to qualify for the 0% risk category. To qualify for the
0% risk category, the portion of the claim that will be continuously
collateralized must be specified either in terms of dollar amount or percentage
of the claim. For off-balance-sheet derivative contracts, the collateralized
portion of the transaction could be specified by dollar amount or percentage of
the current or potential future exposure.
FDICIA required that the OTS (and other federal banking agencies) revise
risk-based capital standards with appropriate transition rules to ensure that
they take account of interest rate risk. OTS rules require savings
associations with greater than "normal" interest rate risk exposure to deduct
an interest rate risk component from total capital for purposes of calculating
their risk-based capital requirements. A savings association's interest rate
risk is measured by the decline in the net portfolio value of its assets (i.e.,
the difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200 basis point increase or decrease in market interest rates
(except when the 3-month Treasury bond equivalent yield falls below 4%, then
the decrease will be equal to one-half of that Treasury rate) divided by the
estimated economic value of the association's assets, as calculated in
accordance with guidelines set forth by the OTS. A savings association whose
measured interest rate risk exposure exceeds 2% must deduct an interest rate
component in calculating its total capital under the risk-based capital rule.
The interest rate risk component is an amount equal to one-half of the
difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Effective September 1,
1995, the interest rate risk rule was amended to include, in evaluating capital
adequacy, an assessment of the exposure to declines in the economic value of an
association's capital due to changes in interest rates.
Under the rule, there is a three quarter lag between the reporting date of
an institution's financial data and the effective date for the new capital
requirement based on that data. Each quarter, the OTS calculates an
institution's interest rate risk exposure and advises each institution of any
interest rate risk capital component resulting from greater than "normal"
exposure. The rule also provides that the Director of the OTS may waive or
defer an association's interest rate risk component on a case-by-case basis.
Based upon calculations performed by the OTS concerning the Bank, the
Bank's interest rate risk exposure has been determined to be not greater than
"normal" exposure as of June 30, 1996.
On June 26, 1996, the Office of the Comptroller of the Currency, the
Federal Reserve Board and the FDIC issued a joint agency policy statement that
provides the standards that the federal banking agencies will use to evaluate
the adequacy and effectiveness of an institution's interest rate risk
management. The joint policy addresses fundamental elements for sound interest
rate risk management, including appropriate board and senior management
oversight and the need for a comprehensive risk management process that
identifies, measures, monitors and controls risk. An institution with material
weaknesses in its risk management process or high levels of exposure relative
to its capital will be directed to take corrective action, including raising
additional capital, strengthening management expertise, improving management
information and measurement systems, reducing levels of exposure, or some
combination of these actions, depending on the facts and circumstances of the
individual institution.
The OTS issued a Thrift Bulletin in August 1995 that describes how and
under what circumstances an institution may (1) appeal its interest rate risk
component by requesting an adjustment to the interest rate risk component
generated by the OTS model or (2) seek approval to use its own internal
interest rate risk model to calculate the interest rate risk component. The
Thrift
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Bulletin provides that to be eligible to seek an adjustment to the interest
rate risk component, an institution must show that its interest rate risk
component, as calculated by the OTS, would cause the institution to move to a
lower prompt corrective action category and that the accuracy of the OTS'
estimate of interest rate risk exposure can be materially improved through the
use of more refined data or more appropriate assumptions tailored to the
specific institution. The Thrift Bulletin also outlines the circumstances
under which well-capitalized institutions may request to use their own internal
interest rate risk model in place of the OTS model in calculating interest rate
risk capital requirements. The internal model must meet certain OTS standards,
including reasonable assumptions about future interest rates, prepayment rates
for assets and attrition rates for liabilities.
The FDICIA also required that the OTS (and other federal banking agencies)
revise the risk-based capital standards with appropriate transition rules to
take into account concentration of credit risks and risks of nontraditional
activities. Effective January 17, 1995, the OTS (along with the other federal
banking agencies) issued final regulations which explicitly identify
concentration of credit risk and other risks from nontraditional activities, as
well as an institution's ability to manage these risks, as important factors in
assessing an institution's overall capital adequacy. These final regulations
do not contain any specific mathematical formulas or capital requirements.
At September 30, 1996, the Bank met each of its capital requirements, in
each case on a fully phased-in basis. The following table sets forth the
regulatory capital calculations of the Bank at September 30, 1996:
<TABLE>
<CAPTION>
Excess
Regulatory Required (Deficiency) Actual Required
Capital Capital Amount Percent Percent
------- ------- ------ ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible $ 92,244 $22,413 $69,831 6.17% 1.50%
Leverage (Core) $ 92,244 $44,826 $47,418 6.17% 3.00%
Risk-based $103,668 $67,518 $36,150 12.28% 8.00%
</TABLE>
The FDIC capital regulations defining capital for leverage purposes and
establishing minimum leverage capital ratios provides that any insured
depository institution with a "Tier 1" (core) capital to total assets ratio of
less than 2% will be deemed to be in an "unsafe and unsound condition" and is
subject to termination of its deposit insurance by FDIC. At September 30,
1996, the Bank's core capital ratio was 6.17%.
Prompt Corrective Regulatory Action. The FDICIA established a system of
prompt corrective action to resolve the problems of undercapitalized
institutions. Under this system, the banking regulators are required to take
prompt supervisory and corrective actions against undercapitalized
institutions. The scope of mandatory and permissive restrictions becomes
increasingly severe as an institution's capital declines. The FDICIA
established five categories that measure the capital of depository institutions
(well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized). The FDICIA requires that
the federal banking agencies, including the OTS, assign specific criteria to
each of these classifications, within parameters prescribed by the FDICIA
including, among others, that an institution becomes "critically
undercapitalized" when the ratio of tangible equity to total assets is equal to
or less than 2% of assets. The FDICIA also requires the banking regulators to
review their capital standards every two years so that these standards require
sufficient capital to facilitate prompt corrective action and to minimize loss
to the SAIF and the Bank Insurance Fund ("BIF").
Under the OTS prompt corrective action rules, a "well capitalized"
institution generally must have a total risk-based capital ratio of 10% or
more, a leverage ratio of 5% or more, and a Tier 1 risk-based capital ratio
(based on the ratio of core capital to risk-weighted assets) of 6% or more, and
may not be subject to any written agreement, order, capital directive or prompt
corrective action directive issued by the OTS. The Bank is a "well
capitalized" institution under the definitions. An institution will be
categorized as "adequately capitalized" if it has a total risk-based capital
ratio of 8% or more, a leverage ratio of 4% or more, and a Tier 1 risk-based
capital ratio of 4% or more. A savings institution that has a total risk-based
capital ratio of less than 8%, a Tier 1 risk-based capital
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ratio of less than 4%, or a leverage ratio that is less than 4% is considered
"undercapitalized." A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 risk-based capital ratio of less than 3% or a
leverage ratio that is less than 3% is considered to be "significantly
undercapitalized" and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Under the FDICIA as implemented by OTS regulations, an
insured depository institution cannot make a capital distribution (broadly
defined to include, among other things, dividends, redemptions and other
purchases of stock), or pay management fees to any person having control of
that institution if, after doing so, it would be "undercapitalized."
Generally, a capital restoration plan must be filed with the OTS within 45
days after the date an institution receives notice that it is
"undercapitalized", "significantly undercapitalized" or "critically
undercapitalized." Any company having control of an undercapitalized
institution must guarantee the institution's compliance with its capital
restoration plan until the institution has remained adequately capitalized
during each of four consecutive calendar quarters. The aggregate liability of
the controlling company under its guarantee is limited to the lesser of 5% of
the institution's total assets at the time the institution was notified that it
was undercapitalized or the amount necessary to restore the institution to
"adequate capitalization." In addition to submitting a capital restoration
plan, numerous mandatory supervisory actions become immediately applicable to
an "undercapitalized", "significantly undercapitalized" or "critically
undercapitalized" institution, including (but not limited to) restrictions on
growth of the institution's assets, investment activities, capital
distributions, and affiliate transactions. The OTS could also take any one of
a number of discretionary supervisory actions, including the issuance of a
capital directive and the replacement of senior executive officers and
directors. Generally, subject to a narrow exception, the FDICIA requires the
banking regulator to appoint a receiver or conservator for an institution that
is "critically undercapitalized."
Insurance of Deposit Accounts. The FDIC is the federal deposit insurance
administrator for both banks and savings associations. Currently, the FDIC
administers separate insurance funds, the SAIF for thrifts and the BIF for
banks, independently setting insurance premiums for each fund. The FDIC is
authorized to adjust assessment rates. The Bank, along with all federally
insured depository institutions, is required to pay premiums for this deposit
insurance.
Under the FDI Act, the FDIC is required to increase the reserves of both
the BIF and the SAIF to 1.25% of total insured deposits over a reasonable
period of time and thereafter to maintain these reserves at not less than this
level. Under the Deposit Insurance Funds Act of 1996 ("DIFA"), which was signed
into legislation on September 30, 1996, all depository institutions insured by
the SAIF were required to pay a one-time special assessment (the "Special
Assessment") of 65.7 basis points (subject to certain adjustments) on
SAIF-insured deposits that were held at March 31, 1995 to recapitalize the
SAIF. The Special Assessment is intended to bring the SAIF's reserve ratios
to a level comparable to the BIF at 1.25% of total insured deposits. The
Bank's pre-tax share of the Special Assessment was $6.6 million.
The FDICIA required the FDIC to establish a risk-based assessment system
for calculating each insured institution's deposit insurance premiums to take
into account that institution's regulatory capital level and the level of risk
associated with its activities. Under the system, for each semi-annual
assessment period, an insured institution's assessment rate will be based on
whether the institution is "well capitalized," "adequately capitalized" or
"undercapitalized" based on criteria consistent with those established pursuant
to the prompt corrective action regulations of the FDICIA. See "Prompt
Corrective Regulatory Action" above. Additionally, each of these groups is
divided into three "supervisory subgroups" which reflect the degree of
"supervisory risk" that the institution poses to the insurance fund. Each
institution is assigned to a subgroup based on the FDIC's consideration of
supervisory evaluations provided by the institution's primary federal
regulator, as well as other information that the FDIC determines to be relevant
to the institution's financial condition and the risk posed to the insurance
fund. The FDIC adopted revisions to the risk-based assessment system effective
April 1, 1995 which implement a quarterly collection of assessments
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<PAGE> 38
by means of an FDIC-originated direct debit from an account designated by the
insured institution. The rules also shift to the FDIC responsibility for
computing each institution assessment and establish a procedure for resolving
disagreements between the FDIC and the institutions regarding assessment
computations.
For the semiannual assessment period beginning July 1, 1996, SAIF
insurance premiums ranged from 0.23% to 0.31% of insured deposits, with well
capitalized institutions in the highest supervisory subgroup paying 0.23% of
insured deposits and undercapitalized institutions in the lowest supervisory
group paying 0.31% of insured deposits. The Bank's assessment rate for the
fiscal years ended September 30, 1995 and 1996 was 0.23% of insured deposits.
During the fiscal year ended September 30, 1996, the Bank paid insurance
premiums totaling $8.8 million, which included a one-time special assessment of
$6.6 million discussed above.
The FDIC in early December, 1996 adopted a rule that would reduce regular
semi-annual SAIF assessments from the current range of 0.23% - 0.31% of
deposits to a range of 0% - 0.27% of deposits. The new rates will be effective
for SAIF-assessable institutions on January 1, 1997. From October 1, 1996
through December 31, 1996, SAIF-assessable institutions will be assessed at
rates ranging from 0.18% to 0.27% of deposits, which represents the amount the
FDIC calculates as necessary to cover the interest due for that period on
outstanding Financing Corporation ("FICO") Bonds discussed below. Because
SAIF-assessable institutions have already been assessed at current rates
(i.e., 0.23% - 0.31% of deposits) for the semi-annual period ending December
31, 1996, the FDIC will refund or credit with interest the amount collected
from such institutions for the period from October 1, 1996 through December 31,
1996 which exceeds the amount due for that period under the reduced assessment
schedule. Assuming the Bank retains its current risk classification under the
FDIC's risk-based assessment system, the deposit insurance assessments payable
by the Bank will be reduced significantly to the same level currently paid by
the Bank's BIF-member competitors. Effective October 1, 1996, the Bank's SAIF
insurance premiums were reduced from $0.23 per $100 to $0.064 per $100 of
insured deposits in January, 1997.
DIFA prohibits adoption of an assessment rate for a SAIF member between
September 30, 1996 and December 31, 1996 that is lower than the rate imposed on
a BIF member that poses a comparable risk to the relevant deposit insurance
fund. Therefore, if BIF assessments rise during this period, SAIF premiums may
be increased. DIFA also provides that, except for institutions that are not
well capitalized or exhibit financial, operational or compliance weaknesses
ranging from moderately severe to unsatisfactory, the FDIC may not set
semi-annual assessments at levels exceeding those required to maintain or bring
the relevant deposit insurance fund up to the designated reserve ratio.
DIFA requires federal banking agencies to take appropriate measures to
prevent insured depository institutions and insured depository holding
companies from facilitating or encouraging shifting from SAIF-assessable
deposits to BIF-assessable deposits to avoid assessments imposed on SAIF
members. These measures include enforcement actions, denial of applications,
and treating the transaction as a conversion by imposing exit fees and entrance
fees.
DIFA also reduced the burden on SAIF-insured institutions in paying bonds
(the "FICO Bonds") issued by the FICO, the entity created in 1987 to finance
the recapitalization of the Federal Savings and Loan Insurance Corporation, the
SAIF's predecessor insurance fund. Prior to the enactment of DIFA, a
substantial amount of the SAIF assessment revenue was used to pay the interest
due on the FICO Bonds. Beginning with the semi-annual periods after December
31, 1996, interest due on FICO Bonds will be covered by assessments against
both SAIF and BIF insured institutions. Between January 1, 1997 and December
31, 1999, BIF-assessable deposits will be assessed at a rate of 20% of the
assessment rate applicable to SAIF-assessable deposits. After December 31,
1999 or the date that the last savings association ceases to exist, FICO
assessments will be shared on a pro rata basis.
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<PAGE> 39
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution (1) has engaged in unsafe or unsound
practices, (2) is in an unsafe or unsound condition to continue operations, or
(3) has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC or the OTS. The management of the Bank does not know of
any practice, condition or violation that might lead to termination of deposit
insurance. At September 30, 1996, the Bank's regulatory capital exceeded all
of the fully phased-in capital requirements.
DIFA also provides for the merger of the SAIF and the BIF into the
"Deposit Insurance Fund" on January 1, 1999 provided there are no state or
federally chartered FDIC-insured savings associations existing on that date.
To facilitate the merger of the BIF and SAIF, DIFA directs the Treasury
Department to conduct a study on the development of a common charter and to
submit a report, along with appropriate legislative recommendations, to
Congress by March 31, 1997. Immediately prior to merger of the SAIF and the
BIF, a Special Reserve of the Deposit Insurance Fund (the "DIF Special
Reserve") will be created that will consist of the excess amount in the SAIF
reserve ratio over the designated reserve ratio as of that date, if any. The
DIF Special Reserve would be available for emergency purposes if the reserve
ratio of the Deposit Insurance Fund is less than 50% of the designated reserve
ratio and the FDIC expects the reserve ratio to remain at less than 50% of the
designated reserve ratio for each of the next four calendar quarters.
If the SAIF and the BIF are not merged, DIFA provides for creation of a
SAIF Special Reserve if the reserve ratio of the SAIF exceeds the designated
reserve ratio. The amount by which the SAIF reserve ratio exceeds the
designated reserve ratio will be deposited into the SAIF Special Reserve. Like
the DIF Special Reserve, the SAIF Special Reserve would be available for
emergency purposes if the reserve ratio of the SAIF is less than 50% of the
designated reserve ratio and the FDIC expects the reserve ratio to remain at
less than 50% of the designated reserve ratio for each of the next four
calendar quarters.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the national bank limits on loans to one borrower. Generally, a
savings institution's total loans and extensions of credit to a single borrower
or related group of borrowers outstanding at one time and not secured by
readily marketable collateral (defined to include certain securities and
bullion, but generally not real estate) may not exceed 15% of the institution's
unimpaired capital and surplus. An additional amount equal to 10% of
unimpaired capital and surplus may be lent if the loan is fully secured by
readily marketable collateral.
A savings institution which meets its fully phased-in capital requirements
may make loans to one borrower to develop domestic residential housing units up
to the lesser of $30,000,000 or 30% of the savings institution's unimpaired
capital and surplus (including all amounts lent under the 10% and 15%
limitations described above) if certain other conditions are met.
At September 30, 1996, the Bank's largest aggregate amount of loans to one
borrower consisted of $12.0 million in lines of credit and the balance of
disbursed funds totaled $7.9. At September 30, 1996, the maximum amount that
the Bank was permitted by the regulations to lend to one borrower (or related
group of borrowers) outstanding at any time was approximately $14.3 million.
Real Estate Lending Standards. The OTS and the other federal banking
agencies have adopted regulations that require savings institutions to adopt
and annually review written real estate lending policies that reflect
consideration of guidelines adopted by the federal banking agencies. The
lending policies must include diversification standards, underwriting standards
(including loan-to-value limits), loan administration procedures, and
procedures for monitoring compliance with the policies. The guidelines adopted
by the federal banking agencies include maximum loan-to-value ratios for land
loans (65%), land development loans (75%), construction loans (80-85%), loans
on owner-occupied, one-to four-family property, including home equity loans (no
specific loan-to-value limit, but loans at or above 90% loan-to-value require
private mortgage insurance or readily marketable collateral), and loans on
other improved property (85%).
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The guidelines permit institutions to make loans in excess of the
supervisory loan-to-value limits if such loans are supported by other credit
factors. The aggregate amount of such nonconforming loans, however, should not
exceed the institution's total capital, and the aggregate amount of
nonconforming loans secured by real estate other than one-to four-family
residential property should not exceed 30% of total capital.
QTL Test. The Bank, like all savings associations, is required by HOLA to
meet a qualified thrift lender ("QTL") test in order to, among other things, be
eligible for future advances from the FHLB. Under the QTL test, as modified by
FDICIA, a savings association is required to maintain at least 65% of its
"portfolio assets" (total assets less (i) specified liquid assets up to 20% of
total assets; (ii) intangibles, including goodwill and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed securities) on a monthly basis in 9 out of every 12 months.
A savings association that fails the QTL test must either convert to a
bank charter or be subject to prohibitions against (i) making any new
investment or engaging in any new activity not permissible for both a national
bank and a savings association, (ii) paying dividends not permissible under
national bank regulations, (iii) obtaining new advances from any FHLB, and (iv)
establishing any new branch office in a location not permissible for a national
bank in the association's home state. In addition, beginning three years after
an association fails the QTL test, the association would be prohibited from
retaining any investment or engaging in any activity not permissible for both a
national bank and a savings association and would have to repay all outstanding
advances from an FHLB as promptly as could be prudently done consistent with
the safe and sound operation of the savings association. If an association
that fails the QTL test is controlled by a holding company, then, within one
year after the failure, the holding company must register as a bank holding
company and will be subject to all restrictions on bank holding companies. As
of September 30, 1996, the Bank maintained 75.8% of its portfolio assets in
qualified thrift investments and therefore, met the QTL test.
Limitation on Capital Distributions. OTS regulations limit savings
institutions' ability to make capital distributions such as cash dividends,
payments 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 regulations establish three
categories for classifying institutions, and these categories impose
increasingly severe restrictions on capital distributions. An institution will
be categorized based primarily upon its capital level.
A Tier 1 Bank is an institution that has capital, both immediately prior
to and after giving effect to a proposed capital distribution, that is equal to
or exceeds the amount of its fully phased-in capital requirements. A Tier 1
Bank that has not been advised by the OTS that it is in need of more than
normal supervision could (after giving prior notice to the OTS but without the
requirement of OTS approval) make capital distributions during a calendar year
up to the greater of (i) 100% of its net income to date during the calendar
year plus the amount that would reduce by one-half its "surplus capital ratio"
(the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year, or (ii) 75% of its net income for the most
recent four quarters. A Tier 2 Bank is an institution that has capital, both
immediately prior to and after giving effect to a proposed capital
distribution, that is equal to or exceeds its minimum regulatory capital
requirements but is less than the amount of its fully phased-in capital
requirements. A Tier 2 Bank may make capital distributions of between 25% and
75% of its net income over the most recent four-quarter period, depending on
its risk-based capital level. All distributions by a Tier 1 or Tier 2 bank in
excess of those described above would require the prior approval of the OTS. A
Tier 3 Bank is an institution that has capital, both immediately prior to and
after giving effect to a proposed capital distribution, that is less than the
amount of its minimum regulatory capital requirements. It may not make any
capital distributions without the prior approval of the OTS.
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In addition, the OTS may prohibit any proposed capital distribution by any
institution otherwise permitted by the regulations if the OTS determines that
such distribution would constitute an unsafe or unsound practice.
At September 30, 1996, the Bank was a Tier 1 Bank. If the Bank's capital
falls below its fully phased-in capital requirements or the OTS gives notice
that the Bank is in need of more than normal supervision, the Bank's ability to
make capital distributions could be restricted. Furthermore, under the OTS
prompt corrective action regulations, the Bank would be prohibited from making
any capital distributions if, after the distribution, the Bank would have (i) a
total risk-based capital ratio of less than 8%, (ii) a Tier 1 risk-based
capital ratio of less than 4% or (iii) a leverage ratio of less than 4% (see
"Prompt Corrective Regulatory Action" above.)
Liquidity. OTS regulations currently require a savings institution to
maintain each month 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 at least 5% of the
average daily balance of the sum of its net withdrawable deposit accounts and
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. OTS regulations also require each savings institution
to maintain each month an average daily balance of short-term liquid assets
(generally those having maturities of 12 months or less) equal to at least 1%
of the average daily balance of the sum of its net withdrawable deposit
accounts and short-term borrowings during the preceding calendar month.
Enforcement proceedings may be undertaken by the OTS for failure to meet these
liquidity requirements. The Bank's average daily liquidity and short-term
liquidity ratios at September 30, 1996 were 7.9% and 5.3%, respectively, which
exceeded the then applicable requirements. The Bank has never failed to meet
its liquidity requirements.
Assessments. Savings institutions are required by OTS regulation to pay
assessments to the OTS to fund its operations. The general assessment,
currently paid on a semi-annual basis, is computed upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
the institution's latest quarterly thrift financial report. The assessments
paid by the Bank in fiscal 1996 totaled $255,000.
Community Reinvestment. Under the CRA, as implemented by OTS regulations,
a savings institution has a continuing and affirmative obligation consistent
with its safe and sound operation to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires the OTS, in connection with its
examination of a savings institution, to assess the institution's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such institution. FIRREA amended
the CRA to require all institutions to make public disclosure of their CRA
performance using the ratings of "outstanding", "satisfactory", "needs to
improve", or "substantial noncompliance". The Bank received an "outstanding"
rating in its last CRA examination by the OTS of November, 1994.
On May 4, 1995, the bank regulatory agencies, including the OTS, adopted
new, uniform CRA regulations that provide guidance to financial institutions on
their CRA obligations and the methods by which those obligations would be
assessed and enforced. The regulations establish three tests applicable to the
Bank: (i) a lending test to evaluate direct lending in low-income areas and
indirect lending to groups that specialize in community lending; (ii) a service
test to evaluate an institution's delivery of services to such areas; and (iii)
an investment test to evaluate an institution's investment in programs
beneficial to such areas. The new CRA regulations became effective on July 1,
1995, but reporting requirements are not effective until January 1, 1997.
Evaluation under the regulations is not mandatory until July 1, 1997. The Bank
believes its current operations and
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policies substantially comply with the regulations, and therefore, no material
changes to operations or policies are expected.
Brokered Deposits. FDIC regulations implementing the FDICIA limitations
on brokered deposits provide that well-capitalized institutions are not subject
to limitations on brokered deposits. An adequately capitalized institution may
not accept, renew or roll over brokered deposits unless (i) it has been granted
a waiver from the FDIC of the regulation's restrictions and (ii) it does not
pay an effective yield on any brokered deposit which exceeds by more than (a)
75 basis points the effective yield paid on deposits of comparable size and
maturity in such institution's normal market area for deposits accepted from
its normal market area or (b) 120 basis points of the current yield on similar
maturity U.S. Treasury obligations and 130 basis points for any deposit at
least half of which is uninsured for deposits accepted outside the
institution's normal market area. An undercapitalized institution may not
accept, renew, or rollover brokered deposits and may not solicit deposits by
offering an effective yield that exceeds by more than 75 basis points the
prevailing effective yields on insured deposits of comparable maturity in the
institution's normal market area or in the market area in which such deposits
are being solicited. The FDIC regulation uses the same definitions as those
used in the prompt corrective action regulations (i.e. "well capitalized,
"adequately capitalized," etc.) See "Prompt Corrective Regulatory Action"
above. As of September 30, 1996, the Bank qualified as a "well capitalized"
institution and therefore, was not subject to FDICIA limits on brokered
deposits.
Financial Management Requirements. The FDIC has promulgated regulations
implementing the FDICIA financial reporting requirements. The regulations
govern all insured depository institutions with assets of more than $500
million, their management and their independent auditors and establish new
rules for the composition, duties and authority of such institutions' audit
committees. Among other things, applicable depository institutions are
required to prepare and make available to the public annual reports on their
financial condition and management, including statements of management's
responsibility for the financial statements, internal controls and compliance
with certain federal banking laws and regulations relating to safety and
soundness, and an assessment of the effectiveness of such controls, and the
institution's compliance with such internal controls, laws and regulations.
The institution's independent public accountants are required to attest to, and
report separately on, management assessments. The regulations also require
that the annual report contain financial statements audited by an independent
public accountant. Each such institution also is required to have an audit
committee composed of independent directors. Audit committees of institutions
with more than $3 billion in assets may engage their own independent legal
counsel. The regulations also require prompt notice to the FDIC and the OTS if
the institution's auditor resigns or is dismissed.
Transactions with Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with a savings institution, including the
Company and its non-savings institution subsidiaries) or to make loans to
certain insiders, is limited by Sections 23A and 23B of the Federal Reserve Act
("FRA"). Section 23A limits the aggregate amount of transactions with any
individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings institution's capital and surplus. Certain
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B provides that
certain transactions with affiliates, including loans and asset purchases, must
be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with nonaffiliated
companies. In the absence of comparable transactions, such transactions may
only occur under terms and circumstances, including credit standards, that in
good faith would be offered to or would apply to nonaffiliated companies.
Notwithstanding Sections 23A and 23B, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are not permissible
for bank holding companies under Section 4(c) of the Bank Holding Company Act
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("BHC Act"). Furthermore, no savings institution may purchase the securities
issued by any affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities controlled by such persons, is currently
governed by Sections 22(g) and 22(h) of the FRA, Regulation O thereunder (with
certain minor variances), and the OTS's Conflicts Rule at 12 CFR 563.43. Among
other things, these regulations require such loans to be made on terms
substantially similar to those offered to unaffiliated individuals, place
limits on the amount of loans the Bank may make to such persons based, in part,
on the Bank's capital position, and require certain approval procedures to be
followed.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-affiliated parties," including
stockholders and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on
an insured institution. Civil penalties cover a wide range of violations and
actions and range up to $25,000 per day unless a finding of reckless disregard
causing substantial loss to the savings institution or substantial pecuniary
benefit to the offending party is made, in which case penalties may be as high
as $1 million per day. Criminal penalties for most financial institution
crimes include fines of up to $1 million and imprisonment for up to five years.
In addition, regulators have substantial discretion to impose enforcement
action on an institution that fails to comply with its regulatory requirements,
particularly with respect to the capital requirements. Possible enforcement
action ranges from the imposition of a capital plan and capital directive to
receivership, conservatorship or the termination of deposit insurance. Under
the FDI Act, the FDIC has the authority to recommend to the Director of OTS
that enforcement action be taken with respect to a particular savings
institution. If action is not taken by the Director, the FDIC has authority to
take such action under certain circumstances.
Standards for Safety and Soundness. Under FDICIA, as amended by the
Riegle Community Development and Regulatory Improvement Act of 1994 ("CDRI
Act"), each federal banking agency was required to prescribe for all insured
depository institutions and their holding companies standards relating to
internal controls, information systems and audit systems, loan documentation,
credit underwriting, interest rate risk exposure, asset growth and
compensation, fees and benefits and such other operational and managerial
standards as the agency deems appropriate. On July 10, 1995, the federal
banking agencies, including the OTS, adopted a final rule establishing
deadlines for submission and review of safety and soundness compliance plans
and Interagency Guidelines Establishing Standards for Safety and Soundness.
The final rule and the guidelines went into effect on August 9, 1995. The
guidelines require savings institutions to maintain internal controls and
information systems and internal audit systems that are appropriate for the
size, nature and scope of the institution's business. The guidelines also
establish certain basic standards for loan documentation, credit underwriting,
interest rate risk exposure, and asset growth. The guidelines further provide
that savings institutions should maintain safeguards to prevent the payment of
compensation, fees and benefits that are excessive or that could lead to
material financial loss, and that they should take into account factors such as
compensation practices at comparable institutions. In October 1996, the
federal banking agencies jointly adopted asset quality and earning standards to
be added to the Interagency Guidelines.
If the OTS determines that a savings institution is not in compliance with
the safety and soundness guidelines, it may require the institution to submit
an acceptable plan to achieve compliance with the guidelines. A savings
institution must submit an acceptable compliance plan to the OTS within 30 days
after receipt of a request for such a plan. Failure to submit or implement a
compliance plan may subject the institution to regulatory sanctions.
Management believes that the Bank already meets substantially all the standards
adopted in the interagency guidelines, and therefore does not believe that
implementation of these regulatory standards will materially affect the Bank's
operations.
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The FDICIA, as amended by the CDRI Act, also requires the federal banking
agencies to establish standards relating to asset quality and earnings. The
federal banking agencies, including the OTS, issued guidelines effective
October 1, 1996 relating to asset quality and earnings. Under the guidelines,
a savings institution should maintain systems (commensurate with its size and
the nature and scope of its operations) to identify problem assets and prevent
deterioration in those assets as well as to evaluate and monitor earnings and
ensure that earnings are sufficient to maintain adequate capital and reserves.
Management believes that the asset quality and earnings standards, in the form
proposed by the banking agencies, would not have a material effect on the
Bank's operations.
Interstate Banking. In September 1994, Congress enacted the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act")
which became effective September 29, 1995. The Interstate Act eliminates many
existing restrictions on interstate banking by authorizing interstate
acquisitions of banks by bank holding companies without geographic limitations
and without regard to whether such acquisitions are permissible under state
law.
Florida enacted the Florida Interstate Banking Act (the "Florida Act")
which became effective May 16, 1996. The Florida Act permits acquisitions of
Florida banks in existence three years or more (or all Florida bank
subsidiaries in the case of Florida bank holding companies) by bank holding
companies based in other states.
Florida law has permitted interstate reciprocal acquisitions of and by
Florida savings institutions since 1986. The effect of the Interstate Act and
the Florida Act, which will expand the number of out-of-state bank holding
companies permitted to acquire Florida banks, on the Bank cannot be predicted
at this time. It is anticipated that these acts may facilitate further
consolidation in the banking industry and, by permitting out-of-state banks
nationwide to acquire Florida banks, may increase competition in the Bank's
market.
Branching. Pursuant to OTS regulations, a federal savings association has
the authority to branch throughout the state of its home office and
nationwide to the extent allowed by federal statute. Prior approval of the
OTS is required to establish branches, and the OTS is required to consider the
policies, condition and operation of the institution and its performance under
the Community Reinvestment Act ("CAR") in approving branch applications.
Beginning June 1, 1997, the Interstate Act will allow interstate branching
in states that have not passed legislation prohibiting interstate branching.
Prior to June 1, 1997, interstate branching will be possible in states that
pass laws affirmatively authorizing interstate branching. In 1996, Florida
enacted the Florida Interstate Branching Act (the "Branching Act") which, as
contemplated by the Interstate Act, allows Florida banks to establish
interstate branches through mergers with out-of-state banks. The Branching Act
also permits out-of-state banks to acquire Florida banks and such out-of-state
banks to operate and maintain the branches of the acquired Florida bank.
Transactions contemplated by the Branching Act will be permitted beginning
June 1, 1997.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FLAB System, which consists of 12 regional
Flubs which are governed and regulated by the Federal Housing Finance Board.
The FLAB provides a central credit facility primarily for member institutions.
The FHLB-Atlanta makes advances to members in accordance with policies and
procedures periodically established by the Federal Housing Finance Board and
the Board of Directors of FHLB-Atlanta. Long-term FHLB advances may be
obtained only for providing funds for residential housing finance. All
advances must be fully secured by specified types of collateral. Interest
rates charged for advances vary depending on maturity, the cost of funds to the
FHLB-Atlanta and the purpose of the borrowing. FIRREA restricts the amount of
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FHLB advances to a member institution, and in some circumstances, limits
advances to institutions that do not meet the QTL test. See "Federal Savings
Institution Regulation - QTL Test." At September 30, 1996, advances from the
FHLB-Atlanta to the Bank totaled $201.0 million. The weighted average interest
rate on those advances as of September 30, 1996 was 5.88%.
The Bank, as a member of the FHLB-Atlanta, is required to acquire and hold
shares of capital stock in that FHLB in an amount at least equal to 1% of the
aggregate principal amount of its unpaid home mortgage loans, home-purchase
contracts and similar obligations. The Bank was in compliance with this
requirement with an investment in FHLB-Atlanta stock at September 30, 1996 of
$10.1 million.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest
on advances to their members. For the years ended September 30, 1994, 1995 and
1996, dividends from the FHLB-Atlanta to the Bank amounted to $405,000,
$549,000 and $741,000, respectively. If dividends were reduced or interest on
future FHLB advances increased, the Bank's net interest income would likely
also be reduced. Further, there can be no assurance that the impact of FDICIA
and FIRREA on the FHLBs will not also cause a decrease in the value of the
FHLB-Atlanta stock held by the Bank.
FEDERAL RESERVE SYSTEM
Federal Reserve Board regulations require savings institutions to maintain
non-interest-earning reserves against certain of their transaction accounts
(primarily NOW and regular checking accounts). Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $52.0 million or
less (subject to adjustment by the Federal Reserve Board) the reserve
requirement is 3% of the amount of transaction accounts; for accounts greater
than $52.0 million, the reserve requirement is $1,560,000 plus 10% (subject to
adjustment by the Federal Reserve Board between 8% and 14%) of the amount of
transaction accounts in excess of $52.0 million. The first $4.3 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. At September 30, 1996, the
Bank was in compliance with the foregoing requirements. The FRB has authority
to impose, in specified circumstances, emergency and supplemental reserves in
excess of the percentage limitations otherwise prescribed. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve
Board may be used to satisfy liquidity requirements imposed by the OTS.
Because required reserves must be maintained in the form of either vault cash,
a non-interest-bearing account at a Federal Reserve Bank or a pass-through
account as defined by the Federal Reserve Board, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets. FHLB System
members are also authorized to borrow from the Federal Reserve "discount
window," but Federal Reserve Board regulations require institutions to exhaust
all FHLB sources before borrowing from a Federal Reserve Bank.
In addition, Federal Reserve Board regulations limit the periods within
which depository institutions must provide availability for, and pay interest
on, deposits to transaction accounts. Depository institutions are required to
disclose their check holding policies and all changes to those policies in
writing to customers.
HOLDING COMPANY REGULATION
The Company is a unitary savings and loan holding company within the
meaning of the HOLA, as amended. As such, the Company is required to register
with the OTS and is subject to OTS regulations, examinations, supervision and
reporting requirements. In addition, the OTS has enforcement authority over
the Company and its non-savings institution subsidiaries. Among other things,
this authority permits the OTS to restrict or prohibit activities that are
determined to be a
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serious risk to the subsidiary savings institution. The Bank must notify the
OTS 30 days before declaring any dividend to the Company.
The HOLA prohibits a savings and loan holding company, directly or
indirectly or through one or more subsidiaries or through one or more
transactions, from (1) acquiring either control of or substantially all of the
assets of another savings institution or holding company thereof without prior
written approval of the OTS; (2) acquiring or retaining, with certain
exceptions, 5% or more of the voting stock of a nonsubsidiary savings
institution, a nonsubsidiary holding company or a nonsubsidiary company engaged
in activities other than those permitted by the HOLA; or (3) acquiring or
retaining control of an institution that is not federally insured. In
evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the holding company and savings institution involved, the effect
of the acquisition on the savings institution to be acquired, the risk of the
acquisition to the insurance funds, the convenience and needs of the community,
and competitive factors.
As a unitary savings and loan holding company, the Company generally is
not restricted under existing laws as to the types of business activities in
which it may engage, provided that the Bank continues to be a QTL. See
"Federal Savings Institution Regulation-QTL Test" for a discussion of the QTL
requirements. Upon any non-supervisory acquisition by the Company of another
savings association or savings bank that meets the QTL test and is deemed to be
a savings institution by OTS, the Company would become a multiple savings and
loan holding company (if the acquired institution is held as a separate
subsidiary) and would be subject to extensive limitations on the types of
business activities in which it could engage. The HOLA limits the activities
of a multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the Bank Holding Company ("BHC") Act, subject to the
prior approval of the OTS, and activities authorized by OTS regulation.
The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions in
more than one state, unless: (i) the acquiring company or savings association
of such company is authorized to acquire control of an institution in the
additional state pursuant to the emergency acquisition provisions of the FDI
Act, (ii) the acquiring company controls a savings association subsidiary
which operated a home or branch office in the additional state as of March 5,
1987 or (iii) the statutes of the state of the target savings institution
specifically permit such acquisitions. Although the conditions imposed upon
acquisitions in those states which have enacted such legislation vary, most
such statutes are of the "regional reciprocity" type which require both that
the acquiring holding company be located (as defined by the location of its
subsidiary savings institutions) in a state within a defined geographic region
and that the state in which the acquiring holding company is located has
enacted reciprocal legislation allowing savings institutions in the target
state to purchase savings institutions in the acquiror's home state on terms no
more restrictive than those imposed by the target state on the acquiror. Some
states authorize acquisition by out-of-state holding companies only in
supervisory cases, and certain states do not authorize interstate acquisitions
under any circumstances. See "Interstate Banking."
Federal law generally provides that no "person" acting directly or
indirectly or through or in concert with one or more other persons, may acquire
"control" as that term is defined in OTS regulations of a federally-insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved if it is determined, among
other things, that (i) the acquisition would substantially lessen competition;
(ii) the financial condition of the acquiring person might jeopardize the
financial stability of the savings institution or prejudice the interests of
its depositors or (iii) the competence, experience or integrity of the
acquiring person or the proposed management personnel indicates that it would
not be in the interest of the depositors or the public to permit the
acquisition of control by such person.
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In addition, federal regulations governing conversions of mutual savings
institutions to the stock form of organization prohibit the direct or indirect
acquisition without prior OTS approval of more than 10% of any equity security
of a savings institution within three years after the savings institution's
conversion to stock form. This limitation applied to acquisitions of the stock
of the Company until September 29, 1996. Such an acquisition may be
disapproved if it is found, among other things, that the proposed acquisition
(a) would frustrate the purposes of the provisions of the regulations regarding
conversions; (b) would be manipulative or deceptive; (c) would subvert the
fairness of the conversion; (d) would be likely to result in injury to the
savings institution; (e) would not be consistent with economical home
financing; (f) would otherwise violate law or regulation; or (g) would not
contribute to the prudent deployment of the savings institution's conversion
proceeds.
In August of 1994, the OTS approved final regulations to implement
provisions of FIRREA which ease restrictions on mergers and combinations
involving federal stock associations. The regulations expressly authorize
federal stock associations to combine or merge with FDIC-insured depository
institutions, as well as to combine or merge with federal associations and
depository institutions that are not insured by the FDIC. The final
regulations also authorize federal stock savings associations to convert to
state or national banks. In addition, the final regulations ease application
requirements by allowing well-managed, well-capitalized federal thrifts to
simply notify the OTS of their intent to change charters. OTS approval of a
merger or conversion application would still be required for (1) thrifts with a
CAMEL supervisory rating of 3, 4, or 5, (2) thrifts with a less than
satisfactory CRA rating, or (3) thrifts that do not meet their capital
requirements.
FEDERAL SECURITIES LAWS
The Company's Common Stock is registered with the Securities and Exchange
Commission. The Company is subject to the information, proxy solicitation,
insider trading restrictions and other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock issued
in the Conversion does not cover the resale of such shares. Shares of the
Common Stock purchased by persons who are not affiliates of the Company may be
resold without registration. Shares purchased by an affiliate of the Company
are subject to the resale restrictions of Rule 144 under the Securities Act.
Provided the Company meets the current public information requirements of Rule
144 under the Securities Act, each affiliate of the Company who complies with
the other conditions of Rule 144 (including those that require the affiliate's
sale to be aggregated with those of certain other persons) is 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 the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
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FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The Company and the Bank report their income on a fiscal year
basis using the accrual method of accounting and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including the method of the Bank's addition to its reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Bank or the Company. The Bank was last audited by the
Internal Revenue Service for the tax year ending September 30, 1992.
Bad Debt Reserves. For tax years beginning before January 1, 1996,
savings institutions such as the Bank which meet certain definitional tests
primarily relating to their assets and the nature of their business
("qualifying thrifts") are permitted to establish a reserve for bad debts
and to make annual additions thereto, which additions may, within specified
formula limits, be deducted in arriving at their taxable income. A qualifying
savings institution, such as the Bank, may elect annually, and is not bound by
such election in any subsequent year, one of the following two methods for
computing additions to its bad debt reserves for losses on "qualifying real
property loans" (generally loans secured by interests in improved real
property): (i) the experience method, or (ii) the percentage of taxable
income method. Additions to the reserve for losses on non-qualifying
loans, however, must be computed under the experience method and reduce the
current year's addition to the reserve for losses on qualifying real property
loans, unless that addition is also determined under the experience method.
Under the percentage of taxable income method, the bad debt deduction equals 8%
of the taxable income of the Bank, determined without regard to that deduction
and with certain adjustments.
A qualifying savings institution that is a member of a group of affiliated
corporations that files consolidated income tax returns for federal income tax
purposes is required under current Treasury Department Regulations to reduce
its taxable income for purposes of calculating its bad debt deduction under the
percentage of taxable income method for losses that are attributable to other
savings institution members of the consolidated group and to
"functionally-related" activities of non-savings institution members of the
group. There are presently no other savings institution members of the Bank's
consolidated group. The Bank has not been required to reduce its taxable
income for such purposes on account of functionally-related activities of
non-savings institution members of the group as a result of the Treasury
Department Regulations.
The amount of the addition to the reserve for losses on qualifying real
property loans under the percentage of taxable income method cannot exceed the
amount necessary to increase the balance of the reserve for losses on
qualifying real property loans at the close of the taxable year to 6% of the
balance of the qualifying real property loans outstanding at the end of the
taxable year. The Bank's balance for its reserve for losses on qualifying real
property loans was approximately $20.6 million at September 30, 1996. Also, if
the qualifying thrift uses the percentage of taxable income method, then the
qualifying thrift's aggregate addition to its reserve for losses on qualifying
real property loans cannot, when added to the addition to the reserve for
losses on nonqualifying loans,
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exceed the amount by which (i) 12% of the amount that the total deposits or
withdrawable accounts of depositors of the qualifying thrift at the close of
the taxable year exceeded (ii) the sum of the qualifying thrift's surplus,
undivided profits and reserves at the beginning of such year. For the year
ended September 30, 1996, the 12% of the Bank's deposits and withdrawable
accounts, less its surplus, undivided profits and reserves, exceeds by
approximately $38.9 million the balance of its reserve for losses on
qualifying real property loans.
In August 1996, Congress passed legislation which repeals the Bank's
present method of accounting for bad debts for federal income tax purposes. As
discussed in Note 12 to the consolidated financial statements, the Bank
currently uses the percentage of taxable income method to determine its bad
debt deduction in the computation of its taxable income. Under the new
legislation, the Bank will be required to use the specific charge-off method,
which may result in a different deduction for bad debts in determining taxable
income than as presently computed under its current method. Additionally, the
Bank will be required to recapture its post-1987 additions to its bad debt
reserves. Because the Bank has provided deferred taxes for the income tax bad
debt reserves established after 1987, management does not anticipate any
additional income tax liability related to the recapture. The new legislation
is effective for taxable years beginning after December 31, 1995.
Distributions. To the extent that (i) the Bank's reserve for losses on
qualifying real property loans exceeds the amount that would have been allowed
under the experience method and (ii) the Bank makes "nondividend distributions"
to the Company that are considered to result in distributions from the excess
bad debt reserve or the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be
included in the Bank's taxable income. Nondividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock, and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax
purposes, will not be considered to result in a distribution from the Bank's
bad debt reserves. Thus, any dividends to the Company that would reduce
amounts appropriated to the Bank's bad debt reserves and deducted for federal
income tax purposes would create a tax liability for the Bank.
The amount of additional taxable income created from an Excess
Distribution is an amount that when reduced by the tax attributable to the
income is equal to the amount of the distribution. Thus, if certain portions
of the Bank's accumulated bad debt reserve are used for any purpose other than
to absorb qualified bad debt losses, such as for the payment of dividends or
other distributions with respect to the Bank's capital stock (including
distributions upon redemption or liquidation), approximately one and one-half
times the amount so used would be includable in gross income for federal income
tax purposes, assuming a 35% corporate income tax rate (exclusive of state
taxes). The Bank does not intend to pay dividends that would result in a
recapture of any portion of its bad debt reserves.
Corporate Alternative Minimum Tax. Corporations, including qualifying
savings institutions such as the Bank, generally are subject to the alternative
minimum tax, to the extent that the amount of such tax exceeds the amount of
the corporation's regular income tax. The Internal Revenue Code imposes this
tax at the rate of 20% on the corporation's AMTI, which is, regular taxable
income with certain adjustments plus tax preference items, less any available
exemption. Tax preference items for these purposes include, among other items
(i) the excess of a savings institution's deduction for an addition to its
reserve for bad debts over the amount that would have been allowable if such
deduction had been computed under the experience method, and (ii) interest on
certain tax-exempt bonds issued after August 7, 1986. AMTI can be offset by
only 90% of net operating loss carryovers. For taxable years beginning after
December 31, 1989, the adjustment to AMTI based on book income will be an
amount equal to 75% of the amount by which a corporation's adjusted current
earnings exceeds its AMTI (determined without regard to this adjustment and
prior to reduction for net operating losses). In addition, for taxable years
beginning after December 31, 1986, and before January 1, 1996, an environmental
tax of .12% of the excess of AMTI (with certain modifications) over $2.0
million is imposed on corporations, including the Bank, whether or not an
Alternative Minimum Tax ("AMT") is paid. The Bank does not expect to be
subject to the AMT. The Bank was subject to an environmental tax liability for
the tax year ended September 30, 1994, which was not material.
Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the
same affiliated group of corporations. The corporate dividends received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations, except that if the Company and the Bank own more than 20% of the
stock of a corporation distributing a dividend 80% of any dividends received
may be deducted.
47
<PAGE> 50
Proposed Federal Tax Legislation. Under proposals announced by the
President, the dividends-received deduction in circumstances in which the Bank
owns 20% or less of the stock of a corporation would be reduced from 70% to
50%.
Florida Taxation. The Bank files Florida income tax returns. For Florida
income tax purposes, savings institutions are presently taxed at a rate equal
to 5.5% of taxable income. For this purpose, "taxable income" generally means
federal taxable income, subject to certain adjustments (including the addition
of interest income on State and municipal obligations). The Florida tax may be
reduced by a credit of up to 65% of the tax due as a result of certain
intangible taxes paid. The tax is deductible by the Bank in determining its
federal income tax liability. The Bank is not currently under audit with
respect to its Florida income tax returns.
IMPACT OF NEW ACCOUNTING STANDARDS
In November 1995, FASB issued "A Guide to Implementation of SFAS No. 115
on Accounting for Certain Investments in Debt and Equity Securities - Questions
and Answers" ("SFAS 115 Q&A Guide"). SFAS 115 Q&A Guide includes a one-time
opportunity for entities which had previously adopted the provisions of SFAS
115 to reconsider their ability and intent to hold securities to maturity and
such entities would be allowed to transfer securities from the held-to-maturity
category to available-for-sale without calling into question the intent to hold
securities to maturity. Management evaluated the impact of the SFAS 115 Q&A
Guide on the investment portfolio. SFAS 115 Q&A Guide required that any
one-time reclassifications must occur between November 15, 1995 and December
31, 1995. In November 1995, the Bank reclassified $10.5 million of municipal
securities and $20.0 million of U.S. Treasury notes from held-to-maturity to
available-for-sale. Of the reclassified amounts, $15.6 million were sold
during the fiscal year, and the Bank recorded net gains of $811,000.
In May 1995, FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights." The Statement, which amends SFAS No. 65, "Accounting for Certain
Mortgage Banking Activities," requires that an entity with mortgage banking
operations recognize as separate assets rights to service mortgage loans for
others. An entity that acquires mortgage servicing rights through either the
purchase or origination of mortgage loans and sells or securitizes those loans
with servicing rights retained should allocate the total cost of the mortgage
loans to the mortgage servicing rights and the loans based on their relative
fair values if it is practicable to estimate fair value. SFAS No. 122 applies
prospectively in fiscal years beginning after December 15, 1995 to sales of
mortgage loans with servicing rights retained and to impairment evaluations of
all amounts capitalized as mortgage servicing rights, including those purchased
before the adoption of this Statement. SFAS No. 122, when adopted, is not
expected to have a material effect on the Company's consolidated financial
statements.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement requires certain disclosures about stock-based
employee compensation arrangements, regardless of the method used to account
for them, and defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to adopt
that method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
stock based compensation plans using the intrinsic value method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and, if presented, earnings per share, as
if the fair value method of accounting defined in this Statement had been
applied. Under the fair value method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date or other measurement date over the amount an employee
must pay to acquire the stock. The disclosure requirements of this Statement
are effective for financial statements for fiscal years beginning after
December 15, 1995. Pro forma disclosures required for entities that elect to
continue
48
<PAGE> 51
to measure compensation cost using APB No. 25 must include the effects of all
awards granted in fiscal years that begin after December 15, 1994. Management
is in the process of considering the alternatives presented in SFAS No. 123.
IMPACT OF NEW LEGISLATIVE ISSUES - On September 30, 1996, Congress passed
and the President signed the Deposit Insurance Funds Act of 1996 which mandated
that all depository institutions that are insured by the SAIF pay a one-time
special assessment of 65.7 basis points (subject to certain adjustments) on
SAIF-insured deposits that were held at March 31, 1995 by November 27, 1996 to
recapitalize the SAIF portion of the FDIC fund. The assessment is intended to
bring the SAIF's reserve ratios to a comparable level of the Bank Insurance
Fund at 1.25% of total insured deposits. In connection with the
recapitalization, the FDIC also lowered SAIF premiums from $0.23 per $100 to
$0.064 per $100 of insured deposits in January 1997. The Bank's pre-tax share
of this special assessment totals $6.6 million and is included in the
consolidated financial statements at September 30, 1996.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company and the Bank are located and conduct their business at the
Bank's main office located at 215 South Olive Avenue, West Palm Beach, Florida.
49
<PAGE> 52
The following table sets forth certain information regarding the Company's
properties:
<TABLE>
<CAPTION>
NET BOOK
DATE DATE VALUE AT LEASED
LEASED OR LEASE SEPTEMBER 30, OR
LOCATION ACQUIRED EXPIRES 1996 OWNED
- -------- --------- ------- ------------- ------
(DOLLARS
IN THOUSANDS)
<S> <C> <C> <C> <C>
MAIN OFFICE:
215 S. Olive Avenue
West Palm Beach, FL 33401 1996 1997 $ 0 Leased
BRANCH OFFICES:
Southern Boulevard
301 Southern Boulevard
West Palm Beach, FL 33405 1959 285 Owned
Westward
2701 Okeechobee Boulevard
West Palm Beach, FL 33409 1960 583 Owned
Lake Park
500 Federal Highway
Lake Park, FL 33403 1962 277 Owned
Delray East
95 N.E. 5th Avenue
Delray Beach, FL 33483 1971 510 Owned
Boca East
2400 Federal Highway
Boca Raton, FL 33431 1973 397 Owned
Boynton
280 N. Congress Avenue
Boynton Beach, FL 33426 1973 1998 0 Leased
Lake Worth
531 Lucerne Avenue
Lake Worth, FL 33460 1974 431 Owned
Palm Beach Galleria
165 Bradley Place
Palm Beach, FL 33480 1980 1998 30 Leased
Palm Springs
2950 10th Avenue North
Lake Worth, FL 33461 1993 644 Owned
Boca West
9033 Glades Road
Boca Raton, FL 33434 1981 1,217 Owned
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
NET BOOK
DATE DATE VALUE AT LEASED
LEASED OR LEASE SEPTEMBER 30, OR
LOCATION ACQUIRED EXPIRES 1996 OWNED
- -------- --------- ------- ------------- ------
(DOLLARS
IN THOUSANDS)
<S> <C> <C> <C> <C>
Delray West
4920 West Atlantic Avenue
Delray Beach, FL 33445 1981 2006 0 Leased
Stuart
2285 S.E. Federal Highway
Stuart, FL 33494 1982 1999 14 Leased
Golden Lakes
1950 Golden Lakes Boulevard
West Palm Beach, FL 33411 1984 296 Owned
Jupiter
4050 U.S. Highway One
Jupiter, FL 33477 1986 1998 2 Leased
Gardens
3101 PGA Boulevard
Palm Beach Gardens, FL 33477 1988 1998 93 Leased
Boynton Lakes
4770 North Congress Avenue
Lantana, FL 33462 1994 1999 85 Leased
Wellington
13841 Wellington Trace
West Palm Beach, FL 33414 1994 1999 75 Leased
Royal Palm Beach
1135 Royal Palm Beach Boulevard
Royal Palm Beach, FL 33411 1994 1999 103 Leased
Stuart Square
2160 S.E. Federal Highway
Stuart, FL 34994 1994 1999 55 Leased
Aberdeen Square
4956-22/23 LeChalet Boulevard
Boynton Beach, FL 33436 1994 1997 62 Leased
Boca Polo
5030-F8 Champion Boulevard
Boca Raton, FL 33496 1994 1997 0 Leased
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
NET BOOK
DATE DATE VALUE AT LEASED
LEASED OR LEASE SEPTEMBER 30, OR
LOCATION ACQUIRED EXPIRES 1996 OWNED
- -------- --------- ------- ------------- ------
(DOLLARS
IN THOUSANDS)
<S> <C> <C> <C> <C>
Pinewood Square
6338-52/53 Lantana Road
Lake Worth, FL 33461 1994 1997 87 Leased
Boca Gardens
7050-29 West Palmetto Park
Road
Boca Raton, FL 33433 1995 1998 156 Leased
Coral Creek
6572 N. State Road 7, Bay #9
Coconut Creek, FL 33073 1995 1998 135 Leased
Lakeview Center
1430 Coral Ridge Drive,
Bay A2
Coral Springs, FL 33071 1996 2001 51 Leased
Okeechobee
5405 Okeechobee Boulevard
West Palm Beach, FL 33417 1995 2000 0 Leased
Lake Worth West
3979 Jog Road
Lake Worth, FL 33467 1995 1999 0 Leased
Downtown West Palm Beach
301 Clematis Street
West Palm Beach, FL 33401 1995 2000 44 Leased
Westchester East (A)
7805-A S.W. 40th Street
Miami, FL 33165 1995 2000 86 Leased
Lake Worth (A)
4481-A Lake Worth Road
Lake Worth, FL 33461 1995 2000 94 Leased
Pembroke Pines (A)
17171-A Pines Boulevard
Pembroke Pines, FL 33027 1995 2000 84 Leased
Sunrise (A)
9919-A West Oakland Park
Blvd.
Sunrise, FL 33351 1995 2000 112 Leased
Ft. Myers South (A)
16970-A San Carlos Blvd.
Ft. Myers, FL 33908 1995 2000 40 Leased
</TABLE>
52
<PAGE> 55
<TABLE>
<CAPTION>
NET BOOK
DATE DATE VALUE AT LEASED
LEASED OR LEASE SEPTEMBER 30, OR
LOCATION ACQUIRED EXPIRES 1996 OWNED
- -------- --------- ------- ------------- ------
(DOLLARS
IN THOUSANDS)
<S> <C> <C> <C> <C>
Bonita Springs
26831-A South Tamiami Trail
Bonita Springs, FL 34134 1996 2001 0 Leased
Sawgrass Hub
3495 Hiatus Road
Sunrise, FL 33351 1996 1999 2 Leased
Tamarac
7100-A N. University Drive
Tamarac, FL 33319 1996 2001 28 Leased
Coral Springs
2201-A University Drive
Coral Springs, FL 33065 1996 2001 93 Leased
LOAN ORIGINATION OFFICES:
Wellington
Unit 10-C, 12773
West Forest Hill Blvd., 102A
Wellington, FL 33414 1993 1997 0 Leased
Broward
10100 West Sample Road
Suite 312
Coral Springs, FL 33065 1996 1997 0 Leased
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
NET BOOK
DATE DATE VALUE AT LEASED
LEASED OR LEASE SEPTEMBER 30, OR
LOCATION ACQUIRED EXPIRES 1996 OWNED
- -------- --------- ------- ------------- ------
(DOLLARS
IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATIONS CENTER:
2206 Mercer Avenue
West Palm Beach, FL 33401 1984 1,300 Owned
LOTS:
Clear Lake Property
S.E. Corner of First Street
and Australian Avenue
West Palm Beach, FL 33401 1979 1,799 Owned
OFFICE BUILDING:
Reflections Office Centre
400 and 450 Australian Avenue
West Palm Beach, FL 1994 9,117 Owned
STORAGE WAREHOUSES:
1638 Latham Road and
2730 Rocky Drive
West Palm Beach, FL 1984 1996 0 Leased
-------
Total Net Book Value $18,387
=======
</TABLE>
54
<PAGE> 57
Item 3. Legal Proceedings.
Neither the Company nor its subsidiaries are involved in any pending
legal proceedings other than routine legal matters occurring in the ordinary
course of business which in the aggregate involve amounts which are believed by
management to be immaterial to the consolidated financial condition or results
of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
Stock Price Information
First Palm Beach Bancorp, Inc.'s common stock is traded on the NASDAQ
National Market System under the symbol "FFPB." Newspaper stock tables list the
Company as First Palm (FstPalm). The common stock began trading on September 29,
1993. As of November 25, 1996 there were 5,069,097 shares of common stock
outstanding and 745 stockholders of record, not including the number of persons
or entities whose stock is held in nominee or "street" name through various
brokerage firms or banks. The following table sets forth the high and low
closing trade prices per common share for the periods indicated as reported by
NASDAQ.
<TABLE>
<CAPTION>
Cash Dividends
-------------- Closing Prices
Declared ----------------------
Quarter Ended Per Share High Low
- ------------- --------- ---- ---
<S> <C> <C> <C> <C>
December 31, 1994 $0.05 18 5/16 14
March 31, 1995 $0.05 20 1/8 17 5/8
June 30, 1995 $0.05 23 1/8 17 3/8
September 30, 1995 $0.05 24 7/8 21 1/8
December 31, 1995 $0.10 24 1/4 21 1/8
March 31, 1996 $0.10 23 3/8 21
June 30, 1996 $0.10 23 3/8 21 1/8
September 30, 1996 $0.10 23 3/8 19 15/16
</TABLE>
55
<PAGE> 58
Item 6 - Selected Financial Data
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
At September 30,
--------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets...................................... $ 815,571 $ 856,307 $1,076,583 $1,208,845 $1,490,020
Loans receivable, net............................. 444,965 429,104 576,731 825,024 1,007,881
Cash and cash equivalents......................... 59,286 14,924 19,145 25,132 161,413
Securities held-to-maturity, available-for-sale
and trading securities........................... 82,142 96,768 117,122 80,941 34,532
Mortgage-backed and related securities held-to-
maturity and available-for-sale.................. 194,788 284,012 324,044 238,442 232,273
Deposits.......................................... 723,881 698,458 718,282 878,670 1,136,722
Borrowed funds.................................... 17,469 26,325 229,892 189,552 211,025
Stockholders' equity.............................. 50,983 102,330 100,462 104,611 105,425
<CAPTION>
For the Years Ended September 30,
--------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income................................... $ 61,906 $ 50,580 $ 57,874 $ 80,964 $ 103,532
Interest expense.................................. 37,764 28,783 30,049 48,900 61,300
--------- --------- ---------- ---------- ----------
Net interest income............................... 24,142 21,797 27,825 32,064 42,232
Less provision for loan losses.................... 1,675 149 135 261 15,704
--------- --------- ---------- ---------- ----------
Net interest income after provision for loan
losses........................................... 22,467 21,648 27,690 31,803 26,528
--------- --------- ---------- ---------- ----------
Other income:
Servicing income and other fees................. 3,264 2,956 2,597 2,576 3,206
Net gain (loss) on sale of securities
available-for-sale, mortgage-backed and related
securities available-for-sale, trading
securities and loans........................... 3,035 922 424 (1,660) 4,516
Net gain on sale of property.................... -- -- -- 975 460
Gain on sale of servicing....................... -- -- -- 1,008 412
Equity in net income (loss) of real estate
ventures....................................... 964 716 294 -- --
Miscellaneous................................... 2,011 1,181 1,122 1,131 1,475
--------- --------- ---------- ---------- ----------
Total other income.......................... 9,274 5,775 4,437 4,030 10,069
--------- --------- ---------- ---------- ----------
Other expenses:
Employee compensation and benefits.............. 9,928 10,583 13,900 13,849 15,905
Early retirement plan........................... -- -- -- 2,361 --
Occupancy and equipment......................... 3,699 3,905 4,223 4,259 4,830
Federal deposit insurance premiums.............. 1,561 1,428 1,582 1,799 8,848
Provision for losses and net losses on sale of
real estate owned.............................. 184 192 (410) 74 451
Advertising and promotion....................... 650 683 801 679 663
Miscellaneous................................... 3,128 2,818 2,730 3,588 4,905
--------- --------- ---------- ---------- ----------
Total other expenses........................ 19,150 19,609 22,826 26,609 35,602
Income before provision for income taxes and
cumulative effect of change in accounting
principle........................................ 12.591 7,814 9,301 9,224 995
Provision for income taxes........................ 5,066 3,019 3,502 3,578 446
--------- --------- ---------- ---------- ----------
Income before cumulative effect of change in
accounting principle............................. 7,525 4,795 5,799 5,646 549
Cumulative effect of change in accounting for
income taxes..................................... -- 422 -- -- --
--------- --------- ---------- ---------- ----------
Net income........................................ $ 7,525 $ 5,217 $ 5,799 $ 5,646 $ 549
========= ========= ========== ========== ==========
</TABLE>
56
<PAGE> 59
SELECTED FINANCIAL RATIOS AND OTHER DATA
<TABLE>
<CAPTION>
At or For the Years Ended September 30,
----------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average assets (4)..................... 0.93% 0.64% 0.60% 0.48% 0.04%
Return on average stockholders' equity (4)....... 16.19 9.73 5.61 5.50 0.49
Average stockholders' equity to average assets... 5.76 6.54 10.62 8.74 8.06
Stockholders' equity to total assets............. 6.25 11.95 9.33 8.65 7.08
Interest rate spread............................. 2.78 2.42 2.46 2.32 2.73
Net interest margin (1).......................... 3.17 2.78 2.97 2.83 3.18
Average interest-earning assets to average
interest-bearing liabilities.................... 1.08x 1.10x 1.16x 1.12x 1.10x
Operating expenses to average assets (4)......... 2.37% 2.39% 2.35% 2.27% 2.56%
Net interest income to operating expenses (4).... 1.26x 1.11x 1.22x 1.21x 1.19x
ASSET QUALITY RATIOS:
Non-performing loans to total loans (2).......... 0.71% 0.58% 0.30% 0.21% 1.20%
Non-performing assets to total assets (3)........ 0.99 0.48 0.23 0.23 1.08
Allowance for loan losses to non-performing
loans........................................... 69.84 70.43 101.29 118.91 92.40
Allowance for loan losses to non-performing
assets.......................................... 28.78 46.21 79.51 78.90 73.82
Allowance for loan losses to total loans
receivable-net.................................. 0.52 0.44 0.34 0.26 1.18
OTHER DATA:
Loan originations................................ $ 92,153 $ 161,353 $ 271,913 $ 364,203 $ 539,599
Number of deposit accounts....................... 78,343 74,913 77,167 84,670 106,517
Full service facilities.......................... 16 16 20 23 33
</TABLE>
- --------------------------
(1) Calculation is based upon net interest before provision for loan losses
divided by average interest-earning assets.
(2) Non-performing loans consist of loans 90 days or more delinquent.
(3) Non-performing assets consist solely of non-performing loans, real estate
owned and repossessed automobiles.
(4) Ratios for fiscal year ended September 30, 1996 include a one-time special
assessment paid by all financial institutions insured by SAIF. The Bank's
pre-tax assessment was $6.6 million.
57
<PAGE> 60
Item 7 - Management's Discussion Analysis
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES.
- --------------------------------------------------------------------------------
GENERAL
First Palm Beach Bancorp, Inc. (the "Company") was organized in May 1993 as
the holding company for First Bank of Florida (the "Bank"), formerly First
Federal Savings and Loan Association of the Palm Beaches. On September 29, 1993,
the Company issued and sold in its initial public offering 5,284,775 shares of
common stock, $.01 par value, (the "Common Stock") at $10.00 per share and used
50% of the net proceeds of this public offering to acquire the Bank as part of
the Bank's conversion from a mutual to a federally-chartered stock savings
association (the "Conversion"). The Bank's Recognition and Retention Plans (the
"RRPs") purchased 211,600 shares at $10 per share making the total shares
outstanding equal to 5,496,375 as of September 30, 1993.
On December 8, 1995 (the "Effective Date"), the Company completed the
acquisition of PBS Financial Corp. ("PBS") by means of the merger (the "Merger")
of PBS with and into the Company, pursuant to an Agreement and Plan of Merger
between the Company and PBS dated as of May 31, 1995 (the "Agreement").
Concurrently with the Merger, Palm Beach Savings and Loan, F.S.A. ("Palm Beach
Savings"), the savings and loan subsidiary of PBS, merged with and into the Bank
in accordance with the Plan of Merger and Combination dated May 31, 1995 between
Palm Beach Savings and the Bank. In conjunction with and as a part of the
Merger, each of the 283,700 shares of PBS Class A common stock issued and
outstanding and 419,300 shares of PBS Class B common stock issued and
outstanding as of the Effective Date was converted into (i) .426 of a share of
the Company's Common Stock and (ii) a cash payment of $0.75 per share of PBS
common stock. Based on an aggregate of 703,000 shares of PBS Class A and Class B
common stock issued and outstanding, the Company issued in the aggregate 299,478
shares of the Company's Common Stock and made $527,250 in cash payments. Also in
conjunction with the Merger, the Company paid $88,544 in exchange for all
outstanding PBS options and $459,536 in exchange for all outstanding PBS
warrants.
During the fiscal year ended September 30, 1996, the Company repurchased
345,853 shares of Common Stock at an average price of $22.10 per share. In
addition, employees and directors of the Bank exercised options to purchase
6,408 shares at $10 per share. At September 30, 1996, 5,093,096 shares of Common
Stock were outstanding. The Board of Directors has authorized the repurchase of
up to 509,310 shares of the Company's Common Stock during the fiscal year ending
September 30, 1997.
The Company's consolidated results of operations are substantially the same
as those of the Bank. The Bank's revenues are derived principally from interest
on loans, mortgage-backed securities and investments, and its major expense is
interest paid on deposits and borrowings. The Bank's results of operations
depend primarily on the level of net interest income, which is the difference
between interest earned on its loan and investment portfolios and interest paid
on its deposits and borrowings. Net interest income is impacted by the provision
for loan losses. The Bank's operating expenses principally consist of employee
compensation, occupancy expenses, federal deposit insurance premiums and other
general and administrative expenses. The Bank's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities. In particular, the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") significantly changed the
regulation of all
58
<PAGE> 61
savings associations, including the Bank. Further changes in regulation have
come into effect more recently pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"). The Bank is a member of the
Federal Home Loan Bank (the "FHLB") system and its deposits are insured to the
applicable limits by the Federal Deposit Insurance Corporation (the "FDIC")
through the Savings Association Insurance Fund ("SAIF"). The Bank is subject to
regulation by its chartering agency, the Office of Thrift Supervision (the
"OTS"), and the FDIC as its insurer. On September 30, 1996, the President signed
into law the Deposit Insurance Funds Act of 1996 which mandated that all
financial institutions insured by the SAIF pay a one-time special assessment in
an amount equal to 65.7 basis points on SAIF-insured deposits that were held at
March 31, 1995. The Bank recorded a pre-tax expense of $6.6 million for the
one-time special assessment on September 30, 1996. The after-tax effect of the
assessment was $4.0 million.
MANAGEMENT STRATEGY
The mission of the Bank is to provide a profitable return to stockholders
through a commitment to excellence and the sale and delivery of quality
financial products and services to its customers. The Bank strives to be a
recognized leader in providing retail banking services to the community.
The Bank seeks to fulfill its mission and accomplish its goals by pursuing
the following strategies: (i) emphasizing lending in the one- to four-family
residential mortgage market; (ii) managing interest rate risk; (iii) managing
deposit pricing and asset growth; (iv) emphasizing consumer lending; (v)
maintaining asset quality; and (vi) expanding its franchise by branching into
new geographic markets. Management intends to continue to employ these
strategies.
EMPHASIZING LENDING IN THE ONE- TO FOUR-FAMILY RESIDENTIAL MORTGAGE MARKET.
The Bank has emphasized, and plans to continue to emphasize, making traditional
one- to four-family residential mortgage loans in its primary market areas of
Palm Beach, Martin, and Broward Counties, Florida. The Bank intends to expand
marketing efforts for lending in Lee and Dade Counties during fiscal year 1997.
The Bank originated $126.0 million, $135.9 million and $192.5 million in one- to
four-family residential mortgage loans in fiscal 1994, 1995 and 1996,
respectively. One- to four-family residential mortgage loans totaling $652.6
million constituted 60.9% of the Bank's total loan portfolio at September 30,
1996. In fiscal year 1994, the Bank instituted a wholesale lending function to
acquire first mortgage loans from wholesale originators in Palm Beach, Martin
and Broward Counties. Wholesale lending was expanded during fiscal years 1995
and 1996 and enhanced the loan production efforts of the Bank with no material
effect on operating expenses. Prior to commitment, these loans are reviewed for
compliance with the Bank's normal underwriting guidelines. These efforts have
caused one- to four-family residential mortgage loans to increase to $652.6
million at September 30, 1996 from $587.6 million at September 30, 1995. In
addition, the Bank's construction lending, which is primarily one-to-four family
residences, increased to $130.5 million at September 30, 1996 from $101.5
million at September 30, 1995.
MANAGING INTEREST RATE RISK. Interest rate risk is the sensitivity of an
institution's earnings and net asset values to fluctuations in interest rates.
The Bank monitors its interest rate risk through its Asset/Liability Committee
which meets monthly and reports the results of the monitoring to the Board of
Directors quarterly. The Bank's policy is to seek to maintain a balance between
interest-earning assets and interest-bearing liabilities so that its cumulative
one-year gap ratio is within the range which the Asset/Liability Committee
considers conducive to maintaining profitability without incurring undue risk.
59
<PAGE> 62
One of the ways the Bank manages its exposure to interest rate risk is
through originating and retaining adjustable rate mortgage ("ARM") loans. At
September 30, 1996, 53% of the Bank's one-to four-family residential mortgage
loans were in one-, three- and five-year ARM loans. Another 12% were ARM loans
which first adjust in seven or ten years and become one-year ARM loans after the
initial adjustment. Management has concluded that although investment in ARM
loans may reduce short-term earnings below that which may be obtainable through
investment in fixed-rate mortgage loans, an ARM loan portfolio reduces the
Bank's exposure to adverse interest rate fluctuations, and enhances longer term
profitability. While the Bank has been able to originate significant quantities
of ARM loans in the past, there is no assurance that ARM loans meeting the
Bank's underwriting standards will be available in the future to continue to
allow the Bank to manage interest rate risk in this manner.
During fiscal 1995 and fiscal 1996, the Bank's policy was to retain in
portfolio sufficient quantities of its originated fixed-rate residential
mortgage loans to maintain outstanding fixed rate loans at approximately 25% to
35% of total mortgage loans. If interest rates were to rise, the value of fixed
rate loans could decline substantially.
Through its held-to-maturity, available-for-sale and trading securities, and
mortgage-backed and related securities, the Bank has invested primarily in
securities with less interest rate risk, particularly through the investment in
short-term repricing instruments such as short-term U.S. Treasury securities,
floating rate collateralized mortgage obligations ("CMOs") and real estate
mortgage investment conduits ("REMICs") with an average life of ten years or
less and fixed rate CMOs and REMICs with short average lives. The average life
of the CMOs and REMICs vary with fluctuations in interest rates and prepayments.
At September 30, 1996, the Bank's securities held-to-maturity and
available-for-sale consisted of $10.4 million of fixed rate securities and $24.1
million of adjustable rate securities. At September 30, 1996, the Association's
mortgage-backed and related securities held-to-maturity and available-for-sale
consisted of $129.4 million with a fixed-rate and $102.9 million with an
adjustable rate. This distribution of securities is consistent with the
objective of controlling asset interest rate risk to better match liability
repricing through adjustable rates or shorter terms to maturity or average life.
MANAGING DEPOSIT PRICING AND ASSET GROWTH. The Bank manages its deposit
accounts and certificates of deposit pricing based on current interest rate
trends in both the U.S. Treasury market and the local market. Traditionally, the
Bank sets its deposit rates at levels between the deposit rates offered at
commercial banks and those offered at other savings institutions. During fiscal
years 1995 and 1996, the Bank became more competitive in its pricing of
certificates of deposit to generate funds required to sustain growth in its loan
portfolio. The Bank pursued a controlled growth strategy during fiscal years
1990 through 1993, resulting in annual average asset growth less than 4%. During
fiscal years 1994, 1995 and 1996, the Bank's annual average asset growth was
20.4%.
EMPHASIZING CONSUMER LENDING. From 1991 through September 30, 1993, the
level of the Bank's consumer loans consistently declined. During fiscal year
1994, through a competitive pricing structure, indirect automobile lending,
promotional activities, and cross selling consumer products through its branch
offices, the Bank increased its consumer lending. During fiscal years ended 1995
and 1996, the Bank became more active in the indirect automobile lending market.
Indirect loans typically carry more credit risk. Higher than anticipated
charge-offs were experienced in the indirect automobile lending portfolio,
primarily during the latter part of the fiscal year ended September 30, 1996. As
a result, a $16.4 million provision for loan losses related to consumer lending
was recorded during fiscal year 1996. Based upon an analysis of the overall
performance of the indirect lending program, management determined that
effective September 30, 1996 no new applications for indirect loans would be
accepted, thereby discontinuing the indirect lending program. Total consumer and
other loans outstanding increased to $194.1 million at September 30, 1996 from
$112.5 million at September 30, 1995. Of these amounts, $148.2 million and $76.4
million at September 30, 1996 and September 30, 1995, respectively, were
indirect loans.
60
<PAGE> 63
MAINTAINING ASSET QUALITY. The Bank has continued to focus on maintaining
its asset quality even though non-performing assets increased during the fiscal
year ended September 30, 1996. At September 30, 1996, the Bank's non-performing
assets as a percentage of total assets amounted to 1.08% compared to 0.23% for
the fiscal year ended 1995. The increase is primarily due to the non-performing
indirect automobile loans and repossessions, non-performing assets acquired from
Palm Beach Savings and one loan relationship totaling $6.2 million on a
residential marina project in Charlotte County, Florida which is over ninety
days delinquent. As noted previously, the Bank has discontinued its indirect
lending program. In its underwriting of mortgage loans, the Bank has generally
accepted somewhat lower origination rates in order to assure loan quality. Even
though this may result in a lower net interest margin, asset quality is critical
to the Bank's long term stability. The Bank has limited its commercial lending
during the past five years. The Bank's commercial real estate lending increased
from an outstanding balance of $35.6 million at September 30, 1995 to $51.8
million at September 30, 1996. Of the balance at September 30, 1996, $13.8
million were commercial loans acquired in conjunction with the purchase of Palm
Beach Savings during fiscal 1996.
EXPANSION OF FRANCHISE. During the 1980s and early 1990s, the Bank's primary
objective was to limit growth and build capital. As a result of this strategy,
the Bank's market share, as a percentage of the total Palm Beach County market,
consistently declined during this period. In 1993, management determined that
increasing the Bank's market share was essential to its growth. Management
concluded that a primary use of the capital raised in the Conversion would be to
increase the number of branch locations in an effort to increase the Bank's
market share. During fiscal 1996, the Bank opened eleven full service branches
in Palm Beach, Broward, Dade and Lee Counties. Of the eleven full service
branches opened, six were in Albertson's supermarkets.
INTEREST RATE SENSITIVITY ANALYSIS
The matching of the maturities of assets and liabilities may be analyzed by
examining the extent to which assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity "gap."
An asset or liability is said to be "interest rate sensitive" within a specific
time period if it will mature or reprice within that time period. The interest
rate sensitivity "gap" is defined as the difference between the amount of
interest-earning assets anticipated, based upon certain assumptions, to mature
or reprice within a specific time period and the amount of interest-bearing
liabilities anticipated, based upon certain assumptions, to mature or reprice
within that time period. A gap is considered negative when the amount of
interest rate sensitive liabilities maturing or repricing within a specific time
frame exceeds the amount of interest rate sensitive assets maturing or repricing
within that same time frame. During a period of rising interest rates, a
negative gap would tend to result in a decrease in net interest income while a
positive gap would tend to result in an increase in net interest income. In a
declining interest rate environment, an institution with a negative gap would
generally be expected, absent the effects of other factors, to experience a
greater decrease in the cost of its liabilities relative to the yield of its
assets and thus an increase in the institution's net interest income, whereas an
institution with a positive gap would be expected to experience the opposite
results.
At September 30, 1996, total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing within the same time period by $66.6 million, representing a negative
cumulative one-year gap of 4.5% of total assets compared to a negative
cumulative one-year gap of 10.59% at September 30, 1995. Management has
determined that the Bank has an acceptable and reasonable level of interest rate
risk that will not compromise credit quality.
61
<PAGE> 64
The Bank's prepayment rates for its loans are based on the most recent
assumptions used by the FHLB as of June 30, 1996. The FHLB assumptions could
vary substantially from the actual prepayment rates experienced by the Bank. The
assumptions are as follows:
<TABLE>
<CAPTION>
Annual
Prepayment
Type Rate
- ---- ----
<S> <C>
ARM loans -- current market index 18.0%
ARM loans -- lagging market index 16.0%
Fixed-rate one- to four-family loans with maturities equal to or greater than
five years:
Below 8% interest rate 9.0%
8.00% to 8.99% 11.0%
9.00% to 9.99% 13.0%
10.00% and over 22.0%
Mortgage-backed and related securities with maturities equal to or greater than
five years:
Below 8% interest rate 11.0%
8.00% to 8.99% 15.0%
9.00% to 9.99% 24.0%
10.00% and over 32.0%
Other residential and all nonresidential loans 6.0%
Second mortgages 18.0%
</TABLE>
Decay rates indicate an assumed annual rate at which an interest-bearing
liability will be withdrawn in favor of an account with a more favorable
interest rate. Decay rates have been assumed for demand deposits, NOW accounts,
passbook and money market deposits. The following decay rates are based on the
most recent assumptions used by the FHLB as of June 30, 1996. The assumptions
used at the dates indicated, although standardized, may not be indicative of
actual withdrawals and repricing experienced by the Bank.
ANNUAL PERCENTAGE DECAY RATE
<TABLE>
<CAPTION>
More
3 Mos. 3-6 6 Mos. 1-3 3-5 5-10 Than
or Less Mos. 1 Yr. Years Years Years 10 Yrs.
------- ----- ------ ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Passbook 17% 17% 17% 17% 16% 14% 14%
NOW 37% 37% 37% 32% 17% 17% 17%
Money market 79% 79% 79% 31% 31% 31% 31%
</TABLE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1996 which are
anticipated by the Bank, based upon certain assumptions described above, to
reprice or mature in each of the future time periods shown. Except as stated
above, the amounts of assets and liabilities shown which reprice or mature
during a particular period were determined in accordance with the earlier of the
term in which repricing will occur or the contractual terms of the asset or
liability.
Certain shortcomings are inherent in the method of analysis presented in the
following table. For example, although some assets and liabilities have similar
maturities or periods to repricing, they may react differently to changes in
market interest rates. The interest rates on certain types of assets and
liabilities may also fluctuate in advance of changes in market interest rates,
while interest rates on other types may lag behind changes in market rates.
Assets such as ARM loans often have features which restrict changes in interest
rates on a short-term basis and over the life of the asset. In the event
62
<PAGE> 65
of a change in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in calculating the table. The
ability of borrowers to repay their ARM loans may decrease in the event of
interest rate increases.
ANTICIPATED PERIOD UNTIL MATURITY OR REPRICING
<TABLE>
<CAPTION>
At September 30, 1996
--------------------------------------------------------------------------------------
More Than More Than 3 More Than 5
Less Than 3 to 6 6 Months 1 Year to Years to Years to More Than
3 Months Months to 1 Year 3 Years 5 Years 10 Years 10 Years
----------- --------- ----------- ---------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage loans, net................ $ 103,943 $ 54,186 $ 107,802 $ 217,070 $ 160,433 $ 105,305 $ 67,408
Consumer loans, net................ 39,138 15,014 25,891 73,769 29,996 5,467 25
Other loans........................ 454 195 337 950 428 70 --
Interest-earning deposits.......... 141,975 -- -- -- -- -- --
Securities held-to-maturity and
securities available-for-sale..... 12,448 -- 17,103 4,981 -- -- --
Mortgage-backed and related
securities held-to-maturity and
available-for-sale................ 85,524 37,299 54,083 30,747 17,570 7,050 --
FHLB stock......................... -- -- -- -- -- -- 10,053
---------- --------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets.... 383,482 106,694 205,216 327,517 208,427 117,892 77,486
---------- --------- ---------- ---------- ---------- ---------- ----------
NON INTEREST-BEARING LIABILITIES:
Non interest-bearing deposits...... 4,098 4,098 6,508 13,368 3,602 4,834 3,141
---------- --------- ---------- ---------- ---------- ---------- ----------
INTEREST-BEARING LIABILITIES:
Passbook and statement savings..... 6,687 6,687 12,184 38,918 25,306 32,119 28,532
NOW................................ 6,156 6,156 9,770 20,248 5,409 7,259 4,718
Money market....................... 10,742 10,743 9,844 4,374 2,077 1,592 295
Certificates of deposit............ 214,870 172,719 205,759 198,705 55,204 -- --
Borrowed Funds..................... 50,000 -- 25,000 135,000 1,025 -- --
---------- --------- ---------- ---------- ---------- ---------- ----------
Total non interest-bearing and
interest-bearing liabilities.... 292,553 200,403 269,065 410,613 92,623 45,804 36,686
---------- --------- ---------- ---------- ---------- ---------- ----------
Interest sensitivity gap............. $ 90,929 $ (93,709) $ (63,849) $ (83,096) $ 115,804 $ 72,088 $ 40,800
========= ========= ========= ========== ========= ========= =========
Cumulative interest sensitivity gap.. $ 90,929 $ (2,780) $ (66,629) $ (149,725) $ (33,921) $ 38,167 $ 78,967
========= ========= ========= ========== ========= ========= =========
Cumulative interest sensitivity gap
as a percentage of total assets..... 6.10% -0.19% -4.47% -10.05% -2.28% 2.56% 5.29%
Cumulative net interest-earning
assets as a percentage of net non
interest-bearing and
interest-bearing liabilities........ 131.08% 99.44% 91.26% 87.23% 97.32% 102.91% 105.86%
</TABLE>
<TABLE>
<CAPTION>
Total
----------
INTEREST-EARNING ASSETS:
<S> <C>
Mortgage loans, net................ $ 816,147
Consumer loans, net................ 189,300
Other loans........................ 2,434
Interest-earning deposits.......... 141,975
Securities held-to-maturity and
securities available-for-sale..... 34,532
Mortgage-backed and related
securities held-to-maturity and
available-for-sale................ 232,273
FHLB stock......................... 10,053
----------
Total interest-earning assets.... 1,426,714
----------
NON INTEREST-BEARING LIABILITIES:
Non interest-bearing deposits...... 39,649
----------
INTEREST-BEARING LIABILITIES:
Passbook and statement savings..... 150,433
NOW................................ 59,716
Money market....................... 39,667
Certificates of deposit............ 847,257
Borrowed Funds..................... 211,025
----------
Total non interest-bearing and
interest-bearing liabilities.... 1,347,747
----------
Interest sensitivity gap............. $ 78,967
==========
Cumulative interest sensitivity
gap.................................
Cumulative interest sensitivity gap
as a percentage of total assets.....
Cumulative net interest-earning assets
as a percentage of net non interest-
bearing and interest-bearing
liabilities.........................
</TABLE>
<PAGE> 66
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rates earned or paid on them.
63
<PAGE> 67
AVERAGE BALANCE SHEET
The following table presents the average balances of the Bank's
interest-earning assets and interest-bearing liabilities, interest income earned
and interest expense incurred, and weighted average yield or cost for the fiscal
years ended September 30, 1994, 1995 and 1996. These yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from average monthly balances. Management does not consider that the use of
average monthly balances instead of average daily balances has caused any
material differences in the information presented. The average balance of loans
receivable includes loans on which the Bank has discontinued accruing interest.
"Net interest margin" is net interest income divided by the average balance of
total interest earning assets. "Net interest spread" is the difference between
the yields earned on interest-earning assets and the rates paid on
interest-bearing liabilities. The yields and costs include fees which are
considered adjustments to yields. The average yield/cost, net interest spread,
and net interest margin have been calculated on a pre-tax basis.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
1994 1995
------------------------------------ -------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
--------- ----------- ------------ ---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Mortgage loans, net....................... $ 452,887 $ 34,373 7.59% $ 615,886 $ 48,765 7.92%
Consumer loans............................ 33,062 2,597 7.85% 70,729 5,722 8.09%
Other loans............................... 2,029 139 6.85% 1,980 151 7.63%
Interest-earning deposits................. 9,964 263 2.64% 16,551 759 4.59%
Securities held-to-maturity,
available-for-sale and trading
securities............................... 126,320 5,557 4.40% 107,011 5,735 5.36%
Mortgage-backed and related securities
held-to-maturity and
available-for-sale....................... 304,948 14,440 4.74% 311,929 19,199 6.15%
FHLB stock................................ 7,403 505 6.82% 7,643 633 8.28%
--------- ---------- ---- ---------- --------- ----
Total interest-earning assets......... 936,613 57,874 6.18% 1,131,729 80,964 7.15%
Non-interest earning assets................. 36,404 42,450
--------- ----------
Total assets.......................... $ 973,017 $1,174,179
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposit accounts:
Passbook and statement savings.......... $ 94,548 1,819 1.92% $ 86,310 1,902 2.20%
NOW..................................... 60,617 954 1.57% 60,407 877 1.45%
Money market............................ 75,916 1,802 2.37% 60,070 1,432 2.38%
Certificates of deposit................. 417,519 18,555 4.44% 623,134 33,636 5.40%
Borrowed funds:
FHLB advances........................... 121,048 5,375 4.44% 141,837 8,699 6.13%
Reverse repurchase agreements........... 38,004 1,544 4.06% 40,321 2,354 5.84%
Mortgage-backed bond.................... -- -- -- -- -- --
--------- --------- ---- ---------- --------- ----
Total interest-bearing liabilities.... 807,652 30,049 3.72% 1,012,079 48,900 4.83%
Other liabilities........................... 62,010 59,424
--------- ----------
Total liabilities..................... 869,662 1,071,503
Stockholders' equity........................ 103,355 102,676
--------- ----------
Total liabilities and stockholders'
equity............................... $ 973,017 $1,174,179
========= ==========
Net interest income/interest rate spread...... $ 27,825 2.46% $ 32,064 2.32%
========= =========
Net interest-earning assets/net margin........ $ 128,961 2.97% $ 119,650 2.83%
========= ==========
Ratio of interest-earning assets to interest-
bearing liabilities.......................... 1.16x 1.12x
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
1996
-------------------------------------
Interest Average
Average Income/ Yield/
Balance Expense Cost
---------- ----------- ------------
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Mortgage loans, net....................... $ 844,822 $ 67,157 7.95%
Consumer loans............................ 173,450 16,755 9.66%
Other loans............................... 2,147 178 8.29%
Interest-earning deposits................. 17,103 871 5.09%
Securities held-to-maturity,
available-for-sale and trading
securities............................... 58,288 3,259 5.59%
Mortgage-backed and related securities
held-to-maturity and
available-for-sale....................... 221,285 14,487 6.55%
FHLB stock................................ 10,197 825 8.09%
---------- ---------- ----
Total interest-earning assets......... 1,327,292 103,532 7.80%
Non-interest earning assets................. 62,987
----------
Total assets.......................... $1,390,279
==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Deposit accounts:
Passbook and statement savings.......... $ 122,578 4,088 3.34%
NOW..................................... 60,598 856 1.41%
Money market............................ 46,118 1,094 2.37%
Certificates of deposit................. 766,697 42,576 5.55%
Borrowed funds:
FHLB advances........................... 200,158 11,974 5.98%
Reverse repurchase agreements........... 11,935 712 5.97%
Mortgage-backed bond.................... -- -- --
---------- ---------- ----
Total interest-bearing liabilities.... 1,208,084 61,300 5.07%
Other liabilities........................... 70,208
----------
Total liabilities..................... 1,278,292
Stockholders' equity........................ 111,987
----------
Total liabilities and stockholders'
equity............................... $1,390,279
==========
Net interest income/interest rate spread...... $ 42,232 2.73%
=========
Net interest-earning assets/net margin........ $ 119,208 3.18%
==========
Ratio of interest-earning assets to interest-
bearing liabilities.......................... 1.10x
</TABLE>
64
<PAGE> 69
RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Bank's interest income and interest expense during
the periods indicated. Information is provided in each category with respect to
(i) changes attributable to changes in volume (changes in volume multiplied by
prior year's rate), (ii) changes attributable to changes in rate (changes in
rate multiplied by prior year's volume), and (iii) the net change (total changes
in rate and volume). The changes attributable to the combined impact of volume
and rate have been allocated proportionately to the changes due to volume and
the changes due to rate. The calculations of rate and volume changes reflect
pre-tax yields.
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1995 September 30, 1996
Compared to Year Ended Compared to Year Ended
September 30, 1994 September 30, 1995
Increase (Decrease) Increase (Decrease)
in Net Interest Income in Net Interest Income
--------------------------------- ---------------------------------
Due To Due To
Volume Rate Net Volume Rate Net
----------- --------- --------- ----------- --------- ---------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage loans, net..................... $ 12,624 $ 1,768 $ 14,392 $ 18,206 $ 186 $ 18,392
Consumer loans.......................... 3,043 82 3,125 9,733 1,300 11,033
Other loans............................. (4) 16 12 14 13 27
Interest-earning deposits............... 233 263 496 26 86 112
Securities held-to-maturity,
available-for-sale and trading
securities............................. (926) 1,104 178 (2,712) 236 (2,476)
Mortgage-backed and related securities
held-to-maturity and
available-for-sale..................... 340 4,419 4,759 (6,071) 1,359 (4,712)
FHLB stock.............................. 17 111 128 207 (15) 192
---------- --------- --------- ---------- --------- ---------
Total............................... 15,327 7,763 23,090 19,403 3,165 22,568
---------- --------- --------- ---------- --------- ---------
INTEREST-BEARING LIABILITIES:
Deposits accounts:
Passbook and statement savings........ (167) 250 83 (936) 3,122 2,186
NOW................................... (3) (74) (77) 3 (24) (21)
Money market.......................... (378) 8 (370) (332) (6) (338)
Certificates of deposit............... 10,480 4,601 15,081 7,978 962 8,940
Borrowed Funds:
FHLB advances......................... 1,033 2,291 3,324 3,482 (207) 3,275
Reverse repurchase agreements......... 99 711 810 (1,695) 53 (1,642)
---------- --------- --------- ---------- --------- ---------
Total............................... 11,064 7,787 18,851 8,500 3,900 12,400
---------- --------- --------- ---------- --------- ---------
Net change in interest income............. $ 4,263 $ (24) $ 4,239 $ 10,903 $ (735) $ 10,168
========= ========= ========= ========= ========= =========
</TABLE>
65
<PAGE> 70
COMPARISON OF FINANCIAL CONDITION
AT SEPTEMBER 30, 1996 COMPARED TO SEPTEMBER 30, 1995
Total assets were $1.490 billion at September 30, 1996 as compared to $1.209
billion at September 30, 1995. The increase of $281.0 million was the result of
the acquisition of Palm Beach Savings on December 8, 1995 which had assets of
approximately $109 million and an increase in loans receivable, net, of $182.9
million. Deposits increased $258.3 million to $1.137 billion at fiscal year
ended September 30, 1996 from $878.7 million at fiscal year ended September 30,
1995 because of continued aggressive pricing of certificate accounts and the
additional accounts generated from opening eleven additional full service branch
offices during fiscal year ended September 30, 1996. Also, deposits of $103.8
million were acquired in conjunction with the purchase of Palm Beach Savings
during fiscal 1996. Borrowed funds increased by $21.4 million to $211.0 million
at fiscal year ended September 30, 1996 as compared to $189.6 million at
September 30, 1995. This increase was used to fund loan production during fiscal
year 1996.
Loans receivable, net, increased by $182.9 million to $1.008 billion at
September 30, 1996 from $825.0 million at September 30, 1995. Loan originations
were $539.6 million for fiscal year ended September 30, 1996 as compared to
$364.2 million for the year ended September 30, 1995. Approximately $78.5
million net loans were acquired in conjunction with the purchase of Palm Beach
Savings during fiscal year 1996. Loan repayments and sales increased during
fiscal 1996 to $402.9 million from $134.9 million during fiscal 1995.
Securities held-to-maturity, securities available-for-sale, mortgage-backed
and related securities held-to-maturity and mortgage-backed and related
securities available-for-sale in the aggregate decreased $52.6 million to $266.8
million at September 30, 1996 from $319.4 million at September 30, 1995. This
decrease reflects the Bank's continuing strategy of using funds from investment
sales and principal payments to fund loan production.
Real estate owned (real estate acquired through foreclosures) increased to
$1.6 million at September 30, 1996 from $549,000 at September 30, 1995. The
increase of $1.1 million was primarily the result of real estate owned acquired
in conjunction with the purchase of Palm Beach Savings.
Office properties and equipment increased to $23.1 million at September 30,
1996 from $17.8 million at September 30, 1995. The increase of $5.3 million is
due to purchases related to eleven new branch offices opened in fiscal year 1996
and to renovations of the Reflections Office Centre, a complex of two,
eight-story buildings purchased by the Company during fiscal year 1994. The Bank
plans to relocate and consolidate its operations to the new office buildings
during fiscal year 1997. In conjunction with its planned relocation, the Bank
sold its home office during fiscal year 1996 for $1.1 million, recording a net
gain on the sale of approximately $400,000. The Bank updated its data processing
mainframe computer and related software during fiscal 1996.
Deposits increased by $258.3 million to $1.137 billion as of September 30,
1996 from $878.7 million at September 30, 1995. The increase resulted from
deposits generated through the opening of eleven new branch offices during
fiscal year 1996 and continued aggressive pricing of certificate products. The
Bank offered higher interest rates on certificates of deposit than other
financial institutions in order to fund higher loan originations during the
fiscal year. Deposits of $103.8 million were acquired with the purchase of Palm
Beach Savings during the fiscal year ended September 30, 1996.
Borrowings increased to $211.0 million at September 30, 1996 from $189.6
million at September 30, 1995. This $21.4 million increase was also used to fund
higher loan production during the year.
Stockholders' equity increased to $105.4 million at September 30, 1996 from
$104.6 million at September 30, 1995. Net income for the year was $0.5 million.
The acquisition of PBS Financial Corp.
66
<PAGE> 71
in December 1995, through the issuance by the Company of 299,478 treasury shares
at a price of $22.125 per share, increased stockholders' equity by $6.6 million.
Stockholders' equity was increased by a reduction in the unrealized loss in fair
value on available-for-sale securities of $1.4 million. In addition, there was a
reduction in unallocated ESOP shares of $0.7 million and a reduction of unvested
shares retained in the RRPs with a value of $0.5 million. During fiscal year
ended September 30, 1996, dividends totaled $2.1 million. A total of 345,853
shares were repurchased as treasury shares during the fiscal year 1996 at an
average price per share of $22.10 reducing stockholders' equity by $7.6 million.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
GENERAL OPERATING RESULTS. Net income for the fiscal year ended September
30, 1996 was $0.5 million as compared to $5.6 million for the fiscal year ended
September 30, 1995. Contributing to the decline was an increase in loan loss
provisions to $15.7 million at September 30, 1996 from $261,000 at September 30,
1995. Expenses during the fiscal year ended September 30, 1996 included the
pre-tax $6.6 million one-time SAIF assessment. Expenses for the fiscal year
ended September 30, 1995 included a pre-tax charge to earnings of approximately
$2.4 million relating to a voluntary early retirement program for officers and
employees of the Bank. Other income for the fiscal year ended September 30, 1996
included net gains on sales of securities, loans, loan servicing and property
totaling $5.3 million as compared to net gains of $323,000 for the fiscal year
ended September 30, 1995.
Net interest income before provision for loan losses increased to $42.2
million for the fiscal year ended September 30, 1996 as compared to $32.1
million for the same period last year. The increase was primarily due to the
increase in loans receivable, net, to $1.008 billion at fiscal year ended
September 30, 1996 from $825.0 million at fiscal year ended September 30, 1995.
Net interest margin for fiscal 1996 was 3.18% as compared to 2.83% for fiscal
1995.
INTEREST INCOME. Interest income increased $22.5 million, or 27.8%, to
$103.5 million for the fiscal year ended September 30, 1996 from $81.0 million
for the fiscal year ended September 30, 1995. The increase was primarily due to
an increase in mortgage and consumer loans outstanding during fiscal year 1996.
The average yield on interest earning assets increased to 7.80% for the fiscal
year ended September 30, 1996 from 7.15% for the fiscal year ended September 30,
1995.
INTEREST EXPENSE. Interest expense increased $12.4 million, or 25.4%, to
$61.3 million for the fiscal year ended September 30, 1996 from $48.9 million
for the fiscal year ended September 30, 1995. This increase was the result of an
increase in deposits outstanding and the higher level of interest rates
experienced throughout fiscal year 1996. During fiscal year 1996, deposits
averaged $996.0 million as compared to $829.9 million during fiscal year 1995.
The weighted average rate paid on interest-bearing liabilities increased to
5.07% during fiscal year 1996 from 4.83% during fiscal year 1995.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
before provision for loan losses increased $10.1 million, or 31.5%, to $42.2
million for the fiscal year ended September 30, 1996 from $32.1 million for the
fiscal year ended September 30, 1995. The increase in net interest income is due
primarily to net growth in loans receivable to $1.008 billion at September 30,
1996 from $825.0 million at September 30, 1995. The net interest margin improved
to 3.18% for fiscal year 1996 from 2.83% for fiscal year 1995.
PROVISION FOR LOAN LOSSES. The Bank's provision for loan losses increased by
$15.4 million to $15.7 million for the fiscal year ended September 30, 1996 from
$261,000 for the fiscal year ended September 30, 1995. During the latter part of
fiscal year 1996, the Bank experienced higher than
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anticipated charge-offs in connection with its indirect automobile lending
portfolio. The increased loan loss provisions recorded during fiscal year 1996
were primarily to cover losses related to the indirect automobile lending
program. The provision for loan losses for the year ended September 30, 1996
consisted of a charge of approximately $16.4 million related to consumer lending
and a credit provision of approximately $0.7 million related to real estate
lending. Based upon an analysis of the overall performance of the indirect
lending program, it was determined that no new applications for indirect loans
would be accepted after September 30, 1996, thereby discontinuing the indirect
lending program. The balance of indirect auto loans at September 30, 1996 was
$148.2 million. Loan loss allowances related to indirect loans equaled $9.0
million at September 30, 1996.
OTHER INCOME. For the fiscal year ended September 30, 1996, other income
increased to $10.1 million from $4.0 million for the fiscal year ended September
30, 1995. During the year ended September 30, 1996, the Bank sold approximately
$164.3 million of mortgage loans, recording net gains on the sales of $3.6
million. The Bank also recorded net gains on the sale of securities of $959,000
for the fiscal year ended September 30, 1996. During the fiscal year ended
September 30, 1995, losses on sales of securities and loans totaled $1.7
million.
OTHER EXPENSES. Other expenses increased $9.0 million, or 33.8% to $35.6
million for the fiscal year ended September 30, 1996 from $26.6 million for the
fiscal year ended September 30, 1995. As previously discussed, during the year
ended September 30, 1996, the Bank recorded the pre-tax $6.6 million one-time
SAIF assessment. Losses on real estate owned for the fiscal year ended September
30, 1996 were $451,000 as compared to $74,000 for the fiscal year ended
September 30, 1995. Other expenses for the fiscal year ended September 30, 1995
included a pre-tax $2.4 million expense resulting from the voluntary early
retirement program initiated during the fiscal year ended September 30, 1995.
Increases in other expenses reflect the expenses related to franchise growth of
adding eleven additional full-service branches since September 30, 1995 and
expanded loan servicing requirements related primarily to indirect lending. This
growth resulted in the number of full-time equivalent employees increasing to
383 at September 30, 1996 from 299 at September 30, 1995 and a $2.1 million
increase in compensation and benefits to $15.9 million at September 30, 1996
from $13.8 million at September 30, 1995.
PROVISION FOR INCOME TAXES. Federal and state income taxes decreased to $0.4
million for the fiscal year ended September 30, 1996 from $3.6 million for the
fiscal year ended September 30, 1995. Lower taxes resulted from the decline in
net income before provision for income taxes to $1.0 million for the fiscal year
ended September 30, 1996 as compared to $9.2 million for the fiscal year ended
September 30, 1995. The effective income tax rate of the Bank was 44.8% and
38.8% for fiscal years 1996 and 1995, respectively.
COMPARISON OF FINANCIAL CONDITION
AT SEPTEMBER 30, 1995 COMPARED TO SEPTEMBER 30, 1994
Total assets were $1.209 billion at September 30, 1995 as compared to $1.077
billion at September 30, 1994. The increase of $132.3 million primarily reflects
net growth in loans receivable of $248.3 million. Deposits increased by $160.4
million primarily because of more aggressive pricing of certificate accounts.
Borrowed funds decreased by $40.3 million as a result of the increase in
deposits and liquidation of securities and mortgage-backed and related
securities.
Loans receivable, net, increased to $825.0 million at September 30, 1995,
from $576.7 million at September 30, 1994. The increase was primarily due to
loan originations which increased to
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$364.2 million for the year ended September 30, 1995 from $271.9 million for the
year ended September 30, 1994. Loan repayments and sales increased during fiscal
1995 to $135.7 million from $107.0 million during fiscal 1994.
Securities held-to-maturity, securities available-for-sale, trading
securities, mortgage-backed and related securities held-to-maturity and
mortgage-backed and related securities available-for-sale in the aggregate
decreased $121.8 million to $319.4 million at September 30, 1995 from $441.2
million at September 30, 1994. During fiscal 1995, the Bank implemented a
strategy to accelerate the increase in yield on interest-earning assets by
selling lower-yielding, shorter-term securities and reinvesting the proceeds in
higher yielding mortgage and consumer loans. As a result of this strategy, the
Bank sold approximately $195 million of securities available-for-sale and
mortgage-backed and related securities available-for-sale at a loss of
approximately $1.7 million. Additional sales will be considered in the future.
Real estate owned (real estate acquired through foreclosures) increased to
$549,000 at September 30, 1995, from $529,000 at September 30, 1994. This
continued low level of real estate owned reflected the Bank's aggressive
marketing of real estate owned at prices that the Bank considers to approximate
the fair market value.
Office properties and equipment decreased to $17.8 million at September 30,
1995, from $18.1 million at September 30, 1994. The decrease was primarily due
to the sale of property in Vero Beach, Florida which had a carrying value of
$312,000. A gain was recognized on the sale of $975,000. During fiscal 1994, the
Company purchased the Reflections Office Centre in West Palm Beach, Florida. The
Reflections Office Centre is an office complex consisting of two, eight-story
buildings on 5.74 acres of land with 116,800 rentable square footage.
As previously discussed, deposits increased by $160.4 million to $878.7
million at September 30, 1995, from $718.3 million at September 30, 1994. The
Bank raised its interest rates offered on certificates of deposit as compared to
other financial institutions in order to fund the higher loan originations
experienced during the year.
Borrowings decreased by $40.3 million to $189.6 million at September 30,
1995, from $229.9 million at September 30, 1994. The increase in deposits and
liquidation of securities provided funds to reduce the level of borrowings.
Stockholders' equity increased to $104.6 million at September 30, 1995 from
$100.5 million at September 30, 1994. The increase in qstockholders' equity
resulted from net income of $5.6 million, the reduction in funds advanced to the
Employee Stock Ownership Plan of $0.7 million, the reduction of shares retained
in the RRPs (as a result of vesting and distribution of those shares) with a
value of approximately $0.5 million, and a reduction in the unrealized decrease
in fair value on available for sale securities of $2.2 million. These increases
were offset by reductions in paid-in capital amounting to $0.2 million, an
increase of treasury stock of $3.6 million, and dividends declared of $1.1
million.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED
SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
GENERAL OPERATING RESULTS. Net income for the fiscal year ended September
30, 1995 was $5.6 million as compared to $5.8 million during the same period one
year ago. Expenses during the fiscal year ended September 30, 1995 included a
pre-tax charge to earnings of approximately $2.4 million relating to a voluntary
early retirement program for officers and employees of the Bank.
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<PAGE> 74
Other income included a pre-tax gain of $975,000 on the sale of a parcel of land
in Vero Beach, Florida and $1.7 million in losses on sales of securities. Loan
servicing on loans serviced for others was sold at a profit of approximately
$1.0 million. Net interest income before provision for loan losses increased to
$32.1 million for the fiscal year ended September 30, 1995 as compared to $27.8
million for the fiscal year ended September 30, 1994. The increase was primarily
due to the increase in loans receivable, net. Net interest margin for fiscal
1995 was 2.83% as compared to 2.97% for fiscal 1994.
INTEREST INCOME. Interest income increased $23.1 million, or 39.9%, to $81.0
million for the fiscal year ended September 30, 1995 from $57.9 million for the
fiscal year ended September 30, 1994. The increase was primarily due to an
increase in mortgage and consumer loans outstanding during fiscal 1995. The
average yield on interest-earning assets increased to 7.15% for the fiscal year
ended September 30, 1995 from 6.18% for the fiscal year ended September 30,
1994. This increase of 97 basis points was primarily due to higher yields on
loans and the liquidation of lower yielding securities with the proceeds being
invested in higher yielding loans.
INTEREST EXPENSE. Interest expense increased $18.8 million, or 62.7%, to
$48.9 million for the fiscal year ended September 30, 1995 from $30.1 million
for the fiscal year ended September 30, 1994. This increase was caused by the
increase in deposits as well as the higher level of interest rates experienced
throughout most of fiscal 1995. During fiscal 1995, deposits averaged $829.9
million as compared to $648.6 million during fiscal 1994. The weighted average
rate paid on interest-bearing liabilities increased to 4.83% during fiscal 1995
from 3.72% during fiscal 1994.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
before provision for loan losses increased $4.3 million, or 15.2%, to $32.1
million for the fiscal year ended September 30, 1995 from $27.8 million for the
fiscal year ended September 30, 1994. As previously discussed, the net interest
margin decreased to 2.83% for fiscal 1995 from 2.97% for fiscal year 1994. The
increase in net interest income was due to increases in outstanding loans.
PROVISION FOR LOAN LOSSES. The Bank's provision for loan losses increased to
$261,000 for the fiscal year ended September 30, 1995 from $135,000 for the
fiscal year ended September 30, 1994. The increased level of provision for loan
losses reflects the increased balance of mortgage and consumer loans. Higher
levels of loan loss provisions can be expected in the future from increased
volumes of loans and higher balances of indirect automobile, home equity and
credit card loans. Non-performing assets increased to $2.7 million as of
September 30, 1995 from $2.5 million as of September 30, 1994.
OTHER INCOME. For the fiscal year ended September 30, 1995, other income
decreased to $4.0 million from $4.4 million for the fiscal year ended September
30, 1994. As discussed above, other income for the year ended September 30, 1995
included a gain on sale of property of $975,000, net losses on loan and security
sales of $1.7 million, and a gain on sale of servicing of approximately $1.0
million. Other income for the year ended September 30, 1994 included gains on
sales of securities of $424,000 and equity in net income of a real estate joint
venture of $294,000. During fiscal year ended September 30, 1995 an amount due
from Channing Corporation XVIII totaling $424,000 was expensed.
OTHER EXPENSES. Other expenses increased $3.8 million, or 16.6%, to $26.6
million for the fiscal year ended September 30, 1995 from $22.8 million for the
fiscal year ended September 30, 1994. This increase was primarily caused by a
voluntary early retirement program for officers and employees which resulted in
a pre-tax expense of $2.4 million. Deposit insurance premiums increased $217,000
primarily due to increased deposits. Provision for losses and net losses on sale
of real estate owned was $74,000 for the fiscal year ended September 30, 1995 as
compared to income of $410,000 for the fiscal year ended September 30, 1994.
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PROVISION FOR INCOME TAXES. Federal and state income taxes increased to $3.6
million for fiscal year ended September 30, 1995 from $3.5 million for the
fiscal year ended September 30, 1994. The effective income tax rate was 38.8%
and 37.7% for fiscal 1995 and 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain minimum levels of liquid assets as defined
by OTS regulations. This requirement, which periodically varies depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The current required ratio is 5%. The Bank
historically has maintained a level of liquid assets in excess of this
regulatory requirement. Liquid assets consist of, among other things, cash, cash
equivalents, short and intermediate term U.S. Government and government agency
securities. The maintenance of liquid assets allows for the possibility of
withdrawal of deposits when interest rates fluctuate. The Bank's liquidity
ratios were 16.3% and 8.0% at September 30, 1996 and September 30, 1995,
respectively. The liquidity ratio at September 30, 1996 was high as a result of
proceeds from loan sales of $141.4 million during September 1996.
The Bank's primary sources of funds are deposits and borrowings, proceeds
from principal and interest payments on loans, and proceeds from the maturing of
and sales of securities. While maturities and scheduled amortization of loans
and investment securities are predictable sources of funds, deposit inflows and
mortgage prepayments are greatly influenced by local conditions, general
interest rates, and regulatory changes.
The Bank's most liquid assets are cash and cash equivalents. The levels of
these assets depend on the Bank's lending, investing, operating and deposit
activities during any given period. At September 30, 1996, 1995 and 1994, cash
and cash equivalents totaled $161.4 million, $25.1 million, and $19.1 million,
respectively. As previously mentioned, the high level of cash and cash
equivalents at September 30, 1996 was due to proceeds from loan sales of $141.4
million during the month of September. The Bank's sources of funds include
deposits, borrowings, proceeds from payments and prepayments on mortgage loans
and mortgage-backed and related securities, proceeds from sales of
mortgage-backed and related securities and loans, proceeds from the maturities
of investment securities and sales of securities.
The primary investment activity of the Bank is the origination of mortgage
and consumer loans. During the fiscal years ended September 30, 1996, 1995 and
1994, the Bank originated mortgage and consumer loans in the aggregate amounts
of $539.6 million, $364.2 million, and $271.9 million, respectively. In
addition, net mortgage loans of approximately $78.5 million were acquired in
conjunction with the purchase of Palm Beach Savings. Another investment activity
of the Bank, but to a much lesser degree, is the investment of funds in REMICs,
CMOs, mortgage-backed securities, U.S. Treasury and agency securities and
FHLB-Atlanta overnight funds.
The Bank's cash flows are comprised of three primary classifications: cash
flows from operating activities, investing activities, and financing activities.
Cash flows from operating activities, consisting primarily of interest and
dividends received less interest paid on deposits, were $11.0 million, $18.5
million and $0.4 million for the fiscal years ended September 30, 1996, 1995 and
1994, respectively. Net cash used for investing activities consisted primarily
of disbursement of loan originations, mortgage-backed and related securities
purchases and investment purchases, offset by principal collections on loans and
proceeds from the sale of loans, mortgage-backed and related securities,
securities available for sale, repossessed automobiles and office properties and
equipment, were $40.5 millon, $129.8 million and $216.9 million for the fiscal
years ended September 30, 1996,
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1995 and 1994, respectively. Net cash provided by financing activities consisted
primarily of net activity in deposits, advances and escrow accounts, and were
$165.7 million, $117.3 million and $220.8 million for the fiscal years ended
September 30, 1996, 1995 and 1994, respectively.
At September 30, 1996, the Bank had outstanding commitments to originate
$40.6 million of loans. The Bank has determined that it will have sufficient
funds available to meet all of its commitments. At September 30, 1996,
certificates of deposit which were scheduled to mature in one year or less from
September 30, 1996 totaled $593.3 million. Based on past experience, management
is of the opinion that a significant portion of these funds will remain with the
Bank. If disintermediation of deposits does occur, the Bank has the ability to
borrow from the FHLB and/or sell available-for-sale securities. At September 30,
1996, the unrealized loss on available-for-sale securities was $2.0 million
which would become a recognized loss if the securities were to be sold.
At September 30, 1996, the Bank exceeded each of the OTS capital
requirements. Tangible and core capital were 6.2% of adjusted total assets as
compared to the minimum requirements of 1.5% and 3.0%, respectively. Risk-based
capital was 12.3% of risk-weighted assets as compared to the minimum requirement
of 8.0%.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with Generally Accepted Accounting Principles
("GAAP"), which requires the measurement of financial position and operating
results in terms of historical dollars or without considering the changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's operations. Unlike
most industrial companies, nearly all the assets and liabilities of the Bank are
monetary in nature. As a result, interest rates have a greater impact on the
Bank's performance than do the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
In November 1995, FASB issued "A Guide to Implementation of SFAS No. 115 on
Accounting for Certain Investments in Debt and Equity Securities -- Questions
and Answers" ("SFAS 115 Q&A Guide"). SFAS 115 Q&A Guide includes a one-time
opportunity for entities which had previously adopted the provisions of SFAS 115
to reconsider their ability and intent to hold securities to maturity and such
entities would be allowed to transfer securities from the held-to-maturity
category to available-for-sale without calling into question the intent to hold
securities to maturity. Management evaluated the impact of the SFAS 115 Q&A
Guide on the investment portfolio. SFAS 115 Q&A Guide required that any one-time
reclassifications must occur between November 15, 1995 and December 31, 1995. In
November 1995, the Bank reclassified $10.5 million of municipal securities and
$20.0 million of U.S. Treasury notes from held-to-maturity to
available-for-sale. Of the reclassified amounts, $15.6 million were sold during
the fiscal year, and the Bank recorded net gains of $811,000.
In May 1995, FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights." The Statement, which amends SFAS No. 65, "Accounting for Certain
Mortgage Banking Activities," requires that an entity with mortgage banking
operations recognize as separate assets rights to service mortgage loans for
others. An entity that acquires mortgage servicing rights through either the
purchase or
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origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans based on their relative fair
values if it is practicable to estimate fair value. SFAS No. 122 applies
prospectively in fiscal years beginning after December 15, 1995 to sales of
mortgage loans with servicing rights retained and to impairment evaluations of
all amounts capitalized as mortgage servicing rights, including those purchased
before the adoption of this Statement. SFAS No. 122, when adopted, is not
expected to have a material effect on the Company's consolidated financial
statements.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement requires certain disclosures about stock-based
employee compensation arrangements, regardless of the method used to account for
them, and defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
stock based compensation plans using the intrinsic value method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and, if presented, earnings per share, as if
the fair value method of accounting defined in this Statement had been applied.
Under the fair value method, compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period, which
is usually the vesting period. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date over the amount an employee must pay to
acquire the stock. The disclosure requirements of this Statement are effective
for financial statements for fiscal years beginning after December 15, 1995. Pro
forma disclosures required for entities that elect to continue to measure
compensation cost using APB No. 25 must include the effects of all awards
granted in fiscal years that begin after December 15, 1994. Management is in the
process of considering the alternatives presented in SFAS No. 123.
IMPACT OF NEW LEGISLATIVE ISSUES. In August 1996, Congress passed
legislation which repeals the Bank's present method of accounting for bad debts
for federal income tax purposes. As discussed in Note 12 to the consolidated
financial statements, the Bank currently uses the percentage of taxable income
method to determine its bad debt deduction in the computation of its taxable
income. Under the new legislation, the Bank will be required to use the specific
charge-off method, which may result in a different deduction for bad debts in
determining taxable income than as presently computed under its current method.
Additionally, the Bank will be required to recapture its post-1987 additions to
its bad debt reserves. Because the Bank has provided deferred taxes for the
income tax bad debt reserves established after 1987, management does not
anticipate any additional income tax liability related to the recapture. The new
legislation is effective for taxable years beginning after December 31, 1995.
On September 30, 1996, Congress passed and the President signed the Deposit
Insurance Funds Act of 1996 which mandated that all depository institutions that
are insured by the SAIF pay a one-time special assessment of 65.7 basis points
(subject to certain adjustments) on SAIF-insured deposits that were held at
March 31, 1995 by November 27, 1996 to recapitalize the SAIF portion of the FDIC
fund. The assessment is intended to bring the SAIF's reserve ratios to a
comparable level of the Bank Insurance Fund at 1.25% of total insured deposits.
In connection with the recapitalization, the FDIC also lowered SAIF premiums
from $0.23 per $100 to $0.064 per $100 of insured deposits in January 1997. The
Bank's pre-tax share of this special assessment totals $6.6 million and is
included in the consolidated financial statements at September 30, 1996.
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Item 8 - Financial Statements
Supplementary Data
INDEPENDENT AUDITORS' REPORT
Board of Directors of
First Palm Beach Bancorp, Inc.:
We have audited the consolidated statements of financial condition of First
Palm Beach Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, First
Bank of Florida as of September 30, 1995 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and subsidiary at
September 30, 1995 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1996 in
conformity with generally accepted accounting principles.
As discussed in the Notes to the Consolidated Financial Statements, the
Company changed its method of accounting for debt and equity securities
effective October 1, 1993, to conform with Statement of Financial Accounting
Standards No. 115.
/s/ Deloitte & Touche LLP
Certified Public Accountants
West Palm Beach, Florida
December 10, 1996
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FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1995 AND 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, September 30,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS (Note 1):
Cash and amounts due from depository institutions.................... $ 11,254 $ 19,438
----------- -----------
Interest-bearing deposits............................................ 13,878 141,975
----------- -----------
Total cash and cash equivalents................................ 25,132 161,413
SECURITIES AVAILABLE-FOR-SALE (Notes 1, 2)............................. 32,443 27,551
SECURITIES HELD-TO-MATURITY (Approximate fair value --
1995, $49,276; 1996, $7,042) (Notes 1, 3)............................. 48,498 6,981
MORTGAGE-BACKED AND RELATED SECURITIES AVAILABLE-FOR-SALE (Notes 1,
4).................................................................... 81,460 105,866
MORTGAGE-BACKED AND RELATED SECURITIES HELD-TO-MATURITY (Approximate
fair value -- 1995, $157,429; 1996, $127,495) (Notes 1, 5)............ 156,982 126,407
LOANS RECEIVABLE, Net of allowance for loan losses -- 1995, $2,157;
1996, $11,855 (Notes 1, 6, 10)........................................ 825,024 1,007,881
REAL ESTATE OWNED, Net of allowance for losses -- 1995, $132;
1996, $361 (Note 1)................................................... 549 1,626
REPOSSESSED AUTOMOBILES, At estimated fair value (Note 1).............. 371 1,602
OFFICE PROPERTIES AND EQUIPMENT, Net (Notes 1, 7)...................... 17,763 23,077
FEDERAL HOME LOAN BANK STOCK -- At cost................................ 8,558 10,053
ACCRUED INTEREST RECEIVABLE (Notes 1, 6, 8)............................ 6,778 8,147
GOODWILL (Note 1)...................................................... -- 2,825
OTHER ASSETS........................................................... 5,287 6,591
----------- -----------
TOTAL ASSETS........................................................... $ 1,208,845 $ 1,490,020
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSIT ACCOUNTS (Note 9).............................................. $ 878,670 $ 1,136,722
ADVANCES FROM FEDERAL HOME LOAN BANK (Note 10)......................... 171,125 201,025
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Note 11)............... 18,427 10,000
ADVANCES BY BORROWERS FOR TAXES AND INSURANCE.......................... 14,981 14,657
OTHER LIABILITIES (Notes 1, 12, 13).................................... 21,412 27,756
DEFERRED INCOME TAXES, NET (Notes 1, 12)............................... (381) (5,565)
----------- -----------
Total liabilities.............................................. $ 1,104,234 $ 1,384,595
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 15, 16, 17)
STOCKHOLDERS' EQUITY: (Notes 14, 17, 18)
PREFERRED STOCK ($.01 par value) authorized 1,000,000 shares; none
outstanding
COMMON STOCK ($.01 par value) authorized 10,000,000 shares; issued
5,496,375 shares; outstanding 5,133,063 and 5,093,096 (net of
treasury stock) at September 30, 1995 and 1996, respectively........ 55 55
ADDITIONAL PAID-IN CAPITAL........................................... 51,733 52,891
RETAINED EARNINGS -- Substantially restricted (Notes 17, 18)......... 66,592 65,064
TREASURY STOCK, at cost (363,312 shares at September 30, 1995 and
403,279 shares at September 30, 1996)............................... (7,283) (8,660)
COMMON STOCK PURCHASED BY: (Note 13)
Employee stock ownership plan...................................... (2,509) (1,769)
Recognition and retention plans.................................... (621) (161)
UNREALIZED DECREASE IN FAIR VALUE ON AVAILABLE-FOR-SALE SECURITIES
(Net of applicable income taxes) (Note 1)........................... (3,356) (1,995)
----------- -----------
Total stockholders' equity..................................... 104,611 105,425
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................. $ 1,208,845 $ 1,490,020
=========== ===========
</TABLE>
See notes to consolidated financial statements.
75
<PAGE> 80
FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1994, 1995, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended
September 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans (Notes 1, 6)................................................................. $ 37,109 $ 54,638 $ 84,090
Securities held-to-maturity, securities available-for-sale, and trading securities
(Note 1).......................................................................... 5,820 6,494 4,130
Mortgage-backed and related securities held-to-maturity and mortgage-backed and
related securities available-for-sale (Note 1).................................... 14,440 19,199 14,487
Other.............................................................................. 505 633 825
--------- --------- ---------
Total interest income........................................................ 57,874 80,964 103,532
--------- --------- ---------
INTEREST EXPENSE:
Deposits (Note 9).................................................................. 23,130 37,847 48,614
Advances from Federal Home Loan Bank (Note 10)..................................... 5,375 8,699 11,974
Securities sold under agreements to repurchase (Note 11)........................... 1,544 2,354 712
--------- --------- ---------
Total interest expense....................................................... 30,049 48,900 61,300
--------- --------- ---------
Net interest income.......................................................... 27,825 32,064 42,232
PROVISION FOR LOAN LOSSES (Notes 1, 6)............................................... 135 261 15,704
--------- --------- ---------
Net interest income after provision for loan losses (Note 1)................. 27,690 31,803 26,528
--------- --------- ---------
OTHER INCOME:
Servicing income and other fees.................................................... $ 2,597 $ 2,576 $ 3,206
Net gain (loss) on sale of loans and mortgage-backed and related securities
available-for-sale (Notes 1, 4)................................................... 480 (1,276) 3,557
Net gain (loss) on sale of securities available-for-sale (Notes 1, 2).............. 55 (473) 959
Net gain (loss) on trading securities (Note 1)..................................... (111) 89 --
Equity in net income of real estate venture........................................ 294 -- --
Net gain on sale of property....................................................... -- 975 460
Net gain on sale of loan servicing (Note 6)........................................ -- 1,008 412
Miscellaneous...................................................................... 1,122 1,131 1,475
--------- --------- ---------
Total other income........................................................... 4,437 4,030 10,069
--------- --------- ---------
OTHER EXPENSES:
Employee compensation and benefits (Notes 13, 14).................................. 13,900 13,849 15,905
Early retirement program........................................................... -- 2,361 --
Occupancy and equipment (Note 16).................................................. 4,223 4,259 4,830
Federal deposit insurance premium (Note 1)......................................... 1,582 1,799 8,848
Provision for losses and net (gains) losses on sale of real estate owned (Note
1)................................................................................ (410) 74 451
Advertising and promotion.......................................................... 801 679 663
Miscellaneous...................................................................... 2,730 3,588 4,905
--------- --------- ---------
Total other expenses......................................................... 22,826 26,609 35,602
--------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES............................................. 9,301 9,224 995
--------- --------- ---------
PROVISION (BENEFIT) FOR INCOME TAXES: (Notes 1, 12)
Current............................................................................ 3,355 3,672 5,288
Deferred........................................................................... 147 (94) (4,842)
--------- --------- ---------
Total provision for income taxes............................................. 3,502 3,578 446
--------- --------- ---------
NET INCOME........................................................................... $ 5,799 $ 5,646 $ 549
========= ========= =========
PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (Note 1)................................ $ 1.05 $ 1.11 $ 0.11
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
76
<PAGE> 81
FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1994, 1995, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Common
Additional Stock Stock
Common Paid-in Retained Treasury Purchased Purchased
Stock Capital Earnings Stock by ESOP by RRP
------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993.......... $ 55 $ 52,423 $ 56,200 $ -- $ (4,232) $ (2,116)
Cumulative effect of change in method
of accounting for investments in
debt and equity securities, net of
income taxes........................ -- -- -- -- -- --
Net income........................... -- -- 5,799 -- -- --
Additional conversion expenses....... -- (18) -- -- -- --
Unrealized gain on securities and
mortgage-backed and related
securities transferred from
available-for-sale to
held-to-maturity, net of income
taxes............................... -- -- -- -- -- --
Accretion of unrealized gain on
securities and mortgage-backed and
related securities transferred from
available-for-sale to
held-to-maturity, net of income
taxes............................... -- -- -- -- -- --
Change in unrealized losses on
securities available-for-sale and
mortgage-backed and related
securities available-for-sale, net
of income taxes..................... -- -- -- -- -- --
Amortization of deferred compensation
-- Employee Stock Ownership Plan and
Recognition and Retention Plans..... -- -- -- -- 1,058 1,005
Purchase of Treasury Stock at cost
(274,819 shares).................... -- -- -- (4,573) -- --
Exercise of stock options by certain
directors and employees............. -- (470) -- 855 -- --
---- ------ --------- -------- -------- --------
Balance at September 30, 1994.......... 55 51,935 61,999 (3,718) (3,174) (1,111)
---- ------ --------- -------- -------- --------
Net income........................... -- -- 5,646 -- -- --
Accretion of unrealized gain on
securities and mortgage-backed and
related securities transferred from
available-for-sale to
held-to-maturity, net of income
taxes............................... -- -- -- -- -- --
Change in unrealized losses of
securities available-for-sale and
mortgage-backed and related
securities available-for-sale, net
of income taxes..................... -- -- -- -- -- --
Amortization of deferred compensation
-- Employee Stock Option Plan and
Recognition and Retention Plans..... -- 522 -- -- 665 490
Purchase of Treasury Stock at cost
(225,600 shares).................... -- -- -- (4,902) -- --
Exercise of stock options by certain
directors and employees............. -- (724) -- 1,337 -- --
Dividends of $0.20 per share......... -- -- (1,053) -- -- --
---- ------ --------- -------- -------- --------
Balance at September 30, 1995.......... 55 51,733 66,592 (7,283) (2,509) (621)
</TABLE>
<TABLE>
<CAPTION>
Unrealized
(Decrease)
Increase in
Fair Value Total
on Available- Stock-
for-Sale holders'
Securities Equity
------------- ---------
<S> <C> <C>
Balance at September 30, 1993.......... $ -- $ 102,330
Cumulative effect of change in method
of accounting for investments in
debt and equity securities, net of
income taxes........................ 546 546
Net income........................... -- 5,799
Additional conversion expenses....... (18)
Unrealized gain on securities and
mortgage-backed and related
securities transferred from
available-for-sale to
held-to-maturity, net of income
taxes............................... 142 142
Accretion of unrealized gain on
securities and mortgage-backed and
related securities transferred from
available-for-sale to
held-to-maturity, net of income
taxes............................... (33) (33)
Change in unrealized losses on
securities available-for-sale and
mortgage-backed and related
securities available-for-sale, net
of income taxes..................... (6,179) (6,179)
Amortization of deferred compensation
-- Employee Stock Ownership Plan and
Recognition and Retention Plans..... -- 2,063
Purchase of Treasury Stock at cost
(274,819 shares).................... -- (4,573)
Exercise of stock options by certain
directors and employees............. -- 385
-------- ---------
Balance at September 30, 1994.......... (5,524) 100,462
Net income........................... -- 5,646
Accretion of unrealized gain on
securities and mortgage-backed and
related securities transferred from
available-for-sale to
held-to-maturity, net of income
taxes............................... (57) (57)
Change in unrealized losses of
securities available-for-sale and
mortgage-backed and related
securities available-for-sale, net
of income taxes..................... 2,225 2,225
Amortization of deferred compensation
-- Employee Stock Option Plan and
Recognition and Retention Plans..... -- 1,677
Purchase of Treasury Stock at cost
(225,600 shares).................... -- (4,902)
Exercise of stock options by certain
directors and employees............. -- 613
Dividends of $0.20 per share......... -- (1,053)
-------- ---------
Balance at September 30, 1995.......... (3,356) 104,611
</TABLE>
(CONTINUED)
77
<PAGE> 82
FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1994, 1995, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Common
Additional Stock Stock
Paid-in Retained Treasury Purchased Purchased
Common Stock Capital Earnings Stock by ESOP by RRP
------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995.......... 55 51,733 66,592 (7,283) (2,509) (621)
Net income........................... -- -- 549 -- -- --
Accretion of unrealized gain on
securities and mortgage-backed and
related securities transferred from
available-for-sale to
held-to-maturity, net of income
taxes............................... -- -- -- -- -- --
Change in unrealized losses on
securities available-for-sale and
mortgage-backed and related
securities available-for-sale, net
of income taxes..................... -- -- -- -- -- --
Amortization of deferred compensation
-- Employee Stock Ownership Plan and
Recognition and Retention Plans..... -- 733 -- -- 740 460
Issuance of 299,478 shares of
Treasury Stock for the purchase of
PBS Financial Corp.................. -- 496 -- 6,130 -- --
Purchase of Treasury Stock at cost
(345,853 shares).................... -- -- -- (7,642) -- --
Exercise of stock options by certain
directors and employees............. -- (71) -- 135 -- --
Dividends of $0.40 per share......... -- -- (2,077) -- -- --
--------- --------- --------- --------- --------- ---------
Balance at September 30, 1996.......... $ 55 $ 52,891 $ 65,064 $ (8,660) $ (1,769) $ (161)
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Unrealized
(Decrease)
Increase in
Fair Value Total
on Available- Stock-
for-Sale holders'
Securities Equity
------------- ---------
<S> <C> <C>
Balance at September 30, 1995.......... (3,356) 104,611
Net income........................... -- 549
Accretion of unrealized gain on
securities and mortgage-backed and
related securities transferred from
available-for-sale to
held-to-maturity, net of income
taxes............................... (41) (41)
Change in unrealized losses on
securities available-for-sale and
mortgage-backed and related
securities available-for-sale, net
of income taxes..................... 1,402 1,402
Amortization of deferred compensation
-- Employee Stock Ownership Plan and
Recognition and Retention Plans..... -- 1,933
Issuance of 299,478 shares of
Treasury Stock for the purchase of
PBS Financial Corp.................. -- 6,626
Purchase of Treasury Stock at cost
(345,853 shares).................... -- (7,642)
Exercise of stock options by certain
directors and employees............. -- 64
Dividends of $0.40 per share......... -- (2,077)
--------- ---------
Balance at September 30, 1996.......... $ (1,995) $ 105,425
========= =========
</TABLE>
See notes to consolidated financial statements.
78
<PAGE> 83
FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended
September 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOW FROM (FOR) OPERATING ACTIVITIES:
Net income.............................................................. $ 5,799 $ 5,646 $ 549
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation.......................................................... 1,516 1,308 1,227
Employee Stock Ownership Plan and Recognition and Retention Plan
Compensation Expense................................................. 2,063 1,677 1,933
Federal Home Loan Bank stock dividend................................. (405) -- --
Accretion of discounts, amortization of premiums, and other deferred
yield items.......................................................... 276 (910) (538)
Amortization of goodwill.............................................. -- -- 145
Provision for loans and real estate losses............................ 135 261 15,704
Provision for losses and net (gains) losses on sales of real estate
owned................................................................ (410) 74 451
Net realized and unrealized (gain) loss on trading securities......... 121 (89) --
Purchase of trading securities.......................................... (19,959) -- --
Sale of trading securities.............................................. 14,932 5,003 --
Net (gain) loss on sale of:
Loans................................................................. (71) (84) (3,494)
Mortgage-backed and related securities available-for sale............. (409) 1,360 (63)
Other securities...................................................... (65) 473 (959)
Property and equipment................................................ -- (975) (460)
Decrease in loans held for sale......................................... 910 127 --
Changes in assets and liabilities net of effects from purchase of PBS
Financial Corp.:
Increase in accrued interest receivable............................... (1,316) (1,496) (792)
(Increase) decrease in other assets................................... (2,835) 1,743 (1,330)
Increase in other liabilities -- net of change in dividends payable
and deferred taxes................................................... 71 4,339 (1,348)
--------- --------- ---------
Net cash provided by operating activities......................... 353 18,457 11,025
--------- --------- ---------
CASH FLOW FROM (FOR) INVESTING ACTIVITIES:
Loan originations and principal payments on loans....................... (150,144) (255,190) (286,867)
Principal payments received on mortgage-backed and related securities... 148,408 42,877 37,830
Purchases of:
Loans................................................................. (6,659) (5,687) (3,712)
Mortgage-backed and related securities held-to-maturity............... (66,346) (49,883) --
Mortgage-backed and related securities available-for-sale............. (194,823) -- (41,360)
Securities held-to-maturity........................................... (14,881) (13,475) --
Securities available-for-sale......................................... (85,034) (74,906) (361,931)
Office properties and equipment....................................... (8,063) (1,313) (7,237)
Proceeds from sales of:
Loans................................................................. 7,462 13,991 164,301
Mortgage-backed and related securities available-for-sale............. 64,359 94,391 18,040
Securities available-for-sale......................................... 83,741 100,965 294,117
Repossessed automobiles............................................... -- 407 11,928
Real estate acquired in settlement of loans........................... 2,826 1,085 2,395
Office properties and equipment....................................... 11 1,307 1,593
(Purchase) sale of Federal Home Loan Bank stock......................... (1,631) 52 (525)
Proceeds from maturities of securities.................................. -- 19,952 125,587
Cash acquired through purchase of PBS Financial Corp. net of cash
payments relating to purchase.......................................... -- -- 9,873
Investment in real estate venture....................................... 3,807 -- --
Other investing activities.............................................. 56 (4,340) (4,509)
--------- --------- ---------
Net cash used for investing activities............................ (216,911) (129,767) (40,477)
--------- --------- ---------
</TABLE>
(Continued)
79
<PAGE> 84
FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended
September 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOW FROM (FOR) FINANCING ACTIVITIES:
Purchase of Treasury Stock at cost...................................... (4,573) (4,902) (7,642)
Exercise of stock options............................................... 110 613 64
Decrease in additional paid in capital due to additional conversion
expenses............................................................... (18) -- --
Net increase (decrease) in:
NOW accounts, demand deposits, and savings accounts................... (18,091) (19,332) 55,343
Certificates of deposit............................................... 37,915 179,720 98,872
Advances from Federal Home Loan Bank.................................. 145,850 (1,050) 29,900
Securities sold under agreement to repurchase......................... 57,717 (39,290) (8,427)
Advances by borrowers for taxes and insurance......................... 1,869 2,328 (539)
Dividends paid on stock............................................... -- (790) (1,838)
--------- --------- ---------
Net cash provided by financing activities......................... 220,779 117,297 165,733
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................. 4,221 5,987 136,281
CASH AND CASH EQUIVALENTS, Beginning of year.............................. 14,924 19,145 25,132
--------- --------- ---------
CASH AND CASH EQUIVALENTS, End of year.................................... $ 19,145 $ 25,132 $ 161,413
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS Supplemental Disclosure of Cash Flow
Information:
Cash paid for income taxes............................................ $ 2,131 $ 3,806 $ 6,508
========= ========= =========
Cash paid for interest on deposits and other borrowings............... $ 29,162 $ 48,003 $ 60,640
========= ========= =========
Supplemental Schedule of Noncash Investing and and Financing Activities:
Repossessed automobiles acquired in settlement of loans............... $ -- $ 765 $ 21,122
========= ========= =========
Real estate acquired in settlement of loans........................... $ 1,595 $ 1,057 $ 961
========= ========= =========
Decrease (increase) in unrealized loss on available-for-sale securities. $ (5,524) $ 2,168 $ 1,361
========= ========= =========
On December 8, 1995 the Company purchased all of the stock of PBS Financial
Corp.
Consideration paid for PBS:
Cash.................................................................... $ 1,107
Capital stock issued.................................................... 6,626
---------
Total purchase price.................................................... 7,733
Fair value of net assets acquired....................................... (4,763)
---------
Goodwill................................................................ $ 2,970
=========
</TABLE>
See notes to consolidated financial statements.
80
<PAGE> 85
FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
First Palm Beach Bancorp, Inc. (the "Company") was organized in May 1993 as
the holding company for First Bank of Florida (the "Bank"), formerly First
Federal Savings and Loan Association of the Palm Beaches, in connection with the
Bank's conversion (the "Conversion") from a federally chartered mutual savings
and loan association to a federally chartered stock savings and loan
association. The Bank changed its name from First Federal Savings and Loan
Association of the Palm Beaches to First Bank of Florida on October 15, 1996. On
September 29, 1993, the Company completed its initial public offering and sold
5,496,375 shares of common stock at $10.00 per share to depositors, borrowers,
and the employees of the Bank during the subscription offering. The proceeds
from the Conversion, after recognizing Conversion expenses and underwriting
costs of $2.5 million, were $52.5 million and are recorded as common stock and
additional paid-in capital in the accompanying consolidated statements of
financial condition. The Company utilized $25.2 million of the net proceeds to
purchase all of the capital stock of the Bank.
On December 8, 1995 (the "Effective Date"), the Company completed the
acquisition of PBS Financial Corp. ("PBS") by means of the merger (the "Merger")
of PBS with and into the Company, pursuant to an Agreement and Plan of Merger
between the Company and PBS dated as of May 31, 1995 (the "Agreement").
Concurrently with the Merger, Palm Beach Savings and Loan, F.S.A. ("Palm Beach
Savings"), the savings and loan subsidiary of PBS, merged with and into the Bank
in accordance with the Plan of Merger and Combination dated May 31, 1995 between
Palm Beach Savings and the Bank. In conjunction with and as a part of the
Merger, each of the 283,700 shares of PBS Class A common stock issued and
outstanding and 419,300 shares of PBS Class B common stock issued and
outstanding as of the Effective Date was converted into (i) .426 of a share of
the Company's Common Stock and (ii) a cash payment of $0.75 per share of PBS
common stock. Based on an aggregate of 703,000 shares of PBS Class A and Class B
common stock issued and outstanding, the Company issued in the aggregate 299,478
shares of the Company's Common Stock and made $527,250 in cash payments. Also in
conjunction with the Merger, the Company paid $88,544 in exchange for all
outstanding PBS options and $459,536 in exchange for all outstanding PBS
warrants.
The supplemental proforma information related to the Bank's acquisition of
PBS for the years ended September 30, 1995 and 1996 is considered immaterial to
the consolidated operations of the Company.
The accounting and reporting policies of the Company and the Bank conform,
in all material respects, to generally accepted accounting principles. The
following summarizes the more significant of these policies and practices.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and the Bank, and the Bank's wholly-owned subsidiaries, The Big First, Inc.,
First Corporate Center, Inc., and First Bank of Florida Mortgage Corporation.
The Company's business is conducted principally through the Bank. At September
30, 1996, the Company reimbursed the Bank for services rendered by Bank
employees on behalf of the Company. All material intercompany balances and
transactions have been eliminated in consolidation.
81
<PAGE> 86
The Bank was organized in 1934 as a federally chartered savings and loan
association. The Bank's principal business has been and continues to be
attracting deposits from the general public and investing those deposits,
together with funds generated from operations and borrowings, in one-to
four-family, owner occupied residential mortgage loans, construction loans,
consumer and other loans, commercial real estate loans and multi-family
residential mortgage loans.
The Big First, Inc. was formed in March 1981. The primary purpose of this
service corporation was the development of residential real estate. This service
corporation is currently inactive.
First Corporate Center, Inc. was formed in 1995. The primary purpose of the
service corporation is to engage in maintenance and management of improved real
estate. It currently manages one building of the Reflections Office Centre owned
by the Company.
First Bank of Florida Mortgage Corporation, formerly First Federal Mortgage
Corporation, was formed in 1982. The primary purpose of the corporation is to
provide mortgage brokerage services.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 that affect the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
CASH EQUIVALENTS
For presentation purposes in both the consolidated statements of financial
condition and consolidated statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
SECURITIES AVAILABLE-FOR-SALE AND MORTGAGE-BACKED AND RELATED SECURITIES
AVAILABLE-FOR SALE
Securities available-for-sale and mortgage-backed and related securities
available-for-sale as of September 30, 1995 and 1996 are carried at fair value,
based upon market or broker quotations. Deferred income taxes are provided on
any unrealized appreciation or decline in value. Such appreciation or decline in
value, net of deferred taxes, is reflected as a separate component of
stockholders' equity. Securities available-for-sale as of September 30, 1993
were carried at lower of cost or market value with any unrealized decline
recognized by charges to earnings. This different accounting treatment is caused
by the fact that Statement of Financial Accounting Standards ("SFAS No. 115")
"Accounting for Certain Investments in Debt and Equity Securities" was
implemented effective October 1, 1993. The cumulative effect of adopting SFAS
No. 115 is reflected as an adjustment to stockholders' equity as of the
beginning of the year ended September 30, 1994.
SECURITIES HELD-TO-MATURITY AND MORTGAGE-BACKED AND RELATED SECURITIES
HELD-TO-MATURITY
Securities held-to-maturity and mortgage-backed and related securities
held-to-maturity are carried at amortized cost. Premiums and discounts related
to these securities are amortized to expense and accreted to income over the
life of the securities using the interest method. These securities are
classified as held-to-maturity based on management's intent and the Bank's
ability to hold such securities to maturity.
TRADING SECURITIES
Trading securities are carried at fair value, based upon market quotations.
Unrealized holding gains or losses are included in earnings.
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized in a valuation allowance by charges to
earnings.
82
<PAGE> 87
INTEREST RATE RISK
The Bank is engaged principally in providing first mortgage loans (both
adjustable rate and fixed rate mortgage loans) to individuals (see Note 6 for
the composition of the mortgage loan portfolio at September 30, 1995 and 1996).
To a lesser extent, the Bank also purchases and holds investment securities
which primarily provide both fixed rate and floating rate returns. Mortgage
loans and investment securities are funded primarily with short-term liabilities
that have interest rates that vary with market rates over time. Net interest
income and the market value of net interest-earning assets will fluctuate based
on changes in interest rates and changes in the levels of interest-sensitive
assets and liabilities. The actual duration of interest-earning assets and
interest-bearing liabilities may differ significantly from the stated duration
as a result of prepayment, early withdrawals and similar factors.
PROVISION FOR LOAN LOSSES
Provision for loan losses, which increase the allowance for loan losses, is
established by charges to earnings. Such allowance represents the amounts which,
in management's judgment, are adequate to absorb charge-offs of existing loans
which may become uncollectible. The adequacy of the allowance is determined by
management's continuing evaluation of the loan portfolio in light of past loss
experience, present economic conditions, and other factors considered relevant
by management at the financial statement date. Loan evaluation occurs on a
monthly basis with corresponding loan provisions adjusted quarterly. Anticipated
changes in economic factors which may influence the level of the allowance are
considered in the evaluation by management when the likelihood of the changes
can be reasonably determined. In estimating the allowance for losses,
consideration is given to asset performance, the financial condition of
borrowers or guarantors, additional collateral provided, current and anticipated
economic conditions, appraisals, cost of disposal, and holding costs. While
management uses the best information available to make such evaluations, future
adjustments to the allowance may be necessary, which may be material, if
economic conditions differ substantially from the assumptions used in making the
evaluation. If additions to the original estimate of the allowance for loan
losses are deemed necessary, they will be reported in earnings in the period in
which they become reasonably estimable.
REAL ESTATE OWNED
Properties acquired through foreclosure or a deed in lieu of foreclosure are
initially recorded at cost, which is the estimated fair value of the property at
the time the loan is foreclosed. If the fair value less the estimated cost to
sell an individual property declines below the cost of such property, a
provision for losses is charged to earnings.
Subsequent costs relating to the improvement of property are capitalized in
amounts not to exceed the property's fair value. Costs relating to holding the
property are charged to expense when incurred.
The amounts the Bank could ultimately recover from property acquired by
foreclosure or deed in lieu of foreclosure could differ materially from the
amounts used in arriving at the net carrying value of the assets because of
future market factors beyond the Bank's control or changes in the Bank's
strategy for attempting to recover its investment.
REPOSSESSED AUTOMOBILES
Repossessed automobiles are carried at estimated fair value, which
approximates management's estimate of proceeds to be received at time of
disposition.
OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are carried at cost less accumulated
depreciation. Land is carried at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets, which range
from five to fifty years for buildings and improvements and three to ten years
for furniture and equipment.
83
<PAGE> 88
GOODWILL
The Bank recorded goodwill in the amount of $2,970,000 in connection with
the acquisition of PBS in December 1995. Such goodwill represents the excess of
cost over net assets and identifiable intangible assets acquired in such
acquisition. Goodwill is being amortized on a straight-line basis over 15 years.
At September 30, 1996 the Bank had recorded $145,000 of accumulated
amortization.
UNCOLLECTED INTEREST
The Bank does not accrue interest on mortgage loans on which principal
and/or interest is 90 days or more past due, unless the loan is fully secured
and in the process of collection. At the time interest accruals are ceased, the
Bank reverses previously accrued interest or provides an allowance for the loss
of the uncollected interest. Interest ultimately collected is credited to income
in the period of recovery.
LOAN ORIGINATION FEES AND COSTS
Loan origination fees result from services performed by the Bank in
originating mortgage loans. Such fees and certain direct incremental costs
related to origination of such loans are deferred and reflected as an adjustment
to the carrying value of mortgage loans. Deferred loan fees and costs are
amortized to income over the life of the loans using the interest method. Fees
paid to dealers in connection with the origination of consumer loans are
deferred and amortized over the life of the loan using the interest method.
INCOME TAXES
Deferred income taxes are provided on elements of income that are recognized
for financial accounting purposes in periods different from such items
recognized for income tax purposes in accordance with the provisions of SFAS No.
109, "Accounting for Income Taxes."
EARNINGS PER SHARE
Primary and fully diluted earnings per share for the years ended September
30, 1994, 1995 and 1996 were determined by dividing net income for fiscal year
1994 by 5,522,568 and 5,534,379; for fiscal year 1995 by 5,071,942 and
5,098,853; and for fiscal year 1996 by 5,093,975 and 5,101,625, the weighted
average number of shares of common stock and common stock equivalents
outstanding, respectively. Effective October 1, 1994, the Company implemented a
Statement of Position ("SOP") entitled "Employers' Accounting for Employee Stock
Ownership Plans." The SOP requires that unallocated ESOP shares be excluded from
outstanding shares when calculating earnings per share. Earnings per share of
common stock for the year ended September 30, 1994 were calculated including
unallocated ESOP shares. Stock options are regarded as common stock equivalents
and therefore considered in the primary and fully diluted earnings per share
calculations. Common stock equivalents are computed using the treasury stock
method.
IMPACT OF NEW ACCOUNTING STANDARDS
In November 1995, FASB issued "A Guide to Implementation of SFAS No. 115 on
Accounting for Certain Investments in Debt and Equity Securities -- Questions
and Answers" ("SFAS 115 Q&A Guide"). SFAS 115 Q&A Guide includes a one-time
opportunity for entities which had previously adopted the provisions of SFAS 115
to reconsider their ability and intent to hold securities to maturity and such
entities would be allowed to transfer securities from the held-to-maturity
category to available-for-sale without calling into question the intent to hold
securities to maturity. SFAS 115 Q&A Guide required that any one-time
reclassifications must occur between November 15, 1995 and December 31, 1995. In
November 1995, the Bank reclassified $10.5 million of municipal securities and
$20.0 million of U.S. Treasury notes from held-to-maturity to
available-for-sale. Of the reclassified amounts, $15.6 million were sold during
the fiscal year, and the Bank recorded net gains of $811,000.
In May 1995, FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights." The Statement, which amends SFAS No. 65, "Accounting for Certain
Mortgage Banking Activities," requires that an entity with mortgage banking
operations recognize as separate assets rights to service mortgage loans for
others. An entity that acquires mortgage servicing rights through either the
purchase or
84
<PAGE> 89
origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans based on their relative fair
values if it is practicable to estimate fair value. SFAS No. 122 applies
prospectively in fiscal years beginning after December 15, 1995 to sales of
mortgage loans with servicing rights retained and to impairment evaluations of
all amounts capitalized as mortgage servicing rights, including those purchased
before the adoption of this Statement. SFAS No. 122, when adopted, is not
expected to have a material effect on the Company's consolidated financial
statements.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement requires certain disclosures about stock-based
employee compensation arrangements, regardless of the method used to account for
them, and defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
stock based compensation plans using the intrinsic value method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and, if presented, earnings per share, as if
the fair value method of accounting defined in this Statement had been applied.
Under the fair value method, compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period, which
is usually the vesting period. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date over the amount an employee must pay to
acquire the stock. The disclosure requirements of this Statement are effective
for financial statements for fiscal years beginning after December 15, 1995. Pro
forma disclosures required for entities that elect to continue to measure
compensation cost using APB No. 25 must include the effects of all awards
granted in fiscal years that begin after December 15, 1994. Management is in the
process of considering the alternatives presented in SFAS No. 123.
IMPACT OF NEW LEGISLATIVE ISSUES
In August 1996, Congress passed legislation which repeals the Bank's present
method of accounting for bad debts for federal income tax purposes. As discussed
in Note 12 to the consolidated financial statements, the Bank currently uses the
percentage of taxable income method to determine its bad debt deduction in the
computation of its taxable income. Under the new legislation, the Bank will be
required to use the specific charge-off method, which may result in a different
deduction for bad debts in determining taxable income than as presently computed
under its current method. Additionally, the Bank will be required to recapture
its post-1987 additions to its bad debt reserves. Because the Bank has provided
deferred taxes for the income tax bad debt reserves established after 1987,
management does not anticipate any additional income tax liability related to
the recapture. The new legislation is effective for taxable years beginning
after December 31, 1995.
On September 30, 1996, Congress passed and the President signed the Deposit
Insurance Funds Act of 1996 which mandated that all depository institutions that
are insured by the Savings Associations Insurance Fund ("SAIF") pay a one-time
special assessment of 65.7 basis points (subject to certain adjustments) on
SAIF-insured deposits that were held at March 31, 1995 by November 27, 1996 to
recapitalize the SAIF portion of the Federal Deposit Insurance Corporation
("FDIC") fund. The assessment is intended to bring the SAIF's reserve ratios to
a comparable level of the Bank Insurance Fund at 1.25% of total insured
deposits. In connection with the recapitalization, the FDIC also lowered SAIF
premiums from $0.23 per $100 to $0.064 per $100 of insured deposits in January
1997. The Bank's pre-tax share of this special assessment totals $6.6 million
and is included in the consolidated financial statements at September 30, 1996.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1995 consolidated financial statements have
been reclassified to conform to the presentation for 1996.
85
<PAGE> 90
2. SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale at September 30, 1995 and 1996 are summarized
as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Costs Gains Losses Fair Value
----------- ------------- ------------- -----------
(In thousands)
<S> <C> <C> <C> <C>
September 30, 1995:
United States Government and agency
securities................................ $ 2,000 $ -- $ -- $ 2,000
Securities Purchased Under Agreement to
Resell.................................... 30,443 -- -- 30,443
--------- --------- --------- ---------
$ 32,443 $ -- $ -- $ 32,443
========= ========= ========= =========
Weighted average interest rate............. 6.43%
=========
September 30, 1996:
United States Government and agency
securities................................ $ 27,002 $ 114 $ 11 $ 27,105
Certificates of deposit.................... 396 -- -- 396
Other investments.......................... 50 -- -- 50
--------- --------- --------- ---------
$ 27,448 $ 114 $ 11 $ 27,551
========= ========= ========= =========
Weighted average interest rate............. 6.28%
=========
</TABLE>
The Bank enters into purchases of mortgage-backed securities under
agreements to resell substantially identical securities. The Bank had no
securities purchased under agreements to resell at September 30, 1996. The
securities underlying such agreements are book-entry securities. During the
years ended September 30, 1995 and 1996, the securities were delivered into a
third-party custodian's account designated by the Bank under a written custodial
agreement that explicitly recognized the Bank's interest in the securities.
During the fiscal years ended September 30, 1995 and September 30, 1996, the
securities purchased under agreements to resell had maturities ranging from
daily to monthly and averaged approximately $8,822,000 and $15,551,000,
respectively. The maximum amounts outstanding at any month end during 1994, 1995
and 1996 were $-0-, $30,443,000 and $60,153,000, respectively.
Proceeds from the sale of securities available-for-sale were $83,741,000,
$100,965,000 and $294,117,000 during the fiscal years ended September 30, 1994,
1995 and 1996, respectively. During the fiscal years ended September 30, 1994,
1995 and 1996, sales resulted in gross realized gains of $202,000, $149,000 and
$996,000, respectively and gross losses of $147,000, $572,000 and $37,000,
respectively.
In November 1995, the Bank reclassified $10.5 million of municipal
securities and $20.0 million of U.S. Treasury notes from held-to-maturity to
available-for-sale, in accordance with the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities -- Questions
and Answers Guide," which allowed a one-time reclassification of securities
between held-to-maturity and available-for-sale.
At September 30, 1996, the Bank had pledged $2.0 million par value of
securities available-for-sale as collateral for treasury, tax and loan accounts.
86
<PAGE> 91
The table below sets forth the contractual maturity distribution of the
Bank's securities available-for-sale at September 30, 1996:
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
----------- -----------
(In thousands)
<S> <C> <C>
Due in one year or less................................................ $ 12,394 $ 12,384
Due after one year through five years.................................. 15,054 15,167
--------- ---------
$ 27,448 $ 27,551
========= =========
</TABLE>
3. SECURITIES HELD-TO-MATURITY
Securities held-to-maturity at September 30, 1995 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Costs Gains Losses Fair Value
----------- ------------- ------------- -----------
(In thousands)
<S> <C> <C> <C> <C>
September 30, 1995:
United States Government and agency
securities................................. $ 38,110 $ 169 $ 291 $ 37,988
Municipal bonds............................ 10,388 900 -- 11,288
--------- --------- --------- ---------
$ 48,498 $ 1,069 $ 291 $ 49,276
========= ========= ========= =========
Weighted average interest rate............. 5.26%
=========
September 30, 1996:
United States Government and agency
securities................................ $ 6,981 $ 61 $ -- $ 7,042
========= ========= ========= =========
Weighted average interest rate............. 6.61%
=========
</TABLE>
Sales of securities held-to-maturity and a security which was called in the
fiscal year ended September 30, 1995 were $19,952,000. These securities were
sold within three months of maturity and resulted in losses of $50,000. There
were no sales of securities held-to-maturity during the year ended September 30,
1996.
The table below sets forth the contractual maturity distribution of the
Bank's securities held-to-maturity at September 30, 1996:
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
----------- -----------
(In thousands)
<S> <C> <C>
Due in one year or less................................................ $ 2,000 $ 2,000
Due after one year through five years.................................. 4,981 5,042
--------- ---------
$ 6,981 $ 7,042
========= =========
</TABLE>
87
<PAGE> 92
4. MORTGAGE-BACKED AND RELATED SECURITIES AVAILABLE-FOR-SALE
Mortgage-backed and related securities available-for-sale at September 30,
1995 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Costs Gains Losses Fair Value
----------- ------------- ------------- -----------
(In thousands)
<S> <C> <C> <C> <C>
September 30, 1995:
GNMA pass-through certificates............. $ 116 $ 17 $ -- $ 133
Collateralized mortgage obligations........ 87,039 -- 5,712 81,327
--------- --------- --------- ---------
Total........................................ $ 87,155 $ 17 $ 5,712 $ 81,460
========= ========= ========= =========
September 30, 1996:
FHLMC pass-through certificates............ $ 14,090 $ 38 $ -- $ 14,128
FNMA pass-through certificates............. 9,944 37 -- 9,981
Collateralized mortgage obligations........ 85,310 1 3,554 81,757
--------- --------- --------- ---------
Total........................................ $ 109,344 $ 76 $ 3,554 $ 105,866
========= ========= ========= =========
</TABLE>
Proceeds from the sales of mortgage-backed and related securities
available-for-sale were $64,359,000, $94,391,000 and $18,040,000 during the
fiscal years ended September 30, 1994, 1995 and 1996, respectively. During the
fiscal years ended September 30, 1994, 1995 and 1996, sales resulted in gross
realized gains of $416,000, $3,000 and $81,000, respectively and gross losses of
$7,000, $1,363,000 and $18,000, respectively.
Mortgage-backed and related securities represent participating interests in
pools of long-term first mortgage loans. Although mortgage-backed and related
securities are initially issued with a stated maturity date, the underlying
mortgage collateral may be prepaid by the mortgagee and, therefore, such
securities may not reach their maturity date.
The Bank also invests in mortgage-related securities such as collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs and REMICs are generally divided into tranches whereby
principal repayments from the underlying mortgages are used in a predetermined
order to retire the securities according to the priority of the tranches. The
Bank invests in the following collateralized mortgage obligation tranches: first
or second sequential; planned amortization class ("PAC"); targeted amortization
class ("TAC"); and support or companion floating rate tranches. Such tranches
have stated maturities ranging from 6 to 30 years, but because of prepayments,
the expected weighted average life of these securities is approximately 4.4
years. At September 30, 1996, the Bank had $131.4 million in CMOs/REMICs. Of
this amount, $49.6 million represents CMOs/REMICs classified as held-to-maturity
with an approximate fair value of $49.2 million, and $81.8 million represents
CMOs/REMICs classified as available-for-sale and reported at fair value. Market
quotes are affected by key assumptions made when estimating fair value,
including prepayment speeds, spreads to treasury securities and interest rate
caps. Changes in key market assumptions may result in material fluctuations in
the fair value of the CMO/REMICs and in the unrealized gain or loss on such
securities. The majority of the CMOs/REMICs owned by the Bank are insured or
guaranteed, either directly or indirectly, through mortgage-backed securities
underlying the obligations by either the FNMA, FHLMC or GNMA. Depending on the
amount of the Bank's mortgage-backed securities available-for-sale, fluctuations
in the interest rate environment and other factors, stockholders' equity may be
materially affected by categorizing these securities as available-for-sale. The
Bank's CMOs/REMICs include $54.8 million of floating rate securities with
interest caps
88
<PAGE> 93
ranging from 9% to 11.6%. The Bank's CMOs/REMICs may be subject to volatile
price movements which usually result from prepayment on the underlying
obligations. The Bank's CMOs/REMICs have coupon rates ranging from 5.0% to 7.5%
and had a weighted average yield of 6.10% at September 30, 1996. The Bank
purchases only CMOs/REMICs rated AA or better by nationally recognized rating
services. Management estimates that the $76.6 million of fixed rate tranches
have an expected average life of approximately 3.7 years.
5. MORTGAGE-BACKED AND RELATED SECURITIES HELD-TO-MATURITY
Mortgage-backed and related securities held-to-maturity at September 30,
1995 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Costs Gains Losses Fair Value
----------- ------------- ------------- -----------
(In thousands)
<S> <C> <C> <C> <C>
September 30, 1995:
GNMA pass-through certificates............. $ 31,667 $ 744 $ 108 $ 32,303
FHLMC pass-through certificates............ 11,793 317 -- 12,110
FNMA pass-through securities............... 49,602 545 9 50,138
Collateralized mortgage obligations........ 63,920 440 1,482 62,878
--------- --------- --------- ---------
Total........................................ $ 156,982 $ 2,046 $ 1,599 $ 157,429
========= ========= ========= =========
September 30, 1996:
GNMA pass-through certificates............. $ 28,269 $ 679 $ -- $ 28,948
FHLMC pass-through certificates............ 9,267 242 -- 9,509
FNMA pass-through certificates............. 39,292 586 66 39,812
Collateralized mortgage obligations........ 49,579 274 627 49,226
--------- --------- --------- ---------
Total........................................ $ 126,407 $ 1,781 $ 693 $ 127,495
========= ========= ========= =========
</TABLE>
Although mortgage-backed and related securities held-to-maturity are
initially issued with a stated maturity date, the underlying mortgage collateral
may be prepaid by the mortgagee and, therefore, such securities may not reach
their maturity date. There were no sales of mortgage-backed and related
securities held-to-maturity during the years ended September 30, 1994, 1995 and
1996.
At September 30, 1996, the Bank had pledged $29.1 million par value of
mortgage-backed and related securities held-to-maturity as collateral for
municipal funds on deposit and securities sold under agreements to repurchase.
89
<PAGE> 94
6. LOANS RECEIVABLE
Loans receivable at September 30, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
For the Years Ended
September 30,
--------------------
1995 1996
--------- ---------
(In thousands)
<S> <C> <C>
Real estate mortgage loans:
One-to four-family................................................ $ 587,598 $ 652,606
Commercial real estate............................................ 35,610 51,754
Multi-family...................................................... 11,837 17,564
Land.............................................................. 17,261 24,489
Real estate construction loans...................................... 101,538 130,499
Consumer loans...................................................... 110,384 191,654
Other loans......................................................... 2,155 2,434
--------- ----------
Total gross loans............................................... 866,383 1,071,000
Less:
Undisbursed portion of loans in process........................... 43,967 61,633
Unearned discounts, premiums and deferred loan fees and costs, net (4,765) (10,369)
Allowance for loan losses......................................... 2,157 11,855
--------- ----------
Loans receivable -- net............................................. $ 825,024 $1,007,881
========= ==========
</TABLE>
An analysis of the changes in the allowance for loan losses for the years
ended September 30, 1994, 1995, and 1996 is as follows:
<TABLE>
<CAPTION>
For the Years Ended September
30,
-------------------------------
1994 1995 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period..................................... $ 1,886 $ 1,956 $ 2,157
Increase in allowance due to acquisition of PBS.................... -- -- 2,253
Current provision.................................................. 135 261 15,704
Charge-offs........................................................ (69) (92) (8,630)
Recoveries......................................................... 4 32 371
--------- --------- ---------
Ending balance..................................................... $ 1,956 $ 2,157 $ 11,855
========= ========= =========
</TABLE>
During the latter part of fiscal 1995 and continuing in fiscal 1996, the
Bank became more active in the indirect automobile lending market, and increases
in the provision for loan losses during 1996 primarily reflect the losses
associated with that type of consumer lending. Indirect automobile loans
included in consumer loans totaled $76,354,000 and $148,186,000 at September 30,
1995 and September 30, 1996, respectively. As a result of higher than
anticipated charge-off experience with the indirect automobile lending
portfolio, primarily during the latter part of the fiscal year ended September
30, 1996, additional provisions for loan losses were recorded during the year
ended September 30, 1996. The portion of the allowance for loan losses relating
to consumer loans, including indirect automobile loans, was $603,000 and
$9,463,000 at September 30, 1995 and 1996, respectively.
In connection with the origination of indirect loans, the Bank paid a fee to
automobile dealers. At September 30, 1995 and 1996 the unamortized balances of
such fees were $3,085,000 and $7,351,000, respectively, and are included as
deferred loan costs within loans receivable.
90
<PAGE> 95
The Bank originates both adjustable and fixed rate loans. There were no
loans held for sale at September 30, 1995 or September 30, 1996.
The composition and maturity or repricing structure of the loan portfolio at
September 30, 1996 is presented below:
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate
- -------------------------------------------- --------------------------------------------
Term to Maturity Book Value Term to Maturity or Repricing Book Value
- ---------------- ------------- ----------------------------- -------------
(In (In
thousands) thousands)
<C> <C> <C> <C>
1 month - 1 year............. $ 69,664 1 month - 1 year............. $ 131,947
1 year - 3 years............. 38,556 1 year - 3 years............. 104,804
3 years - 5 years............ 129,456 3 years - 5 years............ 167,671
5 years - 10 years........... 51,913 5 years - 10 years........... 87,183
10 years - 20 years.......... 87,445 10 years - 20 years.......... --
Over 20 years................ 139,125 Over 20 years................ 117
--------- ---------
Total........................ $ 516,159 $ 491,722
========= =========
</TABLE>
The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the 1, 3, and 5-year U.S. Treasury Note rates for a period
approximating the loan term. Future market factors may affect the correlation of
the interest rate adjustment with the rates the Bank pays on the short-term
deposits that have been primarily used to fund these loans.
The Bank's lending markets are primarily concentrated in the communities
surrounding its full service offices in Palm Beach, Martin, St. Lucie and
Broward Counties in Southeast Florida.
The Bank held commercial real estate, multi-family and land loans, totaling
approximately $64,708,000 and $93,807,000 at September 30, 1995 and 1996,
respectively. These loans are considered by management to be of somewhat greater
risk of uncollectability because profitability and collectability of these loans
depend to some extent on income production or future development of the real
estate. The composition of commercial real estate loans, multi-family and land
loans at September 30, 1995 and 1996, are approximately as follows:
<TABLE>
<CAPTION>
September 30,
--------------------
1995 1996
--------- ---------
(In thousands)
<S> <C> <C>
Office buildings.......................................................... $ 10,928 $ 15,584
Retail buildings.......................................................... 10,482 11,990
Warehouses................................................................ 4,507 5,392
Adult care living facilities.............................................. 2,543 3,832
Multi-family residential.................................................. 11,837 17,564
Hotels and motels......................................................... 309 224
Undeveloped land.......................................................... 17,261 24,489
Other..................................................................... 6,841 14,732
--------- ---------
$ 64,708 $ 93,807
========= =========
</TABLE>
As of October 1, 1995, impaired commercial real estate, multi-family and
land loans held by the Bank have been recognized in conformity with SFAS No.
114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures". A loan is impaired when, based on current information and events,
it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement.
When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received.
91
<PAGE> 96
Had the Bank elected earlier adoption of the provisions of SFAS No. 114 as
amended by SFAS No. 118, there would have been no impaired loans as of September
30, 1995.
At September 30, 1996, the Bank's impaired loans consisted of the following:
<TABLE>
<CAPTION>
September 30, 1996
------------------------
Loan Related
Balances Allowance
----------- -----------
(In thousands)
<S> <C> <C>
Impaired loan balances and related allowance for loan losses.......... $ 7,649 $ 1,125
</TABLE>
Under the Financial Institution Reform, Recovery and Enforcement Act of 1989
("FIRREA"), a federally chartered savings and loan association's aggregate
commercial real estate loans may not exceed 400% of its capital as determined
under the capital standards provisions of FIRREA. The Bank is federally
chartered and subject to this limitation. FIRREA does not require divestiture of
any loan that was lawful when it was originated.
Under FIRREA, the Bank may not make real estate loans to one borrower in
excess of 15% of its unimpaired capital and surplus. This 15% limitation results
in a dollar limitation of approximately $14.3 million at September 30, 1996. The
Bank has no loans to one borrower in excess of this limitation.
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
these loans at September 30, 1995 and 1996 were $137,889,000 and $169,245,000,
respectively. The balance of $169,245,000 at September 30, 1996 includes
$99,843,000 of loans subserviced on a short-term basis in connection with a sale
of loans and servicing. Custodial escrow balances maintained in connection with
the foregoing loan servicing were $3,939,000 and $4,368,000 at September 30,
1995 and 1996, respectively.
The Bank offers loans to its employees at preferential interest rates on
adjustable mortgage loans, consumer loans, and personal lines of credit for
full-time employees and salaried officers, who have been employed by the Bank
for a period of at least one year. This preferential loan policy does not apply
to Directors, the President, Executive Vice President, Senior Vice Presidents
and Vice Presidents. Loans to employees are made in the ordinary course of
business and on substantially the same terms and collateral, except for interest
rates and fees, as those of comparable transactions prevailing at the time. The
loans do not involve more than the normal risk of collectability or present
other unfavorable features to the Bank. The Bank's present policy is to make
loans at 1% below the current rate (note rate) offered to the general public for
the applicable loans, but not less than 2% over the Bank's current cost of
funds. Direct out-of-pocket costs are charged to employees on such loans.
The total of loans to directors, officers and associates of such persons was
approximately $1,167,000 at September 30, 1996.
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<PAGE> 97
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at September 30, 1995 and 1996 consisted of
the following:
<TABLE>
<CAPTION>
September 30,
--------------------
1995 1996
--------- ---------
(In thousands)
<S> <C> <C>
Land...................................................................... $ 7,706 $ 7,448
Buildings and improvements................................................ 12,055 14,568
Furniture and equipment................................................... 10,997 14,139
--------- ---------
Total..................................................................... 30,758 36,155
Less accumulated depreciation............................................. 12,995 13,078
--------- ---------
Office properties and equipment -- net.................................... $ 17,763 $ 23,077
========= =========
</TABLE>
8. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at September 30, 1995 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
September 30,
--------------------
1995 1996
--------- ---------
(In thousands)
<S> <C> <C>
Loans....................................................................... $ 4,638 $ 6,415
Investments................................................................. 852 442
Mortgage-backed and related securities...................................... 1,288 1,290
--------- ---------
Accrued interest receivable................................................. $ 6,778 $ 8,147
========= =========
</TABLE>
93
<PAGE> 98
9. DEPOSIT ACCOUNTS
Deposit accounts, by type and range of rates, at September 30, 1995 and 1996
consisted of the following:
<TABLE>
<CAPTION>
September 30,
--------------------
1995 1996
--------- ---------
(In thousands)
<S> <C> <C>
Passbook and statement accounts -- 1995 and 1996, 2.56% and 3.62%,
respectively......................................................... $ 89,967 $ 150,433
--------- ----------
Interest-bearing NOW accounts 1995 and 1996, 1.41% and 1.41%,
respectively......................................................... 57,464 59,716
--------- ----------
Non-interest bearing NOW accounts..................................... 31,912 39,649
--------- ----------
Variable Rate Money Market Accounts 1995 and 1996, 2.41% and 2.40%,
respectively......................................................... 50,853 39,667
--------- ----------
Certificates:
Less than 3.00%..................................................... 326 833
3.00% - 3.99%....................................................... 5,184 303
4.00% - 4.99%....................................................... 98,532 86,471
5.00% - 5.99%....................................................... 266,157 595,436
6.00% - 6.99%....................................................... 224,788 131,927
7.00% - 7.99%....................................................... 49,477 32,151
8.00% or greater.................................................... 4,010 136
--------- ----------
Total certificate accounts........................................ 648,474 847,257
--------- ----------
Total................................................................. $ 878,670 $1,136,722
========= ==========
</TABLE>
The weighted-average cost of deposits at September 30, 1995 and 1996 was
4.77% and 4.87%, respectively.
Individual deposits greater than $100,000 at September 30, 1995 and 1996
aggregated approximately $102,079,000 and $118,618,000, respectively.
Interest expense on deposits consisted of the following during the years
ended September 30, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
For the Years Ended
September 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Passbook and statement accounts.................................. $ 1,819 $ 1,902 $ 4,088
NOW accounts..................................................... 954 877 856
Money market accounts............................................ 1,802 1,432 1,094
Certificate accounts............................................. 18,555 33,636 42,576
--------- --------- ---------
Total............................................................ $ 23,130 $ 37,847 $ 48,614
========= ========= =========
</TABLE>
Interest on deposit accounts is net of interest forfeited by depositors on
early withdrawal of certificate accounts of approximately $101,000, $197,000 and
$165,000 for the years ended September 30, 1994, 1995 and 1996, respectively.
94
<PAGE> 99
Scheduled maturities of certificate accounts are as follows:
<TABLE>
<CAPTION>
September 30, 1996
---------------------
Amount Percent
--------- ----------
(In thousands)
<S> <C> <C>
MATURITY
Less than 1 year........................................................ $ 593,348 70.03%
1 year - 2 years........................................................ 170,570 20.13%
2 years - 3 years....................................................... 28,135 3.32%
3 years - 4 years....................................................... 30,899 3.65%
4 years - 5 years....................................................... 24,305 2.87%
--------- ------
Total................................................................... $ 847,257 100.00%
</TABLE>
Under FIRREA, any insured depository institution that does not meet its
applicable minimum capital requirements may not accept brokered deposits. This
prohibition includes renewals and rollovers of existing brokered deposits and
deposit solicitations at higher than prevailing interest rates paid by
institutions in the Bank's normal market area. Even though the Bank meets all of
the applicable minimum capital requirements at September 30, 1996, the Bank had
no brokered deposits.
10. ADVANCES FROM FEDERAL HOME LOAN BANK
The Bank had outstanding advances from the FHLB of $171,125,000 bearing an
interest rate of approximately 6.28% at September 30, 1995 and $201,025,000
bearing an interest rate of 5.88% at September 30, 1996. The advances at
September 30, 1996 are repayable as follows:
<TABLE>
<CAPTION>
Year Ending September 30 Amount
- ------------------------ -----------
<C> <C>
1997.......................................................................... $ 75,000,000
1998.......................................................................... 50,000,000
1999.......................................................................... 75,000,000
2000.......................................................................... 1,025,000
------------
Total......................................................................... $201,025,000
============
</TABLE>
The terms of a security agreement with the FHLB include a blanket floating
lien that requires the Bank to maintain qualifying first mortgage loans as
pledged collateral in an amount equal to, when discounted at 65% of the unpaid
principal balances, the advances.
As of September 30, 1996, the Bank had total credit available with the FHLB
of $350 million. With $201,025,000 currently advanced, remaining credit
available equals $148,975,000.
11. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
During the fiscal years ended September 30, 1995 and 1996, all of the Bank's
transactions were fixed-coupon securities sold under agreements to repurchase
("Reverse Repurchase Agreements"). Reverse Repurchase Agreements were delivered
to the broker-dealer who arranged the transactions. The agreements at September
30, 1996 matured in October 1997.
95
<PAGE> 100
Information concerning reverse repurchase agreements is summarized as
follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Average balance during the year.................................... $40,321,000 $11,935,000
Average interest rate during the year.............................. 5.84% 5.97%
Maximum month-end balance during the year.......................... $76,947,000 $28,408,000
Balance at year-end................................................ $18,427,000 $10,000,000
Securities underlying the agreements at year-end:
Carrying value..................................................... $18,995,000 $12,193,840
Estimated fair value............................................... $18,862,000 $12,233,176
</TABLE>
12. INCOME TAXES
The Association is permitted under the Internal Revenue Code (the "Code") to
deduct an annual addition to a reserve for bad debts in determining taxable
income, subject to certain limitations. The Bank's deduction for the years ended
September 30, 1994 and 1995 was based upon the percentage of income method, as
defined by the Code. During the year ended September 30, 1996 the Bank used the
experience method, as defined by the Code to compute their bad debt deduction.
The bad debt deduction allowable under the percentage of taxable income method
equals 8% of taxable income determined without regard to that deduction and with
certain adjustments. This addition differs from the provision for loan losses
used for financial reporting purposes. Pursuant to the Bank's adoption of SFAS
No. 109, no deferred taxes have been provided on the income tax reserves for
years prior to 1988 of $21,912,000. This tax reserve for bad debts is included
in taxable income of later years only if the bad debt reserve is used
subsequently for purposes other than to absorb bad debts losses. Because the
Bank does not intend to use the reserve for purposes other than to absorb
losses, no deferred income taxes have been provided. SFAS No. 109 requires the
recognition of deferred tax consequences of differences between financial
statement and income tax treatment of allowances for loan losses arising after
December 31, 1987.
The components of the provision for income taxes for the years ended
September 30, 1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1994 1995 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Current -- Federal............................................... $ 2,859 $ 3,174 $ 4,525
Current -- State................................................. 496 498 763
--------- --------- ---------
Total current.................................................... 3,355 3,672 5,288
Deferred -- Federal.............................................. 126 (80) (4,134)
Deferred -- State................................................ 21 (14) (708)
--------- --------- ---------
Total deferred................................................... 147 (94) (4,842)
--------- --------- ---------
Total provision.................................................. $ 3,502 $ 3,578 $ 446
========= ========= =========
</TABLE>
96
<PAGE> 101
The provision for income taxes differs from the amounts determined by
applying the federal income tax rate to income before income taxes for the
following reasons:
<TABLE>
<CAPTION>
For the Years Ended September 30,
-------------------------------------------------------------------------
1994 1995 1996
----------------------- ----------------------- -----------------------
Amount % Amount % Amount %
----------- ---------- ----------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at federal tax rate................. $ 3,255 35.0% $ 3,229 35.0% $ 348 35.0%
Benefit of graduated rates............ (93) (1.0) (92) (1.0) (10) (1.0)
Increase resulting from:
State income taxes, net of federal
income tax benefit................... 336 3.6 310 3.4 37 3.7
Other -- net.......................... 4 0.1 131 1.4 71 7.1
--------- ---- --------- ---- --------- ----
Total provision and effective tax
rate................................... $ 3,502 37.7% $ 3,578 38.8% $ 446 44.8%
========= ==== ========= ==== ========= ====
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at September 30, 1995 and 1996 are presented
below:
<TABLE>
<CAPTION>
September 30,
--------------------
1995 1996
--------- ---------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Depreciation............................................................ $ 227 $ 629
Loan fee income......................................................... 1,379 1,218
FHLB stock dividends.................................................... 674 625
Investment in partnership............................................... 550 570
Other................................................................... 1 --
--------- ---------
Gross deferred tax liabilities............................................ 2,831 3,042
--------- ---------
Deferred tax assets --
Excess of book bad debt reserve over tax reserve........................ 166 3,337
Retirement plan......................................................... 837 588
Accrued compensation.................................................... -- 72
AMT credit.............................................................. -- 117
Mark-to-market adjustment -- Securities available-for-sale.............. 2,181 970
Deferred compensation................................................... -- 20
Loss on sale deferred for tax purposes.................................. 19 --
Other................................................................... 9 158
SAIF assessment......................................................... -- 2,471
NOL carryforward........................................................ -- 874
--------- ---------
Gross deferred assets..................................................... 3,212 8,607
Less valuation allowance for deferred tax assets.......................... -- --
--------- ---------
Gross deferred tax assets net of valuation allowance...................... 3,212 8,607
--------- ---------
Net deferred tax (asset).................................................. $ (381) $ (5,565)
========= =========
</TABLE>
97
<PAGE> 102
13. BENEFIT PLANS
PENSION PLAN
Substantially all employees participate in the Bank's funded qualified
defined benefit pension plan. The plan calls for benefits to be paid to eligible
employees at retirement based primarily upon years of service with the Bank and
compensation rates during those years. Currently, the Bank's policy is to fund
the qualified retirement plan in an amount that falls between the minimum
contribution required by the Employee Retirement Income Security Act of 1974, as
amended, and the maximum tax deductible contribution. Plan assets consist
primarily of common stock, mutual funds and U.S. Government obligations.
The plan also has one wholly-owned subsidiary. Employees First Insurance
Agency, Inc. is an active subsidiary which receives fees from the endorsement of
mortgage insurance related products. Assets of Employees First Insurance Agency,
Inc. were $50,000 as of September 30, 1996 and are reflected in the pension plan
assets at book value.
At September 30, 1996, the pension plan held 16,681 shares of the common
stock of the Company with a market value of $23.25 per share. Cash dividends of
$0.40 per share were received on the shares during fiscal year ended September
30, 1996.
Pension expense for the plan amounted to $341,000 in 1994, $421,000 in 1995
and $360,000 in 1996 and included the following components:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Service cost......................................................... $ 501 $ 551 $ 424
Interest cost........................................................ 849 908 669
Return on assets..................................................... (201) (1,238) (665)
Net amortization and deferral........................................ (808) 200 (68)
--------- --------- ---------
Pension expense...................................................... $ 341 $ 421 $ 360
========= ========= =========
</TABLE>
Fiscal year end 1994, 1995 and 1996 pension expense amounts were based upon
actuarial computations. The early retirement program expense in fiscal year 1995
included approximately $1.9 million of pension related expense.
The following sets forth the funded status of the qualified plan at
September 30, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits......................................................... $ 5,509 $ 5,674
Nonvested benefits...................................................... 634 427
--------- ---------
Accumulated benefit obligation............................................ 6,143 6,101
Effect of anticipated future compensation levels and other events......... 2,780 2,838
--------- ---------
Projected benefit obligation.............................................. 8,923 8,939
Fair value of assets held in the plans (estimated)........................ 7,276 8,388
--------- ---------
Deficiency of plan assets under projected benefit obligation.............. $ (1,647) $ (551)
========= =========
</TABLE>
98
<PAGE> 103
The deficiency consisted of the following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Unamortized transition asset.............................................. $ 337 $ 289
Unrecognized net (loss) gain.............................................. (160) 382
Accrued pension liability................................................. (1,824) (1,222)
--------- ---------
Total..................................................................... $ (1,647) $ (551)
========= =========
</TABLE>
At September 30, 1995 and 1996, the weighted average discount rate used to
measure the projected benefit obligation was 8%. The rate of increase in future
compensation levels is estimated at 7% and the expected long-term rate of return
on assets is estimated at 9%.
EMPLOYEE STOCK OWNERSHIP PLAN
The Bank established an Employee Stock Ownership Plan ("ESOP") for eligible
employees in connection with the Conversion. The ESOP borrowed $4.2 million from
the Company and purchased 423,200 common shares issued in the Conversion. The
Bank has made and is expected to make scheduled discretionary cash contributions
to the ESOP sufficient to service the amount borrowed. In accordance with
generally accepted accounting principles, the unallocated common stock held by
the ESOP are shown as a reduction of stockholders' equity. During fiscal years
ended September 30, 1994, 1995 and 1996, ESOP expense was $1,058,000, $1,128,000
and $1,337,000, respectively, which is included in employee compensation and
benefits.
RECOGNITION AND RETENTION PLANS
The Bank has established two Recognition and Retention Plans ("RRPs") which
purchased in the aggregate 211,600 shares of common stock in the Conversion. The
Bank contributed $2.1 million to fund the purchase of the RRP shares. Awards
vest in three equal annual installments commencing on the first anniversary date
of the effective date of the awards. The aggregate purchase price of these
shares is amortized as compensation expense as participants become vested. The
unamortized cost, which is comparable to deferred compensation, is reflected as
a reduction of stockholders' equity. During fiscal years ended September 30,
1994, 1995 and 1996, RRP expense totaled $1,005,000, $490,000 and $460,000,
respectively, which is included in employee compensation and benefits.
14. STOCK OPTION PLANS
STOCK OPTION PLANS
The Company has adopted stock option plans for the benefit of directors,
officers, and other key employees of the Bank. The number of shares of common
stock reserved for issuance under the stock option plans was equal to 529,000
shares or 10% of the total number of common shares issued pursuant to the
Conversion. The option exercise price cannot be less than the fair value of the
underlying common stock as of the date of the option grant, and the maximum
option term cannot exceed ten years. The stock options awarded to directors may
be exercised at any time after grant provided the grantee remains a director of
the Company. At September 29, 1993, there were 132,500 options granted to
directors with 53,000 options reserved for future use. The stock options granted
to officers and employees are exercisable in three equal installments. The first
installment became exercisable on September 29, 1994. At September 29, 1993,
there were 322,700 options granted to
99
<PAGE> 104
officers and employees with 20,800 options reserved for future use. During the
year ended September 30, 1996, 26,500 and 20,000 additional options have been
granted to directors and officers, respectively. Below is a summary of
transactions:
<TABLE>
<CAPTION>
Option Price
-----------------------
Number Average
of Options Price Aggregate
Outstanding Per Share Price
----------- ----------- ----------
<S> <C> <C> <C>
Balance -- September 30, 1993......................... 455,200 $ 10.00 $4,552,000
Granted............................................. -- -- --
Exercised........................................... (110,013) $ 10.00 (1,100,130)
Canceled............................................ (500) $ 10.00 (5,000)
---------- ----------
Balance -- September 30, 1994......................... 344,687 $ 10.00 3,446,870
Granted............................................. -- -- --
Exercised........................................... (100,054) $ 10.00 (1,000,540)
Canceled............................................ (668) $ 10.00 (6,680)
---------- ----------
Balance -- September 30, 1995......................... 243,965 $ 10.00 2,439,650
Granted............................................. 46,500 $ 21.73 1,010,445
Exercised........................................... (6,408) $ 10.00 (64,080)
Canceled............................................ -- -- --
---------- ----------
Balance -- September 30, 1996......................... 284,057 $3,386,015
=== ===== ========== ==========
Options exercisable at year end under
stock option plans................................... 237,557
==========
Weighted average option price per share of
outstanding options.................................. $ 11.92
==========
</TABLE>
15. EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
EMPLOYMENT AGREEMENTS
The Bank and the Company have outstanding employment agreements with two key
officers. The employment agreements provide for three-year terms. Commencing on
the first anniversary date and continuing with each anniversary date thereafter,
the respective Boards of Directors may extend the agreements for an additional
year so that the remaining terms shall be three years, unless written notice of
non-renewal is given by the Boards of Directors after conducting a performance
evaluation of the executive. The agreements provide that the base salary of each
executive will be reviewed annually. In addition to the base salary, the
agreements provide for, among other things, disability pay, participating in
stock benefit plans and other fringe benefits applicable to executive personnel.
The agreements provide for termination by the Bank or the Company for cause at
any time. In the event the Bank or the Company choose to terminate the
executive's employment for reasons other than for cause, or in the event of the
executive's resignation from the Bank and the Company upon (i) failure to
re-elect the executive to his current offices or board membership, (ii) a
material change in the executive's functions, duties or responsibilities, or
relocation of his principal place of employment, (iii) a relocation of the
executive's principal place of employment by more than 30 miles, (iv)
liquidation or dissolution of the Bank or the Company, or (v) breach of the
agreement by the Bank or the Company, the executive, or in the event of death,
his beneficiary, would be entitled to severance pay in an amount equal to the
remaining salary payments under the agreement, including base salary, bonuses
and other cash compensation. In the event of termination, the Bank and the
Company would also continue the executive's life, health and disability coverage
for the remaining unexpired term of the agreement.
100
<PAGE> 105
CHANGE OF CONTROL AGREEMENTS
Upon the Conversion, the Bank and the Company entered into Change of Control
Agreements ("COC") with certain key officers. Each COC provides for a three-year
term. Commencing on the first anniversary date and continuing on each
anniversary thereafter, the COCs may be renewed by the Boards of Directors for a
year so that the remaining term shall be three years. Each COC provides that at
any time following a change in control of the Company or the Bank, if the
Company or the Bank terminates the officer's employment for any reason other
than cause, or if the officer terminates his employment following his demotion,
loss of title, office or significant authority, a reduction in his compensation,
or relocation of his principal place of employment by more than 30 miles, the
officer or, in the event of death, his beneficiary, would be entitled to receive
a severance payment equal to three times the officer's then current annual
salary.
16. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank makes commitments to extend
credit. Commitments to extend credit are agreements to lend to a customer
provided 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
creditworthiness 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 of the customer. Collateral may include single-family homes,
marketable securities, and income-producing residential and commercial
properties. Credit losses may occur if one of the parties fails to perform in
accordance with the terms of the contract. The Bank's exposure to credit risk is
represented by the contractual amount of the commitments to extend credit. The
Bank had commitments to originate loans approximating $39,228,000 at September
30, 1995 and $40,608,000 at September 30, 1996. The Bank had commitments to
purchase loans of $1,250,000 and $-0- at September 30, 1995 and September 30,
1996, respectively. The Bank had letters of credit approximating $3,917,000 and
$3,393,000 outstanding at September 30, 1995 and 1996, respectively.
Commitments to purchase securities are contracts for delayed delivery of
securities in which the seller agrees to make delivery at a specified future
date of a specified instrument at a specified price of yield. Risks arise from
the possible inability of counter-parties to meet the terms of their contracts
and from movements in securities values and interest rates. The Bank had no
commitments to purchase investment securities or mortgage pool and related
securities at September 30, 1995. The Bank had commitments to purchase
$20,000,000 in mortgage pool securities at September 30, 1996.
The Bank had commitments to sell mortgage pool securities of $-0- and
$20,000,000 at September 30, 1995 and September 30, 1996, respectively.
101
<PAGE> 106
The Bank leases various properties for original periods ranging from one to
ten years. Rent expense for the fiscal years ended September 30, 1994, 1995 and
1996 was $568,000, $789,000 and $1,154,000, respectively. At September 30, 1996,
future minimum lease payments under these operating leases are as follows:
<TABLE>
<CAPTION>
Years Ended
September 30,
Amounts
---------------
(In thousands)
<C> <C>
1997......................................................................... $ 1,188
1998......................................................................... 876
1999......................................................................... 511
2000......................................................................... 316
2001......................................................................... 118
Thereafter................................................................... 216
---------
Total........................................................................ $ 3,225
=========
</TABLE>
17. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the Office of Thrift Supervision. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
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
classifications are also subject to qualitative judgments by regulators about
components, risk weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of tangible capital of
not less than 1.5% of adjusted total assets, total capital to risk-weighted
assets of not less than 8.0% and core capital equal to 3.0% of adjusted total
assets. As of September 30, 1996, the Bank exceeded all capital adequacy
requirements to which it is subject.
As of September 30, 1996 the most recent notification from the Office of
Thrift Supervision categorized the Bank as Well Capitalized under the framework
for Prompt Corrective Action. To be considered Well Capitalized under Prompt
Corrective Action Provisions, the Bank must maintain risk based, and core
capital ratios as set forth in the following table. There are no conditions or
events since that notification that management believes have changed the Bank's
categorization.
102
<PAGE> 107
The following tables present the capital of the Bank at September 30, 1995
and 1996:
<TABLE>
<CAPTION>
Regulatory
------------------------------------
Tangible Core Risk-Based
Capital Capital Capital
---------- ---------- ------------
(In thousands)
<S> <C> <C> <C>
As of September 30, 1995:
Capital of the Association................................ $ 89,234 $ 89,234 $ 89,234
Unrealized losses on certain available-for-sale
securities............................................... 3,356 3,356 3,356
General valuation allowances.............................. -- -- 2,156
Assets required to be deducted............................ -- -- (31)
---------- --------- -----------
Computed regulatory capital............................... 92,590 92,590 94,715
Minimum capital requirements.............................. 18,132 36,264 50,610
---------- --------- -----------
Excess of regulatory capital over minimum capital
requirements............................................. $ 74,458 $ 56,326 $ 44,105
========= ========= =========
Actual regulatory capital ratios.......................... 7.66% 7.66% 14.97%
========= ========= =========
Required regulatory capital ratios........................ 1.50% 3.00% 8.00%
========= ========= =========
Required capital ratios to be considered as well
capitalized.............................................. -- 5.00% 10.00%
========= ========= =========
Required capital to be considered as well capitalized..... -- $ 60,440 $ 63,263
========= ========= =========
</TABLE>
As of September 30, 1995 the Bank's adjusted total assets and risk-weighted
assets were $1,208,793,000 and $632,628,000, respectively.
<TABLE>
<CAPTION>
Regulatory
------------------------------------
Tangible Core Risk-Based
Capital Capital Capital
---------- ---------- ------------
(In thousands)
<S> <C> <C> <C>
As of September 30, 1996:
Capital of the Bank....................................... $ 93,074 $ 93,074 $ 93,074
Unrealized losses on certain available-for-sale
securities............................................... 1,995 1,995 1,995
Goodwill.................................................. (2,825) (2,825) (2,825)
General valuation allowances.............................. -- -- 11,455
Assets required to be deducted............................ -- -- (31)
--------- --------- -----------
Computed regulatory capital............................... 92,244 92,244 103,668
--------- --------- -----------
Minimum capital requirements.............................. 22,413 44,826 67,518
--------- --------- -----------
Excess of regulatory capital over minimum capital
requirements............................................. $ 69,831 $ 47,418 $ 36,150
========= ========= =========
Actual regulatory capital ratios.......................... 6.17% 6.17% 12.28%
========= ========= =========
Required regulatory capital ratios........................ 1.50% 3.00% 8.00%
========= ========= =========
Required capital ratios to be considered as well
capitalized.............................................. -- 5.00% 10.00%
========= ========= =========
Required capital to be considered as well capitalized..... -- $ 74,710 $ 84,398
========= ========= =========
</TABLE>
As of September 30, 1996 the Bank's adjusted total assets and risk-weighted
assets were $1,494,207,080 and $843,976,000, respectively.
103
<PAGE> 108
18. STOCKHOLDERS' EQUITY
As part of the Conversion, the Bank established a "Liquidation Account" in
an amount equal to the retained income of the Bank as of June 30, 1993. The
Liquidation Account was established to provide a limited priority claim to the
assets of the Bank to qualifying depositors ("Eligible Account Holders") who
continue to maintain deposits in the Bank after Conversion. In the unlikely
event of a complete liquidation of the Bank, and only in such event, each
Eligible Account Holder would receive from the Liquidation Account a liquidation
distribution based on the person's proportionate share of the then total
remaining qualifying deposits.
Current regulations allow the Bank to pay dividends on its stock after the
Conversion if its regulatory capital would not thereby be reduced below the
amount then required for the Liquidation Account. Capital distribution
regulations limit the Bank's ability to make capital distributions which include
dividends, stock redemptions and repurchases, cash-out mergers, interest
payments on certain convertible debt and other transactions charged to the
capital account based on their capital level and supervisory condition. Unlike
the Bank, the Company is not subject to these regulatory restrictions on the
payment of dividends to its stockholders. However, the source of future
dividends is likely to depend upon dividends from the Bank. Federal regulations
also preclude any repurchase of the stock by the Bank or its holding company for
three years after Conversion except for purchases of qualifying shares of a
director and repurchases pursuant to an offer made on a pro rata basis to all
stockholders and with prior approval of the Office of Thrift Supervision or
pursuant to an open-market stock repurchase program that complies with certain
regulatory criteria. During fiscal 1994, the Company completed a stock
repurchase which was approved by the Office of Thrift Supervision totaling
274,819 shares of common stock. During fiscal 1995, the Company purchased
225,600 shares of an OTS approved repurchase of 261,453 shares to be completed
by September 30, 1995. The additional 35,853 shares settled the first two
business days after September 30, 1995. During fiscal 1996, the Company
completed a repurchase of 310,000 shares approved by the OTS relating to the
purchase of PBS Financial Corp. (See Note 1)
19. REGULATORY EXAMINATIONS
At periodic intervals, both the OTS, and now the Federal Deposit Insurance
Corporation ("FDIC") as a result of FIRREA, routinely examine the Bank's
financial statements as part of their legally prescribed oversight of the
savings and loan industry. Based on these examinations, the regulators can
direct that the Bank's financial statements be adjusted in accordance with their
findings.
The OTS last concluded an examination of the Bank's financial statements in
February 1996. Such examination did not result in any material adjustments.
A future examination by the OTS or the FDIC could include a review of
certain transactions or other amounts reported in the Bank's 1995 or 1996
financial statements. In view of FIRREA and the increasingly uncertain
regulatory environment in which the Bank now operates, the extent, if any, to
which a forthcoming regulatory examination may ultimately result in adjustments
to the 1995 or 1996 financial statements cannot presently be determined.
104
<PAGE> 109
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS 119 ("SFAS 107"), requires the estimation of fair values of
financial instruments.
Estimates of fair value are made at a specific date, based upon, where
available, relevant market prices and information about the financial
instrument. For a substantial portion of the Bank's financial instruments, no
quoted market exists. Therefore, estimates of fair value are necessarily based
on a number of significant assumptions (many of which involve events outside the
control of management). Such assumptions include assessments of current economic
conditions, perceived risks associated with these financial instruments and
their counterparties, future expected loss experience and other factors. Given
the uncertainties surrounding these assumptions, the reported fair values
represent estimates only and therefore cannot be compared to the historical
accounting model. Use of different assumptions or methodologies are likely to
result in significantly different fair value estimates.
The estimated fair values presented neither include nor give effect to the
values associated with the Bank's existing customer relationships, extensive
branch banking network or property, or certain tax implications related to the
realization of unrealized gains or losses. Also under SFAS 107, the fair value
of non-interest bearing NOW deposits, interest bearing NOW accounts, passbook
and statement accounts and money market accounts is equal to the carrying amount
because these deposits have no stated maturity. The approach to estimating fair
value excludes the significant benefit that results from the low-cost funding
provided by such deposit liabilities, as compared to alternative sources of
funding.
The following methods and assumptions were used to estimate the fair value
of each major classification of financial instruments at September 30, 1995 and
1996:
CASH AND CASH EQUIVALENTS
The carrying amounts reported in the consolidated statement of financial
condition for cash and cash equivalents approximates their fair value.
INVESTMENT SECURITIES
Fair value is determined by reference to quoted market prices.
MORTGAGE RELATED SECURITIES
Fair value is determined by use of broker price estimates.
LOANS RECEIVABLE
The fair value of loans was estimated using a method which approximates the
effect of discounting the estimated future cash flows over the expected
repayment periods using rates which consider credit risk, servicing costs and
other relevant factors.
DEPOSITS WITH NO STATED MATURITY
Current carrying amounts approximate estimated fair value.
FIXED MATURITY CERTIFICATES
Fair value was estimated by discounting the contractual cash flows using
current market rates offered in the Bank's market area for deposits with
comparable terms and maturities.
ADVANCES FROM FHLB
Fair value is estimated using rates currently offered for advances of
similar remaining maturities.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Fair value is estimated using rates currently offered for securities sold
under agreements to repurchase of similar remaining maturities.
105
<PAGE> 110
COMMITMENTS TO EXTEND CREDIT AND PURCHASE SECURITIES
At September 30, 1995 and 1996, the fair value of commitments to extend
credit and purchase securities was considered insignificant due to the short
term nature of the commitments and other market considerations.
The carrying amounts and fair value of the Bank's financial instruments are
as follows:
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1996
-------------------- --------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets
- ----------------
Cash and cash equivalents........................ $ 11,254 $ 11,254 $ 19,438 $ 19,438
Interest earning deposits........................ 13,878 13,878 141,975 141,975
Investment securities............................ 80,941 81,719 34,532 34,593
Mortgage-backed and related securities........... 238,442 238,889 232,273 233,361
Loans receivable................................. 825,024 814,216 1,007,881 981,926
Financial Liabilities
- ---------------------
Deposits......................................... $ 878,670 $ 856,765 $1,136,722 $1,115,722
Advances from FHLB............................... 171,125 171,088 201,025 200,237
Securities Sold Under Agreements to Repurchase... 18,427 18,452 10,000 10,156
</TABLE>
106
<PAGE> 111
21. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial condition as of September
30, 1995 and 1996, and the condensed statements of operations and statements of
cash flows for the years ended September 30, 1995 and 1996 should be read in
conjunction with the consolidated financial statements and the related notes.
<TABLE>
<CAPTION>
September 30,
Parent Company Only --------------------
Statements of Financial Condition (in thousands) 1995 1996
- ------------------------------------------------ --------- ---------
<S> <C> <C>
Assets:
Cash and cash equivalents:
Cash and amounts due from depository institutions................... $ 1,418 $ 2,864
Office properties and equipment -- net................................ 6,700 2.932
Equity in net assets of Bank.......................................... 88,612 92,912
Receivable from Bank.................................................. 8,104 7,364
Other assets.......................................................... 81 33
--------- ---------
Total assets............................................................ $ 104,915 $ 106,105
Liabilities and Stockholders' Equity:
Other liabilities..................................................... $ 304 $ 680
--------- ---------
Total liabilities....................................................... 304 680
Stockholders' Equity:
Common stock.......................................................... 55 55
Additional paid-in capital............................................ 51,733 52,891
Retained earnings -- substantially restricted......................... 66,592 65,064
Treasury stock........................................................ (7,283) (8,660)
Common stock purchased by:
Employee Stock Ownership Plan....................................... (2,509) (1,769)
Recognition and Retention Plans..................................... (621) (161)
Unrealized loss on available-for-sale securities...................... (3,356) (1,995)
--------- ---------
Total stockholders' equity.............................................. 104,611 105,425
--------- ---------
Total liabilities and stockholders' equity.............................. $ 104,915 $ 106,105
========= =========
</TABLE>
107
<PAGE> 112
<TABLE>
<CAPTION>
Years Ended
September 30,
Parent Company Only --------------------
Statements of Operations (in thousands) 1995 1996
- --------------------------------------- --------- ---------
<S> <C> <C>
Net interest income......................................................... $ 887 $ 293
--------- ---------
Other income:
Equity in undistributed earnings of Bank.................................. 5,222 556
Miscellaneous............................................................. 322 (21)
--------- ---------
Total other income.......................................................... 5,544 535
Miscellaneous operating expenses............................................ 525 278
--------- ---------
Total expenses.............................................................. 525 278
--------- ---------
Income before income taxes.................................................. 5,906 550
Provision for income taxes................................................ 260 1
--------- ---------
Net income.................................................................. $ 5,646 $ 549
Years Ended
September 30,
Parent Company Only --------------------
Statements of Cash Flows (in thousands) 1995 1996
- --------------------------------------- --------- ---------
Cash flow from (for) operating activities:
Net income.............................................................. $ 5,646 $ 549
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed earnings of Bank.............................. (5,222) (556)
Depreciation.......................................................... 68 66
(Increase) decrease in other assets................................... 805 (997)
Decrease in other liabilities net of dividend payable................. (530) (615)
--------- ---------
Net cash provided by (used by) operating activities................. 767 (1,553)
--------- ---------
Cash flow from (for) investing activities:
Decrease in receivable from Bank........................................ 4,589 7,740
Sale of building to Bank................................................ -- 4,280
Purchase of office properties, equipment and land....................... (205) (578)
Principal payment received on ESOP loan................................. 665 740
Cash acquired through purchase of PBS Financial Corp. net of cash
payments relating to purchase.......................................... -- 233
--------- ---------
Net cash provided by investing activities........................... 5,049 12,415
--------- ---------
Cash flow from (for) financing activities:
Purchase of Treasury Stock at cost...................................... (4,902) (7,642)
Sale of Treasury Stock for exercise of stock options.................... 613 64
Dividends paid on stock................................................. (790) (1,838)
--------- ---------
Net cash used for financing activities.............................. (5,079) (9,416)
--------- ---------
Net increase in cash and cash equivalents................................. 737 1,446
Cash and cash equivalents, beginning of year.............................. 681 1,418
--------- ---------
Cash and cash equivalents, end of year.................................... $ 1,418 $ 2,864
========= =========
Supplemental disclosure of cash flow information:
Cash paid for income taxes.............................................. $ 3,806 $ 6,508
========= =========
Supplemental schedule of non-cash investing and financing activities:
Decrease in unrealized loss on available-for-sale securities.......... $ 2,168 $ 1,361
========= =========
</TABLE>
108
<PAGE> 113
22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Year Ended
September 30, 1994
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income........................................ $ 12,871 $ 13,845 $ 14,900 $ 16,258
Interest expense....................................... 6,786 6,867 7,566 8,830
--------- --------- --------- ---------
Net interest income.................................... 6,085 6,978 7,334 7,428
Provision for loan losses.............................. 58 94 6 (23)
--------- --------- --------- ---------
XNet interest income after provision for loan losses.... 6,027 6,884 7,328 7,451
Other income........................................... 1,474 922 913 1,128
Other expense.......................................... 5,584 5,538 5,702 6,002
--------- --------- --------- ---------
Income before income tax expense....................... 1,917 2,268 2,539 2,577
Income taxes........................................... 767 907 959 869
--------- --------- --------- ---------
Net income............................................. $ 1,150 $ 1,361 $ 1,580 $ 1,708
========= ========= ========= =========
Primary and fully diluted earnings per share........... $ 0.20 $ 0.24 $ 0.29 $ 0.32
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
September 30, 1995
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income........................................ $ 17,980 $ 20,040 $ 21,327 $ 21,617
Interest expense....................................... 10,441 12,173 13,087 13,199
--------- --------- --------- ---------
Net interest income.................................... 7,539 7,867 8,240 8,418
Provision for loan losses.............................. 17 141 167 (64)
--------- --------- --------- ---------
Net interest income after provision for loan losses.... 7,522 7,726 8,073 8,482
Other income........................................... 1,838 1,141 659 392
Other expense.......................................... 8,664 6,127 5,876 5,942
--------- --------- --------- ---------
Income before income tax expense....................... 696 2,740 2,856 2,932
Income taxes........................................... 265 1,103 1,148 1,062
--------- --------- --------- ---------
Net income............................................. $ 431 $ 1,637 $ 1,708 $ 1,870
========= ========= ========= =========
Primary and fully diluted earnings per share........... $ 0.09 $ 0.32 $ 0.34 $ 0.36
========= ========= ========= =========
</TABLE>
109
<PAGE> 114
<TABLE>
<CAPTION>
For the Year Ended
September 30, 1996
--------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income........................................ $ 23,161 $ 26,505 $ 26,932 $ 26,934
Interest expense....................................... 13,780 15,673 15,654 16,193
--------- --------- --------- ---------
Net interest income.................................... 9,381 10,832 11,278 10,741
Provision for loan losses.............................. 627 957 1,429 12,691
--------- --------- --------- ---------
Net interest income (loss) after provision for loan
losses................................................ 8,754 9,875 9,849 (1,950)
Other income........................................... 1,557 1,495 1,560 5,457
Other expense.......................................... 6,109 6,912 6,884 15,697
--------- --------- --------- ---------
Income (loss) before income tax expense................ 4,202 4,458 4,525 (12,190)
Income taxes........................................... 1,678 1,783 1,835 (4,850)
--------- --------- --------- ---------
Net income (loss)...................................... $ 2,524 $ 2,675 $ 2,690 $ 7,340
========= ========= ========= =========
Primary and fully diluted earnings per share........... $ 0.50 $ 0.52 $ 0.53 $ (1.44)
========= ========= ========= =========
</TABLE>
The fiscal 1996 fourth quarter results of operations include a pre-tax $12.7
million charge to the provision for loan losses primarily related to the Bank's
consumer lending portfolio as well as a one-time special pre-tax assessment of
$6.6 million for the recapitalization of the SAIF portion of the FDIC insurance
fund.
Item 9. Change In and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
110
<PAGE> 115
PART III
Item 10. Directors and Executive Officers of the Company.
Information relating to directors and executive officers of the Company
appears in the Company's definitive Proxy Statement which was filed with the SEC
in connection with the Annual Meeting of Stockholders (the "Proxy Statement") to
be held on January 21, 1997 at pages 5 through 10 and is incorporated herein by
reference.
Information relating to the filing of reports required under Section
16(a) of the Securities Exchange Act of 1934 by directors, executive officers
and 10% beneficial owner's of the Company's Common Stock appears in the
Company's Proxy Statement at page 4 and is incorporated herein by reference.
Item 11. Executive Compensation.
The information relating to executive compensation appears in the Proxy
Statement at pages 13 through 26 and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information relating to security ownership of certain beneficial
owners and management appears in the Proxy Statement at pages 3 through 10 and
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information relating to certain relationships and related
transactions appears in the Proxy Statement at page 27 and is incorporated
herein by reference.
111
<PAGE> 116
PART IV
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
<S> <C>
(a) (1) The following documents are filed as a part of this report:
Independent Auditors' Report
Consolidated Statements of Financial Condition as of
September 30, 1995 and 1996
Consolidated Statements of Operations for the Years Ended
September 30, 1994, 1995 and 1996
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended September 30, 1994, 1995 and 1996
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1994, 1995 and 1996
Notes to Consolidated Financial Statements
(2) All financial statement schedules are omitted because they are not
required or applicable, or the required information is shown in the
Consolidated Financial Statements or the Notes thereto.
(3) Exhibits
(a) The following exhibits are filed as part of this report:
3(i) Certificate of Incorporation of the Company incorporated by
reference into this Report from Exhibits to Form S-1 Registration
Statement initially filed on June 9, 1993, Registration No.
33-64164. Certificate of Amendment to the Company's Certificate
of Incorporation incorporated by reference into this Report from
Form 10-Q filed on May 12, 1995, File No. 0-21942.
3(ii) Bylaws of Company incorporated by reference into this Report
from the Exhibits to Form S-1 Registration Statement initially
filed on June 9, 1993, Registration No. 33-64174.
4.1 Stock Certificate of First Palm Beach Bancorp, Inc. incorporated
by reference into this Report from the Exhibits to Form S-1
Registration Statement initially filed on June 9, 1993,
Registration No. 33-64174.
4.2 Stockholder Rights Plan incorporated by reference into this
Report from Form 8-A Registration Statement filed on January 26,
1995, File No. 0-21492.
10.1 First Federal Savings and Loan Association of the Palm Beaches
Recognition and Retention Plan for Officers and Employees
incorporated by reference into this Report from the Proxy
Statement for the 1993 Annual Meeting of Stockholders filed on
December 17, 1993.
</TABLE>
112
<PAGE> 117
10.2 First Federal Savings and Loan Association of the Palm Beaches
Recognition and Retention Plan for Outside Directors (filed
herewith).
10.3 First Palm Beach Bancorp, Inc. Incentive Stock Option Plan for
Officers and Employees incorporated by reference into this Report
from the Proxy Statement for the 1993 Annual Meeting of
Stockholders filed on December 17, 1993.
10.4 First Palm Beach Bancorp, Inc. Stock Option Plan for Outside
Directors (filed herewith).
10.5 Change of Control Agreement between First Federal Savings and
Loan Association of the Palm Beaches and John C. Trammel
incorporated by reference into this Report from Form 10-K filed
on December 29, 1994, File No. 0-21492.
10.6 Employment Agreement between First Federal Savings and Loan
Association of the Palm Beaches and Louis O. Davis, Jr.
incorporated by reference into this Report from Form 10-K filed
on December 29, 1994, File No. 0-21492.
10.7 Employment Agreement between First Federal Savings and Loan
Association of the Palm Beaches and R. Randy Guemple incorporated
by reference into this Report from Form 10-K filed on December
29, 1994, File No. 0-21492.
10.8 Employees Pension Plan of First Federal Savings and Loan
Association of the Palm Beaches incorporated by reference into
this Report from Form 10-K filed on December 29, 1994, File No.
0-21492.
10.9 Employment Agreement between First Palm Beach Bancorp, Inc. and
Louis O. Davis, Jr. incorporated by reference into this Report
from Form 10-K filed on December 29, 1994, File No. 0-21492.
10.10 Employment Agreement between First Palm Beach Bancorp, Inc. and
R. Randy Guemple incorporated by reference into this Report from
Form 10-K filed on December 29, 1994, File No. 0-21492.
10.11 Change of Control Agreement between First Palm Beach Bancorp,
Inc. and John C. Trammel incorporated by reference into this
Report from Form 10-K filed on December 29, 1994, File No.
0-21492.
10.12 Consulting Agreement between First Federal Savings and Loan
Association of the Palm Beaches and William W. Lynch incorporated
by reference into this Report from Form 10-K filed on December
29, 1994, File No. 0-21492.
113
<PAGE> 118
10.13 Supplemental Retirement Income Agreement between First Federal
Savings and Loan Association of the Palm Beaches and William W.
Lynch incorporated by reference into this Report from Form 10-K
filed on December 29, 1994, File No. 0-21492.
10.14 First Federal Savings and Loan Association of the Palm Beaches
Amended and Restated Employee Severance Compensation Plan
incorporated by reference into this Report from Form 10-K filed
on December 22, 1995, File No. 0-21492.
10.15 Change of Control Agreement between First Federal Savings and
Loan Association of the Palm Beaches and Linda O. Terrell
(filed herewith).
10.16 Change of Control Agreement between First Palm Beach Bancorp and
Linda O. Terrell (filed herewith).
10.17 Amendment to First Federal Savings and Loan Association of the
Palm Beaches Recognition and Retention Plan for Outside Directors
(filed herewith).
10.18 Amendment to First Palm Beach Bancorp, Inc. Stock Option Plan
for Outside Directors (filed herewith).
11 Computation of earnings per share as shown in Item 8, page 84.
21 Subsidiary information is incorporated by reference from
subsidiary activities described in "Part I - Subsidiaries" on
page 30 of this Form 10-K.
23 Independent Auditors' Consent (filed herewith).
27 Financial Data Schedule (filed herewith).
99 Proxy Statement for Annual Meeting to be held on January 21, 1997
(filed herewith).
(b) Reports on Form 8-K
None.
114
<PAGE> 119
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
FIRST PALM BEACH BANCORP, INC.
By: /s/ Louis O. Davis Jr.
-----------------------------
Louis O. Davis, Jr.
Chief Executive Officer, President
and Director
Dated: December 20, 1996
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ William W. Lynch Chairman of the Board December 20, 1996
- -------------------------
William W. Lynch
/s/ R. Randy Guemple Chief Financial Officer and December 20, 1996
- ------------------------- Treasurer
R. Randy Guemple
/s/ Linda O. Terrell Controller December 20, 1996
- -------------------------
Linda O. Terrell
/s/ Edward M. Eissey Vice Chairman of the Board December 20, 1996
- -------------------------
Edward M. Eissey
Director December , 1996
- -------------------------
Ted R. Moffett, Jr.
/s/ Fred A. Greene Director December 20, 1996
- -------------------------
Fred A. Greene
/s/ Robert P. Miller Director December 20, 1996
- -------------------------
Robert P. Miller
/s/ Holly W. Hadley, M.D. Director December 20, 1996
- -------------------------
Holly W. Hadley, M.D.
/s/ Daniel O. Sokoloff, M.D. Director December 20, 1996
- -------------------------
Daniel O. Sokoloff, M.D.
<PAGE> 1
EXHIBIT 10.2
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF THE PALM BEACHES
RECOGNITION AND RETENTION PLAN
FOR OUTSIDE DIRECTORS
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.01 First Federal Savings and Loan Association of the Palm Beaches
hereby establishes the Recognition and Retention Plan (the "Plan") and related
Trust (the "Trust") upon the terms and conditions hereinafter stated in this
Recognition and Retention Plan.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to recognize and retain Outside
Directors of experience and ability by providing such persons with a proprietary
interest in the Company as compensation for their contributions to the
Association and its Affiliates and as an incentive to make such contributions
and to promote the Association's growth and profitability in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Affiliate" means the Company and those subsidiaries of the
Association or Company which, with the consent of the Board, agree to
participate in this Plan.
3.02 "Association" means First Federal Savings and Loan Association of
The Palm Beaches.
3.03 "Beneficiary" means the person or persons designated by a
Recipient to receive any benefits payable under the Plan in the event of such
Recipient's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any
or if none, his estate.
3.04 "Board" means the Board of Directors of the Association
3.05 "Committee" means the Committee of the Board administering this
Plan, which shall be comprised of those members of the Executive Compensation
Committee of the Board of the Association who are "disinterested directors" as
that term is so defined under Rule l6b-3
<PAGE> 2
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
promulgated by the Securities and Exchange Commission.
3.06 "Common Stock" means shares of the common stock, $.01 par value
per share, of the Company.
3.07 "Company" shall mean First Palm Beach Bancorp, Inc., the parent
holding company of the Association.
3.08 "Conversion" shall mean the conversion of the Association from the
mutual to stock form of organization and the acquisition of the Association by
the Company.
3.09 "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor selected or approved
by the Board of Directors must advise the Committee that it is either not
possible to determine when such Disability will terminate or that it appears
probable that such Disability will be permanent during the remainder of said
participant's lifetime.
3.10 "Employee" means any person who is currently employed on a full
time basis by the Association or an Affiliate, including officers, but such term
shall not include Outside Directors.
3.11 "Outside Director" means a member of the Board of Directors of the
Association or the Company, who is not also an Employee including Subsequent
Outside Directors, Subsequent Chairmen and Vice Chairmen.
3.12 "Plan Shares" means shares of Common Stock held in the Trust and
issued or issuable to a Recipient pursuant to the Plan.
3.13 "Plan Share Award" means a right granted under this Plan to earn
Plan Shares.
3.14 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
3.15 "Recipient" means an Outside Director who receives a Plan Share
Award under the Plan.
3.16 "Retirement" means retirement from employment or service which
constitutes normal retirement or early retirement under the deferred benefit
retirement plan maintained for the Association or by reaching age 65.
3.17 "Trust" means the trust created by the trust agreement between the
Trustee and the Association established to hold the Plan assets.
2
<PAGE> 3
3.18 "Trustee" means that person(s) or entity approved by the Board to
hold legal title to the Plan assets for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall have all of the powers allocated to it
in this and other Sections of the Plan. The interpretation and construction by
the Committee of any provisions of the Plan hereunder shall be final and
binding. The Committee shall act by vote or written consent of a majority of its
members. Subject to the express provisions and limitations of the Plan, the
Committee may adopt such rules, regulations and procedures as it deems
appropriate for the conduct of its affairs. The Committee shall report its
actions and decisions with respect to the Plan to the Board at appropriate
times, but in no event less than one time per calendar year. The Committee shall
recommend to the Board one or more persons or entity to act as Trustee in
accordance with the provision of this Plan and the terms of any trust agreement.
4.02 Role of the Board. The members of the Committee shall be appointed
or approved by, and will serve at the pleasure of, the Board. The Board may in
its discretion from time to time remove members from, or add members to, the
Committee, and may remove, replace or add any Trustee. The Board shall have all
of the powers allocated to it in this and other Sections of the Plan.
4.03 Limitation on Liability. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Plan Shares or Plan Share Awards granted under it. If a member of
the Board or the Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of anything done or not
done by him in such capacity under or with respect to the Plan, the Association
shall indemnify such member against expense (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Association and its Affiliates and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Association shall
contribute to the Trust an amount sufficient to purchase up to 74,200 shares of
Common Stock. The Trustee may hold and commingle contributions to the Plan and
earnings thereon with the assets of any other Recognition and Retention Plan
maintained by the Association. No contributions by Outside Directors shall be
permitted.
3
<PAGE> 4
5.02 Initial Investment. Any amounts held by the Trust prior to the
conversion of the Association from a mutual to a stock savings and loan
association, or until such amounts are invested in accordance with Section 5.03,
shall be invested by the Trustee in such interest-bearing account or accounts at
the Association as the Trustee shall determine to be appropriate.
5.03 Investment of Trust Assets Upon the Conversion; Creation of Plan
Share Reserve. Upon the conversion of the Association to a stock savings and
loan association, the Trustee shall invest all of the Trust's assets exclusively
in Common Stock except as otherwise provided below; provided, however, that the
Trust shall not invest in more than 74,200 shares of Common Stock, which shall
constitute the "Plan S are Reserve." In the event that all or a portion of the
designated number of the shares of Common Stock are not available for purchase
by the Trust in the Conversion, the Trustee in accordance with applicable rules
and regulations shall purchase shares of Common Stock in the open market or, in
the alternative, shall purchase authorized but unissued shares of the Common
Stock from the Company sufficient to fund the Plan Share Reserve. Any earnings
received with respect to Common Stock held in the Reserve shall be held in an
interest-bearing account. Any earnings received with respect to Common Stock
subject to a Plan Share Award shall be held in an interest-bearing account on
behalf of the individual Recipient.
5.04 Effect of Allocations. Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Section 6.02, or the
decision of the Committee to return Plan Shares to the Association, the Plan
Share Reserve shall be reduced by the number of Shares subject to the Awards so
allocated or returned. Any Shares subject to an Award which may not be earned
because of a forfeiture by the Recipient pursuant to Section 7.01 shall be
returned (added) to the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Outside Directors of the Association and its
Affiliates are eligible to receive Plan Share Awards.
6.02 Allocations.
(a) Each Outside Director serving in such capacity as of the date of
the Association's Conversion shall be granted a Plan Share Award of 10,600
Plan Shares (the "Fixed Award").
(b) Each individual who is first elected as an Outside Director
subsequent to the date of the Association's Conversion ("Subsequent Outside
Directors") shall be granted a Plan Share Award of 10,600 Plan Shares subject to
(a) above (the "Fixed Award"), as of the effective date of such election.
Notwithstanding the preceding, no Plan Share Award shall be made under this Plan
to any Subsequent Outside Director who at any previous time was an employee of
either the Company or the Association and in such capacity was eligible for a
Plan Share Award under the Association's Recognition and Retention Plan for
officers and employees.
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<PAGE> 5
(c) Each Director Emeritus serving in such capacity as of the date o t
e Association's conversion shall be granted a Plan Share Award of 5,300 Plan
Shares t e "Fixed Award"I. If sufficient Plan Shares are not available under the
Plan for a Fixed Award to be made to a Subsequent Outside Director and
thereafter Plan Shares become available through forfeiture or by reason of the
purchase of additional shares of Common Stock by the Plan Trustee, such
Subsequent Outside Director(s) shall then receive a Plan Share Award, sharing
pro rata among each such Subsequent Outside Directors the number of Plan Shares
then available under the Plan. The date of Award shall be the date such Plan
Shares become available.
6.03 Form of Allocation. As promptly as practicable after a
determination is made pursuant to Section 6.02 that a Plan Share Award has been
granted, the Committee shall notify the Recipient in writing of the grant of the
Plan Share Award. Such notice shall include the number of Plan Shares covered by
the Award, and the terms upon which the Plan Shares subject to the Award may be
earned. The date on which the Committee so notifies the Recipient shall be
considered the date of grant of the Plan Share Award. The Committee shall
maintain records as to all grants of Plan Share Awards under the Plan.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Plan Shares subject to an Award shall be earned by a
Recipient at the rate of thirty-three and one-third percent (33 1/3%) of the
aggregate number of shares covered by the Award at the end of each full twelve
months of consecutive service with the Association or an Affiliate after the
date of grant of the Award. If an Outside Director who has not reached
Retirement is not renominated, reelected or otherwise discontinues service on
the Board prior to the third anniversary of the date of grant of an Award for
any reason (except as specifically provided in Subsections (b) and (c) below),
the Recipient shall forfeit the right to earn any Shares subject to the Award
which have not theretofore been earned.
In determining the number of Plan Shares which are earned, fractional
shares shall be rounded down to the nearest whole number, provided that such
fractional shares shall be aggregated and earned, on the third anniversary of
the date of grant.
(b) Exception for Terminations Due to Death. Disability and Retirement.
Notwithstanding the general rule contained in Section 7.01(a) above, Plan Shares
subject to a Plan Share Award held by a Recipient whose service as an Outside
Director with the Association or an Affiliate terminates due to death,
Disability or Retirement, or any part thereof which have not theretofore been
earned, shall be deemed earned as of the Recipients' last day of service as an
Outside Director with the Association or an Affiliate. Provided, however, that
if the Recipient's service terminates due to Retirement within one year of the
date of the Conversion, the shares earned by the Recipient may not be disposed
of by the Recipient during the one-year period following the Conversion.
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<PAGE> 6
(c) Exception for Terminations After a Change in Control.
Notwithstanding the general rule contained in Section 7.01(a) above, all Plan
Shares subject to a Plan Share Award held by a Recipient whose service on the
Board of Directors of the Association or an Affiliate terminates (or in the case
of any director, such director is not renominated or reelected to serve on the
Board of Directors of the Association or the Company) following a Change in
Control of the Association or Company, shall be deemed earned as of the
Recipient's last day of service as an Outside Director with the Association or
an Affiliate. A "Change in Control of the Association or the Company" is defined
as a Change in Control of a nature that: (i) 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 (ii) results in a Change in Control of the
Association or the Company within the meaning of the Home Owners' Loan Act of
1933, as amended, and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date
hereof (provided, that in applying the definition of change in control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred 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 Association or the Company
representing 20% or more of the combined voting power of the Association's or
the Company's outstanding securities except for any securities of the
Association purchased by the Company in connection with the conversion of the
Association to the stock form and any securities purchased by any tax qualified
employee benefit plans of the Association; or (b) individuals who constitute the
Board 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 by the Company's stockholders was approved by the
same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Association or the Company or similar
transaction has been approved by the Incumbent Board and the shareholders, or
otherwise occurs upon which the Board so notifies the OTS of such occurrence,
and in which the Association or Company is not the resulting entity.
(d) Revocation for Misconduct. Notwithstanding anything hereinafter to
the contrary, the Board may by resolution immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been delivered thereunder to the
Recipient, whether yet earned, in the case of an Outside Director who is
discharged from the Association or an Affiliate for cause (as hereinafter
defined), or who is discovered after termination of employment to have engaged
in conduct that would have justified termination for cause. "Cause" shall mean
termination because of personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation
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<PAGE> 7
(other than traffic violations or similar offenses) which result in a material
loss to the Association or final cease and desist order.
7.02 Accrual of Dividends. Whenever Plan Shares are paid to a Recipient
or Beneficiary under Section 7.03, such Recipient or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid, an amount equal to
any cash dividends and a number of shares of Common Stock equal to any stock
dividends, declared and paid with respect to a share of Common Stock between the
date the relevant Plan Share Award was granted and the date the Plan Shares are
being distributed. There shall also be distributed an appropriate amount of net
earnings, if any, of the Trust with respect to any cash dividends so paid out.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions. General Rule. Except as provided in
Subsection (b) below, Plan Shares shall be distributed to the Recipient or his
Beneficiary, as the case may be, as soon as practicable after they have been
earned.
(b) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned and payable.
Payments representing accumulated cash dividends (and earning thereon) shall be
made in cash.
7.04 Voting of Plan Shares. After a Plan Share Award has been granted,
the Recipient shall be entitled to direct the Trustee as to the voting of the
Plan Shares which are covered by the Plan Share Award and which have not yet
been earned and distributed to him pursuant to Section 7.03, subject to rules
and procedures adopted by the Committee for this purpose. All shares of Common
Stock held by the Trust as to which Recipients are not entitled to direct, or
have not directed, the voting, shall be voted by the Trustee in the same
proportion as Plan Shares which have been awarded and voted.
ARTICLE VIII
MISCELLANEOUS
8.01 Adjustments for Capital Changes. In the event of any change in the
outstanding shares of Common Stock of the Company by reason of any stock
dividend or split, recapitalization, merger, consolidation, spin-off,
reorganization, combination or exchange of shares, or other similar corporate
change, or other increase or decrease in such shares effected without receipt or
payment of consideration by the Company, the Committee shall adjust the
aggregate number of Plan Shares available for issuance pursuant to the Plan and
shall adjust the number of shares to which any Plan Share Award relates to
prevent dilution or enlargement of the rights granted to the Recipient under the
Plan.
8.02 Amendment and Termination of Plan. The Board may, by resolution,
at any time amend or terminate the Plan and Trust; provided that Section 6.02
and 7.01 shall not be amended
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<PAGE> 8
more than once every six months other than to comport with the Internal Revenue
Code of 1986, as amended, or the Employee Retirement Income Security Act of
1974, as amended, or the rules thereunder. Except as provided in Section 8.08
hereof, rights and obligations under any Plan Share Award granted before an
amendment shall not be altered or impaired by such amendment without the written
consent of the Recipient. If the Plan becomes qualified under Rule 16(b)-3 of
the rules and regulations promulgated under the Exchange Act and an amendment
would require shareholder approval under such rule 16(b)-3 to retain the Plan's
qualification, then such amendment shall be presented to shareholders for
ratification, provided, however, that the failure to obtain shareholder
ratification shall not affect the validity of this Plan as so amended and the
Plan Share Awards granted thereunder. The power to amend or terminate shall
include the power to direct the Trustee to return to the Association all or any
part of the assets of the Trust, including shares of Common Stock held in the
Plan Share Reserve, as well as shares of Common Stock and other assets subject
to Plan Share Awards but not yet earned by the Recipients to whom they are
allocated; provided that any shares of Common Stock held by the Trust as part of
its assets must be disposed of by the Trustee prior to returning the proceeds
representing such assets to the Company. However, the termination of the Trust
shall not affect a Recipient's right to earn Plan Share Awards and to the
distribution of Common Stock relating thereto, including earnings thereon, in
accordance with the terms of this Plan and the grant by the Committee or Board.
8.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to the Recipient who was notified in
writing of the Award by the Committee pursuant to Section 6.03.
8.04 Service Rights. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right on the
part of any Outside Director to continue in the service of the Association or an
Affiliate thereof, or the Company.
8.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights or other rights of a shareholder in respect of any Plan Shares
covered by a Plan Share Award, except as expressly provided in Sections 7.02 and
7.04 above, prior to the time said Plan Shares are actually distributed to him.
8.06 Governing Law. The Plan shall be governed by Florida law, except
to the extent not pre-empted by the laws of the United States.
8.07 Effective Date. This Plan is effective as of the effective date of
the conversion of the Association from the mutual to capital stock form of
organization. Following Conversion, the Plan shall be presented to shareholders
of the Company for ratification for purposes of (i) obtaining favorable
treatment under Section 16(b) of the Securities Exchange Act of 1934; and, if
applicable, (ii) maintaining (if listed) listing on the NASDAQ National Market;
provided,
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<PAGE> 9
however, that the failure to obtain shareholder ratification will not affect the
validity of the Plan and the Plan Share Awards thereunder.
8.08 Compliance with Section 16. If this Plan is qualified under Rule
ss.240.16b-3 of the Exchange Act Rules, transactions under this Plan are
intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provisions of the Plan fail
to so comply, it shall be deemed null and void, to the extent permitted by law.
8.09 Term of Plan. This Plan shall remain in effect until the earlier
of (1) 21 years from the Effective Date, (2) termination by the Board of
Directors of the Company, or (3) the distribution of all assets of the Trust.
Termination of the Plan shall not affect any Plan Share Awards previously
granted, and such Awards shall remain valid and in effect until they have been
earned and paid, or by their terms expire or are forfeited.
IN WITNESS WHEREOF, the Association has established this Plan effective
to be executed by its duly authorized executive officer and the corporate seal
to be affixed and duly attested, effective as of the_______ day of
______________,1993.
By:
----------------------------------
Attest:
- --------------------------------------
9
<PAGE> 1
EXHIBIT 10.4
FIRST PALM BEACH BANCORP, INC.
1993 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
1. PURPOSE
The purpose of the First Palm Beach Bancorp, Inc. (the "Holding
Company") 1993 Stock Option Plan for Outside Directors of the Holding Company
and its affiliates, including the outside directors of First Federal Savings and
Loan Association of the Palm Beaches (the "Association") (the "Directors' Option
Plan" or the "Plan") is to promote the growth and profitability of the Holding
Company and the Association by providing outside directors of the Holding
Company and its affiliates with an incentive to achieve long-term objectives of
the Holding Company and to attract and retain non-employee directors of
outstanding competence by providing such outside directors with an opportunity
to acquire an equity interest in the Holding Company.
2. GRANT OF OPTIONS
(a) Initial Grant. Each outside director (for purposes of this
Directors' Option Plan, the term "Outside Director" shall mean a member of the
Board of Directors of the Holding Company or any of its affiliates not also
serving as a full-time employee of the Holding Company or any of its
affiliates), who is serving in such capacity on the date of the Holding
Company's initial public offering and at the effective date of this Directors'
Option Plan, is hereby granted non-statutory stock options to purchase 26,500
shares of the common stock of the Holding Company ("Common Stock"), subject to
adjustment as provided in Section IV hereof. Each director emeritus, who is
serving in such capacity on the date of the Holding Company's initial public
offering and at the Effective Date of this Directors' Option Plan, is hereby
granted non-statutory stock options to purchase 13,250 shares of Common Stock,
subject to adjustment as provided in Section IV hereof.
The purchase price per share of the Common Stock deliverable upon the
exercise of each non-statutory stock option shall be the initial public offering
price of the Common Stock sold in connection with the conversion of the
Association to the stock form. The effective date of these initial grants shall
be the effective date of the Directors' Option Plan as defined in Section V
hereof ("Effective Date").
(b) Grants to Subsequent Outside Directors. To the extent options are
available for grant under the Directors' Option Plan, each Outside Director who
is first elected as a director subsequent to the Effective Date ("Subsequent
Outside Director") is hereby granted, as of the date on which such Subsequent
Outside Director is qualified and first begins to serve as an Outside Director,
non-statutory stock options to purchase 26,500 shares of Common Stock, subject
to adjustment pursuant to Section IV, or to purchase such lesser number of
shares of Common Stock as remain in this Directors' Option Plan.
The purchase price per share of the Common Stock deliverable upon
exercise of such option shall equal the Fair Market Value of the Common Stock on
the date the grant of this option is effective as determined under paragraph (d)
of this Section II.
<PAGE> 2
If options for sufficient shares are not available under the Directors'
Option Plan to fulfill the grant of options under Section II(b) hereof to any
Subsequent Outside Director first elected subsequent to the Effective Date, and
thereafter options become available, such Subsequent Outside Director shall then
receive options to purchase an amount of shares of Common Stock, determined by
dividing pro rata among each Subsequent Outside Director, options for the number
of shares then available under the Outside Directors' Plan, not to exceed
options for shares with the values set forth in the preceding two paragraphs
with respect to Subsequent Outside Directors, subject to adjustment under
Section IV as appropriate. The date of grant shall be the date options for such
shares become available. The purchase price per share of the Common Stock
deliverable upon exercise of such options shall equal the Fair Market Value of
the Common Stock on the date the option is granted as determined under paragraph
(d) of this Section II.
(c) Ineligibility. An option under the Directors' Option Plan shall not
be granted to any Outside Director who at any previous time was an employee of
either the Company or the Association and in such capacity was eligible to
receive any options to purchase Common Stock.
(d) Fair Market Value. For purposes of the Directors' Option Plan, when
used in connection with Common Stock on a certain date, Fair Market Value means
the average of the bid and ask prices of the Common Stock as reported by the
National Association of Securities Dealers Automated Quotation System (as
published by The Wall Street Journal, if published) on the effective date of the
grant, or if the Common Stock was not traded on such date, on the next preceding
day on which the Common Stock was traded thereon. For purposes of the grant of
options in the Conversion as defined in Section V hereof, of the Association,
Fair Market Value shall mean the initial public offering price of the Common
Stock ($10.00 per share).
3. TERMS AND CONDITIONS
(a) Option Agreement. Each option shall be evidenced by a written
option agreement between the Holding Company and the recipient specifying the
number of shares of Common Stock that may be acquired through its exercise and
containing such other terms and conditions which are not inconsistent with the
terms of this grant.
(b) Vesting. Each option granted pursuant to Section II(a) or (b)
hereof shall become exercisable at the date of grant. However, shares of Common
Stock acquired through the exercise of such option granted under Section II may
not be sold or otherwise disposed of for a period of one year from the date of
grant of the option.
(c) Manner of Exercise. The option when exercisable may be exercised
from time to time, in whole or in part, by delivering a written notice of
exercise to the Chief Executive Officer of the Holding Company signed by the
recipient. Such notice is irrevocable and must be accompanied by full payment of
the exercise price (as determined in Section II(a) or (b) hereof) in cash or
shares of previously acquired Common Stock of the Holding Company at the Fair
Market Value of such shares determined on the exercise date by the manner
described in Section
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<PAGE> 3
II(d) above. If previously acquired shares of Common Stock are tendered in
payment of all or part of the exercise price, the value of such shares shall be
determined as of the date of such exercise.
(d) Transferability. Each option granted hereby may be exercised only
by the recipient to whom it is issued or in the event of the Outside Director's
death, his or her personal representative(s) or designee(s), heir(s) or
devisee(s) pursuant to the terms of Section III(b) hereof.
(e) Termination of Service. Upon the termination of a recipient's
service for any reason other than disability, retirement, Change in Control,
death or removal for cause, the participant's stock options shall be exercisable
only as to those shares which were immediately purchasable by the recipient at
the date of termination.
In the event of death or disability of any recipient, all stock options
held by such recipient, whether or not exercisable at such time, shall become
immediately exercisable by the recipient or the recipient's legal
representatives or beneficiaries. Upon termination of the recipient's service
due to retirement, or a Change in Control, all stock options held by such
recipient, whether or not exercisable at such time, shall become immediately
exercisable. For purposes of this plan the following terms are defined:
(i) "Change in Control" for purposes of this Plan, a "Change in
Control" of the Association or Company shall mean an event of a nature
that; (1) 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 (the
"Exchange Act"); or (2) results in a Change in Control of the
Association or the Company within the meaning of the Home Owners' Loan
Act, as amended and the Rules and Regulations promulgated by the Office
of Thrift Supervision ("OTS") (or its predecessor agency), as in effect
on the date hereof (provided, that in applying the definition of change
in control as set forth under the rules and regulations of the OTS, the
Board shall substitute its judgment for that of the OTS); or (3)
without limitation such a Change in Control shall be deemed to have
occurred 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 Association or the Company
representing 20% or more of the Association's or the Company's
outstanding securities except for any securities of the Association
purchased by the Company in connection with the conversion of the
Association to the stock form and any securities purchased by the
Association's employee stock ownership plan and trust; or (B)
individuals who constitute the Board 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 by the Company's stockholders was approved by the same
Nominating Committee serving under an
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<PAGE> 4
Incumbent Board, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all
the assets of the Association or the Company or similar transaction
occurs in which the Association or Company is not the resulting entity.
(ii) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an outside director to
perform the work customarily assigned to him. Additionally, a medical
doctor selected or approved-by the Board of Directors must advise the
Board that it is either not possible to determine when such disability
will terminate or that it appears probable that such disability will be
permanent during the remainder of said recipient's lifetime.
(iii) "Retirement" means retirement from service as a director.
(f) Termination of Option. Each option shall expire upon the earlier of
(i) one hundred and twenty (120) months following the date of grant, or (ii) one
(1) year following the date on which the Outside Director ceases to serve in
such capacity for any reason other than removal for cause. Provided, however,
that if the recipient's service on the Board of Directors is terminated for any
reason other than being removed for cause prior to the date the Plan is
presented to the shareholders of the Company for ratification, the option may
not be exercised prior to the date of the shareholders' meeting regarding such
ratification but shall remain exercisable for a period of one year from the date
of such meeting. If the Outside Director dies before fully exercising any
portion of an option then exercisable, such option may be exercised by such
Outside Director's personal representative(s), heir(s) or devisee(s) at any time
within the one (1) year period following his or her death; provided, however,
that in no event shall the option be exercisable more than one hundred and
twenty (120) months after the date of its grant. If the Outside Director is
removed for cause, all options awarded to him shall expire upon such removal.
4. COMMON STOCK SUBJECT TO THE DIRECTORS' OPTION PLAN
The shares which shall be issued and delivered upon exercise of options
granted under the Directors' Option Plan may be either authorized and unissued
shares of Common Stock or authorized and issued shares of Common Stock held by
the Holding Company as treasury stock. The number of shares of Common Stock
reserved for issuance under the Directors' Option Plan shall not exceed 185,500
shares of the Common Stock of the Holding Company. par value $.01 per share,
subject to adjustments pursuant to this Section IV. Any shares of Common Stock
subject to an option which for any reason either terminates unexercised or
expires, shall again be available for issuance under the Directors' Option Plan.
In the event of any change or changes in the outstanding Common Stock
of the Holding Company by reason of any stock dividend or split,
recapitalization, reorganization, merger, consolidation, spin-off, combination
or any similar corporate change, or other increase or decrease in such shares
effected without receipt or payment of consideration by the Company,
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<PAGE> 5
the number of shares of Common Stock which may be issued under this Directors'
Option Plan, the number of shares of Common Stock subject to options granted
under this Directors' Option Plan and the option price of such options, shall be
automatically adjusted to prevent dilution or enlargement of the rights granted
to recipient under the Directors' Option Plan.
5. EFFECTIVE DATE OF THE PLAN; SHAREHOLDER RATIFICATION
The Directors' Option Plan after adoption by the Board of Directors
shall become effective upon the conversion of the Association from the mutual to
capital stock form of ownership and the acquisition of the Association by the
Holding Company (the "Conversion"), September 29, 1993. Following Conversion,
the Directors' Option Plan shall be presented to shareholders of the Company for
ratification for purposes of (i) obtaining favorable treatment under Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act");
and (ii) maintaining listing on the NASDAQ National Market; provided, however,
that the failure to obtain shareholder ratification shall not affect the
validity of this Plan and the options granted hereunder.
6. TERMINATION OF THE PLAN
The right to grant options under the Directors' Option Plan will
terminate upon the earlier of ten years after the Effective Date of the Plan,
the issuance of 185,500 shares of Common Stock (the maximum number of shares of
Common Stock reserved for under this Plan) subject to adjustment pursuant to
Section IV hereof. A majority of the outstanding shares of the Common Stock
entitled to vote is required to terminate the Directors' Option Plan; provided,
however, no such termination shall, without the consent of the affected
recipient, affect such recipient's rights under a previously granted option.
7. AMENDMENT OF THE PLAN
The Directors' Option Plan may be amended from time to time by the
Board of Directors of the Company provided that Section II and III hereof shall
not be amended more than once every six months other than to comport with the
Internal Revenue Code of 1986, as amended. or the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder. Except as provided in
Section IV hereof, rights and obligations under any option granted before an
amendment shall not be altered or impaired by such amendment without the written
consent of the optionee. If the Directors' Option Plan becomes qualified under
Rule 16(b)-3 of the rules and regulations promulgated under the Exchange Act and
an amendment would require shareholder approval under such Rule 16(b)-3 to
retain the Plan's qualification, then subject to the discretion of the Board of
Directors of the Holding Company, such amendment shall be presented to
shareholders for ratification, provided, however, that the failure to obtain
shareholder ratification shall not affect the validity of this Plan as so
amended and the options granted thereunder.
8. APPLICABLE LAW
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<PAGE> 6
The Plan will be administered in accordance with the laws of the State
of Delaware to the extent not preempted by federal law.
9. COMPLIANCE WITH SECTION 16
If this Plan is qualified under Rule 16b-3 of the Securities Exchange
Act of 1934 Rules, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provisions of the Plan fail to so comply, it shall be deemed null
and void, to the extent permitted by law.
IN WITNESS WHEREOF, the Association has established this Plan effective
to be executed by its duly authorized executive officer and the corporate seal
to be affixed and duly attested, effective as of the_______ day of
______________,1993.
By:
----------------------------------
Attest:
- --------------------------------------
6
<PAGE> 1
EXHIBIT 10.15
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF THE PALM BEACHES
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of September 25, 1996, by and
between First Federal Savings and Loan Association of the Palm Beaches (the
"Association"), a federally chartered savings institution, with its principal
administrative office at 215 S. Olive Avenue, West Palm Beach, Florida and
Linda O. Terrell ("Executive"). The Association is the wholly owned subsidiary
of First Palm Beach Bancorp, Inc. (the "Holding Company"), a corporation
organized under the laws of the State of Delaware.
WHEREAS, the Association recognizes the substantial contribution
Executive has made to the Association and wishes to protect the Executive's
position therewith for the period provided in this Agreement; and
WHEREAS, Executive has been elected to, and has agreed to serve in the
position of position for the Association, a position of substantial
responsibility;
NOW THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date thereafter,
the Board of Directors of the Association ("Board") may extend this Agreement
for an additional year. The Board will review the Agreement and the Executive's
performance annually for purposes of determining whether to extend this
Agreement, and the results thereof shall be included in the minutes of the
Board's meeting.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Association or the
Holding Company (as herein defined) followed at any time during the term of this
Agreement by the voluntary or involuntary termination of Executive's employment,
other than for Cause, as defined in Section 2 (c) hereof, the provisions of
Section 3 shall apply. Upon the occurrence of a Change In Control, Executive
shall have the right to elect to voluntarily terminate his employment at any
time during the term of this Agreement following any demotion, loss of title,
office or significant authority, reduction in his annual compensation, or
relocation of his principal place of employment by more than 30 miles from its
location immediately prior to the Change in Control.
(b) For purposes of this Plan, a "Change in Control" of the Association or
Company shall mean an event of a nature that; (i) 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 (ii) results in a Change in
Control of the
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Association or the Company within the meaning of the Home Owners' Loan Act of
1933 and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS).
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, or material breach of any
material provision of this Agreement. In determining incompetence, the act or
omissions shall be measured against standards generally prevailing in the
savings institutions industry. Notwithstanding the foregoing, Executive shall
not be deemed to have been Terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board of Directors of the
Association at a meeting of the Board of Directors of the Association at a
meeting of the Board called and held for that purpose (after reasonable notice
to the Executive and an opportunity for him, together with counsel, to be heard
before the Board at such meeting and which such meeting shall be held not more
than 30 days from the date of notice during which period Executive may be
suspended with pay), finding that in the good faith opinion of the Board, the
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. Any stock options or limited rights granted to Executive under any stock
option plan of the Association, the Company or any subsidiary or affiliate
thereof, shall become null and void effective upon Executive's receipt of Notice
of Termination for Cause and shall not be exercisable by Executive at any time
subsequent to such Termination for Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Association
and the Company shall pay the Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3) times his
then current annual salary. At the election of the Executive such payment may be
made in a lump sum or paid in equal installment installments during the
thirty-six (36) months following the Executive's termination. In the event that
no election is made, payment to the Executive will be made on a basis basis
during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Association or the
Company followed at any time during the term of this Agreement by the
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Association shall cause to be continued life,
medical, dental and disability coverage substantially identical prior to his
severance, except to the extent
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such coverage may be changed in its application to all Association employees.
Such coverage and payments shall cease upon expiration of thirty-six (36)
months.
(c) As of the effective date of this Agreement, and annually as of the
first business day of January or soon thereafter, Executive shall make the
election referred to in Section 3(a) hereof with respect to whether the amounts
payable under said Section 3(a) shall be paid in a lump sum or on a basisbasis.
Such election shall be irrevocable for the year for which such election is made
and shall continue in effect until the Executive has made his next annual
election.
(d) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Code or any successor
thereto, and in order to avoid such a result Termination Benefits will be
reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's "base amount", as determined in accordance with said Section 280G.
The allocation of the reduction required hereby among the Termination Benefits
provided by the preceding paragraphs of this Section 3 shall be determined by
the Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Association, or by the Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination which, in the instance of Termination for Cause, shall be immediate.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Association. The Company, however, guarantees payment and provision of all
amounts and benefits due hereunder to the Executive and, if such amounts and
benefits due from the Association are not timely paid or provided by the
Association, such amounts and benefits shall be paid or provided by the Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Association and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
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Nothing in this Agreement shall confer upon the Executive the right to
continue in the employ of the Association or shall impose on the Association any
obligation to employ or retain the Executive in its employ for any period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of the
Executive, the Association, and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
(a) The Board of Directors may terminate the Executive's employment at any
time, but any termination by the Board of Directors, other than Termination for
Cause, shall not prejudice the Executive's right to compensation or other
benefits under this Agreement. The Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause as
defined in Section 2 hereinabove.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Association's affairs by a
notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance
Act (12 U.S.C. ss.1818(c)(3) or (g)(1)), the Association's obligations under
this contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay the Executive all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit
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Insurance Act (12 U.S.C. ss.1818(c)(4) or (g)(1)), all obligations of the
Association under this contract shall terminate as of the effective date of the
order, but vested rights of the contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, all obligations of the Association under this
contract shall terminate as of the date of default, but this paragraph shall not
affect any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the institution: (i) by the Director of the Office of
Thrift Supervision (or his or her 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 Association under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act; or
(ii) by the Director of the Office of Thrift Supervision (or his or her
designee) at the time the Director (or his or her designee) approves a
supervisory merger to resolve problems related to operation of the Association
or when the Association is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
ss.1828(k).
10. REINSTATEMENT OF BENEFITS UNDER SECTION 9(b).
In the event the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 9(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Association will assume its
obligation to pay and the Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice.
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
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13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by Florida law but only to the extent not preempted
by Federal law.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Association's main office, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
15. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Association (which payments are guaranteed by
the Company pursuant to Section 5 hereof) if Executive is successful on the
merits pursuant to a legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
The Association shall provide Executive (including his or her legal
representatives, successors and assigns) with coverage under a standard
directors' and officers' liability insurance policy at its expense, or in lieu
thereof, shall indemnify Executive (including his or her legal representatives,
successors and assigns) for reasonable costs and expenses incurred by Executive
in defending or settling any judicial or administrative proceeding, or
threatened proceeding, whether civil, criminal or otherwise, including any
appeal or other proceeding for review.
Indemnification by the Association shall be made only upon the final
judgment on the merits in the favor of Executive, in case of final judgment
against Executive or in the case of final judgment against Executive or in the
case of final judgment in favor of Executive other than on the merits, if a
majority of the disinterested directors of the Association determine Executive
was acting in good faith within the scope of Executive's employment or authority
in accordance with 12 C.F.R. Section 545.121(c)(iii).
Any such indemnification of Executive must conform with the notice
provisions of 12 C.F.R. Part 545.121(c)(iii) to indemnify Executive to the
fullest for such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements, such settlements to be approved by the Board of Directors of the
Association, if such action is brought against Executive in his or her capacity
as an officer or director of the Association,
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however, shall not extend to matters as to which Executive is finally adjudged
to be liable for willful misconduct in the performance of his or her duties.
17. SUCCESSOR TO THE ASSOCIATION.
The Association shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association, expressly and
unconditionally to assume and agree to perform the Association's obligations
under this Agreement, in the same manner and to the same extent that the
Association would be required to perform is no such succession or assignment had
taken place.
18. SIGNATURES.
IN WITNESS WHEREOF, First Federal Savings and Loan Association of the Palm
Beaches and First Palm Beach Bancorp, Inc. have caused this Agreement to be
executed by its duly authorized officer, and Executive has signed this
Agreement, on the 25th of September, 1996.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF THE PALM BEACHES
/s/ John C. Trammel BY /s/ Louis O. Davis, Jr.
- --------------------------- -----------------------------
Secretary
SEAL
ATTEST: FIRST PALM BEACH BANCORP, INC.
(Guarantor)
/s/ Elizabeth Cook /s/ Louis O. Davis, Jr.
- ---------------------------- -----------------------------
SEAL
WITNESS:
/s/ Elizabeth Cook BY: /s/ Linda O. Terrell
- ---------------------------- ----------------------------
Executive
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EXHIBIT 10.16
FIRST PALM BEACH BANCORP, INC.
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of September 25, 1996, by and
between First Palm Beach Bancorp, Inc. (the "Holding Company"), a corporation
organized under the laws of the State of Delaware, with its office at 215 S.
Olive Avenue, West Palm Beach, Florida and Linda O. Terrell ("Executive"). The
term "Association" refers to First Federal Savings and Loan Association of the
Palm Beaches, the wholly-owned subsidiary of the Holding Company.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has been elected to, and has agreed to serve in the
position of Senior Vice President-First Federal Savings for the Holding Company,
a positin of substantial responsibility;
NOW THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the Holding Company ("Board") may extend this Agreement for an
additional year. The Board will review the Agreement and the Executive's
performance annually for purposes of determining whether to extend this
Agreement, and the results thereof shall be included in the minutes of the
Board's meeting.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control of the Holding company (as
herein defined) followed at any time during the term of this Agreement by the
voluntary or involuntary termination of Executive's employment, other than for
Cause, as defined in Section 2 (c) hereof, the provisions of Section 3 shall
apply. Upon the occurrence of a Change In Control, Executive shall have the
right to elect to voluntarily terminate his employment at any time during the
term of this Agreement following any demotion, loss of title, office or
significant authority, reduction in his annual compensation or benefits, or
relocation of his principal place of employment by more than 30 miles from its
location immediately prior to the Change in Control.
(b) For purposes of this Plan, a "Change in Control" of the Association
or Holding Company shall mean an event of a nature that; (i) would be required
to be reported in response to Item 1(a)
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of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15 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 (ii) results in a Change in Control of the Association or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933 and the Rules
and Regulations promulgated by the Office of Thrift Supervision (or its
predecessor agency), as in effect on the date hereof (provided, that in applying
the definition of change in control as set forth under the rules and regulations
of the OTS, the Board shall substitute its judgment for that of the OTS).
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of a material loss to the Holding
Company or one of its affiliates caused by the Executive's intentional failure
to perform stated duties, personal dishonesty, incompetence, willful violation
of any law, rule, regulation (other than traffic violations or similar offenses)
or final cease and desist order, or any material breach of this Agreement. For
purposes of this Section, no act, or the failure to act, on Executive's part
shall be "willful" unless done, or omitted to be done, not in good faith and
without reasonable belief that the action or omission was in the best interest
of the Holding Company or its affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to him a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after termination for
Cause.
3. TERMINATION BENEFITS.
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Holding
Company shall be obligated to pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to three (3) times his
then current annual salary. At the election of the Executive such payment may be
made in a lump sum or paid in equal installment installments during the
thirty-six (36) months following the Executive's termination. In the event that
no election is made, payment to the Executive will be made on a basis basis
during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Association or the
Holding Company followed at any time during the term of this Agreement by the
Executive's voluntary or involuntary termination of employment, other than for
Termination for Cause, the Holding Company shall cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by the Association for the Executive prior to his severance,
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except to the extent such coverage may be changed in its application to all
Association employees. Such coverage and payments shall cease upon expiration of
thirty-six (36) months.
(c) As of the effective date of this Agreement, and annually as of the
first business day of January or soon thereafter, Executive shall make the
election referred to in Section 3(a) hereof with respect to whether the amounts
payable under said Section 3(a) shall be paid in a lump sum or on a basisbasis.
Such election shall be irrevocable for the year for which such election is made
and shall continue in effect until the Executive has made his next annual
election.
(d) Notwithstanding the preceding paragraphs of this Section 3, in no
event shall the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits") constitute an
"excess parachute payment" under Section 280G of the Code or any successor
thereto, and in order to avoid such a result Termination Benefits will be
reduced, if necessary, to an amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's "base amount", as determined in accordance with said Section 280G.
The allocation of the reduction required hereby among the Termination Benefits
provided by the preceding paragraphs of this Section 3 shall be determined by
the Executive.
4. NOTICE OF TERMINATION.
(a) Any purported termination by the Holding Company, or by the Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination which, in the instance of Termination for Cause, shall be immediate.
5. SOURCE OF PAYMENTS.
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company. The Holding Company, however, guarantees payment and provision of all
amounts and benefits due hereunder to the Executive and, if such amount and
benefits due from the Association are not timely paid or provided by the
Association, such amounts and benefits shall be paid and provided by the Holding
Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Holding Company and
Executive, except that this Agreement
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shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
Nothing in this Agreement shall confer upon the Executive the right to
continue in the employ of the Holding Company or shall impose on the Holding
Company any obligation to employ or retain the Executive in its employ for any
period.
7. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of
Executive, the Holding Company, and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REINSTATEMENT OF BENEFITS UNDER ASSOCIATION AGREEMENT.
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 9(b) of the Change in Control Agreement between Executive and the
Association dated agreedate (the "Association Agreement") during the term of
this Agreement and a Change in Control, as defined herein, occurs the Holding
Company will assume its obligation to pay and the Executive will be entitled to
receive all of the termination benefits provided for under Section 3 of the
Association Agreement upon the notification of the Holding company of the
Association's receipt of a dismissal of charges in the Notice.
10. EFFECT OF ACTION UNDER ASSOCIATION AGREEMENT.
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Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the Association
Agreement between Executive and Association, the amount of such payments and
benefits paid by the Association will be subtracted from any amount due
simultaneously to Executive under similar provisions of this Agreement.
11. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
12. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
13. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware, except to the
extent preempted by Federal law.
14. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Holding Company, in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
15. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
16. INDEMNIFICATION.
The Holding Company shall provide the Executive (including his heirs,
executors and
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administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
the Executive (and his heirs, executors and administrators) to the fullest
extent permitted under Delaware law and as provided in the Holding Company's
certificate of incorporation against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such
expenses and liabilities to include, but not be limited to, judgments, court
costs and attorneys' fees and the cost of reasonable settlements.
17. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
18. SIGNATURES.
IN WITNESS WHEREOF, First Palm Beach Bancorp, Inc. has caused this
Agreement to be executed by its duly authorized officer, and Executive has
signed this Agreement, on the 25th of September, 1996.
ATTEST: FIRST PALM BEACH BANCORP, INC.
/s/ John C. Trammel BY /s/ Louis O. Davis, Jr.
- --------------------------- ---------------------------
Secretary
WITNESS:
/s/ Elizabeth Cook /s/ Linda O. Terrell
- --------------------------- ----------------------------
Executive
SEAL
6
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____________________ EXHIBIT 10.17
RESOLUTIONS OF THE BOARD OF DIRECTORS OF
FIRST PALM BEACH BANCORP, INC. AWARDING RECOGNITION
AND RETENTION SHARES FOR OUTSIDE DIRECTORS
September 17, 1996
WHEREAS, The Board of Directors of First Federal Savings and Loan
Association of the Palm Beaches (the "Association") adopted the
Recognition and Retention Plan for Outside Directors (the "RRP") at the
[June 8, 1993] meeting and the RRP was subsequently approved by
stockholders of First Palm Beach Bancorp, Inc. (the "Company") at the
January 24, 1994 Annual Meeting of Stockholders; and
WHEREAS, The Board of Directors is considering electing Dr. Holly
Hadley and Dr. Daniel O. Sokoloff as members of the Board of Directors
of the Company and the Association.
WHEREAS, The Compensation Committee of the Board of Directors has
recommended to the Board that the Association grant to each of Dr.
Holly Hadley and Dr. Daniel O. Sokoloff a Plan Share Award (as defined
in the RRP) of 5,300 shares of Common Stock of the Company under the
RRP upon the election and qualification of each of them as a member of
the Board of Directors of the Company and the Association.
WHEREAS, In light of the increase in market value of the Common Stock
of the Company since the adoption of the RRP, the Board of Directors
considers it in the business interest of the Association to amend the
RRP to reduce the number of shares of Common Stock awarded to
non-employee directors elected to the Board of Directors of the
Association and its Affiliates after the date of the Association's
conversion from the mutual to the stock form of organization.
NOW THEREFORE BE IT RESOLVED, That the first paragraph of Section 6.02
of the RRP shall be amended in its entirety to read as follows:
1
<PAGE> 2
(b) Each individual who is first elected as an Outside
Director subsequent to the date of the Association's
Conversion ("Subsequent Outside Directors") shall be granted a
Plan Share Award of 5,300 Plan Shares subject to (a) above
(the "Fixed Award"), as of the effective date of such
election. Notwithstanding the preceding, no Plan Share Award
shall be made under this Plan to any Subsequent Outside
Director who at any previous time was an employee of either
the Company or the Association and in such capacity was
eligible for a Plan Share Award under the Association's
Recognition and Retention Plan for officers and employees.
BE IT FURTHER RESOLVED, That the Board of Directors grants to Dr. Holly
Hadley a Plan Share Award (as defined in the RRP) of 5,300 shares of
Common Stock of the Company under the RRP upon her election and
qualification as a member of the Board of Directors of the Company and
the Association upon such terms and conditions as provided in the RRP.
BE IT FURTHER RESOLVED, That the Board of Directors grants to Dr.
Daniel O. Sokoloff a Plan Share Award (as defined in the RRP) of 5,300
shares of Common Stock of the Company under the RRP upon his election
and qualification as a member of the Board of Directors of the Company
and the Association upon such terms and conditions as provided in the
RRP.
BE IT FURTHER RESOLVED, That the proper officers of the Association are
authorized to take such actions as are necessary or desirable in
connection with the foregoing resolutions.
BE IT FURTHER RESOLVED, That all actions heretofore taken by the
officers and directors of the Association relating to the foregoing
resolutions are hereby approved, ratified and confirmed in all
respects.
2
<PAGE> 1
EXHIBIT 10.18
RESOLUTIONS OF THE BOARD OF DIRECTORS OF
FIRST PALM BEACH BANCORP, INC. AWARDING STOCK
OPTION FOR OUTSIDE DIRECTORS
September 17, 1996
WHEREAS, The Board of Directors of First Palm Beach Bancorp, Inc. (the
"Company") adopted the 1993 Stock Option Plan for Outside Directors
(the "Option Plan") at the [June 8, 1993] Board meeting and the Option
Plan was subsequently approved by stockholders of the Company at the
January 24, 1994 Annual Meeting of Stockholders, and
WHEREAS, The Board of Directors is considering electing Dr. Holly
Hadley and Dr. Daniel O. Sokoloff as members of the Board of Directors
of the Company.
WHEREAS, The Compensation Committee of the Board of Directors has
recommended to the Board that the Company grant to each of Dr. Holly
Hadley and Dr. Daniel O. Sokoloff non-statutory stock options to
purchase 13,250 shares of Common Stock of the Company under the Option
Plan upon the election and qualification of each of them as a member of
the Board of Directors of the Company.
WHEREAS, in light of the increase in market value of the Common Stock
of the Company since the adoption of the Option Plan, the Board of
Directors considers it in the business interest of the Company to amend
the Option Plan to reduce the number of non-statutory stock options to
be granted to non-employee directors elected and qualified as members
of the Board of Directors after the effective date of the Option Plan.
NOW THEREFORE BE IT RESOLVED, That the first paragraph of Section 2(b)
of the Option Plan shall be amended in its entirety to read as follows:
(b) Grants to Subsequent Outside Directors. To the extent
options are available for grant under the Directors Option
Plan, each Outsider Director who is first elected as a
director subsequent to the Effective Date ("Subsequent Outside
Director") is hereby granted as of the date on which such
Subsequent Outside Director is qualified and first begins to
serve as an Outside Director, non-statutory stock options to
purchase 13,250 shares of Common Stock, subject to adjustment
pursuant to Section IV, or to purchase such lesser number of
shares of Common Stock as remain in this Directors Option
Plan.
BE IT FURTHER RESOLVED, That the Board of Directors grants to Dr. Holly
Hadley non-statutory stock options to purchase 13,250 shares of Common
Stock
1
<PAGE> 2
of the Company under the Option Plan upon her election and
qualification as a member of the Board of Directors of the Company upon
such terms and conditions as provided in the Option Plan.
BE IT FURTHER RESOLVED, That the Board of Directors grants to Dr.
Daniel O. Sokoloff non-statutory stock options to purchase 13,250
shares of Common Stock of the Company under the Option Plan upon his
election and qualification as a member of the Board of Directors of the
Company upon such terms and conditions as provided in the Option Plan.
BE IT FURTHER RESOLVED, That the proper officers of the Company are
authorized to take such actions as are necessary or desirable in
connection with the foregoing resolutions.
BE IT FURTHER RESOLVED, That all actions heretofore taken by the
officers and direcFtors of the Company on behalf of the Company
relating to the foregoing resolutions are hereby approved, ratified and
confirmed in all respects.
2
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-75524 on Form S-8 of First Palm Beach Bancorp, Inc. of our report dated
December 10, 1996 appearing in this Annual Report on Form 10-K of First Palm
Beach Bancorp, Inc. for the year ended September 30, 1996.
/s/ Deloitte & Touche LLP
Certified Public Accountants
West Palm Beach, Florida
December 17, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
EXHIBIT 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION FOR THE PERIOD ENDED SEPTEMBER 30,
1996 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER
30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS FILED WITH FORM 10-K FOR THE PERIOD ENDED SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 19,438
<INT-BEARING-DEPOSITS> 141,975
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 133,417
<INVESTMENTS-CARRYING> 133,388
<INVESTMENTS-MARKET> 134,537
<LOANS> 1,019,736
<ALLOWANCE> 11,855
<TOTAL-ASSETS> 1,490,020
<DEPOSITS> 1,136,722
<SHORT-TERM> 75,000
<LIABILITIES-OTHER> 27,756
<LONG-TERM> 136,025
0
0
<COMMON> 55
<OTHER-SE> 105,370
<TOTAL-LIABILITIES-AND-EQUITY> 1,490,020
<INTEREST-LOAN> 84,090
<INTEREST-INVEST> 18,617
<INTEREST-OTHER> 825
<INTEREST-TOTAL> 103,532
<INTEREST-DEPOSIT> 48,614
<INTEREST-EXPENSE> 61,300
<INTEREST-INCOME-NET> 42,232
<LOAN-LOSSES> 15,704
<SECURITIES-GAINS> 1,022
<EXPENSE-OTHER> 35,602
<INCOME-PRETAX> 995
<INCOME-PRE-EXTRAORDINARY> 995
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 549
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<YIELD-ACTUAL> 3.18
<LOANS-NON> 12,659
<LOANS-PAST> 172
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 6,524
<ALLOWANCE-OPEN> 2,157
<CHARGE-OFFS> 8,630<F1>
<RECOVERIES> 371<F1>
<ALLOWANCE-CLOSE> 11,855
<ALLOWANCE-DOMESTIC> 11,855
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>CHARGE-OFFS AND RECOVERIES EXCLUDE AN INCREASE IN ALLOWANCE DUE TO THE
ACQUISITION OF FBS FINANCIAL CORP. OF $2,253.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99
FIRST PALM BEACH BANCORP, INC.
215 SOUTH OLIVE AVENUE
WEST PALM BEACH, FLORIDA 33401-5685
December 19, 1996
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders
(the "Annual Meeting") of First Palm Beach Bancorp, Inc. (the "Company"), the
holding company for First Bank of Florida (the "Bank"), formerly First Federal
Savings and Loan Association of the Palm Beaches, West Palm Beach, Florida,
which will be held on Tuesday, January 21, 1997 at 9:30 a.m., Eastern Standard
time, in the Polo Room at the Sheraton West Palm Beach Hotel, 630 Clearwater
Park Road, West Palm Beach, Florida 33401.
The attached Notice of the Annual Meeting and the Proxy Statement
describe the business to be transacted at the Annual Meeting. Directors and
officers of First Palm Beach Bancorp, Inc., as well as representatives of
Deloitte & Touche LLP, the Company's independent auditors, will be present at
the meeting to respond to any questions that our stockholders may have regarding
the business to be transacted.
The Board of Directors of First Palm Beach Bancorp, Inc. has determined
that the matters to be considered at the meeting are in the best interests of
the Company and its stockholders. For the reasons set forth in the Proxy
Statement, the Board unanimously recommends a vote "FOR" each matter to be
considered.
PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. YOUR
COOPERATION IS APPRECIATED SINCE A MAJORITY OF THE COMMON STOCK MUST BE
REPRESENTED, EITHER IN PERSON OR BY PROXY, TO CONSTITUTE A QUORUM FOR THE
CONDUCT OF BUSINESS.
On behalf of the Board of Directors and all of the employees of the
Company and the Bank, I wish to thank you for your continued support. We
appreciate your interest.
Sincerely yours,
Louis O. Davis, Jr.
President and Chief Executive Officer
<PAGE> 2
FIRST PALM BEACH BANCORP, INC.
215 SOUTH OLIVE AVENUE
WEST PALM BEACH, FLORIDA 33401-5685
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 21, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of First Palm Beach Bancorp, Inc. will be held on January 21,
1997, at 9:30 a.m., Eastern Standard time, in the Polo Room of the Sheraton West
Palm Beach Hotel, 630 Clearwater Park Road, West Palm Beach, Florida 33401.
The Annual Meeting is for the purpose of considering and voting upon
the following matters:
1. The election of three directors for terms of three years each,
and the election of one director to serve a one year term;
2. The approval of an amendment to the First Palm Beach Bancorp,
Inc. 1993 Incentive Stock Option Plan to authorize an
additional 250,000 shares of Common Stock of the Company
available for issuance pursuant to option grants under such
plan;
3. The ratification of Deloitte & Touche LLP as independent
auditors of the Company for the fiscal year ending September
30, 1997; and
4. Such other matters as may properly come before the meeting or
any adjournments thereof.
The Board of Directors has established November 25, 1996 as the record
date for the determination of stockholders entitled to notice of and to vote at
the Annual Meeting and at any adjournments thereof. Only recordholders of the
Common Stock of the Company as of the close of business on that date will be
entitled to vote at the Annual Meeting or any adjournments thereof. In the event
there are not sufficient votes for a quorum or to approve or ratify any of the
foregoing proposals at the time of the Annual Meeting, the Annual Meeting may be
adjourned in order to permit further solicitation of proxies by the Company. A
list of stockholders entitled to vote at the Annual Meeting will be available at
First Palm Beach Bancorp, Inc., 215 South Olive Avenue, West Palm Beach, Florida
33401-5685 for a period of ten days prior to the Annual Meeting and will also be
available at the Annual Meeting.
By Order of the Board of Directors
John C. Trammel
Secretary
West Palm Beach, Florida
December 19, 1996
<PAGE> 3
FIRST PALM BEACH BANCORP, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 21, 1997
SOLICITATION AND VOTING OF PROXIES
This proxy statement is being furnished to stockholders of First Palm
Beach Bancorp, Inc. (the "Company") in connection with the solicitation by the
Board of Directors of the Company (the "Board of Directors" or the "Board") of
proxies to be used at the annual meeting of stockholders to be held on January
21, 1997 ("Annual Meeting"), and at any adjournments thereof. The 1996 Annual
Report to Stockholders, including the consolidated financial statements for the
fiscal year ended September 30, 1996, accompanies this proxy statement, which is
first being mailed to recordholders on or about December 19, 1996.
Regardless of the number of shares of common stock of the Company
("Common Stock") owned, it is important that recordholders of a majority of the
shares be represented by proxy or present in person at the Annual Meeting.
Stockholders are requested to vote by completing the enclosed proxy card and
returning it signed and dated in the enclosed postage-paid envelope.
Stockholders are urged to indicate their vote in the spaces provided on the
proxy card. PROXIES SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY WILL BE
VOTED IN ACCORDANCE WITH THE DIRECTIONS GIVEN THEREIN. WHERE NO INSTRUCTIONS ARE
INDICATED, SIGNED PROXY CARDS WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR
DIRECTOR NAMED IN THIS PROXY STATEMENT, FOR THE AMENDMENT TO THE 1993 INCENTIVE
STOCK OPTION PLAN AND FOR THE RATIFICATION OF INDEPENDENT AUDITORS.
Other than the matters listed on the attached Notice of Annual Meeting
of Stockholders, the Board of Directors knows of no matters that will be
presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxyholders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting or any adjournments
thereof.
A proxy may be revoked at any time prior to its exercise by the filing
of a written notice of revocation with the Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. However, if you are a
stockholder whose shares are not registered in your own name, you will need
appropriate documentation from your recordholder to vote personally at the
Annual Meeting.
The cost of solicitation of proxies on behalf of the Board will be
borne by the Company. In addition to the solicitation of proxies by mail, D. F.
King & Co., Inc., a proxy solicitation firm, will
1
<PAGE> 4
assist the Company in soliciting proxies for the Annual Meeting and will be paid
a fee of $3,500, plus out-of-pocket expenses. Proxies may also be solicited
personally or by telephone or telecopier by directors, officers and employees of
the Company and its subsidiary, First Bank of Florida (the "Bank"), without
additional compensation therefor. The Company will also request persons, firms
and corporations holding shares in their names, or in the names of their
nominees, which are beneficially owned by others, to send the proxy materials to
and obtain proxies from such beneficial owners, and will reimburse such holders
for their reasonable expenses in doing so.
VOTING SECURITIES
The securities which may be voted at the Annual Meeting consist of
shares of Common Stock with each share entitling its owner to one vote on all
matters to be voted on at the Annual Meeting.
There is no cumulative voting for the election of directors.
The close of business on November 25, 1996 has been fixed by the Board
of Directors as the record date (the "Record Date") for the determination of
stockholders of record entitled to notice of and to vote at the Annual Meeting
and any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 5,069,097 shares.
As provided in the Company's Certificate of Incorporation,
recordholders of Common Stock who beneficially own in excess of 10% of the
outstanding shares of Common Stock (the "Limit") are not entitled to vote in
respect of the shares held in excess of the Limit. A person or entity is deemed
to beneficially own shares owned by an affiliate of, as well as persons acting
in concert with, such person or entity. The Company's Certificate of
Incorporation authorizes the Board of Directors (i) to make all determinations
necessary to implement and apply the Limit, including determining whether
persons or entities are acting in concert, and (ii) to demand that any person
who is reasonably believed to beneficially own stock in excess of the Limit to
supply information to the Company to enable the Board to implement and apply the
Limit.
The presence, in person or by proxy, of the holders of at least a
majority of the total number of shares of Common Stock entitled to vote (after
subtracting shares in excess of the Limit pursuant to the Company's Certificate
of Incorporation) is necessary to constitute a quorum at the Annual Meeting. In
the event there are not sufficient votes for a quorum or to approve or ratify a
proposal at the time of the Annual Meeting, the Annual Meeting may be adjourned
to permit the further solicitation of proxies.
As to the election of directors, the proxy card being provided by the
Board of Directors enables a stockholder to vote for the election of the
nominees proposed by the Board, or to withhold authority to vote for one or more
of the nominees being proposed. Under Delaware law and the Company's Certificate
of Incorporation and Bylaws, directors are elected by a plurality of shares
voted, without regard to either (i) broker non-votes, or (ii) proxies as to
which authority to vote for one or more of the nominees being proposed is
withheld.
2
<PAGE> 5
As to the matter being proposed for stockholder approval set forth in
Proposal 2, the proxy card being provided by the Board of Directors enables a
stockholder to check the appropriate box on the proxy card to (i) vote "FOR" the
item, (ii) vote "AGAINST" the item, or (iii) "ABSTAIN" from voting on such item.
An affirmative vote of the holders of a majority of the shares of Common Stock
present at the Annual Meeting, in person or by proxy, and entitled to vote is
required to constitute stockholder approval of this proposal. Shares as to which
the "ABSTAIN" box has been selected on the proxy card with respect to Proposal 2
will be counted as present and entitled to vote and will have the effect of a
vote against the matter. Shares underlying broker non-votes or in excess of the
Limit will not be counted as present and entitled to vote and therefore will
have no effect on the vote on Proposal 2.
As to the ratification of Deloitte & Touche LLP as independent auditors
of the Company and all other matters that may properly come before the Annual
Meeting, by checking the appropriate box, a stockholder may: (i) vote "FOR" the
item; (ii) vote "AGAINST" the item; or (iii) "ABSTAIN" with respect to the item.
All such matters shall be determined by a majority of the votes cast, without
regard to either (a) broker non-votes or (b) proxies marked "ABSTAIN" as to that
matter.
Proxies solicited hereby will be returned to Chase Mellon Shareholder
Services and will be tabulated by inspectors of election designated by the
Board, who will not be employed by, or a director of, the Company or any of its
affiliates. After the final adjournment of the Annual Meeting, the proxies will
be returned to the Board for safekeeping.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as to those persons
who have disclosed in certain reports filed with the Company and with the
Securities and Exchange Commission (the "SEC") in accordance with Section 13(d)
or 13(g) of the Securities and Exchange Act of 1934, as amended, ("Exchange
Act") beneficial ownership of more than 5% of the Company's outstanding shares
of Common Stock on the Record Date. Other than those persons listed below, the
Company is not aware of any person or group, as that term is defined in Section
13(d)(3) of the Exchange Act, that owns more than 5% of the Company's
outstanding Common Stock as of the Record Date.
3
<PAGE> 6
<TABLE>
<CAPTION>
Name and Address Number of Percent of
Title of Class of Beneficial Owner Shares Class
- -------------- ------------------- ------ -----
<S> <C> <C> <C>
Common Stock First Federal Savings and Loan 384,215 7.58%
Association of the Palm Beaches
Employee Stock Ownership
Plan ("ESOP")(1)
215 South Olive Avenue
West Palm Beach, FL 33401
</TABLE>
- ----------------
(1) Marine Midland Bank, as the trustee for the ESOP ("ESOP Trustee"), must
vote all allocated shares held in the ESOP in accordance with the
instructions of the participants. As of the Record Date, 154,265 shares
of Common Stock in the ESOP are held in the participants' allocated
accounts. Each participant will be deemed to have one share of Common
Stock in the ESOP allocated to him or her for the purpose of providing
the ESOP Trustee with voting instructions. Under the ESOP, unallocated
shares held in the suspense account will be voted by the ESOP Trustee
in a manner calculated to most accurately reflect the instructions
received from participants regarding the allocated stock so long as
such vote is in accordance with the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). T. R.
Moffett, Fred A. Greene, Louis O. Davis, Jr. and R. Randy Guemple
administer the ESOP as a committee, and have no voting or investment
power over shares of Common Stock held in the ESOP.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors, executive
officers and 10% beneficial owners of the Company's Common Stock to file reports
concerning their ownership of Common Stock. During fiscal year ending 1996, all
stock ownership reports required to be filed by reporting persons of the Company
were timely filed, except one report relating to one transaction for each of
Messrs. Moffett, Miller and Greene which were inadvertently reported on an
incorrect form.
4
<PAGE> 7
PROPOSALS TO BE VOTED ON AT THE MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
At its August 20, 1996 meeting the Board of Directors approved a motion
to increase the number of members serving on the Board of Directors of the
Company from six to eight. All the members of the Board of Directors of the
Company also presently serve as directors of the Bank. Directors are elected
into one of three classes, which have staggered terms of three years each with a
term of office of only one of the three classes of directors expiring each year.
Directors serve until their successors are elected and qualified.
The nominees proposed for election at the Annual Meeting are Louis O.
Davis, Jr., Fred A. Greene, and Daniel O. Sokoloff, M.D. for terms of three
years each; and Holly W. Hadley, M.D. for a one-year term. The nominees for
directors are not being proposed for election pursuant to any agreement or
understanding between any person and the Company.
In the event that any of the nominees are unable to serve or decline to
serve for any reason, the proxies will be voted for the election of such other
person as may be designated by the current Board of Directors. The Board of
Directors has no reason to believe that any of the nominees will be unable or
unwilling to serve. UNLESS AUTHORITY TO VOTE FOR THE NOMINEE IS WITHHELD, THE
SHARES REPRESENTED BY THE ENCLOSED PROXY CARD, IF EXECUTED AND RETURNED, WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES PROPOSED BY THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
INFORMATION WITH RESPECT TO THE NOMINEES, CONTINUING DIRECTORS AND EXECUTIVE
OFFICERS
The following table sets forth, as of November 25, 1996, the names of
the nominees and the continuing directors and executive officers of the Company,
their ages, a brief description of their recent business experience, including
present occupations and employment, certain directorships held by each, the year
in which each became a director, and the year in which their terms (or in the
case of the nominees, their proposed terms) as directors of the Company expire.
The table also sets forth the amount of Common Stock and the percentage of
outstanding Common Stock of the Company beneficially owned by each director and
executive officer and by all directors and executive officers as a group as of
November 25, 1996.
5
<PAGE> 8
<TABLE>
<CAPTION>
SHARES OF
EXPIRATION OF COMMON STOCK OWNERSHIP AS
NAME AND PRINCIPAL OCCUPATION AT DIRECTOR TERM AS BENEFICIALLY A PERCENT OF
PRESENT AND FOR THE PAST FIVE YEARS AGE SINCE(1) DIRECTOR OWNED CLASS
- ----------------------------------- --- --------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
NOMINEES
Louis O. Davis, Jr. 50 1994 2000 83,541(3) 1.65%
President and Chief Executive Officer
of the Company and the Bank
from 1994 to present;
Executive Vice President of the
Company and the Bank from
1991 to 1994; Chief Operating Officer
of the Bank from 1991 to 1994;
Senior Vice President of the
Bank from 1981 to 1991 (2).
Fred A. Greene 65 1984 2000 47,881(4) *
Chairman of the Board (since 1986),
President and Chief Executive Officer,
Gee & Jenson Engineers, Architects &
Planners, Inc. from 1990 to present.
Holly W. Hadley, M.D. 45 1996 1998 18,550(5) *
Family Practice
West Palm Beach, Florida
from 1990 to present
Daniel O. Sokoloff, M.D. 45 1996 2000 18,550(6) *
Dermatology
West Palm Beach, Florida
from 1982 to present.
CONTINUING DIRECTORS
William W. Lynch 70 1989 1999 41,681(7) *
Chairman of the Board of the
Company and the Bank from
1994 to present; President and
Chief Executive Officer of the
Company from 1993 to 1994; President
and Chief Executive Officer of the
Bank from 1989 to 1994; Executive
Vice President of the Bank from 1966
to 1989.
Edward M. Eissey 68 1976 1998 27,066(8) *
Vice Chairman of the Board of the
Company and the Bank from 1994 to
present; Chairman of the Board of
the Bank from 1987 to 1994; President,
Palm Beach Community College from
1978 to present.
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
SHARES OF
EXPIRATION OF COMMON STOCK OWNERSHIP AS
NAME AND PRINCIPAL OCCUPATION AT DIRECTOR TERM AS BENEFICIALLY A PERCENT OF
PRESENT AND FOR THE PAST FIVE YEARS AGE SINCE(1) DIRECTOR OWNED CLASS
- ----------------------------------- --- --------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Robert P. Miller 57 1977 1999 35,361(9)(10) *
Insurance Agent,
State Farm Insurance
Company, Delray Beach, Florida
from 1968 to present.
T. R. Moffett 69 1977 1998 36,632(9)(12) *
Vice Chairman of the Board of the
Bank from 1987 to 1994; Vice
President of Florida Power & Light
Company - Eastern Division, from
1978 to 1991, retired since 1991(11).
Named Executive Officers
(who are not directors)
R. Randy Guemple 45 -- -- 26,967(14) *
Executive Vice President and Chief
Operating Officer of the
Company and the Bank from
July 1996 to present;
Senior Vice President,
Treasurer, and Chief Financial
Officer of the Company and the
Bank from 1992 to present;
Treasurer of First Bank of
Florida Mortgage Corporation
(formerly First Federal
Mortgage Corporation) and The
Big First, Inc. from 1993 to
present; Treasurer of First
Corporate Center, Inc. from
1995 to present; Treasurer of
Retail Investment Corp., Inc.
from 1994 to present; Vice
President and Chief Financial
Officer of The First F.A.,
Orlando, Florida from 1982
to 1992(13).
John M. Ahrenholz 42 -- -- 19,957(16) *
Senior Vice President of Lending
Division of the Bank from 1994 to
present; Senior Vice
President of Mortgage
Department of the Bank from
1983 to 1994; Vice President of
Mortgage Department of the
Bank from 1982 to 1983;
President of First Bank of
Florida Mortgage Corporation from
1984 to present; President of The Big
First, Inc. from 1985 to present (15).
</TABLE>
7
<PAGE> 10
<TABLE>
<CAPTION>
Shares of
OTHER EXECUTIVE OFFICERS Expiration of Common Stock Ownership As
(WHO ARE NOT DIRECTORS OR NAMED Director Term as Beneficially a Percent of
EXECUTIVE OFFICERS) Age Since (1) Director Owned Class
--- --------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
John A. Rudy 56 -- -- 30,022 (18) *
Senior Vice President and
Investment Officer of the Bank
from 1991 to present;
Vice President and Investment
Officer of the Bank from 1983 to
1991; Vice President of First Bank
of Florida Mortgage Corporation
from 1994 to present(17).
John C. Trammel 39 -- -- 35,209 (20) *
Senior Vice President and
Corporate Secretary of the Company
and the Bank from
1993 to present;
Vice President and
Corporate Secretary of
the Bank from
1991 to 1992; Vice President
and Branch Manager of the
Bank from 1981 to 1992;
Secretary of First Bank of
Florida Mortgage
Corporation and The Big First Inc.
from 1993 to present; Secretary of
Retail Investment Corp., Inc. from
1994 to present (19).
All directors and executive officers (371,374)(21) 7.33%
as a group (12 persons)
</TABLE>
- -------------------------------
*Does not exceed 1.0% of the
Company's outstanding Common Stock.
8
<PAGE> 11
(1) Includes years of service as a director of the Bank prior to formation
of the Company.
(2) Mr. Davis is also a director of Retail Investment Corp., Inc. and First
Corporate Center, Inc., subsidiaries of the Bank.
(3) Mr. Davis possesses sole voting power as to 31,526 shares which
includes 4,493 shares held in trust under the Bank's ESOP. Mr. Davis
possesses sole investment power as to 27,033 shares and shares voting
and investment power as to 16,681 shares held by the Pension Plan as a
member of the Pension Plan Committee. Includes 35,334 currently
exercisable options to purchase the Company's Common Stock granted
pursuant to the Company's 1993 Incentive Stock Option Plan.
(4) Mr. Greene possesses sole voting and investment power as to 8,974
shares. Mr. Greene shares voting and investment power as to 16,681
shares held by the Pension Plan as a member of the Pension Plan
Committee. Also includes 22,226 shares of an original 26,500 options to
purchase the Company's Common Stock granted under the Company's 1993
Stock Option Plan for Outside Directors, all of which became
exercisable upon the date of grant.
(5) Dr. Hadley possesses sole voting power as to 5,300 shares awarded
pursuant to the Bank's Recognition and Retention Plan for Outside
Directors, which will vest at a rate of 33 1/3%, each year, commencing
September 17, 1997. Includes 13,250 currently exercisable options to
purchase the Company's Common Stock granted to the Company's 1993 Stock
Option Plan for Outside Directors.
(6) Dr. Sokoloff possesses sole voting power as to 5,300 shares awarded
pursuant to the Bank's Recognition and Retention Plan for Outside
Directors, which will vest at a rate of 33 1/3%, each year, commencing
September 17, 1997. Includes 13,250 currently exercisable options to
purchase the Company's Common Stock granted to the Company's 1993 Stock
Option Plan for Outside Directors.
(7) Mr. Lynch possesses sole voting and investment power as to 25,000
shares. Mr. Lynch shares voting and investment power as to 16,681
shares held by the Pension Plan as a member of the Pension Plan
Committee.
(8) Dr. Eissey possesses sole voting and investment power as to 7,066
shares. Also includes 20,000 options of an original 26,500 options
granted pursuant to the Company's 1993 Stock Option Plan for Outside
Directors, all of which became exercisable upon the date of grant.
(9) Includes 26,500 options to purchase the Company's Common Stock granted
pursuant to the Company's 1993 Stock Option Plan for Outside Directors,
all of which became exercisable upon the date of grant.
(10) Mr. Miller possesses sole voting and investment power as to 8,861
shares.
(11) Mr. Moffett resigned as director of Acordia of South Florida, Inc. in
February 1996.
(12) Mr. Moffett possesses sole voting and investment power as to 10,132
shares.
(13) Mr. Guemple is a director of The Big First, Inc., First Bank of Florida
Mortgage Corporation, First Corporate Center, Inc., and Retail
Investment Corp, Inc., all of which are subsidiaries of the Bank. The
First, F.A. was a mutual savings and loan with assets exceeding $1.0
billion for which Mr. Guemple handled all finances.
(14) Mr. Guemple possesses sole voting power as to 8,067 shares, which
include 2,252 shares held in trust under the Bank's ESOP. Mr. Guemple
possesses sole investment power as to 5,815 shares. Includes 18,900
currently exercisable options to purchase the Company's Common Stock
granted pursuant to the Company's 1993 Incentive Stock Option Plan.
(15) Mr. Ahrenholz is a director of The Big First, Inc. and First Bank of
Florida Mortgage Corporation, subsidiaries of the Bank.
(16) Mr. Ahrenholz possesses sole voting power as to 4,157 shares which
includes 3,047 shares held in trust under the Bank's ESOP. Mr.
Ahrenholz also possesses sole investment power as to 10 shares held in
the Bank's Employee Stock Purchase Program (a non-qualified payroll
savings plan) and 1,000 shares held directly. Includes 15,900 currently
exercisable options to purchase the Company's Common Stock granted
pursuant to the Company's 1993 Incentive Stock Option Plan.
(17) Mr. Rudy is director of First Bank of Florida Mortgage Corporation.
(18) Mr. Rudy possesses sole voting power as to 14,122 shares which includes
2,914 shares held in trust under the Bank's ESOP, 2,000 shares held
indirectly, and 219 shares held in the Bank's Employee Stock Purchase
Program (a non-qualified payroll savings plan). Includes 15,900
currently exercisable options to purchase the Company's Common Stock
granted pursuant to the Company's 1993 Incentive Stock Option Plan.
(19) Mr. Trammel is a director of The Big First, Inc. First Bank of Florida
Mortgage Corporation and First Corporate Center, Inc., all of which are
subsidiaries of the Bank.
9
<PAGE> 12
(20) Mr. Trammel possesses sole voting and investment power as to 3,204
shares. Mr. Trammel also possesses sole voting power as to 1,924 shares
held in trust under the Bank's ESOP. Mr. Trammel shares voting and
investment power as to 16,681 shares held by the Pension Plan as a
member of the Pension Plan Committee. Includes 13,400 currently
exercisable options to purchase the Company's Common Stock granted
pursuant to the Company's 1993 Incentive Stock Option Plan.
(21) Includes a total of 121,726 exercisable options granted to Drs. Eissey,
Hadley and Sokoloff, and Messrs. Moffett, Miller, and Greene pursuant
to the Company's 1993 Incentive Stock Option Plan for Outside Directors
and 99,434 exercisable options granted to Messrs. Davis, Guemple,
Ahrenholz, Trammel, and Rudy pursuant to the Company's 1993 Incentive
Stock Option Plan.
10
<PAGE> 13
MEETINGS OF THE BOARD AND COMMITTEES OF THE BOARD
The Board of Directors of the Company conducts its business through
meetings of the Board and meetings of its committees. The Board of Directors of
the Company meets monthly and may have additional meetings as needed. During
fiscal 1996, the Board of Directors of the Company met 12 times. All of the
directors of the Company attended at least 75% of the total number of meetings
of the Company's Board of Directors and of all committees on which they served
during fiscal 1996. The Board of Directors of the Company maintains committees,
the nature and composition of which are described below.
AUDIT COMMITTEE. The Audit Committee of the Company consists of Dr.
Eissey and Messrs. Miller and Moffett, all of whom are outside directors. This
committee meets on a quarterly basis. Its duties include (1) recommending the
selection of an independent auditor; (2) reviewing the scope of the audit to be
conducted by the auditor, as well as the results of its audit, and (3) reviewing
the organization and scope of the Company's and the Bank's internal system of
audit and financial controls. The Audit Committee met four times during fiscal
1996.
NOMINATING COMMITTEE. The Company's Nominating Committee for the
January 21, 1997 Annual Meeting consisted of Dr. Eissey, and Messrs. Lynch,
Moffett, and Miller. The Committee considers and recommends the nominees for
Director to stand for election at the Company's annual meeting of stockholders.
The Company's Certificate of Incorporation and Bylaws provide for stockholder
nominations of Directors. These provisions require such nominations to be made
pursuant to timely notice in writing to the Secretary of the Company. The
stockholder's Notice of Nomination must contain all information relating to the
nominee which is required to be disclosed by the Company's Bylaws and by the
Exchange Act (see "Additional Information - Notice of Business to Be Conducted
at an Annual Meeting"). The Nominating Committee met once during fiscal 1996.
COMPENSATION COMMITTEE. The Board of Directors of the Company renamed
the members of the Compensation Committee of the Company at the September 1996
Board meeting. The Company's Compensation Committee consists of Messrs. Moffett
and Greene who are non-employee directors of the Company. The duties of this
committee include establishing and reviewing the Company's compensation
programs. During fiscal 1996, the committee met once with respect to review and
pre-approval of option grants to newly elected directors (see "Executive
Compensation" below).
DIRECTORS' COMPENSATION
DIRECTORS' FEES. Directors of the Company do not receive any fees or
retainers for serving on the Company's Board of Directors. Directors of the Bank
receive an annual retainer from the Bank as directors' fees for services to the
Bank. For fiscal 1996, the directors of the Bank received a retainer of $23,500.
Additional fees are not paid for attendance at board or committee meetings.
Directors cannot be absent from more than three consecutive regular Board
meetings, unless such absences are excused by the entire Board.
11
<PAGE> 14
DIRECTORS' OPTION PLAN. The Company adopted the 1993 Stock Option Plan
for Outside Directors for all directors and directors emeriti who are not also
employees of the Company or the Bank. This Stock Option Plan was ratified by the
stockholders of the Company at the Company's January 25, 1994 Annual Meeting.
In 1996, the Board of Directors amended the Stock Option Plan to reduce
the size of initial option awards to outside directors from 26,500 options to
13,250 options. Pursuant to the terms of the Stock Option Plan, as amended, upon
election to the Board of Directors, Drs. Hadley and Sokoloff were each granted
13,250 options with an exercise price of $22.9375 which options are currently
exercisable and expire on September 17, 2006.
12
<PAGE> 15
BANK RECOGNITION AND RETENTION PLAN FOR OUTSIDE DIRECTORS. The Bank has
established the First Federal Saving and Loan Association of the Palm Beaches
Recognition and Retention Plan for Outside Directors (the "DRP") as a method of
providing directors and directors emeriti with a proprietary interest in the
Company to encourage them to continue to serve the Company and the Bank. The DRP
was ratified by the stockholders of the company at the Company's January 25,
1994 Annual Meeting.
OTHER ARRANGEMENTS. The Bank engaged the services of Mr. Lynch to
provide advice and consultation to the Bank as set forth in a Consulting
Agreement effective as of August 1, 1994. The Bank compensated Mr. Lynch $20,667
for consulting services during fiscal 1996. The Consulting Agreement is
renewable annually for additional one year terms upon mutual written agreement
of Mr. Lynch and the Board of Directors of the Bank.
EXECUTIVE COMPENSATION
The Compensation Committee Report on Executive Compensation and the
Stock Performance Graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933, as amended (the "Securities Act"), or
the Exchange Act, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION. The
Compensation Committee of the Bank (the "Compensation Committee"), at the
direction of the Board of Directors of the Bank, prepared the following report:
Currently, the individuals serving as Chief Executive Officer and
executive officers of the Company also serve as Chief Executive Officer and
executive officers, respectively, of the Bank. At present, these officers are
compensated for services rendered by them to the Bank, but not for services
rendered by them to the Company. Therefore, the Compensation Committee
determines the compensation of the Chief Executive Officer and the other
executive officers of the Bank. The members of the Bank's Compensation Committee
also serve as members of the Company's Compensation Committee and together form
the Joint Compensation Committee for purposes of reviewing incentive stock
option grants to officers and employees in conjunction with Rule 16b-3 of the
Securities Exchange Act of 1934, as amended.
In fiscal 1996, the members of the Compensation Committee were Messrs.
Moffett (Chairman) and Greene, both non-employee directors of the Bank. The
Compensation Committee meets in July to review the Chief Executive Officer's
compensation level and executive officer promotions. Also, the Compensation
Committee meets in November of each year in order to determine changes in
executive compensation effective January 1 of each year. The Compensation
Committee met twice during fiscal 1996.
13
<PAGE> 16
Compensation Policy
The Compensation Committee develops and approves all of the policies
under which compensation is paid or awarded to the Bank's executive officers.
The Bank's compensation programs are aimed at linking compensation to sustained
progress, growth and profitability of the Bank, and providing a competitive
compensation program that will attract, retain, activate and reward qualified
individuals as executive officers.
The principal elements of the Bank's compensation program include base
annual salary, grants of restricted stock under the Bank's Recognition and
Retention Plan for Officers and Employees, and grants of stock options under the
1993 Incentive Stock Option Plan. The compensation package for executive
officers, including the Chief Executive Officer of the Bank, also provides
participation in the Bank's Pension Plan and Employee Stock Ownership Plan and
awards of cash bonuses.
Base Annual Salary
The Compensation Committee annually reviews the compensation levels for
the Chief Executive Officer and other executive officers and considers the
compensation practices of companies of comparable asset size and geographical
location by reviewing salary surveys compiled by independent organizations. The
Compensation Committee determined the base salaries for fiscal 1996 after
reviewing the SNL Compensation Review of Thrift Institutions for 1995 (the "SNL
Survey"), the Sheshunoff Bank Executive Survey, and peer group surveys
positioned according to asset size and geographic location (collectively, the
"Surveys"). A majority of the companies surveyed in the SNL Survey are included
in the SNL Southeast Thrift Index shown in the Performance Graph. The
Compensation Committee considered the performance of the Bank relative to the
companies in the Surveys and compared the Committee's proposed salary
adjustments (in terms of percentage change, dollar adjustment and promotion of
the executive officer, if any) to prior year salaries paid by the Bank and by
companies in the Surveys.
In addition to reviewing the Surveys to evaluate salary adjustments for
fiscal 1996, the Compensation Committee considered each executive officer's
level of responsibility and performance in his or her position, including the
individual's competency skill and experience. The Compensation Committee also
considered the performance of the Bank relative to its peer group and the rise
in the annual cost of living in determining base annual salary for fiscal 1996.
For fiscal 1996, the Compensation Committee predominantly set base
annual salaries for the Bank's executive officers in the median range of the
salaries contained in the SNL Survey. Adjustments to base annual salary for
fiscal 1996 ranged from a base salary increase of 4.0% to 13.2% for the Bank's
executive officers, other than Mr. Guemple. Mr. Guemple received a 20.3%
increase in base annual salary as a result of his July 1996 promotion from Chief
Financial Officer to Executive Vice President and Chief Operating Officer. In
instances in which an executive officer's salary was at or above the median
salary level for executives in a similar position of responsibility in other
companies as shown in the Surveys, the base salary increase was determined by
the executive officer's performance and contribution to the overall
profitability of the Bank. Base salary increases
14
<PAGE> 17
of 5% or more were generally limited to executive officers whose base salary was
below the median salary shown in the Surveys. The base annual salaries paid to
the five most senior executive officers (excluding the Chief Executive Officer)
increased an average of 10.0% from base salaries paid to these officers in
fiscal 1995.
Recognition and Retention Plan and Incentive Stock Option Plan
After the Conversion of the Bank from a mutual savings and loan to a
stock institution in 1993, the Bank discontinued its practice of offering an
incentive compensation plan for officers of the Bank. In lieu of this plan, and
as permitted by OTS regulations and upon approval by the stockholders of the
Company, the Bank established the Recognition and Retention Plan for Officers
and Employees and the 1993 Incentive Stock Option Plan. Stock grants available
under these plans are aimed at aligning key employees' long-range interests with
those of the stockholders by providing an opportunity for key employees to
build, through the achievement of corporate goals, a meaningful stake in the
Company by owning and retaining stock in the Company.
The Compensation Committee exercises discretion with respect to the
timing and amount of awards to be made under the Recognition and Retention Plan
and the Incentive Stock Option Plan. In assessing whether to award stock options
and restricted stock, the Compensation Committee focuses on the Bank's
attainment of established corporate performance goals while keeping in mind the
importance of ensuring that the Bank's executive compensation packages remain
competitive in the thrift industry. The Compensation Committee also considered
individual performance and the award practices of the Company's industry peers.
For fiscal 1996, the Compensation Committee awarded 1,000 shares of Company
Common Stock pursuant to the Recognition and Retention Plan to Linda Terrell
resulting from her promotion from Vice President to Senior Vice President. The
Compensation Committee also awarded 10,000 options each to Messrs. Davis and
Guemple pursuant to the 1993 Incentive Stock Option Plan. The Compensation
Committee determined that the stock option awards for fiscal 1996 are in the
median range of award levels of the Bank's peers.
Cash Bonus Award
The Compensation Committee also reviews the executive officer's
performance and responsibility in light of the officer's level of salary for
each reporting period to assess the payment of merit bonuses. In fiscal 1996,
the Compensation Committee recommended the payment of cash bonuses to Messrs.
Guemple, Ahrenholz and Rudy in the amount of $15,000, $15,000 and $7,500,
respectively. The cash bonuses were given based upon exceptional performance by
Messrs. Guemple, Ahrenholz and Rudy of their respective responsibilities that
contributed to the sustained growth of the Bank for fiscal 1996.
15
<PAGE> 18
Chief Executive Officer's Compensation
The Chief Executive Officer's compensation, like that of other
executive officers, is determined on the basis of an evaluation of the Bank's
performance, compensation levels of institutions of comparable asset size and
geographical location, and personal performance.
The Compensation Committee concluded that Mr. Davis' annual salary was
below the median salary level for chief executive officers of other companies
shown in the Surveys. For fiscal 1996, Mr. Davis was paid a base annual salary
of $236,802, including director fees. In July 1996, the Compensation Committee
approved a 5.4% increase to base annual salary for Mr. Davis which is within the
median range of the salaries contained in the SNL Survey.
Mr. Davis became a Director of the Company and the Bank in January
1994. In July 1994, Mr. Davis was promoted to President and Chief Executive
Officer of the Company and the Bank.
JOINT COMPENSATION COMMITTEE OF THE BANK AND THE COMPANY
T. R. Moffett (Chairman)
Fred A. Greene
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
Non-employee directors Messrs. Moffett and Greene serve on the Joint
Compensation Committee as directors of both the Bank and the Company. Mr.
Moffett serves as chairman of the Compensation Committee.
16
<PAGE> 19
FIRST PALM BEACH BANCORP, INC.
STOCK PRICE PERFORMANCE
[GRAPH]
PERIOD ENDING
<TABLE>
<CAPTION>
09/29/93 05/05/94 12/09/94 07/17/95 02/23/96 09/30/96
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FirstPalmBchBcrp-FL 100.0 113.15 107.63 164.06 145.37 162.16
All Nasdaq US Stocks 100.0 97.33 95.31 134.11 149.45 165.22
Nasdaq Bank Index 100.0 100.95 94.91 123.51 148.53 171.02
SNL Southeast Thrift 100.0 112.31 114.35 162.43 178.17 206.58
</TABLE>
<PAGE> 20
. STOCK PERFORMANCE GRAPH. The following graph sets forth a periodic comparison
of the cumulative total stockholder return on the Company's Common Stock during
the period commencing on September 29, 1993 and ending September 30, 1996, with
the cumulative total stockholder return during the same period, of companies in
All NASDAQ US Stocks, the SNL Southeast Thrift Index and the NASDAQ Bank Index.
The Company has selected the SNL Southeast Thrift Index as its peer group index.
The Company selected this geographical index because most of the companies
included are savings and loan institutions which converted from federally
chartered mutual to federally chartered stock savings and loan associations.
COMPARISON OF CUMULATIVE TOTAL RETURN*
First Palm Beach Bancorp, Inc.
All NASDAQ US Stocks**
SNL Southeast Thrift Index
NASDAQ Bank Index
September 29, 1993 - September 30, 1996
17
<PAGE> 21
* Assumes an investment of $100 on September 29, 1993 in each of the
Company's Common Stock, the stocks comprising All NASDAQ US Stocks, the
stocks comprising the SNL Southeast Thrift Index and the stocks
comprising the NASDAQ Bank Index. The total return for the Company's
Common Stock and for each index assumes the reinvestment of dividends.
The Company paid quarterly dividends on its Common Stock at the rate of
$0.05 per share for the quarters ending from March 31, 1995 to
September 30, 1995. Commencing with the quarter ended December 31,
1995, the Company began paying quarterly dividends on its Common Stock
at a rate of $0.10 per share. Prior to the quarter ended March 31,
1995, the Company did not pay dividends on its Common Stock.
** All NASDAQ US Stocks track the aggregate price performance of equity
securities of companies traded on the NASDAQ National Market System
("NASDAQ - NMS"). The Company's Common Stock is traded on the NASDAQ -
NMS.
18
<PAGE> 22
SUMMARY COMPENSATION TABLE. The following table shows, for the fiscal
years ending September 30, 1996, 1995 and 1994, the cash compensation paid by
the Bank, as well as certain other compensation paid or accrued for those years,
to all individuals serving as the Company's Chief Executive Officer and the
highest paid executive officers (collectively, the "Named Executive Officers")
of the Company or the Bank who received total salary and bonus in excess of
$100,000 in fiscal year 1996. The Chief Executive Officer and the other
executive officers of the Company do not receive compensation for services
rendered as officers of the Company. All compensation received, therefore, by
such executive officers is for services rendered as officers of the Bank, and
all such compensation was paid by the Bank.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
OTHER ANNUAL RESTRICTED OPTIONS/ ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION STOCK AWARDS SARS LTIP COMPENSATION
PRINCIPAL POSITIONS YEAR ($)(2) ($) ($)(4) ($)(5) (#)(6) PAYOUTS(7) ($)(8)
- ----------------------- ------ ------ ----- ------------ ------------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Louis O. Davis, Jr. (1) 1996 236,803(3) -- -- -- 10,000 None 39,004
President, Chief 1995 224,043 -- -- -- -- None 24,728
Executive Officer 1994 163,333 -- -- -- -- None 16,959
and Director
R. Randy Guemple (9) 1996 125,461 15,000 -- -- 10,000 None 27,237
Executive Vice 1995 104,385 5,000 -- 24,313 -- None 16,132
President, Treasurer1994 104,092 -- -- -- -- None --
and Chief Financial
Officer
John Ahrenholz 1996 107,307 15,000 -- -- -- None 25,498
Senior Vice 1995 99,169 10,000 -- -- -- None 15,751
President and Chief 1994 101,062 -- -- -- None 13,046
Lending Officer
John Rudy 1996 98,923 7,500 -- -- -- None 24,466
Senior Vice 1995 95,192 2,500 -- -- -- None 15,106
President 1994 96,651 -- -- -- -- None 12,217
Investments
</TABLE>
(1) Mr. Davis became a Director of the Company and the Bank in January 1994
and was promoted to President and Chief Executive Officer of the
Company and the Bank effective July 8, 1994.
(2) Includes deferred compensation for the period January 1, 1993 through
December 31, 1993 in an amount equal to ten percent of the salary
earned for the fiscal year of the Named Executive Officer which was
withheld and was paid on a calendar year basis. Effective January 1,
1994, officers may not defer any compensation.
(3) Includes directors' fees of $23,500 for fiscal 1996.
(4) For fiscal years 1994, 1995 and 1996, there were no (a) perquisites
over the lesser of $50,000 or 10% of the individual's salary and bonus
for the fiscal year; (b) payments of above-market or preferential
earnings on restricted stock, options, SARs or deferred compensation
paid during the fiscal year; (c) payments of earnings on long-term
incentive plans prior to settlement or maturation; (d) tax payment
reimbursements; or (e) preferential discounts on Common Stock.
19
<PAGE> 23
(5) On September 29, 1996, 7,067 shares of restricted stock granted under
the Bank's Recognition and Retention Plan for Officers and Employees
vested for Mr. Davis. On September 29, 1996, 2,120 shares of restricted
stock granted under the Bank's Recognition and Retention Plan for
Officers and Employees vested for Messrs. Guemple, Ahrenholz and Rudy.
Dividends paid on the restricted shares are paid at the same rate as
dividends paid on the Company's Common Stock generally, and are
distributed to the participant upon vesting.
(6) Options granted under the 1993 Incentive Stock Option Plan which vest
at a rate of 49% on July 15, 1997, 49% on July 15, 1998, and 2% on July
15, 1999 for Messrs. Davis and Guemple.
(7) For the fiscal years 1994, 1995 and 1996, the Bank had no long-term
incentive plans in existence and therefore made no long-term awards or
payouts.
(8) All Other Compensation for the Named Executive Officers in 1995
includes annual contributions by the Bank to the ESOP established on
September 29, 1993. For fiscal 1996, the following allocations
represent the dollar value of Common Stock allocated under the ESOP as
of December 31, 1995 (the allocation date of Common Stock under the
ESOP to the account of the Named Executive Officers): Mr. Davis,
$39,004; Mr. Guemple, $27,237; Mr. Ahrenholz, $25,498; and Mr. Rudy,
$24,466. The Bank's contributions to the ESOP for calendar year 1996
have not yet been determined.
(9) Mr. Guemple was promoted to Executive Vice President and Chief
Operating Officer of the Company and the Bank effective July 1, 1996.
20
<PAGE> 24
EMPLOYMENT AGREEMENTS. The Bank and the Company entered into employment
agreements with Messrs. Davis and Guemple. These agreements are intended to
ensure that the Bank and the Company will be able to maintain a stable and
competent management base. The continued success of the Bank and the Company
depends to a significant degree on the skills and competence of these officers.
The employment agreements with the Bank and the Company have a
three-year term for each of Messrs. Davis and Guemple. Commencing on the first
anniversary date and continuing each anniversary date thereafter, the respective
Boards of Directors may extend either or both the agreements for an additional
year such that the remaining terms are three years unless written notice of
non-renewal is given by the Board of Directors after conducting a performance
evaluation of the officer. The respective Boards of Directors have extended
Messrs. Davis's and Guemple's employment agreements for an additional year by
approved resolution at the September 19, 1996 Board of Directors Meeting. The
agreements provide that the benefit payment of base salary be calculated on a
calendar year basis, and review of the base salary of each respective executive
officer to be performed annually. The 1997 total calendar year base salaries of
Messrs. Davis and Guemple are $250,000 and $160,000, respectively. In addition
to the base salary, the agreements provide for, among other things, disability
pay, participation in stock benefit plans and other fringe benefits applicable
to executive personnel. The agreements provide for termination of the executive
officer's employment by the Bank or the Company for cause at any time. In the
event the Bank or the Company choose to terminate the executive's employment for
reasons other than for cause, or in the event of the executive's resignation
from the Bank and the Company upon (i) failure to re-elect the executive to his
current offices, (ii) a material change in the executive's functions, duties or
responsibilities or relocation of his principal place of employment, (iii)
liquidation or dissolution of the Bank or the Company or (iv) a breach of the
agreement by the Bank or the Company, the executive or, in the event of death,
his beneficiary, would be entitled to receive an amount equal to the remaining
payments, including base salary, bonuses and other payments, and any health
benefits due under the remaining term of the agreement.
If termination, voluntary or involuntary, follows a change in control
of the Bank or the Company, the executive or, in the event of death, his
beneficiary, would be entitled to a severance payment equal to the greater of
the remaining payments under the agreement or three times his average annual
compensation over the past five years set forth in the employment agreement with
the Bank or the Company. The Bank or the Company would also continue the
executive's life, health, and disability coverage for the remaining unexpired
term of the agreement. For purposes of determining whether a change in control
under the agreements has occurred, the respective Boards of Directors will apply
the definition of change in control as set forth by the Office of Thrift
Supervision ("OTS") on the date of execution and in so doing the applicable
Board of Directors will interpret such definition. Presently, the OTS'
definition of "control" is set forth in 12 C.F.R. sec. 574.4 of the Rules and
Regulations of the Office of Thrift Supervision. This definition includes
certain conclusive control determinations and rebuttable control determinations.
The conclusive control determinations include that an acquiror has acquired
control of a company if it: (i) acquires more than 25 percent of any class of
voting stock of the company; (ii) acquires irrevocable proxies
21
<PAGE> 25
representing more than 25 percent of any class of voting stock of the company;
(iii) acquires any combination of voting stock and irrevocable proxies
representing more than 25 percent of any class of voting stock of a savings
association; (iv) controls in any manner the election of a majority of the
directors or trustees of the company; (v) is a general partner of the company;
(vi) has contributed more than 25 percent of the capital of the company; or
(vii) is a trustee of a trust.
In the event of a change of control, based upon the current calendar
year base salary and bonus, Messrs. Davis and Guemple would receive
approximately $750,000 and $525,000, respectively, in severance payments in
addition to other cash and noncash benefits provided for under the agreements.
Payments to each officer under the Bank's agreements will be guaranteed
by the Company in the event that payments or benefits are not paid by the Bank.
Payments and benefits under the employment agreements, made contingent upon a
change in control, if they would constitute an excess parachute payment under
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code") would
be reduced to $1.00 less than the excess parachute amount.
CHANGE OF CONTROL AGREEMENT. The Bank and the Company entered into a
Change of Control Agreement ("COC") effective September 29, 1993 with Messrs.
Ahrenholz and Rudy. This agreement is intended to ensure that the Bank and the
Company will be able to maintain a stable and competent management base upon a
Change of Control of the Bank and the Company.
The COC has a three-year term. Commencing on the first anniversary date
of the COC and continuing on each anniversary thereafter, the COC may be renewed
by the respective Boards of Directors for an additional year so that the
remaining term shall be three years. The COC provides that at any time following
a change in control of the Company or the Association, if the Company or the
Bank terminates the officer's employment for any reason other than cause, or if
the officer terminates his employment following the officer's demotion, loss of
title, office or significant authority, a reduction in the officer's
compensation, or relocation of the officer's principal place of employment more
than 30 miles, the officer, or, in the event of death, his beneficiary, would be
entitled to receive a severance payment equal to three times the officer's
annual salary at that time. The applicable Board of Directors will interpret the
definition of "change in control" as set forth by the OTS on the date of
execution. The current calendar year base salary and bonus for Messrs. Ahrenholz
and Rudy is $125,000 and $107,500 for the calendar year, respectively. If a
change in control occurs, based upon his current base salary and bonus, Messrs.
Ahrenholz and Rudy would receive approximately $375,000 and $322,500,
respectively, in severance payments in addition to other cash and noncash
benefits provided for under the COC. Payments under the COC will be guaranteed
by the Company in the event that payments or benefits are not paid by the Bank.
Payments and benefits resulting under the COC upon a change in control,
if they would constitute an excess parachute payment under Section 280G of the
Code would be reduced to $1.00 less than the excess parachute amount.
22
<PAGE> 26
STOCK OPTION PLAN. On September 29, 1993, the Company established the
1993 Incentive Stock Option Plan for Officers and Employees. The following table
lists all grants of options (and Limited Rights) to Named Executive Officers
under the 1993 Incentive Stock Option Plan for Officers and Employees during
fiscal 1996 and contains certain information about the potential value of those
options based upon certain assumptions as to the appreciation of the Company's
Common Stock over the life of the option.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTIONS (1)
- -------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIE OPTIONS/SARS
UNDERLYING GRANTED TO PER SHARE
OPTIONS SARS EMPLOYEES IN EXERCISE PRICE EXPIRATION
GRANTED (2) FISCAL YEAR ($/SH)(3)(4)(5) DATE (6) 5% 10%
------- ------------ --------------- ------------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Louis O. Davis, Jr. 10,000 50% $20.125 7/15/2006 $126,586 $320,793
R. Randy Guemple 10,000 50% $20.125 7/15/2006 $126,586 $320,793
</TABLE>
(1) The amounts represent the assumed rates of appreciation reflected in
the table only. Actual gains, if any, on stock option exercises and
Common Stock holdings are dependent on the future performance of the
Common Stock and overall stock market conditions. There can be no
assurance that the amounts reflected in this table will be achieved.
(2) Options granted under the 1993 Incentive Stock Option Plan which vested
at a rate of 49% on July 15, 1997, 49% on July 15, 1998, and 2% on July
15, 1999 for Messrs. Davis and Guemple.
(3) The purchase price may be made in whole or in part through the
surrender of previously held shares of Common Stock.
(4) Under limited circumstances, such as death, disability or normal
retirement of an employee, the employee (or his beneficiary) may
request that the Company, in exchange for the employee's surrender of
an option, pay to the employee (or beneficiary) the amount by which the
fair market value of the Common Stock exceeds the exercise price of the
option on the date of the employee's termination of employment. It is
within the Company's discretion to accept or reject such a request.
(5) Options also include Limited Rights (similar to SARs) pursuant to which
the options may be exercised in the event of a Change in Control of the
Company. Limited Rights may be granted at the discretion of the Board
of Directors at the time of grant of options with respect to all or
some of the shares covered by the options. Upon the exercise of a
Limited Right, the optionee would receive a cash payment equal to the
difference between the exercise price of the related option on the date
of grant and the fair market value of the underlying shares of Common
Stock on the date the Limited Rights is exercised, multiplied by the
number of shares with respect to which the Limited Rights are being
exercised, multiplied by the number of shares with respect to which the
Limited Rights are being exercised.
(6) The option term is ten years from date of grant.
23
<PAGE> 27
STOCK OPTION PLAN. On September 29, 1993, the Company established the 1993
Incentive Stock Option Plan for Officers and Employees. The following table sets
forth the number of shares of Common Stock acquired upon the exercise of options
in fiscal year 1996, the value realized as a result of such exercises, and the
number of shares represented by stock options (both exercisable and
unexercisable), held by the Named Executive Officers as of September 30, 1996.
Also reported are the values for "in-the-money" options which represent the
difference between the exercise price of the stock options and the fiscal
year-end price of the Common Stock.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
NUMBER OF UNEXERCISED OPTIONS AT MONEY OPTIONS AT
SHARES ACQUIRED VALUE SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 EXERCISABLE
NAME ON EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE (#) /UNEXERCISABLE ($)(2)(3)
---- ----------- ----------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Louis O. Davis, Jr. -- -- 35,334/10,000 $472,592/$32,500
R. Randy Guemple -- -- 18,900/10,000 $252,788/$32,500
John M. Ahrenholz -- -- 15,900/-0- $212,663/$0
John Rudy -- -- 15,900/-0- $212,663/$0
</TABLE>
(1) Market value of underlying shares of Common Stock on exercise date
minus the exercise or base price of $10.00 per share.
(2) The market value of underlying shares of Common Stock for exercisable
options at fiscal year-end ($23.375 per share) minus the exercise or
base price of $10.00 per share for exercisable options of Messrs.
Davis, Guemple, Ahrenholz and Rudy, and unexercisable shares for
Ahrenholz and Rudy.
(3) The market value of underlying shares of Common Stock for unexercisable
options at fiscal year-end ($23.375 per share) minus the exercise or
base price of $20.125 per share for unexercisable options for Messrs.
Davis and Guemple.
BANK RECOGNITION AND RETENTION PLAN FOR OFFICERS AND EMPLOYEES. The Bank
has established the Recognition and Retention Plan for Officers and Employees
(the "RRP") as a method of providing officers and employees in key management
positions with a proprietary interest in the Company to encourage such officers
and employees to remain employed with the Bank. Awards under the RRP ("Plan
Share Awards") are made primarily to officers and key management employees in
the form of shares of Common Stock which are held in trust until they vest.
Plan Share Awards are nontransferable and nonassignable. The Plan Share
Awards granted to the recipients vested in equal installments of 33 1/3% each
year commencing on September 29, 1994. Plan Share Awards immediately vest upon
termination of employment due to death, disability or retirement of the officer
or employee, or following a change in the control of the Bank or the Company.
When shares become vested and are distributed in accordance with the RRP, the
recipients also receive amounts representing accumulated dividends (if any)
declared and paid by the
24
<PAGE> 28
Company on shares of Common Stock prior to vesting of the Plan Share Awards.
Prior to vesting, recipients of Plan Share Awards may direct the voting of
shares of Common Stock granted to them and held in the RRP Trust. Shares of
Common Stock held by the RRP Trust which have not been earned are voted by the
trustee in the same proportion as the awarded shares are voted in accordance
with the directions given by the recipients.
Vested shares are distributed to recipients as soon as practicable
following the date on which they vest. When vested shares of Common Stock are
distributed, the recipient is deemed to receive ordinary income equal to the
fair market value of such shares at the date of distribution (provided such date
is more than six months after the date of grant) and the Bank is currently
allowed a commensurate compensation expense deduction for income tax purposes.
Any unearned shares will be returned to the pool of RRP shares with respect to
which additional Plan Share Awards may be granted. As of September 29, 1996, the
RRP Trust held 1,968 shares in reserve for future awards. As of the Record Date
all existing grants of Plan Share Awards have vested and have been distributed
to participants except for 1,000 shares which will vest July 15, 1997.
PENSION PLAN. The Bank maintains a non-contributory defined benefit plan
("Pension Plan"). The following table sets forth the estimated annual benefits
payable upon retirement at age 65 in calendar year 1996, expressed in the form
of an annual benefit for the final average salary and benefit service
classifications specified. The Pension Plan covers compensation consisting of
salary (including certain officer bonuses), directors fees and the amount
taxable to employees due to group life insurance coverage. The benefits are paid
out on a ten-year certain life annuity basis and such benefits are subject to
minor deductions for Social Security.
25
<PAGE> 29
PENSION PLAN TABLE(2)(3)
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE AT
NORMAL RETIREMENT AGE
--------------------------------------------------------------------------------------------
FINAL
AVERAGE
SALARY(1) 15 20 25 30 35
- --------- ------------- ------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
$ 75,000 $ 43,460 $ 47,310 $ 51,220 $ 55,160 $ 59,120
100,000 58,110 63,300 68,540 73,810 79,100
150,000 87,420 95,270 103,170 111,110 119,060
200,000 116,720 120,000 120,000 120,000 120,000
250,000 120,000 120,000 120,000 120,000 120,000
300,000 120,000 120,000 120,000 120,000 120,000
</TABLE>
(1) The Compensation covered under the Pension Plan is the amount shown in
the column entitled "Salary" in the Summary Compensation Table and does
not include amounts shown in the column entitled "Bonus" in such table.
(2) The benefits listed in the table are subject to deductions for Social
Security or other offset amounts.
(3) The maximum annual benefit is $120,000 for the 1996 calendar year.
The following table sets forth the credited years of service (i.e.,
benefit service) as of September 30, 1996 for each Named Executive Officer.
<TABLE>
<CAPTION>
CREDITED SERVICE
YEARS
<S> <C>
Louis O. Davis, Jr 18.5
R. Randy Guemple 4.0
John M. Ahrenholz 20.0
John Rudy 13.3
</TABLE>
26
<PAGE> 30
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
requires that all loans or extensions of credit to executive officers and
directors must be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
the general public and must not involve more than the normal risk of repayment
or present other unfavorable features. In addition, loans made to a director or
executive officer in excess of the greater of $25,000 or 5% of the Bank's
capital and surplus (up to a maximum of $500,000) must be approved in advance by
a majority of the disinterested members of the Board of Directors.
All loans made by the Bank to its directors and executive officers were made in
the ordinary course of business, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than the
normal risk of collectibility or present other unfavorable features.
27
<PAGE> 31
PROPOSAL 2. AMENDMENT OF THE FIRST PALM BEACH BANCORP, INC.
1993 INCENTIVE STOCK OPTION PLAN
The Board of Directors has adopted an amendment ("Amendment 1") to the
existing First Palm Beach Bancorp, Inc. 1993 Incentive Stock Option Plan (the
"1993 Incentive Stock Option Plan") which authorizes an increase of 250,000
additional shares of Common Stock available for issuance upon exercise of
options granted under the 1993 Incentive Stock Option Plan. The Board of
Directors intends that the additional 250,000 shares be made available for
issuance so that additional options may be granted under the 1993 Incentive
Stock Option Plan to officers and employees as incentives for and to help
attract and retain their services for the Company and the Company's
subsidiaries. The 1993 Incentive Stock Option Plan is attached as Exhibit A and
Amendment 1 thereto is attached as Exhibit B.
The following is a summary of the material features of the 1993
Incentive Stock Option Plan which is qualified in its entirety by reference to
the complete provisions of the 1993 Incentive Stock Option Plan.
The 1993 Incentive Stock Option Plan authorizes the grant of (i)
options to purchase Company Common Stock intended to qualify as incentive stock
options under Section 422 of the Code (options which afford tax benefits to the
recipients upon compliance with certain conditions and which do not result in
tax deductions to the Company), (ii) options that do not so qualify (options
which do not afford income tax benefits to recipients, but which may provide tax
deductions to the Company) referred to as "non-statutory options" and (iii)
Limited Rights (discussed below) which are exercisable only upon a change in
control (as defined in the 1993 Incentive Stock Option Plan) of the Bank or the
Company. Authorized but unissued shares or shares previously issued and required
by the Company may be used to satisfy exercises of options under the 1993
Incentive Stock Option Plan.
All such options are qualified as incentive stock options to the extent
permitted under Section 422 of the Code. All options granted are exercisable on
a vesting schedule determined by the Joint Compensation Committee from the date
of grant, provided, however, that all options will be immediately exercisable in
the event the optionee terminates employment due to death, disability or
retirement, or in the event of a change of control of the Bank or the Company.
The exercise price of all such options is 100% of the fair market value of the
underlying Common Stock at the time of the grant. The exercise price may be paid
in cash or Common Stock by the optionee.
Options granted under the 1993 Incentive Stock Option Plan may only be
granted to employees. In order to qualify as incentive stock options under
Section 422 of the Code, the exercise price must not be less than 100% of the
fair market value on the date of grant. Incentive stock options granted to any
person who is the beneficial owner of more than 10% of the outstanding voting
stock may be exercised only for a period of five years from the date of grant
and the exercise price at the time of grant must be at least equal to 110% of
the fair market value of the underlying common stock on the date of grant.
Except as provided below with respect to replacement options,
28
<PAGE> 32
not less than 100% of the fair market value of the Common Stock on the date the
option is granted. Under the 1993 Stock Incentive Option Plan, the
Committee may issue replacement options in exchange for previously granted
non-statutory options at exercise prices that may be less than the previous
exercise price, but may not be less than 85% of the fair market value of the
Common Stock on the date such replacement options are granted.
An award of options under the 1993 Incentive Stock Option Plan is not
transferable by the optionee other than by will or the laws of descent and
distribution and may only be exercised during the optionee's lifetime by the
optionee, or by a guardian or legal representative. With the consent of the
Committee, an employee may designate a person or his or her estate as
beneficiary of any stock option and Limited Right award to which the optionee
would then be entitled, in the event of the death of the employee.
Options granted under the 1993 Incentive Option Plan may be exercised
at such times as the Committee determines, but in no event shall an option be
exercisable more than ten years from the date of grant. Upon death, disability
or retirement of the participant or upon a change in control of the Company or
the Bank, all options previously granted automatically become exercisable.
Incentive stock options granted in connection with the 1993 Incentive
Stock Option Plan may not be exercisable more than three months after the date
on which the optionee ceases to perform services for the Bank or the Company,
except that in the event of death, disability, retirement or change in control,
options may be exercisable for up to one year thereafter. If an optionee ceases
to perform services for the Company or any affiliate due to retirement or a
change in control, any incentive options exercised more than three months
following the date of the optionee's retirement shall be treated as
non-statutory stock options as described above. Unless determined otherwise by
the Committee, non-statutory options may not be exercisable more than three
months after the date on which the optionee ceases to perform services for the
Bank or the Company, except that in the event of death, disability or
retirement, options may be exercisable for up to one year thereafter. In the
event of death, disability or normal retirement, the Committee, if requested by
the employee, may elect, in exchange for the option, to pay the beneficiary in
the event of death, the amount by which the fair market value of the Common
Stock on the date of the employee's termination of employment exceeds the
exercise price of the option. If an employee is terminated for cause, all
incentive and non-statutory options and limited rights expire upon such
employee's termination of employment.
Upon exercise of "Limited Rights" in the event of a change in control
of the Company, the optionee will be entitled to receive a lump sum cash payment
equal to the difference between the exercise price of the related option and the
fair market value of the shares of Common Stock subject to the option on the
date of exercise of the Limited Right in lieu of purchasing the stock underlying
the option.
29
<PAGE> 33
The Board of Directors may amend the 1993 Incentive Stock Option Plan
in any respect, provided that, if stockholder approval is obtained at this
Annual Meeting and it is determined to continue to qualify the Incentive Option
Plan under 17 C.F.R. sec. 240.16b-3, stockholder approval is required for any
amendment which (1) increases the maximum number of shares for which options may
be granted under the 1993 Incentive Stock Option Plan, (2) reduces the exercise
price at which options may be granted, (3) extends the period during which
options may be granted or exercised beyond that originally prescribed or (4)
changes the persons eligible to participate in the 1993 Incentive Stock Option
Plan.
An optionee will not be deemed to have recognized taxable income
upon grant or exercise of any incentive stock option, provided that such shares
are not disposed of by the optionee for at least one year after the date the
shares are transferred in connection with the exercise of the option and two
years after the date of grant of the option. No compensation deduction may be
taken by the Company as a result of the grant or exercise of incentive stock
options, assuming these holding periods are met. In the case of a non-statutory
stock option or in the event shares received by exercise of an incentive stock
option are disposed of prior to the satisfaction of the holding periods
("disqualifying disposition"), an optionee will be deemed to have received
ordinary income upon exercise of the stock option in an amount equal to the
amount by which the exercise price is exceeded by the fair market value of the
Common Stock. In the event a non-statutory stock option is exercised during a
period that would subject the optionee to liability under Section 16(b) of the
Exchange Act (i.e. within six months of the date of grant), the optionee will
not be deemed to have recognized income until such period of liability has
expired unless the optionee makes a Section 83(b) election under the Code. The
amount of any ordinary income deemed to have been received by an optionee upon
the exercise of a non-statutory stock option or due to a disqualifying
disposition will be a deductible expense of the Company for tax purposes. In the
case of Limited Rights, upon exercise, the option holder would have to include
the amount paid to him upon exercise in his gross income for federal income tax
purposes in the year in which the payment is made and the Company would be
entitled to a deduction for federal income tax purposes of the amount paid.
The purpose of requesting stockholder approval of Amendment 1 is to
permit certain options granted to be characterized as incentive stock options
under Section 422 of the Code. Options granted under Amendment 1 will be
effective notwithstanding the absence of stockholder approval. Absence of
stockholder approval may result in the inability of the Company to continue its
listing on the Nasdaq National Market.
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED
PROXY CARD, IF EXECUTED AND RETURNED, WILL BE VOTED FOR THE APPROVAL OF THE
AMENDMENT TO THE 1993 INCENTIVE STOCK INCENTIVE OPTION PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF AMENDMENT
1 TO THE 1993 INCENTIVE STOCK OPTION PLAN.
30
<PAGE> 34
PROPOSAL 3. RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended September
30, 1996 were Deloitte & Touche LLP. The Company's Board of Directors has
reappointed Deloitte & Touche LLP to continue as independent auditors for the
Company for the fiscal year ending September 30, 1997, subject to ratification
of such appointment by the stockholders.
Representatives of Deloitte & Touche LLP will be present at the Annual
Meeting. They will be given an opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions from
stockholders present at the Annual Meeting.
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED
PROXY CARD WILL BE VOTED FOR RATIFICATION OF THE APPOINTMENT OF DELOITTE &
TOUCHE LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
RATIFICATION OF THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY.
ADDITIONAL INFORMATION
STOCKHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy statement and form of
proxy relating to the Annual Meeting of Stockholders to be held in 1998, a
stockholder proposal must be received by the Secretary of the Company at the
following address, no later than AUGUST 22, 1997. ATTN: CORPORATE SECRETARY,
FIRST PALM BEACH BANCORP, INC., 215 SOUTH OLIVE AVENUE, WEST PALM BEACH, FL
33401. Any such proposal will be subject to 17 C.F.R. sec. 240.14a-8 of the
Rules and Regulations under the Securities Exchange Act of 1934, as amended.
NOTICE OF BUSINESS TO BE CONDUCTED AT AN ANNUAL MEETING
The Bylaws of the Company provide an advance notice procedure for a stockholder
to properly bring business before an Annual Meeting. The stockholder must give
written advance notice to the Secretary of the Company not less than 90 days
before the date originally fixed for such meeting; provided, however, that in
the event that less than 100 days' notice or prior public disclosure of the
31
<PAGE> 35
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the tenth
day following the date on which the Company's notice to stockholders of the date
of the Annual Meeting was mailed or such public disclosure was made. The advance
notice by stockholders must include the stockholder's name and address as they
appear on the Company's record of stockholders, a brief description of the
proposed business, the reason for conducting such business at the Annual
Meeting, the class and number of shares of the Company's capital stock that are
beneficially owned by such stockholder and any material interest of such
stockholder in the proposed business. In the case of nominations to the Board,
certain information regarding the nominee must be provided. Nothing in this
paragraph shall be deemed to require the Company to include in its proxy
statement and proxy relating to an Annual Meeting any stockholder proposal which
does not meet all of the requirements for inclusion established by the
Securities and Exchange Commission in effect at the time such proposal is
received.
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING
The Board of Directors knows of no business which will be presented for
consideration at the Annual Meeting other than as stated in the Notice of Annual
Meeting of Stockholders. If, however, other matters are properly brought before
the Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
Whether or not you intend to be present at the Annual Meeting, you are
urged to return your proxy card promptly. If you are present at the meeting and
wish to vote your shares in person, your proxy may be revoked by voting at the
meeting.
A COPY OF THE FORM 10-K (WITHOUT EXHIBITS) FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL
BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS OF RECORD UPON WRITTEN REQUEST TO
FIRST PALM BEACH BANCORP, INC., ATTN: MR. JOHN C. TRAMMEL, SECRETARY, 215 SOUTH
OLIVE AVENUE, WEST PALM BEACH, FLORIDA 33401-5685.
By Order of the Board of Directors
John C. Trammel
Secretary
West Palm Beach, Florida
December 19, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
REQUESTED TO SIGN AND PROMPTLY RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
32
<PAGE> 36
DIRECTIONS TO ANNUAL MEETING
Take I-95 North and get off at Exit #52 - Okeechobee East. Get into the
left lane as soon as you can, as you will make a left turn into the Sheraton
West Palm Beach Hotel immediately after going under the Australian Avenue
overpass. The Annual Meeting will take place in the Polo Room.
Sheraton West Palm Beach Hotel
630 Clearwater Park Road
West Palm Beach, Florida
(Corner of Okeechobee Boulevard & Australian Avenue)
Phone: 561/833-1234
<PAGE> 37
EXHIBIT A
FIRST PALM BEACH BANCORP, INC.
1993 INCENTIVE STOCK OPTION PLAN
1. PURPOSE
The purpose of the First Palm Beach Bancorp, Inc. (the "Holding
Company") 1993 Incentive Stock Option Plan (the "Plan") is to advance the
interests of the Holding Company and its shareholders by providing those key
employees of the Holding Company and its Affiliates, including First Federal
Savings and Loan Association of the Palm Beaches (the "Association"), upon whose
judgment, initiative and efforts the successful conduct of the business of the
Holding Company and its affiliates largely depends, with additional incentive to
perform in a superior manner. A purpose of the Plan is also to attract people of
experience and ability to the service of the Holding Company and its Affiliates.
2. DEFINITIONS
(a) "Affiliate" means (i) a member of a controlled group of
corporations of which the Holding Company is a member of (ii) an unincorporated
trade or business which is under common control with the Holding Company as
determined in accordance with Section 414(c) of the Internal Revenue Code of
1986, as amended, (the "Code") and the regulations issued thereunder. For
purposes hereof, a "controlled group of corporations" shall mean a controlled
group of corporations as defined in Section 1563(a) of the Code determined
without regard to Section 1563(a)(4) and (e)(3)(C).
(b) "Award" means a grant of Non-statutory Stock Options, Incentive
Stock Options, and/or Limited Rights under the provisions of this Plan.
(c) "Board of Directors" or "Board" means the board of directors of
the Holding Company.
(d) "Change in Control" for purposes of this Plan, a "Change in
Control" of the Association or Company shall mean an event of a nature that; (i)
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 (the "Exchange Act"); or (ii) results in a
Change in Control of the Association or the Company within the meaning of the
Home Owners' Loan Act of 1933, as amended and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (Or its predecessor
agency), as in effect on the date hereof (provided, that in applying the
definition of change in control as set forth under the rules and regulations of
the OTS, the Board shall substitute its judgement for hat of the OTS); or (iii)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Section s 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
Association or the
1
<PAGE> 38
Company representing 20% or more of the Association's or the Company's
outstanding securities except for any securities of the Association purchased by
the Company in connection with the conversion of the Association to the stock
form and any securities purchased by the Association's employee stock ownership
plan and trust; or (B) individuals who constitute the Board 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 by
the Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Association or the Company or similar transaction occurs in which
the Association or Company is not the resulting entity.
(e) "Committee" means a committee consisting of those members of the
Executive Compensation Committee of the Association (until such time as the
Holding Company has an Executive Compensation Committee) who are non-employee
members of the Board of Directors, all of whom are "disinterested directors" as
such term is defined" under Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as promulgated by the Securities and
Exchange Commission.
(f) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
(g) "Date of Grant" means the date an Award granted by the Committee
is effective pursuant to the terms hereof.
(h) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor selected or approved
by the Board of Directors must advise the Committee that it is either not
possible to determine when such Disability will terminate or that it appears
probable that such Disability will be permanent during the remainder of said
participant's lifetime.
(i) "Fair Market Value" means, when used in connection with the
Common Stock on a certain date, the average of the reported bid and ask price of
the Common Stock as reported by the National Association of Securities Dealers
Automated Quotation System (as published by The Wall Street Journal, if
published) on such date or if the Common Stock was not traded on such date, on
the next preceding day on which the Common Stock was traded thereon or the last
previous date on which a sale is reported. For purposes of the grant of option
sin the conversion of the Association, Fair Market Value shall mean the initial
public offering price of the Common Stock which was $10.00 per share.
(j) "Incentive Stock Option" means an Option granted by the Committee
to a Participant, which Option is designed as an Incentive Stock Option pursuant
to Section 8.
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<PAGE> 39
(k) "Limited Right" means the right to receive an amount of case
based upon the terms set forth in Section 9.
(l) "Non-statutory Stock Option" means an Option granted by the
Committee to a participant and which is not designated by the Committee as an
Incentive Stock Option.
(m) "Option" means Award granted under Section 7 or Section 8.
(n) "Participant" means an employee of the Holding Company or its
affiliates chosen by the Committee to participate in the Plan.
(o) "Plan Year(s)" means a calendar year or years commencing on or
after January 1, 1993.
(p) "Retirement" with respect to an employee means termination of
employment which constitutes normal, early, or late retirement as defined in the
tax qualified defined benefit retirement plan maintained by the Association or
by reaching age 65.
(q) "Termination for Cause" means the termination upon an intentional
failure to perform stated duties, breach of a fiduciary duty involving personal
dishonesty, which results in material loss to the Holding Company or one of its
affiliates or willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order which
results in material loss to the Holding Company or one of its affiliates.
3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it sees necessary for the proper administration of the Plan and
to make whatever determinations and interpretations in connection with the Plan
it sees as necessary or advisable. All determinations and interpretations made
by the Committee shall be binding and conclusive on all Participants in the Plan
and on their legal representatives and beneficiaries.
4. TYPES OF AWARDS
Awards under the Plan may be granted in any one or a combination of:
(a) Non-statutory Stock Options;
(b) Incentive Stock Options; and
(c) Limited Rights
as defined below in paragraphs 7 through 9 of the Plan.
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<PAGE> 40
5. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 13, the maximum number
of shares reserved for purchase pursuant to the exercise of options granted
under the Plan shall not exceed 343,500 shares of Common Stock of the Holding
Company, par value $.01 per share, subject to adjustments pursuant to this
Section 5. These shares of Common Stock may be either authorized but unissued
shares or shares previously issued and reacquired by the Holding Company. To the
extent that option for Limited Rights are granted under the Plan, the shares
underlying such options will be unavailable for future grants under the Plan
except that, to the extent that options together with any related Limited Rights
granted under the Plan terminate, expire or are cancelled without having been
exercised (in the case of Limited Rights, exercised for cash) new awards may be
made with respect to these shares.
6. ELIGIBILITY
Officers and other employees of the Holding Company or its affiliates
shall be eligible to receive Incentive Stock Options, Non-statutory Stock
Options and/or Limited Rights under the Plan. Directors who are not employees or
officers of the Holding Company or its affiliates shall not be eligible to
receive Awards under the Plan.
7. NON-STATUTORY STOCK OPTIONS
7.1 Grant of Non-statutory Stock Options.
The Committee may, from time-to-time, grant Non-statutory Stock
Options to eligible employees and, upon such terms and conditions as the
Committee may determine, grant Non-statutory options in exchange for and upon
surrender of previously granted Awards under this Plan. Non-statutory Stock
Options granted under this Plan are subject to the following terms and
conditions:
(a) Price. The purchase price per share of Common Stock deliverable
upon the exercise of each Non-statutory Stock Option shall be determined by the
Committee on the date the option is granted. In general, such purchase price
shall not be less than 100% of the Fair Market Value of the Holding Company's
Common Stock on the Date of Grant. However the purchase price per share of
Common Stock deliverable upon the exercise of each Non-statutory stock option
granted in exchange for and upon surrender of previously granted awards shall be
not less than 85% of the Fair Market Value of the Holding Company's Common Stock
on the Date of the Grant, but in no event may the purchase price of any
non-statutory stock option granted in exchange for and upon surrender of
previously granted awards shall be not less than 85% of the Fair Market Value of
the Holding Company's Common Stock on the Date of Grant, but in no event may the
purchase price of any non-statutory stock option be less than the par value of
the Common Stock. Shares may be purchased only upon full payment of the purchase
price. Payment of the purchase price may be made, in whole
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<PAGE> 41
or in part, through the surrender of shares of the Common Stock of the Holding
Company at the Fair Market Value of such shares on the date of surrender
determined in the manner described in Section 1(i).
(b) Terms of Options. The term during which each Non-statutory Stock
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-statutory Stock Option be exercisable in whole or in part more than
10 years from the Date of Grant. The Committee shall determine the date on which
each Non-statutory Stock Option shall become exercisable and may provide that a
Non-statutory Stock Option shall become exercisable in installments. The shares
comprising each installment may be purchased in whole or in part at any time
after such installment becomes purchasable. The Committee may, in its sole
discretion, accelerate the time at which any Non-statutory Stock Option may be
exercised in whole or in part. Notwithstanding the above, in the event of a
Change in Control of the Holding Company, all Non-statutory Stock Options shall
become immediately exercisable.
(c) Termination of Employment. Unless otherwise determined by the
Committee at the time a Stock Option is granted, upon the termination of a
Participant's service for any reason other than Disability, Normal Retirement,
death or Termination for Cause, the Participant's Non-statutory Stock Options
shall be exercisable only as to those shares which were immediately purchasable
by the Participant at the date of termination and only for a period of three
months following termination. Notwithstanding any provision set forth herein nor
contained in any Agreement relating to the award of a Stock Option, in the event
of Termination for Cause, all rights under the Participant's Non-statutory Stock
Options shall expire upon termination. Unless otherwise determined by the
Committee at the time a Stock Option is granted, in the event of the death,
Disability or Normal Retirement of any Participant, all Non-statutory Stock
Options held by the Participant, whether or not exercisable at such time, shall
be exercisable by the Participant or his legal representatives or beneficiaries
of the Participant for one year or such longer period as determined by the
Committee following the date of the Participant's death, Normal Retirement or
cessation of employment due to Disability, provided that in no event shall the
period extend beyond the expiration of the Non-statutory Stock Option term.
8. INCENTIVE STOCK OPTIONS
8.1 Grant of Incentive Stock Options.
The Committee may, from time-to-time, grant Incentive Stock Options
to eligible employees. Incentive Stock Options granted pursuant to the Plan
shall be subject to the following terms and conditions:
(a) Price. The purchase price per share of Common Stock deliverable
upon the exercise of each Incentive Stock Option shall be not less than 100% of
the Fair Market Value of the Holding Company's Common Stock on the Date of
Grant. However, if a Participant owns stock possessing more than 10% of the
total combined voting power of all classes of Common Stock of the Holding
Company, the purchase price per share of Common Stock deliverable upon the
exercise of each
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<PAGE> 42
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Holding Company's Common Stock on the Date of Grant.
Shares may be purchased only upon payment of the full purchase price. Payment of
the purchase price may be made, in whole or in part, through the surrender of
shares of the Common Stock of the Holding Company at the Fair Market Value of
such shares on the date of surrender determined in the manner described in
Section 1(i).
(b) Amounts of Options. Incentive Stock Options may be granted to any
eligible employee in such amounts as determined by the Committee. In the case of
an option intended to qualify as an Incentive Stock Option, the aggregate Fair
Market Value (determined as of the time the option is granted) of the Common
Stock with respect to which Incentive Stock Options granted are exercisable for
the first time by the Participant during any calendar year (under all plans of
the Participant's employer corporation and its parent and subsidiary
corporations) shall not exceed $100,000. The provisions of this Section 8.1(b)
shall be construed and applied in accordance with Section 422(d) of the Code and
the regulations, if any, promulgated thereunder. To the extent an award under
this Section 8.1 exceeds this $100,000 limit, the portion of the award in excess
of such limit shall be deemed a Non-statutory Option.
(c) Terms of Options. The terms during which each Incentive Stock
Option may be exercised shall be determined by the Committee, but in no event
shall an Incentive Stock Option be exercisable in whole or in part more than 10
years from the Date of Grant. If at the time an Incentive Stock Option is
granted to an employee, the employee owns Common Stock representing more than
10% of the total combined voting power of the Holding Company (or, under Section
425(d) of the Code, is deemed to own Common Stock representing more than 10% of
the total combined voting power of all such classes of Common Stock, by reason
of the ownership of such classes of Common Stock, directly or indirectly, by or
for any brother, sister, spouse, ancestor or lineal descendent of such employee,
or by or for any corporation, partnership , estate or trust of which such
employee is a shareholder, partner or beneficiary), the Incentive Stock Option
granted to such employee shall not be exercisable after the expiration of five
years from the Date of Grant. No Incentive Stock Option granted under this Plan
is transferable except by will or the laws of descent and distribution and is
exercisable in his lifetime only by the employee to whom it is granted.
The Committee shall determine the date on which each Incentive Stock
Option shall become exercisable and may provide that an Incentive Stock Option
shall become exercisable in installments. The shares comprising each installment
may be purchased in whole or in part at any time after such instalment becomes
purchasable, provided that the amount able to be first exercised in a given year
is consistent with the terms of Section 422 of the Code. The Committee may, in
its sole discretion, accelerate the time at which any Incentive Stock Option may
be exercised in whole or impart, provided that it is consistent with the terms
of Section 422 of the Code. Notwithstanding the above, in the event of a Change
in Control of the Holding Company, all Incentive Stock Options shall become
immediately exercisable.
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<PAGE> 43
(d) Termination of Employment. Upon the termination of a
Participant's service for any reason other than Disability, Normal Retirement,
Change in Control, death or Termination for Cause, the Participants' Incentive
Stock Options shall be exercisable only as to those shares which were
immediately purchasable by the Participant at the date of termination and only
for a period of three months following termination. In the event of Termination
for Cause all rights under the Participant's Incentive Stock Options shall
expire upon termination.
In the event of death or Disability of any employee, all Incentive
Stock Options held by such the Participant, whether or not exercisable at such
time, shall be exercisable by the Participant or the Participant's legal
representatives or beneficiaries for one year following the date of the
Participant's death or cessation of employment due to Disability. Upon
termination of the Participant's service due to Normal Retirement, or a Change
in Control, all Incentive Stock Options held by such Participant, whether or not
exercisable at such time, shall be exercisable for a period of one year
following the date of Participant's cessation of employment, provided however,
that such option shall not be eligible for treatment as an Incentive Stock
Option in the event such option is exercised more than three months following
the date of the Participant's cessation of employment, provided however, that
such option shall not be eligible for treatment as an Incentive Stock Option in
the event such option is exercised more than three months following the date of
the Participant's Normal Retirement. In no event shall be exercise period extend
beyond the expiration of the Incentive Stock Option term.
(e) Compliance with Code. The options granted under this Section 8 of
the Plan are intended to qualify as incentive stock options within the meaning
of Section 422 of the Code, but the Company makes no warranty as to the
qualification of any option as an incentive stock option within the meaning of
Section 422 of the Code.
9. LIMITED RIGHTS
9.1 Grant of Limited Rights
Simultaneously with the grant of any option, the Committee may grant
a Limited Right with respect to all or some of the shares covered by such
option. Limited Rights granted under this Plan are subject to the following
terms and conditions.
(a) Terms of Rights. In no event shall a Limited Right be exercisable
in whole or in part before the expiration of six months from the Date of Grant
of the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control of the Holding Company.
The Limited Right may be exercised only when the underlying option is
eligible to be exercised, and only when the Fair Market Value of the underlying
shares on the day of exercise is greater than the exercise price of the related
option.
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<PAGE> 44
Upon exercise of a Limited Right, the related option shall cease to
be exercisable. Upon exercise or termination of an option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the exercise price and the Fair Market Value of the Common
Stock subject to the underlying option. The Limited Right is transferable only
when the underlying option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall
promptly receive from the Holding Company an amount of cash equal to the
difference between the Fair Market Value on the Date of Grant of the related
option and the Fair Market Value of the underlying shares on the date the
Limited Rights is exercised, multiplied by the number of shares with respect to
which such Limited Rights is being exercised.
(c) Termination of Employment. Upon the termination of a
Participant's service for any reason other than Termination for Cause, any
Limited Rights held by the Participant shall then be exercisable for a period of
one year following termination. In the event of Termination for Cause, all
Limited Rights held by the Participant shall expire immediately. Upon
termination of the Participant's employment for reason of death, Normal
Retirement or Disability, all Limited Rights held by such Participant shall be
exercisable by the participant or the Participant's legal representative or
beneficiaries for a period of one year from the date of such termination. In no
event shall the period extend beyond the expiration of the term of the related
option.
10. SURRENDER OPTIONS
In the event of a Participant's termination of employment as a result
of death, disability or Normal Retirement, the Participant (or the Participant's
personal representative(s), her(s), or devisee(s)) may, in a form acceptable to
the Committee make application to surrender all or part of options held by such
Participant in exchange for a cash payment from the Holding Company of an amount
equal to the difference between the Fair Market Value of the Common Stock on the
date of termination of employment and the exercise price per share of the option
on the Date of Grant. Whether the Committee accepts such application or
determines to make payment, in whole or part, is within its absolute and sole
discretion, it being expressly understood that the Committee is under no
obligation to any Participant whatsoever to make such payments. In the event
that the Committee accepts such application and the Company determines to make
payment shall be in lieu of the exercise of the underlying option and such
option shall cease to be exercisable.
11. RIGHTS OF A SHAREHOLDER: NON-TRANSFERABILITY
No. Participant shall have any rights as a shareholder with respect
to any shares covered by a Non-statutory and/or Incentive Stock Option until the
ate of issuance of a stock certificate for such shares. Nothing in this Plan or
in any Award granted confers on any person any right to continue in the employ
of the Holding Company or its Affiliates or to continue to perform services for
the
8
<PAGE> 45
Holding Company or its Affiliates or interferes in any way with the right of the
Holding Company or its Affiliates to terminate a Participant's services as an
officer or other employee at any time.
12. AGREEMENT WITH GRANTEES
Each Award of Options, and/or Limited Rights will be evidenced by a
written agreement, executed by the Participant and the Holding Company or its
Affiliates which describes the conditions for receiving the Awards including the
date of Award, the purchase price if any, applicable periods, and any other
terms and conditions as may be required by the Board of Directors or applicable
securities law.
13. DESIGNATION OF BENEFICIARY
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any stock option or Limited
Rights Award to which the Participant would then be entitled. Such designation
will be made upon forms supplied by and delivered to the Holding Company and may
be revoked in writing. If a Participant fails effectively to designate a
beneficiary, then the Participant's estate will be deemed to be the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS
In the event of any change in the outstanding shares of Common Stock
of the Holding Company by reason of any stock dividend or split,
recapitalization, merger, consolidation, spin-off, reorganization, combination
or exchange of shares, or other similar corporate change, or other increase or
decrease in such shares without receipt or payment of consideration by the
Company, the Committee will make such adjustments to previously granted Awards,
to prevent dilution or enlargement of the rights of the Participant, including
any or all of the following:
(a) adjustments in the aggregate number or kind of shares of
Common Stock which may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of
Common Stock covered by Awards already made under the
Plan;
(c) adjustments in the purchase price of outstanding Incentive
and/or Non-statutory Stock Options, or any Limited Rights
attached to such options.
No such adjustments may, however, materially change the value of
benefits available to a Participant under a previously granted Award.
9
<PAGE> 46
15. TAX WITHHOLDING
There shall be deducted from each distribution of cash and/or Common
Stock under the Plan the amount required by any governmental authority to be
withheld for income tax purposes.
16. AMENDMENT OF THE PLAN
The Board of Directors may at any time, and from time-to-time, modify
or amend the Plan in any respect; provided further that if it has been
determined to continue to qualify the Plan under Rule 16b-3 of the Exchange Act
Rules, shareholder approval shall be required for any such modification or
amendment which:
(a) increases the maximum number of shares for which options may
be granted under the Plan (subject, however, to the provisions
of Section 13 hereof);
(b) reduces the exercise price at which options may be granted
subject, however, to the provisions of Section 13 hereof);
(c) extends the period during which options may be granted or
exercised beyond the times originally prescribed; or
(d) changes the persons eligible to participate in the Plan.
Failure to ratify or approve amendments or modifications to
subsections (a) through (d) of this Section by shareholders shall be effective
only as to the specific amendment or modification requiring such ratification.
Other provisions, sections, and subsections of this Plan will remain in full
force and effect.
No such termination, modification or amendment may affect the rights
of a Participant under an outstanding Award.
17. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon the consummation of the
conversion of First Federal Savings and Loan Association of the Plan Beaches
from the mutual to capital stock form of ownership (the "Effective Date") on
September 29, 1993. The Plan shall be presented to shareholders of the Holding
Company for ratification for purposes of: (i) obtaining favorable treatment
under Section 16(b) of the Securities Exchange Act of 1934; (ii) satisfying one
of the requirements of Section 422 of the Code governing the tax treatment for
Incentive Stock Options; and (iii) maintaining listing on the Nasdaq National
Market. The failure to obtain shareholder ratification will not effect the
validity of the Plan and the options thereunder, provided, however, that if the
Plan is not ratified, the Plan shall remain in full force and effect, and any
Incentive Stock Options granted under the Plan shall be deemed to be
Non-statutory Stock Options.
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<PAGE> 47
18. TERMINATION OF THE PLAN
The right to grant Awards under the Plan will terminate upon the
earlier of ten (10) years after the Effective Date of the Plan or the issuance
of Common Stock or the exercise of options or related Limited Rights equivalent
to the maximum number of shares reserved under the Plan as set forth in Section
5. The Board of Directors has the right to suspend or terminate the Plan at any
time, provided that no such action will, without the consent of a Participant,
adversely affect his rights under a previously granted Award.
19. APPLICABILITY
The Plan will be administered in accordance with the laws of the
State of Delaware to the extent not preempted by Federal law.
20. COMPLIANCE WITH SECTION XVI
If this plan is qualified under Rule 16b-3 of the Exchange Act Rules,
with respect to persons subject to Section 16 of the Exchange Act, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provisions of
the Plan or action by the Committee fail to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
IN WITNESS WHEREOF, the Association has established this Plan
effective to be executed by its duly authorized executive officer and the
corporate seal to be affixed and duly attested, effective as of the _____ day of
____________, 1993.
By:
---------------------------------------------
Attest:
- -------------------------------
11
<PAGE> 48
EXHIBIT B
FIRST PALM BEACH BANCORP, INC.
1993 INCENTIVE STOCK OPTION PLAN
AMENDMENT 1
In accordance with Section 16 of the First Palm Beach Bancorp, Inc.
1993 Incentive Stock Option Plan (the "Plan"), the Plan is hereby amended as
follows:
1. The first sentence of Section 5 entitled "Stock Subject to the
Plan" is amended in its entirety to read as follows:
"Subject to adjustment as provided in Section 14, the
maximum number of shares reserved for purchase pursuant to
the exercise of options granted under the Plan shall not
exceed 593,500 shares of Common Stock of the Holding
Company, par value $.01 per share, subject to adjustments
pursuant to this Section 5."
This Amendment 1 shall be effective upon and as of the date it is
approved by the shareholders of the Holding Company. The Plan shall remain
unchanged in all other respects.
IN WITNESS WHEREOF, the Board of Directors of the Holding Company has
caused this Amendment to be executed by its duly authorized officer and its
corporate seal to be hereunto affixed as of the ________________ day of
_________________, 1996.
First Palm Beach Bancorp, Inc.
By:
-----------------------------
Title:
--------------------------
Attest:
-------------------------------
(SEAL)
<PAGE> 49
EXHIBIT C
FIRST PALM BEACH BANCORP, INC.
215 South Olive Avenue, West Palm Beach, FL 33401
PROXY FOR THE JANUARY 21, 1997 ANNUAL MEETING OF STOCKHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Each person signing this card on the reverse side hereby appoints as
proxies, Mr. William W. Lynch, Dr. Edward M. Eissey, Mr. Robert P. Miller and
Mr. T. R. Moffett or any of them, with full power of substitution, to vote all
shares of common stock which such person is entitled to vote at the Annual
Meeting of Stockholders of First Palm Beach Bancorp, Inc. to be held at the
Sheraton Hotel, 630 Clearwater Park Road, West Palm Beach, Florida (Corner of
Okeechobee & Australian) at 9:30 a.m. local time on January 21, 1997, and any
adjournments thereof.
PLEASE DATE AND SIGN ON REVERSE SIDE
FOLD AND DETACH HERE
<PAGE> 50
<TABLE>
THE PROXIES ARE HEREBY AUTHORIZED TO VOTE AS FOLLOWS: your votes as [ X ]
indicated in
this example
<S> <C>
1. Election of four Directors; Fred A. Greene, Louis O. Davis, Jr., 2. The proposal to approve an amendment to the First
Daniel O. Sokoloff, M.D. each for a three-year term expiring in Palm Beach Bancorp, Inc. 1993 Incentive Stock
2000, and Holly W. Hadley, M.D. for a one-year term expiring in Option Plan which authorizes an additional
1998. 250,000 shares of Common Stock of the Company
available for issuance pursuant to option grants
under such plan.
FOR WITHHELD (To withhold authority to vote for FOR AGAINST ABSTAIN
(except as shown) (as to all any nominee, write his name on this
on the line) nominees line: [ ] [ ] [ ]
[ ] [ ]
----------------------------------
3. The ratification of Deloitte & Touche, LLP as 4. Such other matters as THE SHARES REPRESENTED BY THIS PROXY, UNLESS
independent auditors of the Company for the may properly come before OTHERWISE SPECIFIED, SHALL BE VOTED FOR THE
fiscal year ending September 30, 1997. the meeting or any ELECTION OF EACH NOMINEE LISTED ABOVE AND SHALL
adjournments thereof. BE VOTED FOR THE AMENDMENT TO THE PLAN AND
RATIFICATION OF INDEPENDENT AUDITORS.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] Please sign below exactly as your name appears
on the label. When signing as attorney,
corporate officer or fiduciary, please give full
title as such. Executors, administrators,
trustees, and others acting in a representative
capacity should indicate title. Joint owners
should all sign. The undersigned hereby
acknowledges receipt of the Notice of the
Annual Meeting and Proxy Statement dated
December 19, 1996.
Dated: , 1996
----------------------------------
Signature(s)
-----------------------------------
-----------------------------------
-----------------------------------
PLEASE DATE, SIGN AND RETURN THIS
PROXY PROMPTLY.
</TABLE>
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT TO US. PLEASE COMPLETE, DATE AND SIGN THE ABOVE PROXY
CARD AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
