<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1997
Commission File No.: 0-21942
FIRST PALM BEACH BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
DELAWARE 65-0418027
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
</TABLE>
450 SOUTH AUSTRALIAN AVENUE, WEST PALM BEACH, FLORIDA 33402
(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
--- -----
Indicated by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of 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. X
------
The aggregate market value of the common stock held by non-affiliates
of the registrant is $175,768,648 and is based upon the last trade price as
reported by the NASDAQ National Market System for December 18, 1997.
The Registrant had 5,054,746 shares of common stock outstanding as of
December 18, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the Annual Meeting of Stockholders to be held
on January 21, 1998 is incorporated by reference into Part III of this Form
10-K.
<PAGE> 2
INDEX
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PAGE
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PART I.
Item 1. Business ..........................................................................................1
Safe Harbor Statement......................................................................1
Business...................................................................................1
Market Area and Competition................................................................3
Lending Activities.........................................................................4
Asset Quality.............................................................................12
Mortgage-Backed and Related Securities....................................................19
Investment Activities.....................................................................20
Sources of Funds..........................................................................23
Borrowings................................................................................26
Subsidiary Activities.....................................................................27
Personnel.................................................................................27
Regulation and Supervision................................................................28
Federal and State Taxation................................................................42
Item 2. Properties........................................................................................44
Item 3. Legal Proceedings.................................................................................48
Item 4. Submission of Matters to a Vote of Security Holders...............................................48
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................49
Item 6. Selected Financial Data...........................................................................50
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............52
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................66
Item 8. Financial Statements and Supplementary Data.......................................................70
Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosure..............104
PART III
Item 10. Directors and Executive Officers of the Registrant...............................................105
Item 11. Executive Compensation...........................................................................105
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................105
Item 13. Certain Relationships and Related Transactions...................................................105
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................106
</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"), First Palm Beach
Bancorp, Inc. (the "Company") is hereby filing cautionary statements identifying
important factors that could cause the Company's actual results, or those of its
subsidiary, First Bank of Florida (the "Bank") to differ materially from those
projected in "forward-looking statements" (as such term is defined in the Reform
Act) of the Company or the Bank, made by or on behalf of the Company or 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
Company with the Securities and Exchange Commission ("SEC"), or in the Company'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," or "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 Company's or the Bank's actual results to differ materially from those
contained in forward-looking statements of the Company or the Bank made by or on
behalf of the Company or the Bank.
The Company and the Bank caution that the following important factors
could cause actual results or outcomes to differ materially from those expressed
in any forward-looking statements of the Company or the Bank made by or on
behalf of the Company or the Bank. All forward-looking statements speak only as
of the date on which such statements are made, and the Company and the Bank
undertake 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 Company and the Bank operate), 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 Company
and the Bank.
BUSINESS
On September 29, 1993, the Company closed its public offering for
5,284,775 shares of its common stock ("common stock") and acquired the Bank,
formerly First Federal Savings and Loan Association of the Palm Beaches (the
"Association"), as part of the Bank's conversion (the "conversion") from a
mutual to a stock federally chartered savings association. Additionally, the
Recognition and Retention Plans ("RRPs") implemented during the conversion
1
<PAGE> 4
purchased 211,600 shares of the Company's Common Stock, making a total of shares
outstanding at that time of 5,496,375. The Company was incorporated under
Delaware law on May 27, 1993. The Company 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 SEC. Currently, the Company does
not transact any material business other than through its subsidiary, the Bank.
The net conversion proceeds totaled $52.5 million of which $25.2 million was
invested in the Bank and $27.3 million was retained by the Company. The Company
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, 1997,
the loan to the ESOP had a balance of $955,000 and the loan to the Bank had a
balance of $5,854,000. On June 30, 1997, the Company issued $35 million of
10.35% Senior Debentures Due 2002 (the "Series A Debentures"), in a private
placement. Of the net proceeds of $33.8 million, the Company contributed $25
million to the capital of the Bank. For a period beginning on November 17, 1997
and ending on December 18, 1997 the Company offered to exchange such outstanding
Series A Debentures for a like amount of Series B 10.35% Senior Debentures Due
2002 (the "Series B Debentures"), which Series B Debentures were registered with
the SEC. As of the date of this 10-K, all outstanding Series A Debentures have
been tendered for exchange. The Series A Debentures and the Series B Debentures
are hereinafter collectively referred to as the "Senior Debentures."
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.
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.
On June 30, 1997, the Company issued $35 million of Series A Debentures
Due 2002. The net proceeds of the debenture issuance are being used for general
corporate purposes, including, as noted previously, contributing $25 million of
the net proceeds to the Bank. The Indenture entered into by the Company in
connection with the Senior Debentures (the "Indenture") includes certain
covenants which, among other things, (i) limit the Company's disposition of the
voting stock of the Bank, other than dispositions which (a) are for fair market
value and, after giving effect to such dispositions and to any potential
dilution, the Company will own not less than 80% of the shares of voting stock
of the Bank free and clear of any security interest; (b) are made in compliance
with an order of a court or regulatory authority of competent jurisdiction, a
condition imposed by any such court or authority permitting the acquisition by
the Company, directly or indirectly, of any other bank or entity the activities
of which are legally permissible for a bank holding company or a subsidiary
thereof to engage in, or an undertaking made to such authority in connection
with such an acquisition; (c) are made where the Bank, having obtained any
necessary regulatory approvals, unconditionally guarantees payment when due of
the principal of and interest on the Senior Debentures; or (d) are made to the
Company or any wholly-owned subsidiary if such wholly-owned subsidiary agrees to
be bound by the covenant as if it were the Company and the Company agrees to
maintain such wholly-owned subsidiary as a wholly-owned subsidiary
(notwithstanding the foregoing, the Bank may be merged into or consolidated with
another banking institution if, after giving effect to such merger or
consolidation, the Company or any wholly-owned subsidiary owns at least 80% of
the voting stock of such other banking institution then issued and outstanding
free and clear of any security interest and if, immediately after giving effect
thereto and treating any such resulting banking institution thereafter as the
Bank and a subsidiary, for purposes of the Indenture, no Event of Default (as
such term is defined in the Indenture), and no event which, after notice or
lapse of time or both, would become an Event of Default, shall have happened and
be continuing); (ii) limit, to a percentage of net worth, the Company's and the
Bank's ability to become liable on certain forms of indebtedness generally
outside the normal course of the Company's and the Bank's business; (iii)
provide that the Company will not permit its Consolidated Net Worth minus
Goodwill to be less than $90 million; (iv) provide that the Company shall not
allow the Bank to be classified as other than "well-capitalized"; and (v)
restrict dividend or other
2
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distributions of the Company and the Bank and stock repurchases by the Company
in such a way that any such dividends, distributions or stock repurchases after
March 31, 1997 may not exceed in the aggregate, the sum of (a) $10,000,000 plus
(b) 75% (or 100% in the case of deficit) of consolidated net income for the
period beginning March 31, 1997 and ending and including the date such dividend,
distribution or stock repurchase (each, a "Restricted Payment") is declared or
made (plus 100% of the proceeds of issuances of equity securities after March
31, 1997), and a Restricted Payment may not be made if at the time of and
immediately before the Restricted Payment is declared, and after giving effect
to the Restricted Payment a Default (as such term is defined in the Indenture)
or Event of Default is existing or shall have occurred within 365 days of the
declaration of the Restricted Payment.
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.
The Bank utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include a mainframe processing system licensed to the Bank by an outside vendor
and various purchased software packages which are run on in-house computer
networks. In 1997, the Bank initiated a review and assessment of all hardware
and software to confirm that it will function properly in the year 2000. The
Bank's mainframe software vendor and the majority of the other vendors which
have been contacted have indicated that their hardware and/or software will be
Year 2000 compliant. Testing will be performed for compliance. While there may
be some expenses incurred during the next two years, Year 2000 compliance is not
expected to have a material effect on the Company's consolidated financial
statements.
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, three 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 from which the Bank draws a
substantial portion of its business has derived its strength primarily from
government, tourism, retirement communities, agriculture, service industries and
foreign trade. Unemployment in Palm Beach County is higher than the national and
State of Florida 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 south
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
3
<PAGE> 6
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 recent
regulatory changes 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, 1997, the Bank's total
loans outstanding were $1,194.7 million, of which $846.4 million, or 70.9% 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, 46.3% were fixed-rate loans and 53.7% were adjustable
rate mortgage ("ARM") loans as hereinafter described. At the same date,
construction and land loans totaled $138.7 million or 11.6% of the Bank's total
loan portfolio; commercial real estate loans totaled $40.9 million or 3.4% of
the Bank's total loan portfolio; and multi-family mortgage loans totaled $14.9
million or 1.3% 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 $153.8 million or
12.9% of the Bank's total loan portfolio at September 30, 1997. At September 30,
1997, $88.4 million of consumer and other loans consisted of indirect automobile
loans. The Bank had $82.5 million of loans serviced for others at September 30,
1997.
At September 30, 1997, $6.2 million or 0.5% 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, 1997, the Bank's mortgage-backed and related
securities held-to-maturity and available-for-sale, a significant portion of
which were collateralized mortgage obligations ("CMOs") or real estate mortgage
investment conduits ("REMICs"), aggregated $421.6 million or 23.3% 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").
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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,
----------------------------------------------------
1993 1994
---------------------- ------------------------
Percent Percent
Amount of Total Amount of Total
--------- --------- --------- --------
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(Dollars in thousands)
MORTGAGE LOANS:
One- to four-family ........................................... $335,750 72.48% $ 436,135 68.88%
Construction and land ......................................... 61,233 13.22% 104,324 16.47%
Commercial real estate ........................................ 29,930 6.46% 30,802 4.86%
Multi-family .................................................. 11,720 2.53% 11,515 1.82%
-------- ------ --------- ------
Total mortgage loans ........................................ 438,633 94.69% 582,776 92.03%
Consumer loans ................................................ 22,184 4.78% 48,611 7.68%
Other loans ................................................... 2,436 0.53% 1,848 0.29%
-------- ------ --------- ------
Total loans receivable ...................................... 463,253 100.00% 633,235 100.00%
====== ======
LESS:
Loans in process .............................................. 31,320 54,856
Unearned discounts (premiums) and deferred loan fees, net ..... 943 (308)
Allowance for loan losses ..................................... 1,886 1,956
-------- ---------
Loans receivable, net ......................................... $429,104 $ 576,731
======== =========
MORTGAGE-BACKED AND RELATED SECURITIES HELD-TO-MATURITY
AND MORTGAGE-BACKED AND RELATED SECURITIES AVAILABLE-FOR-SALE:
CMOs (includes REMICs) ........................................ $282,460 $ 258,166
FHLMC ......................................................... -- 3,595
FNMA .......................................................... -- 34,025
GNMA .......................................................... 153 30,169
Net premiums and (discounts) .................................. 1,399 (1,911)
-------- ---------
Total mortgage-backed and related securities held-to-a
and mortgage-backed and related securities
available-for-sale .......................................... $ 284,012 $ 324,044
========= =========
<CAPTION>
At September 30
--------------------------------------------------
1995 1996
------------------------ -----------------------
Percent Percent
Amount of Total Amount of Total
----------- -------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
MORTGAGE LOANS:
One- to four-family ........................................... $ 587,598 67.82% $ 652,606 60.93%
Construction and land ......................................... 118,799 13.71% 154,988 14.47%
Commercial real estate ........................................ 35,610 4.11% 51,754 4.83%
Multi-family .................................................. 11,837 1.37% 17,564 1.64%
----------- ------ ---------- ------
Total mortgage loans ........................................ 753,844 87.01% 876,912 81.87%
Consumer loans ................................................ 110,384 12.74% 191,654 17.90%
Other loans ................................................... 2,155 0.25% 2,434 0.23%
----------- ------ ---------- ------
Total loans receivable ...................................... 866,383 100.00% 1,071,000 100.00%
====== ======
Less:
Loans in process .............................................. 43,967 61,633
Unearned discounts (premiums) and deferred loan fees, net ..... (4,765) (10,369)
Allowance for loan losses ..................................... 2,157 11,855
----------- ----------
Loans receivable, net ......................................... $ 825,024 $1,007,881
=========== ==========
MORTGAGE-BACKED AND RELATED SECURITIES HELD-TO-MATURITY AND
MORTGAGE-BACKED AND RELATED SECURITIES AVAILABLE-FOR-SALE:
CMOs (includes REMICs) ........................................ $ 145,879 $ 132,067
FHLMC ......................................................... 12,023 23,739
FNMA .......................................................... $ 49,837 49,512
GNMA .......................................................... 33,035 29,222
Net premiums and (discounts) .................................. (2,332) (2,267)
----------- ----------
Total mortgage-backed and related securities held-to-a
and mortgage-backed and related securities
available-for-sale........................................... $ 238,442 $ 232,273
=========== ==========
<CAPTION>
At September 30
-----------------------
1997
-----------------------
Percent
Amount of Total
----------- ---------
(Dollars in thousands)
<S> <C> <C>
MORTGAGE LOANS:
One- to four-family ........................................... $ 846,449 70.85%
Construction and land ......................................... 138,664 11.60%
Commercial real estate ........................................ 40,905 3.42%
Multi-family .................................................. 14,904 1.25%
---------- ------
Total mortgage loans ........................................ 1,040,922 87.12%
Consumer loans ................................................ 150,991 12.64%
Other loans ................................................... 2,816 0.24%
---------- ------
Total loans receivable ...................................... 1,194,729 100.00%
======
Less:
Loans in process .............................................. 52,776
Unearned discounts (premiums) and deferred loan fees, net ..... (8,193)
Allowance for loan losses ..................................... 6,046
----------
Loans receivable, net ......................................... $1,144,100
==========
MORTGAGE-BACKED AND RELATED SECURITIES HELD-TO-MATURITY AND
MORTGAGE-BACKED AND RELATED SECURITIES AVAILABLE-FOR-SALE:
CMOs (includes REMICs) ........................................ $ 174,313
FHLMC ......................................................... 12,850
FNMA .......................................................... 113,110
GNMA .......................................................... 124,492
Net premiums and (discounts) .................................. (3,120)
----------
Total mortgage-backed and related securities held-to-a
and mortgage-backed and related securities
available-for-sale........................................... $ 421,645
==========
</TABLE>
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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,
---------------------------------------
1995 1996 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
MORTGAGE LOANS (GROSS):
At the beginning of period ..................... $582,776 $ 753,844 $ 876,912
-------- --------- -----------
Mortgage loans originated:
One- to four- family ....................... 135,875 192,524 196,925
Construction and land ...................... 120,234 163,097 134,029
Commercial real estate ..................... 5,556 3,563 1,176
Multi-family ............................... 830 1,877 -
-------- --------- -----------
Total mortgage loans originated .............. 262,495 361,061 332,130
-------- --------- -----------
Mortgage loans purchased:
One- to four- family ....................... 5,450 47,854 13,976
Construction and land ...................... -- 16,323 -
Commercial real estate ..................... 237 19,519 192
Multi-family ............................... - 5,626 -
-------- --------- -----------
Total mortgage loans purchased ............... 5,687 89,322 14,168
-------- --------- -----------
Total mortgage loans originated and purchased .. 268,182 450,383 346,298
Transfer of mortgage loans to real estate owned 1,057 961 3,580
Principal repayments ........................... 82,151 162,053 150,961
Sales of loans ................................. 13,906 164,301 27,747
-------- --------- -----------
At end of period ............................... $753,844 $ 876,912 $ 1,040,922
======== ========= ===========
CONSUMER LOANS (GROSS):
At beginning of period ......................... $ 48,611 $ 110,384 $ 191,654
Consumer loans originated ...................... 99,251 177,466 63,627
Consumer loans purchased ....................... -- 357 -
Transfer of loans to repossessed automobiles ... 765 21,122 15,452
Principal repayments ........................... 36,713 75,431 88,838
-------- --------- -----------
At end of period ............................... $110,384 $ 191,654 $ 150,991
======== ========= ===========
OTHER LOANS (GROSS):
At beginning of period ......................... $ 1,848 $ 2,155 $ 2,434
Other loans originated ......................... 2,457 1,056 2,996
Principal repayments ........................... 2,150 777 2,614
-------- --------- -----------
At end of period ............................... $ 2,155 $ 2,434 $ 2,816
======== ========= ===========
MORTGAGE-BACKED AND RELATED SECURITIES(1):
At beginning of period ......................... $324,044 $ 238,442 $ 232,273
Mortgage-backed and related securities purchased 49,883 46,873 370,617
Mortgage-backed and related securities sold .... 95,751 18,040 127,735
Increase (decrease) in unrealized loss on
available-for-sale securities ................ (2,342) (2,178) (1,537)
Amortization and repayments .................... 42,076 37,180 55,047
-------- --------- -----------
At end of period ............................... $238,442 $ 232,273 $ 421,645
======== ========= ===========
</TABLE>
- -------------------
(1) Consists of held-to-maturity and available-for-sale portfolios.
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Maturity of Loans and Mortgage-Backed and Related Securities. The
following table shows the maturity of the Bank's loans and mortgage-backed and
related securities, which includes mortgage-backed and related securities
held-to-maturity and available-for-sale, at September 30, 1997. 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 $121.0 million, $238.6
million and $242.4 for the years ended September 30, 1995, 1996 and 1997,
respectively.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
------------------------------------------------------------------
MORTGAGE LOANS
---------------------------------------
ONE TO COMMERCIAL
FOUR- CONSTRUCTION AND MULTI- CONSUMER OTHER
FAMILY AND LAND FAMILY LOANS LOANS
---------- ------------ ---------- --------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
AMOUNTS DUE:
Within 1 year ............................. $ 3,860 $ 40,137 $ 6,684 $ 15,293 $1,818
--------- -------- ------- --------- ------
1 to 2 years .............................. 2,029 6,839 4,666 11,446 579
2 to 3 years .............................. 1,746 1,843 3,742 25,295 184
3 to 5 years .............................. 14,997 4,298 6,852 74,536 231
5 to 10 years ............................. 20,098 2,664 10,946 24,347 4
10 to 15 years ............................ 145,255 8,072 5,110 37 -
Over 15 years ............................. 658,464 74,811 17,809 37 -
--------- -------- ------- --------- ------
Total due after 1 year .................... 842,589 98,527 49,125 135,698 998
--------- -------- ------- --------- ------
Total amounts due ........................... 846,449 138,664 55,809 150,991 2,816
Less:
Loans in process .......................... 51,615 -- - 1,161 -
Unearned discounts, (premiums) and deferred
loan fees, net ............................ (5,018) --- - (3,175) -
Allowance for loan losses ................. 2,250 --- - 3,796 -
--------- -------- ------- --------- ------
Loans receivable and mortgage- backed and
related securities, net ..................... $ 797,602 $138,664 $55,809 $ 149,209 $2,816
========= ======== ======= ========= ======
<CAPTION>
AT SEPTEMBER 30, 1997
---------------------------------------------------------------
TOTALS
--------------------------------
MORTGAGE- MORTGAGE-
BACKED AND BACKED AND
RELATED RELATED
SECURITIES SECURITIES
TOTAL LOANS HELD-TO- AVAILABLE-FOR-
RECEIVABLE MATURITY SALE TOTAL
------------- ------------- ------------- ------------
(In thousands)
<S> <C> <C> <C> <C>
AMOUNTS DUE:
Within 1 year ............................. $ 67,792 $ 556 - $ 68,348
----------- -------- -------- -----------
1 to 2 years .............................. 25,559 542 - 26,101
2 to 3 years .............................. 32,810 - - 32,810
3 to 5 years .............................. 100,914 9,296 - 110,210
5 to 10 years ............................. 58,059 8,635 $ 28,685 95,379
10 to 15 years ............................ 158,474 25,797 70,045 254,316
Over 15 years ............................. 751,121 170,960 110,249 1,032,330
----------- -------- -------- -----------
Total due after 1 year .................... 1,126,937 215,230 208,979 1,551,146
----------- -------- -------- -----------
Total amounts due ........................... 1,194,729 215,786 208,979 1,619,494
Less:
Loans in process .......................... 52,776 -- -- 52,776
Unearned discounts, (premiums) and deferred
loan fees, net ............................ (8,193) 2,483 637 (5,073)
Allowance for loan losses ................. 6,046 -- -- 6,046
----------- -------- -------- -----------
Loans receivable and mortgage- backed and
related securities, net ..................... $ 1,144,100 $213,303 $208,342 $ 1,565,745
=========== ======== ======== ===========
</TABLE>
7
<PAGE> 10
The following table sets forth at September 30, 1997, the dollar amount
of all loans and mortgage-backed and related securities held-to-maturity and
mortgage-backed and related securities available-for-sale due after September
30, 1998, and whether such loans have fixed interest rates or adjustable
interest rates:
<TABLE>
<CAPTION>
DUE AFTER SEPTEMBER 30, 1998
-----------------------------------
FIXED ADJUSTABLE TOTAL
-------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
MORTGAGE LOANS:
One- to four- family ...................................................... $391,531 $451,058 $ 842,589
Construction and land ..................................................... 76,604 21,923 98,527
Multi-family .............................................................. 5,721 8,944 14,665
Commercial real estate .................................................... 6,868 27,592 34,460
CONSUMER LOANS ............................................................... 135,698 -- 135,698
OTHER LOANS .................................................................. 995 3 998
-------- -------- ----------
TOTAL LOANS RECEIVABLE .................................................. 617,417 509,520 1,126,937
MORTGAGE-BACKED AND RELATED SECURITIES HELD-TO-MATURITY AND
AVAILABLE-FOR-SALE ........................................................ 171,106 253,103 424,209
-------- -------- ----------
TOTAL LOANS RECEIVABLE AND MORTGAGE-BACKED AND RELATED SECURITIES
HELD-TO MATURITY AND AVAILABLE-FOR-SALE.................................. 788,523 $762,623 $1,551,146
======== ======== ==========
</TABLE>
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"), by its nine loan originators who are
compensated on a commission basis. Loan applications originated by 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, 1997, the Bank's mortgage loans
originated through all sources totaled $332.1 million. FBMC accounted for $166.4
million in mortgage loans originated, or 50.1% of this total. The Bank has
expanded the mortgage lending activities in its branch network by training
branch personnel and placing FBMC loan officers in certain branch offices.
The Bank obtains one- to four-family residential 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. Wholesale loans comprised
approximately 43% of the total new mortgage loans originated by the Bank in
fiscal 1997.
At September 30, 1997, 70.9% of mortgage loans receivable consisted of
one- to four-family residential loans, of which 53.5% 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. The Bank has discontinued originating ARM loans which have an
initial monthly payment adjustment after seven or ten years. The balance of ARM
seven or ten year loans totaled $84.4 million at September 30, 1997.
8
<PAGE> 11
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 1996 and 1997, in accordance
with its growth strategy, 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
$214,600. 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.
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, 1997, the outstanding balance of
such loans was $3.2 million. These loans may entail more risk than loans with
private mortgage insurance because, if a borrower defaults, the Bank will not be
able to seek reimbursement for any portion of the loan from a private mortgage
insurer. As of September 30, 1997, the Bank had not experienced any material
difference between the delinquency rate for those loans and the delinquency rate
for 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 their higher
loan-to-value ratios.
Sale of Loans. During the fiscal year ended September 30, 1997, the
Bank sold approximately $27.7 million of mortgage loans. A gain of $387,000 on
the sales was recognized during fiscal year 1997.
Commercial and Multi-Family Real Estate Lending. As of September 30,
1997, $40.9 million, or 3.4% of the Bank's total loan portfolio, consisted of
commercial loans, and $14.9 million, or 1.3% 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.
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 real estate loans only
in its primary market area. All commercial and multi-family real estate 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.
9
<PAGE> 12
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, 1997,
construction loans totaled $115.6 million, or 9.7% 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 loans generally
convert into permanent loans with terms of up to 30 years 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 up
to 80%. 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, 1997 were for loans on single family dwellings.
The Bank offers 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 may grant
preferential rates to the builder through these commitments.
Land Loans. The Bank 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, 1997, land loans totaled $23.0
million, or 1.9% 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 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, 1997, this loan had an outstanding balance of $8.4
million.
Consumer and Other Lending. At September 30, 1997, $153.8 million, or
12.9% 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.
During the fiscal years ended 1995 and 1996, the Bank became more
active in the indirect automobile lending market. Indirect automobile 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. Higher delinquencies
and charge-offs did not occur until the third quarter of fiscal 1996, as
insufficient time had passed prior to the third quarter for the indirect
automobile loan portfolio to mature and for the Bank to experience collection
problems, which indicated that significant additional provisions were necessary.
As a result, a $16.4 million provision for loan losses related to consumer
lending was recorded during fiscal year 1996. The provisions were determined by
projecting charge-offs based on the latest repossession activity and recovery
rates. 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
10
<PAGE> 13
indirect lending program. Total consumer and other loans outstanding decreased
to $153.8 million at September 30, 1997 from $194.1 million at September 30,
1996. Of these amounts, $88.4 million and $148.2 million at September 30, 1997
and September 30, 1996, respectively, were indirect loans.
Notwithstanding the decline in indirect loans, other consumer loans
increased by $19.5 million in fiscal 1997. This increase reflects a primary
focus on increasing the volume of home equity loans and lines of credit, direct
automobile lending and personal lines of credit.
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 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. The Bank is in its third year of its credit card program.
The Bank offers Visa Classic, Visa Gold and Secured Visa Programs. The credit
applications for credit cards are underwritten and collected by the Bank, and
the payments and statement processing are carried out by a third party.
As of September 30, 1997, the Bank had approved 3,866 credit card
accounts having an aggregate credit limit of $8.5 million. The outstanding
balance on these cards at September 30, 1997 was $3.6 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 the Bank's 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%. The Bank introduced a "tax reducer" account which is a home
equity line of credit which allows access through a Visa credit card. At
September 30, 1997 the balance of these accounts was $6.0 million.
Commercial Lending. With the ongoing consolidation of banking
institutions in Florida, the Bank believes there is a significant opportunity
for lending to small business enterprises. In preparation, the Bank has hired
experienced commercial bankers to provide expertise in developing conservative
lending programs to meet the needs of that market. Growth in this area of
lending will be disciplined, with asset quality being of primary importance.
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 $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 primarily 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
primarily consists of members of senior management 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 $5
million must be authorized by the Bank's President. All mortgage loan approvals
are ratified by the Bank's Board of Directors.
11
<PAGE> 14
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 in connection with 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.
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 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 decreased to $6.8
million at September 30, 1997 from $11.3 million at September 30, 1996. The
decrease was primarily due to one loan relationship totaling $6.2 million at
September 30, 1996 on a marina and beach club in Charlotte County, Florida which
was refinanced and paid down to $3.8 million and brought current during fiscal
year 1997. See "Asset Quality - Classified Assets."
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 unresponsive
borrowers. Upon repossession, the collateral is evaluated to determine its
condition. Repairs are made at the discretion of the Collections supervisor. The
Bank attempts to sell the asset 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, 1995, 1996 and 1997, delinquencies of 60 days or more
in the Bank's loan portfolio were as follows:
<TABLE>
<CAPTION>
At September 30, 1995 At September 30, 1996
------------------------------------------ ------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
---------------------- ------------------ ---------------------- ----------------------
Number Principal Number Principal Number Principal Number Principal
of Loans Balance of Loans Balance of Loans Balance of of Loans Balance of
of Loans of Loans Loans Loans
--------- --------- -------- --------- -------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four- family .............. 10 $ 163 28 $1,172 19 $1,150 45 $ 2,621
Construction and land ............. - - 5 267 3 742 13 8,658
Commercial real estate ............ - - 1 80 - - - -
Multi-family ...................... - - 2 243 - - - -
----- ------ ------- ------ ----- ------ --- -------
Total mortgage loans .............. 10 163 36 1,762 22 1,892 58 11,279
Consumer and other loans .......... 20 187 16 52 160 2,065 132 1,552
----- ------ ------- ------ ----- ------ --- -------
Total loans ....................... 30 $ 350 52 $1,814 182 3,957 190 $12,831
===== ====== ======= ====== ===== ====== === =======
Delinquent loans to total loans ... 0.04% 0.21% 0.37% 1.20%
<CAPTION>
At September 30, 1997
-------------------------------------------------
60-89 Days 90 Days or More
---------------------- ------------------------
Number Principal Number Principal
of Loans Balance of of Loans Balance of
Loans Loans
--------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
MORTGAGE LOANS:
One- to four- family .............. 28 $ 1950 62 $5,340
Construction and land ............. 1 120 10 1,484
Commercial real estate ............ - - - -
Multi-family ...................... 1 89 - -
----- ------ ------ ------
Total mortgage loans .............. 30 2,159 72 6,824
Consumer and other loans .......... 153 1,623 114 1,262
----- ------ ------ ------
Total loans ....................... 183 $3,782 186 $8,086
===== ====== ====== ======
Delinquent loans to total loans ... 0.32% 0.68%
</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,
1997, there were $7.9 million in loans restructured within the meaning of SFAS
No. 15, the majority of which were indirect automobile loans.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------------------------
1993 1994 1995 1996 1997
------ ----- ---- ----- ----
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-Accrual mortgage loans(1), (2) .......................... $2,633 $1,451 $1,743 $11,269 $ 6,824
Mortgage loans delinquent 90 days or more and still accruing(2) 25 443 18 10 --
Non-accrual consumer loans and other loans(1), (2) .......... -- -- 8 1,390 1,037
Consumer and other loans delinquent 90 days or more and still
accruing(3) ................................................. 20 37 45 162 225
------ ------ ------ ------- -------
Total non-performing loans .................................. 2,678 1,931 1,814 12,831 8,086
Real estate owned and in-substance foreclosed loans ......... 1,403 529 549 1,626 1,795
Repossessed automobiles(3)................................... -- 13 371 1,602 474
------ ------ ------ ------- -------
Total non-performing assets ................................. $4,081 $2,473 $2,734 $16,059 $10,355
====== ====== ====== ======= =======
Non-performing loans to total loans ......................... 0.58% 0.30% 0.21% 1.20% 0.68%
Total non-performing assets to total assets ................. 0.48% 0.23% 0.23% 1.08% 0.57%
</TABLE>
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 decreased to $6.8 million at September 30,
1997 from $11.3 million at September 30, 1996. This decrease was primarily the
result of a $6.2 million loan relationship on a marina/residential development
in Charlotte County, Florida which was refinanced and paid down to $3.8 million
and brought current during fiscal year 1997. See "Asset Quality - Classified
Assets."
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
- ---------------
(1) For the fiscal year ended September 30, 1997, $678,000 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
$301,000 in interest income on these loans was included in net income.
(2) As to principal or interest.
(3) Repossessed automobiles are carried as estimated fair value, which
approximates management's estimate of proceeds to be received at time of
disposition based on historical experience. Recovery rates have averaged
55-60% per repossession.
14
<PAGE> 17
not currently expose the 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 its reviews to the
Board of Directors on a monthly basis.
At September 30, 1997, the Bank had one classified asset with an
aggregate carry value in excess of $1.0 million. Set forth below is a brief
description of the classified asset with a carrying value of $1.0 million or
more at September 30, 1997.
Marina/Residential Development, Charlotte County, Florida. At September
30, 1997, the Bank's classified assets included one loan to one borrower and a
speculative loan on two model residences to a party related to the borrower. The
loans totaled $3.8 million at September 30, 1997 and are secured by first
mortgages on a marina, a beachfront lot and two speculative model residences.
The Bank has personal guarantees on the notes.
15
<PAGE> 18
The following table sets forth at September 30, 1997 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.... 52 $ 4,567 -- -- -- -- 16 $ 2,490
Multi-family............ -- -- -- -- -- -- -- --
Commercial real estate.. 4 4,208 -- -- 1 $ 349 1 1,318
Construction and land... 8 1,664 -- -- -- -- -- --
Consumer and other loans 116 1,379 2 $ 28 1 8 -- --
---------- --------- ---------- ---------- --------- ---------- ---------- ----------
Total................. 180 11,818 2 28 2 357 17 3,808
Repossessed automobiles... 48 474 -- -- -- -- -- --
Other assets.............. -- -- 39 1,070 -- -- -- --
Real estate owned:
One- to four- family.... 9 865 -- -- 3 42 -- --
Multi-family............ -- -- -- -- -- -- -- --
Commercial real estate.. 4 930 -- -- 3 119 -- --
Land.................... -- -- -- -- -- -- -- --
---------- --------- ---------- ---------- --------- ---------- ---------- ----------
Total real estate owned 13 1,795 -- -- 6 161 -- --
---------- --------- ---------- ---------- --------- ---------- ---------- ----------
Total for all Classified Assets 241 $ 14,087 41 $ 1,098 8 $ 518 17 $ 3,808
========== ========= ========== ========== ========= ========== ========== ==========
</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.
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.
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, 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. 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. At September 30, 1997, indirect automobile loans
totaled $88.4 million and related general reserves equaled $3.3 million or 3.7%
of outstanding indirect loan balances.
16
<PAGE> 19
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 and 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 Reform 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 Reform Act.
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
--------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period .............................. $2,334 $1,886 $1,956 $ 2,157 11,855
Provision for loan losses ................................... 149 135 261 15,704 3,281
Increase in allowance due to acquisition of PBS ............. -- -- -- 2,253 --
Less: Charge-offs:
One- to four- family ...................................... -- -- -- -- 14
Construction and land ..................................... -- -- -- -- --
Multi-family .............................................. 81 -- -- -- 4
Commercial real estate .................................... 406 -- -- 668 353
Consumer loans ............................................ 122 69 92 7,962 10,912
Other loans ............................................... -- -- -- -- --
------ ------ ------ ------- -------
Total charge-offs ....................................... 609 69 92 8,630 11,283
Recoveries .................................................. 12 4 32 371 2,193
------ ------ ------ ------- -------
Balance at end of period .................................... $1,886 $1,956 $2,157 $11,855 $ 6,046
====== ====== ====== ======= =======
</TABLE>
17
<PAGE> 20
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,
---------------------------------------------------------------------------------
1993 1994 1995
------------------------ ------------------------ ------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ------------ ---------- ------------ ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
At end of period allocated to:
One- to four- family...... $ 589 72.48% $ 660 68.88% $ 556 67.82%
Construction and land..... 876 13.22% 1,000 16.47% 490 13.71%
Multi-family.............. 8 2.53% 8 1.82% 12 1.37%
Commercial real estate.... 320 6.46% 35 4.86% 472 4.11%
Consumer loans............ 93 4.78% 252 7.68% 603 12.74%
Other loans............... -- 0.53% 1 0.29% 24 0.25%
---------- ------------ ---------- ------------ ---------- ------------
Total................... $ 1,886 100.00% $ 1,956 100.00% $ 2,157 100.00%
========== ============ ========== ============ ========== ============
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------------
1996 1997
------------------------- -------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
---------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
At end of period allocated to:
One- to four- family...... $ 416 60.93% $ 525 70.85%
Construction and land..... 768 14.47% 1,093 11.60%
Multi-family.............. 24 4.83% 22 1.25%
Commercial real estate.... 1,163 1.64% 565 3.42%
Consumer loans............ 9,463 17.90% 3,797 12.64%
Other loans............... 21 0.23% 44 0.24%
---------- ------------- ----------- ------------
Total................... $ 11,855 100.00% $ 6,046 100.00%
========== ============= =========== ============
</TABLE>
18
<PAGE> 21
The following table sets for 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,
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Ratio of net charge-offs during the period to average
outstanding during the period ............................ 0.14% 0.01% 0.01% 0.81% 0.85%
Ratio of allowance for loan losses to total loans
receivable, net, at the end of period .................... 0.44% 0.34% 0.26% 1.18% 0.53%
Ratio of allowance for loan losses to non-performing
laons at end of period ................................... 70.43% 101.29% 118.91% 92.40% 74.77%
Ratio of allowance for loan losses to total non-performing 46.21% 79.51% 78.90% 73.82% 58.39%
assets at end of period
</TABLE>
MORTGAGE-BACKED AND RELATED SECURITIES
The Bank invests in mortgage-related securities such as CMOs and
REMICs. At September 30, 1997, the Bank had $173.4 million in CMOs/REMICs, or
9.6% of total assets. Of this amount, $20.8 million are CMOs/REMICs classified
as held-to-maturity with an approximate fair value of $20.7 million, and $152.6
million are CMOs/REMICs classified as available-for-sale and reported at fair
value. Of the $173.4 million of CMOs/REMICs, $53.5 million, or 30.9%, 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 6.50% at
September 30, 1997. 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.
19
<PAGE> 22
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, 1997 issued by the following entities:
<TABLE>
<CAPTION>
ISSUER BOOK VALUE FAIR VALUE
------------------------------------------------------- --------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1. FNMA $ 170,636 $ 171,692
2. GNMA $ 122,033 $ 123,874
3. G.E. Capital Mortgage Corporation $ 38,531 $ 38,325
4. Prudential Home Mortgage Securities Company, Inc $ 33,298 $ 33,296
5. Residential Funding Corporation $ 18,051 $ 18,051
6. FHLMC $ 16,019 $ 16,382
</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, 1997, the Bank had $33.3 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, 1997, the Bank had $59.5 million in securities
available-for-sale consisting primarily of United States Government and agency
securities and municipal bonds.
20
<PAGE> 23
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,
-----------------------------------------------------------------
1995 1996 1997
------------------ --------------------- --------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
---------- ------- --------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING DEPOSITS ...................... $13,878 $13,878 $141,975 $141,975 $78,806 $78,806
======= ======= ======== ======== ======= =======
SECURITIES HELD-TO-MATURITY:
U.S. Government and agency obligations ....... 38,110 37,988 6,981 7,042 14,988 15,144
Municipal bonds .............................. 10,388 11,288 -- -- -- --
FHLB stock ................................... 8,558 8,558 10,053 10,053 18,296 18,296
------- ------- -------- -------- ------- -------
Total ...................................... $57,056 $57,834 $ 17,034 $ 17,095 $33,284 $33,440
======= ======= ======== ======== ======= =======
SECURITIES AVAILABLE-FOR-SALE:
U.S. Government and agency obligations ....... $ 2,000 $ 2,000 $ 27,105 $ 27,105 $49,891 $49,891
Municipal bonds .............................. -- -- -- -- 9,527 9,527
Securities purchased under agreement to resell 30,443 30,443 -- -- -- --
Certificates of deposit and other securities . -- -- 446 446 50 50
------- ------- -------- -------- ------- -------
Total ...................................... $32,443 $32,443 $ 27,551 $ 27,551 $59,468 $59,468
======= ======= ======== ======== ======= =======
</TABLE>
21
<PAGE> 24
The table below sets forth certain information regarding the carrying
value and weighted average yields of the Bank's investment securities at
September 30, 1997.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1997
------------------------------------------------------------------------------
AFTER 1 THROUGH 5 YEARS AFTER 5 THROUGH 10
1 YEAR OR LESS 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 ..... -- -- $14,988 6.42% -- --
Municipal bonds ............................ -- -- -- -- -- --
FHLB stock ................................. -- -- -- -- -- --
----- ------- ------
Total securities held-to-maturity ............ -- -- $14,988 6.42% -- --
===== ======= ======
Securities available-for-sale(1), (2):
U.S. Government and agency obligations ..... -- -- $45,050 6.64% $4,841 6.66%
Municipal bonds(3) ......................... -- -- -- -- -- --
Certificates of deposit and other securities -- -- -- -- 50 7.88%
----- ------- ------
Total securities available-for-sale .......... -- -- $45,050 6.64% $4,891 6.66%
===== ======= ======
<CAPTION>
-------------------------------------------------------
AFTER 10 YEARS TOTAL SECURITIES
-------------------------------------------------------
ANNUALIZED
WEIGHTED
CARRYING AVERAGE CARRYING APPROXIMATE
VALUE YIELD VALUE FAIR VALUE
---------- ---------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities held-to-maturity:
U.S. Government and agency obligations ..... -- -- $14,988 $15,144
Municipal bonds ............................ -- -- -- --
FHLB stock ................................. $18,296 7.25% 18,296 18,296
------- ------- -------
Total securities held-to-maturity ............ $18,296 7.25% $33,284 $33,440
======= ======= =======
Securities available-for-sale(1), (2):
U.S. Government and agency obligations ..... -- -- $49,891 $49,891
Municipal bonds(3) ......................... 9,527 7.39% 9,527 9,527
Certificates of deposit and other securities -- -- 50 50
------- ------- -------
Total securities available-for-sale .......... $ 9,527 7.39% $59,468 $59,468
======= ======= =======
</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 adjustments for unrealized gain or
loss on available-for-sale and trading securities.
(3) Annualized weighted average yield is presented on a fully tax
equivalent basis
22
<PAGE> 25
SOURCES OF FUNDS
General. Deposits, loan repayments, borrowings, and cash flows
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 13,335 accounts or 12.5%. On December 8, 1995, the Bank
acquired 8,764 accounts from Palm Beach Savings as part of the acquisition of
PBS by the Company.
Management considers local competition, U.S. Treasury security
offerings, and internal cash flows 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 26.2% of
total deposits on September 30, 1995, 25.5% of total deposits on September 30,
1996 and 24.2% of total deposits on September 30, 1997. 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, 1996 and 1997, the Bank
became more competitive in its pricing of certificates of deposit.
23
<PAGE> 26
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,
-------------------------------------------------------------------------------------
1995 1996
---------------------------------------- -----------------------------------------
PERCENT WEIGHTED PERCENT WEIGHTED
OF TOTAL AVERAGE OF TOTAL AVERAGE
AMOUNT DEPOSITS NOMINAL RATE AMOUNT DEPOSITS NOMINAL RATE
---------- ---------- -------------- ------------ ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand accounts:
Non-interest bearing checking $ 31,912 3.63% 0.00% $ 39,649 3.49% 0.00%
NOW checking.................. 57,464 6.54% 1.41% 59,716 5.25% 1.41%
Passbook and statement savings 89,967 10.24% 2.56% 150,433 13.24% 3.62%
Money market.................. 50,853 5.79% 2.41% 39,667 3.49% 2.41%
---------- ---------- ------------ ----------
Total........................... 230,196 26.20% 1.87% 289,465 25.47% 2.47%
---------- ---------- ------------ ----------
Certificate accounts by original
maturity:
7-31 days..................... 437 0.05% 4.24% 672 0.06% 2.83%
91 days....................... 8,265 0.94% 4.85% 6,925 0.61% 4.91%
6 months...................... 44,314 5.04% 5.08% 39,459 3.47% 4.76%
9 months...................... 95,435 10.86% 5.86% 144,293 12.69% 5.45%
9-18 months................... 1,727 0.20% 5.18% 451 0.04% 5.33%
1 year........................ 126,694 14.42% 5.64% 171,201 15.06% 5.42%
11/2 years.................... 79,983 9.10% 5.73% 124,665 10.97% 5.92%
2 years....................... 58,335 6.64% 5.42% 93,988 8.27% 6.04%
21/2 years ................... 10,708 1.22% 6.10% 30,060 2.64% 5.98%
3 years....................... 23,984 2.73% 5.52% 26,921 2.37% 5.78%
4 years....................... 7,007 0.80% 5.84% 7,596 0.67% 5.78%
5 years....................... 92,722 10.55% 6.68% 101,065 8.89% 6.40%
Negotiated rate certificates(1) 98,863 11.25% 5.86% 99,961 8.79% 5.43%
---------- ---------- ------------ ----------
Total........................... 648,474 73.80% 5.80% 847,257 74.53% 5.61%
---------- ---------- ------------ ----------
Total deposits.................. $ 878,670 100.00% 4.77% $ 1,136,722 100.00% 4.87%
========== ========== ============ ==========
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------
1997
-----------------------------------------
PERCENT WEIGHTED
OF TOTAL AVERAGE
AMOUNT DEPOSITS NOMINAL RATE
------------ ---------- --------------
<S> <C> <C> <C>
Demand accounts:
Non-interest bearing checking $ 49,513 4.03% 0.00%
NOW checking.................. 61,185 4.98% 0.75%
Passbook and statement savings 157,094 12.77% 3.65%
Money market.................. 29,446 2.40% 2.18%
------------ ----------
Total........................... 297,238 24.18% 2.22%
------------ ----------
Certificate accounts by original
maturity:
7-31 days..................... 1,351 0.11% 3.79%
91 days....................... 2,112 0.17% 4.08%
6 months...................... 31,806 2.59% 4.82%
9 months...................... 78,992 6.43% 5.56%
9-18 months................... -- -- --
1 year........................ 210,305 17.11% 5.57%
1 1/2 years................... 362,818 29.51% 6.03%
2 years....................... 96,809 7.88% 5.91%
2 1/2 years .................. 34,841 2.83% 6.00%
3 years....................... 25,974 2.11% 6.11%
4 years....................... 12,336 1.00% 6.05%
5 years....................... 74,697 6.08% 6.27%
Negotiated rate certificates(1) -- -- --
------------ ----------
Total........................... 932,041 75.82% 5.85%
------------ ----------
Total deposits.................. $ 1,229,279 100.00% 4.99%
============ ==========
</TABLE>
- ---------------
(1) Deposit account balances at September 30, 1995 and 1996 include
certificates of deposit of $50,000 and up which have negotiated rates.
During fiscal year ended September 30, 1997 the Bank changed their
policy to one where rates may be negotiated on any certificate of
deposit within certain limits.
24
<PAGE> 27
The following table presents the deposit activity of the Bank for the
periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1995 1996 1997
------------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Deposits ............................. $ 1,597,936 2,095,914(1) $ 2,149,461
Withdrawals........................... 1,474,866 1,886,048 2,113,748
------------- ------------ -----------
Deposits greater than withdrawals..... 123,070 209,866 35,713
Interest credited on deposits......... 37,318 48,186 56,844
------------- ------------ -----------
Total increase in deposits............ $ 160,388 $ 258,052 $ 92,557
============= ============ ===========
</TABLE>
At September 30, 1997, the Bank had outstanding $119.5 million in
certificate of deposit accounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
BALANCE AT SEPTEMBER 30, 1997
----------------------------------------------------
ORIGINATION AMOUNT
----------------------------------------------------
$100,000 AND OVER
---------------------------------------------------
(IN THOUSANDS)
<S> <C>
MATURING PERIOD:
One month through three months.. $ 24,526
Three through six months........ 31,222
Six through 12 months........... 22,795
Over 12 months.................. 40,965
---------------------------------------------------
Total........................... $119,508
===================================================
</TABLE>
The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at September 30, 1995, 1996 and 1997
and the period to maturity of these accounts from September 30, 1997:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, PERIOD TO MATURITY FROM SEPTEMBER 30, 1997
----------------------------------- ------------------------------------------------------------
WITHIN ONE TO TWO TO
ONE YEAR TWO THREE
1995 1996 1997 YEARS YEARS THEREAFTER TOTAL
---------- --------- ---------- --------- --------- ------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
Less than 3.00%......... $ 326 $ 833 $ 252 $ 252 -- -- -- $ 252
3.00% to 3.99% ......... 5,184 303 466 466 -- -- -- 466
4.00% to 4.99% ......... 98,532 86,471 51,009 48,565 $ 2,444 -- -- 51,009
5.00% to 5.99% ......... 266,157 595,436 722,063 573,199 107,035 $ 15,497 26,332 722,063
6.00% to 6.99% ......... 224,788 131,927 139,753 84,244 29,423 13,020 13,066 139,753
7.00% to 7.99% ......... 49,477 32,151 18,356 153 75 18,093 35 18,356
8.00% or greater........ 4,010 136 142 - - -- 142 142
--------- ---------- ---------- --------- ----------- -------- -------- ---------
Total..................... $ 648,474 $ 847,257 $ 932,041 $ 706,879 $ 138,977 $ 46,610 $ 39,575 $ 932,041
========= ========== ========== ========= =========== ======== ======== =========
</TABLE>
- --------------
(1) Deposits include $103.8 million of deposits acquired in the acquisition
of PBS.
25
<PAGE> 28
BORROWINGS
On June 30, 1997, the Company issued $35.0 million of 10.35% Senior
Debentures, maturing on June 30, 2002. The interest on the Senior Debentures is
payable semi-annually in arrears on June 30 and December 31 of each year. The
Senior Debentures may not be redeemed prior to maturity. The net proceeds of the
debenture issuance are being used for general corporate purposes, including
contributing $25.0 million of the net proceeds to the Bank.
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, 1997, the Bank had a total credit availability with the
FHLB-Atlanta of $500.0 million. With $365.9 million currently advanced,
remaining credit availability equals $134.1 million.
The Bank executes sales of its securities under agreements to
repurchase ("Reverse Repurchase Agreements"). During the fiscal year ended
September 30, 1997, 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 $30.7 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 $40.3 million, $11.9 million and $15.6
million during the fiscal years ended September 30, 1995, 1996 and 1997,
respectively. The maximum amounts outstanding at any month end under such
agreements were $76.9 million, $28.4 million and $28.9 million during 1995, 1996
and 1997, respectively. The weighted average interest rate on the Reverse
Repurchase Agreements at September 30, 1997 was 5.71%.
The following table sets forth certain information relating to the
Bank's borrowings at September 30, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
AT OR FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1995 1996 1997
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding ................................. $ 141,837 $ 200,158 $ 226,271
Maximum amount outstanding at any month end during the period 171,125 226,100 365,925
Balance outstanding at end of period ........................ 171,125 201,025 365,925
Weighted average interest rate during the period ............ 6.13% 5.98% 5.94%
Weighted average interest rate at end of period ............. 6.28% 5.88% 5.98%
Reverse repurchase agreements:
Average balance outstanding ................................. $ 40,321 $ 11,935 $ 15,574
Maximum amount outstanding at any month end during the period 76,947 28,408 28,946
Balance outstanding at end of period ........................ 18,427 10,000 28,946
Weighted average interest rate during the period ............ 5.84% 5.97% 5.80%
Weighted average interest rate at end of the period ......... 6.19% 5.92% 5.71%
Total borrowings:
Average balance outstanding ................................. $ 182,158 $ 212,093 $ 241,829
Maximum amount outstanding at any month end during the period 248,072 254,508 394,871
Balance outstanding at end of period ........................ 189,552 211,025 394,871
Weighted average interest rate during the period ............ 6.07% 5.98% 5.93%
Weighted average interest rate at end of period ............. 6.27% 5.88% 5.96%
</TABLE>
26
<PAGE> 29
SUBSIDIARY ACTIVITIES
During fiscal 1997, the Bank had three wholly-owned subsidiaries: FBMC,
The Big First, Inc. and First Corporate Center, Inc.
FBMC 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,
1997, the Bank's investment in FBMC was $455,000 and its assets were $987,000.
FBMC's earnings were $92,000 for the fiscal year ended September 30, 1997.
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 is inactive.
PERSONNEL
As of September 30, 1997, the Bank had 409 full-time employees and 36
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.
27
<PAGE> 30
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. 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.
The OTS has primary enforcement responsibility over federally chartered
savings institutions and has substantial discretion to impose enforcement action
on an institution that fails to comply with its regulatory requirements,
particularly with respect to its capital requirements. In addition, the FDIC has
the authority to recommend to the Director of the OTS that enforcement action be
taken with respect to a particular federally chartered savings institution and,
if action is not taken by the Director, the FDIC has authority to take such
action under certain circumstances. 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
Congress, could have a material adverse impact on the Company, the Bank and
their operations. Certain of the regulatory requirements applicable to the Bank
and to the Company are referred to below or elsewhere herein.
The descriptions of statutory provisions and regulations applicable to
savings associations and savings and loan holding companies set forth in this
document do not purport to be complete descriptions of such statutes and
regulations and their effects on the Company and the Bank.
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 regulation of federally-insured savings
associations and empower the OTS and the FDIC, among other agencies, to
promulgate regulations implementing its provisions.
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, (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 of the OTS, (5) permit bank holding
companies to acquire healthy savings institutions and (6) require the federal
banking agencies
28
<PAGE> 31
to establish by regulation uniform standards for 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 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
stockholders' equity (including retained earnings but excluding net unrealized
gains and losses from available-for-sale debt securities), certain
non-cumulative perpetual preferred stock and related surplus, minority interests
in equity accounts of consolidated subsidiaries less intangibles other than
certain qualifying supervisory intangible assets, certain mortgage servicing
rights and certain other assets as defined by OTS capital regulations. 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 meeting 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
the maintenance of total risk-based capital (which is defined as core capital
plus supplementary capital less certain adjustments) to risk-weighted assets of
8%. 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. The components of core capital are equivalent to
those discussed above with respect to the 3% leverage ratio. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and 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
supplementary capital counted toward total capital cannot exceed 100% of core
capital. In addition, certain assets are required to be deducted from risk-based
capital such as certain equity investments and construction loans with
loan-to-value ratios exceeding 80%.
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 ("IRR"), concentration of risk and
the risks of non-traditional activities. The OTS adopted regulations, effective
January 1, 1994, that set forth the methodology for calculating an interest rate
risk component to be incorporated into the OTS risk-based capital regulations.
The OTS has indefinitely deferred its requirement of the interest rate risk
component in the calculation of an institution's risk-based capital calculation.
The OTS continues to monitor the IRR of individual institutions and retains the
right to impose minimum capital on individual institutions. Based on the Bank's
IRR profile and the level of interest rates at September 30, 1997, as well as
the Bank's level of risk-based capital at September 30, 1997, management
believes that the Bank does not have a greater than normal level of IRR as
measured under the OTS rule and would not be required to increase its capital as
a result of the rule.
At September 30, 1997, 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, 1997, calculated in
accordance with applicable requirements of the OTS:
29
<PAGE> 32
<TABLE>
<CAPTION>
To Be Considered Well
Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
---------------------- --------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ---------- ----------- -------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997:
Total Capital (to Risk-weighted Assets) $ 133,761 14.76% 72,481 8.00% $ 90,602 10.00%
Core (Tier 1) Capital (to Adjusted Tangible Assets) 128,065 7.07% 72,423 4.00% 90,529 5.00%
Tangible Capital (to Tangible Assets) 128,065 7.07% 27,159 1.50% N/A N/A
Core (Tier 1) Capital (to Risk-weighted Assets) 128,065 14.31% N/A N/A 54,361 6.00%
</TABLE>
In accordance with the Interstate Act (as hereinafter defined), the
bank regulators have released a joint notice of proposed rule-making to revise
the risk-based capital standards to address the regulatory capital treatment of
recourse obligations and direct credit substitutes that expose banking
organizations to credit risks. It is the Bank's understanding that these
agencies intend that any final rules adopted in connection with this proposal
that result in increased risk-based capital requirements apply only to
transactions consummated after the effective date of the final rules.
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 Capital (to Risk-weighted Assets) ratio
of 10% or more, a Core (Tier 1) Capital (to Adjusted Tangible Assets) of 5% or
more, and a Core (Tier 1) 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 Capital (to Risk-weighted Assets)
ratio of 8% or more, a Core (Tier 1) Capital (to Adjusted Tangible Assets) ratio
of 4% or more, and Core (Tier 1) Capital (to Risk-weighted Assets) of 4% or
more.
A savings institution that has a Total Capital (to Risk-weighted
Assets) ratio of less than 8%, a Core (Tier 1) Capital (to Adjusted Tangible
Assets) ratio of less than 4% and Core (Tier 1) Capital (to Risk-weighted
Assets) of less than 4% is considered "undercapitalized." A savings institution
that has a Total Capital (to Risk-weighted Assets) ratio less than 6%, a Core
(Tier 1) Capital (to Risk-weighted Assets) ratio of less than 3% or a Core (Tier
1) Capital (to Adjusted Tangible Assets) ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a Tangible Capital (to Tangible 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." In addition,
30
<PAGE> 33
various mandatory supervisory actions become immediately applicable to the
institution, including restrictions on growth of assets and other forms of
expansion. 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. As of September 30,
1997, the Bank was considered "well capitalized" by the OTS.
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 was 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"), effective October
1, 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 risks
attributable to different categories and concentrations of assets and
liabilities. 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 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's assessment and establish a
procedure for resolving disagreements between the FDIC and an institution
regarding assessment computations.
For the semi-annual assessment period beginning July 1, 1996, SAIF
insurance premiums ranged from annualized rates of 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 year ended September 30, 1996 was 0.23% of insured deposits,
which rate was reduced effective January 1, 1997 to 0% and will be increased
effective January 1, 1998 to 0.03%. 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. Insurance premium
expense during the fiscal year ended September 30, 1997 was $1.0 million.
The FDIC in early December 1996 adopted a rule that reduced regular
semi-annual SAIF assessments from the range of 0.23% - 0.31% of deposits to a
range of 0% - 0.27% of deposits. The new rates were effective for
SAIF-assessable institutions on January 1, 1997. From October 1, 1996 through
December 31, 1996, SAIF-assessable institutions were assessed at rates ranging
from 0.18% to 0.27% of deposits, which represents the amount the FDIC calculated
as necessary to cover the interest due for that period on outstanding Financing
Corporation ("FICO") Bonds discussed below. Because SAIF-assessable institutions
had 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 refunded the amount
collected from such
31
<PAGE> 34
institutions for the period from October 1, 1996 through December 31, 1996 which
exceeded the amount due for that period under the reduced assessment schedule.
DIFA also provides that the FDIC cannot assess regular insurance assessments for
an insurance fund unless required to maintain or to achieve the designated
reserve ratio of 1.25% of insured deposits, except on those of its member
institutions that are not classified as "well capitalized" or that have been
found to have "moderately severe" or "unsatisfactory" financial, operational or
compliance weaknesses. The Bank has not been so classified by the FDIC or the
OTS.
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. 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. The annual rate of assessment for the payments on
the FICO bonds for the semi-annual period beginning on January 1, 1997 was
0.0649% for SAIF-assessable deposits, and for the semi-annual period beginning
on July 1, 1997 was 0.0630%.
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, 1997, 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.
Immediately prior to the 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.
DIFA directs the Secretary of the Treasury to conduct a study of
relevant factors with respect to the development of a common charter for all
insured depository institutions and to report the Secretary's conclusions and
findings to the Congress. The Secretary of the Treasury has recommended that the
separate charter for thrifts be eliminated only if other legislation is adopted
that permits bank holding companies to engage in certain non-financial
activities. Absent legislation permitting such non-financial activity, the
Secretary of the Treasury recommended retention of the thrift charter. The
Secretary of the Treasury also recommended the merger of the BIF and the SAIF
irrespective of whether the thrift charter is eliminated. Other proposed
legislation has been introduced in Congress that
32
<PAGE> 35
would require thrift institutions to convert to bank charters. These bills
include provisions that would (i) apply the restrictions on activities
applicable to multiple savings and loan holding companies and bank holding
companies to unitary savings and loan building companies and (ii) eliminate the
savings association charter and require savings associations to become banks and
simultaneously abolish the OTS and its supervisory role over savings and loan
holding companies. Although no assurances can be given as to whether legislation
will be enacted to eliminate the thrift charter or if enacted, what powers would
be available to the Bank under any new or revised depository institution
charter, management of the Bank believes that such legislation will not
significantly impact its core business activities. Management intends to
continue to closely monitor such developments.
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, 1997, the Bank's largest aggregate amount of loans to
one borrower consisted of $12.0 million in lines of credit, with $8.4 million
then drawn. At September 30, 1997, 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 $19.6 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%).
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 and mortgage-related 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
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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. On September
30, 1996, as part of the omnibus appropriations bill, Congress enacted the
Economic Growth and Paperwork Reduction Act of 1996 ("Regulatory Paperwork
Reduction Act"), modifying and expanding the investment authority of federal
savings institutions under the QTL test. Prior to the enactment of the
Regulatory Paperwork Reduction Act, commercial, corporate, business, or
agricultural loans were limited in the aggregate to 10% of a thrift's assets and
education loans were limited to 5% of a thrift's assets. Further, in order to
qualify for favorable tax treatment, federal savings institutions also had to
meet a different asset test under the Internal Revenue Code (the "domestic
building and loan association test"). The amendments permit federal thrifts to
invest in, sell, or otherwise deal in education and credit card loans without
limitation and raise from 10 to 20 percent of total assets the aggregate amount
of commercial, corporate, business, or agricultural loans or investments that
may be made by a thrift, subject to a requirement that amounts in excess of 10%
of total assets be used only for small business loans. In addition, the
legislation defines "qualified thrift investment" to include, without
limitation, education, small business, and credit card loans; and removes the
10% limit on personal, family, or household loans for purposes of the QTL test.
The legislation also provides that a thrift meets the QTL test if it qualifies
as a domestic building and loan association under the Internal Revenue Code. As
of September 30, 1997, the Bank maintained 82.1% 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.
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, 1997, 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
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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.) At the time of the conversion to stock
form, the Bank was required to establish a liquidation account in an amount
equal to its capital as of June 30, 1993. As part of the acquisition of Palm
Beach Savings, the Bank established a similar liquidation account equal to the
remaining liquidation account balance previously maintained by Palm Beach
Savings, as a result of its conversion from mutual to stock form of ownership.
The liquidation account will be reduced to the extent that eligible account
holders reduce their qualifying deposits. In the unlikely event of a complete
liquidation of the Bank, each eligible account holder will be entitled to
receive a distribution from the liquidation account. The Bank may not declare or
pay cash dividends on or repurchase any of its shares of common stock if the
effect thereof would cause stockholders' equity to be reduced below the amount
required for the liquidation account.
Liquidity. OTS regulations currently require a savings institution to
maintain an average daily balance of liquid assets (generally 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 a specified percentage
(determined as of the end of the preceding calendar quarter or as an average
daily balance during the preceding quarter) of its net withdrawable deposit
accounts plus short-term borrowings. This liquidity requirement may be changed
from time to time by the OTS to any amount within the range of 4% to 10%
depending upon economic conditions and the savings flows of member institutions,
and is currently 4%. In addition to this minimum requirement, each savings
institution must maintain sufficient liquidity to ensure its safe and sound
operation. Monetary penalties may be imposed by the OTS for failure to meet
these liquidity requirements. The Bank's average daily liquidity ratio at
September 30, 1997 was 7.0%, 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 1997 totaled $272,908.
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 a "satisfactory"
rating in its last CRA examination by the OTS in January 1997.
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 were not effective until January 1, 1997.
Evaluation under the regulations became mandatory on July 1, 1997. The Bank
believes its current operations and policies substantially comply with the
regulations, and therefore, no material changes to operations or policies are
expected.
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On May 7, 1997 the Federal Housing Finance Board ("FHFB") approved
community support regulations which establish uniform performance standards for
all members of the Federal Home Loan Bank System.
The FHFB's new regulations implement a statutory requirement that
members of the FHLB System promote housing finance and support the communities
in which they do business. Generally, member institutions must meet the minimum
community support requirements to maintain access to (i) long-term system
advances for housing finance and (ii) certain funding for targeted community
development projects.
A member institution which is subject to CRA, such as the Bank, can
meet the new CRA standard by receiving an "outstanding" or "satisfactory" rating
from its regulator. A member with a "needs to improve" CRA rating will be placed
on probation until its next CRA exam with no restrictions on access to long-term
advances and other funding. However, an institution that fails to improve its
CRA rating, or receives a "substantial non-compliance" rating, will be denied
access to FHLB System funds. With respect to the first-time home buyer
performance standard, the FHFB will waive that requirement for a member
institution which receives an "outstanding" CRA rating. All other members may
meet the standard by submitting satisfactory evidence of lending to, or
participation in programs for, first-time home buyers. An institution with an
unsatisfactory record of assistance to first-time home buyers will be put on
probation for one year, with no restrictions on its access to FHLB funds. An
institution that fails to improve its performance or provides no evidence of
service to first-time home buyers will be restricted from long-term advances and
other funds. The Bank believes that its current operations and policies
substantially comply with these requirements, and therefore expect that the
regulations will not have a material effect on its business.
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 rollover 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, 1997, 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. These regulations
impose stringent reporting requirements and require the establishment and
maintenance of internal control structures and procedures. 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 must include members with banking or related financial
management expertise, have access to outside counsel and not include any large
customer
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of the institution. 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, is controlled by 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 transactions,
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 ("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
promulgated 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 or, in the case of officers and directors, on the same basis made to
the institution's employees generally on a non-discriminatory basis, 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, asset quality,
earnings, stock valuation and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The OTS,
together with the other federal bank regulatory agencies, has adopted guidelines
prescribing safety and soundness standards pursuant to FDICIA, as amended. The
guidelines establish general standards relating to internal controls,
information systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, asset quality, earnings and
employee compensation. In
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general, the guidelines require, among other things, appropriate systems and
practices to identify and manage the risks and exposures specified in the
guidelines. The guidelines prohibit excessive compensation as an unsafe and
unsound practice and describe compensation as excessive when the amounts paid
are unreasonable or disproportionate to the services performed by an executive
officer, employee, director or principal shareholder. In addition, regulations
were adopted pursuant to FDICIA to require a savings institution that is given
notice by the OTS that it is not satisfying any of such safety and soundness
standards to submit a compliance plan to the OTS. If, after being so notified, a
savings institution fails to submit an acceptable compliance plan or fails in
any material respect to implement an accepted compliance plan, the OTS may issue
an order directing corrective and other actions of the types to which a
significantly undercapitalized institution is subject under the "prompt
corrective action" provisions of FDICIA. If a savings institution fails to
comply with such an order, the OTS may seek to enforce such order in judicial
proceedings and to impose civil money penalties.
Interstate Banking and Branching. 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. The OTS regulations authorize federally chartered savings
institutions to branch nationwide to the extent allowed by federal statute. This
permits federal savings and loan institutions with interstate networks to
diversify more easily their loan portfolios and lines of business
geographically. The OTS' authority preempts state law purporting to regulate
branching by federal savings institutions. As of June 1997, national banks and
state chartered banks and savings banks will have increased authority under the
Interstate Act to establish interstate branches. See "Holding Company
Regulation." Management believes the Bank meets all the standards adopted in the
Interstate Act.
Florida law has permitted interstate reciprocal acquisitions of and by
Florida savings institutions since 1986. The Interstate Act and Florida law have
expanded the number of out-of-state bank holding companies acquiring Florida
financial institutions, which has increased consolidation and competition in the
Bank's market and is expected to continue to do so.
Recapture of Bad Debt Reserves. The Bank is permitted under the
Internal Revenue Code of 1986, as amended (the "Code"), to deduct an annual
addition to a reserve for bad debts in determining taxable income, subject to
certain limitations. During the year ended September 30, 1996, the Bank used the
experience method, as defined by the Code. The Small Business Job Protection Act
of 1996 (the "1996 Act") repealed the experience method. Under the 1996 Act, the
Bank will be permitted to deduct bad debts only as they occur, and will be
required to recapture (that is, take into income) over a six-year period,
beginning with the taxable year ending September 30, 1997, the excess of the
balance of such reserves as of September 30, 1996. However, under the 1996 Act,
such recapture requirements will be suspended for each of the two successive
taxable years beginning October 1, 1996 in which the Bank originates a minimum
amount of certain residential loans during such years that is not less than the
average of the principal amounts of such loans made by the Bank during its six
taxable years preceding October 1, 1996. Since the Bank has already provided a
deferred income tax liability for financial reporting purposes, there will be no
adverse impact to the Bank's financial condition or results of operations from
the enactment of this legislation.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB System, which consists of 12 regional
FHLBs which are governed and regulated by the Federal Housing Finance Board. The
FHLB 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 FHLB advances to a
member institution, and in some circumstances, limits advances to institutions
that do not meet the QTL test. See "Federal
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Savings Institution Regulation - QTL Test." At September 30, 1997, advances from
the FHLB-Atlanta to the Bank totaled $365.9 million. The weighted average
interest rate on those advances as of September 30, 1997 was 5.98%.
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, 1997 of
$18.3 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, 1995, 1996 and
1997, dividends from the FHLB-Atlanta to the Bank amounted to $549,000, $741,000
and $849,000, 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 (the "FRB") regulations require savings
institutions to maintain non-interest-earning reserves against certain of their
transaction accounts (primarily NOW and regular checking accounts). FRB
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $47.8 million or less
(subject to adjustment by the FRB), the reserve requirement is 3% of the amount
of transaction accounts; for accounts greater than $47.8 million, the reserve
requirement is 10% (subject to adjustment by the FRB between 8% and 14%) of the
amount of transaction accounts in excess of $47.8 million. The first $4.7
million of otherwise reservable balances (subject to adjustments by the FRB) are
exempted from the reserve requirements. At September 30, 1997, 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 FRB 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 FRB, 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 FRB regulations require
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.
In addition, FRB 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 registered 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, of which there currently are none.
Among other things, this authority permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
institution. The Bank must notify the OTS 30 days before declaring any dividend
to the Company.
Because the Company is a holding company, the rights of the Company to
participate in any distribution of assets of any subsidiary, including the Bank,
upon the subsidiary's liquidation or reorganization or otherwise (and thus the
ability of the Company's stockholders to benefit from such distribution) would
be subject to the prior claims of
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creditors of that subsidiary, except to the extent that the Company itself may
be a creditor of that subsidiary with recognized claims. Claims on the Company's
subsidiaries by creditors other than the Company will include substantial
obligations with respect to deposit liabilities and borrowed funds.
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 non-subsidiary savings
institution, a non-subsidiary holding company or a non-subsidiary 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, which
activities include mortgage banking, consumer finance, operation of a trust
company and certain types of securities brokerage activities.
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 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 CAMELS 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 SEC. The Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act of 1934, as amended. The registration
under the Securities Act of 1933 as amended (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.
DELAWARE CORPORATION LAW
The Company is incorporated under the laws of the State of Delaware.
Thus, the Company is subject to regulation by the State of Delaware and the
rights of its stockholders are governed by the Delaware General Corporation Law.
41
<PAGE> 44
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. 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's income tax returns for the years ended September 30, 1994
and September 30, 1995 are currently being examined by the Internal Revenue
Service.
Bad Debt Reserves. The percentage of taxable income method has been
repealed for years beginning after December 31, 1995, and "large" associations
(i.e., the quarterly average of the association's total assets or of the
consolidated group of which it is a member, exceeds $500 million for the year)
cannot use the experience method of computing additions to their bad debt
reserve. A "large" association must use the direct write-off method for
deducting bad debts, under which charge-offs are deducted and recoveries are
taken into taxable income as incurred. If the Bank is not a "large" association,
the Bank will continue to be permitted to use the experience method. The Bank
will be required to recapture (i.e., take into income) over a six-year period
its applicable excess reserves (i.e., the balance of its reserves for losses on
qualifying loans and nonqualifying loans) as of the close of the last tax year
beginning before January 1, 1996, over the greater of (a) the balance of such
reserves as of December 31, 1987 (pre-1988 reserves) or (b) in the case of a
bank which is not a "large" association, an amount that would have been the
balance of such reserves as of the close of the last tax year beginning before
January 1, 1996, had the Bank always computed the additions to its reserves
using the experience method. Postponement of the recapture is possible for a
two-year period if an association meets a minimum level of mortgage lending for
1996 and 1997.
If an association ceases to qualify as a "bank" (as defined in Code
Section 581) or converts to a credit union, the pre-1988 reserves and the
supplemental reserve are restored to income ratable over a six-year period,
beginning in the tax year the association no longer qualifies as a bank. The
balance of the pre-1988 reserves are also subject to recapture in the case of
certain excess distributions to (including distributions on liquidation and
dissolution), or redemptions of, shareholders.
Corporate Alternative Minimum Tax. Corporations, including qualifying
savings institutions such as the Bank, generally are subject to the alternative
minimum tax ("AMT"), to the extent that the amount of such tax exceeds the
amount of the corporation's regular income tax. The 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.
AMTI can be offset by only 90% of net operating loss carry-overs. 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). The Bank does not
expect to be subject to the AMT.
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.
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.
42
<PAGE> 45
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1996, FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The
Statement, which amends SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," supersedes SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This Statement provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. This Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS No. 125 requires that servicing assets and
liabilities be subsequently measured by (a) amortization in proportion to and
over the period of estimated net servicing income or loss and (b) assessment for
asset impairment or increased obligation based on their fair values. SFAS No.
125 also requires that debtors reclassify financial assets pledged as collateral
and that secured parties recognize those assets and their obligation to return
them in certain circumstances in which the secured party has taken control of
those assets. SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996.
During the fiscal year ended September 30, 1997, the Company sold $27.7 million
of loans and retained the loan servicing rights. The gain on the sale was
determined in accordance with SFAS No. 125.
In February 1997, FASB issued SFAS No.128, "Earnings Per Share." This
Statement simplifies the standards for computing earnings per share previously
required under APB Opinion No. 15, "Earnings Per Share," and makes the
computation comparable to international EPS standards. Basic EPS (formerly
primary EPS) excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997 and
requires restatement of all prior period EPS data presented. If the Company had
adopted the provision of SFAS No. 128, basic EPS and diluted EPS would have been
$1.91 and $1.86, respectively, for the fiscal year ended September 30, 1997.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income," which requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from nonowner
sources, and SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information," which establishes annual and interim reporting standards
for an enterprise's operating segments and related disclosures about its
products, services, geographic areas, and major customers. Adoption of these
Statements will not impact the Bank's consolidated financial position, results
of operations or cash flows, and any effect will be limited to the form and
content of its disclosures. Both Statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
43
<PAGE> 46
ITEM 2. DESCRIPTION OF PROPERTY.
The Company and the Bank are located and conduct their business at the
Bank's main office located at 450 South Australian Avenue, West Palm Beach,
Florida.
<TABLE>
<CAPTION>
NET BOOK LEASED
DATE LEASED DATE LEASE VALUE AT OR
LOCATION OR ACQUIRED EXPIRES 9/30/97 OWNED
----------------------------- ------------ -------------- --------------- ---------
<S> <C> <C> <C> <C>
BRANCH OFFICES
Southern Boulevard 1959 $ 278,000 Owned
301 Southern Boulevard
West Palm Beach, FL 33405
Westward 1960 $ 704,000 Owned
2701 Okeechobee Boulevard
West Palm Beach, FL 33409
Lake Park 1962 $ 266,000 Owned
500 Federal Highway
Lake Park, FL 33403
Delray East 1971 $ 497,000 Owned
95 NE 5th Avenue
Delray Beach, FL 33483
Boca East 1973 $ 384,000 Owned
2400 Federal Highway
Boca Raton, FL 33431
Boynton 1973 1998 $ 0 Leased
280 North Congress Avenue
Boynton Beach, FL 33426
Lake Worth 1974 $ 422,000 Owned
531 Lucerne Avenue
Lake Worth, FL 33460
Palm Beach Galleria 1980 1998 $ 20,000 Leased
165 Bradley Place
Palm Beach, FL 33480
Boca West 1981 $ 1,223,000 Owned
9033 Glades Road
Boca Raton, FL 33434
Delray West 1981 2006 $ 6,000 Leased
4920 West Atlantic Avenue
Delray Beach, FL 33445
Stuart 1982 1999 $ 11,000 Leased
2285 SE Federal Highway
Stuart, FL 33494
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
NET BOOK LEASED
DATE LEASED DATE LEASE VALUE AT OR
LOCATION OR ACQUIRED EXPIRES 9/30/97 OWNED
--------------------------------- ------------ -------------- --------------- ---------
<S> <C> <C> <C> <C>
Golden Lakes 1984 $ 282,000 Owned
1950 Golden Lakes Boulevard
West Palm Beach, FL 33411
Jupiter 1986 1998 $ 6,000 Leased
4050 U.S. Highway One
Jupiter, FL 33477
Gardens 1988 1998 $ 71,000 Leased
3101 PGA Boulevard
Palm Beach Gardens, FL 33477
Palm Springs 1993 $ 632,000 Owned
2950 10th Avenue North
Lake Worth, FL 33461
Aberdeen Square 1994 2000 $ 54,000 Leased
4956-22/23 LeChalet Boulevard
Boynton Beach, FL 33436
Boca Polo 1994 2000 $ 0 Leased
5030-F8 Champion Boulevard
Boca Raton, FL 33496
Boynton Lakes 1994 1999 $ 74,000 Leased
4770 North Congress Avenue
Lantana, FL 33462
Pinewood Square 1994 2000 $ 80,000 Leased
6338-52/53 Lantana Road
Lake Worth, FL 33461
Royal Palm Beach 1994 1999 $ 90,000 Leased
1135 Royal Palm Beach Boulevard
Royal Palm Beach, FL 33411
Stuart Square 1994 1999 $ 48,000 Leased
2160 SE Federal Highway
Stuart, FL 34994
Wellington 1994 1999 $ 65,000 Leased
13841 Wellington Trace
West Palm Beach, FL 33414
Boca Gardens 1995 1998 $ 139,000 Leased
7050-29 West Palmetto Park Road
Boca Raton, FL 33433
Coral Creek 1995 1998 $ 117,000 Leased
6572 North State Road 7, Bay #9
Coconut Creek, FL 33073
Downtown West Palm Beach 1995 2000 $ 40,000 Leased
301 Clematis Street
West Palm Beach, FL 33401
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
NET BOOK LEASED
DATE LEASED DATE LEASE VALUE AT OR
LOCATION OR ACQUIRED EXPIRES 9/30/97 OWNED
--------------------------------- ------------ -------------- --------------- ---------
<S> <C> <C> <C> <C>
Ft. Myers South 1995 2000 $ 47,000 Leased
16970-A San Carlos Boulevard
Ft. Myers, FL 33908
Lake Worth 1995 2000 $ 84,000 Leased
4481-A Lake Worth Road
Lake Worth, FL 33461
Lake Worth West 1995 1999 $ 0 Leased
3979 Jog Road
Lake Worth, FL 33467
Okeechobee 1995 2000 $ 0 Leased
5405 Okeechobee Boulevard
West Palm Beach, FL 33417
Pembroke Pines 1995 2000 $ 75,000 Leased
17171-A Pines Boulevard
Pembroke Pines, FL 33027
Sunrise 1995 2000 $ 101,000 Leased
9919-A West Oakland Park Boulevard
Sunrise, FL 33351
Westchester East 1995 2000 $ 77,000 Leased
7805-A SW 40th Street
Miami, FL 33165
Bonita Springs 1996 2001 $ 67,000 Leased
26831-A South Tamiami Trail
Bonita Springs, FL 34134
Boynton 1996 2001 $ 79,000 Leased
9839-A South Military Trail
Boynton Beach, FL 33436
Coral Springs 1996 2001 $ 170,000 Leased
2201-A University Drive
Coral Springs, FL 33065
Kendall Lakes 1996 2001 $ 71,000 Leased
14655-A SW 56th Street
Miami, FL 33175
Lakeview Center 1996 2001 $ 45,000 Leased
1430 Coral Ridge Drive, Bay A2
Coral Springs, FL 33071
Mission Bay 1996 2001 $ 87,000 Leased
20409-A State Road 7
Boca Raton, FL 33434
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
NET BOOK LEASED
DATE LEASED DATE LEASE VALUE AT OR
LOCATION OR ACQUIRED EXPIRES 9/30/97 OWNED
--------------------------------- ------------ -------------- --------------- ---------
<S> <C> <C> <C> <C>
Sawgrass Hub 1996 1999 $ 66,000 Leased
3495 Hiatus Road
Sunrise, FL 33351
Tamarac 1996 2001 $ 36,000 Leased
7100-A North University Drive
Tamarac, FL 33319
Turtle Run 1996 2001 $ 92,000 Leased
6355-A Sample Road
Coral Springs, FL 33067
Cape Coral 1997 2002 $ 69,000 Leased
127-A Cape Coral Parkway
Cape Coral, FL 33914
Deerfield Beach 1997 2002 $ 112,000 Leased
3701-A West Hillsboro Boulevard
Deerfield Beach, FL 33442
Delray Town Center 1997 2002 $ 101,000 Leased
4801-A Linton Boulevard
Delray Beach, FL 33445
Ft. Myers Central 1997 2002 $ 96,000 Leased
13401-A Summerlin Road
Ft. Myers, FL 33907
Jupiter 1997 2002 $ 8,000 Leased
17400-A Alternate A1A
Jupiter, FL 33477
Pembroke Pines East 1997 2002 $ 99,000 Leased
8030-A Pines Boulevard
Pembroke Pines, FL 33024
Riverwalk 1997 2002 $ 0 Leased
7477 Riverwalk Circle, Suite 215
West Palm Beach, FL 33411
West Palm Beach 1997 2002 $ 13,000 Leased
1901-A Military Trail
West Palm Beach, FL 33409
Westview 1997 2002 $ 9,000 Leased
9545-A Westview Drive
Coral Springs, FL 33076
LOAN ORIGINATION OFFICES
Broward 1996 Month to Month $ 0 Leased
10100 West Sample Road, Suite 312
Coral Springs, FL 33065
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
NET BOOK LEASED
DATE LEASED DATE LEASE VALUE AT OR
LOCATION OR ACQUIRED EXPIRES 9/30/97 OWNED
--------------------------------- ------------ -------------- --------------- ---------
<S> <C> <C> <C> <C>
OFFICE BUILDING
Reflections Office Centre 1994 $ 10,028,000 Owned
400 and 450 South Australian Avenue
West Palm Beach, FL 33401
STORAGE WAREHOUSES
2206 Mercer Avenue 1984 $ 0 Owned
West Palm Beach, FL 33401 ------------
Total Net Book Value $ 17,141,000
============
</TABLE>
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.
48
<PAGE> 51
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 December 18, 1997 there were 5,054,746 shares of common stock
outstanding and 633 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 trade prices per common share for the periods indicated as reported by
NASDAQ.
<TABLE>
<CAPTION>
PRICES
----------------------------
CASH
DIVIDENDS
DECLARED PER
QUARTER ENDED SHARE HIGH LOW
----------------------- ------------- -------- ---------
<S> <C> <C> <C>
December 31, 1995 $0.10 24 5/8 21 1/8
March 31, 1996 $0.10 23 5/8 20 3/4
June 30, 1996 $0.10 23 3/4 20 7/8
September 30, 1996 $0.10 23 1/2 19 1/2
December 31, 1996 $0.15 25 7/8 22 3/4
March 31, 1997 $0.15 30 1/4 23 1/4
June 30, 1997 $0.15 34 3/8 26 1/2
September 30, 1997 $0.15 35 5/8 30 1/4
</TABLE>
49
<PAGE> 52
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets .............................................. $856,307 $1,076,583 $1,208,845 $1,490,020 $1,808,420
Loans receivable, net ..................................... 429,104 576,731 825,024 1,007,881 1,144,100
Cash and cash equivalents ................................. 14,924 19,145 25,132 161,413 99,929
Securities held-to-maturity, available-for-sale and
trading securities......................................... 96,768 117,122 80,941 34,532 74,456
Mortgage-backed and related securities held-to-maturity and
available-for-sale ........................................ 284,012 324,044 238,442 232,273 421,645
Deposits .................................................. 698,458 718,282 878,670 1,136,722 1,229,279
Borrowed funds ............................................ 26,325 229,892 189,552 211,025 394,871
Senior debentures, net of issuance costs .................. -- -- -- -- 33,839
Stockholders' equity ...................................... 102,330 100,462 104,611 105,425 113,030
<CAPTION>
For the Years Ended September 30,
----------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income ......................................................... $50,580 57,874 80,964 103,532 116,930
Interest expense ........................................................ 28,783 30,049 48,900 61,300 72,851
------- ------- -------- ------- -------
Net interest income ..................................................... 21,797 27,825 32,064 42,232 44,079
Less provision for loan losses .......................................... 149 135 261 15,704 3,281
------- ------- -------- ------- -------
Net interest income after provision for loan losses ..................... 21,648 27,690 31,803 26,528 40,798
------- ------- -------- ------- -------
Other income:
Servicing income and other fees ........................................ 2,956 2,597 2,576 3,206 4,106
Net gain (loss) on sale of securities available-for-sale, mortgage-
backed and related securities
available-for-sale, trading securities and loans ....................... 922 424 (1,660) 4,516 1,896
Net gain on sale of property ............................................ -- -- 975 460 551
Gain on sale of loan servicing .......................................... -- -- 1,008 412 --
Equity in net income(loss) of real estate ventures ...................... 716 294 -- -- --
Miscellaneous ........................................................... 1,181 1,122 1,131 1,475 2,448
------- ------- -------- ------- -------
Total other income .................................................... 5,775 4,437 4,030 10,069 9,001
------- ------- -------- ------- -------
Other expenses:
Employee compensation and benefits ..................................... 10,583 13,900 13,849 15,905 18,511
Early retirement plan .................................................. -- -- 2,361 -- --
Occupancy and equipment ................................................ 3,905 4,223 4,259 4,830 6,729
Federal deposit insurance premiums ..................................... 1,428 1,582 1,799 8,848 977
Provision for losses and net (gains) losses on sale of real estate owned 192 (410) 74 451 329
Advertising and promotion .............................................. 683 801 679 663 1,005
Miscellaneous .......................................................... 2,818 2,730 3,588 4,905 6,855
------- ------- -------- ------- -------
Total other expenses .................................................. 19,609 22,826 26,609 35,602 34,406
Income before provision for income taxes and cumulative effect
of change in accounting principle ....................................... 7,814 9,301 9,224 995 15,393
Provision for income taxes ............................................. 3,019 3,502 3,578 446 6,037
------- ------- -------- ------- -------
Income before cumulative effect of change in accounting principle 4,795 5,799 5,646 549 9,356
Cumulative effect of change in accounting for income taxes ............. 422 -- -- -- --
------- ------- -------- ------- -------
Net income ............................................................. $ 5,217 $ 5,799 $ 5,646 $ 549 $ 9,356
======= ======= ======== ======= =======
</TABLE>
50
<PAGE> 53
SELECTED FINANCIAL RATIOS AND OTHER DATA
<TABLE>
<CAPTION>
At or For the Years Ended September 30,
------------------------------------------------------
1993 1994 1995 1996 1997
---------- --------- -------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> C>
PERFORMANCE RATIOS:
Return on average assets (4) ...................................... 0.64% 0.60% 0.48% 0.04% 0.59%
Return on average stockholders' equity (4) ........................ 9.73% 5.61% 5.50% 0.49% 8.71%
Average stockholders' equity to average assets .................... 6.54% 10.62% 8.74% 8.06% 6.78%
Stockholders' equity to total assets .............................. 11.95% 9.33% 8.65% 7.08% 6.25%
Interest rate spread .............................................. 2.42% 2.46% 2.32% 2.73% 2.51%
Net interest margin (1) ........................................... 2.78% 2.97% 2.83% 3.18% 2.91%
Average interest-earning assets to average interest-bearing
liabilities...................................................... 1.10x 1.16x 1.12x 1.10x 1.08x
Operating expenses to average assets (4) .......................... 2.39% 2.35% 2.27% 2.56% 2.17%
Net interest income to operating expenses (4) ..................... 1.11x 1.22x 1.21x 1.19x 1.28x
PER COMMON SHARE DATA:
Cash dividends declared ........................................... -- -- 0.20 0.40 $ 0.60
Book value (tangible) .............................................$ 18.62 $ 19.03 20.38 20.14 $ 21.87
Net income ........................................................ -- $ 1.05 1.11 0.11 $ 1.86
ASSET QUALITY RATIOS:
Non-performing loans to total loans (2) ........................... 0.58% 0.30% 0.21% 1.20% 0.68%
Non-performing assets to total assets (3) ......................... 0.48% 0.23% 0.23% 1.08% 0.57%
Allowance for loan losses to non-performing loans ................. 70.43% 101.29% 118.91% 92.40% 74.77%
Allowance for loan losses to non-performing assets ................ 46.21% 79.51% 78.90% 73.82% 58.39%
Allowance for loan losses to total loans receivable, net .......... 0.44% 0.34% 0.26% 1.18% 0.53%
OTHER DATA:
Loan originations .................................................$161,353 $271,913 $364,203 $539,599 $398,753
Number of deposit accounts ........................................ 74,913 77,167 84,670 106,517 119,817
Full service facilities ........................................... 16 20 23 33 45
</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 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.
51
<PAGE> 54
ITEM 7. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
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.
On June 30, 1997, the Company issued $35 million of Series A 10.35%
Senior Debentures Due 2002. The net proceeds of the debenture issuance are being
used for general corporate purposes, including contributing $25 million of the
net proceeds to the Bank. The Indenture entered into by the Company in
connection with the 10.35% Senior Debentures includes certain covenants which,
among other things, (i) limit the Company's disposition of the voting stock of
the Bank, other than dispositions which (a) are for fair market value and, after
giving effect to such dispositions and to any potential dilution, the Company
will own not less than 80% of the shares of voting stock of the Bank free and
clear of any security interest; (b) are made in compliance with an order of a
court or regulatory authority of competent jurisdiction, a condition imposed by
any such court or authority permitting the acquisition by the Company, directly
or indirectly, of any other bank or entity the activities of which are legally
permissible for a bank holding company or a subsidiary thereof to engage in, or
an undertaking made to such authority in connection with such an acquisition;
(c) are made where the Bank, having obtained any necessary regulatory approvals,
unconditionally guarantees payment when due of the principal of and interest on
the Senior Debentures; or (d) are made to the Company or any wholly-owned
subsidiary if such wholly-owned subsidiary agrees to be bound by the covenant as
if it were the Company and the Company agrees to maintain such wholly-owned
subsidiary as a wholly-owned subsidiary (notwithstanding the foregoing, the Bank
may be merged into or consolidated with another banking institution if, after
giving effect to such merger or consolidation, the Company or any wholly-owned
subsidiary owns at least 80% of the voting stock of such other banking
institution then issued and outstanding free and clear of any security interest
and if, immediately after giving effect thereto and treating any such resulting
banking institution thereafter as the Bank and a subsidiary, for purposes of the
Indenture, no Event of Default (as such term is defined in the Indenture), and
no event which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing); (ii) limit, to a percentage of
net worth, the Company's and the Bank's ability to become liable on certain
forms of indebtedness generally outside the normal course of the Company's and
the Bank's business; (iii) provide that the
52
<PAGE> 55
Company will not permit its Consolidated Net Worth minus Goodwill to be less
than $90 million; (iv) provide that the Company shall not allow the Bank to be
classified as other than "well-capitalized"; and (v) restrict dividend or other
distributions of the Company and the Bank and stock repurchases by the Company
in such a way that any such dividends or stock repurchases after March 31, 1997
may not exceed, in the aggregate, the sum of (a) $10,000,000 plus (b) 75% (or
100% in the case of deficit) of consolidated net income for the period beginning
March 31, 1997 and ending and including the date such dividend, distribution or
stock repurchase (each a "Restricted Payment") is declared or made (plus 100% of
the proceeds of issuances of equity securities after March 31, 1997), and a
Restricted Payment may not be made if at the time of and immediately before the
Restricted Payment is declared, and after giving effect to the Restricted
Payment a Default (as such term is defined in the Indenture) or Event of Default
is existing or shall have occurred within 365 days of the declaration of the
Restricted Payment. For a period beginning on November 17, 1997 and ending on
December 18, 1997, unless extended, the Company offered to exchange the
outstanding Series A Debentures for Series B Debentures, which are registered
under the Securities Act of 1933, as amended, do not provide for any liquidated
damages, and are otherwise identical to the Series A Debentures.
During the fiscal year ended September 30, 1997, the Company
repurchased 114,000 shares of Common Stock at an average price of $23.40 per
share. The Company had repurchased 345,853 and 225,600 shares of Common Stock at
an average price of $22.10 and $21.73 in the fiscal years ended September 30,
1996 and 1995 respectively. In addition, in the fiscal year ended September 30,
1997 employees and directors of the Bank exercised options to purchase 68,650
shares at $10 per share. At September 30, 1997, 5,047,746 shares of Common Stock
were outstanding.
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") and the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") significantly changed
the regulation of all savings associations, including the Bank. 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
Company's long term growth strategy during fiscal year 1997 which included
branch expansion, growth of the ATM network and upgrading the Company's computer
network, resulted in a return on average assets of 0.59%. Although the Company's
growth has resulted in lower short term profitability, management believes that
this growth will position the Company favorably for achieving long term
shareholder value.
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<PAGE> 56
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
1998. The Bank originated $135.9 million, $192.5 million and $196.9 million in
one- to four-family residential mortgage loans in fiscal 1995, 1996 and 1997,
respectively. One- to four-family residential mortgage loans totaling $846.4
million constituted 70.8% of the Bank's total loan portfolio at September 30,
1997. The Bank utilizes a wholesale lending function to acquire first mortgage
loans from wholesale originators in Palm Beach, Martin and Broward Counties.
Prior to commitment, these loans are reviewed for compliance with the Bank's
standard underwriting guidelines. These efforts have helped one- to four-family
residential mortgage loans to increase to $846.4 million at September 30, 1997
from $652.6 million at September 30, 1996. Because residential construction
lending typically carries more risk than purchased residential loans, in the
third quarter of fiscal 1997, management determined to reduce its volume of
construction lending. Construction lending decreased to $115.6 million at
September 30, 1997 compared to $130.5 million at September 30, 1996.
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.
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, 1997, 52% of the Bank's one-to four-family residential mortgage
loans were in one-, three- and five-year ARM loans. Another 10% 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.
Through its held-to-maturity and available-for-sale securities, and
mortgage-backed and related securities, the Bank has invested primarily in
securities with less interest rate risk, particularly through 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, 1997, the Bank's securities held-to-maturity and
available-for-sale consisted of $59.5 million of fixed rate securities and $15.0
million of adjustable rate securities. At September 30, 1997, the Bank's
mortgage-backed and related securities held-to-maturity and available-for-sale
consisted of $201.2 million with a fixed-rate and $220.4 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. During fiscal
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<PAGE> 57
years 1995, 1996 and 1997, the Bank was competitive in its pricing of
certificates of deposit in order to generate the funds required to sustain
growth in its loan portfolio. During fiscal years 1995, 1996 and 1997, the
Bank's annual average asset growth was 18.97%.
EMPHASIZING CONSUMER LENDING. During the fiscal years ended 1995 and
1996, the Bank became more active in the indirect automobile lending market.
Indirect automobile 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 decreased to $153.8 million at September 30, 1997
from $194.1 million at September 30, 1996. Of these amounts, $88.4 million and
$148.2 million at September 30, 1997 and September 30, 1996, respectively, were
indirect loans.
Notwithstanding the decline in indirect loans, other consumer loans
increased by $19.5 million in fiscal 1997. This increase reflects a primary
focus on increasing the volume of home equity loans and lines of credit, direct
automobile lending and personal lines of credit. During the year ended September
30, 1997, the Bank enhanced its home equity line of credit to allow for access
through a VISA credit card.
MAINTAINING ASSET QUALITY. At September 30, 1997, the Bank's
non-performing assets as a percentage of total assets amounted to 0.57% compared
to 1.08% at September 30, 1996. The decrease is primarily due to one loan
relationship totaling $6.2 million at September 30, 1996 on a marina and beach
club in Charlotte County, Florida which was refinanced and paid down to $3.8
million and brought current during fiscal year 1997. As noted previously, the
Bank had discontinued its indirect lending program at September 30, 1996. The
balance of the Bank's indirect lending portfolio at September 30, 1997 was $88.4
million. In its underwriting of mortgage loans, the Bank has generally accepted
lower interest rates than its competitors in order to enhance loan quality. Even
though this will result in a lower net interest margin, management believes that
asset quality is critical to the Bank's long term performance. The Bank has
intentionally limited its commercial real estate lending during the past five
years, although management is currently reassessing this strategy. The Bank's
commercial real estate lending decreased from an outstanding balance of $51.8
million at September 30, 1996 to $40.9 million at September 30, 1997.
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,
which in turn was necessary to improve its long-term results. 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 1997, the Bank opened twelve full service branches
in Palm Beach, Broward, Dade and Lee Counties. Of the twelve full service
branches opened, ten are located in Albertson's supermarkets.
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<PAGE> 58
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.
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, 1995, 1996 and 1997. 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,
-------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------- ------------------------------- ---------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost Balance Expense Cost
---------- ------- ----- ---------- ------- ----- ---------- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Mortgage loans, net....... $ 615,886 $48,765 7.92% $ 844,822 $67,157 7.95% $ 905,502 $ 71,427 7.89%
Consumer loans............ 70,729 5,722 8.09% 173,450 16,755 9.66% 163,547 16,116 9.85%
Other loans............... 1,980 151 7.63% 2,147 178 8.29% 2,497 203 8.13%
Interest-earning
deposits................ 16,551 759 4.59% 17,103 871 5.09% 39,081 1,946 4.98%
Securities held-to-
maturity, available-for-
sale and trading
securities................ 107,011 5,735 5.36% 58,288 3,259 5.59% 66,722 4,264 6.39%
Mortgage-backed and
related securities held-
to-maturity and
available-for-sale........ 311,929 19,199 6.15% 221,285 14,487 6.55% 325,140 22,037 6.78%
FHLB stock................ 7,643 633 8.28% 10,197 825 8.09% 11,785 937 7.95%
---------- ------- ----- ---------- ------- ----- ---------- -------- -----
Total interest-earning
assets.................. 1,131,729 80,964 7.15% 1,327,292 103,532 7.80% 1,514,274 116,930 7.72%
Non-interest earning
assets.................. 42,450 62,987 70,588
---------- ---------- ----------
Total assets............ $1,174,179 $1,390,279 $1,584,862
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest-bearing
liabilities:
Deposit accounts:
Passbook and statement
savings................. $ 86,310 $ 1,902 2.20% $ 122,578 $ 4,088 3.34% $ 157,497 $ 5,549 3.52%
NOW..................... 60,407 877 1.45% 60,598 856 1.41% 60,555 718 1.19%
Money market............ 60,070 1,432 2.38% 46,118 1,094 2.37% 34,564 781 2.26%
Certificates of deposit. 623,134 33,636 5.40% 766,697 42,576 5.55% 895,549 50,487 5.64%
Borrowed funds:
FHLB advances........... 141,837 8,699 6.13% 200,158 11,974 5.98% 226,271 13,445 5.94%
Reverse repurchase
agreements.............. 40,321 2,354 5.84% 11,935 712 5.97% 15,574 904 5.80%
Senior debentures....... -- -- -- -- -- -- 8,548 967 11.31%
---------- ------- ----- ---------- ------- ----- ---------- -------- -----
Total interest-bearing
liabilities............ 1,012,079 48,900 4.83% 1,208,084 61,300 5.07% 1,398,558 72,851 5.21%
Other liabilities.......... 59,424 70,208 78,868
---------- ---------- ----------
Total liabilities...... 1,071,503 1,278,292 1,477,426
Stockholders' equity....... 102,676 111,987 107,436
---------- ---------- ----------
Total liabilities and
stockholders' equity... $1,174,179 $1,390,279 $1,584,862
========== ========== ==========
Net interest
income/interest rate
spread.................... $32,064 2.32% $42,232 2.73% $ 44,079 2.51%
======= ======= ========
Net interest-earning
assets/net margin......... $ 119,650 2.83% $ 119,208 3.18% $ 115,716 2.91%
========== ========== ==========
Ratio of interest-earning
assets to interest-bearing
liabilities . . . . . . . 1.12x 1.10x 1.08x
</TABLE>
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<PAGE> 59
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 September 30, Year Ended September 30,
1996 Compared to Year 1997 Compared to Year
Ended September 30, 1995 Ended September 30, 1996
Increase (Decrease) in Net Increase (Decrease) in Net
Interest Income Interest Income
-------------------------- --------------------------
Due to Due to
------------------ ----------------
Volume Rate Net Volume Rate Net
--------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans, net.............................. $ 18,206 $ 186 $18,392 $ 4,781 $ (511) $ 4,270
Consumer loans................................... 9,733 1,300 11,033 (965) 326 (639)
Other loans...................................... 14 13 27 28 (3) 25
Interest-earning deposits........................ 26 86 112 1,094 (19) 1,075
Securities held-to-maturity, available-for-sale
and trading securities........................... (2,712) 236 (2,476) 505 500 1,005
Mortgage-backed and related securities held-to-
maturity and available-for-sale.................. (6,071) 1,359 (4,712) 7,024 526 7,550
FHLB stock....................................... 207 (15) 192 126 (14) 112
--------- ------- ------- ------- ------ --------
Total......................................... 19,403 3,165 22,568 12,593 805 13,398
--------- ------- ------- ------- ------ --------
Interest-bearing liabilities:
Deposit accounts:
Passbook and statement savings................. (936) 3,122 2,186 1,229 232 1,461
NOW............................................ 3 (24) (21) (1) (137) (138)
Money market................................... (332) (6) (338) (264) (49) (313)
Certificates of deposit........................ 7,978 962 8,940 7,215 696 7,911
Borrowed Funds:
FHLB advances.................................. 3,482 (207) 3,275 1,552 (81) 1,471
Reverse repurchase agreements.................. (1,695) 53 (1,642) 213 (21) 192
Senior debentures.............................. -- -- -- 967 -- 967
--------- ------- ------- ------- ------ --------
Total......................................... 8,500 3,900 12,400 10,911 640 11,551
--------- ------- ------- ------- ------ --------
Net change in interest income...................... $ 10,903 $ (735) $10,168 $ 1,682 $ 165 $ 1,847
========= ====== ======= ======= ====== ========
</TABLE>
COMPARISON OF FINANCIAL CONDITION
AT SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
Total assets were $1.808 billion at September 30, 1997 as compared to
$1.490 billion at September 30, 1996. The increase of $318.0 million was
primarily the result of an increase of $136.2 million in loans receivable, net,
and growth in securities and mortgage-backed and related securities of $229.3
million. Deposits increased $92.6 million to $1.229 billion at fiscal year end
September 30, 1997 from $1.137 billion at fiscal year end September 30, 1996
because of continued aggressive pricing of certificate accounts and the
additional accounts generated from opening twelve additional full service branch
offices during the fiscal year ended September 30, 1997. Borrowed funds, which
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<PAGE> 60
included advances from the Federal Home Loan Bank and securities sold under
agreements to repurchase, increased by $183.8 million to $394.8 million at
fiscal year end September 30, 1997 as compared to $211.0 million at September
30, 1996. This increase was used to fund loan production and security purchases
during fiscal year 1997.
Loans receivable, net, increased by $136.2 million to $1.144 billion at
September 30, 1997 from $1.008 billion at September 30, 1996. Loan originations
were $398.8 million for the fiscal year ended September 30, 1997 as compared to
$539.6 million for the fiscal year ended September 30, 1996. Approximately $78.5
million net loans were acquired in conjunction with the purchase of Palm Beach
Savings during fiscal year 1996. Also, origination of indirect automobile loans
was ended during fiscal year 1996. Loan repayments increased from $238.3 million
during fiscal 1996 to $242.4 million during fiscal 1997. Loan sales decreased
from $164.3 million during fiscal 1996 to $27.7 million during fiscal 1997.
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 increased $229.3 million
to $496.1 million at September 30, 1997 from $266.8 million at September 30,
1996. This increase reflects the utilization of the funds from the issuance of
the senior debentures and the related wholesale leveraging where securities were
purchased with borrowings.
Real estate owned (real estate acquired through foreclosures)
increased to $1.8 million at September 30, 1997 from $1.6 million at September
30, 1996.
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<PAGE> 61
Office properties and equipment increased to $28.3 million at September
30, 1997 from $23.1 million at September 30, 1996. The increase of $5.2 million
is due to purchases related to twelve new branch offices opened in fiscal year
1997 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
relocated and consolidated its operations to one of such new office buildings
and a portion of the other during fiscal year 1997.
Deposits increased by $92.6 million to $1.229 billion as of September
30, 1997 from $1.137 billion at September 30, 1996. The increase resulted from
deposits generated through the opening of twelve new branch offices during
fiscal year 1997 and continued aggressive pricing of certificate products.
Borrowings, which include advances from the FHLB and securities sold
under agreements to repurchase, increased to $394.8 million at September 30,
1997 from $211.0 million at September 30, 1996. This $183.8 million increase was
used to fund loan production and security purchases during the year. On June 30,
1997, the Company issued $35.0 million of 10.35% Senior Debentures Due 2002. The
net proceeds of the debenture issue are being used for general corporate
purposes.
Stockholders' equity increased to $113.0 million at September 30, 1997
from $105.4 million at September 30, 1996. Net income for the year was $9.4
million. Stockholders' equity was increased by a reduction in the unrealized
loss in fair value on available-for-sale securities of $0.9 million. In
addition, there was a reduction in unallocated ESOP shares of $0.8 million.
During the fiscal year ended September 30, 1997, dividends totaled $3.0 million.
A total of 114,000 shares were repurchased as treasury shares during the fiscal
year 1997 at an average price per share of $23.40, reducing stockholders' equity
by $2.7 million.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED
SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
GENERAL OPERATING RESULTS. Net income for the fiscal year ended
September 30, 1997 was $9.4 million as compared to $0.5 million for the fiscal
year ended September 30, 1996. Loan loss provisions declined to $3.3 million
during the fiscal year ended September 30, 1997 from $15.7 million during the
fiscal year ended September 30, 1996. Expenses during the fiscal year ended
September 30, 1996 included a pre-tax $6.6 million one-time SAIF assessment.
Other income for the fiscal year ended September 30, 1997 of $9.0 million
included net gains on sales of securities, loans and property of $2.4 million as
compared to net gains of $5.4 million for the fiscal year ended September 30,
1996.
Net interest income before provision for loan losses increased to $44.1
million for the fiscal year ended September 30, 1997 as compared to $42.2
million for the same period last year. The increase was primarily due to the
increase in loans receivable, net, to $1.144 billion at fiscal year end
September 30, 1997 from $1.008 billion at fiscal year end September 30, 1996.
Net interest margin for fiscal 1997 was 2.91% as compared to 3.18% for fiscal
1996. The primary reason for the decline in net interest margin was higher cost
deposits caused by the higher level of interest rates generally experienced
throughout most of fiscal year 1997. An additional factor was the issuance of
the $35 million of Senior Debentures on June 30, 1997, carrying an interest rate
of 10.35%.
INTEREST INCOME. Interest income increased $13.4 million, or 13.0%, to
$116.9 million for the fiscal year ended September 30, 1997 from $103.5 million
for the fiscal year ended September 30, 1996. The increase was primarily due to
an increase in loans receivable during fiscal year 1997 of $136.2 million. The
average yield on interest-earning assets decreased to 7.72% for the fiscal year
ended September 30, 1997 from 7.80% for the fiscal year ended September 30,
1996. The decrease is primarily due to the run-off of indirect automobile loans
which carried higher interest yields.
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<PAGE> 62
INTEREST EXPENSE. Interest expense increased $11.6 million, or 18.8%,
to $72.9 million for the fiscal year ended September 30, 1997 from $61.3 million
for the fiscal year ended September 30, 1996. This increase was the result of an
increase of 8.1% in deposits outstanding and the higher level of interest rates
generally experienced throughout most of fiscal year 1997. During fiscal year
1997, interest bearing deposits averaged $1.148 billion as compared to $996.0
million during fiscal year 1996. The weighted average rate paid on
interest-bearing liabilities increased to 5.21% during fiscal year 1997 from
5.07% during fiscal year 1996 primarily because of the higher interest rate
environment generally experienced during fiscal 1997 and the higher cost
associated with the senior debentures discussed earlier.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest
income before provision for loan losses increased $1.9 million, or 4.4%, to
$44.1 million for the fiscal year ended September 30, 1997 from $42.2 million
for the fiscal year ended September 30, 1996. The increase in net interest
income is due primarily to net growth in loans receivable to $1.144 billion at
September 30, 1997 from $1.008 billion at September 30, 1996. The net interest
margin declined to 2.91% for fiscal year 1997 from 3.18% for fiscal year 1996.
PROVISION FOR LOAN LOSSES. The Bank's provision for loan losses
declined by $12.4 million to $3.3 million for the fiscal year ended September
30, 1997 from $15.7 million for the fiscal year ended September 30, 1996. The
increased loan loss provisions recorded during fiscal year 1996 were primarily
to cover losses related to the indirect automobile lending program. The Company
began to originate indirect automobile loans in large volumes in August 1995 and
continued this practice through September 1996. During September 1996, the
Company ceased its originations of indirect automobile loans. Higher
delinquencies and charge-offs resulting from the indirect lending program did
not occur until the third quarter of fiscal year 1996, as the significant credit
problems did not surface until that time. During the third quarter of fiscal
year 1996, the Company increased its provision for loan losses, but further
delinquencies and charge-offs in the quarter ended September 30, 1996 indicated
that significant additional provisions were necessary. The provisions were
determined by projecting charge-offs based on the latest repossession activity
and recovery rates. Provisions related to the indirect portfolio decreased in
quarters subsequent to September 30, 1996, because, as indicated above, the
Company discontinued its indirect lending as of September 30, 1996. Recovery
rates have been averaging approximately 60% per repossession. 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. The balance of
indirect auto loans at September 30, 1997 was $88.4 million as compared to
$148.2 million at September 30, 1996. Loan loss allowances related to indirect
loans equaled $3.3 million at September 30, 1997.
OTHER INCOME. For the fiscal year ended September 30, 1997, other
income declined to $9.0 million from $10.1 million for the fiscal year ended
September 30, 1996. Other income for the fiscal year ended September 30, 1997
included net gains on sales of securities, loans and property of $2.4 million as
compared to net gains of $5.4 million for the fiscal year ended September 30,
1996, partially offset by increased servicing income, other fees and
miscellaneous income.
OTHER EXPENSES. Other expenses decreased $1.2 million to $34.4 million
for the fiscal year ended September 30, 1997 from $35.6 million for the fiscal
year ended September 30, 1996. As previously discussed, during the year ended
September 30, 1996, the Bank recorded a pre-tax $6.6 million one-time SAIF
assessment causing the federal insurance deposit premium to be $8.8 million for
the fiscal year ended September 30, 1996. During the fiscal year ended September
30, 1997, the premiums declined to $1.0 million. Increases in other expenses
reflect the expenses related to franchise growth of adding twenty-three
additional full-service branches since September 30, 1995 and expanded loan
servicing requirements related primarily to indirect automobile lending. This
franchise growth resulted in the number of full-time equivalent employees
increasing to 427 at September 30, 1997 from 383 at September 30, 1996 and a
$2.6 million increase in compensation and benefits to $18.5 million at September
30, 1997 from $15.9 million at September 30, 1996.
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<PAGE> 63
The Bank utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include a mainframe processing system licensed to the Bank by an outside vendor
and various purchased software packages which are run on in-house computer
networks. In 1997, the Bank initiated a review and assessment of all hardware
and software to confirm that it will function properly in the year 2000. The
Bank's mainframe software vendor and the majority of the other vendors which
have been contacted have indicated that their hardware and/or software will be
Year 2000 compliant. Testing will be performed for compliance. While there may
be some expenses incurred during the next two years, Year 2000 compliance is not
expected to have a material effect on the Company's consolidated financial
statements.
PROVISION FOR INCOME TAXES. Federal and state income taxes increased to
$6.0 million for the fiscal year ended September 30, 1997 from $0.4 million for
the fiscal year ended September 30, 1996. Higher taxes resulted from the
increase in net income before provision for income taxes to $15.4 million for
the fiscal year ended September 30, 1997 as compared to $1.0 million for the
fiscal year ended September 30, 1996. The effective income tax rate of the Bank
was 39.2% and 44.8% for fiscal years 1997 and 1996, respectively.
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 end 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 the 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 end 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 the fiscal year ended September 30, 1996 as compared to
$364.2 million for the fiscal year ended September 30, 1995. Approximately $78.5
million of net mortgage 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
was due to purchases related to eleven new branch offices opened in fiscal year
1996 and to renovations of the Reflections Office Centre, as previously
discussed. In conjunction with its 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 also updated its data processing mainframe
computer and related software during fiscal 1996.
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<PAGE> 64
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. 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 the 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 in the prior 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.
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<PAGE> 65
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
later part of fiscal year 1996, the Bank experienced higher than 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 to $0.5 million for the fiscal year ended September 30, 1996 as
compared to $5.6 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds comes from dividends from the
Bank and repayment of funds advanced to the Bank. Management anticipates that
these sources of funds should continue in the future. Primary uses of funds are
payment of dividends to First Palm Beach Bancorp stockholders, repurchase of
common stock through open market transactions and debt service related to the
Senior Debentures.
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<PAGE> 66
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 11.0% and 16.3% at September 30, 1997 and September 30, 1996,
respectively. At September 30, 1996 the liquidity ratio was unusually high due
to loan sales of $141.4 million during the month of September. The majority of
the proceeds of those sales were included in short term liquidity.
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, 1997, 1996 and 1995, cash
and cash equivalents totaled $99.9 million, $161.4 million, and $25.1 million,
respectively. 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, 1997,
1996 and 1995, the Bank originated mortgage and consumer loans in the aggregate
amounts of $398.8 million, $539.6 million, and $364.2 million, respectively. In
addition, net mortgage loans of approximately $78.5 million were acquired during
the fiscal year ended September 30, 1996 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 $2.9
million, $11.0 million and $18.5 million for the fiscal years ended September
30, 1997, 1996 and 1995, 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 $373.5 million, $40.5 million and $129.8
million for the fiscal years ended September 30, 1997, 1996 and 1995,
respectively. Net cash provided by financing activities consisted primarily of
net activity in deposits, advances and escrow accounts, as well as the issuance
of senior debentures, and were $309.2 million, $165.7 million and $117.3 million
for the fiscal years ended September 30, 1997, 1996 and 1995, respectively.
At September 30, 1997, the Bank had outstanding commitments to
originate $31.2 million of loans. The Bank has determined that it will have
sufficient funds available to meet all of its commitments. At September 30,
1997, certificates of deposit which were scheduled to mature in one year or less
from September 30, 1997 totaled $706.9 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, 1997, the unrealized loss on available-for-sale securities, net
of applicable income taxes, was $1.0 million which would become a realized loss
if the securities were to be sold.
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It is management's opinion that sufficient liquid resources are
available to meet all long and short term commitments of the Company.
At September 30, 1997, the Bank exceeded each of the OTS capital
requirements. At year-end both the Core (Tier 1) Capital to Adjusted Tangible
Assets and Tangible Capital to Tangible Assets ratios were 7.07% (minimum
requirements 4.0% and 1.5%, respectively). The Core (Tier 1) Capital to
Risk-weighted Assets ratio was 14.13% (well capitalized requirement 6.0%) and
Total Capital to Risk-weighted Assets ratio was 14.76% (minimum requirement
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 June 1996, FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The
Statement, which amends SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," supersedes SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This Statement provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. This Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS No. 125 requires that servicing assets and
liabilities be subsequently measured by (a) amortization in proportion to and
over the period of estimated net servicing income or loss and (b) assessment for
asset impairment or increased obligation based on their fair values. SFAS No.
125 also requires that debtors reclassify financial assets pledged as collateral
and that secured parties recognize those assets and their obligation to return
them in certain circumstances in which the secured party has taken control of
those assets. SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996.
During the year ended September 30, 1997, the Company sold $27.7 million of
loans and retained the loan servicing rights. The gain on the sale was
determined in accordance with SFAS No. 125.
In February 1997, FASB issued SFAS No.128, "Earnings per Share." This
statement simplifies the standards for computing earnings per share previously
required under Accounting Principles Board ("APB") Opinion No. 15, "Earnings Per
Share," and makes the computation comparable to international EPS standards.
Basic EPS (formerly primary EPS) excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997 and requires restatement of all prior period EPS data presented. If the
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Company had adopted the provision of SFAS No. 128, basic EPS and diluted EPS
would have been $1.91 and $1.86, respectively, for the year ended September 30,
1997.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income," which requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from nonowner
sources; and SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information," which establishes annual and interim reporting standards
for an enterprise's operating segments and related disclosures about its
products, services, geographic areas, and major customers. Adoption of these
statements will not impact the Bank's consolidated financial position, results
of operations or cash flows, and any effect will be limited to the form and
content of its disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
MARKET RISK ANALYSIS
As a holding company for a financial institution, the Company's primary
component of market risk is interest rate volatility. Fluctuations in interest
rates will ultimately impact both the level of income and expense recorded on a
large portion of the Bank's assets and liabilities, and the market value of all
interest-earning assets, other than those which possess a short term to
maturity. Since the majority of the Company's interest bearing liabilities and
virtually all of the Company's interest-earning assets are held by the Bank,
virtually all of the Company's interest rate risk exposure lies at the Bank
level. As a result, all significant interest rate risk management procedures are
performed by management of the Bank. Based upon the nature of the Bank's
operations, the Bank is not subject to foreign currency exchange or commodity
price risk. The Bank's loan portfolio is concentrated primarily in Palm Beach,
Martin and Broward Counties in Florida and is therefore subject to risks
associated with the local economy. As of September 30, 1997, the Company does
not own any trading assets. At September 30, 1997, the Company does not have any
hedging transactions in place such as interest rate swaps and caps.
The Bank's interest rate management strategy is designed to stabilize
net interest income and preserve capital. The Bank actively manages interest
rate risk through the use of a simulation model which measures the sensitivity
of future net interest income and the net portfolio value to changes in interest
rates. In addition, the Bank regularly monitors interest rate sensitivity
through analysis, measuring the terms to maturity or next repricing date of
interest-earning assets and interest bearing liabilities. 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, 1997, total interest-bearing liabilities maturing or
repricing within one year exceeded total interest-earning assets maturing or
repricing within the same time period by $279.3 million, representing a negative
cumulative one-year gap of 15.4% of total assets compared to a negative
cumulative one-year gap of 4.5% at September
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30, 1996. Management believes that the negative gap of 4.5% at September 30,
1996 was unusually low due to loan sales of $141.4 million during the month of
September 1996, which resulted in a higher than normal cash position at the end
of that fiscal year, as the majority of the proceeds of those sales were
included in cash and cash equivalents at September 30, 1996. Management has
determined that the Bank has an acceptable and reasonable level of interest rate
risk that will not compromise credit quality.
The Bank's prepayment rates for its loans are based on the most recent
assumptions used by the FHLB as of June 30, 1997. 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.............................................................. 18.0%
Fixed-rate one- to four-family loans with maturities equal to or greater than five years:
Below 7% interest rate............................................................... 9.0%
7.00% to 7.99%....................................................................... 10.0%
8.00% to 8.99%....................................................................... 12.0%
9.00% to 9.99%....................................................................... 16.0%
10.00% and over...................................................................... 25.0%
Mortgage-backed and related securities with maturities equal to or greater than five years:
Below 7% interest rate............................................................... 8.0%
7.00% to 7.99%....................................................................... 12.0%
8.00% to 8.99%....................................................................... 17.0%
9.00% to 9.99%....................................................................... 26.0%
10.00% and over...................................................................... 32.0%
Other residential and all nonresidential loans................................................ 6.0%
Second mortgages.............................................................................. 19.0%
</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, 1997. The
assumptions used at the dates indicated, although standardized, may not be
indicative of actual withdrawals and repricing experienced by the Bank.
<TABLE>
<CAPTION>
3 6 More
Months 3-6 Months 1-3 3-5 5-10 Than 10
or Less Months - 1 Year Years Years Years Years
-------- ------- -------- -------- ------- -------- -------
<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, 1997 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
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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 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.
<TABLE>
<CAPTION>
ANTICIPATED PERIOD UNTIL MATURITY OR REPRICING
At September 30, 1997
-------------------------------------------------------------------------------------------
More More
More Than Than 3 Than 5 More
Less Than 3 to 6 6 Months 1 Year to 3 Years to 5 Years to Than 10
3 Months Months to 1 Year Years Years 10 Years Years Total
--------- ---------- --------- ------------- ----------- ----------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Mortgage loans, net............... $144,312 $ 61,147 $ 114,389 $ 268,742 $205,160 $113,448 $ 84,860 $ 992,058
Consumer loans, net............... 48,888 11,328 19,129 51,023 18,184 657 17 149,226
Other loans....................... 802 231 389 1,021 360 13 -- 2,816
Interest-bearing deposits......... 78,806 -- -- -- -- -- -- 78,806
Securities held-to-maturity and... 10,050 -- 40,066 9,955 405 12,451 1,529 74,456
securities available-for-sale
Mortgage-backed and related....... 100,713 39,801 81,879 81,259 70,165 44,450 3,378 421,645
securities held-to-maturity and
available-for-sale
FHLB stock........................ 18,296 -- -- -- -- -- -- 18,296
-------- --------- --------- --------- -------- -------- -------- ---------
Total interest-earning assets... 401,867 112,507 255,852 412,000 294,274 171,019 89,784 1,737,303
-------- --------- --------- --------- -------- -------- -------- ---------
NON INTEREST-BEARING LIABILITIES:
Non-interest bearing deposits.... 4,969 5,121 8,132 16,823 4,501 6,041 3,926 49,513
-------- --------- --------- --------- -------- -------- -------- ---------
INTEREST-BEARING LIABILITIES:
Passbook and statement savings... 7,133 6,981 12,720 40,522 26,419 33,532 29,787 157,094
NOW.............................. 6,309 6,309 10,018 20,726 5,545 7,442 4,836 61,185
Money market..................... 7,976 7,977 7,310 3,240 1,542 1,182 219 29,446
Certificates of deposit.......... 173,010 236,882 299,689 183,071 39,321 68 -- 932,041
Borrowed funds................... 123,946 50,000 75,000 145,925 -- -- -- 394,871
Senior debentures................ -- -- -- -- 33,839 -- -- 33,839
-------- --------- --------- --------- -------- --------- -------- ---------
Total non interest-bearing and.. 323,343 313,270 412,869 410,307 111,167 48,265 38,768 1,657,989
interest-bearing liabilities -------- --------- --------- --------- -------- -------- -------- ---------
Interest sensitivity gap........... $ 78,524 $(200,763) $(157,017) $ 1,693 $183,107 $122,754 $ 51,016 $ 79,314
======== ========= ========= ========= ======== ========= ======== =========
Cumulative interest sensitivity gap $ 78,524 $(122,239) $(279,256) $(277,563) $(94,456) $ 28,298 $ 79,314
======== ========= ========= ========= ======== ======== ========
Cumulative interest sensitivity gap as
a percentage of total assets 4.34% (6.76)% (15.44)% (15.35)% (5.22)% 1.56% 4.39%
Cumulative net interest-earning assets
as a percentage of net non interest-
bearing and interest-bearing liabilities 124.29% 80.80% 73.39% 80.99% 93.99% 101.75% 104.78%
</TABLE>
INTEREST RATE RISK EXPOSURE COMPLIANCE
Increases in the level of interest rates also may adversely affect the
fair value of the Bank's securities and other earning assets. Generally, the
fair value of fixed-rate instruments fluctuates inversely with changes in
interest rates. As a result, increases in interest rates could result in
decreases in the fair value of the Bank's interest-earning assets, which could
adversely affect the Bank's results of operations if sold, or, in the case of
retained interest-earning assets classified as available-for-sale, the Bank's
stockholders' equity. As of September 30, 1997, the Bank's securities
68
<PAGE> 71
portfolio included $267.8 million in securities classified as available for
sale. Accordingly, as a result of adoption of Statement of Financial Accounting
Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" and the magnitude of the Bank's holdings of securities
available-for-sale, changes in interest rates could produce significant changes
in the value of such securities and could produce significant fluctuations in
the stockholders' equity of the Bank. The Bank does not own any trading assets
as of September 30, 1997.
On a quarterly basis, an interest rate risk exposure compliance report
is prepared and presented to the Bank's Board of Directors. This report,
prepared in accordance with Thrift Bulletin #13 issued by the OTS, presents an
analysis of the change in net interest income and net portfolio value resulting
from an increase or decrease in the level of interest rates. All changes are
measured as percentage changes from the values of projected net interest income
and net projected portfolio value in the flat rate scenario. The calculated
estimates of change in net interest income and net portfolio value are compared
to current limits established by management and approved by the Board of
Directors. The following is a summary of the interest rate exposure report as of
September 30, 1997:
<TABLE>
<CAPTION>
Net Interest Income Net Portfolio Value
--------------------------- ---------------------------
Change in Interest Rate Projected Projected
Limit Change Limit Change
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
-400 Basis Points -75.00% -18.18% -85.00% -51.52%
-300 Basis Points -65.00% -11.88% -55.00% -35.42%
-200 Basis Points -45.00% -7.06% -40.00% -21.54%
-100 Basis Points -25.00% -3.22% -30.00% -9.62%
Flat Rate -- -- -- --
+100 Basis Points -25.00% 2.82% -30.00% 9.12%
+200 Basis Points -45.00% 5.14% -40.00% 11.35%
+300 Basis Points -65.00% 8.59% -55.00% 20.57%
+400 Basis Points -75.00% 7.69% -85.00% 17.43%
</TABLE>
The model utilized to create the report presented above makes various
estimates at each level of interest rate change regarding cash flows from
principal repayments on loans and mortgage-backed securities and/or call
activity on investment securities. Actual results could differ significantly
from these estimates, which would result in significant differences in the
calculated projected change. In addition, the limits stated above do not
necessarily represent the level of change under which management would undertake
specific measures to realign its portfolio in order to reduce the projected
level of change.
69
<PAGE> 72
ITEM 8. FINANCIAL STATEMENTS AND 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, 1996 and 1997, 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, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company and subsidiary
at September 30, 1996 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended September 30, 1997 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Certified Public Accountants
West Palm Beach, Florida
December 5, 1997
70
<PAGE> 73
FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1996 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
September September
30, 1996 30, 1997
---------- -----------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents: (Note 1)
Cash and amounts due from depository institutions............................................... $ 19,438 $ 21,123
Interest-bearing deposits....................................................................... 141,975 78,806
---------- ----------
Total cash and cash equivalents.......................................................... 161,413 99,929
Securities Available-for-Sale (Notes 1, 2)............................................................... 27,551 59,468
Securities Held-to-Maturity (Approximate fair value - 1996, $7,042; 1997, $15,144)(Notes 1, 3)........... 6,981 14,988
Mortgage-Backed and Related Securities Available-for-Sale (Notes 1, 5)................................... 105,866 208,342
Mortgage-Backed and Related Securities Held-to-Maturity (Approximate fair value - 1996,.................. 126,407 213,303
$127,495; 1997, $216,341) (Notes 1, 6)
Loans Receivable, Net of allowance for loan losses - 1996, $11,855; 1997, $6,046 (Notes 1, 7, 11)........ 1,007,881 1,144,100
Real Estate Owned, Net of allowance for losses - 1996, $361; 1997, $161 (Note 1)......................... 1,626 1,795
Repossessed Automobiles, At estimated fair value (Note 1)................................................ 1,602 474
Office Properties and Equipment, Net (Notes 1, 8)........................................................ 23,077 28,313
Federal Home Loan Bank Stock - At cost................................................................... 10,053 18,296
Accrued Interest Receivable (Notes 1, 7, 9).............................................................. 8,147 9,879
Goodwill (Note 1)........................................................................................ 2,825 2,631
Other Assets............................................................................................. 6,591 6,902
---------- ----------
Total Assets............................................................................................. $1,490,020 $1,808,420
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposit Accounts (Note 10)............................................................................... $1,136,722 $1,229,279
Advances from Federal Home Loan Bank (Note 11)........................................................... 201,025 365,925
Securities Sold Under Agreements to Repurchase (Note 12)................................................. 10,000 28,946
Senior Debentures, Net of unamortized issuance costs (Note 13)........................................... -- 33,839
Advances by Borrowers for Taxes and Insurance............................................................ 14,657 17,866
Other Liabilities (Notes 1, 13, 14, 15).................................................................. 27,756 19,538
Deferred Income Taxes, Net (Notes 1, 14)................................................................. (5,565) (3)
---------- ----------
Total liabilities........................................................................ 1,384,595 1,695,390
---------- ----------
Commitments and Contingencies (Notes 17, 18, 19)
Stockholders' Equity: (Notes 16, 19, 20)
Preferred Stock ($.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;............ 55 55
outstanding 5,093,096 and 5,047,746 (net of treasury stock) at September
30, 1996 and 1997, respectively
Additional Paid-In Capital...................................................................... 52,891 53,521
Retained Earnings - Substantially restricted (Notes 19, 20)..................................... 65,064 71,397
Treasury Stock, at cost (403,279 shares at September 30, 1996 and 448,629 shares at September... (8,660) (9,825)
30, 1997)
Common Stock Purchased By: (Note 15)
Employee stock ownership plan............................................................ (1,769) (955)
Recognition and retention plans.......................................................... (161) (117)
Unrealized Decrease in Fair Value on Available-for-sale Securities (Net of...................... (1,995) (1,046)
applicable income taxes) (Note 1)
---------- ----------
Total stockholders' equity............................................................... 105,425 113,030
---------- ----------
Total Liabilities and Stockholders' Equity............................................................... $1,490,020 $1,808,420
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
71
<PAGE> 74
FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended September 30,
-------------------------------------
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans (Notes 1, 7)......................................................... $ 54,638 $ 84,090 $ 87,746
Securities held-to-maturity, securities available-for-sale, and trading
securities (Note 1)........................................................ 6,494 4,130 6,210
Mortgage-backed and related securities held-to-maturity and mortgage-backed
and related securities available-for-sale (Note 1)......................... 19,199 14,487 22,037
Other...................................................................... 633 825 937
---------- ----------- -----------
Total interest income...................................................... 80,964 103,532 116,930
---------- ----------- -----------
INTEREST EXPENSE:
Deposits (Note 10)......................................................... 37,847 48,614 57,535
Advances from Federal Home Loan Bank (Note 11)............................. 8,699 11,974 13,445
Securities sold under agreements to repurchase (Note 12)................... 2,354 712 904
Senior debentures (Note 13)................................................ -- -- 967
---------- ----------- -----------
Total interest expense..................................................... 48,900 61,300 72,851
---------- ----------- -----------
Net interest income........................................................ 32,064 42,232 44,079
PROVISION FOR LOAN LOSSES (Notes 1, 7)..................................... 261 15,704 3,281
---------- ----------- -----------
Net interest income after provision for loan losses (Note 1)............... 31,803 26,528 40,798
---------- ----------- -----------
OTHER INCOME:
Servicing income and other fees ........................................... $ 2,576 $ 3,206 $ 4,106
Net gain (loss) on sale of loans and mortgage-backed and related securities
available-for-sale (Notes 1, 5)............................................ (1,276) 3,557 1,324
Net gain (loss) on sale of securities available-for-sale (Notes 1, 2)...... (473) 959 278
Net gain on trading securities (Notes 1, 4)................................ 89 -- 294
Net gain on sale of property............................................... 975 460 551
Net gain on sale of loan servicing (Note 7)................................ 1,008 412 --
Miscellaneous.............................................................. 1,131 1,475 2,448
---------- ----------- -----------
Total other income......................................................... 4,030 10,069 9,001
---------- ----------- -----------
OTHER EXPENSES:
Employee compensation and benefits (Notes 15, 16).......................... 13,849 15,905 18,511
Early retirement program................................................... 2,361 -- --
Occupancy and equipment (Note 18).......................................... 4,259 4,830 6,729
Federal deposit insurance premium.......................................... 1,799 8,848 977
Provision for losses and net losses on sale of real estate owned (Note 1).. 74 451 329
Advertising and promotion.................................................. 679 663 1,005
Miscellaneous.............................................................. 3,588 4,905 6,855
---------- ----------- -----------
Total other expenses....................................................... 26,609 35,602 34,406
---------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES................................... 9,224 995 15,393
---------- ----------- -----------
PROVISION (BENEFIT) FOR INCOME TAXES: (Notes 1, 14)
Current.................................................................... 3,672 5,288 788
Deferred................................................................... (94) (4,842) 5,249
---------- ----------- -----------
Total provision for income taxes........................................... 3,578 446 6,037
---------- ----------- -----------
NET INCOME................................................................. $ 5,646 $ 549 $ 9,356
========== =========== ===========
PRIMARY EARNINGS PER SHARE (Note 1)........................................ $ 1.11 $ 0.11 $ 1.86
========== =========== ===========
FULLY DILUTED EARNINGS PER SHARE (Note 1).................................. $ 1.11 $ 0.11 $ 1.85
========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
72
<PAGE> 75
FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
Unrealized
(Decrease)
Increase in
Fair Value
Common Common on
Additional Stock Stock Available- Total
Common Paid-in Retained Treasury Purchased Purchased for-Sale Stock-holders'
Stock Capital Earnings Stock by ESOP by RRP Securities Equity
-------- --------- -------- -------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994.... 55 51,935 61,999 (3,718) (3,174) (1,111) (5,524) 100,462
Net income...................... -- -- 5,646 -- -- -- -- 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
Ownership Plan and
Recognition and Retention Plans. -- 522 -- -- 665 490 -- 1,677
Purchase of Treasury Stock at
cost (225,600 shares)........... -- -- -- (4,902) -- -- -- (4,902)
Exercise of stock options by
certain directors and employees. -- (724) -- 1,337 -- -- -- 613
Dividends of $0.20 per share.... -- -- (1,053) -- -- -- -- (1,053)
----- ------- ------- ------- --------- -------- --------- ---------
Balance at September 30, 1995.... 55 51,733 66,592 (7,283) (2,509) (621) (3,356) 104,611
Net income...................... -- -- 549 -- -- -- -- 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. -- 733 -- -- 740 460 -- 1,933
Issuance of 299,478 shares of
Treasury Stock for the
purchase of PBS Financial Corp.. -- 496 -- 6,130 -- -- -- 6,626
Purchase of Treasury Stock at
cost (345,853 shares)........... -- -- -- (7,642) -- -- -- (7,642)
Exercise of stock options by
certain directors and employees. -- (71) -- 135 -- -- -- 64
Dividends of $0.40 per share.... -- -- (2,077) -- -- -- -- (2,077)
----- ------- ------- ------- --------- -------- --------- ---------
Balance at September 30, 1996.... 55 52,891 65,064 (8,660) (1,769) (161) (1,995) 105,425
Net income...................... -- -- 9,356 -- -- -- -- 9,356
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.................... -- -- -- -- -- -- (23) (23)
Change in unrealized losses
on securities
available-for-sale and
mortgage-backed and related
securities
available-for-sale, net of
income taxes.................... -- -- -- -- -- -- 972 972
Amortization of deferred
compensation - Employee Stock
Ownership Plan and
Recognition and Retention Plans. -- 906 -- -- 814 44 -- 1,764
Purchase of Treasury Stock at
cost (114,000 shares)........... -- -- -- (2,668) -- -- -- (2,668)
Exercise of stock options by
certain directors and
employees...................... -- (276) -- 1,503 -- -- -- 1,227
Dividends of $0.60 per share... -- -- (3,023) -- -- -- -- (3,023)
----- ------- ------- ------- --------- -------- --------- ---------
Balance at September 30, 1997... $ 55 $53,521 $71,397 $(9,825) $ (955) $ (117) $ (1,046) $ 113,030
===== ======= ======= ======= ========= ======== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
73
<PAGE> 76
FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended September 30,
---------------------------------
1995 1996 1997
---------- ---------- ---------
<S> <C> <C> <C>
CASH FLOW FROM (FOR) OPERATING ACTIVITIES:
Net income........................................................................................ $ 5,646 $ 549 $ 9,356
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation.................................................................................... 1,308 1,227 2,056
Employee Stock Ownership Plan and Recognition and Retention Plan Compensation Expense........... 1,677 1,933 1,764
Amortization of senior debentures' issuance cost................................................ -- -- 61
Accretion of discounts, amortization of premiums, and other deferred yield items................ (910) (538) (1,338)
Amortization of goodwill........................................................................ -- 145 194
Provision for loan losses....................................................................... 261 15,704 3,281
Provision for losses and net losses on sales of real estate owned............................... 74 451 329
Net realized and unrealized gain on trading securities.......................................... (89) -- (294)
Purchase of trading securities.................................................................... -- -- (63,073)
Sale of trading securities........................................................................ 5,003 -- 63,277
Net (gain) loss on sale of:
Loans........................................................................................... (84) (3,494) --
Mortgage-backed and related securities available-for-sale....................................... 1,360 (63) (948)
Securities available-for-sale and stock......................................................... 473 (959) (696)
Property and equipment.......................................................................... (975) (460) (551)
Decrease in loans held for sale................................................................... 127 -- --
Changes in assets and liabilities net of effects from purchase of PBS Financial Corp.:
Increase in accrued interest receivable......................................................... (1,496) (792) (1,732)
(Increase) decrease in other assets............................................................. 1,743 (1,330) (342)
Increase (decrease) in other liabilities - net of change in dividends payable and deferred taxes 4,339 (1,348) (8,466)
-------- --------- --------
Net cash provided by operating activities..................................................... 18,457 11,025 2,878
-------- --------- --------
CASH FLOW FROM (FOR) INVESTING ACTIVITIES:
Loan originations and principal payments on loans................................................. (255,190) (286,867) (161,347)
Principal payments received on mortgage-backed and related securities............................. 42,877 37,830 57,225
Purchases of:
Loans........................................................................................... (5,687) (3,712) (14,168)
Mortgage-backed and related securities held-to-maturity......................................... (49,883) -- (134,449)
Mortgage-backed and related securities available-for-sale....................................... -- (41,360) (236,168)
Securities held-to-maturity..................................................................... (13,475) -- (15,413)
Securities available-for-sale................................................................... (74,906) (361,931) (152,510)
Office properties and equipment................................................................. (1,313) (7,237) (9,090)
Net proceeds from sales of:
Loans........................................................................................... 13,991 164,301 27,747
Mortgage-backed and related securities available-for-sale....................................... 94,391 18,040 127,735
Securities available-for-sale and stock......................................................... 100,965 294,117 72,111
Repossessed automobiles......................................................................... 407 11,928 17,432
Real estate acquired in settlement of loans..................................................... 1,085 2,395 3,178
Office properties and equipment................................................................. 1,307 1,593 2,349
(Purchase) sale of Federal Home Loan Bank stock................................................... 52 (525) (8,243)
Proceeds from maturities of securities............................................................ 19,952 125,587 56,896
Cash acquired through purchase of PBS Financial Corp. - net of cash payments relating to
purchase.......................................................................................... -- 9,873 --
Other investing activities........................................................................ (4,340) (4,509) (6,821)
-------- --------- --------
Net cash used for investing activities......................................................... (129,767) (40,477) (373,536)
-------- --------- --------
CASH FLOW FROM (FOR) FINANCING ACTIVITIES:
Senior debentures, net of issuance costs.......................................................... -- -- 33,778
Purchase of Treasury Stock at cost................................................................ (4,902) (7,642) (2,668)
Exercise of stock options......................................................................... 613 64 1,227
Net increase (decrease) in:
NOW accounts, demand deposits, and savings accounts............................................. (19,332) 55,343 7,931
Certificates of deposit......................................................................... 179,720 98,872 84,626
Advances from Federal Home Loan Bank............................................................ (1,050) 29,900 164,900
Securities sold under agreement to repurchase................................................... (39,290) (8,427) 18,946
Advances by borrowers for taxes and insurance................................................... 2,328 (539) 3,209
Dividends paid on stock......................................................................... (790) (1,838) (2,775)
-------- --------- --------
Net cash provided by financing activities...................................................... 117,297 165,733 309,174
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................................... 5,987 136,281 (61,484)
CASH AND CASH EQUIVALENTS, Beginning of year....................................................... 19,145 25,132 161,413
-------- --------- --------
CASH AND CASH EQUIVALENTS, End of year............................................................. $ 25,132 $ 161,413 $ 99,929
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes.................................................................... $ 3,806 $ 6,508 $ 349
======== ========== =======
</TABLE>
74
<PAGE> 77
<TABLE>
<S> <C> <C> <C>
Cash paid for interest on deposits and other borrowings............... $ 48,003 $ 60,640 $ 71,972
======== ======== ==========
Supplemental Schedule of Noncash Investing and Financing Activities:
Repossessed automobiles acquired in settlement of loans............... $ 765 $ 21,122 $ 15,452
======== ======== ==========
Real estate acquired in settlement of loans........................... $ 1,057 $ 961 $ 3,580
======== ======== ==========
Decrease in unrealized loss on available-for-sale securities............ $ 2,168 $ 1,361 $ 949
======== ======== ==========
</TABLE>
On December 8, 1995 the Company purchased all of the stock of PBS Financial
Corp. Consideration paid for PBS:
<TABLE>
<S> <C> <C> <C>
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.
FIRST PALM BEACH BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
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 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, First Bank of Florida Mortgage Corporation, The Big First,
75
<PAGE> 78
Inc. and First Corporate Center, Inc. The Company's business is conducted
principally through the Bank. All material intercompany balances and
transactions have been eliminated in consolidation.
The Bank was organized in 1934 as a federally chartered mutual 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.
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.
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 was to engage in maintenance and management of improved
real estate. It is currently inactive.
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 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. Gains and losses on the sale of securities
available-for-sale and mortgage-backed and related securities available-for-sale
are determined using the specific identification method.
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.
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 7 for the composition of the mortgage loan portfolio at
September 30, 1996 and 1997). To a lesser extent, the Bank also purchases and
holds investment securities which
76
<PAGE> 79
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.
On October 1, 1995, the Bank adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan," and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Recognition and
Disclosures," an amendment of SFAS No. 114. These standards address the
accounting for impairment of certain loans when it is probable that all amounts
due pursuant to the contractual terms of the loan will not be collected.
Adoption of these standards included the identification of commercial, business
and commercial real estate loans which are considered impaired under provisions
of SFAS No. 114. Groups of smaller-balance homogeneous loans (generally
residential mortgage and consumer installment and other loans) are collectively
evaluated for impairment. Adoption of these statements did not have a material
impact on the Bank's financial position or results of operations.
Under the provisions of these standards a loan in 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. Individually identified impaired loans are measured based on the
present value of payments expected to be received, using the historical
effective loan rates as the discount rate. Alternatively, measurement may also
be based on observable market prices, or for loans that are solely dependent on
the collateral for repayment, measurement may be based on the fair value of the
collateral. Loans that are to be foreclosed are measured based on the fair value
of the collateral. If the recorded investment in the impaired loan exceeds the
measure of fair value, a valuation is required as a component of the allowance
for loan losses. Changes to the valuation allowance are recorded as a component
of the provision for loan losses.
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.
77
<PAGE> 80
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.
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, 1997 the Bank had recorded $339,000 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. When
management determines that a loan is impaired, or not performing, the accrual of
interest is immediately discontinued. 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."
STOCK BASED COMPENSATION - Effective October 1, 1996, the Company
adopted SFAS No. 123, "Stock Based Compensation." This statement requires the
Company to choose between two different methods of accounting for stock options.
The statement defines a fair-value-based method of accounting for stock options
but allows an entity to continue to measure compensation cost for stock options
using the intrinsic value method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to
Employees." The Company has elected to continue using the accounting methods
prescribed by APB No. 25 and to provide the pro forma disclosures in Note 16
required by SFAS No. 123.
EARNINGS PER SHARE - Primary and fully diluted earnings per share for
the years ended September 30, 1995, 1996 and 1997 were determined by dividing
net income for fiscal year 1995 by 5,071,942 and 5,098,853; for fiscal year 1996
by 5,093,975 and 5,101,625; and for fiscal year 1997 by 5,025,762 and 5,067,216,
the weighted average number of shares of common stock and common stock
equivalents outstanding, respectively. 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 June 1996, FASB issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The Statement, which amends SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," supersedes
SFAS No. 122, "Accounting for Mortgage Servicing Rights." This Statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. Those standards are based
on consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets
78
<PAGE> 81
when control has been surrendered, and derecognizes liabilities when
extinguished. This Statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 125 requires that servicing assets and liabilities be
subsequently measured by (a) amortization in proportion to and over the period
of estimated net servicing income or loss and (b) assessment for asset
impairment or increased obligation based on their fair values. SFAS No. 125 also
requires that debtors reclassify financial assets pledged as collateral and that
secured parties recognize those assets and their obligation to return them in
certain circumstances in which the secured party has taken control of those
assets. SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996.
During the year ended September 30, 1997, the Company sold $27.7 million of
loans and retained the loan servicing rights. The gain on the sale was
determined in accordance with SFAS No. 125.
In February 1997, FASB issued SFAS No.128, "Earnings per Share." This
statement simplifies the standards for computing earnings per share previously
required under APB Opinion No. 15, "Earnings Per Share," and makes the
computation comparable to international EPS standards. Basic EPS (formerly
primary EPS) excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997 and
requires restatement of all prior period EPS data presented. If the Company had
adopted the provision of SFAS No. 128, basic EPS and diluted EPS would have been
$1.91 and $1.86, respectively, for the year ended September 30, 1997.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income," which requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from nonowner
sources; and SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information," which establishes annual and interim reporting standards
for an enterprise's operating segments and related disclosures about its
products, services, geographic areas, and major customers. Adoption of these
statements will not impact the Bank's consolidated financial position, results
of operations or cash flows, and any effect will be limited to the form and
content of its disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
RECLASSIFICATIONS - Certain amounts in the 1995 and 1996 consolidated
financial statements have been reclassified to conform to the presentation for
1997.
2. SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale at September 30, 1996 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
September 30, 1996:
United States Government and agency securities $27,002 $114 $11 $27,105
Certificates of deposit ...................... 396 -- -- 396
Other investments ............................ 50 -- -- 50
------- ---- --- -------
Total ........................................... $27,448 $114 $11 $27,551
======= ==== === =======
Weighted average interest rate ............... 6.28%
=======
</TABLE>
79
<PAGE> 82
<TABLE>
<S> <C> <C> <C> <C>
September 30, 1997
United States Government and agency securities $49,720 $174 $ 3 $49,891
Municipal bonds .............................. 9,573 17 63 9,527
Other investments ............................ 50 -- -- 50
------- ---- --- -------
Total ........................................... $59,343 $191 $66 $59,468
======= ==== === =======
Weighted average interest rate ............... 6.76%
=======
</TABLE>
The Bank enters into purchases of mortgage-backed securities under
agreements to resell substantially identical securities. The securities
underlying such agreements are book-entry securities and are delivered into a
third-party custodian's account designated by the Bank under a written custodial
agreement that explicitly recognizes the Bank's interest in the securities. The
Bank had no securities purchased under agreements to resell transactions at
September 30, 1996 and 1997 and there were no such transactions during the year
ended September 30, 1997. During the fiscal year ended September 30, 1996 the
securities purchased under agreements to resell had maturities ranging from
daily to monthly and averaged approximately $15,551,000. The maximum amount
outstanding at any month end during 1996 was $60,153,000.
Proceeds from the sale of securities available-for-sale were
$100,965,000, $294,117,000 and $71,661,000 during the fiscal years ended
September 30, 1995, 1996 and 1997, respectively. During the fiscal years ended
September 30, 1995, 1996 and 1997, sales resulted in gross realized gains of
$149,000, $996,000 and $326,000, respectively, and gross losses of $572,000,
$37,000 and $48,000, 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, 1997, the Bank had pledged $2.0 million carrying value
of securities available-for-sale as collateral for treasury, tax and loan
accounts.
The table below sets forth the contractual maturity distribution of the
Bank's securities available-for-sale at September 30, 1997:
<TABLE>
<CAPTION>
Estimated Fair
Amortized Cost Value
-------------- --------------
(In thousands)
<S> <C> <C>
Due in one year or less ............. $ -- $ --
Due after one year through five years 44,939 45,050
Due after five years ................ 14,404 14,418
------- -------
Total ............................ $59,343 $59,468
======= =======
</TABLE>
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<PAGE> 83
3. SECURITIES HELD-TO-MATURITY
Securities held-to-maturity at September 30, 1996 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
September 30, 1996:
United States Government and agency securities $ 6,981 $ 61 $ -- $ 7,042
========== ==== ========= =======
Weighted average interest rate ............... 6.61%
==========
September 30, 1997
United States Government and agency securities $ 14,988 $156 $ -- $15,144
========== ==== ========= =======
Weighted average interest rate ............... 6.42%
==========
</TABLE>
The table below sets forth the contractual maturity distribution of the
Bank's securities held-to-maturity at September 30, 1997:
<TABLE>
<CAPTION>
Estimated Fair
Amortized Cost Value
-------------- --------------
(In thousands)
<S> <C> <C>
Due in one year or less ................................... $ -- $ --
Due after one year through five years ..................... 14,988 15,144
Due after five years ...................................... -- --
------- -------
Total ..................................................... $14,988 $15,144
======= =======
</TABLE>
4. TRADING SECURITIES
There were no trading securities as of September 30, 1996 and 1997.
Proceeds from the sale of trading securities were $-0- and $63,277,000 in the
years ended September 30, 1996 and 1997, respectively. During the years ended
September 30, 1996 and 1997, sales resulted in gross realized gains of $-0- and
$316,000, respectively, and gross realized losses of $-0- and $22,000,
respectively.
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<PAGE> 84
5. MORTGAGE-BACKED AND RELATED SECURITIES AVAILABLE-FOR-SALE
Mortgage-backed and related securities available-for-sale at September
30, 1996 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
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
======== ==== ====== ========
September 30, 1997
FHLMC pass-through certificates ......... $ 1,223 $ -- $ -- $ 1,223
FNMA pass-through certificates .......... 54,420 123 66 54,477
Collateralized mortgage obligations ..... 154,603 587 2,548 152,642
-------- ---- ------ --------
Total ..................................... $210,246 $710 $2,614 $208,342
======== ==== ====== ========
</TABLE>
Proceeds from the sales of mortgage-backed and related securities
available-for-sale were $94,391,000, $18,040,000 and $127,735,000 during the
fiscal years ended September 30, 1995, 1996 and 1997, respectively. During the
fiscal years ended September 30, 1995, 1996 and 1997, sales resulted in gross
realized gains of $3,000, $81,000 and $951,000, respectively, and gross losses
of $1,363,000, $18,000 and $3,000, 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 5.0
years. At September 30, 1997, the Bank had $173.4 million in CMOs/REMICs. Of
this amount, $20.8 million represents CMOs/REMICs classified as held-to-maturity
with an approximate fair value of $20.7 million, and $152.6 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 $53.5 million of floating rate securities with
interest caps 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 6.50% at September 30, 1997. The Bank
purchases only
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<PAGE> 85
CMOs/REMICs rated AA or better by nationally recognized rating services.
Management estimates that the $119.9 million of fixed rate tranches have an
expected average life of approximately 3.6 years.
6. MORTGAGE-BACKED AND RELATED SECURITIES HELD-TO-MATURITY
Mortgage-backed and related securities held-to-maturity at September
30, 1996 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
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
======== ====== ==== ========
September 30, 1997
GNMA pass-through certificates .......... $122,032 $1,842 $ -- $123,874
FHLMC pass-through certificates ......... 11,555 271 -- 11,826
FNMA pass-through certificates .......... 58,942 1,003 8 59,937
Collateralized mortgage obligations ..... 20,774 158 228 20,704
-------- ------ ---- --------
Total ..................................... $213,303 $3,274 $236 $216,341
======== ====== ==== ========
</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.
At September 30, 1997, the Bank had pledged $44.6 million carrying
value of mortgage-backed and related securities held-to-maturity as collateral
for municipal funds on deposit and securities sold under agreements to
repurchase.
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<PAGE> 86
7. LOANS RECEIVABLE
Loans receivable at September 30, 1996 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
For the Years Ended
September 30,
-------------------------------
1996 1997
----------- -----------
(In thousands)
<S> <C> <C>
Real estate mortgage loans:
One- to four-family ................................ $ 652,606 $ 846,449
Commercial real estate ............................. 51,754 40,905
Multi-family ....................................... 17,564 14,904
Land ............................................... 24,489 23,028
Real estate construction loans ........................ 130,499 115,636
Consumer loans ........................................ 191,654 150,991
Other loans ........................................... 2,434 2,816
----------- -----------
Total gross loans ................................ 1,071,000 1,194,729
Less:
Undisbursed portion of loans in process ............ 61,633 52,776
Unearned discounts, premiums and deferred loan fees
and costs, net .................................... (10,369) (8,193)
Allowance for loan losses .......................... 11,855 6,046
----------- -----------
Loans receivable - net ................................ $ 1,007,881 $ 1,144,100
=========== ===========
</TABLE>
An analysis of the changes in the allowance for loan losses for the
years ended September 30, 1995, 1996, and 1997 is as follows:
<TABLE>
<CAPTION>
For the Years Ended September 30,
-----------------------------------------
1995 1996 1997
------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of period ......... $ 1,956 $ 2,157 $ 11,855
Increase in allowance due to acquisition
of PBS ............................... -- 2,253 --
Current provision ...................... 261 15,704 3,281
Charge-offs ............................ (92) (8,630) (11,283)
Recoveries ............................. 32 371 2,193
------- -------- --------
Ending balance ......................... $ 2,157 $ 11,855 $ 6,046
======= ======== ========
</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 $148,186,000 and $88,379,000 at September 30,
1996 and 1997, 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 $9,463,000 and $3,796,000 at September 30, 1996
and 1997, respectively.
In connection with the origination of indirect loans, the Bank paid a
fee to automobile dealers. At September 30, 1996 and 1997, the unamortized
balances of such fees were $7,351,000 and $3,175,000, respectively, and are
included as deferred loan costs within loans receivable.
84
<PAGE> 87
The Bank originates both adjustable and fixed rate loans. There were no
loans held for sale at September 30, 1996 or September 30, 1997.
The composition and maturity or repricing structure of the loan
portfolio at September 30, 1997 is presented below:
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate
---------------------------------------------- ----------------------------------------------
Term to Maturity Book Value Term to Maturity or Repricing Book Value
----------------------------- ---------- ----------------------------- ----------
(In thousands) (In thousands)
<S> <C> <C> <C>
1 month - 1 year ............ $114,275 1 month - 1 year ........... $124,019
1 year - 3 years ............ 41,180 1 year - 3 years ........... 131,814
3 years - 5 years ........... 89,413 3 years - 5 years .......... 244,218
5 years - 10 years .......... 25,101 5 years - 10 years.......... 57,826
10 years - 20 years ......... 121,732 10 years - 20 years ........ 29
Over 20 years ............... 194,493 Over 20 years .............. --
-------- --------
Total ....................... $586,194 Total ...................... $557,906
======== ========
</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 $93,807,000 and $78,837,000 at September 30, 1996 and
1997, 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, 1996 and 1997, is approximately as follows:
<TABLE>
<CAPTION>
September 30,
----------------------
1996 1997
------- -------
(In thousands)
<S> <C> <C>
Office buildings ...................................... $15,584 $ 9,975
Retail buildings ...................................... 11,990 10,079
Warehouses ............................................ 5,392 6,319
Adult care living facilities .......................... 3,832 --
Multi-family residential .............................. 17,564 14,904
Hotels and motels ..................................... 224 --
Undeveloped land ...................................... 24,489 24,390
Other ................................................. 14,732 13,170
------- -------
Total .............................................. $93,807 $78,837
======= =======
</TABLE>
85
<PAGE> 88
At September 30, 1996 and 1997, the Bank's impaired loans consisted of
the following:
<TABLE>
<CAPTION>
September 30,
--------------------
1996 1997
------ ------
(In thousands)
<S> <C> <C>
Impaired loan balances ................................ $7,649 $1,267
Related allowance for loan losses ..................... $1,125 $ 349
Average recorded investment in impaired loans ......... $4,115 $4,924
Interest income recognized during impairment period ... $ 148 $ 921
</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. FIRREA does not require
divestiture of any loan that was lawful when it was originated. The Bank is
federally chartered and is currently in compliance with this limitation.
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 $19.6 million at September 30,
1997. 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, 1996 and 1997 were $169,245,000 and $82,476,000,
respectively. The balance of $169,245,000 at September 30, 1996 included
$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 $4,368,000 and $2,410,000 at September 30,
1996 and 1997, 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. In accordance with applicable regulations, this
preferential interest rate does not apply to loans made to directors, the
President, Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents. Loans to the directors and such officers are made in the ordinary
course of business and on substantially the same terms and collateral as those
prevailing at the time for comparable transactions. Loans to other 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 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 loans do
not involve more than the normal risk of collectability or present other
unfavorable features to the Bank.
The total of loans to directors, officers and associates of such
persons was approximately $1,185,000 at September 30, 1997.
86
<PAGE> 89
8. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at September 30, 1996 and 1997
consisted of the following:
<TABLE>
<CAPTION>
September 30
----------------------
1996 1997
------- -------
(In thousands)
<S> <C> <C>
Land .................................................. $ 7,448 $ 6,151
Buildings and improvements ............................ 14,568 18,048
Furniture and equipment ............................... 14,139 18,452
------- -------
Total ................................................. 36,155 42,651
Less accumulated depreciation ......................... 13,078 14,338
------- -------
Office properties and equipment - net ................. $23,077 $28,313
======= =======
</TABLE>
9. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at September 30, 1996 and 1997 consisted of
the following:
<TABLE>
<CAPTION>
September 30,
--------------------
1996 1997
------ ------
(In thousands)
<S> <C> <C>
Loans ................................................. $6,415 $6,526
Investments ........................................... 442 1,067
Mortgage-backed and related securities ................ 1,290 2,286
------ ------
Accrued interest receivable ........................... $8,147 $9,879
====== ======
</TABLE>
10. DEPOSIT ACCOUNTS
Deposit accounts, by type and range of rates, at September 30, 1996 and
1997 consisted of the following:
<TABLE>
<CAPTION>
September 30,
----------------------------
1996 1997
---------- ----------
(In thousands)
<S> <C> <C>
Passbook and statement accounts - 1996 and 1997, 3.62% and 3.65%,
respectively .................................................... $ 150,433 $ 157,094
---------- ----------
Interest-bearing NOW accounts 1996 and 1997, 1.41% and 0.75%,
respectively .................................................... 59,716 61,185
---------- ----------
Non-interest bearing NOW accounts ................................. 39,649 49,513
---------- ----------
Variable Rate Money Market Accounts 1996 and 1997, 2.40% and 2.18%,
respectively .................................................... 39,667 29,446
---------- ----------
Certificates:
Less than 3.00% ................................................ 833 252
3.00% - 3.99% .................................................. 303 466
4.00% - 4.99% .................................................. 86,471 51,009
5.00% - 5.99% .................................................. 595,436 722,063
6.00% - 6.99% .................................................. 131,927 139,753
7.00% - 7.99% .................................................. 32,151 18,356
8.00% or greater ............................................... 136 142
---------- ----------
Total certificate accounts ................................... 847,257 932,041
---------- ----------
Total ............................................................. $1,136,722 $1,229,279
========== ==========
</TABLE>
87
<PAGE> 90
The weighted-average cost of deposits at September 30, 1996 and 1997
was 4.87% and 4.99%, respectively.
Individual deposits greater than $100,000 at September 30, 1996 and
1997 aggregated approximately $118,618,000 and $122,930,000, respectively.
Interest expense on deposits consisted of the following during the
years ended September 30, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
For the Years Ended September 30,
-------------------------------------
1995 1996 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Passbook and statement accounts ....... $ 1,902 $ 4,088 $ 5,549
NOW accounts .......................... 877 856 716
Money market accounts ................. 1,432 1,094 781
Certificate accounts .................. 33,636 42,576 50,489
------- ------- -------
Total ................................. $37,847 $48,614 $57,535
======= ======= =======
</TABLE>
Interest on deposit accounts is net of interest forfeited by depositors
on early withdrawal of certificate accounts of approximately $197,000, $165,000
and $208,000 for the years ended September 30, 1995, 1996 and 1997,
respectively.
Scheduled maturities of certificate accounts are as follows:
<TABLE>
<CAPTION>
September 30, 1997
-------------------------
Amount Percent
-------- -------
(Dollars in thousands)
<S> <C> <C>
MATURITY
Less than 1 year ...................................... $706,879 75.84%
1 year - 2 years ...................................... 138,977 14.91%
2 years - 3 years ..................................... 46,610 5.00%
3 years - 4 years ..................................... 26,986 2.90%
4 years - 6 years ..................................... 12,589 1.35%
-------- ------
Total ................................................. $932,041 100.00%
======== ======
</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, 1997, the Bank had
no brokered deposits.
The Deposit Insurance Funds Act of 1996 mandated that all depository
institutions that are insured by the Savings Associations Insurance Fund
("SAIF") were required to 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 to recapitalize the SAIF portion of the FDIC fund. The assessment
was 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 was $6.6 million and is included in the consolidated
financial statements at September 30, 1996.
88
<PAGE> 91
11. ADVANCES FROM FEDERAL HOME LOAN BANK
The Bank had outstanding advances from the FHLB of $201,025,000 bearing
a weighted average interest rate of approximately 5.88% at September 30, 1996
and $365,925,000 bearing a weighted average interest rate of 5.98% at September
30, 1997. The advances at September 30, 1997 are repayable as follows:
<TABLE>
<CAPTION>
Year Ending September 30 Amount
-------------------------------- ------------
<S> <C>
1998 ............................ $220,000,000
1999 ............................ 145,000,000
2000 ............................ 925,000
------------
Total ........................... $365,925,000
============
</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, 1997, the Bank had total credit available with the
FHLB of $500,000,000. With $365,925,000 currently advanced, remaining credit
available equals $134,075,000.
12. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
During the fiscal years ended September 30, 1996 and 1997, all of the
Bank's securities sold under agreements to repurchase ("Reverse Repurchase
Agreement") transactions were fixed-coupon reverse repurchase agreements.
Securities underlying the Reverse Repurchase Agreements were delivered to the
broker-dealer who arranged the transactions. The agreements at September 30,
1997 matured in October 1997.
Information concerning reverse repurchase agreements is summarized as
follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Average balance during the year ....................... $11,935,000 $15,574,000
Average interest rate during the year ................. 5.97% 5.80%
Maximum month-end balance during the year ............. $28,408,000 $28,946,000
Balance at year-end ................................... $10,000,000 $28,946,000
Securities underlying the agreements at year-end:
Carrying value ........................................ $12,193,840 $30,680,441
Estimated fair value .................................. $12,233,176 $31,201,850
</TABLE>
13. SENIOR DEBENTURES
On June 30, 1997, the Company issued $35.0 million of 10.35% Senior
Debentures, maturing on June 30, 2002. The interest on the Senior Debentures is
payable semi-annually in arrears on June 30 and December 31 of each year
commencing December 31, 1997. The Senior Debentures may not be redeemed prior to
maturity. The indenture entered into by the Company in connection with the
Senior Debentures includes certain covenants which, among other things, limit
the disposition of voting stock of the Bank, limit the ability to become liable
on certain forms of indebtedness, provide for consolidated net worth
requirements, provide that the Company shall not allow the Bank to be classified
as other than "Well Capitalized" and restrict dividend or other distributions
and stock repurchases. At September 30, 1997 approximately $905,000 of accrued
interest is included in Other Liabilities in the accompanying consolidated
Statement of Financial Condition. Issuance costs related to the Senior
Debentures were $1,161,000 and
89
<PAGE> 92
are being amortized over the life of the debt using the interest method. At
September 30, 1997, the Company had amortized approximately $61,400 of such
issuance costs. The net proceeds of the debenture issue are being used for
general corporate purposes.
14. INCOME TAXES
The Bank 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 year ended
September 30, 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 its bad debt deduction. As required
by recent legislation, for the year ended September 30, 1997, the Bank used the
specific charge-off method to determine its bad debt deduction in the
computation of its taxable income. These methods differ 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, 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
September 30,
--------------------------------------
1995 1996 1997
------- ------- ------
(In thousands)
<S> <C> <C> <C>
Current - Federal ..................... $ 3,174 $ 4,525 $ 751
Current - State ....................... 498 763 37
------- ------- ------
Total current ......................... 3,672 5,288 788
------- ------- ------
Deferred - Federal .................... (80) (4,134) 4,482
Deferred - State ...................... (14) (708) 767
------- ------- ------
Total deferred ........................ (94) (4,842) 5,249
------- ------- ------
Total provision ....................... $ 3,578 $ 446 $6,037
======= ======= ======
</TABLE>
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,
-------------------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------------------------------------
Amount % Amount % Amount %
------ --- ------ --- ------ ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax at federal tax rate ............... $ 3,229 35.0% $ 348 35.0% $ 5,388 35.0%
Benefit of graduated rates ............ (92) (1.0)% (10) (1.0)% (154) (1.0)%
Increase resulting from:
State income taxes, net of federal
income tax benefit .................. 310 3.4% 37 3.7% 531 3.5%
Other - net ........................... 131 1.4% 71 7.1% 272 1.7%
------- ---- ----- ---- ------- ----
Total provision and effective tax rate $ 3,578 38.8% $ 446 44.8% $ 6,037 39.2%
======= ==== ===== ==== ======= ====
</TABLE>
90
<PAGE> 93
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at September 30, 1996 and 1997 are presented
below:
<TABLE>
<CAPTION>
September 30,
-----------------------
1996 1997
------- -------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Depreciation .............................................. $ 629 $ --
Loan fee income ........................................... 1,218 1,534
FHLB stock dividends ...................................... 625 311
Investment in partnership ................................. 570 579
Other ..................................................... -- 203
------- -------
Gross deferred tax liabilities .............................. 3,042 2,627
------- -------
Deferred tax assets:
Excess of book bad debt reserve over tax reserve .......... 3,337 799
Depreciation .............................................. -- 79
Retirement plan ........................................... 588 289
Accrued compensation ...................................... 72 68
AMT credit ................................................ 117 117
Mark-to-market adjustment - Securities available-for-sale . 970 656
Deferred compensation ..................................... 20 --
Other ..................................................... 158 188
SAIF assessment ........................................... 2,471 --
NOL carryforward .......................................... 874 434
------- -------
Gross deferred assets ....................................... 8,607 2,630
Less valuation allowance for deferred tax assets ............ -- --
------- -------
Gross deferred tax assets net of valuation allowance ........ 8,607 2,630
------- -------
Net deferred tax (asset) .................................... $(5,565) $ (3)
======= =======
</TABLE>
15. 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 $53,000 as of September 30, 1997 and are reflected
in the pension plan assets at book value.
At September 30, 1997, the pension plan held 16,681 shares of the
common stock of the Company with a market value of $34.81 per share. Cash
dividends of $0.40 and $0.60 per share were received on the shares during the
fiscal years ended September 30, 1996 and 1997, respectively.
91
<PAGE> 94
Pension expense for the plan amounted to $421,000 in 1995, $360,000 in
1996 and $377,000 in 1997 and included the following components:
<TABLE>
<CAPTION>
1995 1996 1997
------- ----- -------
(In thousands)
<S> <C> <C> <C>
Service cost ........................ $ 551 $ 424 $ 503
Interest cost ....................... 908 669 706
Return on assets .................... (1,238) (665) (1,990)
Net amortization and deferral ....... 200 (68) 1,158
------- ----- -------
Pension expense ..................... $ 421 $ 360 $ 377
======= ===== =======
</TABLE>
Fiscal year end 1995, 1996 and 1997 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, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits .................................... $ 5,674 $ 5,920
Nonvested benefits ................................. 427 585
------- -------
Accumulated benefit obligations ....................... 6,101 6,505
Effect of anticipated future compensation levels and
other events ........................................ 2,838 3,308
------- -------
Projected benefit obligation .......................... 8,939 9,813
Fair value of assets held in the plans (estimated) .... 8,388 10,515
------- -------
(Deficiency) surplus of plan assets under projected
benefit obligation .................................. $ (551) $ 702
======= =======
</TABLE>
The (deficiency) surplus consisted of the following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Unamortized transition asset .......................... $ 289 $ 241
Unrecognized net gain ................................. 382 1,227
Accrued pension liability ............................. (1,222) (766)
------- -------
Total ................................................. $ (551) $ 702
======= =======
</TABLE>
At September 30, 1996 and 1997, the weighted average discount rate used
to measure the projected benefit obligation was 8%. The rates of increase in
future compensation levels are estimated at 7% and 6.5% at September 30, 1996
and 1997, respectively. The expected long-term rate of return on assets is
estimated at 9% at both September 30, 1996 and 1997.
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 is shown as
a reduction of stockholders' equity. During the fiscal years ended September 30,
1995, 1996 and 1997, ESOP expense was $1,128,000, $1,337,000 and $1,511,000,
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
92
<PAGE> 95
million to fund the purchase of the RRP shares. Awards generally 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, 1995, 1996 and
1997, RRP expense totaled $490,000, $460,000 and $44,000, respectively, which is
included in employee compensation and benefits.
16. STOCK OPTION PLANS
STOCK OPTION PLANS - The Company 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
initially 529,000 shares or 10% of the total number of common shares issued
pursuant to the Conversion. Under the terms of the stock option plans, 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.
A portion of the options outstanding at September 30, 1997 were granted
prior to the fiscal year 1997. Included in these outstanding options are: 1)
168,907 options granted to certain employees and directors on September 29, 1993
at an exercise price of $10.00 per share which are fully vested; 2) 26,500
options granted to two directors on September 17, 1996 at an exercise price of
$22.94 per share which are fully vested; and 3) 20,000 options granted to two
employees on July 15, 1996 at an exercise price of $20.13 per share, 9,800 of
which are fully vested, 9,800 of which vest on July 15, 1998 and 400 of which
vest on July 15, 1999.
In January 1997, the stockholders approved the reservation of an
additional 250,000 shares of common stock for issuance under the 1993 First Palm
Beach Bancorp, Inc. Incentive Stock Option Plan. On March 18, 1997, the Company
granted 233,000 non-qualified stock options to certain officers of the Bank at
an exercise price of $29.06 per share, all of which are exercisable as of the
date of grant. On April 28, 1997, the Company granted 10,000 non-qualified stock
options to an officer of the Bank at an exercise price of $27.38, all of which
are exercisable as of the date of grant. On June 30, 1997, the Company granted
8,000 incentive stock options to an officer of the Bank at an exercise price of
$33.19, which options are exercisable at a rate of 33 1/3% per year beginning
June 30, 1998. At September 30, 1997 there were 26,500 options available for
future issuance to directors and 968 options available for officers and
employees. Below is a summary of transactions:
<TABLE>
<CAPTION>
Option Price
--------------------------
Number of Average
Options Price Per Aggregate
Outstanding Share Price
----------- --------- ------------
<S> <C> <C> <C>
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 $ 11.92 3,386,015
Granted ....................................... 251,000 $ 29.13 7,310,813
Exercised ..................................... (68,650) $ 10.00 (686,500)
Canceled ...................................... -- -- --
------- ------------
Balance - September 30, 1997 .................... 466,407 $ 21.46 $ 10,010,328
======= ========= ============
</TABLE>
93
<PAGE> 96
Options exercisable at each of fiscal year end September 30, 1995, 1996
and 1997 were 191,950, 237,557 and 448,207, respectively. The Company adopted
the disclosure-only option under SFAS No. 123, "Accounting for Stock-based
Compensation," as of October 1, 1996. The estimated fair value of options
granted since December 15, 1994 is summarized as follows:
<TABLE>
<CAPTION>
Exercise Fair Value of
Grant Date # Options Price Options
---------- --------- -------- --------------
<S> <C> <C> <C>
7/15/96 20,000 $20.13 $4.31
9/17/96 26,500 22.94 3.89
3/18/97 233,000 29.06 4.76
4/28/97 10,000 27.38 4.42
6/30/97 8,000 33.19 6.75
</TABLE>
The weighted average fair value of options granted during the fiscal
years ended September 30, 1996 and 1997 were $4.07 and $4.81, respectively.
Had compensation cost for the Company's stock options been determined
based on the fair value at the grant date, for awards under those plans
consistent with the method of SFAS No. 123, the Company's net income and
earnings per share for the years ended September 30, 1996 and 1997 would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1996 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net Income
--------------------------
As reported $549,000 $9,356,000
Pro Forma $492,000 $8,629,000
Primary Earnings Per Share
--------------------------
As reported $ 0.11 $ 1.86
Pro Forma $ 0.10 $ 1.72
</TABLE>
The fair value of options granted under the Company's stock option
plans during the fiscal years ended September 30, 1996 and 1997 was estimated
using the Binary Option Pricing Model with the following assumptions used:
dividend yield of 1.70%, expected volatility of 22%, risk free interest rates of
5.70% and 5.91% for expected lives of 2 years and 3 years, respectively.
17. EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
EMPLOYMENT AGREEMENTS - Both the Company and the Bank are a party to an
Employment Agreement with each of Messrs. Davis, the President and Chief
Executive Officer, and Guemple, the Executive Vice President and Chief Operating
Officer, (each, a "Contract Executive"). These Employment Agreements establish
the respective duties and compensation of the Contract Executives and 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 the
Contract Executives.
The Employment Agreements, which supercede previous agreements entered
into with Messrs. Davis and Guemple, provide for an initial term of thirty-six
(36) full calendar months beginning May 20, 1997. The Bank's
94
<PAGE> 97
Employment Agreements provide that, prior to the first anniversary date, and on
each anniversary date thereafter, the Bank's Board of Directors may agree,
after conducting a performance evaluation of the Contract Executive, to extend
the Employment Agreements for an additional year so that the remaining terms
shall be three years. The Company's Employment Agreements provide for perpetual
extensions such that the remaining unexpired term shall be three years unless
written notice of non-renewal is given by the Board of Directors or the
Contract Executive, in which event the term becomes a fixed period of three
years beginning on the notice date.
The Employment Agreements provide for termination by the Bank or the
Company at any time with or without cause as defined in the Employment
Agreements. In the event the Bank or the Company choose to terminate the
Contract Executive's employment for reasons other than for cause, or in the
event of the Contract Executive's resignation from the Bank and the Company
upon (i) failure to re-elect the Contract Executive to his current offices or
to more senior positions, (ii) a material change in the executive's functions,
duties or responsibilities that is not cured within 30 days after notice, (iii)
any material breach of a term, covenant or condition of the Employment
Agreements that is not cured within 30 days after notice, or (iv) following a
change of control as defined in the Employment Agreements ("Change of
Control"), demotion, loss of title, office or significant authority or
responsibility, relocation of the Contract Executive's principal office,
material adverse change in working conditions, or failure to include the
Contract Executive in compensation and benefit plans comparable to those in
effect for similarly situated executives of the acquiror, the Contract
Executive or, in the event of death, his beneficiary, would be entitled to a
lump sum cash payment in an amount equal to the remaining base salary and bonus
payments due to the Contract Executive and the additional contributions or
benefits that would have been earned under each employee benefit plan of the
Bank or the Company for which the Contract Executive is eligible during the
remaining terms of the Employment Agreements and payments that would have been
made under any incentive compensation plan during the remaining terms of the
Employment Agreements. The Bank and the Company would also continue the
Contract Executive's life, health and disability insurance coverage for the
remaining terms of the Employment Agreements. Following a Change in Control,
the remaining term of each Employment Agreement is deemed to be 36 months.
If termination, voluntary or involuntary, follows a change in control
of the Bank or the Company, the Contract 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. In general, for purposes of the Employment Agreements,
a "Change of Control" will generally be deemed to occur (i) when a person or
group of persons acting in concert acquires beneficial ownership of the shares
of any class of equity security, such as common stock of the Company or the
Bank, representing at least 20% of the combined voting power of all outstanding
securities in the election of directors, or (ii) upon stockholder approval of a
merger or consolidation, or upon liquidation or sale of substantially all the
assets of the Company or the Bank, or (iii) if there occurs a contested election
of directors which results in a change in the majority composition of the Board
of Directors of the Company or the Bank over a two-year look-back period.
Payments to each Contract Executive under the Bank's Employment
Agreements will be guaranteed by the Company in the event that payments or
benefits are not paid by the Bank. Payment 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 the extent necessary to avoid
creating an excess parachute payment.
CHANGE OF CONTROL AGREEMENTS - Each of the Bank and the Company are
parties to a Change of Control Agreement ("COC") with eight executive officers
and one other officer, none of whom are parties to an Employment Agreement.
Certain of these supersede previous agreements. Each COC 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.
95
<PAGE> 98
Each COC has a three-year term. Commencing on the first anniversary
date of the COC and continuing on each anniversary thereafter, the Bank COC may
be renewed by the Board of Directors of the Bank for an additional year so that
the remaining term shall be three years. The Company COC extends automatically
each year such that the remaining unexpired term shall be three years on each
anniversary date unless written notice of non-extension is given at least sixty
days prior to any anniversary date. The 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 the employer's failure to comply
with any material provision of the COC that is not cured within 10 days after
notice, the officer's demotion, loss of title, office or significant authority,
a reduction in the officer's compensation or benefits, or relocation of the
officer's principal place of employment more than 25 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 and highest bonus, plus
continued insurance benefits for up to three years. Payments under the COC are
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
as defined for purposes of Section 280G of the Code, if they would constitute an
excess parachute payment under Section 280G of the Code, would be reduced to the
extent necessary to avoid creating an excess parachute payment.
18. 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 commitment
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 of the Bank. 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 $40,608,000 at September 30, 1996 and $31,153,000 at September 30,
1997. The Bank had commitments to purchase loans of $-0- and $3,491,000 at
September 30, 1996 and September 30, 1997, respectively. The Bank had letters of
credit approximating $3,393,000 and $783,000 outstanding at September 30, 1996
and 1997, 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
commitments to purchase investment securities or mortgage pool and related
securities of $20,000,000 and $-0- at September 30, 1996 and 1997.
The Bank had commitments to sell mortgage pool securities of
$20,000,000 and $-0- at September 30, 1996 and September 30, 1997, respectively.
The Bank leases various properties for original periods ranging from
one to ten years. Rent expense for the fiscal years ended September 30, 1995,
1996 and 1997 was $798,000, $1,154,000 and $1,485,000, respectively. At
September 30, 1997, future minimum lease payments under these operating leases
are as follows:
96
<PAGE> 99
<TABLE>
<CAPTION>
Year Ending September 30 Amount
------------------------------- -------------
(In thousands)
<S> <C>
1998 .......................... $1,364
1999 .......................... 993
2000 .......................... 790
2001 .......................... 439
2002 .......................... 189
Thereafter .................... 171
------
Total ......................... $3,946
======
</TABLE>
19. 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 set forth in
the table below of Total and Core (Tier 1) capital to risk-weighted assets, and
of Core capital to average assets, as defined in the regulations. As of
September 30, 1997, the Bank exceeded all capital adequacy requirements to which
it is subject.
As of September 30, 1997, 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
the Prompt Corrective Action provisions, the Bank must maintain minimum 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.
The following tables present the capital of the Bank at September 30,
1996 and 1997:
<TABLE>
<CAPTION>
To Be Considered
Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
------------------------ ------------------------ ------------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1996:
Total Capital (to Risk-weighted Assets) $103,668 12.28% $67,518 8.00% $84,398 10.00%
Core (Tier 1) Capital (to Adjusted
Tangible Assets) .................... $ 92,244 6.17% $59,768 4.00% $74,710 5.00%
Tangible Capital (to Tangible Assets) . $ 92,244 6.17% $22,413 1.50% N/A N/A
Core (Tier 1) Capital (to Risk-weighted
Assets) ............................. $ 92,244 10.93% N/A N/A $50,639 6.00%
</TABLE>
97
<PAGE> 100
As of September 30, 1996, the Bank's tangible assets, adjusted tangible
assets and risk-weighted assets were $1,494,207,000, $1,494,207,000 and
$843,976,000, respectively.
<TABLE>
<CAPTION>
To Be Considered
Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
------------------------ ------------------------ ------------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997:
Total Capital (to Risk-weighted Assets) $133,761 14.76% $72,481 8.00% $90,602 10.00%
Core (Tier 1) Capital (to Adjusted
Tangible Assets) .................... $128,065 7.07% $72,423 4.00% $90,529 5.00%
Tangible Capital (to Tangible Assets) . $128,065 7.07% $27,159 1.50% N/A N/A
Core (Tier 1) Capital (to Risk-weighted
Assets) ............................. $128,065 14.13% N/A N/A $54,361 6.00%
</TABLE>
As of September 30, 1997 the Bank's tangible assets, adjusted tangible
assets and risk-weighted assets were $1,810,580,000, $1,810,580,000 and
$906,017,000, respectively.
20. 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. In addition, the
Indenture pursuant to which the Company issued its 10.35% Senior Debentures Due
2002, contains certain restrictions on the payment of dividends by the Company
and 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) During fiscal 1997, the Company
purchased 114,000 shares of an OTS approved repurchase of 509,310 shares which,
at the Company's option, could have been completed by September 30, 1997.
98
<PAGE> 101
21. REGULATORY EXAMINATIONS
At periodic intervals, both the OTS and, as a result of FIRREA, the
Federal Deposit Insurance Corporation ("FDIC"), 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 April 1997. 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 1997 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
1997 financial statements cannot presently be determined.
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
as amended by SFAS No. 119 ("SFAS No. 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 counterparts, 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 No. 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,
1996 and 1997:
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-BACKED AND 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.
99
<PAGE> 102
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.
SENIOR DEBENTURES - Fair value is estimated using rates offered for an
advance from the FHLB with a similar maturity.
COMMITMENTS TO EXTEND CREDIT AND PURCHASE SECURITIES - At September 30,
1996 and 1997, 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, 1996 September 30, 1997
---------------------------- ----------------------------
Carrying Carrying
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents ................. $ 19,438 $ 19,438 $ 21,123 $ 21,123
Interest earning deposits ................. 141,975 141,975 78,806 78,806
Investment securities ..................... 44,585 44,646 92,752 92,908
Mortgage-backed and related securities .... 232,273 233,361 421,645 424,683
Loans receivable .......................... 1,007,881 981,926 1,144,100 1,126,729
Financial Liabilities:
Deposits .................................. $1,136,722 $1,115,722 $1,229,279 $1,207,123
Advances from FHLB ........................ 201,025 200,237 365,925 365,248
Securities Sold Under Agreements to
Repurchase .............................. 10,000 10,156 28,946 28,963
Senior Debentures ......................... -- -- 33,839 38,513
</TABLE>
23. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following condensed statements of financial condition as of
September 30, 1996 and 1997, and the condensed statements of operations and
statements of cash flows for the years ended September 30, 1995, 1996 and 1997
should be read in conjunction with the consolidated financial statements and the
related notes.
100
<PAGE> 103
<TABLE>
<CAPTION>
September 30
---------------------------
Statements of Financial Condition (in thousands) 1996 1997
--------- ---------
<S> <C> <C>
Assets:
Cash and cash equivalents:
Cash and amounts due from depository institutions .... $ 2,864 $ 9,404
Office properties and equipment - net ................. 2,932 2,898
Equity in net assets of Bank .......................... 92,912 129,566
Receivable from Bank .................................. 7,364 5,854
Other assets .......................................... 33 1,217
--------- ---------
Total assets ............................................ $ 106,105 $ 148,939
========= =========
Liabilities and Stockholders' Equity:
Senior debentures - net of issuance costs ............. $ -- $ 33,839
Other liabilities ..................................... 680 2,070
--------- ---------
Total liabilities ....................................... 680 35,909
Stockholders' Equity:
Common stock .......................................... 55 55
Additional paid-in capital ............................ 52,891 53,521
Retained earnings - substantially restricted .......... 65,064 71,397
Treasury stock ........................................ (8,660) (9,825)
Common stock purchased by:
Employee Stock Ownership Plan ........................ (1,769) (955)
Recognition and Retention Plans ...................... (161) (117)
Unrealized loss on available-for-sale securities ...... (1,995) (1,046)
--------- ---------
Total stockholders' equity .............................. 105,425 113,030
--------- ---------
Total liabilities and stockholders' equity .............. $ 106,105 $ 148,939
========= =========
</TABLE>
<TABLE>
<CAPTION>
Years Ended September 30,
Statements of Operations (in thousands) 1995 1996 1997
------ ----- --------
<S> <C> <C> <C>
Interest income ............................................... $ 887 $ 293 $ 443
Interest expense .............................................. -- -- 967
------ ----- --------
Net interest income ........................................... 887 293 (524)
------ ----- --------
Other income:
Equity in undistributed earnings of Bank .................... 5,222 556 9,755
Miscellaneous ............................................... 322 (21) 328
------ ----- --------
Total other income ............................................ 5,544 535 10,083
Miscellaneous operating expenses .............................. 525 278 459
------ ----- --------
Total expenses ................................................ 525 278 459
------ ----- --------
Income before income taxes .................................... 5,906 550 9,100
Provision (benefit) for income taxes ........................ 260 1 (256)
------ ----- --------
Net income .................................................... $5,646 $ 549 $ 9,356
====== ===== ========
</TABLE>
101
<PAGE> 104
<TABLE>
<CAPTION>
Years Ended September 30,
Statements of Cash Flows (in thousands) 1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Cash flow from (for) operating activities:
Net income .................................................. $ 5,646 $ 549 $ 9,356
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Equity in undistributed earnings of Bank .................. (5,222) (556) (9,755)
Depreciation .............................................. 68 66 36
Amortization of senior debentures' issuance cost .......... -- -- 61
Net increase in taxes due from Bank ....................... -- -- (5,915)
(Increase) decrease in other assets ....................... 805 (997) 6
Increase (decrease) in other liabilities net of dividend
payable .................................................. (530) (615) 5,867
------- -------- --------
Net cash provided by (used by) operating activities ...... 767 (1,553) (344)
------- -------- --------
Cash flow from (for) investing activities:
Decrease in receivable from Bank ............................ 4,589 7,740 1,510
Capital contribution to Bank ................................ -- -- (25,000)
Sale of building to Bank .................................... -- 4,280 --
Purchase of office properties, equipment and land ........... (205) (578) (2)
Principal payment received on ESOP loan ..................... 665 740 814
Cash acquired through purchase of PBS Financial Corp. net of
cash payments relating to purchase ......................... -- 233 --
------- -------- --------
Net cash provided by (used for) investing activities ...... 5,049 12,415 (22,678)
------- -------- --------
Cash flow from (for) financing activities:
Proceeds of senior debentures - net of issuance cost ........ -- -- 33,778
Purchase of Treasury Stock at cost .......................... (4,902) (7,642) (2,668)
Sale of Treasury Stock for exercise of stock options ........ 613 64 1,227
Dividends paid on stock ..................................... (790) (1,838) (2,775)
------- -------- --------
Net cash provided by (used for) financing activities ...... (5,079) (9,416) 29,562
------- -------- --------
Net increase in cash and cash equivalents ..................... 737 1,446 6,540
Cash and cash equivalents, beginning of year .................. 681 1,418 2,864
------- -------- --------
Cash and cash equivalents, end of year ........................ $ 1,418 $ 2,864 $ 9,404
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes .................................. $ 3,806 $ 6,508 $ 349
======= ======== ========
Supplemental schedule of non-cash investing and financing
activities:
Decrease in unrealized loss on available-for-sale securities $ 2,168 $ 1,361 $ 949
======= ======== ========
</TABLE>
102
<PAGE> 105
24. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<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>
<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 (loss)
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.
<TABLE>
<CAPTION>
For the Year Ended September 30, 1997
----------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income ............................. $26,988 $27,507 $30,442 $31,993
Interest expense ............................ 16,568 16,562 18,711 21,010
------- ------- ------- -------
Net interest income ......................... 10,420 10,945 11,731 10,983
Provision for loan losses ................... 802 567 831 1,081
------- ------- ------- -------
Net interest income after provision for loan
losses .................................... 9,618 10,378 10,900 9,902
Other income ................................ 1,907 2,134 1,952 3,008
Other expense ............................... 7,738 8,717 8,897 9,054
------- ------- ------- -------
Income before income tax expense ............ 3,787 3,795 3,955 3,856
Income taxes ................................ 1,514 1,520 1,603 1,400
------- ------- ------- -------
Net income .................................. $ 2,273 $ 2,275 $ 2,352 $ 2,456
======= ======= ======= =======
Primary earnings per share .................. $ 0.45 $ 0.46 $ 0.47 $ 0.48
======= ======= ======= =======
Fully diluted earnings per share ............ $ 0.45 $ 0.46 $ 0.46 $ 0.48
======= ======= ======= =======
</TABLE>
103
<PAGE> 106
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
104
<PAGE> 107
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, 1998 at pages 5 through 8 and is incorporated herein by
reference.
Information relating to the filing of reports required under Section
16(a) of the Exchange Act by directors, executive officers and 10% beneficial
owner's of the Company's Common Stock appears in the Company's Proxy Statement
at page 21 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information relating to executive compensation appears in the Proxy
Statement at pages 9 through 20 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 2 through 4 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 20 and is incorporated
herein by reference.
105
<PAGE> 108
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(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, 1996 and 1997.
Consolidated Statements of Operations for the Years
Ended September 30, 1995, 1996 and 1997.
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended September 30, 1995, 1996
and 1997.
Consolidated Statements of Cash Flows for the Years
Ended September 30, 1995, 1996 and 1997.
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:
3.1 Certificate of Incorporation of the
Company (incorporated by reference
from the 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 from
Form 10-Q filed on May 12, 1995,
File No. 0-21942).
3.2 Bylaws of Company (incorporated by
reference 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 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 from
Form 8-A Registration Statement
filed on January 26, 1995, File No.
0-21942).
4.3 Indenture dated as of June 30, 1997
by and between the Company and The
Bank of New York, as Trustee,
relating to the Company's 10.35%
Senior Debentures due June 30, 2002
(incorporated by reference from the
Exhibits to Form S-4 Registration
Statement filed on September
11,1997, Registration No. 333-
35431).
106
<PAGE> 109
4.4 Form of 10.35% Senior Debentures
Due June 30, 2002 (included in the
Indenture filed as Exhibit 4.3
hereto).
4.5 Form of Series B 10.35% Senior
Debentures Due June 30, 2002 (filed
herewith).
10.1 First Federal Savings and Loan
Association of the Palm Beaches
Recognition and Retention Plan for
Officers and Employees
(incorporated by reference from the
Proxy Statement for the 1993 Annual
Meeting of Stockholders filed
December 17, 1993).
10.2 First Federal Savings and Loan
Association of the Palm Beaches
Recognition and Retention Plan for
Outside Directors (incorporated by
reference from Form 10-K filed
December 26, 1996, File No.
0-21942).
10.3 First Palm Beach Bancorp, Inc.
Incentive Stock Option Plan for
Officers and Employees
(incorporated by reference from the
Proxy Statement for the 1997 Annual
Meeting of Stockholders filed
December 19, 1996). Amendment 1 to
the First Palm Beach Bancorp, Inc.
1993 Incentive Stock Option Plan
(incorporated by reference from the
Proxy Statement for the 1997 Annual
Meeting of Stockholders filed
December 19, 1996).
10.4 First Palm Beach Bancorp, Inc.
Stock Option Plan for Outside
Directors (incorporated by
reference from Form 10-K filed
December 26, 1996, File No. 0-
21942).
10.5 Intentionally omitted.
10.6 Supplemental Retirement Income
Agreement between First Federal
Savings and Loan Association of the
Palm Beaches and William W. Lynch
(incorporated by reference from
Form 10-K filed on December 29,
1994, File No. 0-21942).
10.7 Employment Agreement between First
Bank of Florida and Louis O. Davis,
Jr. (incorporated by reference from
Form 10-Q filed August 13, 1997,
File No. 0-21942).
10.8 Employment Agreement between First
Bank of Florida and R. Randy
Guemple (incorporated by reference
from Form 10-Q filed August 13,
1997, File No. 0-21942).
10.9 Employment Agreement between First
Palm Beach Bancorp, Inc. and Louis
O. Davis, Jr. (incorporated by
reference from Form 10-Q filed
August 13, 1997, File No. 0-21942).
10.10 Employment Agreement between First
Palm Beach Bancorp, Inc. and R.
Randy Guemple (incorporated by
reference from Form 10-Q filed
August 13, 1997, File No. 0-21942).
107
<PAGE> 110
10.11 Change of Control Agreement between
First Bank of Florida and John C.
Trammel (incorporated by reference
from Form 10-Q filed August 13,
1997, File No. 0-21942).
10.11 Change of Control Agreement between
First Palm Beach Bancorp, Inc. and
John C. Trammel (incorporated by
reference from Form 10-Q filed
August 13, 1997, File No. 0-21942).
10.12 Change of Control Agreement between
First Bank of Florida and Calvin L.
Cearley, dated as of June 30, 1997
(incorporated by reference from
Form 10-Q filed August 13, 1997,
File No. 0-21942).
10.13 Change of Control Agreement between
First Palm Beach Bancorp, Inc. and
Calvin L. Cearley, dated as of June
30, 1997 (incorporated by reference
from Form 10-Q filed August 13,
1997, File No. 0-21942).
10.14 Amendment to Change of Control
Agreement between First Bank of
Florida and Calvin L. Cearley dated
December 16, 1997 (filed herewith).
10.15 Amendment to Change of Control
Agreement between First Palm Beach
Bancorp, Inc. and Calvin L. Cearley
dated December 16, 1997 (filed
herewith).
10.16 Change of Control Agreement between
First Palm Beach Bancorp, Inc. and
Rita Groton (now Zambuto), dated as
of May 20, 1997 (incorporated by
reference from Form 10-Q filed
August 13, 1997, File No. 0-21942).
10.17 Change of Control Agreement between
First Bank of Florida and Rita
Groton (now Zambuto), dated as of
May 20, 1997 (incorporated by
reference from Form 10-Q filed
August 13, 1997, File No. 0-21942).
10.18 Change of Control Agreement between
First Palm Beach Bancorp, Inc. and
John Rudy, dated as of May 20, 1997
(incorporated by reference from
Form 10-Q filed August 13, 1997,
File No. 0-21942).
10.19 Change of Control Agreement between
First Bank of Florida and John
Rudy, dated as of May 20, 1997
(incorporated by reference from
Form 10-Q filed August 13, 1997,
File No. 0-21942).
10.20 Change of Control Agreement between
First Palm Beach Bancorp, Inc. and
Alissa Ballot, dated as of May 20,
1997 (incorporated by reference
from Form 10-Q filed August 13,
1997, File No. 0-21942).
10.21 Change of Control Agreement between
First Bank of Florida and Alissa
Ballot, dated as of May 20, 1997
(incorporated by reference from
Form 10-Q filed August 13, 1997,
File No. 0-21942).
10.22 Amendment to Change of Control
Agreement between First Bank of
Florida and Alissa Ballot dated
November 18, 1997 (filed herewith).
108
<PAGE> 111
10.23 Amendment to Change of Control
Agreement between First Palm Beach
Bancorp, Inc. and Alissa Ballot
dated November 18, 1997 (filed
herewith).
10.24 Form of Change of Control Agreement
between First Bank of Florida and
each of Suzanne Brenner (dated
December 1, 1997), Rodney Bayliff,
Angela Greenberg and Jon Geitner,
dated December 16, 1997 (filed
herewith).
10.25 Form of Change of Control Agreement
between First Palm Beach Bancorp,
Inc. and each of Suzanne Brenner
(dated December 1, 1997), Rodney
Bayliff, Angela Greenberg and Jon
Geitner, dated December 16, 1997
(filed herewith).
10.26 Consulting Agreement between First
Bank of Florida and William W.
Lynch (incorporated by reference
from Form 10-K filed on December
29, 1994, File No. 0-21942).
10.27 First Bank of Florida Second
Amended and Restated Employee
Severance Compensation Plan (filed
herewith).
10.28 Amendment to First Bank of Florida
Recognition and Retention Plan for
Outside Directors (incorporated by
reference from Form 10-K filed
December 26, 1996, File No.
0-21942).
10.29 Amendment to First Palm Beach
Bancorp, Inc. Stock Option Plan for
Outside Directors (incorporated by
reference from Form 10-K filed
December 26, 1996, File No.
0-21942).
10.30 First Palm Beach Bancorp, Inc.
Retirement Plan for Outside
Directors (filed herewith).
10.31 Amended and Restated Employee Stock
Ownership Plan (filed herewith).
10.32 First Amendment to Amended and
Restated Employee Stock Ownership
Plan (filed herewith).
10.33 Second Amendment to Amended and
Restated Employee Stock Ownership
Plan (filed herewith).
10.34 ESOP Loan Documents (incorporated
by reference to Exhibits to Form
S-1 Registration Statement filed
June 9, 1993, Registration No.
33-64164).
10.35 Registration Rights Agreement dated
June 30, 1997 by and between First
Palm Beach Bancorp, Inc. and Keefe
Bruyette & Woods, Inc.
(incorporated by reference from the
Exhibits to Form S-4 Registration
Statement filed on September 11,
1997, Registration No. 333-35431).
11 Computation of earnings per share
as shown in Item 8, page 78.
109
<PAGE> 112
21 Subsidiary information -
incorporated by reference from
subsidiary activities described in
"Part I - Subsidiaries" on page 27
of this Form 10-K.
23 Independent Auditors' Consent
(filed herewith).
27 Financial Data Schedule (filed
herewith).
(b) Reports on Form 8-K
Report on Form 8-K dated June 30, 1997
relating to issuance of 10.35% Senior
Debentures Due 2002.
110
<PAGE> 113
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 23, 1997
Pursuant to the requirements of the Securities 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.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ William W. Lynch December 23, 1997
- ---------------------------------------
William W. Lynch Chairman of the Board
/s/ R. Randy Guemple December 23, 1997
- ---------------------------------------
R. Randy Guemple Director, Chief Financial Officer
and Treasurer
/s/ Elizabeth A. Koester December 23, 1997
- ---------------------------------------
Elizabeth A. Koester Controller
/s/ Edward M. Eissey December 23, 1997
- ---------------------------------------
Edward M. Eissey Vice Chairman of the Board
/s/ Fred A. Greene December 23, 1997
- ---------------------------------------
Fred A. Greene Director
/s/ Robert P. Miller December 23, 1997
- ---------------------------------------
Robert P. Miller Director
/s/ Holly W. Hadley, M.D. December 23, 1997
- ---------------------------------------
Holly W. Hadley, M.D. Director
/s/ Daniel O. Sokoloff, M.D. December 23, 1997
- ---------------------------------------
Daniel O. Sokoloff, M.D. Director
</TABLE>
111
<PAGE> 1
Exhibit 4.5
(FORM OF FACE OF SECURITY)
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO
A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY
OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED
CIRCUMSTANCES.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC") TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE> 2
No. __ CUSIP No. 33589B AC 9
FIRST PALM BEACH BANCORP, INC.
SERIES B 10.35% SENIOR DEBENTURE DUE 2002
First Palm Beach Bancorp, Inc., a Delaware corporation (the "Company,"
which term includes any successor Person under the Indenture hereinafter
referred to), for value received, hereby promises to pay to ______________ or
registered assigns, the principal sum of $35,000,000 on June 30, 2002 (the
"Maturity Date"), unless previously redeemed, and to pay interest on the
outstanding principal amount hereof from January 31, 1998, or from the most
recent interest payment date (each such date, an "Interest Payment Date") to
which interest has been paid or duly provided for, semi-annually (subject to
deferral as set forth herein) in arrears on June 30 and December 31 of each
year, commencing June 30, 1998, at the rate of 10.35% per annum until the
principal hereof shall have become due and payable, and on any overdue principal
and premium, if any, and (without duplication and to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment of
interest at the same rate per annum compounded semi-annually. The amount of
interest payable on any Interest Payment Date shall be computed on the basis of
a 360-day year of twelve 30-day months and, for any period less than a full
calendar month, the number of days elapsed in such month. In the event that any
date on which the principal of (or premium, if any) or interest on this Security
is payable is not a Business Day, then the payment payable on such date will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay), except that if such next
succeeding Business Day falls in the next calendar year, then such payment shall
be made on the immediately preceding Business Day in each case with the same
force and effect as if made on such date.
The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the person in whose name this Security (or one or more Predecessor
Securities, as defined in said Indenture) is registered at the close of business
on the regular record date for such interest installment, which shall be the
fifteenth day of the month in which the relevant interest payment date falls.
Any such interest installment not punctually paid or duly provided for shall
forthwith cease to be payable to the holders on such regular record date and may
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a special record date to
be fixed by the Trustee for the payment of such defaulted interest, notice
whereof shall be given to the holders of Securities not less than 10 days prior
to such special record date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities exchange on
which the Securities may be listed, and upon such notice as may be required by
such exchange, all as more fully provided in the Indenture.
The principal of (and premium, if any) and interest on this Security
shall be payable at the office or agency of the Trustee maintained for that
purpose in any coin or currency of the United States of America that at the time
of payment is legal tender for payment of public and private debts; PROVIDED,
HOWEVER, that, payment of interest may be made at the option of the Company by
(i) check mailed to the holder at such address as shall appear in the Security
Register or (ii) by wire transfer to an account maintained by the Person
entitled thereto, provided that proper written wire transfer instructions have
been received by the relevant record date.
This Security shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Security are continued on the reverse side
hereof and such provisions shall for all purposes have the same effect as though
fully set forth at this place.
<PAGE> 3
IN WITNESS WHEREOF, the Company has executed this certificate.
FIRST PALM BEACH BANCORP, INC.
By: /s/ R. Randy Guemple
------------------------------
Name: R. Randy Guemple
Title: Executive Vice President and
Chief Operating Officer and
Treasurer
Attest:
By: /s/ John C. Trammel
------------------------------
Name: John C. Trammel
Title: Senior Vice President and
Secretary
CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated: December 23, 1997
THE BANK OF NEW YORK,
as Trustee
By: /s/
------------------------------
Authorized Signatory
<PAGE> 4
(FORM OF REVERSE OF SECURITY)
This Security is one of the Securities of the Company (herein sometimes
referred to as the "Securities"), specified in the Indenture, all issued or to
be issued under and pursuant to an Indenture, dated as of June 30, 1997 (the
"Indenture"), duly executed and delivered between the Company and The Bank of
New York, as Trustee (the "Trustee"), to which Indenture reference is hereby
made for a description of the rights, limitations of rights, obligations, duties
and immunities thereunder of the Trustee, the Company and the holders of the
Securities.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Securities (to the
extent such declaration is not automatic upon the occurrence of an Event of
Default as specified in the Indenture) may be declared, and upon such
declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of 66-2/3% in aggregate principal
amount of the Securities at the time outstanding, as defined in the Indenture,
to execute supplemental indentures for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of modifying in any manner the rights of the holders of the Securities;
provided, however, that no such supplemental indenture shall, without the
consent of each holder of Securities then outstanding and affected thereby, (i)
extend the Maturity Date of any Securities, or reduce the principal amount
thereof, or reduce any amount payable on prepayment thereof, or reduce the rate
or extend the time of payment of interest thereon, or make the principal of, or
interest or premium on, the Securities payable in any coin or currency other
than U.S. dollars, or impair or affect the right of any holder of Securities to
institute suit for the payment thereof, or (ii) reduce the aforesaid percentage
of Securities, the holders of which are required to consent to any such
supplemental indenture. The Indenture also contains provisions permitting the
holders of a majority in aggregate principal amount of the Securities at the
time outstanding affected thereby, on behalf of all of the holders of the
Securities, to waive any past default in the performance of any of the covenants
contained in the Indenture, or established pursuant to the Indenture, and its
consequences, except a default in the payment of the principal of or premium, if
any, or interest on any of the Securities or a default in respect of any
covenant or provision under which the Indenture cannot be modified or amended
without the consent of each holder of Securities then outstanding. Any such
consent or waiver by the holder of this Security (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such holder and upon all
future holders and owners of this Security and of any Security issued in
exchange herefor or in place hereof (whether by registration of transfer or
otherwise), irrespective of whether or not any notation of such consent or
waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Security at the time and place and at the rate and in the money
herein prescribed.
The Securities are issuable only in registered form without coupons in
denominations of $100,000 and any integral multiple of $1,000 above $100,000. As
provided in the Indenture and subject to the transfer restrictions limitations
as may be contained herein and therein from time to time, this Security is
transferable by the holder hereof on the Security Register of the Company, upon
surrender of this Security for registration of transfer at the office or agency
of the Company in the City and State of New York accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company or the
Trustee duly executed by the holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities of authorized denominations
and for the same aggregate principal amount and series will be issued to the
designated transferee or transferees. No service charge will be made for any
such transfer, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in relation thereto.
Prior to due presentment for registration of transfer of this Security,
the Company, the Trustee, any authenticating agent, any paying agent, any
transfer agent and the registrar may deem and treat the holder hereof as the
absolute owner hereof (whether or not this Security shall be overdue) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and (subject to the Indenture) interest due hereon and for all
other
<PAGE> 5
purposes, and neither the Company nor the Trustee nor any authenticating agent
nor any paying agent nor any transfer agent nor any registrar shall be affected
by any notice to the contrary.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest on this Security, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture, against
any incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor Person, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
All terms used in this Security that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF
LAW PROVISIONS THEREOF.
<PAGE> 6
EXHIBIT B
(FORM OF ASSIGNMENT)
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax I.D. number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ______________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
- -------------------------------------------------------------------------------
Date:
---------------
Your Signature:
-------------------------------
(Sign exactly as your name appears on
the face of this Note)
Signature Guarantee:
-------------------------
<PAGE> 1
Exhibit 10.14
AMENDMENT TO CHANGE OF CONTROL AGREEMENT DATED JUNE 30, 1997 BETWEEN FIRST
BANK OF FLORIDA AND CALVIN CEARLEY
This Amendment is made effective as of December 16, 1997 by and between First
Bank of Florida (the "Association"), and Calvin L. Cearley ("Executive"),
amending that certain First Bank of Florida Change of Control Agreement dated as
of June 30, 1997 between the Holding Company and Executive (the "Agreement").
WHEREAS, Executive was promoted to Executive Vice President of the Association
effective October 21, 1997; and
WHEREAS, in light of such promotion, the Board of Directors of the Association
deems it appropriate to extend certain protections afforded by the Agreement
from one year to three years;
NOW THEREFORE, in consideration of the mutual covenants, terms and conditions
herein set forth, the Agreement is amended, effective on the date hereof, as
follows:
1. Paragraph 3(a) is deleted in its entirety and the following substituted
therefor:
(a) If Executive's employment is terminated by the Association
other than in a Termination for Cause pursuant to paragraph
2(c) hereof, or Executive terminates employment for Good
Reason, in either case after a Change of Control of the
Association as defined in paragraph 2(b) hereof, then in lieu
of any further salary payments to Executive for periods
subsequent to the date of termination, the Association shall
pay as severance to Executive an amount equal to three (3)
times the sum of (A) the higher of Executive's base salary in
effect immediately prior to the occurrence of the event or
circumstance upon which the Notice of Termination is based and
Executive's annual base salary in effect immediately prior to
the Change of Control of the Association, plus (B) the higher
of the highest annual bonus or incentive payment earned by or
accrued in respect of Executive in respect of any of the two
years immediately preceding that in which the Date of
Termination occurs or the highest annual bonus or incentive
payment so earned in respect of any of the two years
immediately preceding that in which the Change of Control of
the Association occurs. Such payment shall be made in a lump
sum within five days of the date of termination of Executive's
employment.
2. Paragraph 3(b) is deleted in its entirety and the following
substituted therefor:
(b) Upon the occurrence of a Change of Control of the Association
followed at any time during the term of this Agreement by
Executive's voluntary (for Good Reason) or involuntary
termination of employment, other than a Termination for Cause,
the Association shall, for three years or until Executive
obtains employment which provides substantially similar
benefits, provide Executive and anyone entitled to claim under
or through Executive all benefits under any life or other
insurance or death benefit plan, medical, group
hospitalization, dental, disability insurance or other future
or present similar group employee benefit plan or program of
the Holding Company or Association for which executive
officers are eligible, to the same extent as if Executive had
continued to be an employee of the Holding Company or
Association during such period and such benefits shall, to the
extent not paid under any such plan or program, be paid by the
Association. The payments and benefits described in the
preceding sentence shall be paid to Executive's beneficiaries
by testate or intestate succession in the event of Executive's
death during the period during which such payments and
benefits are being provided. Executive's "qualifying event"
for purposes of continuation coverage under the Consolidated
Budget Reconciliation Act ("COBRA") shall occur at the
expiration of such three year period.
All other terms and conditions of the Agreement shall remain in full force and
effect.
<PAGE> 2
IN WITNESS WHEREOF, First Bank of Florida has caused this Amendment to be
executed by its duly authorized officer, and Executive has executed this
Amendment, as of the day and year first above written.
ATTEST: FIRST BANK OF FLORIDA
By: /s/ LOUIS O. DAVIS, JR.
- ----------------------------------- -----------------------------------
WITNESS
/s/ CALVIN L. CEARLEY
- ----------------------------------- -----------------------------------
Executive
<PAGE> 1
Exhibit 10.15
AMENDMENT TO CHANGE OF CONTROL AGREEMENT DATED JUNE 30, 1997 BETWEEN FIRST
PALM BEACH BANCORP, INC. AND CALVIN CEARLEY
This Amendment is made effective as of December 16, 1997 by and between First
Palm Beach Bancorp, Inc. (the "Holding Company"), and Calvin L. Cearley
("Executive"), amending that certain First Palm Beach Bancorp, Inc. Change of
Control Agreement dated as of June 30, 1997 between the Holding Company and
Executive (the "Agreement").
WHEREAS, Executive was promoted to Executive Vice President of First Bank of
Florida (the "Association") effective October 21, 1997; and
WHEREAS, in light of such promotion, the Board of Directors of the Holding
Company deems it appropriate to extend certain protections afforded by the
Agreement from one year to three years;
NOW THEREFORE, in consideration of the mutual covenants, terms and conditions
herein set forth, the Agreement is amended, effective on the date hereof, as
follows:
1. Paragraph 3(a) is deleted in its entirety and the following substituted
therefor:
(a) If Executive is terminated by the Holding Company or
Association other than in a Termination for Cause pursuant to
paragraph 2(c) hereof, or Executive terminates employment for
Good Reason, in either case after a Change of Control of the
Holding Company as defined in paragraph 2(b) hereof, then in
lieu of any further salary payments to Executive for periods
subsequent to the date of termination, the Holding Company
shall pay as severance to Executive an amount equal to three
(3) times the sum of (A) the higher of Executive's base salary
in effect immediately prior to the occurrence of the event or
circumstance upon which the Notice of Termination is based and
Executive's annual base salary in effect immediately prior to
the Change of Control of the Holding Company, plus (B) the
higher of the highest annual bonus or incentive payment earned
by or accrued in respect of Executive in respect of any of the
two years immediately preceding that in which the Date of
Termination occurs or the highest annual bonus or incentive
payment so earned in respect of any of the two years
immediately preceding that in which the Change of Control of
the Holding Company occurs. Such payment shall be made in a
lump sum within five days of the date of termination of
Executive's employment.
2. Paragraph 3(b) is deleted in its entirety and the following
substituted therefor:
(b) Upon the occurrence of a Change of Control of the Holding
Company followed at any time during the term of this Agreement
by Executive's voluntary (for Good Reason) or involuntary
termination of employment, other than a Termination for Cause,
the Holding Company shall, for three years or until Executive
obtains employment which provides substantially similar
benefits, provide Executive and anyone entitled to claim under
or through Executive all benefits under any life or other
insurance or death benefit plan, medical, group
hospitalization, dental, disability insurance or other future
or present similar group employee benefit plan or program of
the Holding Company or Association for which executive
officers are eligible, to the same extent as if Executive had
continued to be an employee of the Holding Company or
Association during such period and such benefits shall, to the
extent not paid under any such plan or program, be paid by the
Holding Company. The payments and benefits described in the
preceding sentence shall be paid to Executive's beneficiaries
by testate or intestate succession in the event of Executive's
death during the period during which such payments and
benefits are being provided. Executive's "qualifying event"
for purposes of continuation coverage under the Consolidated
Budget Reconciliation Act ("COBRA") shall occur at the
expiration of such three year period.
<PAGE> 2
All other terms and conditions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, First Palm Beach Bancorp, Inc. has caused this Amendment to
be executed by its duly authorized officer, and Executive has executed this
Amendment, as of the day and year first above written.
ATTEST: FIRST PALM BEACH BANCORP, INC.
By: /s/ LOUIS O. DAVIS, JR.
- ----------------------------- -----------------------------
WITNESS
/s/ CALVIN L. CEARLEY
- ----------------------------- -----------------------------
Executive
<PAGE> 1
Exhibit 10.22
AMENDMENT TO CHANGE OF CONTROL AGREEMENT DATED MAY 20, 1997 BETWEEN FIRST
BANK OF FLORIDA AND ALISSA BALLOT
This Amendment is made effective as of November 18, 1997 by and between First
Bank of Florida (the "Association"), and Alissa Ballot ("Executive"), amending
that certain First Bank of Florida Change of Control Agreement dated as of May
20, 1997 between the Holding Company and Executive (the "Agreement").
WHEREAS, Executive was promoted to Senior Vice President for Legal Affairs of
the Association effective October 21, 1997; and
WHEREAS, in light of such promotion, the Board of Directors of the Association
deems it appropriate to extend certain protections afforded by the Agreement
from two years to three years;
NOW THEREFORE, in consideration of the mutual covenants, terms and conditions
herein set forth, the Agreement is amended, effective on the date hereof, as
follows:
1. Paragraph 3(a) is deleted in its entirety and the following substituted
therefor:
(a) If Executive's employment is terminated by the Association
other than in a Termination for Cause pursuant to paragraph
2(c) hereof, or Executive terminates employment for Good
Reason, in either case after a Change of Control of the
Association as defined in paragraph 2(b) hereof, then in lieu
of any further salary payments to Executive for periods
subsequent to the date of termination, the Association shall
pay as severance to Executive an amount equal to three (3)
times the sum of (A) the higher of Executive's base salary in
effect immediately prior to the occurrence of the event or
circumstance upon which the Notice of Termination is based and
Executive's annual base salary in effect immediately prior to
the Change of Control of the Association, plus (B) the higher
of the highest annual bonus or incentive payment earned by or
accrued in respect of Executive in respect of any of the two
years immediately preceding that in which the Date of
Termination occurs or the highest annual bonus or incentive
payment so earned in respect of any of the two years
immediately preceding that in which the Change of Control of
the Association occurs. Such payment shall be made in a lump
sum within five days of the date of termination of Executive's
employment.
2. Paragraph 3(b) is deleted in its entirety and the following
substituted therefor:
(b) Upon the occurrence of a Change of Control of the Association
followed at any time during the term of this Agreement by
Executive's voluntary (for Good Reason) or involuntary
termination of employment, other than a Termination for Cause,
the Association shall, for three years or until Executive
obtains employment which provides substantially similar
benefits, provide Executive and anyone entitled to claim under
or through Executive all benefits under any life or other
insurance or death benefit plan, medical, group
hospitalization, dental, disability insurance or other future
or present similar group employee benefit plan or program of
the Holding Company or Association for which executive
officers are eligible, to the same extent as if Executive had
continued to be an employee of the Holding Company or
Association during such period and such benefits shall, to the
extent not paid under any such plan or program, be paid by the
Association. The payments and benefits described in the
preceding sentence shall be paid to Executive's beneficiaries
by testate or intestate succession in the event of Executive's
death during the period during which such payments and
benefits are being provided. Executive's "qualifying event"
for purposes of continuation coverage under the Consolidated
Budget Reconciliation Act ("COBRA") shall occur at the
expiration of such three year period.
3. Executive's address for purposes of the Agreement shall be amended to:
80 Monterey Pointe Drive, Palm Beach Gardens, Florida 33418.
<PAGE> 2
All other terms and conditions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, First Bank of Florida has caused this Amendment to be
executed by its duly authorized officer, and Executive has executed this
Amendment, as of the day and year first above written.
ATTEST: FIRST BANK OF FLORIDA
By: /s/ LOUIS O. DAVIS, JR.
- -------------------------------- --------------------------------
WITNESS
/s/ ALISSA BALLOT
- -------------------------------- --------------------------------
Executive
<PAGE> 1
Exhibit 10.23
AMENDMENT TO CHANGE OF CONTROL AGREEMENT DATED MAY 20, 1997 BETWEEN FIRST
PALM BEACH BANCORP, INC. AND ALISSA BALLOT
This Amendment is made effective as of November 18, 1997 by and between First
Palm Beach Bancorp, Inc. (the "Holding Company"), and Alissa Ballot
("Executive"), amending that certain First Palm Beach Bancorp, Inc. Change of
Control Agreement dated as of May 20, 1997 between the Holding Company and
Executive (the "Agreement").
WHEREAS, Executive was promoted to Senior Vice President for Legal Affairs of
First Bank of Florida (the "Association") effective October 21, 1997; and
WHEREAS, in light of such promotion, the Board of Directors of the Holding
Company deems it appropriate to extend certain protections afforded by the
Agreement from two years to three years;
NOW THEREFORE, in consideration of the mutual covenants, terms and conditions
herein set forth, the Agreement is amended, effective on the date hereof, as
follows:
1. Paragraph 3(a) is deleted in its entirety and the following substituted
therefor:
(a) If Executive is terminated by the Holding Company or
Association other than in a Termination for Cause pursuant to
paragraph 2(c) hereof, or Executive terminates employment for
Good Reason, in either case after a Change of Control of the
Holding Company as defined in paragraph 2(b) hereof, then in
lieu of any further salary payments to Executive for periods
subsequent to the date of termination, the Holding Company
shall pay as severance to Executive an amount equal to three
(3) times the sum of (A) the higher of Executive's base salary
in effect immediately prior to the occurrence of the event or
circumstance upon which the Notice of Termination is based and
Executive's annual base salary in effect immediately prior to
the Change of Control of the Holding Company, plus (B) the
higher of the highest annual bonus or incentive payment earned
by or accrued in respect of Executive in respect of any of the
two years immediately preceding that in which the Date of
Termination occurs or the highest annual bonus or incentive
payment so earned in respect of any of the two years
immediately preceding that in which the Change of Control of
the Holding Company occurs. Such payment shall be made in a
lump sum within five days of the date of termination of
Executive's employment.
2. Paragraph 3(b) is deleted in its entirety and the following
substituted therefor:
(b) Upon the occurrence of a Change of Control of the Holding
Company followed at any time during the term of this Agreement
by Executive's voluntary (for Good Reason) or involuntary
termination of employment, other than a Termination for Cause,
the Holding Company shall, for three years or until Executive
obtains employment which provides substantially similar
benefits, provide Executive and anyone entitled to claim under
or through Executive all benefits under any life or other
insurance or death benefit plan, medical, group
hospitalization, dental, disability insurance or other future
or present similar group employee benefit plan or program of
the Holding Company or Association for which executive
officers are eligible, to the same extent as if Executive had
continued to be an employee of the Holding Company or
Association during such period and such benefits shall, to the
extent not paid under any such plan or program, be paid by the
Holding Company. The payments and benefits described in the
preceding sentence shall be paid to Executive's beneficiaries
by testate or intestate succession in the event of Executive's
death during the period during which such payments and
benefits are being provided. Executive's "qualifying event"
for purposes of continuation coverage under the Consolidated
Budget Reconciliation Act ("COBRA") shall occur at the
expiration of such three year period.
<PAGE> 2
3. Executive's address for purposes of the Agreement shall be amended to:
80 Monterey Pointe Drive, Palm Beach Gardens, Florida 33418.
All other terms and conditions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, First Palm Beach Bancorp, Inc. has caused this Amendment to
be executed by its duly authorized officer, and Executive has executed this
Amendment, as of the day and year first above written.
ATTEST: FIRST PALM BEACH BANCORP, INC.
By: /s/ LOUIS O. DAVIS, JR.
- -------------------------------- --------------------------------
WITNESS
/s/ ALISSA BALLOT
- -------------------------------- --------------------------------
Executive
<PAGE> 1
Exhibit 10.24
FORM OF FIRST BANK OF FLORIDA
CHANGE OF CONTROL AGREEMENT
This AGREEMENT is made effective as of ____________________, by and
between First Bank of Florida (the "Association"), a federally chartered savings
institution, with its administrative office at 450 S. Australian Avenue, West
Palm Beach, Florida and ____________________, an individual residing at
_________________________ (Executive"). The term "Holding Company" refers to
First Palm Beach Bancorp, Inc., the Association's parent, a corporation
organized under the laws of the State of Delaware, or any successor thereto.
WHEREAS, the Association considers it essential to the best interest of
its stockholder to foster the continued employment of its key management
personnel; and
WHEREAS, the Board of Directors of the Association recognizes that, as
is the case with subsidiaries of many publicly-held corporations, the
possibility of a Change of Control of the Holding Company or the Association
exists and that such possibility, and the uncertainty and questions which it may
raise among management of both the Holding Company and the Association, may
result in the departure or distraction of management personnel to the detriment
of the Association and its stockholder; and
WHEREAS, the Board of Directors of the Association has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Association's management, including
Executive, to their assigned duties without distraction in the face of
potentially disturbing circumstances arising from the possibility of a Change of
Control of the Holding Company or the Association;
NOW THEREFORE, in consideration of the mutual covenants, terms and
conditions herein set forth, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
(a) The initial term of this Agreement shall commence on
_______________ and shall terminate on May 19, 2000, unless further extended in
accordance with the terms and conditions hereinafter set forth. Prior to the
first anniversary date of this Agreement and on each anniversary date thereafter
(each an "Anniversary Date"), the Board of Directors of the Association (the
"Board") shall review the terms of this Agreement and Executive's performance of
services hereunder and may, in the absence of objection from Executive, approve
an extension of this Agreement. In such event, this Agreement shall be extended
to the third anniversary of the relevant Anniversary Date.
(b) Notwithstanding anything herein contained to the contrary, the
Executive's employment with the Association may be terminated at any time;
provided, however, that the relative rights and obligations of the Association
and Executive in the event of any such termination shall be determined under
this Agreement.
(c) During the period of Executive's employment that falls during the
term of this Agreement and following a Change of Control of the Association (as
hereinafter defined), Executive shall: (a) devote her full business time and
attention (other than during holidays, vacation periods, and periods of illness,
disability or approved leave of absence) to the business and affairs of the
Association and use her best efforts to advance the Association's interests; (b)
serve in the position to which Executive is appointed by the Association, which
shall be the position that Executive held on the day before the Change of
Control of the Association occurred or any higher office at the Association to
which she may subsequently be appointed; and (c) subject to the direction of the
Board and the By-laws of the Association, have such functions, duties,
responsibilities and authority commonly associated with such position.
2. PAYMENTS TO EXECUTIVE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control of the Association (as
hereinafter defined) followed at any time during the term of this Agreement by
the involuntary termination of Executive's employment, other than a
<PAGE> 2
Termination for Cause as defined in Section 2 (c) hereof, or by the voluntary
termination of Executive's employment for Good Reason (as hereinafter defined),
the provisions of section 3 shall apply. For purposes of this Agreement, "Good
Reason" shall mean (A) a failure by the Association to comply with any material
provision of this Agreement, which failure has not been cured within ten (10)
days after notice of such noncompliance has been given by Executive to the
Association; (B) the assignment to Executive of any duties inconsistent with
Executive's positions, duties, responsibilities and status with the Association
immediately prior to the Change of Control of the Association, any removal of
Executive from, or any failure to re-elect Executive to, any of the positions
previously held by Executive, or a change in the Executive's reporting
responsibilities, titles or offices as in effect immediately prior to the Change
of Control of the Association, a reduction by the Association in the Executive's
annual salary as in effect immediately prior to Change of Control of the
Association, or as the same may be increased from time-to-time, or the
requirement that Executive be relocated to an office which is more than 25 miles
from the current principal executive office of the Association, or the failure
of the Association to continue in effect any bonus, benefit or compensation
plan, life insurance plan, health or accident plan or disability plan in which
Executive is participating at the time of Change of Control of the Association,
or the taking of any action by the Association which would adversely affect
Executive's participation in or materially reduce Executive's benefits under any
of such plans; or (C) any purported termination of Executive's employment which
is not effected pursuant to a Notice of Termination satisfying the requirements
of paragraph 4 hereof (and for purposes of this Agreement, no such purported
termination shall be effective).
(b) For the purposes of this Agreement, a "Change of Control" of the
Association shall be (i) an event of a nature that results in a Change of
Control of the Association 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 a Change of Control as set forth
under the Rules and Regulations of the OTS, the Board of Directors shall
substitute its judgment for that of the OTS), or (ii) a Change of Control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), without regard to whether or not such
regulation actually applies; provided that, without limitation, such a Change of
Control shall be deemed to have occurred if (A) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act in effect on the date first
above written), other than the Association or any person who on the date hereof
is a director or officer of the Association, becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Association (not including any securities acquired directly
from the Association or its affiliates other than in connection with the
acquisition by the Association or its affiliates of a business) representing 20%
or more of the combined voting power in the election of directors of the
Association's then outstanding securities, (B) during any period of not more
than two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Association together with any new
director (other than a director whose initial assumption of office is in
connection with any actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of directors of the
Association) whose appointment or election by the Board of Directors of the
Association or nomination for election by the Association's stockholders was
approved or recommended by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors on the date hereof or whose
appointment, election or nomination for election was previously so approved or
recommended, cease for any reason to constitute at least a majority thereof, (C)
the stockholders of the Holding Company or the Association approve a merger or
consolidation of the Association with any other corporation, other than (i) a
merger or consolidation which would result in the voting securities of the
Association outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent thereof) at least
60% of the combined voting power in the election of directors of the securities
of the Association or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Association (or
similar transaction) in which no "person" is or becomes the "beneficial owner,"
directly or indirectly, of securities of the Association (not including in the
securities "beneficially owned" by such "person" any securities acquired
directly from the Association or its affiliates other than in connection with
the acquisition by the Association or its affiliates of a business) representing
20% or more of the combined voting power in the election of directors of the
Association's then outstanding securities; or (D) the stockholders of the
Association approve a plan of complete liquidation or dissolution of the
Association or an agreement for the sale or disposition by the Association of
all or substantially all of the Association's assets, other than a sale or
disposition by the Holding Company of all or substantially all of the
<PAGE> 3
Association's assets to an entity which assumes the obligations set forth in
this Agreement, and at least 60% of the combined voting power in the election of
directors of the voting securities of which are owned by stockholders of the
Association in substantially the same proportions as their ownership of the
Association immediately prior to such sale.
A Change of Control of the Association shall also include any event
described in this section 2(b) if the term "Holding Company" were substituted
for the term "Association" each time it appears herein.
(c) The Executive shall not have the right to receive termination
benefits pursuant to section 3 hereof upon Termination for Cause. "Termination
for Cause" for purposes of this Agreement shall mean personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
final cease and desist order, or any material breach of this Agreement, in each
case as measured against standards generally prevailing at the relevant time in
the savings and community banking industry; PROVIDED, HOWEVER, that Executive
shall not be deemed to have been discharged for cause unless and until the
following procedures shall have been followed:
(i) the Board shall adopt a resolution duly approved by
affirmative vote of a majority of the entire Board at a meeting called
and held for such purpose calling for Executive's termination for cause
and setting forth the purported grounds for such termination ("Proposed
Termination Resolution");
(ii) as soon as practicable, and in any event within five (5)
days after adoption of such resolution, the Board shall furnish to
Executive a written notice of termination which shall be accompanied by
a certified copy of the Proposed Termination Resolution ("Notice of
Proposed Termination");
(iii) Executive shall be afforded a reasonable opportunity to
make oral and written presentations to the members of the Board, on her
own behalf, or through a representative, who may be her legal counsel,
to refute the grounds set forth in the Proposed Termination Resolution
at one or more meetings of the Board to be held no sooner than fifteen
(15) days and no later than thirty (30) days after Executive's receipt
of the Proposed Termination Notice ("Termination Hearings"); and
(iv) within ten (10) days following the end of the Termination
Hearings, the Board shall adopt a resolution duly approved by
affirmative vote of a majority of the entire Board at a meeting called
and held for such purpose (A) finding that in the good faith opinion of
the Board the grounds for termination set forth in the Proposed
Termination Resolution exist and (B) terminating Executive's employment
("Termination Resolution"); and
(v) as promptly as practicable, and in any event within one
(1) business day after adoption of the Termination Resolution, the
Board shall furnish to Executive written notice of termination, which
notice shall include a copy of the Termination Resolution and specify
an effective date of termination that is not later than the date on
which such notice is given;
(d) For purposes of section 2(c), no act or failure to act on the part
of Executive shall be considered "willful" unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive's
action or omission was in the best interests of the Association. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or based upon the written advice of counsel for the Association
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Association.
3. TERMINATION BENEFITS.
(a) If Executive's employment is terminated by the Association other
than in a Termination for Cause pursuant to paragraph 2(c) hereof, or Executive
terminates employment for Good Reason, in either case after a Change of Control
of the Association as defined in paragraph 2(b) hereof, then in lieu of any
further salary payments to Executive for periods subsequent to the date of
termination, the Association shall pay as severance to Executive an
<PAGE> 4
amount equal to three (3) times the sum of (A) the higher of Executive's base
salary in effect immediately prior to the occurrence of the event or
circumstance upon which the Notice of Termination is based and Executive's
annual base salary in effect immediately prior to the Change of Control of the
Association, plus (B) the higher of the highest annual bonus or incentive
payment earned by or accrued in respect of Executive in respect of any of the
one year immediately preceding that in which the Date of Termination occurs or
the highest annual bonus or incentive payment so earned in respect of any of the
two (2) years immediately preceding that in which the Change of Control of the
Association occurs. Such payment shall be made in a lump sum within five days of
the date of termination of Executive's employment.
(b) Upon the occurrence of a Change of Control of the Association
followed at any time during the term of this Agreement by Executive's voluntary
(for Good Reason) or involuntary (other than a Termination for Cause)
termination of employment, the Association shall, for three (3) years or until
Executive obtains employment which provides substantially similar benefits,
provide Executive and anyone entitled to claim under or through Executive all
benefits under any life or other insurance or death benefit plan, medical, group
hospitalization, dental, disability insurance or other future or present similar
group employee benefit plan or program of the Association for which executive
officers are eligible, to the same extent as if Executive had continued to be an
employee of the Association during such period and such benefits shall, to the
extent not paid under any such plan or program, be paid by the Association. The
payments and benefits described in the preceding sentence shall be paid to
Executive's beneficiaries by testate or intestate succession in the event of
Executive's death during the period during which such payments and benefits are
being provided.
Executive's "qualifying event" for purposes of continuation coverage
under the Consolidated Budget Reconciliation Act ("COBRA") shall occur at the
expiration of such three (3) year period.
(c) Upon the involuntary termination of Executive's employment with the
Association other than a Termination for Cause, or if Executive terminates
employment for Good Reason, in either case after a Change of Control of the
Association occurs, the Association shall pay and provide to Executive (or, in
the event of Executive's death, to Executive's estate):
(i) Executive's earned but unpaid compensation (including,
without limitation, all items which constitute wages under applicable
law and the payment of which is not otherwise provided for under this
section 3) as of the Date of Termination (as hereinafter defined), such
payment to be made at the time and in the manner prescribed by law
applicable to the payment of wages but in no event later than thirty
(30) days after the Date of Termination;
(ii) the benefits, if any, to which Executive is entitled as a
former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the
Association's officers and employees;
(iii) within thirty (30) days following the Date of
Termination, a lump sum payment in an amount equal to the excess, if
any, of:
(A) the present value of the aggregate benefits to
which Executive would be entitled under any and all qualified
and non-qualified defined benefit pension plans maintained by,
or covering employees of, the Association, if Executive were
100% vested thereunder and had continued working for the
Association during the remaining term of this Agreement, such
benefits to be determined as of the Date of Termination by
adding to the service actually recognized under such plans an
additional period equal to the remaining term of this
Agreement and by adding to the compensation recognized under
such plans for the year in which termination of employment
occurs all amounts payable under sections 3(a), 3(b) and
3(c)(i); over
(B) the present value of the benefits to which
Executive is actually entitled under such defined benefit
pension plans as of the Date of Termination;
<PAGE> 5
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Internal Revenue
Code of 1986, as amended (the "Code") and a discount rate, compounded
monthly, equal to the annualized rate of interest prescribed by the
Pension Benefits Guaranty Corporation for the valuation of immediate
annuities payable under terminating single-employer defined benefit
plans for the month in which Executive's termination of employment
occurs ("Applicable PBGC Rate");
(d) Executive shall not be required to mitigate the amount of any
payment provided for in section 3 of this Agreement by seeking other employment
or otherwise. Further, the amount of any payment or benefit provided for in this
Agreement shall not be reduced by any compensation earned or benefits received
by Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by Executive to the
Association, or otherwise.
(e) (A) Notwithstanding any other provisions of this
Agreement, in the event that any payment or benefit received
or to be received by Executive in connection with a Change of
Control of the Association or the termination of Executive's
employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Association,
any person whose actions result in a Change of Control of the
Association or any person affiliated with the Association or
such person) (all such payments and benefits, including the
payments and benefits provided under this Agreement (the
"Severance Payments"), being hereinafter called "Total
Payments") would not be deductible (in whole or part), by the
Association, an affiliate or a person making such payment or
providing such benefit as a result of Section 280G of the
Code, then, to the extent necessary to make such portion of
the Total Payments deductible (and after taking into account
any reduction in the Total Payments provided in such other
plan, arrangement or agreement), the cash Severance Payments
shall first be reduced (if necessary, to zero), and all other
Severance Payments shall thereafter be reduced (if necessary,
to zero); PROVIDED, HOWEVER, that Executive may elect (at any
time prior to the delivery of a Notice of Termination
hereunder) to have the noncash Severance Payments reduced
(or eliminated) prior to any reduction of the cash Severance
Payments.
(B) For purposes of the limitation contained in
Subsection (A) of this section 3(e), (i) no portion of the
Total Payments the receipt or enjoyment of which Executive
shall have effectively waived in writing prior to the delivery
of a Notice of Termination shall be taken into account, (ii)
no portion of the Total Payments shall be taken into account
which, in the opinion of tax counsel ("A Tax Counsel")
reasonably acceptable to Executive and selected by the
accounting firm which was, immediately prior to the Change of
Control of the Association, the Association's independent
auditor (the "Auditor"), does not constitute a "parachute
payment"within the meaning of Section 280G(b)(2) of the Code,
including by reason of Section 280G(b)(4)(A) of the Code,
(iii) the Severance Payments shall be reduced only to the
extent necessary so that the Total Payments (other than those
referred to in clauses (i) or (ii)), in their entirety
constitute reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4)(B) of the
Code or are otherwise not subject to disallowance as
deductions by reason of Section 280G of the Code, in the
opinion of Tax Counsel, and (iv) the value of any noncash
benefit or any deferred payment or benefit included in the
Total Payments shall be determined by the Auditor in
accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
(C) If it is established pursuant to a final
determination of a court or an Internal Revenue Service
proceeding that, notwithstanding the good faith of Executive
and the Association in applying the terms of this section
3(e), the aggregate "parachute payments" paid to or for
Executive's benefit are in an amount that would result in any
portion of such "parachute payments" not being deductible by
reason of Section 280G of the Code, then Executive shall have
an obligation to pay the Association upon demand an amount
equal to the sum of (i) the excess of the aggregate "parachute
payments" paid to or for Executive's benefit over the
aggregate "parachute payments" that could have been paid to or
for Executive's benefit without any portion of such "parachute
payments"
<PAGE> 6
not being deductible by reason of section 280G of the Code;
and (ii) interest on the amount set forth in clause (i) of
this sentence at 120% of the rate provided in section 1274(b)
(2)(B) of the Code from the date of Executive's receipt of
such excess until the date of such payment. If the Severance
Payments shall be decreased pursuant to section 3(e)(A)
hereof, and the benefits under clause (i) of the third
sentence of section 3(b) hereof which remain payable after
the application of section 3 (e) hereof are thereafter reduced
pursuant thereto because of the receipt by Executive of
substantially similar benefits, the Association shall, at the
time of such reduction, pay to Executive the lowest of (a) the
amount of the decrease made in the Severance Payments pursuant
to section 3(e) hereof, (b) the amount of the subsequent
reduction in such benefits, or (c) the maximum amount which
can be paid to Executive without being, or causing any other
payment to be, nondeductible by reason of section 280G of the
Code.
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. Said
Notice of Termination shall be provided to Executive not less than thirty (30)
days prior to Executive's Date of Termination. For purposes of this Agreement, a
"Notice of Termination" shall mean a dated written notice which shall (i)
indicate the specific termination provision in this Agreement relied upon; (ii)
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 and
(iii) specify a date of termination, which shall be not less than thirty (30)
days nor more than ninety (90) days after such Notice of Termination is given,
except in the case of a Termination for Cause, in which case the Notice of
Termination may specify a date of termination as of the date of such Notice of
Termination.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination.
5. SOURCE OF PAYMENTS; GUARANTEE
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 Holding Company, however, hereby irrevocably and
unconditionally guarantees to Executive payment of all amounts, and the
performance of all other obligations, due from the Association in accordance
with the terms of this
Agreement as and when due without any requirement of presentment,
demand of payment, protest or notice of dishonor or nonpayment.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
(a) This Agreement contains the entire understanding between the
parties hereto and supersedes any prior agreement between the Association and
Executive (including without limitation that certain Change of Control Agreement
between the Holding Company and Executive dated as of June 30, 1997), 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.
(b) The termination of Executive's employment during the term of this
Agreement or thereafter, whether by the Association or by Executive, shall have
no effect on the rights and obligations of the parties hereto under the
Association's qualified or non-qualified retirement, pension, savings, ESOP,
thrift, profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long-term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Association from time to time.
<PAGE> 7
7. NO ATTACHMENT.
Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to 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.
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 Estelle. 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.
The following provisions are included for the purposes of complying
with various laws, rules and regulations applicable to the Association:
(a) Notwithstanding anything herein contained to the contrary, in no
event shall the aggregate amount of compensation payable to Executive hereunder
(exclusive of amounts described in section 3(c)(i) and (ii)) exceed one time
Executive's average annual total compensation for the last five consecutive
calendar years to end prior to her termination of employment with the
Association (or for her entire period of employment with the Association if less
than five calendar years).
(b) Notwithstanding anything herein contained to the contrary, any
payments to Executive by the Association, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with section
18(k) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. Section
1828(k), and any regulations promulgated thereunder.
(c) Notwithstanding anything herein contained to the contrary, if
Executive is suspended from office and/or temporarily prohibited from
participating in the conduct of the affairs of the Association pursuant to a
notice served under section 8(e)(3) or 8(g)(i) of the FDI Act, 12 U.S.C. Section
1818(e)(3) or 1818(g)(i), the Association's obligations under this Agreement
shall be suspended as of the date of service of such notice, unless stayed by
appropriate proceedings. If the charges in such notice are dismissed, the
Association, in its discretion, may (i) pay to Executive all or part of the
compensation withheld while the Association's obligations hereunder were
suspended and (ii) reinstate, in whole or in part, any of the obligations which
were suspended.
(d) Notwithstanding anything herein contained to the contrary, 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)(i) of the FDI Act, 12 U.S.C. Section 1818(e)(4) or (g)(i), all prospective
obligations of the Association under this Agreement shall terminate as of the
effective date of the order, but vested rights and obligations of the
Association and Executive shall not be affected.
(e) Notwithstanding anything herein contained to the contrary, if the
Association is in default (within the meaning of section 3(x)(i) of the FDI Act,
12 U.S.C. Section 1813(x)(i), all prospective obligations of the Association
under this Agreement shall terminate as of the date of default, but vested
rights and obligations of the Association and Executive shall not be affected.
<PAGE> 8
(f) Notwithstanding anything herein contained to the contrary, all
prospective obligations of the Association hereunder shall be terminated, except
to the extent that a continuation of this Agreement is necessary for the
continued operation of the Association: (I) by the Director of the Office of
Thrift Supervision ("OTS") or her designee or the Federal Deposit Insurance
Corporation ("FDIC"), at the time the FDIC enters into an agreement to provide
assistance to or on behalf of the Association under the authority contained in
section 13(c) of the FDI Act, 12 U.S.C. Section 1823(c); (ii) by the Director
of the OTS or her designee at the time such Director or designee approves a
supervisory merger to resolve problems related to the operation of the
Association or when the Association is determined by such Director to be in an
unsafe or unsound condition. The vested rights and obligations of the parties
shall not be affected.
If and to the extent that any of the foregoing provisions shall cease
to be required or by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
10. 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.
11. 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.
12. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Florida (without regard
to the conflict of laws principles thereof), except to the extent preempted by
Federal law.
13. PAYMENT OF COSTS AND LEGAL FEES.
The Association shall indemnify, hold harmless and defend Executive
against reasonable costs, including legal fees, incurred by Executive in
connection with or arising out of any action, suit or proceeding in which
Executive may be involved, as a result of Executive's efforts, in good faith, to
defend or enforce the terms of this Agreement; provided, however, that Executive
shall have substantially prevailed on the merits pursuant to a judgment, decree
or order of a court of competent jurisdiction or of an arbitrator in an
arbitration proceeding, or in a settlement. For purposes of this Agreement, any
settlement agreement which provides for payment of any amounts in settlement of
the Association's obligations hereunder shall be conclusive evidence of
Executive's entitlement to indemnification hereunder, and any such
indemnification payments shall be in addition to amounts payable pursuant to
such settlement agreement, unless such settlement agreement expressly provides
otherwise. This provision shall be inoperative if and to the extent that, but
only if and to the extent that, it shall be determined that compliance herewith
would violate any applicable law or regulation.
14. INDEMNIFICATION.
The Association shall provide Executive (including her heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and her heirs, executors and administrators) to the fullest extent
permitted under applicable law and as provided in the Association's Charter
against all expenses and liabilities reasonably incurred by Executive in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of her having been a director or officer of the
Association (whether or not he continues to be a director or officer at the time
of incurring such
<PAGE> 9
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.
15. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon
Executive, her legal representatives and testate or intestate distributees, and
the Association and its successors and assigns, including any successor by
merger or consolidation or a statutory receiver or any other person or firm or
corporation to which all or substantially all of the assets and business of the
Association may be sold or otherwise transferred.
16. 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 if no such succession or assignment had
taken place.
IN WITNESS WHEREOF, First Bank of Florida has caused this Agreement to
be executed by its duly authorized officer, and Executive has signed this
Agreement, as of the ______ day of ___________, 199__.
ATTEST: FIRST BANK OF FLORIDA
By:
- -------------------------------- --------------------------------
Secretary
WITNESS:
- -------------------------------- --------------------------------
Executive
SEAL
As to the Guarantee:
FIRST PALM BEACH BANCORP, INC.
By:
--------------------------------
ATTEST:
----------------------------------
<PAGE> 1
Exhibit 10.25
FORM OF FIRST PALM BEACH BANCORP, INC.
CHANGE OF CONTROL AGREEMENT
This AGREEMENT is made effective as of ___________, 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 450 South Australian
Avenue, West Palm Beach, Florida and _________________________, an individual
residing at _________________________ ("Executive"). The term "Association"
refers to First Bank of Florida, the wholly-owned subsidiary of the Holding
Company.
WHEREAS, the Holding Company considers it essential to the best
interest of its stockholders to foster the continued employment of both its key
management personnel and the key management personnel of the Association; and
WHEREAS, the Board of Directors of the Holding Company recognizes that,
as is the case with many publicly-held corporations, the possibility of a Change
of Control of the Holding Company exists and that such possibility, and the
uncertainty and questions which it may raise among management of both the
Holding Company and the Association, may result in the departure or distraction
of management personnel to the detriment of the Holding Company and its
stockholders; and
WHEREAS, the Board of Directors of the Holding Company has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Holding Company's and the
Association's management, including Executive, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a Change of Control of the Holding Company;
NOW THEREFORE, in consideration of the mutual covenants, terms and
conditions herein set forth, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
(a) The initial term of this Agreement shall commence on
_______________ and shall terminate on May 19, 2000, unless further extended in
accordance with the terms and conditions hereinafter set forth. On May 20, 1998
and on each May 20 thereafter ("Annual Anniversary Date"), the term of this
Agreement shall be extended automatically for an additional year, unless either
the Board of Directors of the Holding Company or Executive gives contrary
written notice to the other not less than 60 days in advance of such anniversary
date. References herein to the term of this Agreement shall refer both to the
initial term and to successive terms.
(b) During the term of Executive's employment with the Holding Company
and/or the Association, Executive shall perform such executive services for the
Holding Company and/or the Association as may be consistent with Executive's
title and may from time-to-time be assigned to Executive by the Holding
Company's or the Association's Board of Directors.
(c) During the term of Executive's employment with the Holding Company
and/or the Association, the Executive shall devote such time and effort to the
affairs and business of the Holding Company and/or the Association as the
Executive has customarily provided prior to the date hereof.
2. PAYMENTS TO EXECUTIVE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control of the Holding Company
(as hereinafter defined) followed at any time during the term of this Agreement
by the involuntary termination of Executive's employment other than a
Termination for Cause as defined in section 2(c) hereof, or the voluntary
termination of Executive's employment for Good Reason (as hereinafter defined),
the provisions of section 3 shall apply. For purposes of this Agreement, "Good
Reason" shall mean (A) a failure by the Holding Company to comply with any
material provision of this
<PAGE> 2
Agreement, which failure has not been cured within ten (10) days after notice of
such noncompliance has been given by Executive to the Holding Company; (B) the
assignment to Executive of any duties inconsistent with Executive's positions,
duties, responsibilities and status with the Holding Company and/or the
Association immediately prior to the Change of Control of the Holding Company,
any removal of Executive from, or any failure to re-elect Executive to, any of
the positions previously held by Executive, or a change in the Executive's
reporting responsibilities, titles or offices as in effect immediately prior to
the Change of Control of the Holding Company, a reduction by the Holding Company
in the Executive's annual salary as in effect immediately prior to Change of
Control of the Holding Company, or as the same may be increased from
time-to-time, or the requirement that Executive be relocated to an office which
is more than 25 miles from the current principal executive office of the Holding
Company, or the failure of the Holding Company and/or the Association to
continue in effect any bonus, benefit or compensation plan, life insurance plan,
health or accident plan or disability plan in which Executive is participating
at the time of Change of Control of the Holding Company, or the taking of any
action by the Holding Company which would adversely affect Executive's
participation in or materially reduce Executive's benefits under any of such
plans; or (c) any purported termination of Executive's employment which is not
effected pursuant to a Notice of Termination satisfying the requirements of
paragraph 4 hereof (and for purposes of this Agreement, no such purported
termination shall be effective).
(b) For the purposes of this Agreement, a "Change of Control" of the
Holding Company shall be (i) an event of a nature that results in a Change of
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 a Change of Control as set
forth under the Rules and Regulations of the OTS, the Board of Directors shall
substitute its judgment for that of the OTS), or (ii) a Change of Control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), without regard to whether or not such
regulation actually applies; provided that, without limitation, such a Change of
Control shall be deemed to have occurred if (A) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act in effect on the date first
above written), other than the Holding Company or any person who on the date
hereof is a director or officer of the Holding Company, becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company (not including any securities
acquired directly from the Holding Company or its affiliates other than in
connection with the acquisition by the Holding Company or its affiliates of a
business) representing 20% or more of the combined voting power in the election
of directors of the Holding Company's then outstanding securities, (B) during
any period of not more than two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Holding
Company together with any new director (other than a director whose initial
assumption of office is in connection with any actual or threatened election
contest, including but not limited to a consent solicitation, relating to the
election of directors of the Holding Company) whose appointment or election by
the Board of Directors of the Holding Company or nomination for election by the
Holding Company's stockholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
on the date hereof or whose appointment, election or nomination for election was
previously so approved or recommended, cease for any reason to constitute at
least a majority thereof, (c) the stockholders of the Holding Company approve a
merger or consolidation of the Holding Company or the Association with any other
corporation, other than (i) a merger or consolidation which would result in the
voting securities of the Holding Company outstanding immediately prior to such
merger or consolidation continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity or any
parent thereof) at least 60% of the combined voting power in the election of
directors of the securities of the Holding Company or such surviving entity or
any parent thereof outstanding immediately after such merger or consolidation,
or (ii) a merger or consolidation effected to implement a recapitalization of
the Holding Company (or similar transaction) in which no "person" is or becomes
the "beneficial owner," directly or indirectly, of securities of the Holding
Company (not including in the securities "beneficially owned" by such "person"
any securities acquired directly from the Holding Company or its affiliates
other than in connection with the acquisition by the Holding Company or its
affiliates of a business) representing 20% or more of the combined voting power
in the election of directors of the Holding Company's then outstanding
securities; or (i) the stockholders of the Holding Company approve a plan of
complete liquidation or dissolution of the Holding Company or an agreement for
the sale or disposition by the Holding Company of all or substantially all of
the Holding Company's assets, other than a sale or disposition by the Holding
Company of all or substantially all of the Holding Company's assets to an entity
which assumes the obligations
<PAGE> 3
set forth in this Agreement, and at least 60% of the combined voting power in
the election of directors of the voting securities of which are owned by
stockholders of the Holding Company in substantially the same proportions as
their ownership of the Holding Company immediately prior to such sale.
A Change of Control of the Holding Company shall also include any event
described in this section 2 (b) if the term "Association" were substituted for
the term "Holding Company" each time it appears herein.
(c) The Executive shall not have the right to receive termination
benefits pursuant to Section 3 hereof upon Termination for Cause. "Termination
for Cause" for purposes of this Agreement shall mean willful misconduct, breach
of fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease and desist order, or any
material breach of this Agreement, in each case as measured against standards
generally prevailing at the relevant time in the savings and community banking
industry; PROVIDED, HOWEVER, that Executive shall not be deemed to have been
Terminated for Cause unless and until the following procedures shall have been
followed:
(i) the Board shall adopt a resolution duly approved by
affirmative vote of a majority of the entire Board at a meeting called
and held for such purpose calling for Executive's Termination for Cause
and setting forth the purported grounds for such termination ("Proposed
Termination Resolution");
(ii) as soon as practicable, and in any event within five (5)
days, after adoption of such resolution, the Board shall furnish to
Executive a written notice of termination which shall be accompanied by
a certified copy of the Proposed Termination Resolution ("Notice of
Proposed Termination");
(iii) Executive shall be afforded a reasonable opportunity to
make oral and written presentations to the members of the Board, on her
own behalf, or through a representative, who may be her legal counsel,
to refute the grounds set forth in the Proposed Termination Resolution
at one or more meetings of the Board to be held no sooner than fifteen
(15) days and no later than thirty (30) days after the Executive's
receipt of the Proposed Termination Notice ("Termination Hearings");
and
(iv) within ten (10) days following the end of the Termination
Hearings, the Board shall adopt a resolution duly approved by
affirmative vote of a majority of the entire Board at a meeting called
and held for such purpose (A) finding that in the good faith opinion of
the Board the grounds for termination set forth in the Proposed
Termination Resolution exist and (B) terminating Executive's employment
("Termination Resolution"); and
(v) as promptly as practicable, and in any event within one
(1) business day after adoption of the Termination Resolution, the
Board shall furnish to the Executive written notice of termination,
which notice shall include a copy of the Termination Resolution and
specify an effective date of termination that is not later than the
date on which such notice is given.
(d) For purposes of section 2(c), no act or failure to act on the part
of Executive shall be considered "willful" unless it is done, or omitted to be
done, by Executive in bad faith or without reasonable belief that Executive's
action or omission was in the best interests of the Holding Company. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or based upon the written advice of counsel for the Holding Company
shall be conclusively presumed to be done, or omitted to be done, by Executive
in good faith and in the best interests of the Holding Company.
3. TERMINATION BENEFITS.
(a) If Executive is terminated by the Holding Company other than in a
Termination for Cause pursuant to paragraph 2(c) hereof, or Executive
terminates employment for Good Reason, in either case after a Change of Control
of the Holding Company as defined in paragraph 2(b) hereof, then in lieu of any
further salary payments to Executive for periods subsequent to the date of
termination, the Holding Company shall pay as severance to Executive
<PAGE> 4
an amount equal to three (3) times the sum of (A) the higher of Executive's base
salary in effect immediately prior to the occurrence of the event or
circumstance upon which the Notice of Termination is based and Executive's
annual base salary in effect immediately prior to the Change of Control of the
Holding Company, plus (B) the higher of the highest annual bonus or incentive
payment earned by or accrued in respect of Executive in respect of any of the
one year immediately preceding that in which the Date of Termination occurs or
the highest annual bonus or incentive payment so earned in respect of any of the
two (2) years immediately preceding that in which the Change of Control of the
Holding Company occurs. Such payment shall be made in a lump sum within five
days of the date of termination of Executive's employment.
(b) Upon the occurrence of a Change of Control of the Holding Company
followed at any time during the term of this Agreement by Executive's voluntary
(for Good Reason) or involuntary termination of employment, other than a
Termination for Cause, the Holding Company shall, for three (3) years or until
Executive obtains employment which provides substantially similar benefits,
provide Executive and anyone entitled to claim under or through Executive all
benefits under any life or other insurance or death benefit plan, medical, group
hospitalization, dental, disability insurance or other future or present similar
group employee benefit plan or program of the Holding Company or Association for
which executive officers are eligible, to the same extent as if Executive had
continued to be an employee of the Holding Company or Association during such
period and such benefits shall, to the extent not paid under any such plan or
program, be paid by the Holding Company. The payments and benefits described in
the preceding sentence shall be paid to Executive's beneficiaries by testate or
intestate succession in the event of Executive's death during the period during
which such payments and benefits are being provided. Executive's "qualifying
event" for purposes of continuation coverage under the Consolidated Budget
Reconciliation Act ("COBRA") shall occur at the expiration of such two year
period.
(c) Upon the termination of Executive's employment other than a
Termination for Cause, or if Executive terminates employment for Good Reason, in
either case after a Change of Control of the Holding Company occurs, the Holding
Company shall pay and provide to Executive (or, in the event of the Executive's
death, to Executive's estate):
(i) Executive's earned but unpaid compensation (including,
without limitation, all items which constitute wages under applicable
law and the payment of which is not otherwise provided for under this
section 3) as of the Date of Termination (as hereinafter defined), such
payment to be made at the time and in the manner prescribed by law
applicable to the payment of wages but in no event later than thirty
(30) days after termination of employment;
(ii) the benefits, if any, to which Executive is entitled as a
former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the
Holding Company's or Association's officers and employees;
(iii) within thirty (30) days following Executive's
termination of employment, a lump sum payment in an amount equal to the
excess, if any, of:
(A) the present value of the aggregate benefits to
which Executive would be entitled under any and all qualified
and non-qualified defined benefit pension plans maintained by,
or covering employees of, the Holding Company or the
Association, if Executive were 100% vested thereunder and had
continued working for the Holding Company or the Association
during the remaining term of this Agreement, such benefits to
be determined as of the date of termination of employment by
adding to the service actually recognized under such plans an
additional period equal to the remaining term of this
Agreement and by adding to the compensation recognized under
such plans for the year in which termination of employment
occurs all amounts payable under sections 3(a), 3(b) and
3(c)(i); over
(B) the present value of the benefits to which
Executive is actually entitled under such defined benefit
pension plans as of the date of his termination;
<PAGE> 5
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Internal Revenue
Code of 1986, as amended (the "Code") and a discount rate, compounded
monthly, equal to the annualized rate of interest prescribed by the
Pension Benefits Guaranty Corporation for the valuation of immediate
annuities payable under terminating single-employer defined benefit
plans for the month in which the Executive's termination of employment
occurs ("Applicable PBGC Rate");
(d) Executive shall not be required to mitigate the amount of any
payment provided for in section 3 of this Agreement by seeking other employment
or otherwise. Further, the amount of any payment or benefit provided for in this
Agreement shall not be reduced by any compensation earned or benefits received
by Executive as the result of employment by another employer, by retirement
benefits, by offset against any amount claimed to be owed by Executive to the
Holding Company, or otherwise.
(e) (A) Notwithstanding any other provisions of this
Agreement, in the event that any payment or benefit received
or to be received by Executive in connection with a Change of
Control of the Holding Company or the termination of the
Executive's employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Holding Company or the Association, any person whose actions
result in a Change of Control of the Holding Company or any
person affiliated with the Holding Company or the Association
or such person) (all such payments and benefits, including the
payments and benefits provided under this Agreement (the
"Severance Payments"), being hereinafter called "Total
Payments") would not be deductible (in whole or part), by the
Holding Company, an affiliate or a person making such payment
or providing such benefit as a result of Section 280G of the
Code, then, to the extent necessary to make such portion of
the Total Payments deductible (and after taking into account
any reduction in the Total Payments provided in such other
plan, arrangement or agreement), the cash Severance Payments
shall first be reduced (if necessary, to zero), and all other
Severance Payments shall thereafter be reduced (if necessary,
to zero); PROVIDED, HOWEVER, that Executive may elect (at any
time prior to the delivery of a Notice of Termination
hereunder) to have the noncash Severance Payments reduced (or
eliminated) prior to any reduction of the cash Severance
Payments.
(B) For purposes of the limitation contained in
Subsection (A) of this section 3(e), (i) no portion of the
Total Payments the receipt or enjoyment of which Executive
shall have effectively waived in writing prior to the delivery
of a Notice of Termination shall be taken into account, (ii)
no portion of the Total Payments shall be taken into account
which, in the opinion of tax counsel ("Tax Counsel")
reasonably acceptable to Executive and selected by the
accounting firm which was, immediately prior to the Change of
Control of the Holding Company, the Holding Company's
independent auditor (the "Auditor"), does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2)
of the Code, including by reason of Section 280G(b)(4)(A) of
the Code, (iii) the Severance Payments shall be reduced only
to the extent necessary so that the Total Payments (other than
those referred to in clauses (i) or (ii)) in their entirety
constitute reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4)(B) of the
Code or are otherwise not subject to disallowance as
deductions by reason of Section 280G of the Code, in the
opinion of Tax Counsel, and (iv) the value of any noncash
benefit or any deferred payment or benefit included in the
Total Payments shall be determined by the Auditor in
accordance with the principles of Sections 280G(d)(3) and (4)
of the Code.
(C) If it is established pursuant to a final
determination of a court or an Internal Revenue Service
proceeding that, notwithstanding the good faith of Executive
and the Holding Company in applying the terms of this section
3(e), the aggregate "parachute payments" paid to or for
Executive's benefit are in an amount that would result in any
portion of such "parachute payments" not being deductible by
reason of section 280G of the Code, then Executive shall have
an obligation to pay the Holding Company upon demand an amount
equal to the sum of (i) the excess of the aggregate "parachute
payments" paid to or for Executive's benefit over the
aggregate
<PAGE> 6
"parachute payments" that could have been paid to or for
Executive's benefit without any portion of such "parachute
payments" not being deductible by reason of section 280G of
the Code; and (ii) interest on the amount set forth in clause
(i) of this sentence at 120% of the rate provided in section
1274(b)(2)(B) of the Code from the date of Executive's
receipt of such excess until the date of such payment. If the
Severance Payments shall be decreased pursuant to section 3(e)
(A) hereof, and the benefits under section 3(b) hereof which
remain payable after the application of section 3(e) hereof
are thereafter reduced pursuant thereto because of the receipt
by Executive of substantially similar benefits, the Holding
Company shall, at the time of such reduction, pay to Executive
the lowest of (a) the amount of the decrease made in the
Severance Payments pursuant to section 3(e) hereof, (b) the
amount of the subsequent reduction in such benefits, or (c)
the maximum amount which can be paid to Executive without
being, or causing any other payment to be, nondeductible by
reason of section 280G of the Code.
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. Said Notice of Termination shall be provided to Executive not less than
thirty (30) days prior to Executive's Date of Termination. For purposes of this
Agreement, a "Notice of Termination" shall mean a dated written notice which
shall (i) indicate the specific termination provision in this Agreement relied
upon; (ii) 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 and (iii) specify a date of termination, which shall be not less than
thirty (30) days nor more than ninety (90) days after such Notice of Termination
is given, except in the case of a Termination for Cause, in which case the
Notice of Termination may specify a date of termination as of the date of such
Notice of Termination.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination.
5. GUARANTEE
The Holding Company hereby irrevocably and unconditionally guarantees
to Executive the payment of all amounts, and the performance of all other
obligations, due from the Association pursuant to that certain Change of Control
Agreement of even date herewith between the Association and Executive as and
when due without any requirement of presentment, demand of payment, protest or
notice of dishonor or nonpayment.
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 (including without limitation that certain Change of Control Agreement
between the Holding Company and Executive dated as of November 18, 1997), 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. 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 Executive in its employ for any
period, but any termination following a Change of Control shall be subject to
the terms and conditions hereof.
7. NO ATTACHMENT.
Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to 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.
<PAGE> 7
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 of that certain Change of Control Agreement between Executive and
the Association dated May 20, 1997 (the "Association Agreement") during the term
of this Agreement and a Change of Control, as defined herein, occurs, the
Holding Company will assume the obligation to pay and 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 such notice.
10. REQUIRED REGULATORY PROVISION.
Notwithstanding anything herein contained to the contrary, any payments
made to Executive by the Holding Company pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
Section 1828(k).
11. NON-DUPLICATION.
Any compensation or benefits provided to Executive pursuant to the
Association Agreement shall be applied to offset the obligations of the Holding
Company hereunder, it being intended that this Agreement set forth the aggregate
compensation and benefits payable to Executive for all services to the Holding
Company and all of its direct or indirect subsidiaries.
12. 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.
13. 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.
14. GOVERNING LAW.
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Florida (without regard
to the conflict of laws principles thereof), except to the extent preempted by
Federal law.
<PAGE> 8
15. PAYMENT OF COSTS AND LEGAL FEES.
Following a Change of Control of the Holding Company, Executive shall
be entitled to reimbursement for all reasonable costs, including attorney's
fees, in challenging any termination of her employment, in seeking to enforce
any of her rights hereunder, or in connection with any tax audit or proceeding
to the extent attributable to the application of Section 4999 of the Code to any
payment or benefit provided hereunder, provided that Executive shall not be
entitled to such reimbursement if the Holding Company proves, by clear and
convincing evidence, that Executive proceeded in such action in bad faith.
Executive shall also be entitled to post-judgment interest at the then-current
prime rate charged by Citibank, NA or any successor thereto, on any money
judgment obtained. Amounts paid pursuant to this section shall be in addition to
all rights to which Executive is otherwise entitled under this Agreement.
16. INDEMNIFICATION.
The Holding Company shall provide Executive (including her heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, or in lieu thereof, shall
indemnify Executive (and her 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 Executive in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of her 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 AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon
Executive, her legal representatives and testate or intestate distributees and
the Holding Company and its successors and assigns, including any successor by
merger or consolidation or a statutory receiver or any other person or firm or
corporation to which all or substantially all of the assets and business of the
Holding Company may be sold or otherwise transferred.
18. 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.
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, as of the _____ day of __________, 199___.
ATTEST: FIRST PALM BEACH BANCORP, INC.
By:
- -------------------------------- --------------------------------
Secretary
WITNESS:
- -------------------------------- --------------------------------
Executive
SEAL
<PAGE> 1
Exhibit 10.27
SECOND AMENDED AND RESTATED EMPLOYEE SEVERANCE COMPENSATION PLAN
OF
FIRST BANK OF FLORIDA
ADOPTED ON SEPTEMBER 29, 1993
AMENDED AND RESTATED AUGUST 14, 1995
FURTHER AMENDED AND RESTATED EFFECTIVE OCTOBER 21, 1997
<PAGE> 2
SECOND AMENDED AND RESTATED EMPLOYEE SEVERANCE COMPENSATION PLAN OF
FIRST BANK OF FLORIDA
ARTICLE I
PURPOSE
-------
SECTION 1 STATEMENT OF PURPOSE.
First Bank of Florida adopts this Second Amended and Restated
Employee Severance Compensation Plan for the benefit of its eligible Employees.
The Bank recognizes that, as a public company, it will be subject to the
possibility of a negotiated or unsolicited change of control which may result in
a loss of employment for some of its Employees. The purpose of the Plan is to
encourage the Bank's Employees to continue working for the Bank with their full
time and attention devoted to the Bank's affairs by providing prescribed income
security in the event of an Involuntary Severance following a Change of Control.
ARTICLE II
DEFINITIONS
-----------
For purposes of the Plan, the following terms shall have the
meanings assigned to them below, unless a different meaning is plainly indicated
by the context:
SECTION 2.1 BANK means First Bank of Florida (or its
successors or assigns, whether by merger, consolidation, sale of assets,
statutory receivership, operation of law or otherwise), First Bank Mortgage
Corp., and any other affiliate of First Bank of Florida which, with the approval
of the Board of Directors of First Bank of Florida, and subject to such
conditions as may be imposed by such Board, adopts this Plan.
SECTION 2.2 BOARD means the Board of Directors of First Bank
of Florida.
SECTION 2.3 CAUSE means, with respect to the conduct of an
Employee in connection with his or her employment with the Bank, personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) or final cease and desist order in each case as measured against
standards generally prevailing at the relevant time in the savings and community
banking industry; provided, however, that following a Change of Control of the
Bank or a company which owns 100% of the outstanding common stock of the Bank,
an Employee shall not be deemed to have been discharged for Cause unless and
until he shall have received a written notice of termination from the Board,
accompanied by a resolution duly adopted by affirmative vote of a majority of
the entire Board at a meeting called and held for such purpose (after reasonable
notice to the Employee and a reasonable opportunity for the Employee to make
oral and written presentations to the members of the Board, on his own behalf,
or through a representative, who may be his legal counsel, to refute the grounds
for the proposed determination) finding that in the good faith opinion of the
Board grounds exist for discharging the Employee for "Cause".
SECTION 2.4 CHANGE OF CONTROL means:
(a) with respect to First Bank of Florida:
(i) the occurrence of any event upon which any
"person" (as such term is used in sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended ("Exchange
Act")), other than (A) a trustee or other fiduciary holding
securities under an employee benefit plan
<PAGE> 3
maintained for the benefit of employees of First Bank of
Florida; (B) a corporation owned, directly or indirectly, by
the stockholders of First Bank of Florida in substantially the
same proportions as their ownership of stock of First Bank of
Florida; or (C) any group constituting a person in which
employees of First Bank of Florida are substantial members,
becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly,
of securities issued by First Bank of Florida representing 20%
or more of the combined voting power of all of First Bank of
Florida's then outstanding securities; or
(ii) the occurrence of any event upon which the
individuals who on the date the Plan is adopted are members of
the Board, together with individuals whose election by the
Board or nomination for election by First Bank of Florida's
stockholders was approved by the affirmative vote of at least
two-thirds of the members of the Board then in office who were
either members of the Board on the date this Plan is adopted
or whose nomination or election was previously so approved,
cease for any reason to constitute a majority of the members
of the Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of directors of First Bank of Florida (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act); or
(iv) the stockholders of First Bank of Florida (or,
if First Bank of Florida is not then a stock form institution,
the Board of First Bank of Florida) approve either:
(A) a merger or consolidation of First Bank
of Florida or First Palm Beach Bancorp, Inc. with any
other corporation, other than a merger or
consolidation following which both of the following
conditions are satisfied:
(I) either (1) the members of the
Board of First Bank of Florida and of First
Palm Beach Bancorp, Inc. immediately prior
to such merger or consolidation constitute
at least a majority of the members of the
governing body of the institution resulting
from such merger or consolidation; or (2)
the stockholders of First Bank of Florida
own securities of the institution resulting
from such merger or consolidation
representing 60% or more of the combined
voting power of all such securities then
outstanding in substantially the same
proportions as their ownership of voting
securities of First Bank of Florida before
such merger or consolidation; and
(II) the entity which results from
such merger or consolidation expressly
agrees in writing to assume and perform
First Bank of Florida's obligations under
the Plan; or
(B) a plan of complete liquidation of First
Bank of Florida or an agreement for the sale or
disposition by First Bank of Florida of all or
substantially all of its assets; and
(b) with respect to any company which owns 100% of
the outstanding common stock of First Bank of Florida,
including without limitation First Palm Beach Bancorp, Inc.,
any event that would be described in section 2.4(a) if the
name of such company were substituted for First Bank of
Florida each time it appears therein.
SECTION 2.5 EMPLOYEE means any person, including an Officer,
who is employed by the Bank, other than: (a) a person who is compensated on an
hourly rate basis; (b) a person who works for the Bank on a part-time or
temporary basis; (c) an Employee receiving long-term disability benefits; or (d)
a person who has an employment contract, change of control agreement or other
agreement with the Bank or who is covered by other programs which provide
severance benefits or by their terms exclude such person from participation in
this Plan.
<PAGE> 4
SECTION 2.6 FDI ACT means the Federal Deposit Insurance Act,
as the same may be amended from time to time, and the corresponding provisions
of any successor statute.
SECTION 2.7 INVOLUNTARY SEVERANCE means (a) the discharge or
dismissal of an Employee by the Bank other than for Cause, or the resignation by
the Employee from his position with the Bank, which resignation the Employee is
asked or compelled by the Bank to tender other than for Cause; or (b)
termination of employment at an Employee's election within sixty (60) days after
any action following a Change of Control which, either alone or together with
other actions, results in: (i) the reduction in the Employee's Salary by more
than 10%; (ii) the assignment of the Employee to a job requiring relocation of
his residence in order to be able to commute without unreasonable difficulty,
expense or inconvenience; (iii) the assignment of the Employee to duties or to
an office or working space which involves unreasonable personal embarrassment;
(iv) a material adverse change in the Employee's title, position or
responsibilities at the Bank; (v) the failure to maintain in effect any pension
plan, life insurance plan, health, accident or disability plan in which the
Employee is participating immediately prior to the Change of Control (or plans
providing substantially similar benefits), or the taking of any action which
would materially adversely affect the Employee's participation or reduce the
Employee's benefits under any of such plans; or (vi) a successor to the Bank
failing to assume its obligations under this Plan or breaching any provision of
this Plan.
SECTION 2.8 OFFICER means an officer of the Bank.
SECTION 2.9 OTS means the Office of Thrift Supervision of the
United States Department of the Treasury, and its successors.
SECTION 2.10 PLAN means this Second Amended and Restated
Employee Severance Compensation Plan of First Bank of Florida, as the same may
be amended from time to time.
SECTION 2.11 PLAN ADMINISTRATOR means the Senior Vice
President--Administration of First Bank of Florida.
SECTION 2.12 PLAN YEAR means the calendar year.
SECTION 2.13 SALARY means (i) the basic annual rate of salary
of the Employee for his services to the Bank on the day the Change of Control
occurs, plus (ii) overtime, bonuses and other forms of incentive compensation
either (a) actually paid to or accrued in respect of the Employee during the
twelve (12) month period immediately preceding the Change of Control, or (b), if
such Employee has been employed for less than twelve (12) months on the day the
Change of Control occurs, annualized for a twelve (12) month period.
SECTION 2.14 SERVICE means service rendered by an Employee
that is, or would be, recognized under the Retirement Plan of First Bank of
Florida for vesting purposes as of the date of the Employee's Involuntary
Severance.
ARTICLE III
BENEFITS
--------
SECTION 3.1 SEVERANCE BENEFITS FOR EMPLOYEES.
(a) An Employee whose employment with the Bank is terminated
under circumstances constituting an Involuntary Severance, other than
for Cause, as a result of, within twelve months following or within
three (3) months prior to, a Change of Control with respect to the Bank
or any company which owns 100% of the outstanding common stock of the
Bank shall be entitled to the following benefits:
<PAGE> 5
(i) if the Employee is an Officer of the Bank with
less than ten (10) years of Service on the day the Change of
Control occurs, he or she shall be entitled, as severance pay,
to a weekly payment in an amount equal to one week's Salary,
commencing with the first week following the date of the
Employee's Involuntary Severance and continuing for twenty-six
(26) weeks; or
(ii) if the Employee (whether an Officer or not) has
ten (10) years of Service or more on the day the Change of
Control occurs, he or she shall be entitled, as severance pay,
to a weekly payment in an amount equal to one week's Salary,
commencing with the first week following the date of the
Employee's Involuntary Severance and continuing for fifty-two
(52) weeks; or
(iii) if the Employee is not an Employee described in
section 3.1(a)(i) or section 3.1(a)(ii), he shall be entitled,
as severance pay, to a weekly payment in an amount equal to
one week's Salary, commencing with the first week following
the date of the Employee's Involuntary Severance and
continuing for twice the number of weeks as the Employee has
whole years of Service, but in no event more than twenty (20)
weeks;
PROVIDED, HOWEVER, that in no event shall any Employee described in section
3.1(a)(i), (ii) or (iii) receive, as severance pay under this Plan, less than
four weeks' Salary.
(b) Each Employee who is entitled to payments under section
3.1(a)(i), (ii) or (iii) shall, for the duration of such payments,
continue to be eligible for all of the benefits provided under the
Bank's employee benefit plans and programs (excluding tax-qualified
plans and other plans which by law must restrict participation to
active employees) as if he were still an Employee and working at the
Bank, except that he shall cease to accrue vacation and shall be paid a
lump sum payment at the date of his Involuntary Severance in lieu of
any unused accrued vacation.
SECTION 3.2 VESTING.
The benefits to be provided under this Article III of the Plan
to an Employee shall be completely vested and nonforfeitable upon the occurrence
of a Change of Control with respect to the Bank or any company which owns 100%
of the outstanding common stock of the Bank.
SECTION 3.3 INDEMNIFICATION.
The Bank shall indemnify, hold harmless and defend each
Employee against costs or expenses, including reasonable attorneys' fees,
incurred by him or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce his
rights under this Plan; provided, however, that the Employee shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Bank's
obligations hereunder shall be conclusive evidence of the Employee's entitlement
to indemnification hereunder, and any such indemnification payments shall be in
addition to amounts payable pursuant to such settlement agreement, unless such
settlement agreement expressly provides otherwise.
ARTICLE IV
ADMINISTRATION
--------------
SECTION 4.1 NAMED FIDUCIARIES.
The term "Named Fiduciary" shall mean (but only to the extent
of the responsibilities of each of them) the Plan Administrator and the Board.
This Article V is intended to allocate to each Named Fiduciary the
responsibility
<PAGE> 6
for the prudent execution of the functions assigned to him or it, and none of
such responsibilities or any other responsibility shall be shared by two or more
of such Named Fiduciaries. Whenever one Named Fiduciary is required by the Plan
to follow the directions of another Named Fiduciary, the two Named Fiduciaries
shall not be deemed to have been assigned a shared responsibility, but the
responsibility of the Named Fiduciary giving the directions shall be deemed his
sole responsibility, and the responsibility of the Named Fiduciary receiving
those directions shall be to follow them insofar as such instructions are on
their face proper under applicable law.
SECTION 4.2 PLAN ADMINISTRATOR.
The Plan Administrator shall, subject to the responsibilities
of the Board, have the responsibility for the day-to-day control, management,
operation and administration of the Plan. The Plan Administrator shall have the
following responsibilities:
(a) To maintain records necessary or appropriate for the
administration of the Plan;
(b) To give and receive such instructions, notices,
information, materials, reports and certifications as
may be necessary or appropriate in the administration
of the Plan;
(c) To prescribe forms and make rules and regulations
consistent with the terms of the Plan and with the
interpretations and other actions of the Committee;
(d) To require such proof or evidence of any matter from
any person as may be necessary or appropriate in the
administration of the Plan;
(e) To prepare and file, distribute or furnish all
reports, plan descriptions, and other information
concerning the Plan, including, without limitation,
filings with the Secretary of Labor and employee
communications as shall be required of the Plan
Administrator under ERISA;
(f) To determine any question arising in connection with
the Plan, including any question of Plan
interpretation, and the Plan Administrator's decision
or action in respect thereof shall be final and
conclusive and binding upon all persons having an
interest under the Plan;
(g) To review and dispose of claims under the Plan filed
pursuant to section 4.3 and appeals of claims
decisions pursuant to section 4.4;
(h) If the Plan Administrator shall determine that by
reason of illness, senility, insanity, or for any
other reason, it is undesirable to make any payment
to the person entitled thereto, to direct the
application of any amount so payable to the use or
benefit of such person in any manner that the Plan
Administrator may deem advisable or to direct in the
Plan Administrator's discretion the withholding of
any payment under the Plan due to any person under
legal disability until a representative competent to
receive such payment in his behalf shall be appointed
pursuant to law;
(i) To discharge such other responsibilities or follow
such directions as may be assigned or given by the
Board; and
(j) To perform any duty or take any action which is
allocated to the Plan Administrator under the Plan.
The Plan Administrator shall have the power and authority
necessary or appropriate to carry out his responsibilities.
<PAGE> 7
SECTION 4.3 CLAIMS PROCEDURE.
Any claim relating to benefits under the Plan shall be filed
with the Plan Administrator on a form prescribed by him. If a claim is denied in
whole or in part, the Plan Administrator shall give the claimant written notice
of such denial, which notice shall specifically set forth:
(a) The reasons for the denial;
(b) The pertinent Plan provisions on which the denial was
based;
(c) Any additional material or information necessary for
the claimant to perfect his claim and an explanation
of why such material or information is needed; and
(d) An explanation of the Plan's procedure for review of
the denial of the claim.
In the event that the claim is not granted and notice of denial of a claim is
not furnished by the 30th day after such claim was filed, the claim shall be
deemed to have been denied on that day for the purpose of permitting the
claimant to request review of the claim.
SECTION 4.4 CLAIMS REVIEW PROCEDURE.
Any person whose claim filed pursuant to section 4.3 has been
denied in whole or in part by the Plan Administrator may request review of the
claim by the Plan Administrator, upon a form prescribed by the Plan
Administrator. The claimant shall file such form (including a statement of his
position) with the Plan Administrator no later than 60 days after the mailing or
delivery of the written notice of denial provided for in section 4.3, or, if
such notice is not provided, within 60 days after such claim is deemed denied
pursuant to section 4.3. The claimant shall be permitted to review pertinent
documents. A decision shall be rendered by the Plan Administrator and
communicated to the claimant not later than 30 days after receipt of the
claimant's written request for review. However, if the Plan Administrator finds
it necessary, due to special circumstances (for example, the need to hold a
hearing), to extend this period and so notifies the claimant in writing, the
decision shall be rendered as soon as practicable, but in no event later than
120 days after the claimant's request for review. The Plan Administrator's
decision shall be in writing and shall specifically set forth:
(a) The reasons for the decision; and
(b) The pertinent Plan provisions on which the decision
is based.
Any such decision of the Plan Administrator shall be binding upon the claimant
and the Bank, and the Plan Administrator shall take appropriate action to carry
out such decision.
SECTION 4.5 ALLOCATION OF FIDUCIARY RESPONSIBILITIES.
Any Named Fiduciary may:
(a) Allocate any of his or its responsibilities (other than
trustee responsibilities) under the Plan to such other person or
persons as he or it may designate, provided that such allocation and
designation shall be in writing and filed with the Plan Administrator;
(b) Employ one or more persons to render advice to him or it
with regard to any of his or its responsibilities under the Plan; and
(c) Consult with counsel, who may be counsel to the Bank.
<PAGE> 8
SECTION 4.6 OTHER ADMINISTRATIVE PROVISIONS.
(a) Any person whose claim has been denied in whole or in part
must exhaust the administrative review procedures provided in section
4.4 prior to initiating any claim for judicial review.
(b) No bond or other security shall be required of the Plan
Administrator, or any officer or Employee of the Bank to whom fiduciary
responsibilities are allocated by a Named Fiduciary, except as may be
required by ERISA.
(c) Subject to any limitation on the application of this
section 4.6(c) pursuant to ERISA, neither the Plan Administrator, nor
any officer or Employee of the Bank to whom fiduciary responsibilities
are allocated by a Named Fiduciary, shall be liable for any act of
omission or commission by himself or by another person, except for his
own individual willful and intentional malfeasance.
(d) The Plan Administrator may, except with respect to actions
under section 4.4, shorten, extend or waive the time (but not beyond 60
days) required by the Plan for filing any notice or other form with the
Plan Administrator, or taking any other action under the Plan.
(e) Any person, group of persons, committee, corporation or
organization may serve in more than one fiduciary capacity with respect
to the Plan.
ARTICLE V
MISCELLANEOUS
-------------
SECTION 5.1 RIGHTS OF EMPLOYEES.
No Employee shall have any right or claim to any benefit under
the Plan except in accordance with the provisions of the Plan. The establishment
of the Plan shall not be construed as conferring upon any Employee or other
person any legal right to a continuation of employment or to any terms or
conditions of employment, nor as limiting or qualifying the right of the Bank to
discharge any Employee.
SECTION 5.2 NON-ALIENATION OF BENEFITS.
The right to receive a benefit under the Plan shall not be
subject in any manner to anticipation, alienation, or assignment, nor shall such
right be liable for or subject to debts, contracts, liabilities, or torts.
SECTION 5.3 NON-DUPLICATION OF BENEFITS.
No provisions in this Plan shall be deemed to duplicate any
compensation or benefits provided under any agreement, plan or program covering
the Employee to which the Bank is a party and any duplicative amount payable
under any such agreement, plan or program shall be applied as an offset to
reduce the amounts otherwise payable hereunder.
SECTION 5.4 CONSTRUCTION.
Whenever appropriate in the Plan, words used in the singular
may be read in the plural; words used in the plural may be read in the singular;
and the masculine gender shall be deemed equally to refer to the feminine gender
or the neuter. Any reference to a section number shall refer to a section of
this Plan, unless otherwise stated.
<PAGE> 9
SECTION 5.5 HEADINGS.
The headings of sections are included solely for convenience
of reference, and if there is any conflict between such headings and the text of
the Plan, the text shall control.
SECTION 5.6 GOVERNING LAW.
Except to the extent preempted by federal law, the Plan shall
be construed, administered and enforced according to the laws of the State of
Florida applicable to contracts between citizens and residents of the State of
Florida entered into and to be performed entirely within such jurisdiction.
SECTION 5.7 SEVERABILITY.
The invalidity or unenforceability, in whole or in part, of
any provision of this Plan shall in no way affect the validity or enforceability
of the remainder of such provision or of any other provision of this Plan, and
any provision, or part thereof, deemed to be invalid or unenforceable shall be
reformed as necessary to render it valid and enforceable to the maximum possible
extent.
SECTION 5.8 TERMINATION OR AMENDMENT.
The Bank intends to keep this Plan in effect, but, subject to
the provisions of section 3.3, the Bank expressly reserves the right to
terminate or amend the Plan, in whole or in part, at any time by action of the
Board; provided, however, that this Plan may not be amended, revoked or
terminated following the occurrence of a Change of Control.
SECTION 5.9 REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to any
person under Article III of this Plan exceed three times such person's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Bank (or for his entire period of employment with the Bank and its
predecessors, if less than five calendar years).
(b) Notwithstanding anything herein contained to the contrary,
any payments to any Employee by the Bank, whether pursuant to this Plan
or otherwise, are subject to and conditioned upon their compliance with
section 18(k) of the FDI Act and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Employee is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank pursuant
to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, the
Bank's obligations under this Plan shall be suspended as of the date of
service of such notice, unless stayed by appropriate proceedings. If
the charges in such notice are dismissed, the Bank, in its discretion,
may (i) pay to the Employee all or part of the compensation withheld
while the Bank's obligations hereunder were suspended and (ii)
reinstate, in whole or in part, any of the obligations which were
suspended.
(d) Notwithstanding anything herein contained to the contrary,
if the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under section 8(e)(4) or 8(g)(1) of the FDI Act, all prospective
obligations of the Bank under this Plan shall terminate as of the
effective date of the order, but vested rights and obligations of the
Bank and the Employee shall not be affected.
<PAGE> 10
(e) Notwithstanding anything herein contained to the contrary,
if the Bank is in default (within the meaning of section 3(x)(1) of the
FDI Act, all prospective obligations of the Bank under this Plan shall
terminate as of the date of default, but vested rights and obligations
of the Bank and the Employee shall not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Bank hereunder shall be terminated,
except to the extent that a continuation of this Plan is necessary for
the continued operation of the Bank: (i) by the Director of the OTS or
his designee, at the time the FDIC enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in
section 13(c) of the FDI Act; (ii) by the Director of the OTS or his
designee at the time such Director or designee approves a supervisory
merger to resolve problems related to the operation of the Bank or when
the Bank is determined by such Director to be in an unsafe or unsound
condition. The vested rights and obligations of the parties shall not
be affected.
If and to the extent that any of the foregoing provisions
shall cease to be required by applicable law, rule or regulation, the same shall
become inoperative automatically as though eliminated by formal amendment of the
Plan.
SECTION 5.10 WITHHOLDING.
Payments from this Plan shall be subject to all applicable
federal, state and local income withholding taxes.
SECTION 5.11 STATUS AS WELFARE BENEFIT PLAN UNDER ERISA.
This Plan is an "employee welfare benefit plan" within the
meaning of section 3(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") and shall be construed, administered and enforced according
to the provisions of ERISA.
SECTION 5.12 SUCCESSORS.
This Plan and all obligations under this Plan shall be binding
upon the Bank, First Palm Beach Bancorp, Inc., and any and all of their
respective successors and assigns, whether direct or indirect, by purchase,
merger, consolidation or otherwise, to all or substantially all the business or
assets of the Bank and/or First Palm Beach Bancorp, Inc. In furtherance of this,
the Bank and/or First Palm Beach Bancorp, Inc. 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 Bank or
First Palm Beach Bancorp, Inc. expressly and unconditionally to assume and agree
to perform the Bank's and/or First Palm Beach Bancorp, Inc.'s obligations under
this Plan, in the same manner and to the same extent that the Bank and/or First
Palm Beach Bancorp, Inc. would be required to perform if no such succession or
assignment had taken place.
Adopted by the Board of Directors of the Bank and the Board of
Directors of First Palm Beach Bancorp, Inc. on October 21, 1997.
ATTEST: FIRST BANK OF FLORIDA
/s/ JOHN C. TRAMMEL By:/s/ LOUIS O. DAVIS, JR.
- ----------------------------------- -----------------------------------
Secretary President
ATTEST: FIRST PALM BEACH BANCORP, INC.
/s/ JOHN C. TRAMMEL By:/s/ LOUIS O. DAVIS, JR.
- ----------------------------------- -----------------------------------
Secretary President
<PAGE> 1
Exhibit 10.30
FIRST PALM BEACH BANCORP, INC.
DIRECTORS' RETIREMENT PLAN
Effective September 1, 1997
<PAGE> 2
FIRST PALM BEACH BANCORP, INC.
DIRECTORS' RETIREMENT PLAN
ARTICLE I--PURPOSE; EFFECTIVE DATE
The purpose of this Directors' Retirement Plan (the "Plan") is to
provide supplemental retirement benefits for nonemployee eligible ("outside")
Directors of First Palm Beach Bancorp, Inc. (the "Company"). It is intended that
the Plan will aid in retaining and attracting outside directors of exceptional
ability by providing them with these benefits. This Plan shall be effective as
of September 1, 1997.
ARTICLE II--DEFINITIONS
For the purposes of this Plan, the following terms shall have the
meanings indicated, unless the context clearly indicates otherwise:
2.1 ACTUARIAL EQUIVALENT
"Actuarial Equivalent" means equivalence in value between two (2) or
more forms and/or times of payment based on a determination by an actuary chosen
by the Board, using sound actuarial assumptions at the time of such
determination.
2.2 BENEFICIARY
"Beneficiary" means the person, persons or entity entitled under
Article V to receive any Plan benefits payable after a Participant's death.
2.3 BOARD
"Board" means the Board of Directors of First Palm Beach Bancorp, Inc.
2.4 PARTICIPANT
"Participant" means any individual who is participating in or has
participated in this Plan, and who has not yet received his full benefit
hereunder, as provided in Article IV.
2.5 PARTICIPATION AGREEMENT
"Participation Agreement" means the agreement filed by a Participant
and approved by the Board pursuant to Article III.
2.6 YEARS OF SERVICE
"Years of Service" means the number of years (twelve (12) month
periods) the Director has served on the Board. Years of Service shall include
service as a director of First Palm Beach Bancorp, Inc. or its predecessor,
First Bank of Florida, prior to September 29, 1993.
<PAGE> 3
ARTICLE III--PARTICIPATION
3.1 ELIGIBILITY AND PARTICIPATION
(a) ELIGIBILITY. Eligibility to participate in the Plan is
limited to outside directors serving as such after September 1, 1997.
Notwithstanding the preceding sentence, no person who has received, or
is eligible to receive, benefits under any tax-qualified retirement
plan maintained by First Bank of Florida or First Palm Beach Bancorp,
Inc., shall be eligible for benefits under this Plan.
(b) PARTICIPATION. A Director's participation in the Plan
shall be effective upon notification of such person by the Board of
eligibility to participate, completion of a Participation Agreement by
such person and acceptance of the Participation Agreement by the Board.
Participation in the Plan shall continue until such time as the
Participant terminates his service on the Board and as long thereafter
as the Participant is eligible to receive benefits under this Plan.
ARTICLE IV--BENEFITS
4.1 BENEFITS
A benefit under this Plan shall be paid to the Director upon
termination of service as a voting member of the Board, upon or attaining at
least seventy (70) years of age, or completing at least twenty (20) Years of
Service on the Board. A benefit shall also be paid to the designated
Beneficiary(ies) of the Director in the event of his death prior to termination
of service as a voting member of the Board.
4.2 AMOUNT OF BENEFIT
The benefit stated in paragraph 4.1 above shall be equal to the annual
amount of the retainer fee paid to active outside Directors of the Board at the
time of such outside Director's termination of service.
4.3 FORM OF BENEFIT PAYMENT
The benefit shall be paid in the basic form provided below, unless, at
the Participant's request, the Board, in its sole discretion, selects an
alternative form. Any form requested by the Participant shall be considered by
the Board, but shall not be binding. Any alternative form shall be the Actuarial
Equivalent of the basic form of benefit payments.
The basic and alternative forms of payment are as follows:
(a) BASIC FORM OF BENEFIT PAYMENT. Monthly payments equal to
one-twelfth (1/12) of the annual benefit, continuing for the longer of
one hundred twenty (120) months or until the Participant's death.
(b) ALTERNATIVE FORMS OF BENEFIT PAYMENT.
(i) A joint and survivor annuity with payment
continued to the survivor in the same amount as the amount
paid to the Participant.
(ii) A joint and survivor annuity with payment
continued to the survivor at a rate equal to one-half (1/2) of
the amount paid to the Participant.
(iii) Any other Actuarial Equivalent method as
approved by the Board.
4.4 COMMENCEMENT OF BENEFITS
The benefits stated above shall commence within sixty (60) days after
the earlier of the Director's termination of service as a voting member of the
Board or the Director's date of death.
<PAGE> 4
4.5 ACCELERATED DISTRIBUTION
Notwithstanding any other provision of the Plan, at any time after
benefit commencement, a Participant (or Beneficiary if the Participant is
deceased) shall be entitled to receive, upon written request to the Board, a
lump sum distribution equal to ninety percent (90%) of the Actuarial Equivalent
of the Participant's unpaid benefits under this Plan on the date on which the
Board receives the written request. The remaining unpaid benefits shall be
forfeited by the Participant. The amount payable under this Section shall be
paid in a lump sum within sixty-five (65) days following the receipt of the
notice by the Board from the Participant.
4.6 PAYMENT TO GUARDIAN
If a Plan benefit is payable to a minor or a person declared
incompetent or to a person incapable of handling the disposition of his
property, the Board may direct payment of such Plan benefit to the guardian,
legal representative or person having the care and custody of such minor,
incompetent or person. The Board may require proof of incompetency, minority,
incapacity or guardianship as it may deem appropriate prior to distribution of
the Plan benefit. Such distribution shall completely discharge the Board and the
Company from all liability with respect to such benefit.
ARTICLE V--BENEFICIARY DESIGNATION
5.1 BENEFICIARY DESIGNATION
Each Participant shall have the right, at any time, to designate any
person or persons as his Beneficiary or Beneficiaries (both primary as well as
secondary) to whom benefits under this Plan shall be paid in the event of his
death prior to complete distribution to the Participant of the benefits due
under the Plan. Each Beneficiary designation shall be in a written form
prescribed by the Board, and will be effective only when received by the Board
during the Participant's lifetime. If the Participant elects a form of payment
the amount of which depends on the identity of the Beneficiary, the Beneficiary
Designation shall become irrevocable upon the commencement of payments. If a
Participant and Beneficiary die in circumstances that leave doubt as to which
was the first to die, the Participant shall be deemed to have survived the
Beneficiary.
5.2 AMENDMENTS; MARITAL STATUS
Any Beneficiary designation may be changed by a Participant without the
consent of any designated Beneficiary by the filing of a new Beneficiary
designation with the Board. The filing of a new Beneficiary designation form
will cancel all Beneficiary designations previously filed. If a Participant's
Compensation is community property, any Beneficiary designation shall be valid
or effective only as permitted under applicable law.
5.3 NO PARTICIPANT DESIGNATION
In the absence of an effective Beneficiary designation, or if all
designated Beneficiaries predecease the Participant or die prior to complete
distribution of the Participant's benefits, then the Participant's designated
Beneficiary shall be deemed to be the Participant's estate.
5.4 EFFECT OF PAYMENT
The payment to the deemed Beneficiary shall completely discharge the
Company's obligations under this Plan.
5.5 DEATH BENEFIT
If a Participant dies:
<PAGE> 5
(a) After the commencement of benefits, his designated
Beneficiary or Beneficiaries shall receive only such death benefits as
are payable following the Participant's death under the form of benefit
payment in effect for the Participant; and
(b) Prior to the commencement of benefits, his designated
Beneficiary or Beneficiaries shall receive one hundred twenty (120)
monthly payments equal to the monthly amount that would have been
payable to the Participant in the Basic Form of Benefit Payment.
ARTICLE VI--ADMINISTRATION
6.1 BOARD; DUTIES
This Plan shall be administered by the Board. The Board shall have the
authority to make, amend, interpret, and enforce all appropriate rules and
regulations for the administration of this Plan and decide or resolve any and
all questions including interpretations of this Plan, as may arise in connection
with the Plan. The Board may be Participants under this Plan.
6.2 AGENTS
In the administration of this Plan, the Board may, from time to time,
employ agents and delegate to them such administrative duties as they see fit,
and may from time to time consult with counsel who may be counsel to the
Company.
6.3 BINDING EFFECT OF DECISIONS
The decision or action of the Board in respect of any question arising
out of or in connection with the administration, interpretation and application
of the Plan and the rules and regulations promulgated hereunder shall be final
and conclusive and binding upon all persons having any interest in the Plan.
6.4 INDEMNITY OF BOARD
To the extent permitted by applicable law, rules and regulations, and
the Company's charter, the Company shall indemnify, hold harmless and defend the
Board against any and all claims, loss, damage, expense or liability arising
from any action or failure to act with respect to this Plan.
ARTICLE VII--CLAIMS PROCEDURE
Any person claiming a benefit, requesting an interpretation or ruling
under the Plan, or requesting information under the Plan shall present the
request in writing to the Board who shall respond in writing as soon as
practicable, and whose decisions shall be final and bind all parties concerned.
ARTICLE VIII--TERMINATION, SUSPENSION OR AMENDMENT
8.1 TERMINATION, SUSPENSION OR AMENDMENT OF PLAN
The Board may, in its sole discretion, terminate or suspend this Plan
at any time or from time to time, in whole or in part. The Board may amend this
Plan at any time or from time to time. Any amendment may provide different
benefits or amounts of benefits from those herein set forth. However, no such
termination, suspension or amendment shall adversely affect the benefits of any
Participant who has retired, or the benefits of any Beneficiary of a Participant
who has died, prior to such termination, suspension or amendment.
<PAGE> 6
ARTICLE IX--MISCELLANEOUS
9.1 UNFUNDED PLAN
This Plan is intended to be an unfunded plan maintained to provide
deferred compensation benefits for persons who are not employees and therefore
not subject to any of the provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Accordingly, the Plan shall terminate and no
further benefits shall be paid hereunder in the event it is determined by a
court of competent jurisdiction or by an opinion of counsel that the Plan
constitutes an employee benefit plan within the meaning of Section 3(3) of
ERISA.
9.2 UNSECURED GENERAL CREDITOR
Participants and their Beneficiaries, heirs, successors and assigns
shall have no legal or equitable rights, interest or claims in any property or
assets of the Company, nor shall they be Beneficiaries of, or have any rights,
claims or interests in any life insurance policies, annuity contracts or the
proceeds therefrom owned or which may be acquired by the Company. Except as may
be provided in Section 9.3, such policies, annuity contracts or other assets of
the Company shall not be held under any trust for the benefit of Participants,
their Beneficiaries, heirs, successors or assigns, or held in any way as
collateral security for the fulfilling of the obligations of the Company under
this Plan. Any and all of the Company's assets and policies shall be, and
remain, the general, unpledged, unrestricted assets of the Company. The
Company's obligation under the Plan shall be that of an unfunded and unsecured
promise to pay money in the future.
9.3 TRUST FUND
The Company shall be responsible for the payment of all benefits
provided under the Plan. At its discretion, the Company may establish one (1) or
more trusts, with such trustees as the Board may approve, for the purpose of
providing for the payment of such benefits. Such trust or trusts may be
irrevocable, but the assets thereof shall be subject to the claims of the
Company's creditors. To the extent any benefits provided under the Plan are
actually paid from any such trust, the Company shall have no further obligation
with respect thereto, but to the extent not so paid, such benefits shall remain
the obligation of, and shall be paid by, the Company.
9.4 NONASSIGNABILITY
Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise
encumber, transfer, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, which are, and all
rights to which are, expressly declared to be unassignable and nontransferable.
No part of the amount payable shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency.
9.5 NOT A CONTRACT OF EMPLOYMENT
The terms and conditions of this Plan shall not be deemed to constitute
a contract of employment or other engagement between the Company and the
Participant, and the Participant (or his Beneficiary) shall have no rights
against the Company except as may otherwise be specifically provided herein.
Moreover, nothing in this Plan shall be deemed to give a Participant the right
to be retained as a director of the Company.
9.6 PROTECTIVE PROVISIONS
A Participant will cooperate with the Company by furnishing any and all
information requested by the Company, in order to facilitate the payment of
benefits hereunder, and by taking such physical examinations as the Company may
deem necessary and taking such other action as may be requested by the Company.
<PAGE> 7
9.7 TERMS
Whenever any words are used herein in the masculine, they shall be
construed as though they were used in the feminine in all cases where they would
so apply; and wherever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural or
singular, as the case may be, in all cases where they would so apply.
9.8 CAPTIONS
The captions of the articles, sections and paragraphs of this Plan are
for convenience only and shall not control or affect the meaning or construction
of any of its provisions.
9.9 GOVERNING LAW
The provisions of this Plan shall be construed, interpreted and
governed in all respects in accordance with applicable federal law and, to the
extent not preempted by such federal law, in accordance with the laws of the
State of Florida.
9.10 VALIDITY
If any provision of this Plan shall be held illegal or invalid for any
reason, the remaining provisions shall nevertheless continue in full force and
effect without being impaired or invalidated in any way.
9.11 NOTICE
Any notice or filing required or permitted to be given to the Board
under the Plan shall be sufficient if in writing and hand delivered, or sent by
registered or certified mail, to the Board at 450 S. Australian Avenue, P.O. Box
3515, West Palm Beach, Florida 33402-3515. Such notice shall be deemed given as
of the date of delivery or, if delivery is made by mail, as of the date shown on
the postmark on the receipt for registration or certification.
9.12 REQUIRED REGULATORY PROVISIONS
Notwithstanding anything herein contained to the contrary, any benefits
paid by the Company, whether pursuant to this Plan or otherwise, are subject to
and conditioned upon their compliance with Section 18(k) of the Federal Deposit
Insurance Act ("FDI Act"), 12 U.S.C. Section 1828(k), and any regulations
promulgated thereunder.
9.13 SEVERABILITY
A determination that any provision of the Plan is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
9.14 PAYMENTS OF SMALL AMOUNTS
Notwithstanding any other provision of the Plan, if the present value
of the retirement allowance payable hereunder shall at any time after
termination of service as a Board member and prior to the commencement of
payment thereof be less than ten thousand dollars ($10,000), then the Board may
direct that it be paid in such lump sum in lieu of all other benefits under the
Plan. For purposes of this Section 9.14, present values shall be determined
using the interest rate and mortality assumptions then in use under Section 415
of the Code for purposes of valuing lump-sum payments under tax-qualified
defined benefit plans, assuming payment would begin at the later of age
sixty-five (65) or the date of termination of service.
<PAGE> 8
9.15 SUCCESSORS
The provisions of this Plan shall bind and inure to the benefit of the
Company and its successors and assigns. The term successors as used herein shall
include any corporate or other business entity which shall, whether by merger,
consolidation, purchase or otherwise acquire all or substantially all of the
business and assets of the Company, and successors of any such corporation or
other business entity.
FIRST PALM BEACH BANCORP, INC.
By: /s/ LOUIS O. DAVIS, JR.
--------------------------------
President
By: /s/ JOHN C. TRAMMEL
--------------------------------
Secretary
<PAGE> 1
Exhibit 10.31
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF THE PALM BEACHES
EMPLOYEE STOCK OWNERSHIP PLAN
Effective January 1, 1993,
amended and restated April, 1995
<PAGE> 2
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF THE PALM BEACHES
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. PLAN IDENTITY.
1.1 NAME. The name of this Plan is "First Federal Savings and Loan
Association of the Palm Beaches Employee Stock Ownership Plan."
1.2 PURPOSE. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 EFFECTIVE DATE. The Effective Date of this Plan is January 1, 1993.
1.4 FISCAL PERIOD. This Plan shall be operated on the basis of a
January 1 December 31 fiscal year for the purpose of keeping the Plan's books
and records and distributing or filing any reports or returns required by law.
1.5 SINGLE PLAN FOR ALL EMPLOYERS. This Plan shall be treated as a
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there has been any termination of Service, and applying the limitations
set forth in Section 5.
1.6 INTERPRETATION OF PROVISIONS. The Employers intend this Plan and
the Trust to be a qualified stock bonus plan under Section 401(a) of the Code
and an employee stock ownership plan within the meaning of Section 407(d)(6) of
ERISA and Section 4975(c)(7) of the Code. The Plan is intended to have its
assets invested primarily in qualifying employer securities of one or more
Employers within the meaning of Section 407(d)(3) of ERISA, and to satisfy any
requirement under ERISA or the Code applicable to such a plan. Accordingly, the
Plan and Trust Agreement shall be interpreted and applied in a manner consistent
with this intent and shall be administered at all times and in all respects in a
nondiscriminatory manner.
Section 2. DEFINITIONS. The following capitalized words and phrases shall have
the meanings specified when used in this Plan and in the Trust Agreement, unless
the context clearly indicates otherwise:
"Account" means a Participant's interest in the assets
accumulated under this Plan as expressed in terms of a separate account balance
which is periodically adjusted to reflect his Employer's contributions, the
Plan's investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the
eligibility requirements of Section 3 and who qualifies as an Active Participant
for a particular Plan Year under Section 4.3.
"Beneficiary" means the person or persons who are designated
by a Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving spouse, if any, or
his estate if he is not survived by a spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identify of the
Participant's spouse.
"Break in Service" means any five or more eligibility
computation periods as defined in Section 3.1 hereof in which an Employee has
500 or fewer Hours of Service per period. Solely for this purpose, an Employee
shall be considered employed for his normal hours of paid employment during a
Recognized Absence, unless he does not resume his Service at the end of the
Recognized Absence. Further, if an Employee is absent for any period beginning
on or after January 1, 1993, (i) by reason of the Employee's pregnancy, (ii) by
reason of the birth of the Employee's child, (iii) by reason of the placement of
a child with the Employee in connection with the Employee's adoption of the
child, or (iv) for purposes of caring for such child for a period beginning
immediately after such birth or placement, the Employee shall be credited with
the Hours of Service which would normally have been credited but for such
absence,
<PAGE> 3
up to a maximum of 501 Hours of Service, in the first 12-month period which
would otherwise be counted toward a Break in Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the
administration of this Plan in accordance with Section 12.
"Company" means First Federal Savings and Loan Association of
the Palm Beaches, and any entity which succeeds to the business of the Company
and adopts this Plan as its own pursuant to Section 14.2.
"Disability" means a condition which renders the Participant
totally and permanently disabled due to sickness or injury, such disability is
likely to be continuous and permanent, and such disability renders the
Participant unable to continue a like gainful occupation. However, this term
shall not include any disability directly or indirectly resulting from or
related to habitual drunkenness or addiction to narcotics, a criminal act or
attempt, service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.
"Early Retirement" means retirement on or after a
Participant's attainment of age 55 and the completion of fifteen years of
service for an Employer.
"Effective Date" means January 1, 1993.
"Employee" means any individual who is or has been employed or
self-employed by an Employer. At the Effective Date of the Plan, Employee shall
mean individuals employed by First Federal Savings and Loan Association of the
Palm Beaches, but shall not include individuals employed by subsidiaries of
First Federal Savings and Loan Association of the Palm Beaches who are not also
employed by the Company. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any related
persons (within the meaning of Section 414(n)(6) of the Code) on a substantially
full-time basis for more than one year, if such services are of a type
historically performed by employees in the Employer's business field. However,
such a "leased employee" shall not be considered an Employee if (i) he
participates in a money purchase pension plan sponsored by the leasing
organization which provides for immediate participation, immediate full vesting,
and an annual contribution of at least 10 percent of the Employee's Total
Compensation, and (ii) leased employees do not constitute more than 20 percent
of the Employer's total work force (including leased employees, but excluding
Highly Paid Employees and any other employees who have not performed services
for the Employer on a substantially full-time basis for at least one year).
"Employer" means the Company or any affiliate within the
purview of section 414(b), (C) or (m) and 415(h) of the Code, any other
corporation, partnership, or proprietorship which adopts this Plan with the
Company's consent pursuant to Section 13.1, and any entity which succeeds to
the business of any Employer and adopts the Plan pursuant to Section 13.2.
"Entry Date" means the Effective Date of the Plan and each
January 1 and July 1 during the Plan Year thereafter.
"ERISA" means the Employee Retirement Income Security Act of
1974 (P.L. 93-406, as amended).
<PAGE> 4
"Highly Paid Employee" for any Plan Year means an Employee
who, during either of that or the immediately preceding Plan Year, (i) owned
more than five percent of the outstanding equity interest or the outstanding
voting interest in any Employer, (ii) had Total Compensation exceeding $75,000
(as adjusted pursuant to section 415(d) of the Code), (iii) had Total
Compensation exceeding $50,000 (as adjusted pursuant to section 415(d) of the
Code) and was among the most highly compensated one-fifth of all Employees, or
(iv) was at any time an officer of an Employer and had Total Compensation
exceeding $45,000 (or 50 percent of the currently applicable dollar limit under
Section 415(b)(1)(A) of the Code). For this purpose:
(a) "Total Compensation" shall include any amount which is
excludable from the Employee's gross income for tax purposes pursuant
to Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees constituting "the most highly
compensated one-fifth of all Employees" shall be determined by taking
into account all individuals working for all related employer entities
described in the definition of "Service", but excluding any individual
who has not completed six months of Service, who normally works fewer
than 17-1/2 hours per week or in fewer than six months per year, who
has not reached age 21, whose employment is covered by a collective
bargaining agreement, or who is a nonresident alien who receives no
earned income from United States sources.
(c) The number of individuals counted as "officers" shall not
be more than the lesser of (i) 50 individuals and (ii) the greater of 3
individuals or 10 percent of the total number of Employees. If no
officer earns more than $45,000 (or the adjusted limit), then the
highest paid officer shall be a Highly Paid Employee.
(d) A former employee shall be treated as a highly compensated
employee if such employee was a highly paid employee when such employee
separated from service, or if such employee was a highly paid employee
at any time after attaining age 55.
(e) If an employee is, during a determination year or
look-back year, a family member of either a 5 percent owner who is an
active or former employee or a highly compensated employee who is one
of the 10 most highly compensated employees ranked on the basis of
compensation paid by the employer during such year, then the family
member and the 5 percent owner or top-ten highly compensated employee
shall be aggregated. In such case, the family member and 5 percent
owner or top-ten highly compensated employee shall be treated as a
single employee receiving compensation and plan contributions or
benefits equal to the sum of such compensation and contributions or
benefits of the family member and 5 percent owner or top-ten highly
compensated employee. For purposes of this section, family member
includes the spouse, lineal ascendants and descendants of the employee
or former employee and the spouses of such lineal ascendants and
descendants.
For this purpose, the determination year shall be the plan
year. The look-back year shall be the twelve-month period immediately
preceding the determination year.
(f) The determination of who is a highly compensated employee,
including the determinations of the number and identity of employees in
the top-paid group, the top 100 employees, the number of employees
treated as officers and the compensation that is considered, will be
made in accordance with section 414(q) of the Code and the regulations
thereunder.
"Holding Company" means First Palm Beach Bancorp, Inc., the
holding company of First Federal Savings and Loan Association of the Palm
Beaches, and any entity which succeeds to the business of the Holding Company
and adopts the Plan in accordance with Section 13.2.
"Hours of Service" means hours to be credited to an Employee
under the following rules:
(a) Each hour for which an Employee is paid or is entitled to
be paid for services to an Employer is an Hour of Service.
<PAGE> 5
(b) Each hour for which an Employee is directly or indirectly
paid or is entitled to be paid for a period of vacation, holidays,
illness, disability, lay-off, jury duty, temporary military duty, or
leave of absence is an Hour of Service. However, except as otherwise
specifically provided, no more than 501 Hours of Service shall be
credited for any single continuous period which an Employee performs no
duties. Further, no Hours of Service shall be credited on account of
payments made solely under a plan maintained to comply with worker's
compensation, unemployment compensation, or disability insurance laws,
or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of
damages) is either awarded or agreed to by an Employer is an Hour of
Service. However, no more than 501 Hours of Service shall be credited
for any single continuous period during which an Employee would not
have performed any duties.
(d) Hours of Service shall be credited in any one period only
under one of the foregoing paragraphs (a), (b) and (c); an Employee may
not get double credit for the same period.
(e) If an Employer finds it impractical to count the actual
Hours of Service for any class or group of non-hourly Employees, each
Employee in that class or group shall be credited with 45 Hours of
Service for each weekly pay period in which he has at least one Hour of
Service. However, an Employee shall be credited only for his normal
working hours during a paid absence.
(f) Hours of Service to be credited on account of a payment to
an Employee (including back pay) shall be recorded in the period of
Service for which the payment was made. If the period overlaps two or
more Plan Years, the Hours of Service credit shall be allocated in
proportion to the respective portions of the period included in the
several Plan Years. However, in the case of periods of 31 days or less,
the Administrator may apply a uniform policy of crediting the Hours of
Service to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be
counted as required by Section 2530.200b-2(b) and (e) of the Department
of Labor's regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund
consisting of assets other than Stock.
"Normal Retirement Age" means a Participant's 65th birthday.
"Normal Retirement Date" means the first day of the month
coincident with or next following attainment of Normal Retirement Age.
"Participant" means any Employee who is participating in the
Plan, or who has previously participated in the Plan and still has a balance
credited to his Account.
"Plan Year" means the plan year commencing January 1, 1993 and
ending December 31, 1993 and each period of 12 consecutive months beginning on
January 1 of each succeeding year.
"Recognized Absence" means a period for which -
(a) an Employer grants and Employee a leave of absence for a
limited period, but only if an Employer grants such leaves on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because
of a change in business conditions; or
(c) an Employee is on active military duty, but only to the
extent that his employment rights are protected by the Military
Selective Service Act of 1967 (38 U.S.C. sec. 2021). "Service" means an
Employee's
<PAGE> 6
period(s) of employment or self-employment with an Employer, excluding
for initial eligibility purposes any period in which the individual was
a nonresident alien and did not receive from an Employer any earned
income which constituted income from sources within the United States.
An Employee's Service shall include any service which constitutes
service with a predecessor employer within the meaning of Section
414(a) of the Code. An Employee's Service shall also include any
service with an entity which is not an Employer, but only either (i)
for a period after 1975 in which the other entity is a member of a
controlled group of corporations or is under common control with other
trades and businesses within the meaning of Section 414(b) or 414(c) of
the Code, and a member of the controlled group or one of the trades and
businesses is an Employer, or (ii) for a period after 1979 in which the
other entity is a member of an affiliated service group within the
meaning of Section 414(m) of the Code, and a member of the affiliated
service group is an Employer.
"Spouse" means the individual, if any, to whom a Participant
is lawfully married on the date benefit payments to the Participant are to
begin, or on the date of the Participant's death, if earlier.
"Stock" means shares of the Company's (or the Company's
holding company's) voting common stock or preferred stock meeting the
requirements of Section 409(e)(3) of the Code issued by an Employer or an
affiliated corporation.
"Stock Fund" means that portion of the Trust Fund consisting
of Stock.
"Stock Obligation" means an indebtedness arising from any
extension of credit to the Plan or the Trust which was obtained for the purpose
of buying Stock and which satisfies the requirements set forth in Section 6.3.
"Total Compensation" means a Participant's wages, salary,
over-time, bonuses, commissions, and any other amounts received for personal
services rendered while in Service from any Employer or an affiliate (within the
purview of Section 414(b), (c), and (m) of the Code), plus his earned income
from any such entity as defined in Section 401(c)(2) of the Code if he is
self-employed. "Total Compensation" shall include (i) severance payments and
amounts paid as a result of termination, (ii) amounts excludable from gross
income under Section 911, (iii) amounts described in Sections 104(a)(3), and
105(a), and 105(h) of the Code to the extent includable in gross income, (iv)
amounts received from an Employer for moving expenses which are not deductible
under Section 217 of the Code, (v) amounts includable in gross income in the
year of, and on account of, the grant of a nonqualified stock option, (vi)
amounts includable in gross income pursuant to Section 83(b) of the Code, and
(vii) amounts includable in gross income under an unfunded nonqualified plan of
deferred compensation, but shall exclude (viii) Employer contributions to or
amounts received from a funded or qualified plan of deferred compensation, (ix)
Employer contributions to a simplified employee pension account to the extent
deductible under Section 219 of the Code, (x) Employer contributions to a
Section 403(b) annuity contract, and (xi) amounts includable in gross income
pursuant to Section 83(a) of the Code, (xii) amounts includable in gross income
upon the exercise of nonqualified stock option or upon the disposition of stock
acquired under any stock option, and (xiii) any other amounts expended by the
Employer on the Participant's behalf which are excludable from his income or
which receive special tax benefits. A Participant's Total Compensation shall
exclude any compensation in any limitation year beginning after 1988 in excess
of $200,000 (or the limit currently in effect under Section 401(a)(17) of the
Code). For purposes of applying the limitations of Section 401(a)(17) of the
Code, the rules relating to the family member's of a Highly Paid Employee will
apply, except that the only the employee's spouse and lineal descendants who
have attained age 19 will be included in as family members.
"Trust" or "Trust Fund" means the trust fund created under
this Plan.
"Trust Agreement" means the agreement between the Company and
the Trustee concerning the Trust Fund. If any assets of the Trust Fund are held
in a co-mingled trust fund with assets of other qualified retirement plans,
"Trust Agreement" shall be deemed to include the trust agreement governing that
co-mingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Section 2.3
of the Trust Agreement are incorporated herein by reference.
<PAGE> 7
"Trustee" means one or more corporate persons and individuals
selected from time to time by the Company to serve as trustee or co-trustees of
the Trust Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund
consisting of the Plan's holding of stock which have been acquired in exchange
for one or more Stock obligations and which have not yet been allocated to the
Participant's Accounts in accordance with Section 4.2
"Valuation Date" means the last day of the Plan Year and each
other date as of which the committee shall determine the investment experience
of the Investment Fund and adjust the Participants' accounts accordingly.
"Valuation Period" means the period following a Valuation Date
and ending with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a
Participant pursuant to Section 9.2 for purposes of determining his vested
interest in his Account.
Section 3. ELIGIBILITY FOR PARTICIPATION.
3.1 INITIAL ELIGIBILITY. An Employee shall enter the Plan as of the
Entry Date coinciding with or next following the later of the following dates:
(a) the date an Employee completes an eligibility computation
period with the Employer during which the Employee completes at least
1,000 hours of service for the Employer, and
(b) attainment by the Employee of age 21.
However, if an Employee is not in active Service with an
Employer on the date he would otherwise first enter the Plan, his entry shall be
deferred until the next day he is in Service.
For purposes of this Plan, a Participant's initial eligibility
computation period shall be the twelve consecutive month period beginning with
the day a Participant first completes an Hour of Service. A Participant's
subsequent eligibility computation periods shall be the Plan Year, commencing
with the Plan Year which includes the first anniversary of the day the
Participant first completed an Hour of Service.
3.2 TERMINATED EMPLOYEES. No Employee shall have any interest or rights
under this Plan if (i) he is never in active Service with an Employer on or
after the Effective Date.
3.3 CERTAIN EMPLOYEES INELIGIBLE. No Employee shall participate in the
Plan while his Service is covered by a collective bargaining agreement between
an Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining between the
Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan. No Employee shall
participate in the Plan while he is actually employed by a leasing organization
rather than an Employer.
3.4 PARTICIPATION AND REPARTICIPATION. Subject to the satisfaction of
the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee returning within five years
of his or her termination who previously satisfied the initial eligibility
requirements shall re-enter the Plan as of the date of his return to Service
with an Employer.
Section 4. EMPLOYER CONTRIBUTIONS AND CREDITS.
4.1 DISCRETIONARY CONTRIBUTIONS. Each Employer shall from time to time
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. An Employer shall have no obligation to contribute any
<PAGE> 8
amount under this Plan except as so determined in its sole discretion. The
Employers' contributions and available forfeitures for a Plan Year shall be
credited as of the last day of the year to the Accounts of the Active
Participants in proportion to their amounts of Cash Compensation.
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS. If the Trustee, upon
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Holding Company shall, subject to the provisions of the Company's
Plan of Conversion and any regulatory prohibitions, contribute for each Plan
Year an amount sufficient to cover all payments of principal and interest as
they come due under the terms of the Stock Obligation. If there is more than one
Stock Obligation, the Employers shall designate the one to which any
contribution is to be applied. The Holding Company's obligation to make
contributions under this Section 4.2 shall be reduced to the extent of any
investment earnings realized on such contributions and any dividends paid by the
Employers on Stock held in the Unallocated Stock Account, which earnings and
dividends shall be applied to the Stock Obligation related to that Stock.
In each Plan Year in which Holding Company contributions,
earnings on contributions, or dividends on unallocated Stock are used as
payments under a Stock Obligation, a certain number of shares of the Stock
acquired with that Stock Obligation which is then held in the Unallocated Stock
Fund shall be released for allocation among the Participants. The number of
shares released shall bear the same ratio to the total number of those shares
then held in the Unallocated Stock Fund (prior to the release) as (i) the
principal and interest payments made on the Stock Obligation in the current Plan
Year bears to (ii) the sum of (i) above, and the remaining principal and
interest payments required (or projected to be required on the basis of the
interest rate in effect at the end of the Plan Year) to satisfy the Stock
Obligation.
At the direction of the Committee, the current and projected
payments of interest under a Stock Obligation may be ignored in calculating the
number of shares to be released in each year if (i) the Stock Obligation
provides for annual payments of principal and interest at a cumulative rate that
is not less rapid at any time than level annual payments of such amounts for 10
years, (ii) the interest included in any payment is ignored only to the extent
that it would be determined to be interest under standard loan amortization
tables, and (iii) the term of the Stock Obligation, by reason of renewal,
extension, or refinancing, has not exceeded 10 years from the original
acquisition of the Stock.
For these purposes, each Stock Obligation, the Stock purchased
with it, and any dividends on such Stock, shall be considered separately. The
Stock released from the Unallocated Stock Fund in any Plan Year shall be
credited as of the last day of the year to the Accounts of the Active
Participants in proportion to their amounts of Cash Compensation.
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS. For the purposes of this
Plan, the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the
eligibility requirements under Section 3 and who has completed at least 1,000
Hours of Service during the Plan Year. However, a Participant shall not qualify
as an Active Participant unless (i) he is in active Service with an Employer as
of the last day of the Plan Year, or (ii) he is on a Recognized Absence as of
that date, or (iii) his Service terminated during the Plan Year by reason of
Normal Retirement, Early Retirement, Disability or death.
"Cash Compensation" means the Participant's rate of regular
salary as of January 1 of each Plan Year, overtime pay, Christmas bonuses,
director's fees and amounts that become taxable to Employees due to group life
insurance coverage, exclusive of fringe benefits, any other Plan contributions,
commissions, night differentials, and other bonuses. In addition to other
applicable limitations set forth in the Plan, and notwithstanding any other
provision of the Plan to the contrary, for Plan Years beginning on or after
January 1, 1994, the annual compensation of each employee taken into account
under the Plan shall not exceed the Omnibus Budget Reconciliation Act of 1993
("OBRA '93") annual compensation limit. The OBRA '93 annual compensation limit
is $150,000, as adjusted by the Commissioner for increases in the cost of living
in accordance with section 401(a)(17)(B) of the Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation
<PAGE> 9
is determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93 annual
compensation limit will be multiplied by a fraction, the numerator of which is
the number of months in the determination period, and the denominator is 12.
For Plan Years beginnings on or after January 1, 1994, any
reference in this Plan to the limitation under section 401(a)(17) of the Code
shall mean the OBRA '93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken
into account in determining an employee's benefits accruing in the current Plan
Year, the compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning the first day of
the first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
4.4 CONDITIONS AS TO CONTRIBUTIONS. Employers' contributions shall in
any event be subject to the limitation set forth in Section 5. Contributions may
be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less that
it would have been if the contribution had never been made.
Section 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS.
5.1 LIMITATION ON ANNUAL ADDITIONS. Notwithstanding the provisions of
Section 4, the annual addition to a Participant's accounts under this and any
other defined contribution plans maintained by the Employers or an affiliate
(within the purview of Section 414(b), (c), and (m) and Section 415(h) of the
Code, which affiliate shall be deemed an Employer for this purpose) shall not
exceed for any limitation year an amount equal to the lesser of -
5.1-1 $30,000, or the dollar limitation currently in effect;
or
5.1-2 25 percent of the Participant's Total Compensation for
such limitation year.
For purposes of this Section 5.1 and the following Section 5.2, the "annual
addition" to a Participant's accounts means the sum of (i) the Employer
contributions and Employee forfeitures credited to a Participant's accounts with
respect to a limitation year, plus (ii) the Participant's total voluntary
contributions for that year. The $30,000 and $90,000 limitations referred to
shall, for each limitation year ending after 1988, be automatically adjusted to
the new dollar limitations determined by the Commissioner of Internal Revenue
for the calendar year beginning in that limitation year. Notwithstanding the
foregoing, if the special limitations on annual additions described in section
415(c)(6) of the Code applies, the limitations described in this section shall
be adjusted accordingly. A "limitation year" means each 12 consecutive month
period beginning January 1.
5.2 COORDINATED LIMITATION WITH OTHER PLANS. Aside from the limitation
prescribed by Section 5.1 with respect to the annual addition to a Participant's
accounts for any single limitation year, if a Participant has ever participated
in one or more defined benefit plans maintained by an Employer or an affiliate,
then the annual additions to his accounts shall be limited on a cumulative basis
so that the sum of his defined contribution plan fraction and his defined
benefit plan fraction does not exceed one. For this purpose:
5.2-1 A Participant's defined contribution plan fraction with
respect to a Plan Year shall be a fraction, (i) the numerator of which
is the sum of the annual additions to his accounts through the current
year, and (ii) the denominator of which is the sum of the lesser of the
following amounts -A- and -B- determined
<PAGE> 10
for the current limitation year and each prior limitation year of
Service with an Employer: -A- is 1.25 times $30,000, or 1.0 times such
dollar limitation if the Plan is top-heavy, and -B- is 35 percent of
the Participant's Total Compensation for such year. Further, if the
Participant participated in any related defined contribution plan in
any years beginning before 1976, any excess of the sum of the actual
annual additions to the Participant's accounts for those years over the
maximum annual additions which could have been made in accordance with
Section 5.1 shall be ignored, and voluntary contributions by the
Participant during those years shall be taken into account as to each
such year only to the extent that his average annual voluntary
contribution in those years exceeded 10 percent of his average annual
Total Compensation in those years.
5.2-2 A Participant's defined benefit plan fraction with
respect to a limitation year shall be a fraction, (i) the numerator of
which is his projected annual benefit payable at normal retirement
under the Employers' defined benefit plans, and (ii) the denominator of
which is the lesser of (a) 1.25 times $90,000, or 1.0 times such dollar
limitation if the Plan is top-heavy, and (b) 1.4 times the
Participant's average Total Compensation during his highest-paid three
consecutive limitation years.
5.3 EFFECT OF LIMITATIONS. The Committee shall take whatever action may
be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
held in a suspense account to be allocated in lieu of any Employer contributions
in future years until it is eliminated, and to be returned to the Employer if it
cannot be credited consistent with these limitations before the termination of
the Plan.
5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS. Aside from the limitations
set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns
(taking into account the attribution rules under Section 318(a) of the Code,
without regard to the exception for employee plan trusts in Section
318(a)(2)(B)(i) more than 25 percent of any class of stock of a corporation
which issued the Stock acquired by the Plan, or another corporation within the
same controlled group, as defined in Section 409(l)(4) of the Code (any such
class of stock hereafter called a "Related Class"). For this purpose, a
Participant who owns more than 25 percent of any Related Class at any time
within the one year preceding the Plan's purchase of the Stock shall be subject
to the restriction as to all allocations of the Stock, but any other Participant
shall be subject to the restriction only as to allocations which occur at a time
when he owns more than 25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder
claiming the benefit of Section 1042 and any other Participant who is related to
such a shareholder within the meaning of Section 267(b) of the Code, during the
period beginning on the date on which the Plan purchases the Stock and ending 10
years after the later of (i) the date of such purchase, and (ii) the date of the
allocation under Section 4.2 attributable to the final payment on whatever Stock
Obligations were incurred with the purchase.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
<PAGE> 11
Section 6. TRUST FUND AND ITS INVESTMENT.
6.1 CREATION OF TRUST FUND. All amounts received under the Plan from
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Company and the Trustee. The
benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Company, any other Employer, its board of directors
or trustees, its stockholders, its officers, its employees, the Committee, and
the Trustee shall be liable for payment of any benefit under this Plan except
from the Trust Fund.
6.2 STOCK FUND AND INVESTMENT FUND. The Trust Fund held by the Trustee
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.3 of the Trust Agreement.
6.3 ACQUISITION OF STOCK. From time to time the Committee may, in its
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for
such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". Any Stock Obligation shall be subject to the following
conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall
not be payable on demand except in the event of default, and shall bear
a reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the
Stock Obligation, or the Stock previously pledged in connection with a
prior Stock Obligation which is being repaid with the proceeds of the
current Stock Obligation. No other assets of the Plan and Trust may be
used as collateral for a Stock Obligation, and no creditor under a
Stock Obligation shall have any right or recourse to any Plan and Trust
assets other than Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must
provide for the release of pledged Stock in connection with payments on
the Stock Obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock
Obligation generally shall be made by the Trustee from Holding Company
cash contributions designated for such payments, from earnings on such
contributions, and from cash dividends received on Stock held in the
Unallocated Stock Fund.
6.4 PARTICIPANTS' OPTION TO DIVERSIFY. The Committee shall provide for
a procedure under which each Participant may, during the first five years of a
certain six-year period, elect to have up to 25 percent of the value of his
Account committed to alternative investment options within the Investment Fund.
For the sixth year in this period, the Participant may elect to have up to 50
percent of the value of his Account committed to other investments. The six-year
period shall begin with the Plan Year following the first Plan Year in which the
Participant has both reached aged 55 and completed 10 years of participation in
the Plan; a Participant's election to diversify his Account must be made within
the 90-day period immediately following the last day of each of the six Plan
Years. The Committee shall see that the Investment fund includes a sufficient
number of investment options to comply with Section 401(a)(28)(B) of the Code.
The Trustee shall comply with any investment directions received from
Participants in accordance with the procedures adopted from time to time by the
Committee under this Section 6.4.
<PAGE> 12
Section 7. VOTING RIGHTS AND DIVIDENDS ON STOCK.
7.1 VOTING AND TENDERING OF STOCK. The Trustee generally shall vote all
shares of Stock held under the Plan. However, if any Employer has
registration-type class of securities within the meaning of Section 409(c)(4) of
the Code, or if a matter submitted to the holders of the Stock involves a
merger, consolidation, recapitalization, reclassification, liquidation,
dissolution, or sale of substantially all assets of an entity, then (i) the
shares of Stock which have been allocated to Participants' Accounts shall be
voted by the Trustee in accordance with the Participants' written instructions,
and (ii) the Trustee shall vote any shares of Stock which have been allocated to
Participants' Accounts but for which no written instructions have been received
and any unallocated Stock in a manner calculated to most accurately reflect the
instructions it has received from Participants regarding the allocated Stock. In
the event no shares of Stock have been allocated to Participants' Accounts at
the time Stock is to be voted, each Participant shall be deemed to have one
share of Stock allocated to his or her account for the sole purpose of providing
the Trustee with voting instructions. Notwithstanding any provision hereunder to
the contrary, all shares of Stock which have been allocated to Participants'
Accounts and for which the Trustee has received no written instructions and all
unallocated shares of Stock must be voted by the Trustee in a manner determined
by the Trustee to be solely in the interest of the Participants and
Beneficiaries. Whenever such voting rights are to be exercised, the Employers,
the Committee, and the Trustee shall see that all Participants and Beneficiaries
are provided with the same notices and other materials as are provided to other
holders of the Stock, and are provided with adequate opportunity to deliver
their instructions to the Trustee regarding the voting of Stock allocated to
their Accounts. The instructions of the Participants' with respect to the voting
of allocated shares hereunder shall be confidential.
7.1 -1 In the event of a tender offer, Stock shall be tendered
by the Trustee in the same manner as set forth above with respect to
the voting of Stock. Notwithstanding any provision hereunder to the
contrary, Stock must be tendered by the Trustee in a manner determined
by the Trustee to be solely in the interest of the Participants and
Beneficiaries.
7.2 DIVIDENDS ON STOCK. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Company paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.03 and invested as part of the Investment Fund, (ii)
be distributed immediately to the Participants in proportion with the
Participants' Account balance; (iii) be distributed to the Participants within
90 days of the close of the Plan Year in which paid in proportion with the
Participants' Account balance; or (iv) be used to repay principal and interest
on the Stock Obligation used to acquire Stock on which the dividends were paid.
Dividends on Stock held in the Unallocated Stock Fund which are received by the
Trustee in the form of cash shall be applied as soon as practicable to payments
of principal and interest under the Stock Obligation incurred with the purchase
of the Stock.
Section 8. ADJUSTMENTS TO ACCOUNTS.
8.1 ADJUSTMENTS FOR TRANSACTIONS. An Employer contribution pursuant to
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed. Stock released from the
Unallocated Stock Fund upon the Trust's repayment of a Stock Obligation pursuant
to Section 4.2 shall be credited to the Participants' Accounts as of the last
day of the Plan Year in which the repayment occurred. Any excess amounts
remaining from the use of proceeds of a sale of Stock from the Unallocated Stock
Fund to repay a Stock Obligation shall be allocated as of the last day of the
Plan Year in which the repayment occurred among the Participants' Accounts in
proportion to the opening balance in each Account. Any benefit which is paid to
a Participant or Beneficiary pursuant to Section 10 shall be charged to the
Participant's Account as of the first day of the Valuation Period in which it is
paid. Any forfeiture or restoral shall be charged or credited to the
Participant's Account as of the first day of the Valuation Period in which the
forfeiture or restoral occurs pursuant to Section 9.6.
8.2 VALUATION OF INVESTMENT FUND. As of each Valuation Date, the
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability
<PAGE> 13
at its fair market value. Any liability with respect to short positions or
options and any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE. Any net gain or loss of the
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account.
8.4 ADJUSTMENTS FOR CAPITAL CHANGES. In the event of any change in the
outstanding shares of Stock 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 issuing the Stock, the Committee shall adjust the number of shares
of Stock allocated to the Participants' Accounts to prevent dilution or
enlargement of such Accounts.
Section 9. VESTING OF PARTICIPANTS' INTERESTS.
9.1 DEFERRED VESTING IN ACCOUNTS. A Participant's vested interest in
his Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
VESTING YEARS PERCENTAGE OF INTEREST VESTED
------------- -----------------------------
fewer than 5 0%
5 or more 100%
9.2 COMPUTATION OF VESTING YEARS. For purposes of this Plan, a "Vesting
Year" means each vesting computation period in which an Employee has at least
1,000 Hours of Service. An Employee's first vesting computation period shall be
the 12 consecutive month period beginning with his initial Service with any
Employer, and including certain Service with other employers as provided in the
definition of "Service". Subsequent vesting computation periods shall be the
Plan Year, commencing with the Plan Year which includes the first anniversary of
the day the Participant first completed an Hour of Service. However, a
Participant's Vesting Years shall be computed subject to the following
conditions and qualifications:
(a) A Participant's vested interest in his Account accumulated
before a Break in Service shall be determined without regard to any
Service after the Break. Further, if a Participant has a Break in
Service before his interest in his Account has become vested to some
extent, he shall lose credit for any Vesting Year before the Break.
Notwithstanding the foregoing, in the event a Participant has an
eligibility computation period (as defined in Section 3.1 of the Plan)
during which he performs 500 or fewer Hours of Service (a "one year
break in Service"), and then returns to Service prior to having a Break
in Service, his Service performed both before and after his break in
employment shall be taken into account in determining his Vesting
Years.
(b) Unless otherwise specifically excluded, a Participant's
Vesting Years shall include any period of active military duty to the
extent required by the Military Selective Service Act of 1967 (38
U.S.C. Section 2021).
9.3 FULL VESTING UPON CERTAIN EVENTS. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest on the Participant's
Normal Retirement Age, provided the Participant is in Service on or after that
date.
<PAGE> 14
The Participant's interest shall also fully vest in the event that his Service
is terminated by Early Retirement, Disability or by death.
9.4 FULL VESTING UPON PLAN TERMINATION. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each Participant who is in Service shall fully vest
with respect to that part of the Plan which is terminated.
9.5 FORFEITURE, REPAYMENT, AND RESTORAL. If a Participant's Service
terminates prior to his Account having become vested, such Participant shall be
deemed to have a received a distribution of his vested interest as of the
Valuation Date next following his termination of Service.
9.6 ACCOUNTING FOR FORFEITURES. A forfeiture shall be charged to the
Participant's Account as of the first day of the first Valuation Period in which
the forfeiture becomes certain pursuant to Section 9.5. Except as otherwise
provided in that Section, a forfeiture shall be added to the contributions of
the terminated Participant's Employer which are to be credited to other
Participants pursuant to Section 4.2 as of the last day of the Plan Year in
which the forfeiture becomes certain.
9.7 VESTING AND NONFORFEITABILITY. A Participant's interest in his
Account which has become vested shall be nonforfeitable for any reason.
Section 10. PAYMENT OF BENEFITS.
10.1 BENEFITS FOR PARTICIPANTS. A Participant whose Service ends for
any reason shall receive the vested portion of his Account in a single payment
on a date selected by the Committee. That date shall be on or before the 60th
day after the end of the Plan Year in which his Service ends. Notwithstanding
the foregoing, if the balance credited to his Account exceeds $3,500, his
benefits shall not be paid before the latest of his 65th birthday or the tenth
anniversary of the year in which he commenced participation in the Plan unless
he elects an early, payment date in a written election filed with the Committee.
A Participant may modify such an election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to the
Committee. In all events, a Participant's benefits shall be paid by April 1st of
the calendar year in which he reaches age 71-1/2. A Participant's benefits from
that portion of his Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the day of payment.
10.2 BENEFITS ON A PARTICIPANT'S DEATH. If a Participant dies before
his benefits are paid pursuant to Section 10.1, the balance credited to his
Account shall be paid to his Beneficiary in a single distribution on or before
the 60th day after the end of the Plan Year in which he died. The benefits from
that portion of the Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the date of payment.
If a married Participant dies before his benefit payments
begin, than unless he has specifically elected otherwise the Committee shall
cause the balance in his Account to be paid to his Spouse. No election by a
married Participant of a different Beneficiary shall be valid unless the
election is accompanied by the Spouse's written consent, which (i) must
acknowledge the effect of the election, (ii) must explicitly provide either that
the designated Beneficiary may not subsequently be changed by the Participant
without the Spouse's further consent, or that it may be changed without such
consent, and (iii) must be witnessed by the Committee, its representative, or a
notary public. This requirement shall not apply if the Participant establishes
to the Committee's satisfaction that the Spouse may not be located.
10.3 MARITAL STATUS. The Committee shall from time to time take
whatever steps it deems appropriate to keep informed of each Participant's
marital status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit
<PAGE> 15
payments made as a result of the Committee's good faith and reasonable reliance
upon information obtained from a Participant and his Employer as to his marital
status.
10.4 DELAY IN BENEFIT DETERMINATION. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 ACCOUNTING FOR BENEFIT PAYMENTS. Any benefit payment shall be
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
10.6 OPTIONS TO RECEIVE AND SELL STOCK. Unless ownership of virtually
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or
by-laws of the Employers issuing Stock, a terminated Participant or the
Beneficiary of a deceased Participant may instruct the Committee to distribute
the Participant's entire vested interest in his Account in the form of Stock. In
that event, the Committee shall apply the Participant's vested interest in the
Investment Fund to purchase sufficient Stock from the Stock Fund or from any
owner of stock to make the required distribution. In all other cases, the
Participant's vested interest in the Stock Fund shall be distributed in shares
of Stock, and his vested interest in the Investment Fund shall be distributed in
cash.
Any Participant who receives Stock pursuant to Section 10.1,
and any person who has received Stock from the Plan or from such a Participant
by reason of the Participant's death or incompetency, by reason of divorce or
separation from the Participant, or by reason of a rollover contribution
described in Section 402(a)(5) of the Code, shall have the right to require the
Employer which issued the Stock to purchase the Stock for its current fair
market value (hereinafter referred to as the "put right"). The put right shall
be exercisable by written notice to the Committee during the first 60 days after
the Stock is distributed by the Plan, and, if not exercised in that period,
during the first 60 days in the following Plan Year after the Committee has
communicated to the Participant its determination as to the Stock's current fair
market value. However, the put right shall not apply to the extent that the
Stock, at the time the put right would otherwise be exercisable, may be sold on
an established market in accordance with federal and state securities laws and
regulations. If the put right is exercised, the Trustee may, if so directed by
the Committee in its sole discretion, assume the Employer's rights and
obligations with respect to purchasing the Stock.
The Employer or the Trustee, as the case may be, may elect to
pay for the Stock in equal periodic installments, not less frequently than
annually, over a period not longer than five years from the 30th day after the
put right is exercised, with adequate security and interest at a reasonable rate
on the unpaid balance, all such terms to be set forth in a promissory note
delivered to the seller with normal terms as to acceleration upon any uncured
default.
Nothing contained herein shall be deemed to obligate any
Employer to register any Stock under any federal or state securities law or to
create or maintain a public market to facilitate the transfer or disposition of
any Stock. The put right described herein may only be exercised by a person
described in the second preceding paragraph, and may not be transferred with any
Stock to any other person. As to all Stock purchased by the Plan in exchange for
any Stock Obligation, the put right be nonterminable. The put right for Stock
acquired through a Stock Obligation shall continue with respect to such Stock
after the Stock Obligation is repaid or the Plan ceases to be an employee stock
ownership plan. Except as provided above, in accordance with the provisions of
Sections 54.4975-7(b)(4) of the Treasury Regulations, no Stock acquired with the
proceeds of a Stock Obligation may be subject to any put, call or other option
or buy-sell or similar arrangement while held by and when distributed from the
Plan, whether the Plan is then an employee stock ownership plan.
10.7 RESTRICTIONS ON DISPOSITION OF STOCK. Except in the case of Stock
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan
or from such a Participant by reason of the Participant's death or incompetency,
by reason of divorce or separation from the Participant, or by reason of a
rollover contribution described in Section 402(a)(5) of the Code, shall, prior
to any sale or other transfer of the Stock to any other person, first offer the
Stock to the issuing Employer and to the Plan
<PAGE> 16
at its current fair market value. This restriction shall apply to any transfer,
whether voluntary, involuntary, or by operation of law, and whether for
consideration or gratuitous. Either the Employer or the Trustee may accept the
offer within 14 days after it is delivered. Any Stock distributed by the Plan
shall bear a conspicuous legend describing the right of first refusal under this
Section 10.7, as well as any other restrictions upon the transfer of the Stock
imposed by federal and state securities laws and regulations.
10.8 DIRECT TRANSFER OF ELIGIBLE PLAN DISTRIBUTIONS. Effective for
payments of benefits made on or after January 1, 1993, a Participant or
Beneficiary may direct that an "eligible rollover distribution" (as defined
below) included in such payment be paid directly to an "eligible retirement
plan" (as defined below).
To effect such a direct transfer, the Participant or
Beneficiary must notify the Committee that a direct transfer is desired and
provide to the Committee the eligible retirement plan to which the payment is to
be made. Such notice shall be made in such form and at such time as the
Committee may prescribe. Upon receipt of such notice, the Committee shall direct
the Trustee to make a trustee-to-trustee transfer of the eligible rollover
distribution to the eligible retirement plan so specified.
For purposes of this Section 10.8, an "eligible rollover
distribution" shall have the meaning set forth in Section 402(c)(4) of the Code
and any regulations promulgated thereunder. To the extent such meaning is not
inconsistent with the above references, an eligible rollover distribution shall
mean any distribution of all or any portion of the Participant's Account, except
that such term shall not include any distribution which is one of a series of
substantially equal periodic payments (not less frequently than annually) made
(i) for the life (or life expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and a designated Beneficiary, or
(ii) for a period of ten years or more. Further, the term "eligible rollover
distribution shall not include any distribution required to be made under
Section 401(a)(9) of the Code.
For purposes of this Section 10.8, an "eligible retirement
plan" shall have the meaning set forth in Section 402(c)(8) of the Code and any
regulations promulgated thereunder. To the extent such meaning is not
inconsistent with the above references, an eligible retirement plan shall mean:
(i) an individual retirement account described in Section 408(a) of the Code;
(ii) an individual retirement annuity described in Section 408(b) of the Code
(other than an endowment contract), (iii)a qualified trust described in Section
401(a) of the Code and exempt under Section 501(a) of the Code, and (iv) an
annuity plan described in Section 403(a) of the Code.
Section 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS.
11.1 CLAIM FOR BENEFITS. Any Participant or Beneficiary who qualifies
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any election
of an alternative benefit form, shall be filed at least 30 days before the date
on which the benefits are to begin. If a Participant or Beneficiary fails to
file a claim by the 30th day before the date on which benefits become payable,
he shall be presumed to have filed a claim for payment for the Participant's
benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 NOTIFICATION BY COMMITTEE. Within 90 days after receiving a claim
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on
which the denial is based;
(iii) a description of any additional material or information
which could be submitted by the Participant or Beneficiary to support
his claim, with an explanation of the relevance of such information;
and
<PAGE> 17
(iv) an explanation of the claims review procedures set forth
in Section 11.3.
11.3 CLAIMS REVIEW PROCEDURE. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination. In
connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent
not inconsistent with other Participants' and Beneficiaries' rights of privacy.
Within 60 days after receiving a notice of appeal from a prior determination (or
within 120 days, if special circumstances require an extension of time and
written notice of the extension is given to the Participant or Beneficiary and
his representative within 60 days after receiving the notice of appeal), the
Committee shall furnish to the Participant or Beneficiary and his
representative, if any, a written statement of the Committee's final decision
with respect to his claim, including the reasons for such decision and the
particular Plan provisions upon which it is based.
Section 12. THE COMMITTEE AND ITS FUNCTIONS.
12.1 AUTHORITY OF COMMITTEE. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Company, the Employers, or the Trustee under
the Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Company, the Employers, the Committee, or the Trustee, or (iii) allocated to
other parties by operation of law. The Committee shall have exclusive
responsibility regarding decisions concerning the payment of benefits under the
Plan.
The Committee shall have no investment responsibility with
respect to the Investment Fund except to the extent, if any, specifically
provided in the Trust Agreement. In the discharge of its duties, the Committee
may employ accountants, actuaries, legal counsel, and other agents (who also may
be employed by an Employer or the Trustee in the same or some other capacity)
and may pay their reasonable expenses and compensation.
12.2 IDENTITY OF COMMITTEE. The Committee shall consists of three or
more individuals selected by the Company. Any individual, including a director,
trustee. shareholder, officer, or employee of an Employer, shall be eligible to
service as a member of the Committee. The Company shall have the power to remove
any individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Company. The Company shall notify the
Trustee of any change in membership of the Committee.
12.3 DUTIES OF COMMITTEE. The Committee shall keep whatever records may
be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Company. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and
authority with respect to the Plan's holdings of Stock and shall direct the
Trustee in all respects regarding the purchase, retention, sale, exchange, and
pledge of Stock and the creation and satisfaction of Stock Obligations. The
Committee shall at all times act consistently with the Company's long-term
intention that the Plan, as an employee stock ownership plan, be invested
primarily in Stock. Subject to the direction of the Committee with respect to
Stock Obligations pursuant to the provision of Section 4.2, and subject to the
provisions of Sections 6.4 and 10.6 as to Participants' rights under certain
circumstances to have their Accounts invested in Stock or in assets other than
Stock, the Committee shall determine in its sole discretion the extent to which
assets of the Trust shall be used to repay Stock Obligations, to purchase Stock,
or to invest in other assets to be selected by the Trustee or an investment
manager. No provision of the Plan relating to the allocation or vesting of any
interests in the Stock Fund or the Investment Fund shall restrict the Committee
from changing any holdings of the Trust, whether the changes involve an increase
or a decrease in the Stock or other assets credited to Participants' Accounts.
In determining the proper extent of the Trust's investment in Stock, the
Committee shall be
<PAGE> 18
authorized to employ investment counsel, legal counsel, appraisers, and other
agents to pay their reasonable expenses and compensation.
12.4 VALUATION OF STOCK. If the valuation of any Stock is not
established by reported trading on a generally recognized public market, the
Committee shall have the exclusive authority and responsibility to determine its
value for all purposes under the Plan. Such value shall be determined as of each
Valuation Date, and on any other date as of which the Plan purchases or sells
such Stock. The Committee shall use generally accepted methods of valuing stock
of similar corporations for purposes of arm's length business and investment
transactions, and in this connection the Committee shall obtain, and shall be
protected in relying upon, the valuation of such Stock as determined by an
independent appraiser experienced in preparing valuations of similar businesses.
12.5 COMPLIANCE WITH ERISA. The Committee shall perform all acts
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 ACTION BY COMMITTEE. All actions of the Committee shall be
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed, including vacancies. The
members of the Committee may meet informally and may take any action without
meeting as a group.
12.7 EXECUTION OF DOCUMENTS. Any instrument executed by the Committee
shall be signed by any member or employee of the Committee.
12.8 ADOPTION OF RULES. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 RESPONSIBILITIES TO PARTICIPANTS. The Committee shall determine
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY. If the Committee finds
at any time that an individual qualifying for benefits under this Plan is a
minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, a custodian for him
under the Uniform Transfers to Minors Act, or the person having actual custody
of him, or, in the case of an incompetent, to his spouse, his legal guardian, or
the person having actual custody of him, the payments to be used for the
individual's benefit. The Committee and the Trustee shall not be obligated to
inquire as to the actual use of the funds by the person receiving them under
this Section 12.10, and any such payment shall completely discharge the
obligations of the Plan, the Trustee, the Committee, and the Employers to the
extent of the payment.
12.11 INDEMNIFICATION BY EMPLOYERS. Except as separately agreed in
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employers, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved by
reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by insurance.
<PAGE> 19
12.12 NONPARTICIPATION BY INTERESTED MEMBER. Any member of the
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
Section 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN.
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS. With the consent of the
Company, any entity may become a participating Employer under the Plan by (i)
taking such action as shall be necessary to adopt the Plan, (ii) becoming a
party to the Trust Agreement establishing the Trust Fund, and (iii) executing
and delivering such instruments and taking such other action as may be necessary
or desirable to put the Plan into effect with respect to the entity's Employees.
13.2 ADOPTION OF PLAN BY SUCCESSOR. In the event that any Employer
shall be reorganized by way of merger, consolidation, transfer of assets or
otherwise, so that an entity other than an Employer shall succeed to all or
substantially all of the Employer's business, the successor entity may be
substituted for the Employer under the Plan by adopting the Plan and becoming a
party to the Trust Agreement. Contributions by the Employer shall be
automatically suspended from the effective date of any such reorganization until
the date upon which the substitution of the successor entity for the Employer
under the Plan becomes effective. If, within 90 days following the effective
date of any such reorganization, the successor entity shall not have elected to
become a party to the Plan, or if the Employer shall adopt a plan of complete
liquidation other than in connection with a reorganization, the Plan shall be
automatically terminated with respect to Employees of the Employer as of the
close of business on the 90th day following the effective date of the
reorganization, or as of the close of business on the date of adoption of a plan
of complete liquidation, as the case may be.
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION. Notwithstanding any other
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan, may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) either
as originally adopted or as amended, each Employer's contributions to the Trust
under this Plan (including any earnings thereon) shall be returned to it and
this Plan shall be terminated. In the event that this Plan is amended after its
initial qualification and the Plan as amended is held by the Internal Revenue
Service not to qualify under Section 401(a), the amendment may be modified
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure approval of the amendment under Section 401(a).
13.4 RIGHT TO AMEND OR TERMINATE. The Company intends to continue this
Plan as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Company
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of all Employers. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, or shall divert any
portion of the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan.
Except as is required for purposes of compliance with the Code
or ERISA, each as amended from time to time, neither the provisions of Section
4.1 and 4.2 relating to the crediting of contributions, forfeitures and shares
of Stock released from the Unallocated Stock Fund, nor any other provision of
the Plan relating to the allocation of benefits to Participants, may be amended
more frequently than once every six months. Moreover, there shall not be any
transfer of assets to a successor plan or merger or consolidation with another
plan unless, in the event of the termination of the successor plan or the
surviving plan immediately following such transfer, merger, or consolidation,
<PAGE> 20
each participant or beneficiary would be entitled to a benefit equal to or
greater than the benefit he would have been entitled to if the plan in which he
was previously a participant or beneficiary had terminated immediately prior to
such transfer, merger, or consolidation. Following a termination of this Plan by
the Company, the Trustee shall continue to administer the Trust and pay benefits
in accordance with the Plan as amended from time to time and the Committee's
instructions.
Section 14. MISCELLANEOUS PROVISIONS.
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 NONASSIGNABILITY OF BENEFITS. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employers, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a State domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code.
14.3 LIMIT OF EMPLOYER LIABILITY. The liability of the Employers with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 TREATMENT OF EXPENSES. All expenses incurred by the Committee and
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employers or by the Trustee.
14.5 NUMBER AND GENDER. Any use of the singular shall be interpreted to
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 NONDIVERSION OF ASSETS. Except as provided in Sections 5.3 and
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 SEPARABILITY OF PROVISIONS. If any provision of this Plan is held
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 SERVICE OF PROCESS. The agent for the service of process upon the
Plan shall be the president of the Company, or such other person as may be
designated from time to time by the Company.
14.9 GOVERNING STATE LAW. This Plan shall be interpreted in accordance
with the laws of the State of Florida to the extent those laws are applicable
under the provisions of ERISA.
14.10 SPECIAL RULES FOR PERSONS SUBJECT TO SECTION 16(b) REQUIREMENTS.
Notwithstanding anything herein to the contrary, any former Participant who is
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, who becomes eligible to again participate in the Plan, may not become a
Participant prior to the date that is six months from the date such former
Participant terminated participation in the Plan.
<PAGE> 21
In addition, any person subject to the provisions of Section
16(b) of the 1934 Act receiving a distribution of Stock from the Plan must hold
such Stock for a period of six months commencing with the date of distribution.
However, this restriction will not apply to Stock distributions made in
connection with death, retirement, disability of termination of employment or
made pursuant to the terms of a qualified domestic relations order.
Section 15. TOP-HEAVY PROVISIONS.
15.1 DETERMINATION OF TOP-HEAVY STATUS. The Committee shall determine
on a regular basis whether each Plan Year is or is not a "Top-Heavy Year" for
purposes of implementing the provisions of Sections 15.2, 15.3, 15.4, and 5.2
which apply only to the extent the Plan is top-heavy or super top-heavy within
the meaning of Section 416 and the Treasury Regulations promulgated thereunder.
In making this determination, the Committee shall use the following definitions
and principles:
15.1-1 The "Employer" includes all business entities which are
considered commonly controlled or affiliated within the meaning of
Sections 414(b), 414(c), and 414(m) of the Code.
15.1-2 The "plan aggregation group" includes each qualified
retirement plan maintained by the Employer (i) in which a Key Employee
is a Participant during the Plan Year, or (ii) which enables any plan
described in clause (i) to satisfy the requirements of Section
401(a)(4) or 410 of the Code, or (iii) which provides contributions or
benefits comparable to those of the plans described in clauses (i) and
(ii) and which is designated by the Committee as part of the plan
aggregation group.
15.1-3 The "determination date", with respect to the first
Plan Year of any plan, means the last day of that Plan Year, and with
respect to each subsequent Plan Year, means the last day of the
preceding Plan Year. If any other plan has a determination date which
differs from this Plan's determination date, the top- heaviness of this
Plan shall be determined on the basis of the other plan's determination
date falling within the same calendar years as this Plan's
determination date.
15.1-4 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
determination date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having Total
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning
the largest interests in the Employer having Total Compensation greater
than the limit then in effect under Section 415(c)(1)(A), (iii) an
owner of more than five percent of the outstanding equity interest or
the outstanding voting interest in any Employer, or (iv) an owner of
more than one percent of the outstanding equity interest or the
outstanding voting interest in an Employer whose Total Compensation
exceeds $150,000. In determining which individuals are Key Employees,
the rules of Section 415(i) of the Code and Treasury Regulations
promulgated thereunder shall apply, The Beneficiary of a Key Employee
shall also be considered a Key Employee.
15.1-5 A "Non-key Employee" means an Employee who at any time
during the five years ending on the top-heavy determination date for
the Plan Year has received compensation from an Employer and who has
never been a Key Employee, and the Beneficiary of any such Employee.
15.1-6 The "aggregated benefits" for any Plan Year means (i)
the adjusted account balances in defined contribution plans on the
determination date, plus (ii) the adjusted value of accrued benefits in
defined benefit plans, calculated as of the annual valuation date
coinciding with or next preceding the determination date, with respect
to Key Employees and Nonkey Employees under all plans within the plan
aggregation group which includes this Plan. For this purpose, the
"adjusted account balance" for and the "adjusted value of accrued
benefit" for any Employee shall be increased by all plan distributions
made with respect to the Employee during the five years ending on the
determination date. Further, the adjusted account balance under a plan
shall not include any amount attributable to a rollover contribution or
similar transfer to the plan initiated by an Employee and made after
1983, unless both plans involved are maintained by the Employer, in
which
<PAGE> 22
event the transferred amount shall be counted in the transferee plan
and ignored for all purposes in the transferor plan. Finally, the
adjusted value of accrued benefits under any defined benefit plan shall
be determined by assuming whichever actuarial assumptions were applied
by the Pension Benefit Guaranty Corporation to determine the
sufficiency of plan assets for plans terminating on the valuation date.
15.1-7 This Plan shall be "top-heavy" for any Plan Year in
which the aggregated benefits of the Key Employees exceed 60 percent of
the total aggregated benefits for both Key Employees and Nonkey
Employees.
15.1-8 This Plan shall be "super top-heavy" for any Plan Year
in which the aggregated benefits of the Key Employees exceed 90 percent
of the total aggregated benefits for both Key Employees and Nonkey
Employees.
15.1-9 A "Top-Heavy Year" means a Plan Year in which the Plan
is top-heavy.
15.2 MINIMUM CONTRIBUTIONS. For any Top-Heavy Year, each Employer shall
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of (i) four percent of his Total Compensation for that year, or (ii) the highest
ratio of such allocation to Total Compensation received by any Key Employee for
that year. For purposes of the special contribution of this Section 15.2, a Key
Employee's Total Compensation shall include amounts the Key Employee elected to
defer under a qualified 401(k) arrangement. Such a special contribution shall be
made on behalf of each Participant who is employed by an Employer on the last
day of the Plan Year, regardless of the number of his Hours of Service, and
shall be allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Nonkey
Employee is a Participant in both this Plan and a defined benefit plan included
in the plan aggregation group which is top heavy, the sum of the Employer
contributions and forfeitures allocated to the Account of each such Nonkey
Employee shall be equal to at least five percent (5%) of such Nonkey Employee's
Total Compensation for that year.
15.3 MINIMUM VESTING. If a Participant's vested interest in his Account
is to be determined in a Top-Heavy Year, it shall be based on the following
"top-heavy table":
VESTING YEARS PERCENTAGE OF INTEREST VESTED
------------- -----------------------------
fewer than 0%
3 or more 100%
<PAGE> 1
Exhibit 10.32
AMENDMENT 1996-1
TO
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF THE PALM BEACHES
EMPLOYEE STOCK OWNERSHIP PLAN
AND
TRUST AGREEMENT
This amendment is made and entered into the date below written by and
between First Bank of Florida (previously First Federal Savings and Loan
Association of the Palm Beaches" (herein referred to as "The Bank") and MARINE
MIDLAND BANK as Trustee of the Bank's Employee Stock Ownership Plan (herein the
"ESOP") effective as of October 15, 1996.
WITNESSETH
WHEREAS, the Bank adopted an Employee Stock Ownership Plan and its
related Trust Agreement known as The First Federal Savings and Loan Association
of the Palm Beaches Employee Stock Ownership Plan and Trust respectively for the
benefit of its eligible employees effective January 1, 1993, and amended said
plan on several occasions; and
WHEREAS, effective October 15, 1996, the Bank officially became known
as First Bank of Florida; and
WHEREAS, the Bank desires to amend said ESOP and Trust in order to
conform the name of the plan and trust to the name of the Bank;
NOW THEREFORE, The First Federal Savings and Loan Association of the
Palm Beaches Employee Stock Ownership Plan and the Trust Agreement between First
Federal Savings & Loan Association of the Palm Beaches and Marine Midland are
hereby amended in the following particulars:
1) The title page of both documents is hereby amended to replace reference
to First Federal Savings and (&) Loan Association of the Palm Beaches
with reference to First Bank of Florida.
2) Section 2 of the ESOP, the definitions of Company, Employee and Holding
Company are hereby amended to delete reference to First Federal Savings
and Loan Association of the Palm Beaches wherever it appears and to
replace such with the name First Bank of Florida.
3) From and after the effective date of this amendment, these and all
other references to the ESOP and its related Trust are hereby amended
to refer to The First Bank of Florida Employee Stock Ownership Plan and
Trust respectively.
4) Notwithstanding anything herein which might be construed to the
contrary, no participants' rights to benefits under the ESOP shall be
affected in any way as a result of these amendments.
<PAGE> 2
IN WITNESS WHEREOF the Parties have caused these presents to be executed this
17th day of DECEMBER, 1996 at West Palm Beach Palm Beach County, Florida.
FIRST BANK OF FLORIDA
/s/ LOUIS O. DAVIS, JR.
---------------------------------------
President and CEO - Louis O. Davis, Jr.
/s/ JOHN C. TRAMMEL
---------------------------------------
Secretary - John C. Trammel
<PAGE> 1
Exhibit 10.33
FIRST BANK OF FLORIDA
EMPLOYEE STOCK OWNERSHIP PLAN
(EFFECTIVE JANUARY 1, 1993;
AMENDED AND RESTATED EFFECTIVE APRIL 1, 1995)
AMENDMENT
---------
1. SECTION 16 - Effective as of November 18, 1997, a new Section 16 of the Plan
shall be added which shall read in its entirety as follows:
SECTION 16. CHANGE OF CONTROL
16.1 DEFINITION OF CHANGE OF CONTROL; PENDING CHANGE OF CONTROL
(a) A Change of Control shall be deemed to have occurred upon the
happening of any of the following events:
(i) any event upon which any "person" (as such term is used in
sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), other than (A) a trustee or other fiduciary
holding securities under an employee benefit plan maintained
for the benefit of employees of First Palm Beach Bancorp,
Inc.; (B) a corporation owned, directly or indirectly, by the
stockholders of First Palm Beach Bancorp, Inc. in
substantially the same proportions as their ownership of stock
of First Palm Beach Bancorp, Inc.; or (C) any group
constituting a person in which employees of First Palm Beach
Bancorp, Inc. are substantial members, becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of securities issued by
First Palm Beach Bancorp, Inc. representing 20% or more of the
combined voting power of all of First Palm Beach Bancorp,
Inc.'s then outstanding securities; or
(ii) any event upon which the individuals who on the Effective
Date were members of the Board of Directors of First Palm
Beach Bancorp, Inc., together with individuals whose election
by such Board or nomination for election by First Palm Beach
Bancorp, Inc.'s stockholders was approved by the affirmative
vote of at least two-thirds of the members of such Board then
in office who were either members of such Board on the
Effective Date or whose nomination or election was previously
so approved, cease for any reason to constitute a majority of
the members of such Board, but excluding, for this purpose,
any such individual whose initial assumption of office is in
connection with an actual or threatened election contest
relating to the election of directors of First Palm Beach
Bancorp, Inc. (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended; or
(iii) the consummation of either:
(A) a merger or consolidation of First Palm Beach
Bancorp, Inc. with any other corporation, other than
a merger or consolidation following which both of the
following conditions are satisfied:
(I) either (1) the members of the Board of
Directors of First Palm Beach Bancorp, Inc.
immediately prior to such merger or
consolidation constitute at least a majority
of the members of the governing body of the
institution resulting from
<PAGE> 2
such merger or consolidation; or (2) the
shareholders of First Palm Beach Bancorp,
Inc. own securities of the institution
resulting from such merger or consolidation
representing 60% or more of the combined
voting power of all such securities then
outstanding in substantially the same
proportions as their ownership of voting
securities of First Palm Beach Bancorp, Inc.
before such merger or consolidation; and
(II) the entity which results from such
merger or consolidation expressly agrees in
writing to assume and perform First Palm
Beach Bancorp, Inc.'s obligations under the
Plan; or
(B) a complete liquidation of First Palm Beach
Bancorp, Inc. or an agreement for the sale or
disposition by First Palm Beach Bancorp, Inc. of all
or substantially all of its assets; or
(iv) any event that would be described in section 16.1 if
"First Bank of Florida" were substituted for "First Palm Beach
Bancorp, Inc." therein;
In no event, however, shall the transaction by which First Bank of
Florida converted from a mutual institution to a stock institution,
or any transaction by which a company wholly owned by First Bank of
Florida becomes the parent company of First Bank of Florida, be deemed
a Change of Control.
(b) A Pending Change of Control shall be deemed to have occurred upon
the happening of any of the following events:
(i) approval by the stockholders of First Palm Beach Bancorp,
Inc. of a transaction, or a plan for the consummation of a
transaction, which, if consummated, would result in a Change
of Control;
(ii) approval by the Board of Directors of First Palm Beach
Bancorp, Inc. of a transaction, or a plan for the consummation
of a transaction, which, if consummated, would result in a
Change of Control;
(iii) the commencement of a tender offer (within the meaning
of Section 14(d)(i) of the Securities Exchange Act of 1934, as
amended) for securities issued by First Palm Beach Bancorp,
Inc., which, if completed, would result in a Change of
Control;
(iv) the furnishing or distribution of a proxy statement or
other document, whether or not in opposition to management,
soliciting proxies, consents or authorizations (within the
meaning of section 14 of the Securities Exchange Act of 1934,
as amended) in respect of securities issued by First Palm
Beach Bancorp, Inc. in favor of any election, transaction or
other action which, if effected, would result in a Change of
Control; or
(v) any event which would be described in Sections 16.1(b)(i),
(ii), (iii) or (iv) if "First Bank of Florida" were
substituted for "First Palm Beach Bancorp, Inc." therein.
16.2 VESTING ON CHANGE OF CONTROL.
Notwithstanding any other provision of the Plan, upon the effective
date of a Change of Control, the Account of each person who would then,
upon termination of the Plan, be entitled to a benefit, shall be fully
vested and nonforfeitable.
<PAGE> 3
16.3 REPAYMENT OF STOCK OBLIGATIONS.
(a) Notwithstanding any other provision of the Plan, upon the
occurrence of a Change of Control, the Committee shall direct the
Trustee to sell a sufficient number of shares of Stock to repay any
outstanding Stock Obligations in full. The proceeds of such sale shall
be used to repay such Stock Obligations. After repayment of the Stock
Obligations, all remaining shares of Stock which had been unallocated
(or the proceeds from the sale thereof, if applicable) shall be
allocated among the accounts of all Participants who were employed by
an Employer on the effective date of such Change of Control. Such
allocation of Shares or proceeds shall be credited as of the date on
which the Change of Control occurs to the Accounts of each Participant
who has not had a termination of participation under section 2.3 as of
such date, in proportion to the balance credited to their Accounts
immediately prior to such allocation. If any amount cannot be allocated
to such Participant's in the year of such Change of Control as a result
of the limitations of section 415 of the Code, the amounts will be
allocated in subsequent years to those persons who shared in the
allocation and who continue to be Participants in the Plan until all
such amounts are allocated to such Participants.
(b) In the event that the application of section 415 of the Code
prevents the allocation of all of the Stock or other assets released
from the Loan Repayment Account as provided in Section 16.3(a) as of
the effective date of the Change of Control, each Participant who
shares in the allocation shall be entitled to receive a supplemental
benefit payment directly from the Company. The supplemental benefit
payment to each such Participant shall be an amount equal to the excess
of:
(i) the total amount of Stock or other property that would be
allocated to such Participant's Accounts under Section 16.3(a)
if Section 415 of the Code did not apply; over
(ii) the total of Stock or other property actually allocated
to such Participant's Accounts under Section 16.3(a).
Such payment (without offset for any allocations which may occur under
this Plan subsequent to the Change of Control) shall be made as soon as
practicable, but in any event within ten (10) business days, after the
effective date of the Change of Control. This Section 16.3(b) shall be
treated as a separate, non-qualified "excess benefit plan" within the
meaning of section 3(34) of ERISA and shall be interpreted,
administered and enforced in a manner consistent with this intention.
To the extent that any Participant is entitled to the same or a similar
payment under any other non-qualified plan, program or arrangement of
the Employer, any payment under this Section 16.3(b) shall be
coordinated with the payments under such other non-qualified programs,
plan or arrangements in such manner as shall be determined by the
Committee to be necessary to prevent the duplication of benefits.
16.4 PLAN TERMINATION AFTER CHANGE OF CONTROL.
Notwithstanding any other provision of the Plan, after repayment of the
loan and allocation of Stock or proceeds as provided in Section 16.2,
the Plan shall be terminated and all amounts shall be distributed as
soon as practicable.
16.5 AMENDMENT OF SECTION 16.
Notwithstanding any other provision of the Plan, Section 16 of the Plan
may not be amended after the earliest date after November 18, 1997 on
which a Change of Control or Pending Change of Control occurs unless
required by the Internal Revenue Service as a condition to the
continued treatment of the Plan as a tax-qualified plan under section
401(a) of the Code.
<PAGE> 4
IN WITNESS WHEREOF the Parties have caused these presents to be executed this
18th day of November, 1997 at West Palm Beach, Palm Beach County, Florida.
FIRST BANK OF FLORIDA
/s/ LOUIS O. DAVIS, JR.
--------------------------------------
Louis O. Davis, Jr. - President and CEO
/s/ JOHN C. TRAMMEL
--------------------------------------
John C. Trammel - Secretary
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-75524 and 333-27401 of First Palm Beach Bancorp, Inc. on Form S-8 of our
report dated December 5, 1997 appearing in this Annual Report on Form 10-K of
First Palm Beach Bancorp, Inc. for the year ended September 30, 1997.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
West Palm Beach, Florida
December 19, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION FOR THE PERIOD ENDED SEPTEMBER 30,
1997 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS FILED WITH FORM 10-K FOR THE PERIOD ENDED SEPTEMBER 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 21,123
<INT-BEARING-DEPOSITS> 78,806
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 267,810
<INVESTMENTS-CARRYING> 228,291
<INVESTMENTS-MARKET> 231,485
<LOANS> 1,150,146
<ALLOWANCE> 6,046
<TOTAL-ASSETS> 1,808,420
<DEPOSITS> 1,229,279
<SHORT-TERM> 248,946
<LIABILITIES-OTHER> 19,538
<LONG-TERM> 179,764
0
0
<COMMON> 55
<OTHER-SE> 112,975
<TOTAL-LIABILITIES-AND-EQUITY> 1,808,420
<INTEREST-LOAN> 87,746
<INTEREST-INVEST> 28,247
<INTEREST-OTHER> 937
<INTEREST-TOTAL> 116,930
<INTEREST-DEPOSIT> 57,535
<INTEREST-EXPENSE> 72,851
<INTEREST-INCOME-NET> 44,079
<LOAN-LOSSES> 3,281
<SECURITIES-GAINS> 1,520
<EXPENSE-OTHER> 34,406
<INCOME-PRETAX> 15,393
<INCOME-PRE-EXTRAORDINARY> 15,393
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,356
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.85
<YIELD-ACTUAL> 2.91
<LOANS-NON> 7,903
<LOANS-PAST> 183
<LOANS-TROUBLED> 7,864
<LOANS-PROBLEM> 918
<ALLOWANCE-OPEN> 11,855
<CHARGE-OFFS> 11,283
<RECOVERIES> 2,193
<ALLOWANCE-CLOSE> 6,046
<ALLOWANCE-DOMESTIC> 6,046
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
