<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________________
Commission File Number 0-23122
GREAT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 61-1251805
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
ONE FINANCIAL SQUARE, LOUISVILLE, KENTUCKY 40202
(Address of principal executive offices) (Zip Code)
(502) 562-6000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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. X Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, 13,804,439 shares
as of August 5, 1997.
<PAGE>
GREAT FINANCIAL CORPORATION
I N D E X
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION 24
SIGNATURES 25
EXHIBITS INDEX 26
<PAGE>
GREAT FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
(unaudited)
Assets
Cash and cash equivalents ....................... $ 62,270 $ 126,323
Available-for-sale securities, at fair value .... 796,750 667,542
Mortgage loans held for sale .................... 91,338 65,546
Loans receivable, net of allowance for loan
losses of $14,593 (1997) and $13,538 (1996) .. 1,920,058 1,867,511
Federal Home Loan Bank stock, at cost ........... 37,870 34,816
Property and equipment .......................... 35,735 34,127
Mortgage servicing rights ....................... 36,247 37,187
Other assets .................................... 65,959 64,110
----------- -----------
Total assets ......................................... $3,046,227 $2,897,162
=========== ===========
Liabilities
Deposits:
Non-interest bearing ............................ $ 132,198 $ 112,129
Interest bearing ................................ 1,761,347 1,691,874
----------- -----------
Total deposits ................................ 1,893,545 1,804,003
Borrowed funds .................................... 834,812 781,297
Other liabilities ................................. 36,586 31,408
----------- -----------
Total liabilities ............................. 2,764,943 2,616,708
----------- -----------
Commitments and contingencies
Stockholders' equity
Preferred stock, $1.00 par value; 1,000,000
shares authorized and unissued
Common stock, $.01 par value; 24,000,000
shares authorized; 16,531,250 shares issued .. 165 165
Additional paid-in capital ...................... 164,568 162,279
Retained earnings - subject to restrictions ..... 186,431 177,201
Treasury stock, 2,740,548 shares (1997) and
2,414,518 shares (1996), at cost ............. (61,599) (48,845)
Unearned ESOP shares ............................ (9,643) (10,194)
Unearned compensation - stock compensation plans. (2,408) (3,058)
Net unrealized gains on available-for-sale
securities .................................... 3,770 2,906
----------- -----------
Total stockholders' equity ................... 281,284 280,454
----------- -----------
Total liabilities and stockholders' equity ........... $3,046,227 $2,897,162
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
GREAT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Interest income
Loans ................................... $41,019 $38,292 $ 81,061 $75,826
Securities .............................. 14,668 9,646 26,905 17,213
Other ................................... 59 302 275 547
--------- --------- --------- ---------
Total interest income ................ 55,746 48,240 108,241 93,586
--------- --------- --------- ---------
Interest expense
Deposits ................................ 22,763 19,448 44,559 37,824
Borrowed funds .......................... 12,346 9,850 22,645 18,942
--------- --------- --------- ---------
Total interest expense ............... 35,109 29,298 67,204 56,766
--------- --------- --------- ---------
Net interest income .......................... 20,637 18,942 41,037 36,820
Provision for loan losses .................... 775 616 1,498 1,236
--------- --------- --------- ---------
Net interest income after provision for loan
losses ...................................... 19,862 18,326 39,539 35,584
--------- --------- --------- ---------
Non-interest income
Servicing fee income .................... 6,296 6,530 12,648 13,284
Amortization of mortgage servicing rights (2,104) (1,948) (4,146) (3,789)
Commissions from sales of investment and
insurance products...................... 955 488 1,771 959
Service charges on deposit accounts...... 736 610 1,444 1,068
Gain on sale of mortgage loans .......... 1,781 1,889 3,143 3,402
Gain on sale of mortgage servicing rights 1,470 1,240 1,506 1,303
Gain on sale of retail banking office.... 772
Gain (loss) on sale of securities ....... (11) (271) 517 385
Other ................................... 615 475 1,268 1,158
--------- --------- --------- ---------
Net non-interest income .............. 9,738 9,013 18,923 17,770
--------- --------- --------- ---------
Non-interest expense
Compensation and benefits ............... 8,951 8,243 17,851 16,025
Office occupancy and equipment .......... 2,331 2,148 4,576 4,224
Office supplies, postage and telephone .. 1,363 1,241 2,865 2,505
Advertising and marketing ............... 896 882 1,701 1,834
Federal deposit insurance premiums ...... 291 862 557 1,688
Other ................................... 3,674 3,738 7,463 6,944
--------- --------- --------- ---------
Total non-interest expense ........... 17,506 17,114 35,013 33,220
--------- --------- --------- ---------
Income before income taxes.................... 12,094 10,225 23,449 20,134
Income tax expense............................ 4,173 3,664 8,075 7,142
--------- --------- --------- ---------
Net income.................................... $ 7,921 $ 6,561 $15,374 $12,992
========= ========= ========= =========
Earnings per share $0.57 $0.46 $1.09 $0.90
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
GREAT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
Net cash used in operating activities.......... $ (7,907) $ (4,907)
----------- -----------
Investing activities:
Purchases of available-for-sale securities. (384,800) (240,028)
Maturities of available-for-sale securities 107,545 62,756
Principal collected on mortgage-backed
securities ............................... 33,016 33,915
Proceeds from sales of available-for-sale
securities ............................... 117,962 33,884
Increase in loans receivable............... (55,662) (22,060)
Purchases of property and equipment and
other assets ............................. (3,519) (5,174)
Originations of mortgage servicing rights.. (2,051) (2,280)
Purchases of mortgage servicing rights..... (1,438) (51)
Proceeds from sale of mortgage servicing
rights.................................... 1,776 1,375
Purchases of Federal Home Loan Bank Stock.. (1,789) (6,771)
Proceeds from sale of other real estate
owned..................................... 2,240 610
Cash used in sale of retail banking office. (14,900)
Purchase of Lexington Federal Savings Bank,
FSB, net of cash and cash equivalents
acquired.................................. (30,363)
Other ..................................... (396) 48
----------- -----------
Net cash used in investing activities..... (202,016) (174,139)
----------- -----------
Financing activities:
Increase in deposits ...................... 105,374 136,542
Increase (decrease) in short-term
borrowings................................ 19,517 (39,543)
Long-term advances from Federal Home Loan
Bank ..................................... 100,000 90,750
Payments on long-term advances from Federal
Home Loan Bank ........................... (66,002) (24,585)
Increase in mortgage escrow funds ......... 5,879 5,702
Purchases of treasury stock ............... (17,779) (18,794)
Dividends paid ............................ (3,493) (2,964)
Exercise of stock options ................. 2,374 100
----------- ------------
Net cash provided by financing activities. 145,870 147,208
----------- ------------
Net decrease in cash and cash equivalents ..... (64,053) (31,838)
Cash and cash equivalents at beginning of
period ...................................... 126,323 84,167
----------- ------------
Cash and cash equivalents at end of period..... $ 62,270 $ 52,329
=========== ============
Cash paid during the period for:
Interest .................................. $ 66,949 $ 57,030
Income taxes, net ......................... $ 8,277 $ 5,640
Supplemental disclosure of noncash activities:
Additions to real estate acquired in
settlement of loans........................ $ 945 $ 1,506
Accrual of proceeds from sale of mortgage
servicing rights........................... $ 1,594 $ 1,083
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
GREAT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Great Financial Corporation (Company) and its subsidiary,
Great Financial Bank, FSB (Bank). All material intercompany balances
and transactions have been eliminated. The consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been included. Such
adjustments consist only of normal recurring accruals. It is suggested
that these consolidated financial statements be read in conjunction
with the Company's audited financial statements included in its annual
report on Form 10-K for the year ended December 31, 1996. Results of
operations for interim periods are not necessarily indicative of the
results that may be expected for the entire fiscal year.
2. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
(in thousands)
<S> <C> <C>
Cash and due from banks $46,508 $ 27,702
Interest-bearing deposits with banks 5,762 1,315
Federal funds sold 10,000 33,200
Securities purchased under agreements to resell 64,106
--------- ------------
Total cash and cash equivalents $62,270 $126,323
========= ============
</TABLE>
3. SECURITIES
<TABLE>
<CAPTION>
June 30, 1997
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Government and agency obligations $146,108 $ 37 $ (146) $145,999
Other debt securities ................ 28,239 6 (134) 28,111
--------- ---------- ---------- ---------
Total debt securities ............... 174,347 43 (280) 174,110
Mortgage-backed securities ........... 616,504 7,229 (2,632) 621,101
Equity securities .................... 99 1,440 1,539
--------- ---------- ---------- ---------
Total available-for-sale securities ... $790,950 $8,712 $(2,912) $796,750
========= ========== ========== =========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Government and agency obligations $189,048 $ 686 $ (299) $189,435
Other debt securities ................ 1,875 23 1,898
--------- ---------- ---------- ---------
Total debt securities .............. 190,923 709 (299) 191,333
Mortgage-backed securities ........... 471,873 5,183 (2,388) 474,668
Equity securities .................... 275 1,268 (2) 1,541
--------- --------- --------- ---------
Total available-for-sale securities .... $663,071 $7,160 $(2,689) $667,542
========= ========= ========= =========
</TABLE>
Gross realized gains for the three and six months ended June 30, 1997
were $186,410 and $748,938, respectively. Gross realized losses for the
same periods were $197,624 and $232,085, respectively. Gross realized
gains for the three and six months ended June 30, 1996 were $218,203 and
$1,272,886, respectively. Gross realized losses for the same periods
were $489,022 and $887,325, respectively. In computing gains and losses
cost is determined by the specific identification method for debt and
mortgage-backed securities. Cost is determined by the average cost
method for equity securities.
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period ....... $14,128 $12,214 $13,538 $11,821
Provision charged to income ........ 775 616 1,498 1,236
Charge-offs ........................ (347) (321) (600) (564)
Recoveries ......................... 37 22 157 38
Acquired in merger ................. 500 500
-------- -------- -------- --------
Balance, end of period ............. $14,593 $13,031 $14,593 $13,031
======== ======== ======== ========
</TABLE>
5. LOAN SERVICING
The Company was servicing a portfolio consisting of 79,700 and 83,000
mortgage loans at June 30, 1997 and December 31, 1996, respectively, that
are owned by investors and are not included in the accompanying financial
statements. Mortgage loans serviced for others are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- ------------
(in thousands)
<S> <C> <C>
GNMA .............................. $2,992,186 $3,184,843
FNMA .............................. 788,419 970,435
FHLMC ............................. 695,394 672,976
Other investors ................... 341,549 240,642
------------- ------------
Total servicing portfolio ......... $4,817,548 $5,068,896
============= ============
</TABLE>
7
<PAGE>
In addition to servicing mortgage loans for others, the Company is a
subservicer for third-party servicing owners, including GNMA and FHLMC.
At June 30, 1997 and December 31, 1996, the Company subserviced a total
of 14,200 and 10,700 loans, respectively.
Custodial escrow balances maintained in connection with the foregoing
loan servicing were $119,063,000 and $102,339,000, at June 30, 1997
and December 31, 1996, respectively, of which $98,764,000 and
$76,257,000, respectively, are included in deposits in the accompanying
consolidated balance sheets.
6. BORROWED FUNDS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------- -------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Short-term borrowings:
Securities sold under agreements to
repurchase ......................... $208,999 5.69% $ 9,000 5.37%
Advances from Federal Home Loan Bank . 58,500 5.81% 200,924 5.62%
Borrowings under lines of credit ..... 49,271 5.66% 87,329 5.51%
-------- --------
Total short-term borrowings ........ 316,770 297,253
-------- --------
Long-term borrowings from Federal Home
Loan Bank:
Adjustable rate advances, interest
based on LIBOR; 5.78% (1997) and
5.61%(1996) ......................... 100,000 150,000
Fixed rate advances, 6.14% (1997)
and 6.27% (1996) .................... 383,769 298,561
Mortgage matched and other advances
payable monthly through 2026 with
interest rates from 3.88% to 8.05% .. 34,273 35,483
-------- --------
Total long-term borrowings ......... 518,042 484,044
-------- --------
Total borrowed funds ................... $834,812 $781,297
======== ========
</TABLE>
Information concerning borrowings under securities sold under agreements
to repurchase is summarized as follows:
<TABLE>
<CAPTION>
At or For the Three Months At or For the Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Average balance during the period .......... $175,458 $ 67,524 $116,733 $ 59,386
Average interest rate during the period .... 5.67% 5.44% 5.61% 5.51%
Maximum month-end balance during the
period .................................... $208,999 $111,741 $208,999 $111,741
Mortgage-backed securities underlying
the agreements at end of period:
Carrying value .......................... $212,572 $ 96,859
Fair value .............................. $214,165 $ 98,090
</TABLE>
8
<PAGE>
Mortgage-backed securities sold under agreements to repurchase were
delivered to the broker-dealers who arranged the transactions. The
broker-dealers may have sold, loaned, or otherwise disposed of such
securities to other parties in the normal course of their operations, and
have agreed to resell the Company substantially identical securities at
the maturities of the agreements. The agreements outstanding at June
30, 1997 mature within one year.
7. SEGMENT INFORMATION
The schedules on pages 11 and 12 present information concerning the
Company's operations which include two reportable segments: banking and
mortgage banking businesses. The banking segment is composed of those
operations involved in making loans held for investment, primarily on
single family residences; investing in government and government
agencies' securities and receiving deposits from customers. The mortgage
banking segment is made up of those operations involved in originating
and purchasing residential mortgage loans for resale in the secondary
mortgage market an in servicing and subservicing loans for others.
Intersegment interest income and expense represent (i) interest on
advances from the banking segment to the mortgage banking segment to fund
the origination of loans computed at a rate tied to a short-term index
and to fund the investment in mortgage servicing rights computed at a
rate tied to a medium-term index, (ii) interest on custodial balances
of the mortgage banking segment on deposit with the banking segment
computed at a rate tied to a medium-term index, (iii) interest on
advances from the Parent Company (in "other" segment) to the banking
segment computed at a rate tied to a short-term index, and (iv) interest
expense incurred by the banking segment on a loan from the Parent Company
to the ESOP computed at 6%.
8. SALE OF RETAIL BANKING OFFICE
On March 14, 1997, the Company completed the sale of the Bank's retail
banking office in Liberty, Kentucky. Property and equipment with a
depreciated value of $142,000 and deposits with a carrying value of
$15,832,000 were transferred as well as cash of $14,900,000 and loans of
$24,000. The net gain on the sale was $772,000.
9. EARNINGS PER SHARE
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share." This statement simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, "Earnings per Share."
This statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier
application is not permitted. The pro forma effects of implementation of
this statement on the Company's reported net income and earnings per
share are presented below.
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net income As reported $ 7,921 $ 6,561 $15,374 $12,992
Income available to common stockholders Pro forma 7,921 6,561 15,374 12,992
Primary earnings per share As reported $0.57 $0.46 $1.10 $0.90
Basic earnings per share Pro forma 0.61 0.49 1.18 0.96
Fully diluted earnings per share As reported $0.57 $0.46 $1.09 $0.90
Diluted earnings per share Pro forma 0.57 0.46 1.09 0.90
</TABLE>
9
<PAGE>
10. RECLASSIFICATIONS
Certain amounts have been reclassified in the previous year's financial
statements to conform with the current year's classifications.
10
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 50,622 $ 5,120 $ 4 $ 55,746
Intersegment 3,446 1,819 286 $ (5,551)
----------- ----------- ---------- ------------ ------------
Total interest income 54,068 6,939 290 (5,551) 55,746
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 34,365 744 35,109
Intersegment 2,105 3,446 (5,551)
----------- ----------- ---------- ------------ ------------
Total interest expense 36,470 4,190 (5,551) 35,109
----------- ----------- ---------- ------------ ------------
Net interest income 17,598 2,749 290 20,637
Provision for loan losses (775) (775)
Non-interest income 1,444 10,245 935 (2,886) 9,738
Non-interest expense (10,282) (8,887) (1,223) 2,886 (17,506)
----------- ----------- ---------- ------------ ------------
Income before income taxes $ 7,985 $ 4,107 $ 2 $ 12,094
=========== =========== ========== ============ ============
Identifiable assets $2,768,426 $314,538 $266,116 $(302,853) $3,046,227
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 655 $ 229 $ 9 $ 893
=========== =========== ========== ============ ============
<CAPTION>
Three Months Ended June 30, 1996
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 42,039 $ 6,197 $ 4 $ 48,240
Intersegment 3,261 2,144 252 $ (5,657)
----------- ----------- ---------- ------------ ------------
Total interest income 45,300 8,341 256 (5,657) 48,240
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 27,555 1,743 29,298
Intersegment 2,397 3,259 1 (5,657)
----------- ----------- ---------- ------------ ------------
Total interest expense 29,952 5,002 1 (5,657) 29,298
----------- ----------- ---------- ------------ ------------
Net interest income 15,348 3,339 255 18,942
Provision for loan losses (616) (616)
Non-interest income 799 10,208 275 (2,269) 9,013
Non-interest expense (9,937) (8,726) (720) 2,269 (17,114)
----------- ----------- ---------- ------------ ------------
Income before income taxes $ 5,594 $ 4,821 $ (190) $ 10,225
=========== =========== ========== ============ ============
Identifiable assets $2,497,961 $368,822 $261,362 $(320,053) $2,808,092
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 535 $ 320 7 $ 862
=========== =========== ========== ============ ============
</TABLE>
11
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 98,185 $ 10,049 $ 7 $ 108,241
Intersegment 6,766 3,376 626 $ (10,768)
----------- ----------- ---------- ------------ ------------
Total interest income 104,951 13,425 633 (10,768) 108,241
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 65,871 1,333 67,204
Intersegment 4,002 6,766 (10,768)
----------- ----------- ---------- ------------ ------------
Total interest expense 69,873 8,099 (10,768) 67,204
----------- ----------- ---------- ------------ ------------
Net interest income 35,078 5,326 633 41,037
Provision for loan losses (1,498) (1,498)
Non-interest income 4,033 18,463 1,838 (5,411) 18,923
Non-interest expense (20,361) (17,729) (2,334) 5,411 (35,013)
----------- ----------- ---------- ------------ ------------
Income before income taxes $ 17,252 $ 6,060 $ 137 $ 23,449
=========== =========== ========== ============ ============
Identifiable assets $2,768,426 $314,538 $266,116 $(302,853) $3,046,227
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 1,252 $ 457 $ 17 $ 1,726
=========== =========== ========== ============ ============
<CAPTION>
Six Months Ended June 30, 1996
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 81,613 $ 11,966 $ 7 $ 93,586
Intersegment 6,070 3,218 671 $ (9,959)
----------- ----------- ---------- ------------ ------------
Total interest income 87,683 15,184 678 (9,959) 93,586
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 53,231 3,535 56,766
Intersegment 3,890 6,068 1 (9,959)
----------- ----------- ---------- ------------ ------------
Total interest expense 57,121 9,603 1 (9,959) 56,766
----------- ----------- ---------- ------------ ------------
Net interest income 30,562 5,581 677 36,820
Provision for loan losses (1,236) (1,236)
Non-interest income 2,652 19,007 492 (4,381) 17,770
Non-interest expense (19,322) (17,021) (1,258) 4,381 (33,220)
----------- ----------- ---------- ------------ ------------
Income before income taxes $ 12,656 $ 7,567 $ (89) $ 20,134
=========== =========== ========== ============ ============
Identifiable assets $2,497,961 $368,822 $261,362 $(320,053) $2,808,092
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 1,043 $ 635 9 $ 1,687
=========== =========== ========== ============ ============
</TABLE>
12
<PAGE>
GREAT FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's consolidated results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and the interest expense
incurred on interest-bearing liabilities, such as deposits and borrowed funds.
The results are also significantly affected by its mortgage banking activities
which involve the origination, purchase, sale, servicing and subservicing of
residential mortgage loans. The Company also generates non-interest income such
as transactional fees and gain or loss on sale of mortgage loans, mortgage
servicing rights and securities. In addition, commissions are earned from the
sale of annuity, mutual fund and insurance products. The Company's operating
expenses consist primarily of employee compensation, occupancy expenses, federal
deposit insurance premiums and other general and administrative expenses. The
Company's results of operations are significantly affected by its periodic
amortization of mortgage servicing rights and by its provisions for loan losses.
The Company'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 agencies.
Any forward-looking statements included in this report or in any report included
by reference, which reflect management's best judgement based on factors known,
involve risks and uncertainties, as discussed above. Actual results could differ
materially from those expressed or implied.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 TO DECEMBER 31, 1996
Assets increased $149.1 million during the first six months of 1997 to $3.0
billion. The two largest components of asset growth were net loans receivable,
which increased $52.5 million, and available-for-sale securities, which
increased $129.2 million.
Net loans receivable totaled $1.9 billion at June 30, 1997. The Company
continues to diversify its loan portfolio and enhance portfolio yield by
increasing the percentage of consumer and commercial loans in the portfolio. The
following table shows the composition of the loan portfolio at June 30, 1997 in
comparison to December 31, 1996:
<TABLE>
<CAPTION>
Loan Portfolio Composition at
-----------------------------
June 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Loan category:
One-to-four family residential ..... 69.3% 72.4%
Multi-family residential ........... 8.3% 7.8%
Commercial real estate ............. 6.7% 5.3%
Construction and land .............. 5.9% 6.7%
Non-mortgage, primarily consumer ... 9.8% 7.8%
------------- ------------
100.0% 100.0%
============= ============
</TABLE>
During the first six months of 1997, the Company purchased mortgage-backed
securities, funded by repurchase agreements, and government and debt securities,
funded by advances from the FHLB. Certain of the leveraged purchases were
structured to grow the Company without incurring significant interest rate risk,
and others were structured to manage interest rate risk related to borrowed
funds. The Company also used certain maturing short-term liquid assets to reduce
short-term borrowings. Mortgage-backed securities increased 30.9% during the
first six months of 1997 and debt and equity securities decreased by 8.9%. In
total, available-for-sale securities increased 19.4% during the first half of
1997.
13
<PAGE>
Deposits increased $89.5 million or 5.0% during the first six months of 1997.
This increase was the result of growth in deposits of $105.3 million, offset by
a sale of $15.8 million of deposits (See note 8 - "Sale of Retail Banking
Office"). Approximately $82.4 million of the growth in deposits was due to
increased retail deposits attracted through advertising, competitive deposit
rates and retail sales efforts. The remainder was primarily due to an increase
in custodial escrow balances associated with the portfolio of loans serviced for
others.
Borrowed funds increased $53.5 million during the first six months of 1997, with
long-term FHLB advances increasing by $34.0 million, and short-term borrowings
increasing $19.5 million. Long-term fixed rate FHLB advances were increased as
part of the Company's strategy to manage interest rate risk related to borrowed
funds. The Company also replaced certain long-term adjustable rate FHLB advances
with short-term repurchase agreements to improve cash management flexibility.
Stockholders' equity totaled $281.3 million at June 30, 1997 or 9.2% of total
assets, which is an increase of $830,000 over year-end 1996. The increase in
total equity was the net result of proceeds from the exercise of stock options
of $2.4 million, the Company purchasing 562,800 shares of its common stock at a
cost of $17.8 million; an increase of $863,000 in net unrealized gains on
available-for-sale securities; dividends of $3.5 million; a reduction in
unearned balances of stock compensation plans by $3.5 million; and earnings of
$15.4 million for the six months ended June 30, 1997.
RESULTS OF OPERATIONS
OVERVIEW. The Company's net income of $7.9 million for the three months ended
June 30, 1997 was $1.4 million or 21% greater than the second quarter of 1996.
For the six months ended June 30, 1997 net income of $15.4 million was 18%
greater than the same period last year. These results were primarily due to
increased net interest income and fee income, partially offset by increased
non-interest expense.
NET INTEREST INCOME. For the second quarter of 1997, net interest income
increased 9% or $1.7 million versus the second quarter of 1996. This increase
was primarily the result of substantial growth in the Company's balance sheet,
partially offset by a slight decline in the interest rate spread and a reduction
in the ratio of interest-earning assets to interest-beearing liabilities.
Average interest-earning assets and average interest-bearing liabilities
increased $396.0 million and $431.8 million, respectively, in the second quarter
of 1997 versus the second quarter of 1996, resulting in $1.4 million of the
increase in net interest income. These average balance increases were the result
of growth from normal business operations and the acquisition of Lexington
Federal Savings Bank (Lexington Federal) in June 1996. The average yield on
interest-earning assets decreased from 7.99% for the second quarter of 1996 to
7.92% for the second quarter of 1997. This decrease was primarily due to a shift
in the mix of interest-earning assets resulting in a higher percentage of
available-for-sale securities and a lower percentage of loans receivable. The
average cost of interest-bearing liabilities decreased from 5.56% for the 1996
second quarter to 5.52% for the 1997 second quarter, primarily due to the growth
in shorter-term, lower rate certificates of deposit and decreased borrowing
costs. Changes in rates resulted in $296,000 of the increase in net interest
income and a decrease in the interest rate spread from 2.43% for the second
quarter of 1996 to 2.40% for the second quarter of 1997. Net interest margin
decreased to 2.93% for the second quarter of 1997 from 3.14% for the same period
last year primarily due to the reduction in the ratio of interest-earning assets
to interest-bearing liabilities resulting from stock repurchases. The Company's
initiative to increase shareholder value by repurchasing certain of its
outstanding common stock results in cash being used to repurchase stock, which
would otherwise be invested in interest-earning assets or used to reduce
interest-bearing borrowings, thereby lowering the ratio of interest-earning
assets to interest-bearing liabilities.
14
<PAGE>
Net interest income was up $4.2 million or 11% for the first six months of 1997
compared to the same period of 1996. Average interest-earning assets and average
interest-bearing liabilities increased $397.4 million and $428.0 million,
respectively, in the first six months of 1997 versus the same period of 1996,
resulting in $3.1 million of the increase in net interest income. These average
balance increases were the result of growth from normal business operations, the
acquisition of Lexington Federal and the effects of liquidity and interest rate
risk management strategies on the securities portfolio and borrowed funds. The
average yield on interest-earning assets decreased from 8.03% for the first six
months of 1996 to 7.96% for the first six months of 1997. This decrease was
primarily due to a shift in the mix of interest-earning assets resulting in a
higher percentage of available-for-sale securities and a lower percentage of
loans receivable. The average cost of interest-bearing liabilities decreased
from 5.58% for the first six months of 1996 to 5.48% for the first six months of
1997, primarily due to the growth in shorter-term, lower rate certificates of
deposit and decreased borrowing costs. Changes in rates resulted in $1.2 million
of the increase in net interest income and an increase in the interest rate
spread from 2.45% for the first six months of 1996 to 2.48% for the same period
of 1997. Net interest margin decreased to 3.02% for the first six months of 1997
from 3.16% for the same period last year, primarily due to the reduction in the
ratio of interest-earning assets to interest-bearing liabilities resulting from
stock repurchases.
15
<PAGE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income earned on
interest-earning assets and expense incurred on interest-bearing liabilities.
Net interest income depends on the volume of interest-earning assets and
interest-bearing liabilities and the rates earned or paid on them. The following
tables set forth certain information relating to the Company's average
consolidated balance sheets and consolidated statements of income for the three
month and six month periods ended June 30, 1997 and 1996. The yields and costs
are derived by dividing income or expense by the average balance of assets and
liabilities, respectively. For 1997, average balances are derived from daily
balances. For 1996, average balances for interest-earning assets and
interest-bearing liabilities are derived from daily balances. All other average
balances are derived from month-end balances. Management does not believe 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 Company has discontinued accruing
interest. Interest includes fees which are considered adjustments to yields and
costs.
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost (5) Balance Interest Cost (5)
---------- -------- --------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net (1) ...... $1,971,136 $41,019 8.35% $1,867,216 $38,292 8.25%
Mortgage-backed securities (2).. 665,498 11,823 7.13% 443,778 8,192 7.42%
Debt and equity securities (2).. 146,134 2,181 5.99% 67,818 1,000 5.93%
Other .......................... 4,516 59 5.24% 23,032 302 5.27%
FHLB stock ..................... 36,780 664 7.24% 26,176 454 6.98%
---------- -------- --------- ---------- -------- --------
Total interest-earning assets . 2,824,064 55,746 7.92% 2,428,020 48,240 7.99%
-------- --------- -------- --------
Non-interest-earning assets ......... 183,683 161,551
---------- ----------
Total assets ................... $3,007,747 $2,589,571
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts .............. $ 127,093 964 3.04% $ 130,477 998 3.08%
Demand deposit accounts......... 191,712 1,882 3.94% 109,520 964 3.54%
Money market accounts .......... 199,494 2,448 4.92% 162,022 1,866 4.63%
Certificate accounts ........... 1,202,905 17,469 5.82% 1,065,799 15,620 5.89%
Short-term borrowings .......... 299,365 4,330 5.80% 187,765 2,844 6.09%
Long-term borrowings ........... 528,884 8,016 6.08% 462,113 7,006 6.10%
---------- -------- --------- ---------- -------- --------
Total interest-bearing
liabilities ................. 2,549,453 35,109 5.52% 2,117,696 29,298 5.56%
-------- --------- -------- --------
Non-interest-bearing liabilities .... 180,357 197,134
---------- ----------
Total liabilities .............. 2,729,810 2,314,830
Stockholders' equity ................ 277,937 274,741
---------- ----------
Total liabilities and
stockholders' equity $3,007,747 $2,589,571
========== ==========
Net interest income / interest
rate spread (3) ...................... $20,637 2.40% $18,942 2.43%
Net interest earning assets / net ======== ========= ======== ========
interest margin (4) ................. $ 274,611 2.93% $ 310,324 3.14%
========== ========= ========== ========
Ratio of interest-earning assets
to interest-bearing liabilities ..... 110.77% 114.65%
========== ==========
- ---------------
<PAGE>
<FN>
(1) Loans receivable, net include mortgage loans held for sale.
(2) Yields on securities do not give effect to changes in fair value that are
reflected as a component of stockholders' equity.
(3) Interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
(5) For purposes of calculating these figures, all interest amounts are
annualized.
</FN>
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost (5) Balance Interest Cost (5)
---------- -------- --------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net (1) ...... $1,952,013 $81,061 8.37% $1,836,984 $75,826 8.30%
Mortgage-backed securities (2).. 590,987 21,004 7.17% 395,937 14,384 7.31%
Debt and equity securities (2).. 152,897 4,636 6.11% 66,732 1,966 5.92%
Other .......................... 10,837 275 5.12% 20,647 547 5.33%
FHLB stock ..................... 35,807 1,265 7.12% 24,839 863 6.99%
---------- -------- --------- ---------- -------- --------
Total interest-earning assets . 2,742,541 108,241 7.96% 2,345,139 93,586 8.03%
-------- --------- -------- --------
Non-interest-earning assets ......... 183,094 173,376
---------- ----------
Total assets ................... $2,925,635 $2,518,515
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts .............. $ 130,069 1,967 3.05% $ 127,893 1,954 3.07%
Demand deposit accounts......... 184,908 3,543 3.86% 97,277 1,586 3.28%
Money market accounts .......... 198,437 4,610 4.68% 158,806 3,667 4.64%
Certificate accounts ........... 1,193,121 34,439 5.82% 1,040,010 30,617 5.92%
Short-term borrowings .......... 237,670 6,718 5.70% 178,678 5,437 6.12%
Long-term borrowings ........... 529,874 15,927 6.06% 443,390 13,505 6.13%
---------- -------- --------- ---------- -------- --------
Total interest-bearing
liabilities ................. 2,474,079 67,204 5.48% 2,046,054 56,766 5.58%
-------- --------- -------- --------
Non-interest-bearing liabilities .... 172,830 192,685
---------- ----------
Total liabilities .............. 2,646,909 2,238,739
Stockholders' equity ................ 278,726 279,776
---------- ----------
Total liabilities and
stockholders' equity $2,925,635 $2,518,515
========== ==========
Net interest income / interest
rate spread (3) ...................... $41,037 2.48% $36,820 2.45%
Net interest earning assets / net ======== ========= ======== ========
interest margin (4) ................. $ 268,462 3.02% $ 299,085 3.16%
========== ========= ========== ========
Ratio of interest-earning assets
to interest-bearing liabilities ..... 110.85% 114.62%
========== ==========
- ---------------
<FN>
(1) Loans receivable, net include mortgage loans held for sale.
(2) Yields on securities do not give effect to changes in fair value that are
reflected as a component of stockholders' equity.
(3) Interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
(5) For purposes of calculating these figures, all interest amounts are
annualized.
</FN>
</TABLE>
17
<PAGE>
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 Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume), and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 vs. 1996 1997 vs. 1996
-------------------------------- --------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------------- --------------------------------
Volume Rate Total Volume Rate Total
--------- -------- --------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net .............. $2,239 $ 488 $2,727 $ 4,614 $ 621 $ 5,235
Mortgage-backed securities ......... 3,963 (332) 3,631 6,901 (281) 6,620
Debt and equity securities ......... 1,172 9 1,181 2,604 66 2,670
Other .............................. (241) (2) (243) (252) (20) (272)
FHLB stock ......................... 192 18 210 385 17 402
-------- -------- --------- --------- -------- ---------
Total ......................... 7,325 181 7,506 14,252 403 14,655
-------- -------- --------- --------- -------- ---------
Interest-bearing liabilities:
Passbook accounts .................. (23) (11) (34) 28 (15) 13
Demand deposit accounts ............ 798 120 918 1,636 321 1,957
Money market accounts .............. 458 124 582 911 32 943
Certificate accounts ............... 2,033 (184) 1,849 4,354 (532) 3,822
Short-term borrowings .............. 1,627 (141) 1,486 1,677 (396) 1,281
Long-term borrowings ............... 1,033 (23) 1,010 2,579 (157) 2,422
-------- -------- --------- --------- -------- ---------
Total ......................... 5,926 (115) 5,811 11,185 (747) 10,438
-------- -------- --------- --------- -------- ---------
Net change in net interest income ....... $1,399 $ 296 $1,695 $ 3,067 $1,150 $ 4,217
======== ======== ========= ========= ======== =========
</TABLE>
18
<PAGE>
PROVISION FOR LOAN LOSSES. The provision for loan losses was $775,000 or 0.16%
(annualized) of average loans in the 1997 second quarter, compared to $616,000
or 0.13% of average loans in the second quarter last year. Net charge-offs were
0.06% of average loans in the second quarter of both years. The provision for
loan losses for the six months ended June 30, 1997 was $1.5 million or 0.15% of
average loans during the period, compared to $1.2 million or 0.14% of average
loans for the same period last year. Net charge-offs decreased when comparing
the two six-month periods, from $526,000 or 0.06% of average loans last year to
$443,000 or 0.05% of average loans this year.
NON-INTEREST INCOME. For the three months ended June 30, 1997, non-interest
income increased 8% or $725,000 in comparison to the same period last year. This
increase was primarily due to increased fee income from sales of investment and
insurance products, service charges on deposit accounts and loan related fees.
The increase in non-interest income of 6% or $1.2 million for the six months
ended June 30, 1997 in comparison to the same period last year, was primarily
attributable to the gain on the sale of a retail banking office and increased
fee income, partially offset by decreased servicing fee income and increased
amortization of mortgage servicing rights. Through an expanded sales staff and
product line, the Company increased fee income from sales of investment,
insurance, loan and deposit products to customers. The Company's decision to
sell the Bank's retail banking office in Liberty, Kentucky, was based on
analysis concluding that the branch no longer had sufficient market share for
profitable operations. Servicing fee income decreased in comparison to the prior
year due to a decrease in the number of loans the Company is subservicing for
third-parties. Increased amortization of mortgage servicing rights was
attributable to an increase in originated mortgage servicing rights.
NON-INTEREST EXPENSE. Non-interest expense for the three and six months ended
June 30, 1997 increased $392,000 and $1.8 million, respectively, in comparison
to the same periods of 1996. However, as a percentage of average assets, total
non-interest expense was only 2.33% and 2.41% of average assets for the three
and six months of 1997, respectively, as compared to 2.66% and 2.65% for the
same periods last year. This gain in efficiency was primarily the result of
lower FDIC insurance premiums and the growth in average assets outpacing
increases in all other operating expenses, including the increases due to the
acquisition of Lexington Federal. Compensation and benefits expense increased as
the result of growth in the staff needed to deliver and provide operational
support for an expanded line of retail banking and investment products to the
Company's growing customer base. The increase in other non-interest expense for
the six months ended June 30, 1997, includes increased amortization of goodwill
of $319,000.
INCOME TAX EXPENSE. Income tax expense of $4.2 million for the three months
ended June 30, 1997 and $3.7 million for the three months ended June 30, 1996,
resulted in effective income tax rates of 34.5% and 35.8%, respectively, on
income before income taxes. For the six months ended June 30, 1997 and 1996, the
effective income tax rates were 34.4% and 35.5%, respectively. The decreases in
the effective income tax rates are primarily due to increased income tax credits
earned in connection with the Company's investment in low income housing
partnerships as part of its community reinvestment activities and increased
income from tax-exempt securities.
19
<PAGE>
NON-PERFORMING ASSETS
The following table sets forth information regarding the Company's
non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- ------------
(dollars in thousands)
<S> <C> <C>
Non-performing loans:
Non-accrual loans ............................ $ 7,079 $ 7,185
Accruing loans which are contractually
past due 90 days or more:
FHA/VA loans (limited credit risk - see
discussion below) ......................... 79,305 88,185
Other loans ................................ 2,878 5,931
Restructured loans ........................... 1,970 1,992
------------ ------------
Total non-performing loans ................... 91,232 103,293
Real estate owned .............................. 1,840 2,815
------------ ------------
Total non-performing assets .................... $ 93,072 $106,108
============ ============
Non-performing loans to total loans:
Including FHA/VA loans ....................... 4.42% 5.19%
Excluding FHA/VA loans ....................... 0.58% 0.76%
Non-performing assets to total assets:
Including FHA/VA loans ....................... 3.06% 3.66%
Excluding FHA/VA loans ....................... 0.45% 0.62%
Allowance for loan losses to total loans ....... 0.71% 0.68%
Allowance for loan losses to non-performing
loans:
Including FHA/VA loans ....................... 16.00% 13.11%
Excluding FHA/VA loans ....................... 122.35% 89.61%
Allowance for loan losses to non-performing
assets:
Including FHA/VA loans ....................... 15.68% 12.76%
Excluding FHA/VA loans ....................... 106.00% 75.53%
</TABLE>
Certain accruing FHA/VA loans which are contractually past due 90 days or more
are purchased by the Company from GNMA pools it services. The Company also
purchases portfolios of insured FHA and guaranteed VA loans, most of which are
90 days or more past due, from third parties. At June 30, 1997, the Company
held in its portfolio $141.8 million of FHA/VA loans most of which were
delinquent at the time of purchase. Such loans totaled $144.7 million at
December 31, 1996. As a servicer of GNMA pools, the Company is obligated to
remit to security holders interest at the coupon rate regardless of whether such
interest is actually received from the underlying borrower. The Company, by
purchasing such delinquent loans out of the pools, is able to retain the benefit
of the net interest rate differential between the coupon rate it would otherwise
be obligated to pay to the GNMA security holder and the Company's current cost
of funds. Most of the Company's investment in delinquent FHA and VA loans is
recoverable through claims made against the FHA or VA, and any credit losses
incurred are not greater or less than if the FHA/VA loans remained in the GNMA
pools and the Company remained as servicer. The same risk from foreclosure or
from loss of interest exists for the Company as servicer or owner of the loan,
and the Company, by purchasing delinquent FHA/VA loans, assumes only the
interest rate risk associated with investing in a fixed-rate loan if foreclosure
does not occur.
The FHA/VA loans acquired from third parties are purchased at a discount as
compensation to the Company for the credit and interest rate risks associated
with the loans. No purchases were made from third parties during the first
six months of 1997.
The Company also has certain impaired loans. The Company has defined impaired
loans as commercial real estate and commercial business loans classified as
substandard, doubtful, or loss, as defined by OTS regulations. Impaired loans,
net of related allowance, decreased from $6.8 million at December 31, 1996, to
$6.1 million at June 30, 1997.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits; principal and interest
payments on loans and mortgage-backed securities; proceeds from the sale of
available-for-sale securities; proceeds from maturing debt securities; advances
from the FHLB; other borrowed funds; and sale of stock. Another source of
funds is mortgage banking activities which generate loan servicing fees and
proceeds from the sale of loans. While scheduled maturities of securities and
amortization of loans are predictable sources of funds, deposit flows and
prepayments on mortgage loans and mortgage-backed securities are greatly
influenced by the general level of interest rates, economic conditions,
and competition.
The Bank is required to maintain an average daily balance of liquid assets and
short-term liquid assets as a percentage of net withdrawable deposit accounts
plus short-term borrowings as defined by OTS regulations. The minimum required
liquidity and short-term liquidity ratios are currently 5% and 1%, respectively.
For June 1997, the Bank had liquidity and short-term liquidity ratios of 6.3%
and 5.3%, respectively.
At June 30, 1997, the Company had outstanding commitments to fund portfolio
loans totaling $117.8 million. The Company anticipates that it will have
sufficient funds available to meet these commitments.
The Bank is required by federal regulations to maintain minimum amounts of
capital. Currently, the minimum required levels are tangible capital of 1.5% of
tangible assets, core capital of 3.0% of adjusted tangible assets, and
risk-based capital of 8.0% of risk-weighted assets. At June 30, 1997, the Bank
had tangible capital of 7.8% of tangible assets, core capital of 7.8% of
adjusted tangible assets, and risk-based capital of 17.8% of risk-weighted
assets.
IMPACT OF NEW ACCOUNTING STANDARD
In February 1997 the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share." This statement simplifies the standards for computing
earnings per share (EPS) previously found in APB Opinion No. 15, "Earnings per
Share," and makes them comparable to international EPS standards. It replaces
the presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Earlier application is not
permitted.
The pro forma effects of implementation of this statement on the Company's
reported net income and earnings per share are presented in note 9 to the
consolidated financial statements.
21
<PAGE>
GREAT FINANCIAL CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.15 - Amendment No. 3 to Great Financial Bank, FSB,
401(k) Savings Plan
(b) Exhibit 10.16 - Amendment No. 1 to Great Financial Bank, FSB,
Employee Stock Ownership Plan
(c) Exhibit 10.17 - Great Financial Corporation Split Dollar Life
Insurance Agreements
(d) Exhibit 11 - Statement regarding computation of per share
earnings.
(e) There have been no reports filed on Form 8-K during the
quarterly period ended June 30, 1997.
22
<PAGE>
GREAT FINANCIAL CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREAT FINANCIAL CORPORATION
--------------------------------------------
(Registrant)
Date: August 12, 1997 By Paul M. Baker
--------------------------------------------
Paul M. Baker
Chairman and Chief Executive Officer
Date: August 12, 1997 By Richard M. Klapheke
--------------------------------------------
Richard M. Klapheke
Treasurer and Secretary
(Chief Accounting Officer)
23
<PAGE>
EXHIBITS INDEX
Exhibit
Number Description Page(s)
- ------- ----------- -------
10.15 Amendment No. 3 to Great Financial Bank, FSB, 27-31
401(k) Savings Plan
10.16 Amendment No. 1 to Great Financial Bank, FSB, 32-33
Employee Stock Ownership Plan
10.17 Great Financial Corporation Split Dollar Life 34-77
Insurance Agreements
11 Statement regarding computation of per share 78
earnings
24
AMENDMENT NO. 3
TO
GREAT FINANCIAL BANK, FSB
401(k) SAVINGS PLAN
Effective June 1, 1992, Great Financial Bank, FSB, by action of its
Board of Directors, adopted the Great Financial Bank, FSB 401(k) Savings Plan.
Plan Article XII provides that the Plan may be amended by a written
instrument which is duly executed. The Plan has been amended and restated in its
entirety. The latest restatement of the Plan was effective as of January 1,
1995.
It is now deemed advisable to further amend the Plan as hereinafter
provided, and to be effective as of July 1, 1996.
1. AMENDMENT TO PLAN SECTION 1.14(b).
In order to permit Employees whose work schedule is on a part-time
basis, and who would otherwise qualify for participation in the Plan, Plan
Section 1.14(b), which excludes employees who are compensated on an hourly basis
from participating in the Plan, is deleted in its entirety, and the remaining
sections of Section 1.14 are renumbered accordingly.
2. AMENDMENT TO PLAN SECTION 6.1.
Plan Section 6.1 contains provisions for the distribution of benefits
to Participants, and a new Section 6.1(c) is added to the Plan to read as
follows.
6.1(c) When a Participant attains age 45 and has completed five Years
of Service then such Participant may elect to receive a pre-retirement
distribution of all or any portion of such Participant's Accounts derived from
Employer contributions. A Participant may not elect to receive a pre-retirement
distribution of such Participant's Accounts derived from a Salary Deferral
Account (Employee salary deferrals/elective contributions) prior to age 59 1/2.
A Participant's election for a pre-retirement distribution must specify the
percentage or dollar amount that the Participant desires to be distributed to
him. The Committee, acting in accordance with the Participant's election, will
order the Trustee to make such distribution to the Participant as soon as
administratively practicable. The Participant's remaining benefits which are not
distributed pursuant to the Participant's election will be distributable at such
future time as the Participant may elect in accordance with the terms of this
Plan.
3. AMENDMENT TO ARTICLE XI.
Article XI contains provisions for the purchase of life insurance on a
Participant's life, and as it is desired to permit Participants to direct their
Accounts for the purchase of life insurance on the Participant's life and any
person in whom the Participant may have an insurable interest, this Article of
the Plan is amended to read as follows.
ARTICLE XI
INSURANCE CONTRACT INVESTMENTS
11.1 ACQUISITION OF LIFE INSURANCE CONTRACTS - The Committee may
authorize the Trustee to acquire and maintain a life insurance policy on the
life of any Participant and any person in whom the Participant may have an
insurable interest only with the Participant's consent and at the specific
direction of the Participant. A Participant may revoke his or her consent at any
time and upon the Participant's revocation of consent the Committee will take
appropriate action to dispose of such life insurance contract by either selling
or distributing such life insurance contract to the Participant, as hereinafter
provided, or by liquidating the life insurance contract by submitting the policy
for cancellation to the insurance company which issued the policy.
11.2 LIFE INSURANCE CONTRACTS ALLOCATED TO PARTICIPANTS' ACCOUNTS -
The Committee may establish procedures to permit Participants to elect to direct
the investment of Participants' Accounts into policies of life insurance on the
life of any Participant or on the joint lives of the Participant and any person
in whom the Participant has an insurable interest. The Committee will adopt such
procedures as it deems necessary in order to ensure that the provisions of this
Article are made available to all Participants on a non-discriminatory basis.
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11.2(a) Applications for life insurance policies may only be
made through life insurance agents, and life insurance companies which
are on a list of companies and agents which have been approved by the
Committee. Any contract issued on the life of a Participant (or any
eligible insured as herein described) will constitute an investment of
the Participant's Accounts, and upon the death of such Participant the
proceeds received from the insurance company by the Trustee will be
allocated and credited to such insured Participant's account or to the
Participant's beneficiary as the Committee may approve. Life insurance
benefits paid to a Participant's Accounts will be paid to such
Participant's beneficiaries as provided for under the terms of the
Plan.
11.2(b) The Committee will authorize and direct the Trustee to
disburse any funds held by it in payment of premiums of any other
obligations due under such contracts or to convert other trust assets
to cash for the purpose of making such payments. No insurance company
which issues a life insurance policy will be a party to this Plan. The
liability of any such insurance company will be as provided in any
policy that it issues. The insurance company will be fully protected
from all liability in accepting premium payments from the Trustee and
in making payments to or on direction of the Trustee without liability
as to the application of such payments. In the event of any conflict
between the terms of the Plan and the terms of any insurance contract
purchased hereunder, the Plan provisions will control.
11.2(c) If any life insurance policy is on the joint lives of
a Participant and another person and the Participant dies, then the
Committee will direct the Trustee as to the distribution of such life
insurance policy in accordance with the Participant's current
Beneficiary Designation on file with the Administration Committee.
11.2(d) If any life insurance policy is on the joint lives of
a Participant and another person and the other person dies, then the
Committee, after considering the directions of the Participant, may
order the distribution of the life insurance policy from this Plan to
the Participant as hereinafter provided.
11.2(e) Unless otherwise instructed by the Committee, the
cost, payment of premiums, for any life insurance policy and the
ownership of the insurance contract will be charged to Participant
Accounts as hereinafter provided.
11.3 LIMITATIONS ON PREMIUMS AND ALLOCATION OF PREMIUMS TO
PARTICIPANT ACCOUNTS.
11.3(a) The aggregate premiums for ordinary life insurance on
the life of any Participant or on the joint lives of the Participant
and any person in whom the Participant has an insurable interest will
be less than 50 percent of the total contributions and forfeitures
which have been allocated to a Participant's Accounts. The aggregate
premiums for term life insurance protection on the life of any
Participant or on the joint lives of the Participant and any person in
whom the Participant has an insurable interest will be less than 25
percent of the total contributions and forfeitures which have been
allocated to a Participant's Accounts. Notwithstanding the above, after
a Participant has completed five Years of Service with the Employer the
entire Participant's Account may be used for the payment of life
insurance premiums for either ordinary or term life insurance on the
life of the Participant or on the joint lives of the Participant and
any person in whom the Participant has an insurable interest.
11.3(b) When a Participant has more than one Account life
insurance premiums will be charged (allocated) to and among a
Participant's Accounts on a pro-rata basis of the total premium to the
total value of the Participant's Accounts.
11.3(c) Notwithstanding the above, in the event the amount of
premiums for life insurance exceed the percentage limitations stated
above then the amount of such excess premium will be charged
(allocated) to the Participant's Account which is derived from Employer
contributions which have been in the Plan for a period of at least two
years as such amounts may be used for the payment of life insurance
premiums without limitation.
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11.3(d) The Committee may establish such procedures for the
payment of premiums on policies of life insurance acquired pursuant to
the provisions of this Article as the Committee determines reasonable
and appropriate.
11.4 TRUSTEE AS OWNER OF ALL CONTRACTS - Any contract issued under the
provisions of this Article will provide that the Trustee be the owner, and
retirement payee. No contract will require the consent of the Participant for
the exercise of any right granted therein.
11.5 KEY MAN INSURANCE - The Plan Administrator may direct the Trustee
to purchase key man life insurance on the life of any Employee (whether or not a
Participant) who is considered essential to the successful operation of the
Employer. Any such key man life insurance policy will be purchased as an
investment of the Trust, and not for the benefit or account of any Participant
thereunder, and the entire death benefit under any such policy will be made
payable to the Trustee.
11.6 APPLICATION OF DIVIDENDS - Upon written direction of the
Committee, the Trustee will either collect and receive all dividends or other
payments of any kind payable with respect to, under, or arising out of, any
insurance contracts held in the Trust or leave the same with the issuing
insurance company for further investment or use such dividends to reduce gross
premiums.
11.7 SUBSTITUTION OF CONTRACT - If the Committee cannot obtain a
contract conforming exactly to the requirements of this Article, then the
Committee will apply for a contract which in the opinion of the Committee comes
closest to meeting such requirements.
11.8 PAYMENT OF DEATH BENEFITS - If a policy of life insurance has
been issued on a Participant's life, then upon the Participant's death the
Trustee will collect the policy proceeds and make distribution thereof in
accordance with the terms of the Plan.
11.9 STATUS OF CONTRACT UPON SEVERANCE OF EMPLOYMENT - In the event of
severance of employment, or in the event of any change in the status of a
Participant which affects any such contract, the Committee will authorize and
direct the Trustee either to convert the entire value of the life insurance
contract at or before such severance or other change as stated above into cash
or annuity so that no portion of such value may be used to continue life
insurance protection beyond actual retirement, or the Committee will authorize
the Trustee to distribute the contract to the Participant.
11.10 PRE-RETIREMENT DISTRIBUTIONS OF LIFE INSURANCE POLICIES - If a
policy of life insurance has been issued on a Participant's life, or the lives
of the Participant and another person, and the life insurance contract may no
longer be owned as an asset of the Trust, the Committee may direct the Trustee
to sell and/or distribute the life insurance policy to the insured Participant
upon such terms and conditions as are determined to be in the insured
Participant's best interest. If the policy has a residual cash surrender value
at the time the life insurance policy is distributed to the Participant, then
the amount of the residual cash surrender value will be charged to the
Participant's Account as a reduction thereof unless the Participant purchases
such policy as herein provided.
In all other respects, the Plan, as initially adopted effective June 1,
1992, and restated as of January 1, 1995, will remain in full force and effect.
IN TESTIMONY WHEREOF, this Amendment has been executed, in multiple
counterparts, any one of which may be considered an original, June 27, 1996.
GREAT FINANCIAL BANK, FSB
By: /S/ DOUGLAS A. MUSSLER
Title: EXECUTIVE VICE PRESIDENT AND SECRETARY
27
AMENDMENT NO. 1
TO
GREAT FINANCIAL BANK, FSB
EMPLOYEE STOCK OWNERSHIP PLAN
Effective January 1, 1994, Great Financial Bank, FSB, by action of its
Board of Directors, adopted the Great Financial Bank, FSB Employee Stock
Ownership Plan.
Plan Article XIII provides that the Plan may be amended by a written
instrument which is duly executed.
It is now deemed advisable to amend the Plan as hereinafter provided,
and to be effective as of July 1, 1996.
1. AMENDMENT TO PLAN SECTION 1.12(b).
In order to permit Employees whose work schedule is on a part-time
basis, and who would otherwise qualify for participation in the Plan, Plan
Section 1.12(b), which excludes Employees who are compensated on an hourly basis
from participating in the Plan, is deleted in its entirety, and the remaining
sections of Section 1.12 are renumbered accordingly.
2. AMENDMENT TO PLAN SECTION 3.3.
In order to allow Participants to receive an accrual of benefits
notwithstanding the number of Hours of Service performed during an Accounting
Year, Plan Section 3.3 is amended to read as follows:
SECTION 3.3 PARTICIPANT'S RIGHT TO ALLOCATION OF EMPLOYER
CONTRIBUTIONS. Participants who have met the requirements for participation in
the Plan and who are employed on the Valuation Date for each Accounting Year
will be eligible to receive a contribution to their Employee Stock Ownership
Account. If a Participant's employment was terminated prior to the Valuation
Date because of (a) Retirement, (b) Total and Permanent disability, or (c)
Death, then the Participant will be entitled to have credited to his Employee
Stock Ownership Account a sum determined by the application of the contribution
percentages hereinafter set forth to the Compensation earned by such Participant
to the date such Participant's employment was terminated, if, as of the subject
Valuation Date, a total distribution of the Participant's Employee Stock
Ownership Account has not occurred. If a total distribution of the Participant's
Employee Stock Ownership Account has occurred, then there will be no
contribution to the Participant's Employee Stock Ownership Account.
In all other respects, the Plan, as initially adopted effective January
1, 1994, will remain in full force and effect.
IN TESTIMONY WHEREOF, this Amendment has been executed, in multiple
counterparts, any one of which may be considered an original, June 27, 1996.
GREAT FINANCIAL BANK, FSB
By: /S/ DOUGLAS A. MUSSLER
Title: EXECUTIVE VICE PRESIDENT AND SECRETARY
28
GREAT FINANCIAL CORPORATION
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into by and among Great Financial Corporation, a
Delaware corporation ("GFC"), PNC Bank of Kentucky, Inc., as Trustee of the
Great Financial Corporation Rabbi Trust (the "GFC RABBI TRUST"), PAUL BAKER (the
"EMPLOYEE"), and PNC BANK OF KENTUCKY, Inc. as Trustee of the PAUL BAKER
Irrevocable Trust.
1. PURPOSES OF AGREEMENT
1.1 GFC is a holding company of which Great Financial Bank, F.S.B., a Federal
savings bank ("GFB"), is an affiliate. Employee is a valuable employee of GFB
and is and will continue to be instrumental to the continued growth and
profitability of both GFB and GFC. As such, both GFB and GFC have insurable
interests in the Policy.
1.2 GFC wishes to retain and encourage Employee to remain in GFB's employ;
therefore, GFC will provide additional employment related benefits to Employee.
Employee would like to obtain additional life insurance death benefit protection
to provide for Employee's family upon Employee's death. The parties have agreed
to obtain and continue to provide life insurance death benefit protection for
Employee.
1.3 GFC is willing to pay all of the premiums due on a life insurance policy
insuring Employee's life subject to the terms and conditions set forth herein.
1.4 The Employee or a Trust established by the Employee for the benefit of
Employee's family will own the life insurance policy acquired pursuant to this
Agreement, and the owner will possess all incidents of ownership in and to the
policy. The policy will be assigned to GFC as collateral to secure the repayment
of GFC's interest in the policy.
1.5 The parties desire to have a full understanding of their mutual and
respective obligations; accordingly, in consideration of their mutual agreements
and covenants contained herein, the parties agree as follows:
2. DEFINITIONS
As used in this Agreement:
2.1 "CAUSE" shall mean only the final, non-appealable conviction of or the
Employee's plea of guilty or nolo contendre to a felony involving fraud,
embezzlement, theft, or dishonesty or other criminal conduct against GFC or GFB.
2.2 "CHANGE IN CONTROL" shall mean the occurrence of any of the following:
2.2(a) during any period of three consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of GFB cease for
any reason to constitute a majority thereof unless the election or nomination
for election of each new Director was approved by a vote of at least two-thirds
of the Board members then still in office who were Board members at the
beginning of the period or who were similarly nominated;
2.2(b) the business of GFB for which Employee's services are
principally performed is disposed of pursuant to a partial or complete
liquidation of GFB, a sale of GFB's assets, or otherwise;
2.2(c) GFB's or GFC's Board of Directors adopts a resolution to the
effect that a Change in Control for purposes of this Agreement has occurred;
2.2(d) an event that would be required to be reported in response to
item 1(a) of the current report on Form 8-K as in effect on the date of this
Agreement, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 occurs;
2.2(e) any "person" (as that term is used in Sections 13(d) or 14(d) of
the Securities Exchange Act or 1934) is or becomes the "beneficial owner" (as
that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934),
directly or indirectly, of GFB's securities representing 20 percent or more of
GFB's outstanding securities except for any securities of GFB purchased by GFB's
employee stock ownership plan and trust.
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2.2(f) GFB approves, adopts, or otherwise consummates a plan of
reorganization, merger, consolidation, sale of all or substantially all of GFB's
assets or a similar transaction in which GFB is not the surviving entity; or
2.2(g) a change in control that shall have occurred as described in 12
C.F.R. Section 574.4(a) or its successor regulations.
2.3 "COLLATERAL ASSIGNMENT" shall mean the Owner's assignment of the Policy to
GFC as collateral pursuant to the assignment instrument attached hereto as
Exhibit B and incorporated herein by reference.
2.4 "CORPORATE INTEREST" means GFC's interest in the Policy ( as set forth in
Exhibit A, attached hereto and incorporated herein by reference) which GFC is to
receive in the event of a Policy Rollout. Under no circumstances will the
Corporate Interest be less than the cumulative Policy premiums that GFC has
advanced pursuant to this Agreement.
2.5 "DEATH PROCEEDS" shall mean the face amount of the death benefit provided in
the Policy, plus any increase in the death benefit from dividends, cash, or
accumulation value as those terms may be defined in the Policy.
2.6 "ECONOMIC VALUE" means the lower of the PS-58 rate or the Insurer's current
published premium rate for annually renewable term insurance for standard risks,
assuming a death benefit equal to Employee's Death Benefit.
2.7 "EMPLOYEE'S DEATH BENEFIT" shall mean that Employee's death benefit as set
forth in Exhibit A.
2.8 "GFC DEATH BENEFIT" shall mean GFC's death benefit as set forth in Exhibit
A.
2.9 "INSURER" shall mean the insurance company identified in Exhibit A.
2.10 "OWNER" shall mean the Employee or a Trust established for the benefit of
Employee's family, as the case may be.
2.11 "POLICY" shall mean the life insurance policy (identified in Exhibit A) on
the Employee's life.
2.12 "POLICY ROLLOUT" shall mean the procedure by which GFC receives its
Corporate Interest in the Policy and by which the Owner receives its interest in
the Policy in the event this Agreement is terminated for reasons other than the
Employee's death.
2.13 "ROLLOUT AGE" shall mean the end of the policy year in which Employee
reaches insurance age sixty-five.
3. THE POLICY
3.1 APPLICATION FOR INSURANCE. The Owner has obtained the Policy issued by the
Insurer in an initial face amount of Three Million Nine Hundred Thirty Five
Thousand Four Hundred Ninety Eight Dollars ($ 3,935,498.00). The parties hereto
have taken all necessary action to cause Insurer to issue the Policy and will
take any additional actions necessary to cause the Policy to comply with this
Agreement's provisions.
3.2 ASSIGNMENT OF POLICY. The Owner has assigned the Policy to GFC pursuant to
the Collateral Assignment, which secures the repayment to GFC of its Corporate
Interest in the Policy arising pursuant to this Agreement. The Owner will file
the Collateral Assignment with the Insurer.
4. POLICY OWNERSHIP
4.1 POLICY OWNERSHIP. The Owner will be the Policy's sole and absolute owner,
including any supplemental riders and endorsements, and may exercise all
ownership rights granted by the Policy's terms, except as otherwise expressly
provided herein.
4.2 GFC'S RIGHTS AND DUTIES. GFC's rights and duties in the Policy will be
limited to the following:
4.2(a) The right to receive the GFC Death Benefit at the Employee's
death;
4.2(b) The right to receive its Corporate Interest after a Policy
Rollout, as hereinafter provided;
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4.2(c) The right to physical possession of the Policy;
4.2(d) The duty to release the Collateral Assignment after GFC receives
its Corporate Interest; and
4.4(e) The duty to make the Policy reasonably available to the Owner
and Insurer at their request.
4.3 GFC will have no right to borrow against the Policy, except as expressly
permitted herein.
4.4 OWNER'S RIGHTS. As Policy owner, the Owner will retain all other Policy
rights that this Agreement has not expressly granted to GFC, including, but not
limited to, the following:
4.4(a) The right to succeed to full ownership of the Policy's cash
values upon satisfaction of the Corporate Interest following a Policy Rollout;
4.4(b) The right to designate and change the beneficiary(ies) of the
Employee Death Benefit as hereinafter provided;
4.4(c) The right to assign its rights in the Policy.
4.5 Notwithstanding anything in this Agreement to the contrary, the Owner will
have no right to borrow against the Policy before Policy Rollout.
4.6 Application of Dividends. Policy dividends may be used to pay premiums or to
purchase paid-up additional insurance protection.
5. PREMIUM PAYMENTS
5.1 PREMIUM PAYMENTS. On or before each Policy premium's due date, or within the
grace period granted therein, GFC or the GFC Rabbi Trust or both, as the case
may be, will be obligated to pay to the Insurer the Policy premiums (including
the cost associated with all supplemental riders and endorsements) according to
the schedule of planned annual premiums set forth in the Policy. GFC's and the
GFC Rabbi Trust's obligation to pay the aforesaid Policy premiums will continue
in full force and effect, unless GFB terminates Employee's employment for
"Cause."
5.2 CHANGE IN CONTROL. Upon a Change of Control, GFC shall immediately make an
irrevocable contribution to the GFC Rabbi Trust in an amount that is sufficient
to pay all of the then remaining Policy premiums.
5.3 NOTICE TO OWNER. Upon receipt of Owner's written request, GFC will promptly
furnish the Owner evidence of its timely payment of Policy premiums.
5.4 CURRENT TAXATION OF PREMIUMS. Each taxable year, Employee will include in
his or her gross income, for Federal and, if applicable, state income tax
purposes, the Economic Value attributable to the life insurance protection this
Agreement provides for Employee during such taxable year.
6. DEATH BENEFITS
6.1 EMPLOYEE'S DEATH BENEFIT. If Employee dies before Policy Rollout, Employee's
designated beneficiary(ies) set forth in the Policy will be entitled to receive
Employee's Death Benefit shown on Exhibit A or as adjusted because of Policy
dividends or because the assumptions utilized by the Insurer to generate the
values shown on Exhibit A have changed since the date this Agreement was
executed.
6.2 GFC DEATH BENEFIT. If Employee dies before Policy Rollout, GFC will be
entitled to receive the GFC Death Benefit as shown on Exhibit A or as adjusted
because of Policy dividends or because the assumptions utilized by the Insurer
to generate the values shown on Exhibit A have changed since the date this
Agreement was executed.
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7. TERMINATION OF AGREEMENT
7.1 TERMINATION OF AGREEMENT. This Agreement will terminate, without notice and
without any further action by the parties hereto, upon GFB's termination of the
Employee's employment for "Cause."
7.2 FORFEITURES. Notwithstanding anything in this Agreement to the contrary,
Owner will forfeit all rights to the Policy if GFB terminates Employee's
employment for "Cause," in which case Owner will be required to execute any
document or documents required by Insurer to transfer the policy to GFC.
Notwithstanding the foregoing, Employee will not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Employee a copy of a resolution duly adopted by GFB's Board of Directors at a
meeting of GFB's Board called and held for that purpose, finding that in the
good faith opinion of GFB's Board, GFB has cause for terminating Employee and
specifying the particulars thereof in detail. Should Employee dispute whether he
was terminated for Cause, then GFB, GFC, and the Employee will enter immediately
into arbitration as provided hereinafter.
8. POLICY ROLLOUT
8.1 TIMES FOR POLICY ROLLOUT. Policy Rollout will occur when the Employee
reaches Rollout Age.
8.2 POLICY ROLLOUT PROCEDURE. To accomplish the Policy Rollout, GFC and the
Owner will apply to Insurer to split the Policy into two separate life insurance
policies. One policy will provide a death benefit for GFC and will have a cash
value equal to GFC's Corporate Interest in such amounts as set forth in Exhibit
A or as adjusted because of Policy dividends or because the assumptions utilized
by the Insurer to generate the values listed on Exhibit A have changed since the
date this Agreement was executed (the "FIRST POLICY"). The other policy will
have the remaining cash surrender value and death benefits of the original
Policy, as set forth in Exhibit A or as adjusted if because of Policy dividends
or because the assumptions utilized by the Insurer to generate the values listed
on Exhibit A have changed since the date this Agreement was executed (the
"SECOND POLICY"). Ownership of the First Policy will be transferred to GFC, and
upon receipt of First Policy, GFC will execute all document(s) required by
Insurer to release the Collateral Assignment. The First Policy will be free and
clear of any obligation to Owner, and GFC may, in its sole discretion, hold
First Policy or surrender it for its cash value without notice to or permission
from the Owner. Ownership of the Second Policy will be transferred to Owner and
will be free and clear from any obligations to GFC.
9. ADMINISTRATION AND CLAIMS PROCEDURE
9.1 PLAN ADMINISTRATION. The Compensation Committee of GFB will serve as the
administrator for this Agreement; provided, however, that a member of such
Committee will take no action with respect to his or her own benefit.
9.2 AUTHORITY OF ADMINISTRATOR. The Compensation Committee will have all power
and authority necessary to carry out the provisions of this Agreement. The
Compensation Committee will have the full power to interpret and construe this
Agreement and to delegate administrative duties to such persons as it sees fit.
All costs involved in administration of this Agreement will be borne by GFB.
9.3 CLAIMS. Any person claiming a benefit or requesting an interpretation or
ruling under this Agreement shall present the request in writing to the
Compensation Committee.
9.4 DENIAL OF CLAIMS. The Compensation Committee shall make all determinations
as to the right of any person to a benefit under this Agreement. If any claim is
wholly or partially denied, the claimant shall be notified of such decision
thirty (30) days after the Compensation Committee received the claim. The
Compensation Committee will provide to every claimant who is denied a claim for
benefits written notice setting forth:
9.4(a) The specific reason(s) for the denial;
9.4(b) Specific reference to pertinent provisions of this Agreement
upon which the denial is based;
9.4(c) A description of any additional information necessary for the
claimant to perfect the claim, and an explanation of why such material or
information is necessary; and
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9.4(d) An explanation of the claim review procedure under this Agreement.
9.5 REVIEW OF CLAIM. A claimant shall have sixty (60) days following his or her
receipt of the claim denial to file with the Compensation Committee a written
request for GFB's Board of Directors (excluding claimant should claimant then be
serving as a member of the Board of Directors) to review the claim. All such
requests will be written and will state the reason for the claimant's
disagreement with the decision. A claimant's failure to request the Board of
Directors review of the decision within the aforesaid sixty (60) day period will
be deemed a waiver of the claiman's right to reconsideration of the
Compensation Committee's decision. Such failure will not, however, preclude the
claimant from establishing his entitlement at a later date based on additional
information and evidence not available to claimant at the time of the
Compensation Committee's decision. A decision by the Board of Directors will be
made not later than 60 days after its receipt of a request for review. The
claimant will be advised of the Board's decision in writing.
9.6 FINAL DECISION. Should the claimant dispute the Board of Director's decision
about the claimant's entitlement to benefits provided by this Agreement, then
claimant, GFC, and GFB will enter immediately into arbitration as provided
hereinafter.
10. ARBITRATION
10.1 ISSUES TO BE ARBITRATED. The parties agree to submit all disputed issues to
final and binding arbitration; except for those issues requiring extraordinary
relief that may only be obtained by the issuance of a restraining order,
injunction or similar type of equitable relief. A "disputed issue" means any
disagreement in regard to any of the terms and conditions of this Agreement, and
any dispute between the parties concerning their relationships, issues involving
an accounting, and the right to recision, as well as any issues not directly
covered by this Agreement.
10.2 PROHIBITION OF COURT APPEAL. Any dispute, as defined above, and which is
subject to arbitration will not be subject to appeal to any court except to
permit a party to seek court enforcement of any arbitration award rendered
hereunder.
10.3 SELECTION OF ARBITRATOR. If the parties agree to the appointment of a
single arbitrator, then the single arbitrator will determine and decide any
dispute arising hereunder. If the parties cannot agree to the selection of a
single arbitrator, then each party will designate an attorney to serve as an
arbitrator, and the selected attorneys will select an arbitrator, who is a
certified public accountant, to be the third arbitrator. The arbitrator(s) will
establish rules for the conduct of the arbitration consistent with the rules of
the American Arbitration Association, and KRS 417.050 et. seq. The arbitrator(s)
will be impartial and will have no prior or present relationship with any of the
parties. The arbitration hearing and proceedings will take place in the State of
Kentucky, and will be enforceable in the State of Kentucky. The arbitrator(s)
will be empowered to hear, conclusively determine and resolve all claims and
disputes between the parties. Arbitration fees and expenses will be shared
equally by the parties to the arbitration, unless otherwise agreed by the
arbitrator(s).
10.4 CONFIDENTIALITY. The parties agree that all matters to be arbitrated and
the arbitration award will be maintained on a confidential basis. All issues and
the results thereof will not be disclosed by the parties or their
representatives, and the parties and their representatives will not report any
of their proceedings to the public. These provisions will not prohibit any party
from securing witnesses, experts, or other advisors as is necessary in order for
the parties to present their case, etc.
11. AGREEMENT DRAFTED BY GFC'S ATTORNEYS
The parties each acknowledge that GFC's counsel, Lynch, Cox, Gilman & Mahan,
P.S.C., prepared this Agreement at their joint request. The parties consent to
such representation, and they acknowledge that they have been advised that
possible conflicts may exist between them, that each has had an opportunity to
seek the advice of independent counsel, and they have received no
representations from counsel as to the economic fairness and the material
consequences affecting the transactions contemplated by this Agreement. Further,
the parties acknowledge that in the event of any dispute, counsel will represent
the interests of GFC and not any party in opposition thereto.
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12. NOTICES
Any and all notices, requests, or communications required or permitted to be
given pursuant to this Agreement will be written and signed by the appropriate
party and will be deemed to have been given when delivered personally to the
party to be notified or when deposited in the United States mail, postage
prepaid, registered or certified mail, return receipt requested, addressed as
follows:
To Employee at: 329 West Main Street
Suite 1900
Louisville, KY. 40202
If applicable, To Trustee at: Citizens Plaza
Lousiville, KY. 40202
To GFC: 329 West Main Street
Suite 1900
Louisville, KY. 40202
Any party may change the address to which such notices, etc. are to be directed
to them, by giving notice to the other party hereto in the manner set forth
above.
13. MISCELLANEOUS PROVISIONS
13.1 INSURER NOT A PARTY. Insurer will be fully discharged from its obligations
under the Policy by payment of the Policy death benefit to the beneficiary(ies)
named in the Policy, subject to the Policy's terms and conditions. Under no
circumstances will Insurer be considered a party to this Agreement or subsequent
modifications or amendments of it, if any. Further, no provision of this
Agreement, or subsequent modifications or amendments of it, will in any way be
construed as varying or otherwise affecting the Insurer's obligations as
expressly provided in the Policy, except insofar as this Agreement's provisions
are made part of the Policy by the Collateral Assignment filed with Insurer in
connection herewith.
13.2 ACKNOWLEDGEMENT REGARDING EXHIBIT A. The parties hereto expressly
acknowledge and agree that the projections and results for the Owner and for GFC
illustrated on Exhibit A represent mere estimates and may be adjusted because of
Policy dividends or because the assumptions utilized by the Insurer to generate
the values shown on Exhibit A have changed since the date this Agreement was
executed.
13.3 MODIFICATION. No change or modification to this Agreement will be valid,
unless in writing and signed by all the parties hereto, or their respective
successors or permitted assigns.
13.4 GOVERNING LAW. This Agreement will be deemed to be made under and will be
construed in accordance with the laws of the State of Kentucky.
13.5 INTERPRETATION. The parties intend that this Agreement be interpreted
consistent with its being a welfare benefit plan for a select group of
management and highly compensated employees.
13.6 ENTIRE AGREEMENT. This Agreement contains the entire understanding and
agreement between the parties hereto with respect to the matters set forth
herein and supersedes any prior understandings and agreements among them with
respect to the same.
13.7 WAIVER. The failure of any party hereto to insist upon strict performance
of a covenant or condition in this Agreement will not be a waiver of his right
to demand strict compliance therewith in the future.
13.8 SEVERABILITY. The invalidity or unenforceability of a particular provision
of this Agreement will not affect the other provisions hereof, and the Agreement
will be construed in all respects as if such invalid or unenforceable provisions
were omitted.
13.9 BENEFITS. All benefits payable pursuant to this Agreement will be payable
only from the Policy and only to the extent provided in Policy.
13.10 PARTIES BOUND. This Agreement will be binding upon and inure to the
benefit of the parties hereto, their heirs, legal representatives, successors
and permitted assigns of the parties.
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13.11 THIRD PARTY BENEFICIARIES. This Agreement does not create, and will not be
construed as creating, any rights enforceable by any person not a party to this
Agreement.
13.12 SECTION HEADINGS. The section headings contained herein are for the
purposes of convenience only, and will not be deemed to constitute a part of
this Agreement or to affect the meaning or interpretation of this Agreement in
any way.
In order to evidence their understanding of and agreement to all the terms
and conditions of this Agreement, the parties have executed multiple copies of
this instrument, each one of which, when signed by all the parties, will be
considered an original.
Date: March 28, 1997.
GREAT FINANCIAL CORPORATION IRREVOCABLE TRUST
PNC Bank, KY., Inc. Trustee
By: /S/ RICHARD M. KLAPHEKE By: /S/ MAJORIE L. BASSLET
Title: EVP/CFO Title: V. P. & TRUST OFFICER
PNC BANK KENTUCKY, INC.,
TRUSTEE OF THE GFC RABBI TRUST
By: /S/ MAJORIE L. BASSLET /S/ PAUL BAKER
Employee
Title: V. P. & TRUST OFFICER
35
<PAGE>
GREAT FINANCIAL CORPORATION
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into by and among Great Financial Corporation, a
Delaware corporation ("GFC"), PNC Bank of Kentucky, Inc., as Trustee of the
Great Financial Corporation Rabbi Trust (the "GFC RABBI TRUST"), ARTHUR L.
HARRELD (the "EMPLOYEE"), and OWENSBORO NATIONAL BANK as Trustee of the ARTHUR
L. HARRELD Irrevocable Trust, dated March 27, 1997.
1. PURPOSES OF AGREEMENT
1.1 GFC is a holding company of which Great Financial Bank, F.S.B., a Federal
savings bank ("GFB"), is an affiliate. Employee is a valuable employee of GFB
and is and will continue to be instrumental to the continued growth and
profitability of both GFB and GFC. As such, both GFB and GFC have insurable
interests in the Policy.
1.2 GFC wishes to retain and encourage Employee to remain in GFB's employ;
therefore, GFC will provide additional employment related benefits to Employee.
Employee would like to obtain additional life insurance death benefit protection
to provide for Employee's family upon Employee's death. The parties have agreed
to obtain and continue to provide life insurance death benefit protection for
Employee.
1.3 GFC is willing to pay all of the premiums due on a life insurance policy
insuring Employee's life subject to the terms and conditions set forth herein.
1.4 The Employee or a Trust established by the Employee for the benefit of
Employee's family will own the life insurance policy acquired pursuant to this
Agreement, and the owner will possess all incidents of ownership in and to the
policy. The policy will be assigned to GFC as collateral to secure the repayment
of GFC's interest in the policy.
1.5 The parties desire to have a full understanding of their mutual and
respective obligations; accordingly, in consideration of their mutual agreements
and covenants contained herein, the parties agree as follows:
2. DEFINITIONS
As used in this Agreement:
2.1 "CAUSE" shall mean only the final, non-appealable conviction of or the
Employee's plea of guilty or nolo contendre to a felony involving fraud,
embezzlement, theft, or dishonesty or other criminal conduct against GFC or GFB.
2.2 "CHANGE IN CONTROL" shall mean the occurrence of any of the following:
2.2(a) during any period of three consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of GFB cease for
any reason to constitute a majority thereof unless the election or nomination
for election of each new Director was approved by a vote of at least two-thirds
of the Board members then still in office who were Board members at the
beginning of the period or who were similarly nominated;
2.2(b) the business of GFB for which Employee's services are
principally performed is disposed of pursuant to a partial or complete
liquidation of GFB, a sale of GFB's assets, or otherwise;
2.2(c) GFB's or GFC's Board of Directors adopts a resolution to the
effect that a Change in Control for purposes of this Agreement has occurred;
2.2(d) an event that would be required to be reported in response to
item 1(a) of the current report on Form 8-K as in effect on the date of this
Agreement, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 occurs;
2.2(e) any "person" (as that term is used in Sections 13(d) or 14(d) of
the Securities Exchange Act or 1934) is or becomes the "beneficial owner" (as
that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934),
directly or indirectly, of GFB's securities representing 20 percent or more of
GFB's outstanding securities except for any securities of GFB purchased by GFB's
employee stock ownership plan and trust.
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<PAGE>
2.2(f) GFB approves, adopts, or otherwise consummates a plan of
reorganization, merger, consolidation, sale of all or substantially all of GFB's
assets or a similar transaction in which GFB is not the surviving entity; or
2.2(g) a change in control that shall have occurred as described in 12
C.F.R. Section 574.4(a) or its successor regulations.
2.3 "COLLATERAL ASSIGNMENT" shall mean the Owner's assignment of the Policy to
GFC as collateral pursuant to the assignment instrument attached hereto as
Exhibit B and incorporated herein by reference.
2.4 "CORPORATE INTEREST" means GFC's interest in the Policy ( as set forth in
Exhibit A, attached hereto and incorporated herein by reference) which GFC is to
receive in the event of a Policy Rollout. Under no circumstances will the
Corporate Interest be less than the cumulative Policy premiums that GFC has
advanced pursuant to this Agreement.
2.5 "DEATH PROCEEDS" shall mean the face amount of the death benefit provided in
the Policy, plus any increase in the death benefit from dividends, cash, or
accumulation value as those terms may be defined in the Policy.
2.6 "ECONOMIC VALUE" means the lower of the PS-58 rate or the Insurer's current
published premium rate for annually renewable term insurance for standard risks,
assuming a death benefit equal to Employee's Death Benefit.
2.7 "EMPLOYEE'S DEATH BENEFIT" shall mean that Employee's death benefit as set
forth in Exhibit A.
2.8 "GFC DEATH BENEFIT" shall mean GFC's death benefit as set forth in Exhibit
A.
2.9 "INSURER" shall mean the insurance company identified in Exhibit A.
2.10 "OWNER" shall mean the Employee or a Trust established for the benefit of
Employee's family, as the case may be.
2.11 "POLICY" shall mean the life insurance policy (identified in Exhibit A) on
the Employee's life.
2.12 "POLICY ROLLOUT" shall mean the procedure by which GFC receives its
Corporate Interest in the Policy and by which the Owner receives its interest in
the Policy in the event this Agreement is terminated for reasons other than the
Employee's death.
2.13 "ROLLOUT AGE" shall mean the end of the policy year in which Employee
reaches insurance age sixty-five.
3. THE POLICY
3.1 APPLICATION FOR INSURANCE. The Owner has obtained the Policy issued by the
Insurer in an initial face amount of One Million Three Hundred Ninety Six
Thousand Nine Hundred Twelve Dollars ($ 1,396,912.00). The parties hereto have
taken all necessary action to cause Insurer to issue the Policy and will take
any additional actions necessary to cause the Policy to comply with this
Agreement's provisions.
3.2 ASSIGNMENT OF POLICY. The Owner has assigned the Policy to GFC pursuant to
the Collateral Assignment, which secures the repayment to GFC of its Corporate
Interest in the Policy arising pursuant to this Agreement. The Owner will file
the Collateral Assignment with the Insurer.
4. POLICY OWNERSHIP
4.1 POLICY OWNERSHIP. The Owner will be the Policy's sole and absolute owner,
including any supplemental riders and endorsements, and may exercise all
ownership rights granted by the Policy's terms, except as otherwise expressly
provided herein.
4.2 GFC's Rights and Duties. GFC's rights and duties in the Policy will be
limited to the following:
4.2(a) The right to receive the GFC Death Benefit at the Employee's
death;
4.2(b) The right to receive its Corporate Interest after a Policy
Rollout, as hereinafter provided;
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<PAGE>
4.2(c) The right to physical possession of the Policy;
4.2(d) The duty to release the Collateral Assignment after GFC receives
its Corporate Interest; and
4.4(e) The duty to make the Policy reasonably available to the Owner
and Insurer at their request.
4.3 GFC will have no right to borrow against the Policy, except as expressly
permitted herein.
4.4 OWNER'S RIGHTS. As Policy owner, the Owner will retain all other Policy
rights that this Agreement has not expressly granted to GFC, including, but not
limited to, the following:
4.4(a) The right to succeed to full ownership of the Policy's cash
values upon satisfaction of the Corporate Interest following a Policy Rollout;
4.4(b) The right to designate and change the beneficiary(ies) of the
Employee Death Benefit as hereinafter provided;
4.4(c) The right to assign its rights in the Policy.
4.5 Notwithstanding anything in this Agreement to the contrary, the Owner will
have no right to borrow against the Policy before Policy Rollout.
4.6 APPLICATION OF DIVIDENDS. Policy dividends may be used to pay premiums or to
purchase paid-up additional insurance protection.
5. PREMIUM PAYMENTS
5.1 PREMIUM PAYMENTS. On or before each Policy premium's due date, or within the
grace period granted therein, GFC or the GFC Rabbi Trust or both, as the case
may be, will be obligated to pay to the Insurer the Policy premiums (including
the cost associated with all supplemental riders and endorsements) according to
the schedule of planned annual premiums set forth in the Policy. GFC's and the
GFC Rabbi Trust's obligation to pay the aforesaid Policy premiums will continue
in full force and effect, unless GFB terminates Employee's employment for
"Cause."
5.2 CHANGE IN CONTROL. Upon a Change of Control, GFC shall immediately make an
irrevocable contribution to the GFC Rabbi Trust in an amount that is sufficient
to pay all of the then remaining Policy premiums.
5.3 NOTICE TO OWNER. Upon receipt of Owner's written request, GFC will promptly
furnish the Owner evidence of its timely payment of Policy premiums.
5.4 CURRENT TAXATION OF PREMIUMS. Each taxable year, Employee will include in
his or her gross income, for Federal and, if applicable, state income tax
purposes, the Economic Value attributable to the life insurance protection this
Agreement provides for Employee during such taxable year.
6. DEATH BENEFITS
6.1 EMPLOYEE'S DEATH BENEFIT. If Employee dies before Policy Rollout, Employee's
designated beneficiary(ies) set forth in the Policy will be entitled to receive
Employee's Death Benefit shown on Exhibit A or as adjusted because of Policy
dividends or because the assumptions utilized by the Insurer to generate the
values shown on Exhibit A have changed since the date this Agreement was
executed.
6.2 GFC DEATH BENEFIT. If Employee dies before Policy Rollout, GFC will be
entitled to receive the GFC Death Benefit as shown on Exhibit A or as adjusted
because of Policy dividends or because the assumptions utilized by the Insurer
to generate the values shown on Exhibit A have changed since the date this
Agreement was executed.
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<PAGE>
7. TERMINATION OF AGREEMENT
7.1 TERMINATION OF AGREEMENT. This Agreement will terminate, without notice and
without any further action by the parties hereto, upon GFB's termination of the
Employee's employment for "Cause."
7.2 FORFEITURES. Notwithstanding anything in this Agreement to the contrary,
Owner will forfeit all rights to the Policy if GFB terminates Employee's
employment for "Cause," in which case Owner will be required to execute any
document or documents required by Insurer to transfer the policy to GFC.
Notwithstanding the foregoing, Employee will not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Employee a copy of a resolution duly adopted by GFB's Board of Directors at a
meeting of GFB's Board called and held for that purpose, finding that in the
good faith opinion of GFB's Board, GFB has cause for terminating Employee and
specifying the particulars thereof in detail. Should Employee dispute whether he
was terminated for Cause, then GFB, GFC, and the Employee will enter immediately
into arbitration as provided hereinafter.
8. POLICY ROLLOUT
8.1 TIMES FOR POLICY ROLLOUT. Policy Rollout will occur when the Employee
reaches Rollout Age.
8.2 POLICY ROLLOUT PROCEDURE. To accomplish the Policy Rollout, GFC and the
Owner will apply to Insurer to split the Policy into two separate life insurance
policies. One policy will provide a death benefit for GFC and will have a cash
value equal to GFC's Corporate Interest in such amounts as set forth in Exhibit
A or as adjusted because of Policy dividends or because the assumptions utilized
by the Insurer to generate the values listed on Exhibit A have changed since the
date this Agreement was executed (the "First Policy"). The other policy will
have the remaining cash surrender value and death benefits of the original
Policy, as set forth in Exhibit A or as adjusted if because of Policy dividends
or because the assumptions utilized by the Insurer to generate the values listed
on Exhibit A have changed since the date this Agreement was executed (the
"Second Policy"). Ownership of the First Policy will be transferred to GFC, and
upon receipt of First Policy, GFC will execute all document(s) required by
Insurer to release the Collateral Assignment. The First Policy will be free and
clear of any obligation to Owner, and GFC may, in its sole discretion, hold
First Policy or surrender it for its cash value without notice to or permission
from the Owner. Ownership of the Second Policy will be transferred to Owner and
will be free and clear from any obligations to GFC.
9. ADMINISTRATION AND CLAIMS PROCEDURE
9.1 PLAN ADMINISTRATION. The Compensation Committee of GFB will serve as the
administrator for this Agreement; provided, however, that a member of such
Committee will take no action with respect to his or her own benefit.
9.2 AUTHORITY OF ADMINISTRATOR. The Compensation Committee will have all power
and authority necessary to carry out the provisions of this Agreement. The
Compensation Committee will have the full power to interpret and construe this
Agreement and to delegate administrative duties to such persons as it sees fit.
All costs involved in administration of this Agreement will be borne by GFB.
9.3 CLAIMS. Any person claiming a benefit or requesting an interpretation or
ruling under this Agreement shall present the request in writing to the
Compensation Committee.
9.4 DENIAL OF CLAIMS. The Compensation Committee shall make all determinations
as to the right of any person to a benefit under this Agreement. If any claim is
wholly or partially denied, the claimant shall be notified of such decision
thirty (30) days after the Compensation Committee received the claim. The
Compensation Committee will provide to every claimant who is denied a claim for
benefits written notice setting forth:
9.4(a) The specific reason(s) for the denial;
9.4(b) Specific reference to pertinent provisions of this Agreement
upon which the denial is based;
9.4(c) A description of any additional information necessary for the
claimant to perfect the claim, and an explanation of why such material or
information is necessary; and
39
<PAGE>
9.4(d) An explanation of the claim review procedure under this Agreement.
9.5 REVIEW OF CLAIM. A claimant shall have sixty (60) days following his or her
receipt of the claim denial to file with the Compensation Committee a written
request for GFB's Board of Directors (excluding claimant should claimant then be
serving as a member of the Board of Directors) to review the claim. All such
requests will be written and will state the reason for the claimant's
disagreement with the decision. A claimant's failure to request the Board of
Directors review of the decision within the aforesaid sixty (60) day period will
be deemed a waiver of the claimant's right to reconsideration of the
Compensation Committee's decision. Such failure will not, however, preclude the
claimant from establishing his entitlement at a later date based on additional
information and evidence not available to claimant at the time of the
Compensation Committee's decision. A decision by the Board of Directors will be
made not later than 60 days after its receipt of a request for review. The
claimant will be advised of the Board's decision in writing.
9.6 FINAL DECISION. Should the claimant dispute the Board of Director's decision
about the claimant's entitlement to benefits provided by this Agreement, then
claimant, GFC, and GFB will enter immediately into arbitration as provided
hereinafter.
10. ARBITRATION
10.1 ISSUES TO BE ARBITRATED. The parties agree to submit all disputed issues to
final and binding arbitration; except for those issues requiring extraordinary
relief that may only be obtained by the issuance of a restraining order,
injunction or similar type of equitable relief. A "disputed issue" means any
disagreement in regard to any of the terms and conditions of this Agreement, and
any dispute between the parties concerning their relationships, issues involving
an accounting, and the right to recision, as well as any issues not directly
covered by this Agreement.
10.2 PROHIBITION OF COURT APPEAL. Any dispute, as defined above, and which is
subject to arbitration will not be subject to appeal to any court except to
permit a party to seek court enforcement of any arbitration award rendered
hereunder.
10.3 SELECTION OF ARBITRATOR. If the parties agree to the appointment of a
single arbitrator, then the single arbitrator will determine and decide any
dispute arising hereunder. If the parties cannot agree to the selection of a
single arbitrator, then each party will designate an attorney to serve as an
arbitrator, and the selected attorneys will select an arbitrator, who is a
certified public accountant, to be the third arbitrator. The arbitrator(s) will
establish rules for the conduct of the arbitration consistent with the rules of
the American Arbitration Association, and KRS 417.050 et. seq. The arbitrator(s)
will be impartial and will have no prior or present relationship with any of the
parties. The arbitration hearing and proceedings will take place in the State of
Kentucky, and will be enforceable in the State of Kentucky. The arbitrator(s)
will be empowered to hear, conclusively determine and resolve all claims and
disputes between the parties. Arbitration fees and expenses will be shared
equally by the parties to the arbitration, unless otherwise agreed by the
arbitrator(s).
10.4 CONFIDENTIALITY. The parties agree that all matters to be arbitrated and
the arbitration award will be maintained on a confidential basis. All issues and
the results thereof will not be disclosed by the parties or their
representatives, and the parties and their representatives will not report any
of their proceedings to the public. These provisions will not prohibit any party
from securing witnesses, experts, or other advisors as is necessary in order for
the parties to present their case, etc.
11. AGREEMENT DRAFTED BY GFC'S ATTORNEYS
The parties each acknowledge that GFC's counsel, Lynch, Cox, Gilman & Mahan,
P.S.C., prepared this Agreement at their joint request. The parties consent to
such representation, and they acknowledge that they have been advised that
possible conflicts may exist between them, that each has had an opportunity to
seek the advice of independent counsel, and they have received no
representations from counsel as to the economic fairness and the material
consequences affecting the transactions contemplated by this Agreement. Further,
the parties acknowledge that in the event of any dispute, counsel will represent
the interests of GFC and not any party in opposition thereto.
40
<PAGE>
12. NOTICES
Any and all notices, requests, or communications required or permitted to be
given pursuant to this Agreement will be written and signed by the appropriate
party and will be deemed to have been given when delivered personally to the
party to be notified or when deposited in the United States mail, postage
prepaid, registered or certified mail, return receipt requested, addressed as
follows:
To Employee at: 4112 Hunting Creek Drive
Owensboro, KY. 42303
If applicable, To Trustee at: P.O. Box 10001
Owensboro, KY. 42302
To GFC: 329 West Main Street
Suite 1900
Louisville, KY. 40202
Any party may change the address to which such notices, etc. are to be directed
to them, by giving notice to the other party hereto in the manner set forth
above.
13. MISCELLANEOUS PROVISIONS
13.1 INSURER NOT A PARTY. Insurer will be fully discharged from its obligations
under the Policy by payment of the Policy death benefit to the beneficiary(ies)
named in the Policy, subject to the Policy's terms and conditions. Under no
circumstances will Insurer be considered a party to this Agreement or subsequent
modifications or amendments of it, if any. Further, no provision of this
Agreement, or subsequent modifications or amendments of it, will in any way be
construed as varying or otherwise affecting the Insurer's obligations as
expressly provided in the Policy, except insofar as this Agreement's provisions
are made part of the Policy by the Collateral Assignment filed with Insurer in
connection herewith.
13.2 ACKNOWLEDGEMENT REGARDING EXHIBIT A. The parties hereto expressly
acknowledge and agree that the projections and results for the Owner and for GFC
illustrated on Exhibit A represent mere estimates and may be adjusted because of
Policy dividends or because the assumptions utilized by the Insurer to generate
the values shown on Exhibit A have changed since the date this Agreement was
executed.
13.3 MODIFICATION. No change or modification to this Agreement will be valid,
unless in writing and signed by all the parties hereto, or their respective
successors or permitted assigns.
13.4 GOVERNING LAW. This Agreement will be deemed to be made under and will be
construed in accordance with the laws of the State of Kentucky.
13.5 INTERPRETATION. The parties intend that this Agreement be interpreted
consistent with its being a welfare benefit plan for a select group of
management and highly compensated employees.
13.6 ENTIRE AGREEMENT. This Agreement contains the entire understanding and
agreement between the parties hereto with respect to the matters set forth
herein and supersedes any prior understandings and agreements among them with
respect to the same.
13.7 WAIVER. The failure of any party hereto to insist upon strict performance
of a covenant or condition in this Agreement will not be a waiver of his right
to demand strict compliance therewith in the future.
13.8 SEVERABILITY. The invalidity or unenforceability of a particular provision
of this Agreement will not affect the other provisions hereof, and the Agreement
will be construed in all respects as if such invalid or unenforceable provisions
were omitted.
13.9 BENEFITS. All benefits payable pursuant to this Agreement will be payable
only from the Policy and only to the extent provided in Policy.
13.10 PARTIES BOUND. This Agreement will be binding upon and inure to the
benefit of the parties hereto, their heirs, legal representatives, successors
and permitted assigns of the parties.
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<PAGE>
13.11 THIRD PARTY BENEFICIARIES. This Agreement does not create, and will not be
construed as creating, any rights enforceable by any person not a party to this
Agreement.
13.12 SECTION HEADINGS. The section headings contained herein are for the
purposes of convenience only, and will not be deemed to constitute a part of
this Agreement or to affect the meaning or interpretation of this Agreement in
any way.
In order to evidence their understanding of and agreement to all the terms
and conditions of this Agreement, the parties have executed multiple copies of
this instrument, each one of which, when signed by all the parties, will be
considered an original.
Date: March 28, 1997.
GREAT FINANCIAL CORPORATION IRREVOCABLE TRUST
Owensboro National Bank, Trustee
By: /S/ RICHARD M. KLAPHEKE By: /S/ GERALD W. SAWDERS
Title: EVP/CFO Title: FIRST SENIOR VICE PRESIDENT
PNC BANK KENTUCKY, INC.,
TRUSTEE OF THE GFC RABBI TRUST
By: /S/ ANN M. RILEY /S/ ARTHUR L. HARRELD
Employee
Title: VICE PRESIDENT
42
<PAGE>
GREAT FINANCIAL CORPORATION
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into by and among Great Financial Corporation, a
Delaware corporation ("GFC"), PNC Bank of Kentucky, Inc., as Trustee of the
Great Financial Corporation Rabbi Trust (the "GFC RABBI TRUST"), RICHARD M.
KLAPHEKE (the "EMPLOYEE"), and WILLIAM J. LINTNER as Trustee of the RICHARD M.
KLAPHEKE Irrevocable Trust.
1. PURPOSES OF AGREEMENT
1.1 GFC is a holding company of which Great Financial Bank, F.S.B., a Federal
savings bank ("GFB"), is an affiliate. Employee is a valuable employee of GFB
and is and will continue to be instrumental to the continued growth and
profitability of both GFB and GFC. As such, both GFB and GFC have insurable
interests in the Policy.
1.2 GFC wishes to retain and encourage Employee to remain in GFB's employ;
therefore, GFC will provide additional employment related benefits to Employee.
Employee would like to obtain additional life insurance death benefit protection
to provide for Employee's family upon Employee's death. The parties have agreed
to obtain and continue to provide life insurance death benefit protection for
Employee.
1.3 GFC is willing to pay all of the premiums due on a life insurance policy
insuring Employee's life subject to the terms and conditions set forth herein.
1.4 The Employee or a Trust established by the Employee for the benefit of
Employee's family will own the life insurance policy acquired pursuant to this
Agreement, and the owner will possess all incidents of ownership in and to the
policy. The policy will be assigned to GFC as collateral to secure the repayment
of GFC's interest in the policy.
1.5 The parties desire to have a full understanding of their mutual and
respective obligations; accordingly, in consideration of their mutual agreements
and covenants contained herein, the parties agree as follows:
2. DEFINITIONS
As used in this Agreement:
2.1 "CAUSE" shall mean only the final, non-appealable conviction of or the
Employee's plea of guilty or nolo contendre to a felony involving fraud,
embezzlement, theft, or dishonesty or other criminal conduct against GFC or GFB.
2.2 "CHANGE IN CONTROL" shall mean the occurrence of any of the following:
2.2(a) during any period of three consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of GFB cease for
any reason to constitute a majority thereof unless the election or nomination
for election of each new Director was approved by a vote of at least two-thirds
of the Board members then still in office who were Board members at the
beginning of the period or who were similarly nominated;
2.2(b) the business of GFB for which Employee's services are
principally performed is disposed of pursuant to a partial or complete
liquidation of GFB, a sale of GFB's assets, or otherwise;
2.2(c) GFB's or GFC's Board of Directors adopts a resolution to the
effect that a Change in Control for purposes of this Agreement has occurred;
2.2(d) an event that would be required to be reported in response to
item 1(a) of the current report on Form 8-K as in effect on the date of this
Agreement, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 occurs;
2.2(e) any "person" (as that term is used in Sections 13(d) or 14(d) of
the Securities Exchange Act or 1934) is or becomes the "beneficial owner" (as
that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934),
directly or indirectly, of GFB's securities representing 20 percent or more of
GFB's outstanding securities except for any securities of GFB purchased by GFB's
employee stock ownership plan and trust.
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2.2(f) GFB approves, adopts, or otherwise consummates a plan of
reorganization, merger, consolidation, sale of all or substantially all of GFB's
assets or a similar transaction in which GFB is not the surviving entity; or
2.2(g) a change in control that shall have occurred as described in 12
C.F.R. Section 574.4(a) or its successor regulations.
2.3 "COLLATERAL ASSIGNMENT" shall mean the Owner's assignment of the Policy to
GFC as collateral pursuant to the assignment instrument attached hereto as
Exhibit B and incorporated herein by reference.
2.4 "CORPORATE INTEREST" means GFC's interest in the Policy ( as set forth in
Exhibit A, attached hereto and incorporated herein by reference) which GFC is to
receive in the event of a Policy Rollout. Under no circumstances will the
Corporate Interest be less than the cumulative Policy premiums that GFC has
advanced pursuant to this Agreement.
2.5 "DEATH PROCEEDS" shall mean the face amount of the death benefit provided in
the Policy, plus any increase in the death benefit from dividends, cash, or
accumulation value as those terms may be defined in the Policy.
2.6 "ECONOMIC VALUE" means the lower of the PS-58 rate or the Insurer's current
published premium rate for annually renewable term insurance for standard risks,
assuming a death benefit equal to Employee's Death Benefit.
2.7 "EMPLOYEE'S DEATH BENEFIT" shall mean that Employee's death benefit as set
forth in Exhibit A.
2.8 "GFC DEATH BENEFIT" shall mean GFC's death benefit as set forth in Exhibit
A.
2.9 "INSURER" shall mean the insurance company identified in Exhibit A.
2.10 "OWNER" shall mean the Employee or a Trust established for the benefit of
Employee's family, as the case may be.
2.11 "POLICY" shall mean the life insurance policy (identified in Exhibit A) on
the Employee's life.
2.12 "POLICY ROLLOUT" shall mean the procedure by which GFC receives its
Corporate Interest in the Policy and by which the Owner receives its interest in
the Policy in the event this Agreement is terminated for reasons other than the
Employee's death.
2.13 "ROLLOUT AGE" shall mean the end of the policy year in which Employee
reaches insurance age sixty-five.
3. THE POLICY
3.1 APPLICATION FOR INSURANCE. The Owner has obtained the Policy issued by the
Insurer in an initial face amount of One Million One Hundred Ninety Two Thousand
One Hundred Forty Five Dollars ($ 1,192,145.00). The parties hereto have taken
all necessary action to cause Insurer to issue the Policy and will take any
additional actions necessary to cause the Policy to comply with this Agreement's
provisions.
3.2 ASSIGNMENT OF POLICY. The Owner has assigned the Policy to GFC pursuant to
the Collateral Assignment, which secures the repayment to GFC of its Corporate
Interest in the Policy arising pursuant to this Agreement. The Owner will file
the Collateral Assignment with the Insurer.
4. POLICY OWNERSHIP
4.1 POLICY OWNERSHIP. The Owner will be the Policy's sole and absolute owner,
including any supplemental riders and endorsements, and may exercise all
ownership rights granted by the Policy's terms, except as otherwise expressly
provided herein.
4.2 GFC'S RIGHTS AND DUTIES. GFC's rights and duties in the Policy will be
limited to the following:
4.2(a) The right to receive the GFC Death Benefit at the Employee's
death;
4.2(b) The right to receive its Corporate Interest after a Policy
Rollout, as hereinafter provided;
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4.2(c) The right to physical possession of the Policy;
4.2(d) The duty to release the Collateral Assignment after GFC receives
its Corporate Interest; and
4.4(e) The duty to make the Policy reasonably available to the Owner
and Insurer at their request.
4.3 GFC will have no right to borrow against the Policy, except as expressly
permitted herein.
4.4 OWNER'S RIGHTS. As Policy owner, the Owner will retain all other Policy
rights that this Agreement has not expressly granted to GFC, including, but not
limited to, the following:
4.4(a) The right to succeed to full ownership of the Policy's cash
values upon satisfaction of the Corporate Interest following a Policy Rollout;
4.4(b) The right to designate and change the beneficiary(ies) of the
Employee Death Benefit as hereinafter provided;
4.4(c) The right to assign its rights in the Policy.
4.5 Notwithstanding anything in this Agreement to the contrary, the Owner will
have no right to borrow against the Policy before Policy Rollout.
4.6 APPLICATION OF DIVIDENDS. Policy dividends may be used to pay premiums or to
purchase paid-up additional insurance protection.
5. PREMIUM PAYMENTS
5.1 PREMIUM PAYMENTS. On or before each Policy premium's due date, or within the
grace period granted therein, GFC or the GFC Rabbi Trust or both, as the case
may be, will be obligated to pay to the Insurer the Policy premiums (including
the cost associated with all supplemental riders and endorsements) according to
the schedule of planned annual premiums set forth in the Policy. GFC's and the
GFC Rabbi Trust's obligation to pay the aforesaid Policy premiums will continue
in full force and effect, unless GFB terminates Employee's employment for
"Cause."
5.2 CHANGE IN CONTROL. Upon a Change of Control, GFC shall immediately make an
irrevocable contribution to the GFC Rabbi Trust in an amount that is sufficient
to pay all of the then remaining Policy premiums.
5.3 NOTICE TO OWNER. Upon receipt of Owner's written request, GFC will promptly
furnish the Owner evidence of its timely payment of Policy premiums.
5.4 CURRENT TAXATION OF PREMIUMS. Each taxable year, Employee will include in
his or her gross income, for Federal and, if applicable, state income tax
purposes, the Economic Value attributable to the life insurance protection this
Agreement provides for Employee during such taxable year.
6. DEATH BENEFITS
6.1 EMPLOYEE'S DEATH BENEFIT. If Employee dies before Policy Rollout, Employee's
designated beneficiary(ies) set forth in the Policy will be entitled to receive
Employee's Death Benefit shown on Exhibit A or as adjusted because of Policy
dividends or because the assumptions utilized by the Insurer to generate the
values shown on Exhibit A have changed since the date this Agreement was
executed.
6.2 GFC DEATH BENEFIT. If Employee dies before Policy Rollout, GFC will be
entitled to receive the GFC Death Benefit as shown on Exhibit A or as adjusted
because of Policy dividends or because the assumptions utilized by the Insurer
to generate the values shown on Exhibit A have changed since the date this
Agreement was executed.
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7. TERMINATION OF AGREEMENT
7.1 TERMINATION OF AGREEMENT. This Agreement will terminate, without notice and
without any further action by the parties hereto, upon GFB's termination of the
Employee's employment for "Cause."
7.2 FORFEITURES. Notwithstanding anything in this Agreement to the contrary,
Owner will forfeit all rights to the Policy if GFB terminates Employee's
employment for "Cause," in which case Owner will be required to execute any
document or documents required by Insurer to transfer the policy to GFC.
Notwithstanding the foregoing, Employee will not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Employee a copy of a resolution duly adopted by GFB's Board of Directors at a
meeting of GFB's Board called and held for that purpose, finding that in the
good faith opinion of GFB's Board, GFB has cause for terminating Employee and
specifying the particulars thereof in detail. Should Employee dispute whether he
was terminated for Cause, then GFB, GFC, and the Employee will enter immediately
into arbitration as provided hereinafter.
8. POLICY ROLLOUT
8.1 TIMES FOR POLICY ROLLOUT. Policy Rollout will occur when the Employee
reaches Rollout Age.
8.2 POLICY ROLLOUT PROCEDURE. To accomplish the Policy Rollout, GFC and the
Owner will apply to Insurer to split the Policy into two separate life insurance
policies. One policy will provide a death benefit for GFC and will have a cash
value equal to GFC's Corporate Interest in such amounts as set forth in Exhibit
A or as adjusted because of Policy dividends or because the assumptions utilized
by the Insurer to generate the values listed on Exhibit A have changed since the
date this Agreement was executed (the "First Policy"). The other policy will
have the remaining cash surrender value and death benefits of the original
Policy, as set forth in Exhibit A or as adjusted if because of Policy dividends
or because the assumptions utilized by the Insurer to generate the values listed
on Exhibit A have changed since the date this Agreement was executed (the
"Second Policy"). Ownership of the First Policy will be transferred to GFC, and
upon receipt of First Policy, GFC will execute all document(s) required by
Insurer to release the Collateral Assignment. The First Policy will be free and
clear of any obligation to Owner, and GFC may, in its sole discretion, hold
First Policy or surrender it for its cash value without notice to or permission
from the Owner. Ownership of the Second Policy will be transferred to Owner and
will be free and clear from any obligations to GFC.
9. ADMINISTRATION AND CLAIMS PROCEDURE
9.1 PLAN ADMINISTRATION. The Compensation Committee of GFB will serve as the
administrator for this Agreement; provided, however, that a member of such
Committee will take no action with respect to his or her own benefit.
9.2 AUTHORITY OF ADMINISTRATOR. The Compensation Committee will have all power
and authority necessary to carry out the provisions of this Agreement. The
Compensation Committee will have the full power to interpret and construe this
Agreement and to delegate administrative duties to such persons as it sees fit.
All costs involved in administration of this Agreement will be borne by GFB.
9.3 CLAIMS. Any person claiming a benefit or requesting an interpretation or
ruling under this Agreement shall present the request in writing to the
Compensation Committee.
9.4 DENIAL OF CLAIMS. The Compensation Committee shall make all determinations
as to the right of any person to a benefit under this Agreement. If any claim is
wholly or partially denied, the claimant shall be notified of such decision
thirty (30) days after the Compensation Committee received the claim. The
Compensation Committee will provide to every claimant who is denied a claim for
benefits written notice setting forth:
9.4(a) The specific reason(s) for the denial;
9.4(b) Specific reference to pertinent provisions of this Agreement
upon which the denial is based;
9.4(c) A description of any additional information necessary for the
claimant to perfect the claim, and an explanation of why such material or
information is necessary; and
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9.4(d) An explanation of the claim review procedure under this
Agreement.
9.5 REVIEW OF CLAIM. A claimant shall have sixty (60) days following his or her
receipt of the claim denial to file with the Compensation Committee a written
request for GFB's Board of Directors (excluding claimant should claimant then be
serving as a member of the Board of Directors) to review the claim. All such
requests will be written and will state the reason for the claimant's
disagreement with the decision. A claimant's failure to request the Board of
Directors review of the decision within the aforesaid sixty (60) day period will
be deemed a waiver of the claimant's right to reconsideration of the
Compensation Committee's decision. Such failure will not, however, preclude the
claimant from establishing his entitlement at a later date based on additional
information and evidence not available to claimant at the time of the
Compensation Committee's decision. A decision by the Board of Directors will be
made not later than 60 days after its receipt of a request for review. The
claimant will be advised of the Board's decision in writing.
9.6 FINAL DECISION. Should the claimant dispute the Board of Director's decision
about the claimant's entitlement to benefits provided by this Agreement, then
claimant, GFC, and GFB will enter immediately into arbitration as provided
hereinafter.
10. ARBITRATION
10.1 ISSUES TO BE ARBITRATED. The parties agree to submit all disputed issues to
final and binding arbitration; except for those issues requiring extraordinary
relief that may only be obtained by the issuance of a restraining order,
injunction or similar type of equitable relief. A "disputed issue" means any
disagreement in regard to any of the terms and conditions of this Agreement, and
any dispute between the parties concerning their relationships, issues involving
an accounting, and the right to recision, as well as any issues not directly
covered by this Agreement.
10.2 PROHIBITION OF COURT APPEAL. Any dispute, as defined above, and which is
subject to arbitration will not be subject to appeal to any court except to
permit a party to seek court enforcement of any arbitration award rendered
hereunder.
10.3 SELECTION OF ARBITRATOR. If the parties agree to the appointment of a
single arbitrator, then the single arbitrator will determine and decide any
dispute arising hereunder. If the parties cannot agree to the selection of a
single arbitrator, then each party will designate an attorney to serve as an
arbitrator, and the selected attorneys will select an arbitrator, who is a
certified public accountant, to be the third arbitrator. The arbitrator(s) will
establish rules for the conduct of the arbitration consistent with the rules of
the American Arbitration Association, and KRS 417.050 et. seq. The arbitrator(s)
will be impartial and will have no prior or present relationship with any of the
parties. The arbitration hearing and proceedings will take place in the State of
Kentucky, and will be enforceable in the State of Kentucky. The arbitrator(s)
will be empowered to hear, conclusively determine and resolve all claims and
disputes between the parties. Arbitration fees and expenses will be shared
equally by the parties to the arbitration, unless otherwise agreed by the
arbitrator(s).
10.4 CONFIDENTIALITY. The parties agree that all matters to be arbitrated and
the arbitration award will be maintained on a confidential basis. All issues and
the results thereof will not be disclosed by the parties or their
representatives, and the parties and their representatives will not report any
of their proceedings to the public. These provisions will not prohibit any party
from securing witnesses, experts, or other advisors as is necessary in order for
the parties to present their case, etc.
11. AGREEMENT DRAFTED BY GFC'S ATTORNEYS
The parties each acknowledge that GFC's counsel, Lynch, Cox, Gilman & Mahan,
P.S.C., prepared this Agreement at their joint request. The parties consent to
such representation, and they acknowledge that they have been advised that
possible conflicts may exist between them, that each has had an opportunity to
seek the advice of independent counsel, and they have received no
representations from counsel as to the economic fairness and the material
consequences affecting the transactions contemplated by this Agreement. Further,
the parties acknowledge that in the event of any dispute, counsel will represent
the interests of GFC and not any party in opposition thereto.
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12. NOTICES
Any and all notices, requests, or communications required or permitted to be
given pursuant to this Agreement will be written and signed by the appropriate
party and will be deemed to have been given when delivered personally to the
party to be notified or when deposited in the United States mail, postage
prepaid, registered or certified mail, return receipt requested, addressed as
follows:
To Employee at: 1215 Carpenter Drive
Crestwood, KY. 40014
If applicable, To Trustee at: 8 River Hill Road
Louisville, KY. 40207
To GFC: 329 West Main Street
Suite 1900
Louisville, KY. 40202
Any party may change the address to which such notices, etc. are to be directed
to them, by giving notice to the other party hereto in the manner set forth
above.
13. MISCELLANEOUS PROVISIONS
13.1 INSURER NOT A PARTY. Insurer will be fully discharged from its obligations
under the Policy by payment of the Policy death benefit to the beneficiary(ies)
named in the Policy, subject to the Policy's terms and conditions. Under no
circumstances will Insurer be considered a party to this Agreement or subsequent
modifications or amendments of it, if any. Further, no provision of this
Agreement, or subsequent modifications or amendments of it, will in any way be
construed as varying or otherwise affecting the Insurer's obligations as
expressly provided in the Policy, except insofar as this Agreement's provisions
are made part of the Policy by the Collateral Assignment filed with Insurer in
connection herewith.
13.2 ACKNOWLEDGEMENT REGARDING EXHIBIT A. The parties hereto expressly
acknowledge and agree that the projections and results for the Owner and for GFC
illustrated on Exhibit A represent mere estimates and may be adjusted because of
Policy dividends or because the assumptions utilized by the Insurer to generate
the values shown on Exhibit A have changed since the date this Agreement was
executed.
13.3 MODIFICATION. No change or modification to this Agreement will be valid,
unless in writing and signed by all the parties hereto, or their respective
successors or permitted assigns.
13.4 GOVERNING LAW. This Agreement will be deemed to be made under and will be
construed in accordance with the laws of the State of Kentucky.
13.5 INTERPRETATION. The parties intend that this Agreement be interpreted
consistent with its being a welfare benefit plan for a select group of
management and highly compensated employees.
13.6 ENTIRE AGREEMENT. This Agreement contains the entire understanding and
agreement between the parties hereto with respect to the matters set forth
herein and supersedes any prior understandings and agreements among them with
respect to the same.
13.7 WAIVER. The failure of any party hereto to insist upon strict performance
of a covenant or condition in this Agreement will not be a waiver of his right
to demand strict compliance therewith in the future.
13.8 SEVERABILITY. The invalidity or unenforceability of a particular provision
of this Agreement will not affect the other provisions hereof, and the Agreement
will be construed in all respects as if such invalid or unenforceable provisions
were omitted.
13.9 BENEFITS. All benefits payable pursuant to this Agreement will be payable
only from the Policy and only to the extent provided in Policy.
13.10 PARTIES BOUND. This Agreement will be binding upon and inure to the
benefit of the parties hereto, their heirs, legal representatives, successors
and permitted assigns of the parties.
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13.11 THIRD PARTY BENEFICIARIES. This Agreement does not create, and will not be
construed as creating, any rights enforceable by any person not a party to this
Agreement.
13.12 SECTION HEADINGS. The section headings contained herein are for the
purposes of convenience only, and will not be deemed to constitute a part of
this Agreement or to affect the meaning or interpretation of this Agreement in
any way.
In order to evidence their understanding of and agreement to all the terms
and conditions of this Agreement, the parties have executed multiple copies of
this instrument, each one of which, when signed by all the parties, will be
considered an original.
Date: March 28, 1997.
GREAT FINANCIAL CORPORATION IRREVOCABLE TRUST
By: /S/ PAUL BAKER By: /S/ WILLIAM J. LINTNER, JR.
Title: PRESIDENT Title: TRUSTEE
PNC BANK KENTUCKY, INC.,
TRUSTEE OF THE GFC RABBI TRUST
By: /S/ ANN M. RILEY /S/ RICHARD M. KLAPHEKE
Employee
Title: VICE PRESIDENT
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GREAT FINANCIAL CORPORATION
SPLIT DOLLAR LIFE INSURANCE AGREEMENT
This Agreement is entered into by and among Great Financial Corporation, a
Delaware corporation ("GFC"), PNC Bank of Kentucky, Inc., as Trustee of the
Great Financial Corporation Rabbi Trust (the "GFC RABBI TRUST"), JAMES F.
STATLER (the "EMPLOYEE"), and RICHARD M. KLAPHEKE as Trustee of the JAMES F.
STATLER Irrevocable Trust.
1. PURPOSES OF AGREEMENT
1.1 GFC is a holding company of which Great Financial Bank, F.S.B., a Federal
savings bank ("GFB"), is an affiliate. Employee is a valuable employee of GFB
and is and will continue to be instrumental to the continued growth and
profitability of both GFB and GFC. As such, both GFB and GFC have insurable
interests in the Policy.
1.2 GFC wishes to retain and encourage Employee to remain in GFB's employ;
therefore, GFC will provide additional employment related benefits to Employee.
Employee would like to obtain additional life insurance death benefit protection
to provide for Employee's family upon Employee's death. The parties have agreed
to obtain and continue to provide life insurance death benefit protection for
Employee.
1.3 GFC is willing to pay all of the premiums due on a life insurance policy
insuring Employee's life subject to the terms and conditions set forth herein.
1.4 The Employee or a Trust established by the Employee for the benefit of
Employee's family will own the life insurance policy acquired pursuant to this
Agreement, and the owner will possess all incidents of ownership in and to the
policy. The policy will be assigned to GFC as collateral to secure the repayment
of GFC's interest in the policy.
1.5 The parties desire to have a full understanding of their mutual and
respective obligations; accordingly, in consideration of their mutual agreements
and covenants contained herein, the parties agree as follows:
2. DEFINITIONS
As used in this Agreement:
2.1 "CAUSE" shall mean only the final, non-appealable conviction of or the
Employee's plea of guilty or nolo contendre to a felony involving fraud,
embezzlement, theft, or dishonesty or other criminal conduct against GFC or GFB.
2.2 "CHANGE IN CONTROL" shall mean the occurrence of any of the following:
2.2(a) during any period of three consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of GFB cease for
any reason to constitute a majority thereof unless the election or nomination
for election of each new Director was approved by a vote of at least two-thirds
of the Board members then still in office who were Board members at the
beginning of the period or who were similarly nominated;
2.2(b) the business of GFB for which Employee's services are
principally performed is disposed of pursuant to a partial or complete
liquidation of GFB, a sale of GFB's assets, or otherwise;
2.2(c) GFB's or GFC's Board of Directors adopts a resolution to the
effect that a Change in Control for purposes of this Agreement has occurred;
2.2(d) an event that would be required to be reported in response to
item 1(a) of the current report on Form 8-K as in effect on the date of this
Agreement, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 occurs;
2.2(e) any "person" (as that term is used in Sections 13(d) or 14(d) of
the Securities Exchange Act or 1934) is or becomes the "beneficial owner" (as
that term is defined in Rule 13d-3 of the Securities Exchange Act of 1934),
directly or indirectly, of GFB's securities representing 20 percent or more of
GFB's outstanding securities except for any securities of GFB purchased by GFB's
employee stock ownership plan and trust.
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2.2(f) GFB approves, adopts, or otherwise consummates a plan of
reorganization, merger, consolidation, sale of all or substantially all of GFB's
assets or a similar transaction in which GFB is not the surviving entity; or
2.2(g) a change in control that shall have occurred as described in 12
C.F.R. Section 574.4(a) or its successor regulations.
2.3 "COLLATERAL ASSIGNMENT" shall mean the Owner's assignment of the Policy to
GFC as collateral pursuant to the assignment instrument attached hereto as
Exhibit B and incorporated herein by reference.
2.4 "CORPORATE INTEREST" means GFC's interest in the Policy ( as set forth in
Exhibit A, attached hereto and incorporated herein by reference) which GFC is to
receive in the event of a Policy Rollout. Under no circumstances will the
Corporate Interest be less than the cumulative Policy premiums that GFC has
advanced pursuant to this Agreement.
2.5 "DEATH PROCEEDS" shall mean the face amount of the death benefit provided in
the Policy, plus any increase in the death benefit from dividends, cash, or
accumulation value as those terms may be defined in the Policy.
2.6 "ECONOMIC VALUE" means the lower of the PS-58 rate or the Insurer's current
published premium rate for annually renewable term insurance for standard risks,
assuming a death benefit equal to Employee's Death Benefit.
2.7 "EMPLOYEE'S DEATH BENEFIT" shall mean that Employee's death benefit as set
forth in Exhibit A.
2.8 "GFC DEATH BENEFIT" shall mean GFC's death benefit as set forth in Exhibit
A.
2.9 "Insurer" shall mean the insurance company identified in Exhibit A.
2.10 "OWNER" shall mean the Employee or a Trust established for the benefit of
Employee's family, as the case may be.
2.11 "POLICY" shall mean the life insurance policy (identified in Exhibit A) on
the Employee's life.
2.12 "POLICY ROLLOUT" shall mean the procedure by which GFC receives its
Corporate Interest in the Policy and by which the Owner receives its interest in
the Policy in the event this Agreement is terminated for reasons other than the
Employee's death.
2.13 "ROLLOUT AGE" shall mean the end of the policy year in which Employee
reaches insurance age sixty-five.
3. THE POLICY
3.1 APPLICATION FOR INSURANCE. The Owner has obtained the Policy issued by the
Insurer in an initial face amount of One Million One Hundred Eighty Nine
Thousand Eight Hundred Ninety Nine Dollars ($ 1,189,899.00). The parties hereto
have taken all necessary action to cause Insurer to issue the Policy and will
take any additional actions necessary to cause the Policy to comply with this
Agreement's provisions.
3.2 ASSIGNMENT OF POLICY. The Owner has assigned the Policy to GFC pursuant to
the Collateral Assignment, which secures the repayment to GFC of its Corporate
Interest in the Policy arising pursuant to this Agreement. The Owner will file
the Collateral Assignment with the Insurer.
4. POLICY OWNERSHIP
4.1 POLICY OWNERSHIP. The Owner will be the Policy's sole and absolute owner,
including any supplemental riders and endorsements, and may exercise all
ownership rights granted by the Policy's terms, except as otherwise expressly
provided herein.
4.2 GFC'S RIGHTS AND DUTIES. GFC's rights and duties in the Policy will be
limited to the following:
4.2(a) The right to receive the GFC Death Benefit at the Employee's
death;
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4.2(b) The right to receive its Corporate Interest after a Policy
Rollout, as hereinafter provided;
4.2(c) The right to physical possession of the Policy;
4.2(d) The duty to release the Collateral Assignment after GFC receives
its Corporate Interest; and
4.4(e) The duty to make the Policy reasonably available to the Owner
and Insurer at their request.
4.3 GFC will have no right to borrow against the Policy, except as expressly
permitted herein.
4.4 OWNER'S RIGHTS. As Policy owner, the Owner will retain all other Policy
rights that this Agreement has not expressly granted to GFC, including, but not
limited to, the following:
4.4(a) The right to succeed to full ownership of the Policy's cash
values upon satisfaction of the Corporate Interest following a Policy Rollout;
4.4(b) The right to designate and change the beneficiary(ies) of the
Employee Death Benefit as hereinafter provided;
4.4(c) The right to assign its rights in the Policy.
4.5 Notwithstanding anything in this Agreement to the contrary, the Owner will
have no right to borrow against the Policy before Policy Rollout.
4.6 APPLICATION OF DIVIDENDS. Policy dividends may be used to pay premiums or to
purchase paid-up additional insurance protection.
5. PREMIUM PAYMENTS
5.1 PREMIUM PAYMENTS. On or before each Policy premium's due date, or within the
grace period granted therein, GFC or the GFC Rabbi Trust or both, as the case
may be, will be obligated to pay to the Insurer the Policy premiums (including
the cost associated with all supplemental riders and endorsements) according to
the schedule of planned annual premiums set forth in the Policy. GFC's and the
GFC Rabbi Trust's obligation to pay the aforesaid Policy premiums will continue
in full force and effect, unless GFB terminates Employee's employment for
"Cause."
5.2 CHANGE IN CONTROL. Upon a Change of Control, GFC shall immediately make an
irrevocable contribution to the GFC Rabbi Trust in an amount that is sufficient
to pay all of the then remaining Policy premiums.
5.3 NOTICE TO OWNER. Upon receipt of Owner's written request, GFC will promptly
furnish the Owner evidence of its timely payment of Policy premiums.
5.4 CURRENT TAXATION OF PREMIUMS. Each taxable year, Employee will include in
his or her gross income, for Federal and, if applicable, state income tax
purposes, the Economic Value attributable to the life insurance protection this
Agreement provides for Employee during such taxable year.
6. DEATH BENEFITS
6.1 EMPLOYEE'S DEATH BENEFIT. If Employee dies before Policy Rollout, Employee's
designated beneficiary(ies) set forth in the Policy will be entitled to receive
Employee's Death Benefit shown on Exhibit A or as adjusted because of Policy
dividends or because the assumptions utilized by the Insurer to generate the
values shown on Exhibit A have changed since the date this Agreement was
executed.
6.2 GFC DEATH BENEFIT. If Employee dies before Policy Rollout, GFC will be
entitled to receive the GFC Death Benefit as shown on Exhibit A or as adjusted
because of Policy dividends or because the assumptions utilized by the Insurer
to generate the values shown on Exhibit A have changed since the date this
Agreement was executed.
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7. TERMINATION OF AGREEMENT
7.1 TERMINATION OF AGREEMENT. This Agreement will terminate, without notice and
without any further action by the parties hereto, upon GFB's termination of the
Employee's employment for "Cause."
7.2 FORFEITURES. Notwithstanding anything in this Agreement to the contrary,
Owner will forfeit all rights to the Policy if GFB terminates Employee's
employment for "Cause," in which case Owner will be required to execute any
document or documents required by Insurer to transfer the policy to GFC.
Notwithstanding the foregoing, Employee will not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Employee a copy of a resolution duly adopted by GFB's Board of Directors at a
meeting of GFB's Board called and held for that purpose, finding that in the
good faith opinion of GFB's Board, GFB has cause for terminating Employee and
specifying the particulars thereof in detail. Should Employee dispute whether he
was terminated for Cause, then GFB, GFC, and the Employee will enter immediately
into arbitration as provided hereinafter.
8. POLICY ROLLOUT
8.1 TIMES FOR POLICY ROLLOUT. Policy Rollout will occur when the Employee
reaches Rollout Age.
8.2 POLICY ROLLOUT PROCEDURE. To accomplish the Policy Rollout, GFC and the
Owner will apply to Insurer to split the Policy into two separate life insurance
policies. One policy will provide a death benefit for GFC and will have a cash
value equal to GFC's Corporate Interest in such amounts as set forth in Exhibit
A or as adjusted because of Policy dividends or because the assumptions utilized
by the Insurer to generate the values listed on Exhibit A have changed since the
date this Agreement was executed (the "First Policy"). The other policy will
have the remaining cash surrender value and death benefits of the original
Policy, as set forth in Exhibit A or as adjusted if because of Policy dividends
or because the assumptions utilized by the Insurer to generate the values listed
on Exhibit A have changed since the date this Agreement was executed (the
"Second Policy"). Ownership of the First Policy will be transferred to GFC, and
upon receipt of First Policy, GFC will execute all document(s) required by
Insurer to release the Collateral Assignment. The First Policy will be free and
clear of any obligation to Owner, and GFC may, in its sole discretion, hold
First Policy or surrender it for its cash value without notice to or permission
from the Owner. Ownership of the Second Policy will be transferred to Owner and
will be free and clear from any obligations to GFC.
9. ADMINISTRATION AND CLAIMS PROCEDURE
9.1 PLAN ADMINISTRATION. The Compensation Committee of GFB will serve as the
administrator for this Agreement; provided, however, that a member of such
Committee will take no action with respect to his or her own benefit.
9.2 AUTHORITY OF ADMINISTRATOR. The Compensation Committee will have all power
and authority necessary to carry out the provisions of this Agreement. The
Compensation Committee will have the full power to interpret and construe this
Agreement and to delegate administrative duties to such persons as it sees fit.
All costs involved in administration of this Agreement will be borne by GFB.
9.3 CLAIMS. Any person claiming a benefit or requesting an interpretation or
ruling under this Agreement shall present the request in writing to the
Compensation Committee.
9.4 DENIAL OF CLAIMS. The Compensation Committee shall make all determinations
as to the right of any person to a benefit under this Agreement. If any claim is
wholly or partially denied, the claimant shall be notified of such decision
thirty (30) days after the Compensation Committee received the claim. The
Compensation Committee will provide to every claimant who is denied a claim for
benefits written notice setting forth:
9.4(a) The specific reason(s) for the denial;
9.4(b) Specific reference to pertinent provisions of this Agreement
upon which the denial is based;
9.4(c) A description of any additional information necessary for the
claimant to perfect the claim, and an explanation of why such material or
information is necessary; and
53
<PAGE>
9.4(d) An explanation of the claim review procedure under this
Agreement.
9.5 REVIEW OF CLAIM. A claimant shall have sixty (60) days following his or her
receipt of the claim denial to file with the Compensation Committee a written
request for GFB's Board of Directors (excluding claimant should claimant then be
serving as a member of the Board of Directors) to review the claim. All such
requests will be written and will state the reason for the claimant's
disagreement with the decision. A claimant's failure to request the Board of
Directors review of the decision within the aforesaid sixty (60) day period will
be deemed a waiver of the claimant's right to reconsideration of the
Compensation Committee's decision. Such failure will not, however, preclude the
claimant from establishing his entitlement at a later date based on additional
information and evidence not available to claimant at the time of the
Compensation Committee's decision. A decision by the Board of Directors will be
made not later than 60 days after its receipt of a request for review. The
claimant will be advised of the Board's decision in writing.
9.6 FINAL DECISION. Should the claimant dispute the Board of Director's decision
about the claimant's entitlement to benefits provided by this Agreement, then
claimant, GFC, and GFB will enter immediately into arbitration as provided
hereinafter.
10. ARBITRATION
10.1 ISSUES TO BE ARBITRATED. The parties agree to submit all disputed issues to
final and binding arbitration; except for those issues requiring extraordinary
relief that may only be obtained by the issuance of a restraining order,
injunction or similar type of equitable relief. A "disputed issue" means any
disagreement in regard to any of the terms and conditions of this Agreement, and
any dispute between the parties concerning their relationships, issues involving
an accounting, and the right to recision, as well as any issues not directly
covered by this Agreement.
10.2 PROHIBITION OF COURT APPEAL. Any dispute, as defined above, and which is
subject to arbitration will not be subject to appeal to any court except to
permit a party to seek court enforcement of any arbitration award rendered
hereunder.
10.3 SELECTION OF ARBITRATOR. If the parties agree to the appointment of a
single arbitrator, then the single arbitrator will determine and decide any
dispute arising hereunder. If the parties cannot agree to the selection of a
single arbitrator, then each party will designate an attorney to serve as an
arbitrator, and the selected attorneys will select an arbitrator, who is a
certified public accountant, to be the third arbitrator. The arbitrator(s) will
establish rules for the conduct of the arbitration consistent with the rules of
the American Arbitration Association, and KRS 417.050 et. seq. The arbitrator(s)
will be impartial and will have no prior or present relationship with any of the
parties. The arbitration hearing and proceedings will take place in the State of
Kentucky, and will be enforceable in the State of Kentucky. The arbitrator(s)
will be empowered to hear, conclusively determine and resolve all claims and
disputes between the parties. Arbitration fees and expenses will be shared
equally by the parties to the arbitration, unless otherwise agreed by the
arbitrator(s).
10.4 CONFIDENTIALITY. The parties agree that all matters to be arbitrated and
the arbitration award will be maintained on a confidential basis. All issues and
the results thereof will not be disclosed by the parties or their
representatives, and the parties and their representatives will not report any
of their proceedings to the public. These provisions will not prohibit any party
from securing witnesses, experts, or other advisors as is necessary in order for
the parties to present their case, etc.
11. AGREEMENT DRAFTED BY GFC'S ATTORNEYS
The parties each acknowledge that GFC's counsel, Lynch, Cox, Gilman & Mahan,
P.S.C., prepared this Agreement at their joint request. The parties consent to
such representation, and they acknowledge that they have been advised that
possible conflicts may exist between them, that each has had an opportunity to
seek the advice of independent counsel, and they have received no
representations from counsel as to the economic fairness and the material
consequences affecting the transactions contemplated by this Agreement. Further,
the parties acknowledge that in the event of any dispute, counsel will represent
the interests of GFC and not any party in opposition thereto.
54
<PAGE>
12. NOTICES
Any and all notices, requests, or communications required or permitted to be
given pursuant to this Agreement will be written and signed by the appropriate
party and will be deemed to have been given when delivered personally to the
party to be notified or when deposited in the United States mail, postage
prepaid, registered or certified mail, return receipt requested, addressed as
follows:
To Employee at: 17206 Ash Hill Drive
Louisville, KY. 40245
If applicable, To Trustee at: 329 West Main Street
Suite 1900
Louisville, KY. 40202
To GFC: 329 West Main Street
Suite 1900
Louisville, KY. 40202
Any party may change the address to which such notices, etc. are to be directed
to them, by giving notice to the other party hereto in the manner set forth
above.
13. MISCELLANEOUS PROVISIONS
13.1 INSURER NOT A PARTY. Insurer will be fully discharged from its obligations
under the Policy by payment of the Policy death benefit to the beneficiary(ies)
named in the Policy, subject to the Policy's terms and conditions. Under no
circumstances will Insurer be considered a party to this Agreement or subsequent
modifications or amendments of it, if any. Further, no provision of this
Agreement, or subsequent modifications or amendments of it, will in any way be
construed as varying or otherwise affecting the Insurer's obligations as
expressly provided in the Policy, except insofar as this Agreement's provisions
are made part of the Policy by the Collateral Assignment filed with Insurer in
connection herewith.
13.2 ACKNOWLEDGEMENT REGARDING EXHIBIT A. The parties hereto expressly
acknowledge and agree that the projections and results for the Owner and for GFC
illustrated on Exhibit A represent mere estimates and may be adjusted because of
Policy dividends or because the assumptions utilized by the Insurer to generate
the values shown on Exhibit A have changed since the date this Agreement was
executed.
13.3 MODIFICATION. No change or modification to this Agreement will be valid,
unless in writing and signed by all the parties hereto, or their respective
successors or permitted assigns.
13.4 GOVERNING LAW. This Agreement will be deemed to be made under and will be
construed in accordance with the laws of the State of Kentucky.
13.5 INTERPRETATION. The parties intend that this Agreement be interpreted
consistent with its being a welfare benefit plan for a select group of
management and highly compensated employees.
13.6 ENTIRE AGREEMENT. This Agreement contains the entire understanding and
agreement between the parties hereto with respect to the matters set forth
herein and supersedes any prior understandings and agreements among them with
respect to the same.
13.7 WAIVER. The failure of any party hereto to insist upon strict performance
of a covenant or condition in this Agreement will not be a waiver of his right
to demand strict compliance therewith in the future.
13.8 SEVERABILITY. The invalidity or unenforceability of a particular provision
of this Agreement will not affect the other provisions hereof, and the Agreement
will be construed in all respects as if such invalid or unenforceable provisions
were omitted.
13.9 BENEFITS. All benefits payable pursuant to this Agreement will be payable
only from the Policy and only to the extent provided in Policy.
55
<PAGE>
13.10 PARTIES BOUND. This Agreement will be binding upon and inure to the
benefit of the parties hereto, their heirs, legal representatives, successors
and permitted assigns of the parties.
13.11 THIRD PARTY BENEFICIARIES. This Agreement does not create, and will not be
construed as creating, any rights enforceable by any person not a party to this
Agreement.
13.12 SECTION HEADINGS. The section headings contained herein are for the
purposes of convenience only, and will not be deemed to constitute a part of
this Agreement or to affect the meaning or interpretation of this Agreement in
any way.
In order to evidence their understanding of and agreement to all the terms
and conditions of this Agreement, the parties have executed multiple copies of
this instrument, each one of which, when signed by all the parties, will be
considered an original.
Date: March 28, 1997.
GREAT FINANCIAL CORPORATION IRREVOCABLE TRUST
By: /S/ PAUL BAKER By: /S/ RICHARD M. KLAPHEKE
Title: PRESIDENT Title: TRUSTEE
PNC BANK KENTUCKY, INC.,
TRUSTEE OF THE GFC RABBI TRUST
By: /S/ ANN M. RILEY /S/ JAMES F. STATLER
Employee
Title: VICE PRESIDENT
56
Exhibit 11. Statement regarding Computation of Per Share Earnings
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income .............................................. $ 7,921 $ 6,561 $15,374 $12,992
======== ======== ======== ========
Weighted average number of common shares and equivalents:
Shares issued ..................................... 16,531 16,531 16,531 16,531
Shares in treasury ................................ (2,643) (2,168) (2,563) (1,943)
Shares held by the ESOPs which have not been
committed to be released ........................ (978) (1,088) (991) (1,102)
Shares issuable pursuant to stock option plans
less shares assumed repurchased at the
average market price ............................ 985 991 1,036 950
-------- -------- -------- --------
Number of shares for computation of primary
earnings per share ................................... 13,895 14,266 14,013 14,436
Net additional shares issuable pursuant to
stock option plans at period-end market price ... 35 51 41
-------- -------- -------- --------
Number of shares for computation of fully diluted
earnings per share ................................... 13,930 14,266 14,064 14,477
======== ======== ======== ========
Earnings per share:
Primary .............................................. $ 0.57 $ 0.46 $ 1.10 $ 0.90
======== ======== ======== ========
Fully diluted ........................................ $ 0.57 $ 0.46 $ 1.09 $ 0.90
======== ======== ======== ========
</TABLE>
57
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at June 30, 1997 (Unaudited) and the Consolidated
Statement of Income for the Six Months Ended June 30, 1997 (Unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000916484
<NAME> GREAT FINANCIAL CORPORATION
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 46,508
<INT-BEARING-DEPOSITS> 5,762
<FED-FUNDS-SOLD> 10,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 796,750
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 2,064,821
<ALLOWANCE> 14,593
<TOTAL-ASSETS> 3,046,227
<DEPOSITS> 1,893,545
<SHORT-TERM> 316,770
<LIABILITIES-OTHER> 36,586
<LONG-TERM> 518,042
0
0
<COMMON> 165
<OTHER-SE> 281,119
<TOTAL-LIABILITIES-AND-EQUITY> 3,046,227
<INTEREST-LOAN> 81,061
<INTEREST-INVEST> 26,905
<INTEREST-OTHER> 275
<INTEREST-TOTAL> 108,241
<INTEREST-DEPOSIT> 44,559
<INTEREST-EXPENSE> 67,204
<INTEREST-INCOME-NET> 41,037
<LOAN-LOSSES> 1,498
<SECURITIES-GAINS> 517
<EXPENSE-OTHER> 35,013
<INCOME-PRETAX> 23,449
<INCOME-PRE-EXTRAORDINARY> 15,374
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,374
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.09
<YIELD-ACTUAL> 3.02
<LOANS-NON> 7,079
<LOANS-PAST> 82,183 <F1>
<LOANS-TROUBLED> 1,970
<LOANS-PROBLEM> 2,214 <F2>
<ALLOWANCE-OPEN> 13,538
<CHARGE-OFFS> 600
<RECOVERIES> 157
<ALLOWANCE-CLOSE> 14,593
<ALLOWANCE-DOMESTIC> 14,593
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> ACCRUING LOANS 90 DAYS OR MORE PAST DUE TOTALING $82,183 INCLUDES FHA/VA
LOANS WITH LIMITED CREDIT RISK TOTALING $79,305. MOST OF GREAT FINANCIAL
CORPORATION'S INVESTMENT IN THESE LOANS IS RECOVERABLE THROUGH CLAIMS MADE
AGAINST THE FHA OR VA SUBJECT TO THE RISKS OF RECOVERY.
<F2> OTHER PROBLEM LOANS CONSIST OF THOSE LOANS CLASSIFIED AS SUBSTANDARD,
DOUBTFUL OR LOSS UNDER OFFICE OF THRIFT SUPERVISION REGULATIONS AND WHICH
ARE NOT REPORTED AS NONACCRUAL, ACCRUING 90 DAYS OR MORE PAST DUE, OR
RESTRUCTURED.
</FN>
</TABLE>
