-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wg/sp1qq541FTnH82Nubv5RN0wLGUJA9kzTkCQ953kb+kuSvC7gj0AxEFl9mpA4q ofjG1TNhbAvgWdcLbx6aPg== 0000950116-97-000597.txt : 19970329 0000950116-97-000597.hdr.sgml : 19970329 ACCESSION NUMBER: 0000950116-97-000597 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19970328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST HOME BANCORP INC \NJ\ CENTRAL INDEX KEY: 0001009195 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 223423990 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-28700 FILM NUMBER: 97567065 BUSINESS ADDRESS: STREET 1: 125 SOUTH BROADWAY CITY: PENNSVILLE STATE: NJ ZIP: 08070 BUSINESS PHONE: 6096784400 MAIL ADDRESS: STREET 1: 125 SOUTH BROADWAY CITY: PENNSVILLE STATE: NJ ZIP: 08070 FORMER COMPANY: FORMER CONFORMED NAME: FIRST HOME BANCORP INC \NJ\ DATE OF NAME CHANGE: 19960228 10-K 1 Securities and Exchange Commission Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended .....................................December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEES REQUIRED] For the transaction period from _________ to __________ Commission File Number: 0-28700 First Home Bancorp Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) New Jersey 22-3423990 - --------------------------------- ---------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 125 South Broadway Pennsville, New Jersey 08070 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (609) 678-4400 Securities registered pursuant to Section 12 (b) of the Act: Not Applicable Securities registered purusant to Section 12(g) of the Act: Common Stock (no par value) ----------------------------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] The aggregate market value of the voting stock held by non-affiliates of the registrant is approximately $36,452,000 (1) Number of shares of Common Stock outstanding as of March 14, 1997 was 2,708,426 shares. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference: (1) Portions of the Annual Report to Shareholders for the year ended December 31, 1996 are incorporated into Part I and Part II of this form 10-K. (2) Portions of the definitive proxy statement for the 1997 Annual Meeting of Shareholders are incorporated into Part III, Items 10-13 of this Form 10-K. - ------------------------------------ (1) The aggregate dollar amount of the voting stock set forth equals the number of shares of Common Stock outstanding, reduced by the number of shares of Common Stock held by executive officers, directors and shareholders owning in excess of 10% of the registrant's Common Stock multiplied by the closing price for the Common Stock on the Nasdaq National Market tier of the Nasdaq Stock Market on March 14, 1997 The information provided shall in no way be construed as an admission that any person whose holdings are excluded from this figure is an affiliate of the registrant or that any person whose holdings are included in this figure is not an affiliate of the registrant and any such admission is hereby disclaimed. The information provided herein is included solely for record keeping purposes of the Securities and Exchange Commission. PART I Item 1. Business. Organization First Home Bancorp Inc. (the "Company") is a New Jersey corporation and a unitary savings and loan holding company registered under the Home Owners' Loan Act, as amended ("HOLA"). The Company is the parent holding company of First Home Savings Bank, F.S.B. (the "Bank"), a federally chartered savings bank. The Company was organized in February 1996 for the purpose of acquiring all of the capital stock of the Bank in connection with the reorganization of the Bank into the holding company form of ownership. The reorganization was consummated on May 31, 1996. The Company is registered as a holding company with the Office of Thrift Supervision ("OTS") and is subject to OTS regulation, examination, supervision, and reporting requirements. The Bank conducts business from ten offices in Carneys Point, Elmer, Gibbstown, Newfield, Pennsauken, Penns Grove, Pennsville and Westmont, New Jersey, and Stanton and Wilmington, Delaware. The Bank also offers around the clock banking through "HomeLine," a twenty-four hour telephone banking service, and various automated teller machines. Organized as a New Jersey building and loan association in 1928 under the name Penns Grove Building and Loan Association, the Bank changed its name to First Savings and Loan Association of Penns Grove in 1956 when it obtained federal insurance of accounts. On April 15, 1987, it converted to the stock form of organization and in June, 1988 changed its name to First Home Savings Bank, S.L.A. On July 1, 1992, it acquired Fidelity Mutual Savings and Loan Association of Westmont, New Jersey ("Fidelity Mutual") through a conversion merger of Fidelity Mutual with and into the Bank. The acquisition was accounted for as a purchase and resulted in the acquisition of $79.9 million in assets and liabilities of $79.4 million. On June 25, 1993, the Bank merged with and into White Eagle Federal Savings Bank ("White Eagle"), a federally chartered savings bank organized in 1911 operating two offices in Delaware with approximately $31 million in assets. As a result of the merger with White Eagle, the Bank became a federally chartered savings bank and changed its name to First Home Savings Bank, F.S.B. The transaction was accounted for as a pooling-of-interests. On January 23, 1995, two retail-banking offices were acquired and deposits of $15.9 million were assumed. The transaction was accounted for as a purchase transaction. Substantially all of the Company's consolidated revenues are derived from the operations of the Bank with the Bank representing substantially all of the Company's consolidated assets and liabilities at December 31, 1996. At December 31, 1996, the Company had total assets, deposits and net worth of approximately $498.4 million, $290.3 million and $32.6 million, respectively. The Fidelity Mutual acquisition and the acquisition of the two retail-banking offices were accounted for as purchases. As a result, the assets and liabilities of Fidelity Mutual and the two retail-banking offices were recorded at their fair market values on the books of the Bank at the time of the acquisitions and the historical results of operations prior to the acquisitions were not adjusted. The Bank's principal business consists of attracting deposits from the general public through its offices and investing such deposits, together with funds from borrowings and operations, primarily in permanent loans (including construction loans) secured by single-family residential real estate, consumer loans and, to a lesser extent, loans secured by commercial real estate. At present, the Bank also maintains a portfolio of mortgage-backed securities ("MBS") and other permissible investments, and, through its service corporation, engages in the sale of insurance annuities and other activities. The Company's and Bank's executive offices are located at 125 South Broadway, Pennsville, N. J. 08070 and their phone number is (609) 678-4400. 1 Lending Activities General Lending operations include the origination of long-term fixed-rate and adjustable-rate loans secured by mortgages on residential real estate, consumer loans and, to a lesser extent, commercial real estate loans. Loan Portfolio Composition At December 31, 1996, the net loan portfolio totaled $258.9 million, representing 51.9% of the Company's total assets. Gross loans amounted to $265.7 million, of which $225.3 million were mortgage loans, comprised of $208.1 million in residential mortgage loans and construction loans and $17.2 million in commercial real estate loans. In addition, $38.4 million was invested in consumer loans and $2.0 million in commercial business loans at December 31, 1996. The following table sets forth the composition of the loan portfolio by type of loan as of the dates indicated.
At December 31, 1996 1995 1994 1993 1992 --------------- ---------------- -------------- --------------- --------------- (dollars in thousands) Amount % Amount % Amount % Amount % Amount % Real estate loans: Residential property $201,269 75.7% $203,375 77.4% $190,499 77.2% $161,507 72.8% $137,599 74.2% Loans held for sale 676 .3 418 .2 288 .1 16,967 7.6 4,833 2.6 Construction 3,824 1.4 3,258 1.2 3,707 1.5 5,449 2.5 4,568 2.5 FHA and VA loans 2,304 .9 2,890 1.1 2,277 .9 2,711 1.2 3,190 1.7 Commercial 17,214 6.5 15,671 6.0 16,398 6.7 14,476 6.5 14,411 7.8 ---------- ----- ---------- --- ---------- ----- ---------- ----- ---------- ----- Total real estate loans 225,287 84.8 225,612 85.9 213,169 86.4 201,110 90.6 164,601 88.8 --------- ---- --------- ---- --------- ---- --------- ---- --------- ---- Other commercial loans 1,948 .7 1,233 .5 928 .4 705 .3 724 .4 --------- ---- --------- ---- --------- ---- --------- ---- --------- ---- Consumer loans: Mobile home loans 6,606 2.5 7,805 3.0 9,705 4.0 475 .2 450 .2 Equity 23,472 8.8 20,307 7.7 17,060 6.9 14,416 6.5 14,294 7.7 Automobile loans 4,631 1.8 4,088 1.6 3,017 1.2 2,933 1.3 3,348 1.8 Savings account loans 1,900 .7 1,712 .6 1,573 .6 1,573 .7 1,491 .8 Other loans 1,847 .7 1,827 .7 1,281 .5 774 .4 558 .3 --------- ---- --------- ---- --------- ---- --------- ---- --------- ---- Total consumer loans 38,456 14.5 35,739 13.6 32,636 13.2 20,171 9.1 20,141 10.8 --------- ---- --------- ---- --------- ---- --------- ---- --------- ---- Total loans receivable 265,691 100.0% 262,584 100.0% 246,733 100.0% 221,986 100.0% 185,466 100.0% ===== ===== ===== ===== ===== Less: Loans in process (1,222) (1,681) (1,114) (2,065) (1,740) Net deferred loan fees, premiums and discounts (1,800) (2,123) (2,136) (1,214) (1,044) Allowance for credit losses (3,760) (3,563) (3,315) (2,663) (2,063) ---------- --------- --------- --------- --------- Total loans receivable, net $258,909 $255,217 $240,168 $216,044 $180,619 ======== ======== ======== ======== ========
Contractual Maturities The following table reflects the scheduled contractual maturities of the loan portfolio by type of loan at December 31, 1996. Loans with adjustable or variable rates are included in the period in which they mature. Contractual maturities of loans do not reflect anticipated repayments of the loan portfolio. The average life of the loan is generally substantially less than the contractual life because of early loan repayments, loan prepayments and due-on-sale clauses in the mortgage contract. The table does not include non-performing loans, unamortized premiums, discounts and fees. 2
Balance at Principal Repayments Contractually Due in Year(s) Ending December 31, December 31, ------------------------------------------------------------------------ 2000 2002 2007 2012 and 1996 1997 1998 1999 2001 2006 2011 Thereafter ---- ---- ---- ---- ---- ---- ---- ---------- (in thousands) Residential loans Adjustable rate $ 72,188 $ 4,457 $ 1,694 $ 1,906 $ 4,184 $11,805 $14,363 $33,779 Fixed rate 131,672 8,265 8,696 9,477 19,414 47,040 27,445 11,335 Consumer loans Adjustable rate 3,993 30 26 27 52 128 126 3,604 Fixed rate 34,158 6,280 5,207 4,325 6,117 8,411 1,685 2,133 Commercial loans Adjustable rate 9,893 1,760 436 445 885 2,278 2,208 1,881 Fixed rate 8,677 1,715 866 885 1,530 2,416 1,077 188 -------- ------- ------- ------- ------- ------- ------- ------- Total loans $260,581 $22,507 $16,925 $17,065 $32,182 $72,078 $46,904 $52,920 ======== ======= ======= ======= ======= ======= ======= =======
Of the $238.1 million of total loans due after one year, $158.3 million are fixed rate loans and $79.8 million are adjustable rate loans. Real Estate Lending Residential Loans. The primary lending activity is the origination of conventional loans to enable borrowers to purchase, refinance or construct single-family homes. Mortgage loans originated are generally long-term loans that amortize on a monthly basis, with principal and interest payments due each month. Generally, mortgage loans are written under terms, conditions and documentation which permit their sale into the secondary market to FHLMC, FNMA and other investors. In response to the objective to shorten the period for assets to reprice, adjustable-rate mortgage loans are originated which reprice every one or three years. However, to enhance the yield and to remain competitive, loans are originated at fixed interest rates at terms from five to thirty years fixed rate. Fixed-rate residential loans granted for terms of thirty years are generally originated with the intent to sell in the secondary market. These loans are generally classified as loans held for sale. Generally, after sale the loans continue to be serviced by the Bank. Adjustable rate residential mortgage loans amounted to approximately $72.2 million, or 34.7% of the portfolio of residential mortgage loans at December 31, 1996. Currently, adjustable-rate residential mortgage loans are offered that have terms of thirty years and interest rates which adjust (up or down) every one or three years, with a maximum adjustment of two percentage points per adjustment period and six percentage points over the life of the loan. The index used to calculate the interest rate adjustment is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one or three years as made available in Federal Reserve Bulletin (H15). Substantially, all fixed-rate residential mortgages include so-called "due on sale" clauses, which are provisions giving the Bank the right to declare a loan immediately due and payable in the event, among other things, the borrower sells or otherwise disposes of the real property. The Bank utilizes the due on sale clause as a means of accelerating the rate of early repayment of loans. The Bank generally limits the maximum loan-to-value ratio on residential real estate loans to 90%. However, if private mortgage insurance is obtained, up to 95% of the appraised value of the real estate securing the loan could be lent. Generally, title insurance policies are obtained on all real estate loans. Borrowers must also obtain hazard insurance prior to closing. Borrowers may be required to advance funds on a monthly basis together with each payment of principal and interest to an escrow account for the payment of real estate taxes and hazard insurance premiums. Construction Loans. On a limited basis, residential construction loans are granted. These loans are generally made on a non-speculative basis to the owner occupants of the real estate, have terms of no longer than ten months and provide for fixed or floating interest rates. All residential construction loans are either repaid in full or converted to permanent loans when the construction is completed. On a limited basis, commercial construction loans are also granted. 3 These loans are not actively solicited and are made on a case-by-case basis to existing customers. At December 31, 1996 construction loans comprised 1.4% of the total loan portfolio. Commercial Real Estate Loans. While the focus of lending is on single-family residential real estate loans, on a limited basis, loans secured by mortgages on commercial real estate are granted. These loans are not actively solicited and are made on a case-by-case basis. At December 31, 1996 commercial real estate loans totaled $17.2 million or 6.5% of the total loan portfolio. Collateral securing these loans include retail businesses, apartment dwellings and other commercial type security. The loans are offered for various maturities, interest rates and fees. Commercial real estate loans generally involve a greater amount of risk than residential mortgage loans. Typically such loans involve lending substantially larger amounts to single borrowers or groups of related borrowers than residential loans and the repayment experience on the loan generally depends on the cash flow generated by the property securing the loan. In determining loan terms, including interest rates and origination fees, management considers both current market conditions and its analysis of the risk associated with the particular project. The underwriting policies with respect to commercial real estate are designed to help assure that a project's estimated cash flow and applicable guarantees are sufficient to service the debt and that the collateral provides adequate coverage in the event of a default. Generally, loan-to-value ratios on commercial real estate do not exceed 80%. All properties are appraised by independent professional appraisers and are reviewed by an officer of the Bank. Consumer Loans Consumer lending includes lines of credit, equity and home improvement loans, automobile loans, savings account loans, and other consumer loans including mobile home loans and secured and unsecured personal loans. Equity lines of credit require principal payments of $100 per month or 1/180 of the remaining balance, whichever is greater. Home equity loans generally have terms of ten years or less while all other consumer loans have terms of five years or less. The interest rate on equity lines of credit float monthly based on the prime rate. Other consumer loans carry fixed interest rates that are generally higher than the rates offered on mortgage loans. At December 31, 1996, the consumer loan portfolio was $38.5 million, or 14.5% of total loans. During 1994, $10 million in fixed rate, seasoned consumer loans were purchased from the Resolution Trust Corporation. The loans had initial terms of 15 and 20 years and are collateralized by mobile homes located in various states. Collection and other servicing activity is performed by a third party. The outstanding balance as of December 31, 1996 was $5.8 million. Commercial Business Loans On a limited basis, loans for commercial business purposes are granted. These loans are not actively solicited and are made on a case-by-case basis to existing customers. At December 31, 1996, commercial business loans totaled $1.9 million and represented .7% of the loan portfolio. The loans are both secured and unsecured and have various rates and terms. The loans are generally subject to monthly repricing or are made on a short-term demand basis. Repricing is based on the prime rate plus a margin. Loan Origination, Purchase and Sale Residential real estate loans are generally originated in conformity with standard underwriting criteria to assure maximum eligibility for possible resale in the secondary market. Loan originations are developed from a number of sources. Residential loans in the local market area are generated primarily from business development officers, advertising, walk-in customers and referrals from local real estate brokers and existing customers. Consumer loan originations are currently being generated primarily through the branch network and advertising. The mortgage loan approval process assesses the borrower's ability to repay the loan, and the adequacy of the value of the property that will secure the loan. Residential real estate loans are approved by the Executive Vice President of Lending Operations (EVP-LO) within certain limits. Loans that exceed $300,000 are approved by the Bank's Loan Committee. The Loan Committee consists of four members of the Bank's Board of Directors. Loans that exceed $500,000 require approval by the Bank's Board of Directors. Major commercial mortgage loans are reviewed by and require the approval of the Bank's Board of Directors. 4 Consumer loans and commercial business loans are underwritten on the basis of the borrower's credit history and an analysis of the borrower's ability to repay the loan and the value of the collateral, if any. Consumer loans up to $100,000 must be approved by the EVP-LO and the Consumer Loan Manager. Consumer loans that exceed $100,000 are approved by the Bank's Loan Committee. Commercial business loans up to $100,000 must be approved by the EVP-LO, Consumer Loan Manager and President. Commercial business loans in excess of $100,000 and up to $250,000 are approved by the Bank's Loan Committee. Loans are also purchased from financial institutions and other third parties. Generally, the loans are collateralized by single-family residential properties and are located in various states. The Bank purchased residential loans totaling $6.1 million, $22.2 million and $23.2 million, during the years ended December 31, 1996, 1995 and 1994, respectively. In some instances, collection and other servicing activity is performed by a third party servicer. To reduce its portfolio of fixed-rate mortgages, provide servicing fee income and additional cash to continue its lending program, residential loans are sold for cash directly to FHLMC, FNMA or other investors. The Bank retains as a servicing fee a portion of the interest paid by the borrower on loans sold. Servicing responsibilities include loan payment collections and other loan related servicing duties. At December 31, 1996, approximately $64.9 million in loans were serviced for others. The following table indicates mortgage loan origination, purchase, repayment and sale activity during the periods indicated.
Years Ended December 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (in thousands) Total gross loans receivable at beginning of period $262,584 $246,733 $221,986 $185,466 $149,794 Loans originated: Construction (reported gross) 6,149 5,729 6,989 7,813 5,476 Loans on existing property 31,068 20,473 45,770 58,300 56,445 Commercial loans 5,885 2,588 3,329 3,880 3,066 Consumer and other loans 15,994 14,965 12,390 9,439 10,545 -------- -------- -------- -------- -------- Total loans originated 59,096 43,755 68,478 79,432 75,532 Loans purchased (net) 6,121 22,227 23,239 36,006 5,337 -------- -------- -------- -------- -------- Total loans originated and purchased 65,217 65,982 91,717 115,438 80,869 Loans acquired through acquisition --- --- --- --- 26,835 Loans sold (8,588) (6,132) (18,317) (26,327) (16,067) Principal repayments (52,101) (43,317) (49,183) (52,952) (55,500) Other (1,421) (682) 530 361 (465) -------- -------- -------- -------- -------- Net loan activity 3,107 15,851 24,747 36,520 35,672 -------- -------- -------- -------- -------- Total gross loans receivable at end of period $265,691 $262,584 $246,733 $221,986 $185,466 ======== ======== ======== ======== ========
Geographic Lending Area The Bank has authority to lend anywhere in the United States. Although it principally limits loan origination activities to southern New Jersey and the state of Delaware, it purchases loans which are collateralized by single-family residential properties located in various states from financial institutions and other third parties. At December 31, 1996, approximately 74% of mortgage loans receivable were collateralized by property located in New Jersey and Delaware. All consumer and commercial business loans are located in the Bank's immediate market area except the mobile home loans purchased in 1994. The mobile home loans with outstanding balances totaling $5.8 million at December 31, 1996 are located in various states throughout the U.S. Loan Origination and Other Fees Fees are received both for the origination of loans and for making commitments to originate residential loans and MBS. Fees are also received with respect to residential mortgage loans that the Bank services, including late charges, and 5 credit life insurance premiums. Loan origination, commitment fees and discounts vary with the volume and type of loans and commitments made and purchased and with competitive and economic conditions. Generally, these fees are deferred and recognized as yield adjustments to the related loans. In the lending process, loan fees are charged which are calculated as a percentage of the amount borrowed. The fees received in connection with the origination of residential real estate loans generally do not exceed 3%. An additional 1% is charged for providing the financing in connection with the origination of a construction loan. All loan fees in excess of loan origination costs are deferred and amortized into income over the estimated life of the related loans. Net deferred fees, premiums and discounts amounted to $1.8 million, $2.1 million and $2.1 million as of December 31, 1996, 1995 and 1994, respectively. Servicing fees relating to residential mortgage loans sold amounted to $214,000, $231,000, and $194,000, for the years ended December 31, 1996, 1995 and 1994, respectively. Asset Quality When a required payment on a loan is more than fifteen days late, a late charge is assessed. If the late payment is not received within fifteen days after it is due, the borrower is contacted by mail and payment is requested. In most cases, the payment is made by the borrower as a result of this contact. If the delinquency continues, the borrower is contacted. In certain instances, the Bank may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize his financial affairs. If a mortgage loan continues in a delinquent status for ninety days or more, the Bank generally will initiate appropriate legal action, including commencing foreclosure proceedings or accepting from the borrower a voluntary deed in lieu of foreclosure. If a foreclosure action is instituted and the loan is not reinstated or paid-in-full, the property is sold at a judicial sale at which, in some instances, the Bank is the buyer. The acquired property is then listed in the "real estate owned" account until it is sold. Such sales may be financed with a "loan to facilitate" which usually involves more favorable borrowing terms than normally permitted by applicable regulations or the Bank's loan underwriting criteria. The collection process for loans not secured by real estate may involve seizure and liquidation of collateral, if any. Generally, loans are placed on a "non-accrual" basis when contractually past due over ninety days. When a loan is placed on a non-accrual basis, any accrued and unpaid interest on such loan is reversed and charged against current income. Loans are restored to accrual status only if the borrower has demonstrated the ability to make future payments of principal and interest. 6 Real estate owned is carried at the lower of cost (carrying value at the date of acquisition) or estimated fair value less estimated cost to sell. Subsequent costs directly related to the completion of construction or improvement of the real estate are capitalized to the extent realizable. Gains on the sale of real estate are recognized upon disposition of the property to the extent allowable based on accounting requirements. Losses on such sales are charged to operations as incurred. Carrying costs, such as maintenance, interest and taxes are charged to operations as incurred. Non-performing assets amounted to $4.2 million, $3.4 million and $4.9 million at December 31, 1996, 1995 and 1994, respectively. Non-performing assets as a percentage of total assets was 0.8%, 0.8% and 1.3% at December 31, 1996, 1995 and 1994, respectively. The increase from 1995 to 1996 was attributable to an increase in delinquencies on loans serviced by others from $754,000 in 1995 to $1,122,000 in 1996 and an increase in real estate owned from $426,000 in 1995 to $941,220 in 1996. The decrease from 1994 to 1995 was attributable to decreases in delinquencies on loans serviced by others from $1,074,000 in 1994 to $754,000 in 1995. Of the $1,122,000 in delinquent loans that are serviced by others, $269,000 have FHA insurance or a VA guaranty. The liquidation of these assets is dependent upon the economy, demand for real estate and interest rates. On January 1, 1995, FASB Statement 114, "Accounting by Creditors for Impairment of a Loan" (FAS 114) was adopted which changed the in-substance foreclosure rules. In-substance foreclosed loans are now classified as loans and stated at the lower of cost or fair value. Data for 1992 through 1994 has been restated to conform with the 1995 and 1996 presentations. The following table sets forth for the periods indicated certain information regarding non-performing assets. At December 31, 1995, one past due loan of more than ninety days with a balance of $109,000 was accruing interest. The loan was paying in accordance with an agreement with the bankruptcy court. No loans were past due and accruing interest at the other periods shown.
At December 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (dollars in thousands) Non-accrual loans Residential $2,316 $2,308 $3,732 $2,870 $2,532 Commercial 592 352 731 913 1,982 Consumer 305 261 108 81 17 -------- -------- -------- --------- --------- Total non-accrual loans 3,213 2,921 4,571 3,864 4,531 Real estate owned 941 481 303 551 934 Other repossessed assets 7 6 --- 23 296 ---------- ---------- ---------- --------- -------- Total non-performing assets $4,161 $3,408 $4,874 $4,438 $5,761 ====== ====== ====== ====== ====== Total non-performing assets as a percent of total assets 0.8% 0.8% 1.3% 1.3% 1.8% ====== ====== ====== ====== ======
A committee comprised of the President, EVP-LO, Chief Financial Officer, Investment Officer, and Treasurer of the Bank monitors the quality of its assets on a regular basis. Under OTS regulations, all assets are subject to a classification system that has three categories: (I) Substandard, (ii)Doubtful, and (iii) Loss. An asset may fall within more than one category and a portion of the asset may remain unclassified. Assets classified Substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have a well-defined weakness or weaknesses. They are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected. Assets classified Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified Loss are considered uncollectible and of such little value that their continuance as assets without establishment of a specific reserve is not warranted. This classification does not mean that an asset has absolutely no recovery or salvage value, but, rather, that it is not practical or desirable to defer writing off a basically worthless asset even though partial recovery may be effected in the future. 7 The regulation also established a special mention category. Assets included in this category do not currently expose the Bank to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving management's close attention. As of December 31, 1996, $2.1 million in residential real estate loans was categorized as special mention. The Bank is required to classify its assets on a regular basis. In addition, in connection with examinations by the OTS, examiners have the authority to identify problem assets and, if appropriate, classify them. When assets are classified as Substandard or Doubtful, the Bank is required to establish prudent general allowances for loan losses. When assets are classified as Loss, the Bank is required to establish specific allowances for loan losses in the amount of 100 percent of the portion of the asset classified Loss or charge off such amount. General loss allowances established to cover possible losses related to assets classified Substandard or Doubtful may be included in determining an institution's risk-based capital, while specific valuation allowances for loan losses do not qualify as risk-based capital. The OTS District Director of an insured institution has the authority to approve, disapprove or modify any classifications of assets made pursuant to the regulation and any amounts of allowances for loan losses established by insured institutions or required by examiners pursuant to the regulation. The following table sets forth information regarding assets classified as Substandard as of December 31 for each of the following years. No assets were classified as Doubtful and any asset classified as Loss was charged-off.
At December 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (dollars in thousands) Real estate owned $ 941 $ 481 $ 303 $ 551 $ 934 Other repossessed assets 7 6 --- 23 296 Commercial real estate loans 592 352 731 913 1,982 Residential mortgage loans 2,316 2,308 3,732 2,870 2,532 Consumer loans 305 261 108 81 17 Securities below investment grade --- --- --- --- 298 ------ ------ ------ ------ ------ Total classified assets $4,161 $3,408 $4,874 $4,438 $6,059 ====== ====== ====== ====== ====== Ratio of classified assets to total assets 0.8% 0.8% 1.3% 1.3% 1.9% ====== ====== ====== ====== ======
The following is a description of classified assets: Real Estate Owned and Other Repossessed Assets. At December 31, 1996, 11 real estate owned properties were classified as Substandard. The properties are for sale and are either vacant or rented. The other repossessed asset is an automobile. Loans. At December 31, 1996, eighty-nine residential, commercial and consumer loans classified were as Substandard. Allowance for Credit Losses. Allowances are provided for specific loans when losses are probable and can be estimated. When this occurs, management considers the remaining principal balance and estimated net realizable value of the property collateralizing the loan. Current and future operating and/or sales conditions are considered. These estimates are susceptible to changes that could result in further adjustment to results of operations. Recovery of the carrying value of such loans is dependent to a great extent, on economic, operating and other conditions that may be beyond management's control. Allowance for credit losses is established based on the perceived risk of the loan portfolio. The allowance is reviewed and adjusted quarterly based upon a number of factors, including asset classifications, economic trends, industry experience, geographic concentrations, estimated collateral values, management's assessment of credit risk inherent in the portfolio, historical loss experience and underwriting practices. If certain real estate markets weaken, including New Jersey and Delaware, increases in the allowance may be required in future periods. 8 The table shown below reflects the changes in the allowance for credit losses for the years indicated.
Real Estate Mortgage -------------------- Residential Commercial Other Total ----------- ---------- ----- ----- Balance at January 1, 1994 $1,375,977 $ 869,000 $ 418,000 $2,662,977 Additions charged to operations 215,680 24,315 310,005 550,000 Recoveries 2,179 105,685 38,420 146,284 Losses charged (496) (15,000) (28,425) (43,921) --------------- ------------- ------------- ------------- Balance at December 31, 1994 1,593,340 984,000 738,000 3,315,340 Additions charged to operations 50,000 50,000 500,000 600,000 Recoveries 7,169 39,829 180,419 227,417 Losses charged (165,527) --- (414,900) (580,427) ------------ ----------------- ------------ ------------ Balance at December 31, 1995 1,484,982 1,073,829 1,003,519 3,562,330 Additions charged to operations 100,000 75,000 225,000 400,000 Recoveries 21,478 58,820 75,387 155,685 Losses charged (136,401) (12,761) (208,368) (357,530) ------------ ------------- ------------ ------------ Balance at December 31, 1996 $1,470,059 $1,194,888 $1,095,538 $3,760,485 ========== ========== ========== ==========
Net charge-offs from loans and foreclosed real estate as a percentage of average loans outstanding were as follows for the years indicated.
1996 1995 1994 ---- ---- ---- Net charge-offs (recoveries) from loans $201,845 $353,010 $(102,363) Net charge-offs (recoveries) from foreclosed real estate 90,007 (65,193) 77,356 -------- -------- ---------- Total $291,852 $287,817 $ (25,007) ======== ======== ========== % of average loans outstanding .11% .12% (.01)% === === ====
The table below summarizes the general valuation allowance for loans by asset classification and as a percentage of those portfolios for the years indicated.
1996 1995 1994 --------------------- ------------------------- ----------------------- Percentage of Percentage of Percentage of Amount Portfolio Amount Portfolio Amount Portfolio ------ --------- ------ --------- ------ --------- Residential real estate loans $1,470,059 .71% $1,484,982 .71% $1,593,340 .81% Commercial real estate loans 1,194,888 6.94 1,073,829 6.85 984,000 6.00 Other loans 1,095,538 2.85 1,003,519 2.71 738,000 2.20 ----------- ---- ----------- ---- ------------ ---- Total $3,760,485 1.42% $3,562,330 1.36% $3,315,340 1.34% ========== ==== ========== ==== ========== ====
For further discussion and summary of loss provisions see "Management's Discussion and Analysis, Results of Operations -- Allowance and Provision for Credit Losses" and Note 6 to the Consolidated Financial Statements. 9 Investment Securities Activities The Bank is required under federal regulations to maintain a minimum amount of liquid assets and is also permitted to make other approved security investments. See "Regulation-Liquidity" and "Management's Discussion and Analysis of Financial Condition--Liquidity, Cash Flows and Committed Resources." On December 31, 1993, Statement No. 115 "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115) issued by the Financial Accounting Standards Board was adopted. For additional information see Notes 1, 2, 3, and 4 to the Consolidated Financial Statements. In accordance with FAS 115, investments are classified into three categories; those held-to-maturity and reported at amortized cost, for which the Company has the positive intent and ability to hold-to-maturity; those classified as available-for-sale and reported at fair value with unrealized gains and losses, net of taxes, reported as a separate component of shareholders' equity; and those classified as trading securities and reported at fair value with unrealized gains and losses included in earnings. The table below sets forth the composition of the investment securities portfolio at amortized cost for the years indicated.
At December 31, 1996 1995 1994 ---- ---- ---- (in thousands) Held to maturity: U.S. Treasury note $ --- $ --- $ 1,000 U.S. Government agencies --- --- 22,000 Corporate notes --- --- 8,936 Tax exempt obligations 2,321 517 721 Federal Home Loan Bank stock 7,376 5,317 4,657 ------------ ------------ ---------- Subtotal 9,697 5,834 37,314 ------------ ------------ ---------- Held for trading: Mutual fund 60 57 52 Common stock --- --- 404 ------------ ------------ ---------- Subtotal 60 5 456 ------------ ------------ ---------- Available-for-sale: U.S. Government agencies 17,976 19,970 --- Corporate notes 4,336 6,310 --- Preferred stock 2,548 2,097 2,097 ------------ ------------ ---------- Subtotal 24,860 28,377 2,097 ------------ ------------ ---------- Total $34,617 $34,268 $39,867 ============ ============ ===========
The investment securities portfolio at December 31, 1996 categorized by maturity is as follows:
Amortized Weighted Cost Average Yield ----------- ------------- (dollars in thousands) No maturity $ 9,984 6.59% Due in one year or less 3,046 5.20% Due after one year through five years 21,587 6.74% -------- Total $34,617 =======
10 The following table sets forth the purchase, transfer, maturity activity and repayments at amortized cost of the investment securities during 1996, 1995 and 1994.
Year ended December 31, 1996 1995 1994 ---- ---- ---- (in thousands) Investment securities at beginning of period $ 34,268 $ 39,867 $ 23,050 Purchases U.S. Government agencies 9,008 10,965 22,000 Corporate notes --- 2,934 --- Tax exempt obligations 2,321 517 721 Federal Home Loan Bank stock 2,059 660 706 Mutual fund 3 5 --- Common stock 9,369 1,812 10,258 Preferred stock 1,500 --- 257 ------- ------- ------- Total purchases 24,260 16,893 33,942 ------- ------- ------- Sales Mutual fund --- --- 25 Common stock 9,369 2,216 10,453 ------- ------- ------- Total sales 9,369 2,216 10,478 ------- ------- ------- Maturities U.S. Treasury note --- 1,000 --- U.S. Government agencies 10,979 13,000 --- Corporate notes 1,997 5,555 4,230 Tax exempt obligations 517 721 1,538 Certificates of deposit --- --- 879 Preferred stock 1,049 --- --- ------- ------- ------- Total maturities 14,542 20,276 6,647 ------- ------- ------- Investment securities at end of period $34,617 $34,268 $39,867 ======= ======= =======
Mortgage-Backed Securities Activities A substantial part of the Bank's business involves investments in MBS. The Bank invests in MBS to supplement local loan originations as well as to reduce interest rate risk. On December 31, 1993, FAS 115 issued by the Financial Accounting Standards Board was adopted. The MBS portfolio is classified as either held-to-maturity or available-for-sale. For additional information see Notes 1 and 5 to the Consolidated Financial Statements. 11 The following table sets forth the composition of the mortgage-backed securities portfolio at amortized cost by category.
At December 31, 1996 1995 1994 -------- -------- ------- Held to maturity: FNMA pass-through certificates $ --- $ --- $ 2,747 FHLMC pass-through certificates --- --- 6,725 GNMA pass-through certificates --- --- 9,321 Non-agency pass-through certificates 6,143 7,320 4,195 REMIC 91,248 60,675 11,529 -------- -------- ------- Subtotal 97,391 67,995 34,517 -------- -------- ------- Available-for-sale: FNMA pass-through certificates 1,863 2,341 --- FHLMC pass-through certificates 4,342 5,574 --- GNMA pass-through certificates 6,070 7,775 --- REMIC 80,416 63,633 64,900 -------- -------- ------- Subtotal 92,691 79,323 64,900 -------- -------- ------- Total $190,082 $147,318 $99,417 ======== ======== =======
The mortgage-backed securities portfolio at December 31, 1996 categorized by contractual maturity is as follows:
Amortized Weighted Cost Average Yield ---- ------------- (dollars in thousands) Due in one year or less $ 674 6.73% Due after one year through five years 2,553 7.73% Due after five year through ten years 2,241 9.85% Due after ten years 184,614 6.95% -------- Total $190,082 ========
Actual maturities will differ from contractual maturities due to prepayments. The following table sets forth the purchase, transfer, sales activity and repayments at amortized cost of the MBS during 1996, 1995 and 1994.
Year ended December 31, 1996 1995 1994 -------- -------- --------- MBS at beginning of period $147,318 $ 99,417 $ 95,702 Purchases of REMIC 54,590 54,841 25,529 Sales of REMIC (3,612) --- --- Principal repayments (8,214) (6,940) (21,814) -------- -------- --------- MBS at end of period $190,082 $147,318 $ 99,417 ======== ======== =========
12 Deposit and Borrowing Activities General Deposits are the principal source of funds for lending and other investment purposes. Deposits are generated through the ten retail banking offices, and to a lesser extent through brokers. In addition to deposits, funds are derived from loan sales and repayments, borrowings, and from operations. Loan repayments are a relatively stable source of funds, while deposit inflows are significantly influenced by general interest rates and market conditions. The Bank may borrow funds from the FHLB of New York and other sources. Borrowings may be used on a short term basis to compensate for reductions in deposits or other sources of funds, as well as on a long-term basis to support expanded lending activities or other business purposes. Funds can also be derived from the sale of loans and investment or mortgage-backed securities available-for-sale. Deposits The Bank offers a wide variety of deposit accounts which are designed to attract both short-term and long-term deposits. These deposits are obtained primarily from residents of southern New Jersey and Delaware. Brokers are also utilized to solicit deposits outside the market area. Generally, a fee of one-quarter percent is paid to brokers for these accounts. The types of accounts currently offered, include regular passbook and club accounts, interest-bearing and non-interest-bearing NOW accounts, commercial accounts, money market deposit accounts, fixed-rate certificate accounts with maturities ranging from three months to sixty months and negotiated rate Jumbo certificates. Included among these deposit products are Individual Retirement Accounts. Retail fixed term, fixed rate certificates are the primary source of deposits and at December 31, 1996 represented approximately 46.4% of deposits. At December 31, 1996, the deposit base contained $25.0 million in 12 month, $23.1 million in 24 month, and $19.9 million in six month, fixed term fixed rate retail certificates, and represent 18.5%, 17.2%, and 14.8%, respectively, of total retail certificates. Included in the 24 month certificate total is $21.6 million in Rate Bumper certificates in which the depositor may elect once during the term of the certificate to increase the rate on his certificate to the current rate offered on 24 month certificates. Savings account interest rates are evaluated on an ongoing basis. Deposit activity and interest rate movements and interest rates paid by competitors are examined and evaluated weekly. The following table sets forth information relating to deposit flows during the periods indicated:
Years Ended December 31, 1996 1995 1994 ---- ---- ---- (in thousands) Net increase in deposits before interest credited $12,332 $23,213 $ 6,313 Interest credited 7,790 7,854 5,468 ------- ------- ------- Net increase in deposits $20,122 $31,067 $11,781 ======= ======= =======
The substantial increase during the year ended December 31, 1995 includes deposits assumed totaling $15,924,000 related to the acquisition of two retail-banking offices in January 1995. 13 The following table sets forth the amount and percentage of total deposits for each type of deposit offered as of the dates indicated.
At December 31, 1996 1995 1994 -------------------- ------------------------ -------------------- Amount % Amount % Amount % (dollars in thousands) Account Type Savings and club accounts $ 34,541 11.9% $ 40,043 14.8% $ 45,301 19.0% NOW and commercial accounts 34,072 11.8 33,335 12.4 29,215 12.2 Money market and other accounts 51,407 17.7 41,365 15.3 31,069 13.0 Retail certificates of deposit 134,631 46.41 27,635 47.3 99,928 41.8 Jumbo certificates of deposit 35,268 12.2 27,589 10.2 33,383 14.0 -------- ------ -------- ----- -------- ----- Total deposits $289,919 100.0% $269,967 100.0% $238,896 100.0% ======== ====== ======== ===== ======== =====
The following table presents by various interest rate categories, the amount of retail certificate accounts at December 31, 1996 and 1995 and the amount of retail certificates accounts at December 31, 1996 maturing within one year, two years, three years and after three years.
Amounts at December 31, 1996 Maturing ------------------------------------- At December 31, Within Within Within After --------------- one two three three 1995 1996 year years years years ---- ---- ---- ----- ----- ----- (in thousands) Retail certificate accounts: 2.001- 4.00% $ 233 $ 78 $ 66 $ -- $ 12 $ -- 4.001- 6.00% 98,337 120,642 82,107 27,726 6,353 4,456 6.001- 8.00% 28,853 13,719 5,939 887 2,205 4,688 8.001-10.00% 211 192 179 13 -- -- -------- -------- -------- -------- -------- -------- Total certificate accounts $127,634 $134,631 $ 88,291 $ 28,626 $ 8,570 $ 9,144 ======== ======== ======== ======== ======== ========
The following table presents by various interest rate categories, the amount of Jumbo certificates at December 31, 1996 and 1995 and the amount of Jumbo certificate at December 31, 1996 maturing within one year, two years, three years and after three years.
Amounts at December 31, 1996 Maturing ------------------------------------- At December 31, Within Within Within After --------------- one two three three 1995 1996 year years years years ---- ---- ---- ----- ----- ----- (in thousands) Jumbo certificate accounts: 2.001-4.00% $ 99 $ --- $ --- $ --- $ --- $ --- 4.001-6.00% 23,995 33,783 24,562 7,961 867 393 6.001-8.00% 3,495 1,485 194 398 517 376 -------- --------- ---------- --------- --------- ------- Total certificate accounts $27,589 $35,268 $24,756 $ 8,359 $ 1,384 $ 769 ======= ======= ======= ======= ======= =======
14 The following table presents certain information concerning deposit accounts at December 31, 1996, including the weighted average rate of such accounts and the scheduled quarterly maturities or repricing of the certificate accounts.
Weighed % of Average Total Nominal Amount Deposits Rates ------ -------- ----- (dollars in thousands) Savings and club accounts $ 34,541 11.9% 2.77% NOW 26,477 9.2 1.54 Money market and other accounts 51,407 17.7 4.05 Non-interest bearing accounts 7,595 2.6 --- --------- ----- ---- Total 120,020 41.4 2.87 --------- ----- ---- Certificate accounts maturing by quarter: March 31, 1997 40,743 14.0 5.18 June 30, 1997 37,688 13.0 5.34 September 30, 1997 19,673 6.8 5.49 December 31, 1997 14,943 5.1 5.52 March 31, 1998 12,930 4.5 5.52 June 30, 1998 9,535 3.3 5.53 September 30, 1998 9,116 3.1 5.48 December 31, 1998 5,405 1.9 5.45 March 31, 1999 3,436 1.2 5.58 June 30, 1999 3,003 1.0 5.70 September 30, 1999 1,333 .5 5.47 December 31, 1999 2,181 .8 6.08 Thereafter 9,913 3.4 5.94 --------- ----- ---- Total certificate amounts 169,899 58.6 5.43 --------- ----- ---- Total deposits $289,919 100.0% 4.37% ======== ===== ====
Borrowings Borrowings are obtained from the FHLB of New York. The Bank's capital stock of the FHLB of New York and certain mortgage loans are pledged as collateral to secure the borrowings. The borrowings also include securities sold under agreement to repurchase. Securities sold under agreements to repurchase are obligations collateralized by mortgage-backed securities or other investments. Eligibility to obtain borrowings are subject to certain standards related to creditworthiness. Such borrowings are made pursuant to several credit programs. Each credit program has its own interest rate and range of maturities. The FHLB of New York prescribes acceptable uses to which the borrowings pursuant to each program may be put as well as limitations on the size of such borrowings. In addition to deposits, the FHLB of New York borrowings are utilized to fund lending operations. At December 31, 1996, borrowings from the FHLB of New York amounted to $136.6 million. These borrowings, which mature at various dates through 2001, bear interest at rates between 5.08% and 7.52%. 15 The following table sets forth certain information regarding FHLB borrowings as of the end of and during the periods indicated:
At December 31 Year Ended December 31, -------------- ---------------------------------- 1996 1996 1995 1994 ---- ---- ---- ---- (dollars in thousands) Maximum amount of total borrowings outstanding at any month end and at December 31, 1996 $136,622 $147,509 $105,797 $93,125 Approximate average total borrowings outstanding(1) N/A 120,987 93,038 85,650 Approximate weighted average rate(1) 5.82% 5.54% 5.83% 4.94%
- ----------------------- (1) Average balances represent the arithmetic average of month-end balances. Other borrowings consisted of securities sold under agreements to repurchase obtained through a major securities broker. At December 31, 1996, $36.5 million in other borrowings was outstanding. The borrowings which mature at various dates through 1999, bear interest at rates between 5.57% and 5.84%. The following table sets forth certain information regarding other borrowings as of the end of and during the periods indicated:
At December 31 Year Ended December 31, -------------- ---------------------------------- 1996 1996 1995 1994 ---- ---- ---- ---- (dollars in thousands) Maximum amount of total borrowings outstanding at any month end and at December 31, 1996 $36,526 $54,967 $44,516 $40,724 Approximate average total borrowings outstanding(1) N/A 43,967 39,318 28,365 Approximate weighted average rate(1) 5.73% 5.78% 6.03% 4.65%
- -------------------------- (1) Average balances represent the arithmetic average of month-end balances. Yield Earned, Rates Paid and Certain Ratios The largest components of the Company's total income and total expense are interest items. As a result, earnings are primarily dependent upon net interest income, which is determined by its interest rate spread and the relative amounts of interest-earning assets and interest-bearing liabilities. The interest rate spread, the yields earned on interest-earning assets and the rates paid on interest-bearing liabilities, are affected by economic factors that affect interest rates, loan demand and deposit flows. 16 The following table sets forth, for the periods indicated, the weighted average yields earned on interest-earning assets, the weighted average rates paid on interest-bearing liabilities and the applicable interest rate spreads. Average interest-earning assets and average interest-bearing liabilities have been computed on a monthly basis.
Year Ended December 31, ----------------------------------- 1996 1995 1994 ---- ---- ---- Weighted average yield on loan portfolio 8.44% 8.37% 7.90% Weighted average yield on mortgage-backed securities 7.24% 7.32% 6.64% Weighted average yield on investment portfolio 6.81% 6.86% 6.43% Weighted average yield on all interest-earning assets 7.88% 7.90% 7.41% Weighted average rate paid on deposits 4.35% 4.27% 3.56% Weighted average rate paid on borrowings 5.60% 5.89% 4.86% Weighted average rate paid on all interest-bearing liabilities 4.82% 4.81% 3.99% Interest rate spread (spread between weighted average rate on all interest-earning assets and all interest-bearing liabilities) 3.06% 3.09% 3.42% Net yield on average interest-earning assets 3.26% 3.29% 3.56% Ratio of interest-earning assets to interest-bearing liabilities 104.36% 104.22% 103.61%
Competition The Company encounters competition both in the attraction of deposits and in the making of real estate and other loans. Direct competition for deposits comes from other savings and loan associations, savings banks and commercial banks with offices in Salem, Camden and Gloucester Counties in New Jersey and New Castle County in Delaware. It also encounters competition for deposits from money market funds, as well as corporate and government securities. The principal methods used to attract accounts include other services offered, the interest rates offered, the convenience of office locations and advertising. Competition for real estate loans comes principally from other thrift institutions, commercial banks, and mortgage banking companies. The Company competes for loans principally through the interest rates and loan fees it charges and the efficiency and quality of the services it provides borrowers, real estate brokers, and home builders. Employees As of December 31, 1996, the Company had 110 full-time employees and 15 part-time employees. The employees are not represented by a collective bargaining unit. The Company believes its relationship with its employees to be satisfactory. 17 REGULATION Set forth below is a brief description of certain laws and regulations which relate to the regulation of the Company and the Bank. The description of these laws and regulations, as well as the description of laws and regulations contained elsewhere herein, does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations. First Home Bancorp Inc. General The Company is a unitary savings and loan holding company subject to the provisions of HOLA. As a savings and loan holding company within the meaning of the HOLA, the Company is subject to OTS regulations, examinations, supervision and reporting requirements. As a subsidiary of a savings and loan holding company, the Bank is subject to certain restrictions in its dealings with the Company and affiliates thereof. Activities Restrictions. There are generally no restrictions on the activities of a savings and loan holding company which holds only one subsidiary savings association. However, if the Director of the OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness or stability of its subsidiary savings association, the Director may impose such restrictions as deemed necessary to address such risk, including limiting (i) payment of dividends by the savings association; (ii) transactions between the savings association and its affiliates; and (iii) any activities of the savings association that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings association. Notwithstanding the above rules as to permissible business activities of unitary savings and loan holding companies, if the savings association subsidiary of such a holding company fails to meet the qualified thrift lender ("QTL") test, then such unitary savings and loan holding company also becomes subject to the restrictions applicable to multiple savings and loan holding companies and, unless the savings association requalifies as a QTL within one year thereafter, is required to register as, and become subject to the restrictions applicable to, a bank holding company. See "- First Home Savings Bank, F.S.B. - Qualified Thrift Lender Test." If the Company were to acquire control of another savings association, other than through merger or other business combination with the Bank, the Company would thereupon become a multiple savings and loan holding company. Except where such acquisition is pursuant to the authority to approve emergency thrift acquisitions and where each subsidiary savings association meets the QTL test, as set forth below, the activities of the Company and any of its subsidiaries (other than the Bank or other subsidiary savings associations) would thereafter be subject to further restrictions. Among other things, no multiple savings and loan holding company or subsidiary thereof which is not a savings association may commence or continue for a limited period of time after becoming a multiple savings and loan holding company or subsidiary thereof any business activity, upon prior notice to, and no objection by the OTS, other than: (i) furnishing or performing management services for a subsidiary savings association; (ii) conducting an insurance agency or escrow business; (iii) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings association; (iv) holding or managing properties used or occupied by a subsidiary savings association; (v) acting as trustee under deeds of trust; (vi) those activities authorized by regulation as of March 5, 1987 to be engaged in by multiple savings and loan holding companies; or (vii) unless the Director of the OTS by regulation prohibits or limits such activities for savings and loan holding companies, those activities authorized by the Federal Reserve Board ("FRB") as permissible for bank holding companies. Those activities described in (vii) above also must be approved by the Director of the OTS prior to being engaged in by a multiple savings and loan holding company. Transactions with Related Parties The Bank's authority to engage in transactions with related parties or "affiliates" (i.e., any company that controls or is under common control with an institution) or to make loans to certain insiders, is limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). In a holding company context, the parent holding company of a savings association (such as the Bank) and any companies which are controlled by such parent holding company are affiliates of the savings association. Section 23A limits the aggregate amount of transactions with any individual affiliate to 10% of the capital and 18 surplus of the savings institution and also limits the aggregate amount of transactions with all affiliates to 20% of the savings institution's capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type described in Section 23A and the purchase of low quality assets from affiliates is generally prohibited. Section 23B provides that certain transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the institution as those prevailing at the time for comparable transactions with nonaffiliated companies. In the absence of comparable transactions, such transactions may only occur under terms and circumstances, including credit standards, that in good faith would be offered to or would apply to nonaffiliated companies. Notwithstanding Sections 23A and 23B, savings associations are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act ("BHC Act"). Further, no savings association may purchase the securities of any affiliate other than a subsidiary. The Bank's authority to extend credit to executive officers, directors and 10% shareholders, as well as entities controlled by such persons, is currently governed by Sections 22(g) and 22(h) of the FRA and Regulation O thereunder. Among other things, subject to an exception for extensions of credit made pursuant to a benefit or compensation program that is widely available to employees and does not give any preference to any executive officer over other employees, these regulations require such loans to be made on terms substantially the same as offered to unaffiliated individuals and to not involve more than the normal risk of repayment. These regulations place limits on the amount of loans the Bank may make to such persons based, in part, on the Bank's capital position, and require certain approval procedures to be followed. The OTS regulations, with certain minor variances, apply Regulation O to savings associations. Restrictions on Acquisitions. Except under limited circumstances, savings and loan holding companies are prohibited from acquiring, without prior approval of the Director of the OTS, (i) control of any other savings association or savings and loan holding company or substantially all the assets thereof or (ii) more than 5% of the voting shares of a savings association or holding company thereof which is not a subsidiary. Except with the prior approval of the Director of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company's stock, may acquire control of any savings association, other than a subsidiary savings association, or of any other savings and loan holding company. The Director of the OTS may only approve acquisitions resulting in the formation of a multiple savings and loan holding company which controls savings associations in more than one state if (i) the multiple savings and loan holding company involved controls a savings association which operated a home or branch office located in the state of the association to be acquired as of March 5, 1987; (ii) the acquiror is authorized to acquire control of the savings association pursuant to the emergency acquisition provisions of the Federal Deposit Insurance Act; or (iii) the statutes of the state in which the association to be acquired is located specifically permit institutions to be acquired by the state-chartered associations or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings associations). Pursuant to provisions of the Bank Holding Company Act of 1956 the FRB may approve an application by a bank holding company to acquire control of a savings association. A bank holding company that controls a savings association is also permitted to merge or consolidate the assets and liabilities of the savings association with, or transfer assets and liabilities to, any subsidiary bank which is a member of the Bank Insurance Fund ("BIF") with the approval of the appropriate federal banking agency and the FRB. As a result of these provisions, there have been a number of acquisitions of savings associations by bank holding companies in recent years. First Home Savings Bank, F.S.B. General. The Bank is subject to extensive regulation, examination and supervision by the OTS, as its chartering agency, and the Federal Deposit Insurance Corporation ("FDIC"), as the deposit insurer. The Bank is a member of the Federal Home Loan Bank ("FHLB") System and its deposit accounts are insured up to applicable limits by the Savings Association Insurance Fund ("SAIF") managed by the FDIC. The Bank must file reports with the OTS and the FDIC concerning its 19 activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the OTS and the FDIC to test the Bank's compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such policies, whether by the OTS, the FDIC or the Congress, could have a material adverse impact on the Bank and its operations. The activities of savings institutions are governed by the HOLA and, in certain respects, the Federal Deposit Insurance Act ("FDI Act"). The HOLA and the FDI Act were amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). FIRREA was enacted for the purpose of resolving problem savings institutions, establishing a new thrift insurance fund, reorganizing the regulatory structure applicable to savings institutions, and imposing bank-like standards on savings institutions. FDICIA, among other things, requires that federal banking regulators intervene promptly when a depository institution experiences financial difficulties, mandates the establishment of a risk-based deposit insurance assessment system and requires imposition of numerous additional safety and soundness operational standards and restric tions. FIRREA and FDICIA both contain provisions affecting numerous aspects of the operations and regulations of federally-insured savings associations and empowers the OTS and the FDIC, among other agencies, to promulgate regulations implementing their provisions. Office of Thrift Supervision The OTS is an office in the Department of the Treasury subject to the general oversight of the Secretary of the Treasury. Except as modified by FIRREA, the OTS possesses the supervisory and regulatory duties and responsibilities formerly vested in the Federal Home Loan Bank Board. Among other functions, the OTS issues and enforces regulations affecting federally insured savings associations and regularly examines these institutions. Federal Deposit Insurance Corporation The FDIC is an independent federal agency established originally to insure the deposits, up to prescribed statutory limits, of federally insured banks and to preserve the safety and soundness of the banking industry. Upon the enactment of FIRREA, the FDIC also became the insurer, up to the prescribed limits, of the deposit accounts held at federally insured savings associations and established two separate insurance funds that it maintains and administers: the BIF and the SAIF. As such, the FDIC has examination, supervisory, and enforcement authority over all savings associations. The FDIC is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the FDIC. The FDIC also has the authority to initiate enforcement actions against savings associations, after giving the OTS an opportunity to take such action. Federal Home Loan Bank System The FHLB System, consisting of twelve FHLBs, now is under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The designated duties of the FHFB are to: supervise the FHLBs; ensure that the FHLBs carry out their housing finance mission; ensure that the FHLBs remain adequately capitalized and able to raise funds in the capital market; and ensure that the FHLBs operate in a safe and sound manner. The Bank is a member of the FHLB of New York. The Bank is required to acquire and hold shares of capital stock in the FHLB of New York in an amount equal to the greater of 1.0% of the aggregate outstanding principal amount of home mortgage loans, home purchase contracts and similar obligations at the beginning of each year or 5% of its borrowings from the FHLB. The Bank is in compliance with this requirement with an investment in the stock of the FHLB of New York of $7.4 million at December 31, 1996. Each FHLB serves as a central credit facility for its member institutions within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes funds available 20 to members in accordance with policies and procedures established by the FHLB and the Board of Directors of the FHLB. These policies and procedures are subject to the regulation and oversight of the FHFB. All borrowings from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. At December 31, 1996, the Bank had $136.6 million in borrowings from the FHLB of New York. Insurance of Deposit Accounts The Bank is a member of the SAIF, which is administered by the FDIC. Savings deposits are insured up to $100,000 per insured member (as defined by law and regulation) by the FDIC and such insurance is backed by the full faith and credit of the United States Government. As insurer, the FDIC imposes deposit insurance premiums. Under the FDI Act insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. The FDIC's deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums, based upon their level of capital and supervisory evaluation. Under this system, institutions classified as well capitalized (i.e., a tier 1 leverage ratio of at least 5%, tier 1 risk-based ratio of at least 6% ("Tier 1 risk-based capital") and total risk-based ratio of at least 10%) and considered healthy pay the lowest premium, while institutions that are less than adequately capitalized (i.e., tier 1 leverage and risk-based ratios of less than 4% or total risk-based ratio of less than 8%) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions will be made by the FDIC for each semi-annual assessment period. The FDIC's assessments must be designed to maintain the SAIF's reserve ratio at the designated reserve ratio of 1.25% of estimated SAIF insured deposits or, if the SAIF's reserve ratio is below that level, to increase the reserve ratio to the designated reserve ratio. The FDIC may not collect more for the SAIF than is needed to fulfill its goal. Through the end of 1998, the assessment rate for a SAIF member may not be less than the assessment rate for a BIF member that poses a comparable risk to the deposit insurance fund. In setting semiannual assessments for the BIF and SAIF the FDIC must consider the following factors: (1) the fund's expected operating expenses; (2) the funds case resolution expenditures and income; (3) the effect of assessments on the earnings and capital of fund members; and (4) any other factors that the FDIC deems appropriate. Under an assessment schedule that was in effect through September 30, 1996, SAIF rates, including the assessment rate imposed by the Financing Corporation ("FICO") to service the interest on its bond obligations, ranged from 23 basis points for institutions in the best assessment risk classification to 31 basis points for institutions in the lease favorable one. Since the BIF's reserve ratio reached its designated reserve ratio on June 30, 1995, the assessment rates for the BIF were revised effective in the third quarter of 1995 to provide a range of rates from 0 basis points to 27 basis points. As a result, BIF insured institutions generally paid lower premiums than SAIF insured institutions. On September 30, 1996, the Deposit Insurance Funds Act of 1996 was enacted (the "Funds Act"). This legislation required the FDIC to impose a one-time special assessment on SAIF assessable deposits to raise the SAIF's reserve ratio to the designated reserve ratio as of October 1, 1996. In response to the requirements of the Funds Act, the FDIC imposed a one-time special assessment equal to 65.7 basis points for all SAIF-assessable deposits as of March 31, 1995. The Bank's one-time special assessment, which was collected on November 17, 1996, amounted to $1.6 million. Net of related tax benefits, the one-time special assessment amounted to $1.0 million. As a result of the one-time special assessment, the FDIC on December 11, 1996 adopted new assessment schedules for the SAIF which lowered the assessment rates then in effect. The new schedules provide for a base assessment schedule for the SAIF with rates ranging from 4 to 31 basis points, and an adjusted assessment schedule that reduces these rates by 4 basis points. In general, as a result of the adoption of these schedules, SAIF rates range from 0 to 27 basis points as of October 1, 1996. These schedules, unlike the schedules they replace, do not include rates for the FICO assessment as a result of the Funds Act which required that the FICO assessment be separated from the SAIF assessment effective January 1, 1997. The Bank's rate, which had been 23 basis points, has been reduced to 0 basis points under the SAIF new assessment schedules. However, the Bank's assessment rate under the separate FICO assessment schedule is 6.48 basis points. 21 Prompt Corrective Regulatory Action. Under the OTS prompt corrective action regulations, the OTS is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon which of the following five capital categories applies to the institution. Generally, an institution is deemed to be "well capitalized" if it has a total risk-based capital ratio (total capital to risk-weighted assets) of 10% or greater, a Tier 1 risk-based capital ratio (core capital to risk weighted assets) of 6% or greater, and a leverage capital ratio (core capital to adjusted total assets) of 5% or greater, and is not subject to a regulatory order, agreement or directive to meet and maintain a specific capital level for any capital measure. An institution is deemed to be "adequately capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater and generally a leverage capital ratio of 4% or greater. An institution is deemed to be "undercapitalized" if it has a total risk-based capital ratio that is less than 8%, has a Tier 1 risk-based capital ratio of less than 4% or generally has a leverage capital ratio of less than 4%. A "significantly undercapitalized" institution is one that has a total risk based capital ratio that is less than 6%, a Tier 1 risk based capital ratio that is less than 3%, or a leverage ratio that is less than 3%. An institution is deemed to be "critically undercapitalized" if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2%. In addition, the OTS is authorized effectively to downgrade an institution to a lower capital category than the institution's capital ratios would otherwise indicate, based upon safety and soundness considerations (such as when the institution has received a less than satisfactory examination rating in the categories of capital, asset quality, management, earnings or liquidity ("CAMEL")). Subject to a narrow exception, the OTS is required to appoint a receiver or conservator for an institution that is critically undercapitalized. The regulation also provides that a capital restoration plan must be filed with the OTS within 45 days of the date an association receives notice that it is "undercapitalized," In addition, numerous mandatory supervisory actions become immediately applicable to the institution, including, but not limited to, restrictions in growth, investment activities, capital distributions, and affiliate transactions. The OTS could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Branching by Federally Chartered Associations Federally chartered savings associations are permitted to branch nationwide to the extent allowed by federal statute. This authority permits associations to establish interstate networks and to geographically diversify lines of business. OTS authority preempts any state law purporting to regulate branching by federal savings associations. The limitations that remain are statutory. An association may not establish or operate a branch outside the state in which the association has its home office if such branch would violate section 5(r) of the HOLA. This section permits a federal savings association to branch outside its home state if (i) the association meets the domestic building and loan test of Internal Revenue Code section 7701(a)(19) or the asset composition test of subparagraph (c) of that section or qualifies as a qualified thrift lender, and (ii) all branches in each state branch outside of its home state also satisfies the domestic building and loan test. The limitations do not apply if (i) the branch results from a supervisory acquisition under section 13(k) of the FDI Act; (ii) the branch was authorized for the federal savings association prior to October 15, 1982; (iii) the law of the state where the branch is to be located would permit establishment of the branch if the association was a savings association or savings bank chartered by the state in which its home office is located; or (iv) the branch was operated lawfully as a branch under the state law prior to the association's conversion to a federal charter. The OTS will approve an application for branching only if the overall policies, condition and operation of the applicant afford no basis for supervisory objection and the proposed branch opens within 12 months of approval. In addition, the institution must have a satisfactory record under the Community Reinvestment Act ("CRA"). Capital Requirements Federally insured savings associations, such as the Bank, are required to maintain a minimum level of regulatory capital. The OTS has established capital standards including a leverage ratio (or core capital) requirement, a tangible capital requirement and a risk-based capital requirement. A savings association must meet all of these standards in order to be in compliance with its regulatory capital requirements. These requirements are required to be generally as stringent as the 22 comparable capital requirements for national banks. The OTS is also authorized to impose capital requirements in excess of these standards on individual savings associations on a case-by-case basis. The leverage ratio standard requires that savings associations maintain "core capital" of at least 3.0% of adjusted total assets (generally, an institution's total assets calculated in accordance with generally accepted accounting principles ("GAAP"), subject to certain adjustments). Core capital is defined to include common shareholders' equity (including retained earnings), certain non-cumulative perpetual preferred stock and any related surplus, minority interests in equity accounts of consolidated subsidiaries and "qualifying supervisory goodwill" less intangibles other than certain qualifying intangible assets and mortgage servicing rights. The capital regulations require tangible capital equal to at least 1.5% of adjusted total assets. Tangible capital generally includes common shareholders' equity and retained income, noncumulative perpetual preferred stock and related income and minority interests in the equity accounts of fully consolidated subsidiaries. Intangible assets must be deducted from tangible capital and mortgage servicing rights (both originated and purchased) may be included in a savings association's tangible capital up to certain limits. In addition to requiring compliance with the leverage ratio and tangible capital standards, the OTS capital regula tions also require that savings associations satisfy a risk-based capital standard. This standard assigns each asset held by an institution to one of four risk categories, based on the amount of credit risk associated with a particular class of assets. The categories range from 0% for assets backed by the full faith and credit of the United States, or that pose no credit risk to the insured institution, to 100% for delinquent or repossessed assets. The book value of assets in each category is multiplied by the weighing factor (from 0% to 100%) assigned to that category. These products are then totaled to arrive at total risk-weighted assets. Off-balance sheet items are included in risk-weighted assets by converting them to an approximate balance sheet "credit equivalent amount" based on a conversion schedule. These credit equivalent amounts are then assigned to risk categories in the same manner as balance sheet assets and are included in risk-weighted assets. The regulations require that an insured institution attain and maintain risk-based capital (core capital plus supplementary capital) equal to no less than 8.0% of risk-weighted assets. Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy the risked based requirement only to the extent of core capital. The OTS is also authorized to require a savings association to maintain an additional amount of total capital to account for concentration of credit risk and the risk of nontraditional activities. At December 31, 1996, the Bank had no capital investments that qualified as supplementary capital and had $2.6 million of general valuation allowances which were included in risk-based capital, the maximum allowable under the regulations. Certain exclusions from capital and assets are required to be made for the purpose of calculating risk-based capital. Such exclusions consist of equity investments (as defined by regulation) and that portion of land loans and nonresidential construction loans in excess of an 80% loan-to-value ratio and reciprocal holdings of qualifying capital instruments. The OTS regulations establish special capitalization requirements for savings associations that own service corporations and other subsidiaries, including subsidiary savings associations. According to these regulations certain subsidiaries are consolidated for capital purposes and others are excluded from assets and capital. In determining compliance with the capital requirements, all subsidiaries engaged solely in activities permissible for national banks, engaged solely in mortgage-banking activities, or engaged in certain other activities solely as agent for its customers are "includable" subsidiaries that are consolidated for capital purposes in proportion to the association's level of ownership, including the assets of includable subsidiaries in which the association has a minority interest that is not consolidated for purposes of GAAP. For excludable subsidiaries the debt and equity investments in such subsidiaries are deducted from assets and capital. The FDIC has adopted a rule which provides that any insured depository institution, including a savings association, with a tangible capital ratio (which in general reflects those capital components recognized by the OTS for its capital standard) to total assets of less than 2% will be deemed to be operating in an unsafe or unsound condition unless the depository institution has entered into and is in compliance with a written agreement with its primary federal regulator to increase its capital to acceptable levels and as to which the FDIC is a party. Depository institutions with a core capital ratio of at least 2% may still be considered by the FDIC, under appropriate circumstances, to be in an unsafe and unsound condition. 23 The Bank is in full compliance with its capital requirements. The following table reflects at December 31, 1996 the Bank's capital requirements, the Bank's actual capital and the amount of capital maintained by the Bank in excess of its requirements. For a reconciliation of the Bank's regulatory capital to the Bank's capital as reported under generally accepted accounting principles see Note 16 to the Company's Consolidated Financial Statements.
CORE CAPITAL TANGIBLE CAPITAL RISK-BASED CAPITAL --------------------------- -------------------------- -------------------------- % OF % OF % OF ADJUSTED ADJUSTED RISK TOTAL TOTAL WEIGHTED ASSETS AMOUNT ASSETS AMOUNT ASSETS AMOUNT ------ ------ ------ ------ ------ ------ (dollars in thousands) Required Capital....... 3.00% $14,938 1.50% $7,469 8.00% $16,452 Actual Capital......... 6.45% 32,129 6.45% 32,129 16.84% 34,625 ---- ------ ---- ------ ----- ------ Excess Capital......... 3.45% $17,191 4.95% $24,660 8.84% $18,173 ==== ======= ==== ======= ==== =======
The OTS and the FDIC are authorized and, under certain circumstances required, to take certain actions against associations that fail to meet current or future capital requirements. The OTS must prohibit the asset growth of associations not meeting their capital standards, except for certain limited growth in low-risk assets up to net interest credited, and must issue a capital directive against such associations. The OTS may grant to associations exemptions from the various sanctions or penalties for failure to meet their capital requirements (other than appointment of a conservator or receiver and the mandatory growth restrictions) through the association's submission of and compliance with an approved capital plan. The capital plan must indicate, among other things, how the association will increase capital so as to achieve compliance with capital standards. While a plan is being reviewed for approval, an association may not grow beyond interest credited or pay dividends without approval and is subject to other limitations. If the plan is not approved, the association will be prohibited from increasing its assets or making any loans and investments without OTS approval and must comply with other restrictions imposed by the OTS. If the plan is approved, the association may be required to enter into an operating agreement with the OTS that may provide, among other things, that if specific targets within the plan are not met or the association takes any action that does not comport with the accepted plan, certain activi ties will be significantly restricted, a consent to merge agreement will be executed, or management and the board of directors must resign upon request. Any savings association that fails any of the capital requirements is subject to possible enforcement actions by the OTS or the FDIC. Such actions could include a capital directive, a cease and desist order, civil money penalties and the establishment of restrictions on the association's operations. The OTS capital regulation provides that the OTS, through enforcement proceedings or otherwise, could require one or more of the following corrective actions: (i) increasing the amount of the association's regulatory capital to a specified level or levels; (ii) convening a meeting or meetings with the OTS' supervision staff for the purpose of meeting the capital requirements; (iii) reducing the rate of interest that may be paid on savings accounts; (iv) limiting the receipt of deposits to those made to existing accounts; (v) ceasing or limiting the issuance of new accounts of any or all classes or categories, except in exchange for existing accounts; (vi) ceasing or limiting lending or the making of a particular type or category of loan; (vii) ceasing or limiting the purchase of loans or the making of specified other investments; (viii) limiting operational expenditures to specified levels; (ix) increasing liquid assets and maintaining such increased liquidity at specified levels; or (x) taking such other action or actions as the Director of the OTS may deem necessary or appropriate for the safety and soundness of the savings association or depositors or investors in the savings association. The OTS also could impose harsher measures, such as the appointment of a receiver or conservator or a forced merger into another institution. The grounds for appointment of a conservator or receiver include substantially insufficient capital and losses or likely losses that will deplete substantially all capital with no reasonable prospect for replenishment of capital without federal assistance. The OTS and FDIC may also require such association to raise additional capital through the issuance of common stock or other capital instruments. Limitations on Dividends and Other Capital Distributions OTS regulations imposes limitations on the ability of savings associations to pay dividends or make other distributions of capital. Such distributions include cash dividends, payments by an institution to repurchase or otherwise 24 acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The regulation establishes a three-tiered system of regulation, with the greatest flexibility being afforded to well-capitalized institutions. The regulation provides the OTS with the authority to prohibit capital distributions otherwise permitted by this rule if such distribution would constitute an unsafe or unsound practice. An association that before and after the proposed distribution meets or exceeds its fully phased-in capital requirement and that has not been advised by the OTS that it is in need of more than normal supervision, is a Tier 1 association ("Tier 1 Association"). An association that before and after the proposed distribution meets or exceeds its minimum regulatory capital requirement, but not its fully phased-in capital requirement, is a Tier 2 association ("Tier 2 Association"). An association having capital that is less than its minimum regulatory capital requirement is a Tier 3 association ("Tier 3 Association"). A Tier 1 Association can, upon 30 days notice to the OTS, make capital distributions during a calendar year up to 100% of its net income to date during the calendar year plus 50% of its "surplus capital ratio" at the beginning of the calendar year. The "surplus capital ratio" is the percentage by which the association's ratio of total capital to assets exceeds the ratio of its capital requirement to assets. Any additional amount of capital distributions will require prior regulatory approval. A Tier 2 Association can make a capital distribution, upon 30 days notice to the OTS, only in accordance with the following schedule: (i) if the association's current capital satisfies the 8% risk-based capital standard it may make distributions up to 75% of net income over the most recent four quarters. A Tier 3 Association is not authorized under the regulation to make any capital distributions unless it receives prior regulatory approval; or in the case of an association operating in compliance with an approved capital plan, the distribution is consistent with such approved capital plan. Under the OTS prompt corrective action regulations, an association is prohibited from making any capital distribution if, after the distribution, the association would have (i) a total risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%. See "Prompt Corrective Action Regulation." The OTS has proposed regulations that would revise the current capital distribution restrictions. The proposal eliminates the current tiered structure and the safe-harbor percentage limitations. Under the proposal a savings association may make a capital distribution without notice to the OTS (unless it is a subsidiary of a holding company) provided that it has a CAMEL 1 or 2 rating, is not in troubled condition (as defined by regulation) and would remain adequately capitalized (as defined in the OTS prompt corrective action regulations) following the proposed distribution. Savings associations that would remain adequately capitalized following the proposed distribution but do not meet the other noted requirements must notify the OTS 30 days prior to declaring a capital distribution. The OTS stated it will generally regard as permissible that amount of capital distributions that do not exceed 50% of the institution's excess regulatory capital plus net income to date during the calendar year. A savings association may not make a capital distribution without prior approval of the OTS and the FDIC if it is undercapitalized before, or as a result of, such a distribution. As under the current rule, the OTS may object to a capital distribution if it would constitute an unsafe or unsound practice. Because the Bank is a subsidiary of the Company, the proposed regulations would require the Bank to provide notice to the OTS of its intent to make a capital distribution. The Bank does not believe that the proposal will adversely affect its ability to make capital distributions if it is adopted substantially as proposed. No assurance can be given as to whether or in what form the regulations may be adopted. Liquidity Requirements Under OTS regulations, a savings association is required to maintain an average daily balance of liquid assets (cash, certain time deposits and savings accounts, bankers acceptances, and specified United States government, state or federal agency obligations and certain other investments) equal to a monthly average of not less than a specified percentage of its net withdrawable accounts plus borrowings payable in one year or less. This liquidity requirement, which is currently 5.0%, may be changed from time to time by the OTS to any amount within the range of 4.0% to 10.0% depending upon economic conditions and the savings flow of savings associations. OTS regulations also require each savings institution to maintain an average daily balance of short-term liquid assets at a specified percentage (currently 1.0%) of the total of its net withdrawable savings accounts and borrowings payable in one year or less. Monetary penalties 25 may be imposed for failure to meet liquidity requirements. The liquidity ratio of the Bank at December 31, 1996 was 7.1%. Qualified Thrift Lender Test The HOLA requires savings associations to meet a QTL test. Under the QTL test set forth in the HOLA, a savings association is required to maintain a minimum of 65% of its "portfolio assets" (as defined in the statute) in certain investments ("Qualified Thrift Investments") on a monthly average basis in nine out of every 12 months. Qualified Thrift Investments generally consist of (i) loans that were made to purchase, refinance, construct, improve or repair domestic residential or manufactured housing, (ii) home equity loans, (iii) securities backed by or representing an interest in mortgages on domestic residential or manufactured housing, (iv) obligations issued by the federal deposit insurance agencies and (v) shares of stock issued by the federal deposit insurance agencies and (v) shares of stock issued by any FHLB. Subject to a 20% of assets limitation, Qualified Thrift Investments also include consumer loans, investments in certain subsidiaries, loans for the purchase or construction of schools, churches, nursing homes and hospitals, 200% of investments in loans for low-to-moderate income housing and certain other community-oriented investments, and shares of stock issued by FHLMC or FNMA. Under Section 2303 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996, a savings association can comply with the QTL test by either meeting the QTL test set forth in the HOLA and implementing regulations or qualifying as a domestic building and loan association as defined in Section 7701(a)(19) of the Internal Revenue Code of 1986, as amended ("Code"). A savings association that fails the QTL test must either become a bank (other than a savings bank) or become subject to the following restrictions on its operations: (i) the savings association may not engage in any new activity or make any new investment, directly or indirectly, unless such activity or investment is permissible for a national bank; (ii) the branching powers of the institution shall be restricted to those of a national bank; (iii) the institution shall not be eligible to obtain any advances from its FHLB; and (iv) payment of dividends by the institution shall be subject to the rules regarding payment of dividends by a national bank. In addition, beginning three years after the savings association failed the QTL test, the savings association would be prohibited from engaging in any activity not permissible for a national bank and would have to repay any outstanding advances from an FHLB as promptly as possible. At December 31, 1996, approximately 96.7% of the Bank's assets were invested in Qualified Thrift Investments and, therefore, the Bank met the QTL test. Loans to One Borrower OTS regulations provide that the total loans and extensions of credit by a savings association to a single borrower outstanding at one time and not fully secured by marketable collateral having a market value at least equal to the amount of the loan or extension of credit may not exceed 15% of unimpaired capital and surplus. As a separate and additional limitation to the foregoing, the total loans and extensions of credit by a savings association to one borrower outstanding at one time and fully secured by marketable collateral having a market value at least equal to the funds outstanding may not exceed 10% of unimpaired capital and surplus. An exception to the general loans-to-one borrower limitation exists for loans made by a savings association for the development of domestic residential housing units. Such loans may not exceed the lesser of $30 million, or 30% of the savings association's unimpaired capital and surplus, but may be made only if: (i) the purchase price of each dwelling unit financed with the loan proceeds is not greater than $500,000; (ii) the savings association is in compliance with its capital requirements; (iii) the OTS permits, by order, the higher lending limit permitted by this provision; (iv) loans made under this exception to all borrowers do not, in the aggregate, exceed 150% of the association's unimpaired capital; and (v) such loans comply with the applicable loan-to-value requirements. OTS regulations provide that investments in the commercial paper and corporate debt securities of the same issuer will be treated as loans and will be subject to the general limitation on loans to one borrower; however, the regulations also provide that, notwithstanding the general limitation, a savings association may invest up to 10% of its unimpaired capital and unimpaired surplus in one issuer's commercial paper, if rated in the highest category by at least two nationally recognized rating services. This investment authority is in addition to any loans that the savings association may make to the same issuer. The OTS may prescribe more stringent limits on loans to one borrower if deemed appropriate to protect the safety and soundness of the savings association. The OTS regulations also provide that a savings association's loans to 26 one borrower to finance the sale of real property acquired in satisfaction of debts previously contracted for in good faith shall not, when aggregated with all other loans to that borrower, exceed the general loans-to-one borrower limitations. At December 31, 1996, the Bank's limit on loans to one borrower was $4.9 million. At December 31, 1996, the Bank's largest aggregate amount of loans to one borrower was $1.9 million. Brokered Deposits Under FDIC regulations, well-capitalized savings institutions that are not treated as troubled by the OTS are not subject to limitations on brokered deposits. Adequately capitalized savings institutions are able to accept, renew or roll over brokered deposits only: (i) with a waiver from the FDIC; and (ii) subject to the limitation that they do not pay an effective yield on any such deposit which exceeds by more than (a) 75 basis points the effective yield paid on deposits of comparable size and maturity in such institution's normal market area for deposits accepted in its normal market area; or (b) 120 basis points for retail deposits and 130 basis points for wholesale deposits, respectively, of the current yield on comparable maturity U.S. treasury obligations for deposits accepted outside the institution's normal market area. Undercapitalized institutions are not permitted to accept brokered deposits and may not solicit deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in the institution's normal market area or in the market area in which such deposits are being solicited. OTS Assessments Savings associations are required by OTS regulations to pay assessments to the OTS to fund the operations of the OTS. The general assessments, paid on a semi-annual basis, is computed upon the savings association's assets including consolidated subsidiaries as reported on its most recent quarterly thrift financial report. The assessments paid by the Bank for the year ended December 31, 1996 was $106,116. Appraisal Policy Regulations The OTS has adopted real estate appraisal regulations to comply with Title XI of FIRREA which requires that the various federal banking regulators adopt regulations providing, at a minimum, that real estate appraisals utilized in connection with real estate related financial transactions in which a financial institution engages be performed in accordance with the appraisal standards promulgated by the Appraisal Standards Board of the Appraisal Foundation and that such appraisals be in writing. The regulations, as amended, require that an appraisal using state certified or licensed appraisers, as appropriate, be made for all real estate related financial transactions entered into on or after August 9, 1990 except those transactions in which (i) the transaction value is less than or equal to $250,000; (ii) a lien is placed on real property solely through an abundance of caution; (iii) the transaction involves a lease that is not the economic equivalent of a purchase or sale; (iv) there is a transaction resulting from a maturing extension of credit under certain circumstances; or (v) there is the sale of pools or real property interests under certain circumstances. A real estate related financial transaction means any transaction involving the sale, lease, purchase, investment in or exchange of real property, including interests in property, or the financing thereof, or the refinancing of real property or interests in property as security for a loan or investment, including mortgage backed-securities. The regulations provide that a state certified appraiser must be used for all real estate related transactions having a transaction value of $250,000 or more, except those involving appraisals of 1-to-4 family residential properties (excluding from such exception, however, complex 1-to-4 family residential property appraisals). The regulations define a "complex" appraisal as one in which the property to be appraised, market conditions or form of ownership are atypical. The regulations provide a presumption that appraisals will be non-complex unless the savings association has readily available information that a given appraisal will be complex. All other appraisals may be performed either by a state certified appraiser or a state licensed appraiser. The regulations require that all appraisals, among other things, (i) conform to the Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Standards Board of the Appraisal Foundation; (ii) be based on the definition of market value set forth in the regulations; (iii) be written and contain sufficient information and analysis to support the institution's decision to engage in the transaction; and (iv) analyze and report appropriate deductions and discounts for proposed construction or renovation, partially leased buildings, non-market lease terms, and tract developments with unsold units. 27 Activities of Savings Associations and Their Subsidiaries FIRREA and FDIC regulations provide that, when a savings association establishes or acquires a subsidiary or elects to conduct any new activity through a subsidiary that the association controls, the savings association shall notify the FDIC and the OTS thirty days in advance and provide the information each agency may, by regulation, require. Savings associations also must conduct the activities of subsidiaries in accordance with regulations and orders of the OTS. The OTS may determine that the continuation by a savings association of its ownership or control of, or its relationship to, the subsidiary constitutes a serious risk to the safety, soundness, or stability of the association, or is inconsistent with sound banking practices or with the purposes of the FDI Act. Based upon that determination, the FDIC or the OTS has the authority to order the savings association to divest itself of control of the subsidiary. The FDIC also may determine by regulation or order that any specific activity poses a serious threat to the SAIF. If so, it may require that no SAIF member engage in that activity directly. Standards for Safety and Soundness The OTS, along with the other federal banking agencies, adopted safety and soundness guidelines relating to (i) internal controls and information systems, (ii) internal audit systems; (iii) loan documentation; (iv) credit underwriting; (v) interest rate exposure; (vi) asset growth; and (vii) compensation, fees and benefits for executive officers, directors, employees and principal shareholders. The operational, managerial and compensation standards set out in the safety and soundness guidelines are used by the federal banking agencies to identify and address problems at institutions before capital becomes impaired. If an insured depository institution is notified that it fails to meet any of the standards set forth in the guidelines, it will be required to submit to the appropriate federal banking agency a compliance plan specifying the steps that will be taken to cure the deficiency. If an institution fails to submit an acceptable compliance plan or fails to implement the compliance plan, the appropriate federal banking agency will require the institution to correct the deficiency and until corrected may impose restrictions on the institution including any of the restrictions applicable under the prompt corrective action regulations. The OTS and the other federal banking agencies adopted final regulations which prescribe standards for extensions of credit (i) secured by real estate or (ii) made for the purpose of financing the construction of improvements on real estate. The OTS regulation requires each savings association to establish and maintain written internal real estate lending standards consistent with safe and sound banking practices and appropriate to the size of the institution and the nature and scope of its real estate lending activities. The standards also must be consistent with OTS guidelines, which include loan-to-value ratios for the different types of real estate loans. Institutions also are permitted to make a limited amount of loans that do not conform to the loan-to-value limitations so long as such exceptions are reviewed and justified appropriately. The guidelines also list a number of lending situations in which exceptions to the loan-to-value standards are justified. Enforcement. Under the FDI Act, the OTS has primary enforcement responsibility over savings institutions and has the authority to bring enforcement action against all "institution-affiliated parties," including shareholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Civil penalties cover a wide range of violations and actions and range up to $25,000 per day unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million per day. Criminal penalties for most financial institution crimes include fines of up to $1 million and imprisonment for up to 30 years. Possible enforcement action ranges from the imposition of a capital plan and capital directive to receivership, conservatorship or the termination of deposit insurance. Under the FDI Act, the FDIC has the authority to recommend to the Director of OTS that enforcement action be taken with respect to a particular savings institution. If action is not taken by the Director of OTS, the FDIC has authority to take such action under certain circumstances. Community Reinvestment Act Under the CRA, as implemented by OTS regulations, a savings institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for 28 financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OTS, in connection with its examination of a savings institution, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution. The CRA also requires all institutions to make public disclosure of their CRA ratings. The Bank received a "Satisfactory" CRA rating in its most recent examination. Certain Restrictions on Acquisitions Federal law provides that no company, "directly or indirectly or acting in concert with one or more persons, or through one or more subsidiaries, or through one or more transactions," may acquire "control" of a savings association at any time without the prior approval of the OTS. Any company that acquires such control becomes a "savings and loan holding company" subject to registration, examination and regulation by the OTS as a savings and loan holding company. In addition, federal law also provides that no "person," acting directly or indirectly or through or in concert with one or more other persons, other than a company, may acquire "control" of a savings association unless at least 60 days prior written notice has been given to the OTS and the OTS has not objected to the proposed acquisition. Under OTS regulations "control" involves a 25% voting stock test, control in any manner of the election of a majority of the institution's directors, or a determination by the OTS that the acquiror has the power to direct, or directly or indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10% of an institution's voting stock, if the acquiror also is subject to any one of eight "control factors," constitutes a rebuttable determination of control under the regulations. The determination of control may be rebutted by submission to the OTS, prior to the acquisition of stock or the occurrence of any other circumstances giving rise to such determination, of a statement setting forth facts and circumstances which would support a finding that no control relationship will exist and containing certain undertakings. The regulations provide that persons or companies which acquire beneficial ownership exceeding 10% or more of any class of an insured institution's stock after the effective date of the regulations must file with the OTS a certification that the holder is not in control of such institution, is not subject to a rebuttable determination of control and will take no action which would result in a determination or rebuttable determination of control without prior notice to or approval of the OTS, as applicable. Federal Reserve System The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily NOW and regular checking accounts). At December 31, 1996, the Bank was in compliance with these reserve requirements. The balances maintained to meet the reserve require ments imposed by the Federal Reserve Board may be used to satisfy liquidity requirements imposed by the OTS. Savings associations have the authority to borrow from the Federal Reserve Bank "discount window," but Federal Reserve Board regulations require an association to exhaust other reasonable alternative sources of funds before borrowing from the Federal Reserve. The Bank did not have any discount window borrowings as of December 31, 1996. TAXATION Federal Taxation For federal income tax purposes the Company files its income tax returns on the basis of a calendar year. The Company uses the accrual method of accounting to report its respective income and expenses. The Company is subject to those rules of federal income taxation generally applicable to corporations. For tax periods ending before January 1, 1996, however, the Bank, which met certain definitional tests under the Internal Revenue Code of 1986, as amended (the "Code") primarily relating to its assets and the nature of its business was permitted to establish a reserve for bad debts and to make annual additions thereto. The Bank was generally able to deduct such additions, within specified formulae limits, in arriving at its taxable income. These rules were repealed pursuant to the Small Business Job Protection Act of 1996 (the "Act"), which was passed by the Congress of the United States on August 2, 1996, and which is effective with respect to bad debt reserves of thrift institutions for all taxable years beginning after 29 December 31, 1995. Specifically, the Act: (a) eliminated use of the "percentage of income method" (generally, a percentage of specially computed taxable income which is then used to compute the bad debt reserve deduction) for determining bad debt reserves, and (b) restricted use of the "experience method" (under which the bad debt reserve deduction is generally based on a formula tied to actual debt charge-offs over a period of years) to saving institutions that do not constitute "large banks" ("Large Banks") under Section 585 of the Code. For these purposes, Large Banks may generally be defined as institutions which have, in conjunction with their affiliated institutions (including members of the same federal consolidated income tax group), average total assets for a particular tax year in excess of $500,000,000. Institutions which are treated as Large Banks are now limited to use of the "specific charge-off method" of accounting for bad debt tax deductions. The Act also generally requires savings institutions to recapture as taxable income the amount of their "applicable excess reserves" (as defined below) ratably over the six year period beginning with their first taxable year beginning after 1995 (the "Six Year Period"). For these purposes, the applicable excess reserves of a savings institution is generally equal to the excess of (i) the balance of its bad debt reserves as of the close of its last taxable year beginning prior to January 1, 1996, over (ii) the balance of its bad debt reserves as of the close of its last taxable year beginning before January 1, 1988. In the case of certain institutions ("Small Banks") which do not constitute Large Banks (as defined above), the amount of applicable excess reserves is generally equal to the excess of (a) the amount described in clause (i) of the immediately preceding sentence, over (b) the greater of (x) the amount described in clause (ii) of the immediately preceding sentence or (y) the amount of the savings institution's bad debt reserves as of the close of its last taxable year beginning prior to January 1, 1996 calculated as if such institution had consistently used the experience method. Based on the foregoing, savings institutions are generally not required to recapture into income their bad debt reserves attributable to pre-1988 tax periods under the Act. Savings institutions which constitute Small Banks, however, are generally required to recapture into income their reserves for post-1987 tax periods only to the extent that such banks have historically utilized the percentage of income method and not the experience method for purposes of computing their bad debt reserves. Conversely, savings institutions which constitute Large Banks are generally required to recapture into income their reserves for post-1987 tax periods, regardless of whether such banks have utilized the percentage of income method or the experience method for purposes of computing their bad debt reserves. The Bank has historically computed its bad debt deductions with respect to qualifying real property loans under the experience method or the percentage of taxable income method depending on the method which yielded the greatest tax benefit. The Company's bad debt reserve for tax purposes was approximately $4.2 million at December 31, 1996. For the years ended December 31, 1995 and 1994, the Bank computed its bad debt deduction with respect to qualifying real property loans under the percentage of taxable income method. The Bank has estimated that its total additional federal income tax liability over the Six Year Period due to the bad debt reserve recapture required under the Act would be approximately $343,000. Since the Bank provides tax expense for financial reporting purposes, the elimination of the percentage of taxable income method will not impact the results of operations. The Bank may, however, be able to defer the commencement of the Six Year Period for up to an additional two year period (i.e., through the close of its last taxable year beginning prior to January 1, 1998) to the extent that it satisfies certain "residential loan requirements" within such period (generally, to the extent that the principal amount of residential loans made by the Bank in each of the two tax years beginning after December 31, 1995 is not less than the average principal amount of its residential loan originations for the six most recent tax years beginning prior to January 1, 1996). To the extent that the Bank makes a "non-dividend distribution" (as defined below), all or a portion of such distribution may generally be considered to be attributable to income which was appropriated to the pre-1988 bad debt reserves (or supplemental loan loss reserves) and deducted for federal income tax purposes; in that event, such distribution to shareholders, including redemptions or distributions in dissolution or liquidation, may generally not be made without payment of federal income taxes at the then current income tax rate by the institution on the amount of income deemed removed from the reserves for such distribution. Under applicable Code provisions, the amount that would be deemed removed from such reserves upon such distribution to stockholders and, therefore, subject to corporate level taxation at the normal corporate tax rate, would be the amount which, after a reduction for taxes on such amount, is equal to the amount actually distributed to shareholders. Assuming a 35% tax rate, the amount deemed removed would be the lesser of (1) approximately 154% of the amount actually distributed or (2) the total amount of the reserves. For federal income tax purposes, a distribution made by a corporation is taxed as a dividend to the extent that the distribution is paid out of the corporation's current or accumulated earnings and profits. To the extent that the amount of such distribution exceeds current or accumulated earnings and profits ("non-dividend distributions"), such excess is 30 deemed for federal income tax purposes to be, as to any shareholder, first a non-taxable return of capital reducing such shareholder's tax basis in his stock by an amount equal to the distribution received and, to the extent such non-dividend distributions exceed the shareholder's tax basis, such distributions are treated as taxable income that constitutes capital gains if the stock is held by the shareholder as a capital asset. The maximum rate of regular corporate federal income tax applicable to the Company is currently 34% (or 35% for taxable income in excess of $10 million). In addition to their regular federal income tax liability, corporations are also subject to an alternative minimum tax similar to the alternative minimum tax applicable to individuals. The corporate alternative minimum tax rate is 20%. Corporations are subject to this alternative minimum tax to the extent it exceeds their regular tax liability. The tax is applied to "alternative minimum taxable income" which includes interest on certain tax-exempt bonds and 75% of "adjusted current earnings" over alternative minimum taxable income (computed without this item). The first $40,000 of alternative minimum taxable income is exempt from the tax. Such exemption amount, however, is reduced (but not below zero) by 25% of the amount by which a corporation's alternative minimum taxable income exceeds $150,000. Generally, when a corporation is subject to the alternative minimum tax, it may carry forward (but not back) the amount of this tax indefinitely as a credit against future liability for the regular income tax, but not the alternative minimum tax. The alternative minimum tax credit is not allowable for any minimum tax attributable to tax preference items which constitute permanent exclusions of income (for example, tax-exempt interest) rather than deferral of income. State Taxation The Company is subject to taxes which generally apply to New Jersey domestic taxable corporations. Such corporations are generally subject to tax at an amount equal to the greater of $200 or 9% of net income allocated to New Jersey. The Bank is taxed under the New Jersey Savings Institution Tax Act. This Act exempts the Bank from all other New Jersey Corporate Franchise Taxes, and from all local taxation of, upon or measured by tangible personal property imposed by political subdivisions. The Savings Institution Tax is an excise tax upon the privilege of doing business in the State of New Jersey at the rate of 3% per annum on net income. The Bank is also subject to a franchise tax in the State of Delaware with regard to its branch operations in that State. This Delaware franchise tax is asserted against the taxable income of Delaware branches of federally chartered savings banks (such as the Bank) which are headquartered in another State, and is computed based on tax rates which vary from 8.7% (for taxable income of $20 million or less) to 1.7% (for taxable income over $650 million). Item 2. Properties. The Company owns seven retail banking offices, its Administrative office and its lending operations office. Three retail banking offices and the accounting department office are leased. The leases expire by the year 2002. Lease payments were $106,433 in 1996 and $104,049 in 1995. The Company's net investment in branch offices, premises, equipment and leaseholds was $3.0 million at December 31, 1996. Item 3. Legal Proceedings. The Company is involved in litigation arising in the normal course of business. In management's opinion, the resolution of all pending litigation will not have a material adverse affect on the Company's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. 31 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. The Company's Common Stock is traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol "FSPG." The following table sets forth the high and low closing sales price for the Common Stock for each quarter in the two year period ended December 31, 1996 as adjusted to reflect stock splits. The table also reflects the cash dividends paid with respect to each quarter as adjusted for stock splits. For the Quarter Ended High Low Dividends - --------------------- ---- --- --------- March 31, 1995 $10.88 $10.13 $.09 June 30, 1995 11.06 10.31 .09 September 30, 1995 12.94 10.50 .09 December 31, 1995 14.25 12.75 .09 March 31, 1996 14.06 13.13 .09 June 30, 1996 14.06 13.31 .09 September 30, 1996 14.06 13.31 .09 December 31, 1996 14.63 13.50 .10 It is the current policy of the Company to pay a regular quarterly cash dividend of $0.10 per share. Dividends, if and when paid, will be subject to determination and declaration by the Board of Directors, which will take into account the Company's financial condition, results of operations, tax considerations, industry standards, economic conditions and other factors, including the regulatory restrictions discussed below. Funds for the payment of cash dividends by the Company on its Common Stock are obtained solely from dividends paid to the Company by the Bank. Accordingly, restrictions on the Bank's ability to pay cash dividends directly affect the payment of cash dividends by the Company. OTS regulations limit the Bank's ability to pay cash dividends on its capital stock. Under these regulations, the Bank is not permitted to declare or pay a cash dividend on or repurchase any of the Common Stock if the effect thereof would be to cause the Bank's regulatory capital to be reduced below the Bank's regulatory capital requirements or the amount of the Bank's liquidation account. At December 31, 1996, the Bank's regulatory capital exceeded its regulatory capital requirements by approximately $17.2 million. For a discussion of OTS regulations affecting the Bank's ability to declare and pay dividends see the discussion in Item 1 under the caption "Regulation - First Home Savings Bank, FSB - Limitations on Dividends and Other Capital Distributions." Item 6. Selected Financial Data. The information set forth on page 3 of the Company's 1996 Annual Report to Stockholders is incorporated herein by reference thereto. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. The information contained under the caption "Management's Discussion and Analysis" beginning on page 5 of the Company's 1996 Annual Report to Stockholders is incorporated herein by reference thereto. Item 8. Financial Statements and Supplementary Data. The consolidated financial statements, the notes thereto, and the opinion of independent certified public accountants thereon, appearing on pages 14 through 43 of the Company's Annual Report to Stockholders are incorporated herein by reference thereto. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not Applicable. 32 PART III Item 10. Directors and Executive Officers of the Registrant. The information required by this Item is incorporated by reference to the Company's definitive proxy statement dated March 28, 1997. Item 11. Executive Compensation. The information required by this Item is incorporated by reference to the Company's definitive proxy statement dated March 28, 1997. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information required by this Item incorporated by reference to the Company's definitive proxy statement dated March 28, 1997. Item 13. Certain Relationships and Related Transactions. The information required by this Item is incorporated by reference to the Company's definitive proxy statement dated March 28, 1997. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) The following documents are filed as part of this report: 1) The following consolidated financial statements of the Company and the opinion of independent certified public accountants thereof: Consolidated Statements of Financial Condition at December 31, 1996 and 1995 Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994. Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994. Notes to Consolidated Financial Statements. Report of Independent Public Accountants. 2) Other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission and Office of Thrift Supervision are not required under the related instructions or are inapplicable and therefore have been omitted. 3) The following exhibits: Exhibit # - --------- 3.1 Certificate of Incorporation. 3.2 Bylaws. 10.1(1) Employee Stock Compensation Program. 10.2(1) 1996 Employee Stock Option Plan. 33 10.3(1) 1994 Stock Option Plan for Non-Employee Directors. 10.4(1) Employment Agreement between First Home Savings Bank, F.S.B. and Stephen D. Miller, as amended. 10.5(1) Employment Agreement between First Home Savings Bank, F.S.B. and Robert A. DiValerio, as amended. 10.6(1) Employment Agreement between First Home Savings Bank, F.S.B. and Duff P. O'Connor, as amended. 10.7(1) Employment Agreement between First Home Savings Bank, F.S.B. and Stephen R. Selverian, as amended. 13 1996 Annual Report to Shareholders. 21 Subsidiaries of the Company. 27 Financial Data Schedule. - ---------- (1) Executive Compensation Plans and Arrangements. (b) No reports on Form 8-K have been filed during the last quarter of the period covered by this report. 34 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST HOME BANCORP, INC. DATE: March 28, 1997 By:/s/Stephen D. Miller --------------------------- Stephen D. Miller, President Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date - ---- ----- ---- /s/Stephen D. Miller President and Chairman March 28, 1997 - ---------------------------------- Of the Board Stephen D. Miller /s/Robert A. DiValerio Senior Executive Vice President March 28, 1997 - --------------------------------- (Principal Financial Officer and Robert A. DiValerio Principal Accounting Officer) - --------------------------------- Director March , 1997 Willard F. Cheeseman /s/Adam J. Gagliardi, Jr. Director March 28, 1997 - --------------------------------- Adam J. Gagliardi, Jr. /s/ Eugene J. Martell Director March 28, 1997 - ---------------------------------- Eugene J. Martell /s/Frederick M. Palfrey Director March 28, 1997 - ---------------------------------- Frederick M. Palfrey /s/W. Kenneth Porch Director March 28, 1997 - ---------------------------------- W. Kenneth Porch /s/Stephen R. Selverian Executive Vice March 28, 1997 - --------------------------------- President and Director Stephen R. Selverian /s/ Rodger D. Shay Director March 28, 1997 - --------------------------------- Rodger D. Shay
EXHIBIT INDEX Exhibit # Page - --------- ---- 3.1 Certificate of Incorporation. 3.2 Bylaws. 10.1(1) Employee Stock Compensation Program. 10.2(1) 1996 Employee Stock Option Plan. 10.3(1) 1994 Stock Option Plan for Non-Employee Directors. 10.4(1) Employment Agreement between First Home Savings Bank, F.S.B. and Stephen D. Miller, as amended. 10.5(1) Employment Agreement between First Home Savings Bank, F.S.B. and Robert A. DiValerio, as amended. 10.6(1) Employment Agreement between First Home Savings Bank, F.S.B. and Duff P. O'Connor, as amended. 10.7(1) Employment Agreement between First Home Savings Bank, F.S.B. and Stephen R. Selverian, as amended. 13 1996 Annual Report to Shareholders. 21 Subsidiaries of the Company. 27 Financial Data Schedule. - ---------- (1) Executive Compensation Plans and Arrangements. EX-3.1 2 CERTIFICATE OF INCORPORATION CERTIFICATE OF INCORPORATION of FIRST HOME BANCORP INC. 1. Name. The name of the Corporation is FIRST HOME BANCORP Inc. 2. Registered Agent. The registered agent of the Corporation is Stephen D. Miller. 3. Registered Office. The registered office of the Corporation is 125 South Broadway, Pennsville, New Jersey 08070. 4. Purpose. The purpose for which the Corporation is organized is to engage in any activity for which corporations may be organized under N.J.S.A. 14A:1-1 et. seq. 5. Capital Stock. The aggregate number of shares which the Corporation has the authority to issue is 11,000,000 shares, of which 10,000,000 shares shall be common stock and 1,000,000 shares shall be preferred stock. The designation, relative rights, preferences, and limitations of the shares of each class of capital stock, itemized by class shall be as follows: A. Common Stock. Each share of common stock shall be entitled to one vote on all matters submitted to a vote of shareholders except as the right to exercise such vote may be limited by the provisions of this Certificate of Incorporation. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the common stock as to the payment of dividends, the full amount of dividends and of sinking fund, retirement fund, or other retirement payments, if any, to which such holders are respectively entitled in preference to the common stock, then dividends may be paid on the common stock and on any class or series of stock entitled to participate therewith as to dividends out of any assets legally available for the payment of dividends. In the event of any liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, the assets and funds of the Corporation available for distribution to shareholders, and remaining after the payment to holders of preferred stock of the amounts (if any) to which they are entitled, shall be divided and paid to the holders of the common stock according to their respective shares. B. Preferred Stock. Preferred. The Corporation's board of directors (hereafter called "Board of Directors" or "Board") is authorized to adopt at any time, or from time to time, amendments to the Certificate of Incorporation with respect to any unissued and/or treasury shares of preferred stock, and thereby to fix or change the division of shares of the preferred stock into classes and/or into series within any class or classes, and to fix or change the determination of the voting rights, designations, preferences, limitations, special rights and relative rights of the shares of any class or series. The authority of the Board with respect to each class or series of preferred stock shall include, but not be limited to, determination of the following: (i) The number of shares constituting that class or series and the distinctive designation of that class or series; (ii) The dividend rate on the shares of that class or series, whether dividends shall be cumulative, and, if so, from which date or dates; (iii) Whether that class or series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights; (iv) Whether that class or series shall have conversion privileges and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (v) Whether or not shares of that class or series shall be redeemable and whether or not the Corporation or the holder (or both) may exercise the redemption right, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions; (vi) The rights of the shares of that class or series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and (vii) Any other relative rights, preferences and imitations of that class or series as may be permitted or required by law. 6. Business Combinations. As used in this Section 6, the following terms shall have the following meanings: A. "Affiliate" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. B. "Associate," when used to indicate a relationship with any Person, means: (i) any corporation or organization of which that Person is an officer or partner or is, directly or indirectly, the beneficial owner of 10% or more of any class of voting stock, (ii) any trust or other estate in which that Person has a ten percent or greater beneficial interest or as to which that Person serves as trustee or in a similar fiduciary capacity, or (iii) any relative or spouse of that Person, or any relative of that spouse, who has the same home as that Person. C. "Beneficial owner," when used with respect to any stock, means a Person: (i) that, individually or with or through any of its affiliates or associates, beneficially owns that stock, directly or indirectly; (ii) that, individually or with or through any of its affiliates or associates, directly or indirectly 2 (a) has the right to acquire that stock (whether that right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of stock tendered pursuant to a tender or exchange offer made by that Person or any of that Person's affiliates or associates until that tendered stock is accepted for purchase or exchange; or (b) has the right to vote that stock pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, however, that a Person shall not be deemed the beneficial owner of any stock under this subparagraph if the agreement, arrangement or understanding to vote that stock (1) arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made in accordance with the applicable rules and regulations under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and (2) is not then reportable on a Schedule 13D under the Exchange Act (or any comparable or successor report); or (iii) that has any agreement, arrangement or understanding (whether or not in writing), for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in subparagraph (b) of paragraph (ii) of this subsection, or disposing of that stock with any other Person that beneficially owns, or whose Affiliates or Associates beneficially own, directly or indirectly, that stock. D. "Business Combination" means: (i) any merger or consolidation of the Corporation with or into any Person; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of all or any substantial part of the assets of the Corporation to any Person; (iii) the liquidation, spinoff, splitoff or splitup of the Corporation or any subsidiary thereof; or (iv) any transaction similar to, or having similar effect as, any of the foregoing transactions. E. "Independent Majority of Shareholders" means a majority of the votes entitled to be cast generally for the election of directors by all shareholders other than an Interested Shareholder. F. "Interested Shareholder" means any Person that is the Beneficial Owner, directly or indirectly, of 10% or more of the voting power of the outstanding voting stock of the Corporation. G. "Person" means any person, partnership, corporation, group or other entity (other than the Corporation, any subsidiary of the Corporation or a trustee holding stock for the benefit of employees of the Corporation or its subsidiaries, or any one of them, pursuant to one or more employee benefit plans or arrangements). When two or more Persons act as a Partnership, limited partnership, syndicate, association or other group for the purpose of acquiring, holding or disposing of shares of stock, such partnership, syndicate, association or group shall be deemed a "Person." 3 H. "Whole Board of Directors" means the total number of directors which the Corporation would have if there were no vacancies. Except as otherwise expressly provided in this Section 6, the Corporation shall not become party to any Business Combination unless at a meeting of the Corporation's shareholders the Business Combination is approved by (a) the affirmative vote of shareholders entitled to cast at least 80% of the votes which all shareholders of the Corporation are entitled to cast generally in the election of directors, considered for the purpose of this Section 6 as one class; and (b) if the Business Combination is with an Interested Shareholder, the affirmative vote of an Independent Majority of Shareholders. Such affirmative votes shall be in addition to any shareholder vote which would be required without reference to this Section 6 and shall be required notwithstanding the fact that no vote of shareholders may be required or that some lesser percentage may be specified by law or otherwise. The provisions of this Section 6 shall not apply to any Business Combination approved by 66-2/3% of the members of the Whole Board of Directors of the Corporation at a meeting duly called and held. 7. Number of Directors. The Board of Directors shall consist of not less than five nor more than 25 directors. The number of directors to be elected, subject to the foregoing limits, shall be determined from time to time by the Board of Directors. 8. Classification of Directors. The Board of Directors shall be divided into three classes, as nearly as equal in number as possible, known as Class A, consisting of not more than eight directors, Class B, consisting of no more than eight directors,and Class C, consisting of not more than nine directors. The initial directors of Class A shall serve until the first annual meeting of shareholders. At the first annual meeting of shareholders, the directors of Class A shall be elected for a term of three years and, after expiration of such term, shall thereafter be elected every three years for three year terms. The initial directors of Class B shall be elected to serve until the second annual meeting of shareholders. At the second annual meeting of the shareholders, the directors of Class B shall be elected for a term of three years and, after the expiration of such term shall thereafter be elected every three years for three year terms. The initial directors of Class C shall serve until the third annual meeting of shareholders. At the third annual meeting of shareholders, the directors of Class C shall be elected for a term of three years and, after the expiration of such term, shall thereafter be elected every three years for three year terms. Each Director shall serve until his successor shall have been elected and shall qualify, even though his term of office as herein provided has otherwise expired, except in the event of his earlier death, resignation, removal or disqualification. This Article 7, or any portion thereof, may be changed by a by-law amendment which is adopted by all of the then members of Board of Directors. 9. Removal of Directors. (a) Removal by Shareholders The entire Board of Directors, or a class of the Board, if the Board is classified with respect to the power to elect directors, or any individual director, may be removed from office by the shareholders only for cause (as defined herein) and only with the vote of shareholders entitled to cast at least seventy-five percent (75%), or such higher percentage as may be required by law, of the votes which all shareholders would be entitled to cast at any annual election of directors or of such class of directors. The term 'cause', as used herein, shall refer only to one of the following events: (1) conviction of the director of a felony; 4 (2) declaration by order of court that the director is of unsound mind; or (3) gross abuse of trust committed in bad faith. (b) Removal by Board of Directors The Board of Directors may, without shareholder approval, declare vacant the office of any director for any proper cause (whether or not similar to those listed in subparagraph (a) above) including, but not limited to, conflict of interest or other breach of fiduciary duty, default on a loan, or unacceptability of the director to bank regulatory authorities as a director of a bank subsidiary of the Corporation. 10. Limitation on Liability. No director or officer of the Corporation shall be personally liable to the Corporation or its shareholders for damages for breach of any duty owed to the Corporation or its shareholders, except that no director or officer of the Corporation shall be relieved from liability for any breach of duty based upon an act or omission (a) in breach of such Person's duty of loyalty to the Corporation or its shareholders, (b) not in good faith or involving a knowing violation of law or (c) resulting in receipt by such Person of an improper personal benefit. As used in this section, an act or omission in breach of a Person's duty of loyalty means an act or omission which that Person knows or believes to be contrary to the best interests of the Corporation or its shareholders in connection with a matter in which he has a material conflict of interest. 11. Amendment to By-Laws. Any amendment to the Bylaws of the Corporation which is proposed by shareholders, and which has not previously received the approval of the Board of Directors, shall require for adoption the affirmative vote of the holders of at least eighty percent (80%) of the votes which all shareholders are entitled to cast thereon, in addition to any other approval which is required by law, this Certificate of Incorporation, the Bylaws of the Corporation or otherwise. 12. Amendment of Certificate. No amendment, addition, alteration, or repeal of this Certificate of Incorporation shall be made unless approved by the shareholders by the affirmative vote of 80% of the total votes eligible to be cast at a legal meeting provided, however, the affirmative vote of the holders of a majority of the shares of Common Stock shall be required if the Board of Directors has approved the proposed amendment by resolution adopted before the shareholders are solicited to vote on the amendment. 13. Initial Board of Directors. The initial Board of Directors of the Corporation shall consist of 8 Directors: NAME ADDRESS Willard F. Cheeseman 125 South Broadway Pennsville, NJ 08070 Adam J. Gagliardi, Jr. 125 South Broadway Pennsville, NJ 08070 5 Eugene J. Martell 125 South Broadway Pennsville, NJ 08070 Stephen D. Miller 125 South Broadway Pennsville, NJ 08070 Frederick M. Palfrey 125 South Broadway Pennsville, NJ 08070 W. Kenneth Porch 125 South Broadway Pennsville, NJ 08070 Stephen R. Selverian 125 South Broadway Pennsville, NJ 08070 Rodger D. Shay 125 South Broadway Pennsville, NJ 08070 14. Incorporation. The name and address of the incorporator is: NAME ADDRESS Stephen D. Miller 125 South Broadway Pennsville, NJ 08070 IN WITNESS WHEREOF, the Incorporator, being over eighteen years of age, has signed this Certificate of Incorporation this 21st day of February, 1996. Stephen D. Miller, Incorporator 6 EX-3.2 3 BYLAWS BYLAWS OF FIRST HOME BANCORP INC. The Bylaws are adopted by the Corporation and are supplemental to the New Jersey Business Corporation Act as the same shall from time to time be in effect. ARTICLE I. NAME. Section 101. Name. The name of the Corporation is First Home Bancorp Inc. Section 102. State of Incorporation. The Corporation has been incorporated under the laws of the State of New Jersey. ARTICLE II. REGISTERED AND PRINCIPAL OFFICES. Section 201. Registered Office, Registered Agent. The registered office of the Corporation in the State of New Jersey shall be at 125 South Broadway, Pennsville, New Jersey 08070 and the Corporation's registered agent at such address shall be Stephen D. Miller. Section 202. Offices. The principal office of the Corporation and any other offices of the Corporation shall be located at such place(s), within or without the State of New Jersey, as the Board of Directors may from time to time determine or as the business of the Corporation may require. ARTICLE III. SHAREHOLDERS AND DIRECTORS. Section 301. Place of Shareholders' Meetings. All meetings of the shareholders shall be held at such place or places, within or without the State of New Jersey, as shall be fixed by the Board of Directors from time to time. Section 302. Annual Shareholders' Meeting. The annual meeting of the shareholders, for the election of directors and the transaction of such other business as may properly be brought before such meeting, shall be held at such place and such time, within or without the State of New Jersey, that the Board of Directors may fix. Section 303. Special Shareholders' Meetings. Special meetings of the shareholders may be called by the Secretary upon the request of the Chairman of the Board, the President, the Board of Directors, or by shareholders entitled to cast at least 20% of the votes which all shareholders are entitled to cast at the particular meeting. Section 304. Nominating Committee. The Corporation shall have a Nominating Committee consisting of three (3) persons who are directors of the Corporation. The Nominating Committee shall make nominations for directors to be elected by the shareholders of the Corporation as provided in the remainder of this Section. Except in the case of a nominee substituted as a result of the death or other incapacity of a management nominee, the Nominating Committee shall deliver to the Secretary a written nomination for each directorship to be filled at each annual meeting of the shareholders at least thirty (30) days in advance of the date of that meeting. Provided the Nominating Committee makes such nominations, no nominations for directors except those made by the Nominating Committee shall be voted upon at the annual meeting unless other nominations by shareholders are made in accordance with the procedures set forth in this Section 304. Ballots bearing the names of all the persons nominated for election as directors at an annual meeting in accordance with the procedures set forth in this Section 304 by the Nominating Committee and by shareholders shall be provided for use at the annual meeting. However, except in the case of a management nominee substituted as a result of the death, incapacity, disqualification or other inability to serve of a management nominee, if the Nominating Committee shall fail or refuse to nominate a slate of directors at least thirty (30) days prior to the date of the annual meeting, nominations for directors may be made at the annual meeting by any shareholder entitled to vote and shall be voted upon. No person shall be elected as a director of the Corporation unless nominated in accordance with the terms set forth in this Section 304. Nominations of individuals for election to the Board of Directors of the Corporation at an annual meeting of shareholders may be made by any shareholder of the Corporation entitled to vote for the election of directors at that meeting who complies with the procedures set forth in this Section 304. Such nominations, other than those made by the Nominating Committee, shall be made pursuant to timely notice in writing to the Secretary of the Corporation as set forth in this Section 304. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the date of each annual meeting. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of Corporation stock which are beneficially owned by such person on the date of such shareholder notice, and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies with respect to nominees for election as directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder giving the notice (i) the name and address, as they appear on the Corporation's books, of such shareholder and any other shareholders known by such shareholder to be supporting such nominees and (ii) the class and number of shares of Corporation stock which are beneficially owned by such shareholder on 2 the date of such shareholder notice and by any other shareholders known by such shareholder to be supporting such nominees on the date of such shareholder notice. The Board of Directors may reject any nomination by a shareholder not made in accordance with the terms of this Section 304. Alternatively, if the Board of Directors fails to consider the validity of any nominations by a shareholder, the presiding officer of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that a nomination was not made in accordance with the terms of this Section 304, and, if he should so determine, he shall so declare at the annual meeting and the defective nomination shall be disregarded. Section 305. New Business. At an annual meeting of shareholders only such new business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before the meeting. For any new business proposed by management to be properly brought before the annual meeting, such new business shall be approved by the board of directors, either directly or through its approval of proxy solicitation materials related thereto, and shall be stated in writing and filed with the secretary of the Corporation at least 20 days before the date of the annual meeting, and all business so stated, proposed and filed shall be considered at the annual meeting. Any shareholder may make any other proposal at the annual meeting and the same may be discussed and considered, but unless properly brought before the meeting such proposal shall not be acted upon at the meeting. For a proposal to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the secretary of the Corporation. To be timely, a shareholder's notice must be delivered to or received at the principal executive offices of the Corporation, not less than 20 days prior to the meeting; provided, however, that in the event that less than 30 days' notice of the date of the meeting is given to shareholders (which notice shall be accompanied by a proxy or information statement when describes each matter proposed by the board of directors to be acted upon at the meeting), notice by the shareholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed. A shareholder's notice to the secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting, (b) the name and address of the shareholder proposing such business, and (c) the class and number of shares of the Corporation which are owned of record by the shareholder. Notwithstanding anything in the bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 305. Section 306. Resignations of Directors. Any director may resign at any time. Such resignation shall be in writing, but the acceptance thereof shall not be necessary to make it effective. 3 Section 307. Compensation of Directors. Directors shall be entitled to compensation for services they render, as determined by resolution of the Board of Directors. Any director may serve the Corporation in another capacity and be entitled to such compensation therefor as may be determined by the Board of Directors. Section 308. Annual Meeting of Directors. An annual meeting of the Board of Directors shall be held in each calendar year immediately following the annual meeting of shareholders. Section 309. Meetings of Directors. Meetings of the Board of Directors may be called by the President or by a majority of the directors. Any such meeting may be held within or without the State of New Jersey. Section 310. Notice of Directors' Meetings. Whenever notice of a meeting of the Board of Directors shall be required, it shall be in writing. Unless otherwise required by law or these Bylaws, neither the business to be transacted at, nor the purpose of, any regular meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 311. Committees. In the absence or disqualification of any member of any committee or committees established by the Board of Directors, the member or members thereof present at any meeting of such committee or committees, and not disqualified from voting, whether or not they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. Section 312. Absentee Participation in Meetings. One or more directors may participate in a meeting of the Board of Directors, or of a committee of the Board, by means of a conference telephone or similar communications equipment, by means of which all persons participating in the meeting can hear each other. Section 313. Designation of Presiding and Recording Officers. The directors or shareholders, at any meeting of directors or shareholders, as the case may be, shall have the right to designate any person, whether or not an officer, director or shareholder, to preside over, or record the proceedings of, such meeting. Section 314. Vacancies. Subject to the rights of the holders of any series of the Corporation's Preferred Stock then outstanding, vacancies in the Board of Directors, including vacancies resulting from an increase in the number of directors, shall be filled by the affirmative vote of at least the majority of the remaining members of the Board of Directors, even thought less than a quorum, and each person so elected shall be a director until his successor is elected by the shareholders. Each director so elected shall hold office for the unexpired term to which he has been elected, and thereafter, until his or her successor shall 4 have been duly elected and qualified, except in the event of his or her earlier resignation, removal or disqualification. ARTICLE IV. OFFICERS. Section 401. The Officers. The Corporation shall have a President, a Secretary and a Treasurer, and may have a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, and one or more Assistant Treasurers. Any two or more offices may be held by the same person. Section 402. Election and Term of Officers. The President, Secretary, and Treasurer of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. All other officers shall be appointed by the President at the time, in the manner, and for such term as the President from time to time shall determine. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified, or until he or she shall resign or shall have been removed. Section 403. Compensation. Unless otherwise provided by the Board of Directors, the compensation of officers and assistant officers of the Corporation shall be fixed by the President, except that the compensation of the President shall be fixed by the Board of Directors. Section 404. President. The President shall be the chief executive officer of the Corporation, and, subject to the control of the Board of Directors and such limitations as may be provided by the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation. Unless a designation to the contrary shall be made at a meeting, the President shall, when present, preside at all meetings of the shareholders and of the Board of Directors. As authorized by the Board of Directors, he or she shall execute and seal, or cause to be sealed, all instruments requiring such execution, except to the extent that signing and execution thereof shall have been expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Upon request of the Board of Directors, he or she shall report to the Board all matters which the interest of the Corporation may require to be brought to their notice. Section 405. Vice President, Secretary, Treasurer, and Assistant Officers. The Vice President or Vice Presidents, in the order of their seniority, unless otherwise determined by the Board of Directors, and in the absence or disability of the President, shall perform the duties and exercise the powers of the President. The Vice President or Vice Presidents, the Secretary, the Treasurer, the Assistant Secretary or Secretaries, and the Assistant Treasurer or Treasurers, shall act under 5 the direction of the President, and shall perform all such duties as may be prescribed by the President or the Board of Directors. ARTICLE V. INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS. Section 501. The Corporation shall, to the fullest extent now or hereafter permitted by the New Jersey Business Corporation Act, as amended from time to time, indemnify any director or officer of the Corporation. The right to indemnification conferred by this Section 501 shall include the right to be paid by the Corporation for expenses incurred in defending any action, suit or proceeding in advance of its final disposition, subject to the receipt by the Corporation of such undertakings as might be required of an indemnitee by the New Jersey Business Corporation Act. Section 502. The Board of Directors by resolution adopted in each specific instance may similarly indemnify any person other than a director or officer of the Corporation for liabilities incurred by him in connection with services rendered by him at the request of the Corporation or any of its subsidiaries. Section 503. The provisions of this Section 503 shall be applicable to all actions, suits or proceedings commenced after its adoption, whether such arise out of acts or omissions which occurred prior to or subsequent to such adoption and shall continue as to a person who has ceased to be a director or officer or to render services at the request of the Corporation and shall inure to the benefit of the heirs, executors and administrators of such a person. The rights of indemnification provided for herein shall be deemed contract rights enforceable by such person seeking indemnification and shall not be deemed the exclusive rights to which any director, officer, employee or agent of the Corporation may be entitled under the certificate of incorporation, an agreement, vote of stockholders, or otherwise. Section 504. In any action by an indemnitee to enforce a right to indemnification hereunder or by the Corporation to recover advances made hereunder, the burden of proving that the indemnitee is not entitled to be indemnified shall be on the Corporation. In such an action, neither the failure of the Corporation (including its Board, independent legal counsel or stockholders) to have made a determination that indemnification is proper, nor a determination by the Corporation that indemnification is improper, shall create a presumption that the indemnitee is not entitled to be indemnified or, in the case of such an action brought by the indemnitee, be a defense thereto. If successful in whole or in part in such an action, an indemnitee shall be entitled to be paid also the expense (including reasonable attorneys fees) of prosecuting or defending same. Section 505. Any repeal or modification of this Article V by the directors or stockholders of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such repeal or modification. 6 ARTICLE VI. SHARES OF CAPITAL STOCK. Section 601. Signatures of Share Certificates. Each share certificate shall be signed by the Chairman of the Board, President or a Vice President, and by the Secretary or Treasurer, or an Assistant Secretary or an Assistant Treasurer. Section 602. Lost or Destroyed Certificates. Any person claiming a share certificate to be lost, destroyed or wrongfully taken shall receive a replacement certificate if said shareholder shall have: (a) requested such replacement certificate before the Corporation has notice that the shares have been acquired by a bona fide purchaser; (b) filed with the Corporation an indemnity bond deemed sufficient by the Board of Directors; and (c) satisfied any other reasonable requirements fixed by the Board of Directors. Section 603. Transfer of Shares. All transfers of shares of the Corporation shall be made upon the books of the Corporation upon surrender to the transfer agent of the Corporation of a certificate or certificates for shares, duly endorsed by the person named in the certificate or an attorney, lawfully constituted in writing, or accompanied by proper evidence of succession, assignment or authority to transfer. Thereupon, it shall be the duty of the Corporation to request the issuance of a new certificate to the person entitled thereto, cancel the old certificates and record the transaction upon its books. ARTICLE VII. BOOKS AND RECORDS. Section 701. Books and Records. The Corporation shall keep books and records of account and minutes of the proceedings of shareholders, Board of Directors, and committees, if any. Such books, records and minutes may be kept outside the State of New Jersey. ARTICLE VIII. AMENDMENTS. Section 801. Amendment by Shareholders or Board of Directors. These Bylaws may be amended or repealed by a majority vote of the members of the Board of Directors, or if any amendment to the Bylaws is proposed by shareholders, and has not previously received the approval of the Board of Directors, such amendment shall require the affirmative vote of the holders of at least eight percent (80%) of the votes which all shareholders are entitled to cast thereon, in addition to any other approval which is required by law, this Certificate of Incorporation, these Bylaws or otherwise. Section 802. Recording Amendments. The text of all amendments to these Bylaws shall be attached to the Bylaws with a notation of the date of each such amendment and a notation of whether such amendment was adopted by the shareholders or the Board of Directors. 7 ARTICLE IX. ADOPTION OF BYLAWS AND RECORD OF AMENDMENT THERETO. Section 901. Adoption and Effective Date. These Bylaws have been adopted as the Bylaws of the Corporation this 21st day of February, 1996, and shall be effective as of such date. Section 902. Amendments to Bylaws. Section Amended Date Amended Adopted By 8 EX-10.1 4 EMPLOYEE STOCK COMPENSATION PROGRAM FIRST SAVINGS AND LOAN ASSOCIATION OF PENNS GROVE EMPLOYEE STOCK COMPENSATION PROGRAM 1. Purpose of Program: The purpose of the First Savings and Loan Association of Penns Grove Employee Stock Compensation Program (the "Program") contained herein is to provide additional incentive to full-time officers and key employees of First Savings and Loan Association of Penns Grove (the "Association") and each present or future Association subsidiary corporation by encouraging them to invest in shares of Association stock, and thereby to acquire a proprietary interest in the business of the Association and each present or future Association subsidiary corporation and an increased personal interest in its continued success and progress, to the mutual benefit of employees and shareholders. 2. Aggregate Number of Shares: [ ] shares of Association Common Stock (par value $1.00 per share) shall be the aggregate number of shares which may be issued under this Program. Notwithstanding the foregoing, in the event of any change in the outstanding shares of Association Common Stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion, or what the Compensation Committee, hereinafter referred to, deems in its sole discretion to be similar circumstances, the aggregate number and kind of shares which may be issued under this Program shall be appropriately adjusted in a manner determined in the sole discretion of the Compensation Committee. Reacquired shares of Association Common Stock as well as unissued shares may be used for the purpose of this Program. Shares of Association Common Stock subject to options which have terminated unexercised, either in whole or in part, shall be available for future options granted under this Program. 3. Class of Employees Eligible to Receive Options: All full-time officers and key employees of the Association and of any present or future Association subsidiary corporation who are employed on a full-time basis are eligible to receive an option or options under this Program. The officers and key employees who shall, in fact, receive an option or options shall be selected by the Compensation Committee hereinafter referred to, in its sole discretion, except as otherwise specified in Section 4 hereof. 4. Administration of Program: (a) This Program shall be administered by a Compensation Committee (the "Committee" or "Compensation Committee") appointed by the Association Board of Directors. The Committee shall consist of a minimum of three and a maximum of seven members of the Association Board of Directors, each of whom shall be a "disinterested person" as defined in Rule 16b-3(d)(3) under the Securities Exchange Act of 1934, as amended, of the Securities and Exchange Commission (hereinafter called "SEC") or any future corresponding rule. The Committee shall, in addition to its other authority and subject to the provisions of this Program, have authority in its sole discretion to determine who are the officers and key employees of the Association and each present and future Association subsidiary corporation eligible to receive options under this Program, which officers and key employees shall in fact be granted an option or options, whether the option shall be an incentive stock option or a non-qualified stock option, the number of shares to be subject to each of the options, the time or times at which the options shall be granted, the rate of option exercisability, and, subject to Section 5 hereof, the price at which each of the options is exercisable and the duration of the option. (b) The Committee shall adopt such rules for the conduct of its business and administration of this Program as it considers desirable. A majority of the members of the Committee shall constitute a quorum for all purposes. The vote or written consent of a majority of the members of the Committee on a particular matter shall constitute the act of the Committee on such matter. The Committee shall have the exclusive right to construe the Program and the options issued pursuant to it, correct defects, supply omissions and reconcile inconsistencies to the extent necessary to effectuate the Program and the options issued pursuant to it, and such action shall be final, binding and conclusive upon all parties concerned. No member of the Committee or the Board of Directors shall be liable for any act or omission (whether or not negligent) taken or omitted in good faith, or for the exercise of an authority or discretion granted in connection with this Program to the Committee or the Board of Directors, or for the acts or omissions of any other members of the Committee or the Board of Directors. Subject to the numerical limitations on Committee membership set forth in Section 4(a) hereof, the Board of Directors may at any time appoint additional members of the Committee and may at any time remove any member of the Committee with or without cause. Vacancies in the Committee, however caused, may be filled by the Board of Directors if it so desires. 5. Incentive Stock Options and Nonqualified Stock Options: (a) Options issued pursuant to this Program may be either incentive stock options granted pursuant to Section 5(b) hereof or nonqualified stock -2- options granted pursuant to Section 5(c) hereof, as determined by the Committee. An "incentive stock option" is an option which satisfies all of the requirements of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder, and a nonqualified stock option is an option which does not satisfy all of those requirements. The Committee may grant both an incentive stock option and a nonqualified stock option to the same person, or more than one of each type of option to the same person. The option price for both incentive stock options and nonqualified stock options issued under this Program shall equal at least the fair market value of the Association Common Stock as of the date of the grant of the option, such fair market value being determined by the Committee in accordance with its interpretation of the requirements of Section 422A of the Code and the regulations thereunder. (b) Incentive stock options issued pursuant to this Program shall be issued substantially in the form set forth in Appendix I hereof, which form is hereby incorporated by reference and made a part hereof, and shall contain substantially the terms and conditions set forth therein. Incentive stock options shall expire ten years after the date they are granted, unless terminated earlier under the option terms. With respect to incentive stock options granted hereunder prior to January 1, 1987, notwithstanding other provisions hereof, the aggregate fair market value (determined as of the time an incentive stock option is granted) of the stock for which any employee may be granted incentive stock options in any calendar year (under all incentive stock option plans of the Association and its parent and subsidiary corporations) shall not exceed $100,000 plus any unused limit carryover to such year. Notwithstanding the above, with respect to options granted after December 31, 1986, the aggregate fair market value (determined at the time the option is granted) of the stock with respect to which incentive stock options are exercisable for the first time by an optionee during any calendar year (under all incentive stock option plans of the optionee's employer corporation and its parent and subsidiary corporations) shall not exceed $100,000. The unused limit carryover available in any calendar year to any employee shall be determined in accordance with Section 422A(c)(4) of the Code and the regulation thereunder. At the time of granting an incentive stock option hereunder, the Committee may, in its discretion, modify or amend any of the option terms contained in Appendix I for any particular optionee, provided that the option as modified or amended continues to be an incentive stock option. Each of the options granted pursuant to this Section 5(b) is intended, if possible, to be an "incentive stock option" as that term is defined in Section 422A of the Code and the regulations thereunder. In the event this Program or any option granted pursuant to this Section 5(b) is any way inconsistent with the applicable legal requirements of the Code or the regulations thereunder for an incentive stock option, this Program and such option shall be deemed automatically amended as of the date hereof to conform to such legal requirements, if such conformity may be achieved by amendment. -3- (c) Nonqualified stock options issued pursuant to this Program shall be issued substantially in the form set forth in Appendix II hereof, which form is hereby incorporated by reference and made a part hereof, and shall contain substantially the terms and conditions set forth therein. Nonqualified stock options shall expire ten years and ten days after the date they are granted, unless terminated earlier under the option terms. At the time of granting a nonqualified stock option hereunder, the Committee may, in its discretion, modify or amend any of the option terms contained in Appendix II for any particular optionee, provided that the option as modified or amended does not expire more than ten years and ten days from the date of its grant and the option price is not less than the fair market value of the Association Common Stock as of the date of such grant. (d) Neither the Association nor any present or future Association affiliated or subsidiary corporation, nor their officers, directors, shareholders, stock option plan committees, employees or agents shall have any liability to any optionee in the event an option granted pursuant to Section 5(b) hereof does not qualify as an "incentive stock option" as that term is used in Section 422A of the Code and the regulations thereunder, or in the event any optionee does not obtain the tax benefits of such an incentive stock option, or in the event any option granted pursuant to Section 5(c) hereof is an "incentive stock option". 6. Modification, Amendment, Suspension and Termination: Options shall not be granted pursuant to this Program after the expiration of ten years from and after the date of the adoption of the Program by the Association Board of Directors. The Board of Directors reserves the right at any time, and from time to time, to modify or amend this Program in any way, or to suspend or terminate it, effective as of such date, which date may be either before or after the taking of such action, as may be specified by the Board of Directors; provided, however, that such action shall not affect options granted under the Program prior to the actual date on which such action occurred. If a modification or amendment of this Program is required by the Code or the regulations thereunder to be approved by the shareholders of the Association in order to permit the granting of "incentive stock options" (as that term is defined in Section 422A of the Code and regulations thereunder) pursuant to the modified or amended Program, such modification or amendment shall also be approved by the shareholders of the Association in such manner as is prescribed by the Code and the regulations thereunder. If the Board of Directors voluntarily submits a proposed modification, amendment, suspension or termination for shareholder approval, such submission shall not require any future modifications, amendments (whether or not relating to the same provision or subject matter), suspensions or terminations to be similarly submitted for shareholder approval. -4- 7. Effectiveness of Program: This Program shall become effective on the date of its adoption by the Association Board of Directors subject, however, to approval by the shareholders of the Association in such manner as is prescribed by the Code and the regulations thereunder. Options may be granted under this Program prior to obtaining such approval, provided such options shall not be exercisable until such approval is obtained. 8. General Conditions: (a) Nothing contained in this Program or any option granted pursuant to this Program shall confer upon any employee the right to continue in the employ of the Association or any present or future Association affiliated and subsidiary corporation or interfere in any way with the rights of the Association and any Association affiliated or subsidiary corporation to terminate his employment in any way. (b) Corporate action constituting an offer of stock for sale to any employee under the terms of the options to be granted hereunder shall be deemed completed as of the date when the Committee authorizes the grant of the option to the employee, regardless of when the option is actually delivered to the employee or acknowledged or agreed to by him. (c) The term "subsidiary corporation" as used throughout this Program, and the options granted pursuant to this Program, shall (except as otherwise provided in the option form) have the meaning that is ascribed to that term when contained in Section 422A(b) of the Code, and the Association shall be deemed to be the grantor corporation for purposes of applying such meaning. (d) References in this Program to the Code shall be deemed to also refer to the corresponding provisions of any future United States revenue law. (e) The use of the masculine pronoun shall include the feminine gender whenever appropriate. -5- INCENTIVE STOCK OPTION TO: ---------------------------------------------------------------------------- NAME ---------------------------------------------------------------------------- ADDRESS DATE: ---------------------------- You are hereby granted an option, effective as of the date hereof, to purchase shares of Common Stock (par value $1.00 per share) of First Savings and Loan Association of Penns Grove (the "Association") at a price of $ per share pursuant to the Association's Employee Stock Compensation Program (the "Program") adopted by the Association's Board of Directors effective . Your option price is intended to equal at least the fair market value of the Association's Common Stock as of the date hereof. Your option may first be exercised on and after one year from the date of its grant, but not before that time. On and after one year and prior to two years from the date of its grant, your option may be exercised for up to 25% of the total number of shares then subject to the option. On and after two years and prior to three years from the date of its grant, your option may be exercised for up to 50% of the total number of shares then subject to the option minus the number of shares previously purchased by exercise of the option (as adjusted for stock dividends, stock splits, combinations of shares, recapitalizations and what the Compensation Committee deems in its sole discretion to be similar circumstances). On or after three years and prior to four years from the date of its grant, your option may be exercised for up to 75% of the total number of shares then subject to the option minus the number of shares previously purchased by exercise of the option (as adjusted for stock dividends, stock splits, combinations of shares, recapitalizations and what the Compensation Committee deems in its sole discretion to be similar circumstances). On and after four years and prior to ten years from the date of its grant, your option may be exercised for up to 100% of the total number of shares then subject to the option minus the number of shares previously purchased by exercise of the option (as adjusted for stock dividends, stock splits, combinations of shares, recapitalizations and what the Compensation Committee deems in its sole discretion to be similar circumstances). No fractional shares shall be issued or delivered. This option shall terminate and is not exercisable after the expiration of ten years from the date of its grant, except in accordance with the provisions hereof. Appendix I In the event of a "change of control" (as hereinafter defined) of the Association, your option may, from and after the date of the change of control, and notwithstanding the foregoing paragraph, be exercised for up to 100% of the total number of shares then subject to the option minus the number of shares previously purchased upon exercise of the option (as adjusted for stock dividends, stock splits, combinations of shares, recapitalizations and what the Compensation Committee deems in its sole discretion to be similar circumstances). A "change of control" shall be deemed to have occurred upon the happening of any of the following events: (1) A change within a twelve month period in a majority of the members of the Board of Directors of the Association; (2) A change within a twelve month period in the holders of more than 50% of the outstanding voting stock of the Association; or (3) Any other event deemed to constitute a "change in control" by the Compensation Committee. You may exercise your option by giving written notice to the Secretary of the Association on forms supplied by the Association at the Association's then principal executive office, accompanied by payment of the option price for the total number of shares you specify that you wish to purchase. The payment may be in any of the following forms: (i) cash, which may be evidenced by a check; (ii) certificates representing shares of Common Stock of the Association which will be valued by the Secretary of the Association at the mean average between the closing "Bid" and "Asked" prices for the Association's Common Stock quoted in the over-the-counter market on the last previous trading day, accompanied by an assignment of the stock to the Association; or (iii) any combination of cash and shares of the Association's Common Stock valued as provided in clause (ii). Any assignment of stock shall be in a form and substance satisfactory to the Secretary of the Association, including guarantees of signature(s) where he deems such guarantees necessary or desirable. Your option will, to the extent not previously exercised by you, terminate three months after the date on which your employment by the Association or an Association subsidiary corporation is terminated other than by reason of disability as defined in Section 105(d)(4) of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), or death (but in no event later than ten years from the date this option is granted), whether such termination be voluntary or not. After the date your employment is terminated, as aforesaid, you may exercise this option only for the number of shares which you had a right to purchase and did not purchase on the date your employment terminated. If you are employed by an Association subsidiary corporation, your employment shall be deemed to have terminated on the date your employer ceases -2- to be an Association subsidiary corporation, unless you are on that date transferred to the Association or another Association subsidiary corporation. Your employment shall not be deemed to have terminated if you are transferred from the Association to an Association subsidiary corporation, or vice versa, or from one Association subsidiary corporation to another Association subsidiary corporation. If you die while employed by the Association or an Association subsidiary corporation, your executor or administrator may, at any time within one year after the date of your death (but in no event later than ten years from the date this option is granted), exercise the option as to any shares which you had a right to purchase and did not purchase during your lifetime. If your employment by the Association or an Association subsidiary corporation is terminated by reason of your becoming disabled (within the meaning of Section 105(d)(4) of the Code), you or your legal guardian or custodian may at anytime within one year after the date of such termination (but in no event later than ten years from the date this option is granted), exercise the option as to any shares which you had a right to purchase and did not purchase prior to such termination. Your executor, administrator, guardian or custodian must present proof of his authority satisfactory to the Association prior to being allowed to exercise this option. In the event of any change in the outstanding shares of the Association Common Stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Compensation Committee deems in its sole discretion to be similar circumstances, the number and kind of shares subject to this option and the option price for such shares shall be appropriately adjusted in a manner to be determined in the sole discretion of the Compensation Committee. This option is not transferable, except in the event of disability or death as provided above. During your lifetime, this option is exercisable only by you. Until the option price has been paid in full pursuant to due exercise of this option and the purchased shares are delivered to you, you do not have any rights as a stockholder of the Association. The Association reserves the right not to deliver to you the shares purchased by virtue of the exercise of this option during any period of time in which the Association deems, in its sole discretion, that such delivery may not be consummated without violating a federal, state, local or securities exchange rule, regulation or law. Notwithstanding anything to the contrary contained herein, this option is not exercisable until all the following events occur and during the following periods of time: -3- (1) Until the Program pursuant to which this option is granted is approved by the shareholders of the Association in the manner prescribed by the Code and the regulations thereunder; (2) Until this option and the optioned shares are approved and/or registered with such federal, state and local regulatory bodies or agencies and securities exchanges as the Association may deem necessary or desirable; (3) During any period of time in which the Association deems that the exercisability of this option, the offer to sell the shares optioned hereunder, or the sale thereof, may violate a federal, state, local or securities exchange rule, regulation or law, or may cause the Association to be legally obligated to issue or sell more shares than the Association is legally entitled to issue or sell; or (4) During any period of time while there is outstanding (within the meaning of Section 422A(c)(7) of the Code) any incentive stock option which was granted to you, before the granting of this option, to purchase stock in your employer corporation or in a corporation which (at the time of the granting of this option) is a parent or subsidiary corporation of your employer corporation, or a predecessor corporation of any of such corporations. Notwithstanding the above, with respect to incentive stock options granted after December 31, 1986, the preceding sentence shall not apply. The words and terms contained in this subparagraph (4) are intended to have the same meaning as is ascribed by the Code or the regulations thereunder to any identical or equivalent words or terms contained in Section 422A(b) (7) of the Code. The following two paragraphs shall be applicable if, on the date of exercise of this option, the Common Stock to be purchased pursuant to such exercise has not been registered under the Securities Act of 1933, as amended, and under applicable state securities laws, and shall continue to be applicable for so long as such registration has not occurred: A. The optionee hereby agrees, warrants and represents that he will acquire the Common Stock of the Association to be issued hereunder for his own respective account for investment purposes only, and not with a view to, or in connection with, any resale or other distribution of any of such shares, except as hereafter permitted. The optionee further agrees that he will not at any time make any offer, sale, transfer, pledge or other disposition of such Common Stock to be issued hereunder without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel for the Association to the effect that the proposed transaction will be exempt from such registration. The optionee agrees that, as a condition precedent to the Association's obligation to permit -4- the exercise of this option, the optionee shall execute such instruments, representations, acknowledgments and agreements as the Association may, in its sole discretion, deem advisable to avoid any violation of federal, state, local or securities exchange rule, regulation or law. B. The certificates for Common Stock to be issued to the optionee hereunder shall bear the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under applicable state securities laws. The shares have been acquired for investment and may not be offered, sold, transferred, pledged or otherwise disposed of without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel for the Association that the proposed transaction will be exempt from such registration." The foregoing legend shall be removed upon registration of the legended shares under the Securities Act of 1933, as amended, and under any applicable state securities laws or upon receipt of an opinion of counsel for the Association that said registration is no longer required. The sole purpose of the agreements, warranties, representations and legend set forth in the two preceding paragraphs is to prevent violations of the Securities Act of 1933, as amended, and any applicable state securities laws. It is the intention of the Association and you that this option shall (if possible) be an "incentive stock option" as that term is used in Section 422A of the Code and the regulations thereunder. In the event this option is in any way inconsistent with the legal requirements of the Code or the regulations thereunder for an "incentive stock option", this option shall be deemed automatically amended as of the date hereof to conform to such legal requirements, if such conformity may be achieved by amendment. This option shall be subject to the terms of the Program in effect on the date this option is granted, which terms are hereby incorporated herein by reference and made a part hereof. In the event of any conflict between the terms of this option and the terms of the Program in effect on the date of this option, the terms of the Program shall govern. This option constitutes the entire understanding between the Association and you with respect to the subject matter hereof and no amendment, modification or be binding upon waiver -5- of this option, in whole or in part, shall the Association unless in writing and signed by the President of the Association. This option and the performances of the parties hereunder shall be construed in accordance with and governed by the laws of the State of New Jersey. Please sign the copy of this option and return it to Association's Secretary, thereby indicating your understanding of and agreement with its terms and conditions. FIRST SAVINGS AND LOAN ASSOCIATION OF PENNS GROVE By: -------------------------------- I hereby acknowledge receipt of a copy of the foregoing stock option and, having read it hereby signify my understanding of, and my agreement with, its terms and conditions. (SEAL) - ------------------------------------- ------------------------------------ (SIGNATURE) (DATE) -6- NONQUALIFIED STOCK OPTION TO: ---------------------------------------------------------------------------- NAME ---------------------------------------------------------------------------- ADDRESS DATE: ----------------------------- You are hereby granted an option, effective as of the date hereof, to purchase shares of Common Stock (par value $1.00 per share) of First Savings and Loan Association of Penns Grove (the "Association") at a price of $ per share pursuant to the Association's Employee Stock Compensation Program (the "Program") adopted by the Association's Board of Directors effective . Your option price is intended to equal at least the fair market value of the Association's Common Stock as of the date hereof. Your option may first be exercised on and after one year from the date of its grant, but not before that time. On and after one year and prior to two years from the date of its grant, your option may be exercised for up to 25% of the total number of shares then subject to the option. On and after two years and prior to three years from the date of its grant, your option may be exercised for up to 50% of the total number of shares then subject to the option minus the number of shares previously purchased by exercise of the option (as adjusted for stock dividends, stock splits, combinations of shares, recapitalizations and what the Compensation Committee deems in its sole discretion to be similar circumstances). On or after three years and prior to four years from the date of its grant, your option may be exercised for up to 75% of the total number of shares then subject to the option minus the number of shares previously purchased by exercise of the option (as adjusted for stock dividends, stock splits, combinations of shares, recapitalizations and what the Compensation Committee deems in its sole discretion to be similar circumstances). On and after four years and prior to ten years and ten days from the date of its grant, your option may be exercised for up to 100% of the total number of shares then subject to the option minus the number of shares previously purchased by exercise of the option (as adjusted for stock dividends, stock splits, combinations of shares, recapitalizations and what the Compensation Committee deems in its sole discretion to be similar Appendix II circumstances). No fractional shares shall be issued or delivered. This option shall terminate and is not exercisable after the expiration of ten years and ten days from the date of its grant, except in accordance with the provisions hereof. In the event of a "change of control" (as hereinafter defined) of the Association, your option may, from and after the date of the change of control, and notwithstanding the foregoing paragraph, be exercised for up to 100% of the total number of shares then subject to the option minus the number of shares previously purchased upon exercise of the option (as adjusted for stock dividends, stock splits, combinations of shares, recapitalizations and what the Compensation Committee deems in its sole discretion to be similar circumstances). A "change of control" shall be deemed to have occurred upon the happening of any of the following events: (1) A change within a twelve month period in a majority of the members of the Board of Directors of the Association; (2) A change within a twelve month period in the holders of more than 50% of the outstanding voting stock of the Association; or (3) Any other event deemed to constitute a "change in control" by the Compensation Committee. You may exercise your option by giving written notice to the Secretary of the Association on forms supplied by the Association at the Association's then principal executive office, accompanied by payment of the option price for the total number of shares you specify that you wish to purchase. The payment may be in any of the following forms: (i) cash, which may be evidenced by a check; (ii) certificates representing shares of Common Stock of the Association which will be valued by the Secretary of the Association at the mean average between the closing "Bid" and "Asked" prices for the Association's Common Stock quoted in the over-the-counter market on the last previous trading day, accompanied by an assignment of the stock to the Association; or (iii) any combination of cash and shares of the Association's Common Stock valued as provided in clause (ii). Any assignment of stock shall be in a form and substance satisfactory to the Secretary of the Association, including guarantees of signatures) where he deems such guarantees necessary or desirable. Your option will, to the extent not previously exercised by you, terminate three months after the date on which your employment by the Association or an Association subsidiary corporation is terminated other than by reason of disability as defined in Section 105(d)(4) of the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), or death (but in no -2- event later than ten years and ten days from the date this option is granted), whether such termination be voluntary or not. After the date your employment is terminated, as aforesaid, you may exercise this option only for the number of shares which you had a right to purchase and did not purchase on the date your employment terminated. If you are employed by an Association subsidiary corporation, your employment shall be deemed to have terminated on the date your employer ceases to be an Association subsidiary corporation, unless you are on that date transferred to the Association or another Association subsidiary corporation. Your employment shall not be deemed to have terminated if you are transferred from the Association to an Association subsidiary corporation, or vice versa, or from one Association subsidiary corporation to another Association subsidiary corporation. If you die while employed by the Association or an Association subsidiary corporation, your executor or administrator may, at any time within one year after the date of your death (but in no event later than ten years and ten days from the date this option is granted), exercise the option as to any shares which you had a right to purchase and did not purchase during your lifetime. If your employment by the Association or an Association subsidiary corporation is terminated by reason of your becoming disabled (within the meaning of Section 105(d)(4) of the Code), you or your legal guardian or custodian may at anytime within one year after the date of such termination (but in no event later than ten years and ten days from the date this option is granted), exercise the option as to any shares which you had a right to purchase and did not purchase prior to such termination. Your executor, administrator, guardian or custodian must present proof of his authority satisfactory to the Association prior to being allowed to exercise this option. In the event of any change in the outstanding shares of the Association Common Stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Compensation Committee deems in its sole discretion to be similar circumstances, the number and kind of shares subject to this option and the option price for such shares shall be appropriately adjusted in a manner to be determined in the sole discretion of the Compensation Committee. This option is not transferable, except in the event of disability or death as provided above, and except that this option may be transferred to your spouse and lineal descendants. During your lifetime, this option is exercisable only by you or your permitted transferees. Until the option price has been paid in full pursuant to due exercise of this option and the purchased shares are delivered to you, you do not have any rights as a stockholder of the Association. The Association reserves the right not to deliver to you the shares purchased by virtue of the exercise of this option during any period of time in -3- which the Association deems, in its sole discretion, that such delivery may not be consummated without violating a federal, state, local or securities exchange rule, regulation or law. Notwithstanding anything to the contrary contained herein, this option is not exercisable until all the following events occur and during the following periods of time: (1) Until the Program pursuant to which this option is granted is approved by the shareholders of the Association; (2) Until this option and the optioned shares are approved and/or registered with such federal, state and local regulatory bodies or agencies and securities exchanges as the Association may deem necessary or desirable; (3) During any period of time in which the Association deems that the exercisability of this option, the offer to sell the shares optioned hereunder, or the sale thereof, may violate a federal, state, local or securities exchange rule, regulation or law, or may cause the Association to be legally obligated to issue or sell more shares than the Association is legally entitled to issue or sell. The following two paragraphs shall be applicable if, on the date of exercise of this option, the Common Stock to be purchased pursuant to such exercise has not been registered under the Securities Act of 1933, as amended, and under applicable state securities laws, and shall continue to be applicable for so long as such registration has not occurred: A. The optionee hereby agrees, warrants and represents that he will acquire the Common Stock of the Association to be issued hereunder for his own respective account for investment purposes only, and not with a view to, or in connection with, any, resale or other distribution of any of such shares, except as hereafter permitted. The optionee further agrees that he will not at any time make any offer, sale, transfer, pledge or other disposition of such Common Stock to be issued hereunder without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel for the Association to the effect that the proposed transaction will be exempt from such registration. The optionee agrees that, as a condition precedent to the Association's obligation to permit the exercise of this option, the optionee shall execute such instruments, representations, acknowledgments and agreements as the Association may, in its sole discretion, deem advisable to avoid any violation of federal, state, local or securities exchange rule, regulation or law. B. The certificates for Common Stock to be issued to to the optionee hereunder shall bear the following legend: -4- "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under applicable state securities laws. The shares have been acquired for investment and may not be offered, sold, transferred, pledged or otherwise disposed of without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel for the Association that the proposed transaction will be exempt from such registration." The foregoing legend shall be removed upon registration of the legended shares under the Securities Act of 1933, as amended, and under any applicable state securities laws or upon receipt of an opinion of counsel for the Association that said registration is no longer required. The sole purpose of the agreements, warranties, representations and legend set forth in the two preceding paragraphs is to prevent violations of the Securities Act of 1933, as amended, and any applicable state securities laws. It is the intention of the Association and you that this option shall not be an "incentive stock option" as that term is used in Section 422A of the Code and the regulations thereunder. This option shall be subject to the terms of the Program in effect on the date this option is granted, which terms are hereby incorporated herein by reference and made a part hereof. In the event of any conflict between the terms of this option and the terms of the Program in effect on the date of this option, the terms of the Program shall govern. This option constitutes the entire understanding between the Association and you with respect to the subject matter hereof and no amendment, modification or waiver of this option, in whole or in part, shall be binding upon the Association unless in writing and signed by the President of the Association. This option and the performances of the parties hereunder shall be construed in accordance with and governed by the laws of the State of New Jersey. Please sign the copy of this option and return it to the Association's Secretary, thereby indicating your understanding of and agreement with its terms and conditions. FIRST SAVINGS AND LOAN ASSOCIATION OF PENNS GROVE By: ---------------------------- -5- I hereby acknowledge receipt of a copy of the foregoing stock option and, having read it hereby signify my understanding of, and my agreement with, its terms and conditions. (SEAL) - ------------------------------------- ----------------------------------- (SIGNATURE) (DATE) -6- EX-10.2 5 1996 EMPLOYEE STOCK OPTION PLAN FIRST HOME BANCORP, INC. 1996 EMPLOYEE STOCK OPTION PLAN 1. Purpose of Plan The purpose of the 1996 Employee Stock Option Plan (the "Plan") is to provide additional incentive to officers and other key employees of First Home Bancorp, Inc. ("Bank") and each present or future parent or subsidiary corporation by encouraging them to invest in shares of common stock, par value $1.00 per share ("Common Stock"), of Bank and thereby acquire a proprietary interest in Bank and an increased personal interest in Bank's continued success and progress, to the mutual benefit of officers, employees and shareholders. 2. Aggregate Number of Shares 250,000 shares of Bank Common Stock shall be the aggregate number of shares which may be issued under this Plan. Notwithstanding the foregoing, in the event of any change in the outstanding shares of the Common Stock of Bank by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Executive Compensation Committee (defined in Section 4(a)), deems in its sole discretion to be similar circumstances, the aggregate number and kind of shares which may be issued under this Plan shall be appropriately adjusted in a manner determined in the sole discretion of the Executive Compensation Committee. Reacquired shares of Bank Common Stock, as well as unissued shares, may be used for the purpose of this Plan. Shares of Bank Common Stock subject to options which have terminated unexercised, either in whole or in part, shall be available for future options granted under this Plan. 3. Class of Persons Eligible to Receive Options All officers and key employees of Bank and of any present or future Bank parent or subsidiary corporation are eligible to receive an option or options under this Plan. The individuals who shall, in fact, receive an option or options shall be selected by the Executive Compensation Committee, in its sole discretion, except as otherwise specified in Section 4 hereof. During the term of this Plan, no optionee under this Plan shall be entitled to be granted options to purchase shares of the Company's Common Stock in excess of the 150,000 shares (as adjustable pursuant to Section 2). 4. Administration of Plan (a) This Plan shall be administered by the Option Committee ("Committee") appointed by Bank's Board of Directors. The Committee shall consist of a minimum of two members of the Board of Directors, each of whom shall be a "disinterested person" within the meaning of Rule 16b-3(c)(2)(i) under the Securities Exchange Act of 1934, as amended, of the Securities and Exchange Commission (the "SEC") or any future corresponding rule. The Committee, in addition to its other authority and subject to the provisions of this Plan, shall determine which individuals shall be granted an option or options, whether the option shall be an Incentive Stock Option or a Non-Qualified Stock Option (as such terms are defined in Section 5(a)), the number of shares to be subject to each of the options, the time or times at which the options shall be granted, the rate of option exercisability, and, subject to Section 5 hereof, the price at which each of the options is exercisable and the duration of the option. (b) The Committee shall adopt such rules for the conduct of its business and administration of this Plan as it considers desirable. A majority of the members of the Committee shall constitute a quorum for all purposes. The vote or written consent of a majority of the members of the Committee on a particular matter shall constitute the act of the Committee on such matter. The Committee shall have the right to construe the Plan and the options issued pursuant to it, to correct defects and omissions and to reconcile inconsistencies to the extent necessary to effectuate the Plan and the options issued pursuant to it, and such action shall be final, binding and conclusive upon all parties concerned. No member of the Committee or the Board of Directors shall be liable for any act or omission (whether or not negligent) taken or omitted in good faith, or for the exercise of any authority or discretion granted in connection with the Plan to the Committee or the Board of Directors, or for the acts or omissions of any other members of the Committee or the Board of Directors. Subject to the numerical limitations on Committee membership set forth in Section 4(a) hereof, the Board of Directors may at any time appoint additional members of the Committee and may at any time remove any member of the Committee with or without cause. Vacancies in the Committee, however caused, may be filled by the Board of Directors, if it so desires. 5. Incentive Stock Options and Non-Qualified Stock Options (a) Options issued pursuant to this Plan may be either Incentive Stock Options granted pursuant to Section 5(b) hereof or Non-Qualified Stock Options granted pursuant to Section 5(c) hereof, as determined by the Committee. An "Incentive Stock Option" is an option which satisfies all of the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations thereunder, and a "Non-Qualified Stock Option" is an option which either does not satisfy all of those requirements or the terms of the option provide that it will not be treated as an Incentive Stock Option. The Committee may grant both an Incentive Stock Option and a Non-Qualified Stock Option to the same person, or more than one of each type of option to the same person. The option price for Incentive Stock Options issued under this Plan shall be equal at least to the fair market value (as defined below) of Bank's Common Stock on the date of the grant of the option as determined by the Committee in accordance with its interpretation of the requirements of Section 422 of the Code and the regulations thereunder. The option price for Non-Qualified Stock Options issued under this Plan may, in the sole discretion of the Committee, be less than the fair market value of the Common Stock on the date of the grant of the option. If an Incentive Stock Option is granted to an individual who, at the time the option is granted, owns stock possessing more than 10 percent of the total combined voting power of all shares of stock of Bank or any parent or subsidiary corporation of Bank (a "10% Shareholder"), the option price shall not be less than 110 percent of the fair market value of Bank's Common Stock on the date of grant of the option. The fair market value of Bank's Common Stock on any particular date shall mean the last reported sale price of a share of Bank's Common Stock on any stock exchange on which such stock is then listed or admitted to trading, or on the NASDAQ National Market System or Small Cap NASDAQ, on such date, or if no sale took place on such day, the last such date on which a sale took place, or if the Common Stock is not then quoted on the NASDAQ National Market System or Small Cap NASDAQ, or listed or admitted to trading on any stock exchange, the average of the bid and asked prices in the over-the-counter market on such date, or if none of the foregoing, a price determined by the Committee. (b) Subject to the authority of the Committee set forth in Section 4(a) hereof, Incentive Stock Options issued pursuant to this Plan shall be issued substantially in the form set forth in Appendix I hereof, which form is hereby incorporated by reference and made a part hereof, and shall contain substantially the terms and conditions set forth therein. Incentive Stock Options shall not be exercisable after the expiration of ten years 2 (five years in the case of 10% Shareholders) from the date such options are granted, unless terminated earlier under the terms of the option. At the time of the grant of an Incentive Stock Option hereunder, the Committee may, in its discretion, modify or amend any of the option terms contained in Appendix I for any particular optionee, provided that the option as modified or amended satisfies the requirements of Section 422 of the Code and the regulations thereunder. Each of the options granted pursuant to this Section 5(b) is intended, if possible, to be an "Incentive Stock Option" as that term is defined in Section 422 of the Code and the regulations thereunder. In the event this Plan or any option granted pursuant to this Section 5(b) is in any way inconsistent with the applicable legal requirements of the Code or the regulations thereunder for an Incentive Stock Option, this Plan and such option shall be deemed automatically amended as of the date hereof to conform to such legal requirements, if such conformity may be achieved by amendment. (c) Subject to the authority of the Committee set forth in Section 4(a) hereof, Non-Qualified Stock Options issued pursuant to this Plan shall be issued substantially in the form set forth in Appendix II hereof, which form is hereby incorporated by reference and made a part hereof, and shall contain substantially the terms and conditions set forth therein. Non-Qualified Stock Options shall expire ten years and 30 days after the date they are granted, unless terminated earlier under the option terms. At the time of granting a Non-Qualified Stock Option hereunder, the Committee may, in its discretion, modify or amend any of the option terms contained in Appendix II for any particular optionee. (d) Neither Bank nor any of its current or future parent, subsidiaries or affiliates, nor their officers, directors, shareholders, stock option plan committees, employees or agents shall have any liability to any optionee in the event: (i) an option granted pursuant to Section 5(b) hereof does not qualify as an "Incentive Stock Option" as that term is used in Section 422 of the Code and the regulations thereunder; (ii) any optionee does not obtain the tax treatment pertaining to an Incentive Stock Option; or (iii) any option granted pursuant to Section 5(c) hereof is an "Incentive Stock Option." 6. Amendment, Supplement Suspension and Termination Options shall not be granted pursuant to this Plan after the expiration of ten years from the date the Plan is adopted by the Board of Directors of Bank. The Board of Directors reserves the right at any time, and from time to time, to amend or supplement this Plan in any way, or to suspend or terminate it, effective as of such date, which date may be either before or after the taking of such action, as may be specified by the Board of Directors; provided, however, that such action shall not affect options granted under the Plan prior to the actual date on which such action occurred. If an amendment or supplement of this Plan is required by the Code or the regulations thereunder to be approved by the shareholders of Bank in order to permit the granting of "Incentive Stock Options" (as that term is defined in Section 422 of the Code and regulations thereunder) pursuant to the amended or supplemental Plan, such amendment or supplement shall also be approved by the shareholders of Bank in such manner as is prescribed by the Code and the regulations thereunder. If the Board of Directors voluntarily submits a proposed amendment, supplement, suspension or termination for shareholder approval, such submission shall not require any future amendments, supplements, suspensions or terminations (whether or not relating to the same provision or subject matter) to be similarly submitted for shareholder approval. 7. Effectiveness of Plan This Plan shall become effective on the date of its adoption by Bank's Board of Directors, subject however to approval by the holders of Bank Common Stock in the manner as prescribed in the Code and the regulations thereunder. Options may be granted under this Plan prior to obtaining shareholder approval, provided such options shall not be exercisable before such shareholder approval is obtained. 3 8. General Conditions (a) Nothing contained in this Plan or any option granted pursuant to this Plan shall confer upon any employee the right to continue in the employ of Bank or any present or future parent, affiliated or subsidiary corporation or interfere in any way with the rights of Bank or any present or future parent, affiliated or subsidiary corporation to terminate his employment in any way. (b) Corporate action constituting an offer of stock for sale to any employee under the terms of the options to be granted hereunder shall be deemed complete as of the date when the Committee authorizes the grant of the option to the employee, regardless of when the option is actually delivered to the employee or acknowledged or agreed to by him. (c) The terms "parent corporation" and "subsidiary corporation" as used throughout this Plan, and the options granted pursuant to this Plan, shall (except as otherwise provided in the option form) have the respective meanings ascribed to such terms when contained in Section 422(b) of the Code and the regulations thereunder, and Bank shall be deemed to be the grantor corporation for purposes of applying such meanings. (d) References in this Plan to the Code shall be deemed to also refer to the corresponding provisions of any future United States revenue law. (e) The use of the masculine pronoun shall include the feminine gender whenever appropriate. 4 APPENDIX I INCENTIVE STOCK OPTION To: Name Address Date of Grant: You are hereby granted an option, effective as of the date hereof, to purchase ______ shares of Common Stock, par value $1.00 per share, ("Common Stock") of FIRST HOME BANCORP, INC. ("Bank") at a price of _____ per share pursuant to the First Home Bancorp, Inc. 1996 Employee Stock Option Plan (the "Plan") adopted by the Bank Board of Directors effective February 21, 1996. Your option price is intended to equal at least the fair market value of Bank Common Stock as of the date hereof; provided, however, that if, at the time this option is granted, you own stock possessing more than 10% of the total combined voting power of all shares of stock of Bank or any parent or subsidiary corporation of Bank (a "10% Shareholder"), your option price is intended to be at least 110% of the fair market value of Bank Common Stock as of the date hereof. Your option may first be exercised on and after three years after the date of grant of this option. On and after three years and prior to ten years from the date of its grant, your option may be exercised for up to 100% of the total number of shares then subject to the option minus the number of shares previously purchased by exercise of the option (as adjusted for any changes in the outstanding Bank Common Stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Option Committee deems in its sole discretion to be similar circumstances). No fractional shares shall be issued or delivered. This option shall terminate and is not exercisable after the expiration of ten years from the date of its grant (five years from the date of grant if, at the time of the grant, you are a 10% Shareholder) (the "Scheduled Termination Date"), except as hereafter provided. In the event of a "change of control" (as hereafter defined) of Bank, your option may, from and after the date of the change of control, and notwithstanding the second paragraph of this option, be exercised for up to 100% of the total number of shares then subject to the option minus the number of shares previously purchased upon exercise of the option (as adjusted for any changes in the outstanding Bank Common Stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Option Committee deems in its sole discretion to be similar circumstances). A "change of control" shall be deemed to have occurred upon the happening of any of the following events: 5 1. A change within a twelve-month period in a majority of the members of the board of directors of Bank; 2. A change within a twelve-month period in the holders of more than 50% of the outstanding voting stock of Bank; or 3. Any other event deemed to constitute a "change in control" by the Board of Directors. You may exercise your option by giving written notice to the Secretary of Bank on forms supplied by Bank at its then principal executive office, accompanied by payment of the option price for the total number of shares you specify that you wish to purchase. The payment may be in any of the following forms: (a) cash, which may be evidenced by a check; (b) (unless prohibited by the Compensation Committee) certificates representing shares of Common Stock of Bank, which will be valued by the Secretary of Bank at the fair market value per share of Bank Common Stock (as determined in accordance with the Plan) on the last trading day immediately preceding the date of delivery of such certificates to Bank, accompanied by an assignment of the stock to Bank; or (c) (unless prohibited by the Compensation Committee) any combination of cash and Common Stock of Bank valued as provided in clause (b). Any assignment of stock shall be in a form and substance satisfactory to the Secretary of Bank, including guarantees of signature(s) and payment of all transfer taxes if the Secretary deems such guarantees necessary or desirable or determines that such taxes are due and payable. Your option will, to the extent not previously exercised by you, terminate three months after the date on which your employment by Bank or an Bank parent or subsidiary corporation is terminated, whether such termination is voluntary or not, other than by reason of disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder, or death, in which case your option will terminate one year from the date of termination of employment due to disability or death (but in no event later than the Scheduled Termination Date). Notwithstanding the foregoing, if your employment by the Bank or a Bank parent or subsidiary corporation is terminated as a result of your retirement at or after age 62 and you have been employed for at least ten years, your option will, to the extent not previously exercised by you, terminate the earlier of (i) five years after termination of your employment, or (i) the Scheduled Termination Date. After the date your employment is terminated, as aforesaid, you may exercise this option only for the number of shares which you had a right to purchase and did not purchase on the date your employment terminated; provided, however, if your employment terminates by reason of your death or disability, you may exercise the option for all shares then subject to the option whether or not such shares are fully exercisable. If you are employed by an Bank subsidiary corporation, your employment shall be deemed to have terminated on the date your employer ceases to be an Bank subsidiary corporation, unless you are on that date transferred to Bank or another Bank subsidiary corporation. Your employment shall not be deemed to have terminated if you are transferred from Bank to an Bank subsidiary corporation, or vice versa, or from one Bank subsidiary corporation to another Bank subsidiary corporation. Anything in this option to the contrary notwithstanding, your option will terminate immediately if your employment is terminated for cause (as determined by Bank in its sole and absolute discretion). Your employment shall be deemed to have been terminated for cause if you are terminated due to, among other reasons, (i) your willful misconduct or gross negligence, (ii) your material breach of any agreement with Bank or (iii) your failure to render satisfactory services to Bank. If you die while employed by Bank or an Bank parent or subsidiary corporation, your legatee(s), distributee(s), executor(s) or administrator(s), as the case may be, may, at any time within one year after the date of your death (but in no event later than the Scheduled Termination Date), exercise the option as to any shares 6 which you had a right to purchase and did not purchase during your lifetime. If your employment with Bank or an Bank parent or subsidiary corporation is terminated by reason of your becoming disabled (within the meaning of Section 22(e)(3) of the Code and the regulations thereunder), you or your legal guardian or custodian may at any time within one year after the date of such termination (but in no event later than the Scheduled Termination Date), exercise the option as to any shares which you had a right to purchase and did not purchase prior to such termination. Your legatee, distributee, executor, administrator, guardian or custodian must present proof of his authority satisfactory to Bank prior to being allowed to exercise this option. In the event of any change in the outstanding shares of the Common Stock of Bank by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Option Committee deems in its sole discretion to be similar circumstances, the number and kind of shares subject to this option and the option price of such shares shall be appropriately adjusted in a manner to be determined in the sole discretion of the Option Committee. This option is not transferable otherwise than by will or the laws of descent and distribution, and is exercisable during your lifetime only by you, including, for this purpose, your legal guardian or custodian in the event of disability. Until the option price has been paid in full pursuant to due exercise of this option and the purchased shares are delivered to you, you do not have any rights as a shareholder of Bank. Bank reserves the right not to deliver to you the shares purchased by virtue of the exercise of this option during any period of time in which Bank deems, in its sole discretion, that such delivery would violate a federal, state, local or securities exchange rule, regulation or law. Notwithstanding anything to the contrary contained herein, this option is not exercisable until all the following events occur and during the following periods of time: (a) Until the Plan pursuant to which this option is granted is approved by the shareholders of Bank in the manner prescribed by the Code and the regulations thereunder; (b) Until this option and the optioned shares are approved and/or registered with such federal, state and local regulatory bodies or agencies and securities exchanges as Bank may deem necessary or desirable; or (c) During any period of time in which Bank deems that the exercisability of this option, the offer to sell the shares optioned hereunder, or the sale thereof, may violate a federal, state, local or securities exchange rule, regulation or law, or may cause Bank to be legally obligated to issue or sell more shares than Bank is legally entitled to issue or sell. The following two paragraphs shall be applicable if, on the date of exercise of this option, the Common Stock to be purchased pursuant to such exercise has not been registered under the Securities Act of 1933, as amended, and under applicable state securities laws, and shall continue to be applicable for so long as such registration has not occurred: (a) The optionee hereby agrees, warrants and represents that he will acquire the Common Stock to be issued hereunder for his own account for investment purposes only, and not with a view to, or in connection with, any resale or other distribution of any of such shares, except as hereafter permitted. The optionee further agrees that he will not at any time make any offer, sale, transfer, pledge or other disposition of such Common Stock to be issued hereunder without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to Bank 7 to the effect that the proposed transaction will be exempt from such registration. The optionee shall execute such instruments, representations, acknowledgments and agreements as Bank may, in its sole discretion, deem advisable to avoid any violation of federal, state, local or securities exchange rule, regulation or law. (b) The certificates for Common Stock to be issued to the optionee hereunder shall bear the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under applicable state securities laws. The shares have been acquired for investment and may not be offered, sold, transferred, pledged or otherwise disposed of without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to Bank that the proposed transaction will be exempt from such registration." The foregoing legend shall be removed upon registration of the legended shares under the Securities Act of 1933, as amended, and under any applicable state laws or upon receipt of any opinion of counsel acceptable to Bank that said registration is no longer required. The sole purpose of the agreements, warranties, representations and legend set forth in the two immediately preceding paragraphs is to prevent violations of the Securities Act of 1933, as amended, and any applicable state securities laws. It is the intention of Bank and you that this option shall, if possible, be an "Incentive Stock Option" as that term is used in Section 422 of the Code and the regulations thereunder. In the event this option is in any way inconsistent with the legal requirements of the Code or the regulations thereunder for an "Incentive Stock Option," this option shall be deemed automatically amended as of the date hereof to conform to such legal requirements, if such conformity may be achieved by amendment. This option shall be subject to the terms of the Plan in effect on the date this option is granted, which terms are hereby incorporated herein by reference and made a part hereof. In the event of any conflict between the terms of this option and the terms of the Plan in effect on the date of this option, the terms of the Plan shall govern. This option constitutes the entire understanding between Bank and you with respect to the subject matter hereof and no amendment, modification or waiver of this option, in whole or in part, shall be binding upon Bank unless in writing and signed by the President of Bank. This option and the performances of the parties hereunder shall be construed in accordance with and governed by the laws of the State of New Jersey. Please sign the copy of this option and return it to Bank's Secretary, thereby indicating your understanding of and agreement with its terms and conditions. FIRST HOME BANCORP, INC. By: 8 I hereby acknowledge receipt of a copy of the foregoing stock option and, having read it, hereby signify my understanding of, and my agreement with, its terms and conditions. (Signature) (Date) 9 APPENDIX II NON-QUALIFIED STOCK OPTION To: Name Address Date of Grant: You are hereby granted an option, effective as of the date hereof, to purchase ______ shares of Common Stock, par value $1.00 per share ("Common Stock"), of FIRST HOME BANCORP, INC. ("Bank") at a price of _____ per share pursuant to the Bank 1994 Employee Stock Option Plan (the "Plan") adopted by the Bank Board of Directors effective February 21, 1996. Your option may first be exercised on and after three years after the date of grant of this option. On and after three years and prior to ten years from the date of its grant, your option may be exercised for up to 100% of the total number of shares then subject to the option minus the number of shares previously purchased by exercise of the option (as adjusted for any changes in the outstanding Bank Common Stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Option Committee deems in its sole discretion to be similar circumstances). No fractional shares shall be issued or delivered. This option shall terminate and is not exercisable after the expiration of ten years from the date of its grant (the "Scheduled Termination Date"), except as hereafter provided. In the event of a "change of control" (as hereafter defined) of Bank, your option may, from and after the date of the change of control, and notwithstanding the second paragraph of this option, be exercised for up to 100% of the total number of shares then subject to the option minus the number of shares previously purchased upon exercise of the option (as adjusted for any changes in the outstanding Bank Common Stock by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Option Committee deems in its sole discretion to be similar circumstances). A "change of control" shall be deemed to have occurred upon the happening of any of the following events: 1. A change within a twelve-month period in a majority of the members of the board of directors of Bank; 2. A change within a twelve-month period in the holders of more than 50% of the outstanding voting stock of Bank; or 3. Any other event deemed to constitute a "change in control" by the Board of Directors. 10 You may exercise your option by giving written notice to the Secretary of Bank on forms supplied by Bank at its then principal executive office, accompanied by payment of the option price for the total number of shares you specify that you wish to purchase. The payment may be in any of the following forms: (a) cash, which may be evidenced by a check; (b) (unless prohibited by the Compensation Committee) certificates representing shares of Common Stock of Bank, which will be valued by the Secretary of Bank at the fair market value per share of Bank's Common Stock (as determined in accordance with the Plan) on the last trading day immediately preceding the date of delivery of such certificates to Bank, accompanied by an assignment of the stock to Bank; or (c) unless prohibited by the Compensation Committee) any combination of cash and Common Stock of Bank valued as provided in clause (b). Any assignment of stock shall be in a form and substance satisfactory to the Secretary of Bank, including guarantees of signature(s) and payment of all transfer taxes if the Secretary deems such guarantees necessary or desirable or determines that such taxes are due and payable. Your option will, to the extent not previously exercised by you, terminate three months after the date on which your employment by Bank or an Bank parent or subsidiary corporation is terminated, whether such termination is voluntary or not, other than by reason of disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder, or death, in which case your option will terminate one year from the date of termination of employment due to disability or death (but in no event later than the Scheduled Termination Date). Notwithstanding the foregoing, if your employment by the Bank or a Bank parent or subsidiary corporation is terminated as a result of your retirement at or after age 62 and you have been employed for at least ten years, your option will, to the extent not previously exercised by you, terminate the earlier of (i) five years after termination of your employment, or (i) the Scheduled Termination Date. After the date your employment is terminated, as aforesaid, you may exercise this option only for the number of shares which you had a right to purchase and did not purchase on the date your employment terminated; provided, however, if your employment terminates by reason of your death or disability, you may exercise the option for all shares then subject to the option whether or not such shares are fully exercisable. If you are employed by an Bank subsidiary corporation, your employment shall be deemed to have terminated on the date your employer ceases to be an Bank subsidiary corporation, unless you are on that date transferred to Bank or another Bank subsidiary corporation. Your employment shall not be deemed to have terminated if you are transferred from Bank to an Bank subsidiary corporation, or vice versa, or from one Bank subsidiary corporation to another Bank subsidiary corporation. Anything in this option to the contrary notwithstanding, your option will terminate immediately if your employment is terminated for cause (as determined by Bank in its sole and absolute discretion). Your employment shall be deemed to have been terminated for cause if you are terminated due to, among other reasons, (i) your willful misconduct or gross negligence, (ii) your material breach of any agreement with Bank or (iii) your failure to render satisfactory services to Bank. If you die while employed by Bank or an Bank parent or subsidiary corporation, your legatee(s), distributee(s), executor(s) or administrator(s), as the case may be, may, at any time within one year after the date of your death (but in no event later than the Scheduled Termination Date), exercise the option as to any shares which you had a right to purchase and did not purchase during your lifetime. If your employment with Bank or an Bank parent or subsidiary corporation is terminated by reason of your becoming disabled (within the meaning of Section 22(e)(3) of the Code and the regulations thereunder), you or your legal guardian or custodian may at any time within one year after the date of such termination (but in no event later than the Scheduled Termination Date), exercise the option as to any shares which you had a right to purchase and did not purchase prior to such termination. Your legatee, distributee, executor, administrator, guardian or custodian must present proof of his authority satisfactory to Bank prior to being allowed to exercise this option. 11 In the event of any change in the outstanding shares of the Common Stock of Bank by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Option Committee deems in its sole discretion to be similar circumstances, the number and kind of shares subject to this option and the option price of such shares shall be appropriately adjusted in a manner to be determined in the sole discretion of the Option Committee. This option is not transferable otherwise than by will or the laws of descent and distribution, and is exercisable during your lifetime only by you, including, for this purpose, your legal guardian or custodian in the event of disability. Until the option price has been paid in full pursuant to due exercise of this option and the purchased shares are delivered to you, you do not have any rights as a shareholder of Bank. Bank reserves the right not to deliver to you the shares purchased by virtue of the exercise of this option during any period of time in which Bank deems, in its sole discretion, that such would violate a federal, state, local or securities exchange rule, regulation or law. Notwithstanding anything to the contrary contained herein, this option is not exercisable until all the following events occur and during the following periods of time: (a) Until the Plan pursuant to which this option is granted is approved by the shareholders of Bank in the manner prescribed by the Code and the regulations thereunder; (b) Until this option and the optioned shares are approved and/or registered with such federal, state and local regulatory bodies or agencies and securities exchanges as Bank may deem necessary or desirable; or (c) During any period of time in which Bank deems that the exercisability of this option, the offer to sell the shares optioned hereunder, or the sale thereof, may violate a federal, state, local or securities exchange rule, regulation or law, or may cause Bank to be legally obligated to issue or sell more shares than Bank is legally entitled to issue or sell. The following two paragraphs shall be applicable if, on the date of exercise of this option, the Common Stock to be purchased pursuant to such exercise has not been registered under the Securities Act of 1933, as amended, and under applicable state securities laws, and shall continue to be applicable for so long as such registration has not occurred: (a) The optionee hereby agrees, warrants and represents that he will acquire the Common Stock to be issued hereunder for his own account for investment purposes only, and not with a view to, or in connection with, any resale or other distribution of any of such shares, except as hereafter permitted. The optionee further agrees that he will not at any time make any offer, sale, transfer, pledge or other disposition of such Common Stock to be issued hereunder without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to Bank to the effect that the proposed transaction will be exempt from such registration. The optionee shall execute such instruments, representations, acknowledgments and agreements as Bank may, in its sole discretion, deem advisable to avoid any violation of federal, state, local or securities exchange rule, regulation or law. (b) The certificates for Common Stock to be issued to the optionee hereunder shall bear the following legend: 12 "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, or under applicable state securities laws. The shares have been acquired for investment and may not be offered, sold, transferred, pledged or otherwise disposed of without an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws or an opinion of counsel acceptable to Bank that the proposed transaction will be exempt from such registration." The foregoing legend shall be removed upon registration of the legended shares under the Securities Act of 1933, as amended, and under any applicable state laws or upon receipt of any opinion of counsel acceptable to Bank that said registration is no longer required. The sole purpose of the agreements, warranties, representations and legend set forth in the two immediately preceding paragraphs is to prevent violations of the Securities Act of 1933, as amended, and any applicable state securities laws. It is the intention of Bank and you that this option shall not be an "Incentive Stock Option" as that term is used in Section 422 of the Code and the regulations thereunder. This option shall be subject to the terms of the Plan in effect on the date this option is granted, which terms are hereby incorporated herein by reference and made a part hereof. In the event of any conflict between the terms of this option and the terms of the Plan in effect on the date of this option, the terms of the Plan shall govern. This option constitutes the entire understanding between Bank and you with respect to the subject matter hereof and no amendment, modification or waiver of this option, in whole or in part, shall be binding upon Bank unless in writing and signed by the President of Bank. This option and the performances of the parties hereunder shall be construed in accordance with and governed by the laws of the State of New Jersey. Please sign the copy of this option and return it to Bank's Secretary, thereby indicating your understanding of and agreement with its terms and conditions. FIRST HOME BANCORP, INC. By: I hereby acknowledge receipt of a copy of the foregoing stock option and, having read it, hereby signify my understanding of, and my agreement with, its terms and conditions. (Signature) (Date) 13 EX-10.3 6 1994 STOCK OPTION PLAN FIRST HOME BANCORP, INC. 1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. Purpose of Plan: The purpose of the 1994 Stock Option Plan for Non-Employee Directors (the "Plan") contained herein is to enhance the ability of First Home Bancorp, Inc. (the "Bancorp") and its current and future subsidiaries (collectively the "Companies") to attract, retain and motivate members of their respective Board of Directors and to provide additional incentive to members of their respective Boards of Directors by encouraging them to invest in shares of the Bancorp's common stock and thereby acquire a proprietary interest in the Bancorp and an increased personal interest in the Bancorp's continued success and progress, to the mutual benefit of directors, employees and shareholders. 2. Aggregate Number of Shares: 70,000 shares of the Bancorp's common stock, no par value per share ("Common Stock"), shall be the aggregate number of shares which may be issued under this Plan. Notwithstanding the foregoing, in the event of any change in the capitalization of the Bancorp, such as by stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Board of Directors of the Bancorp deems, in its sole discretion, to be similar circumstances, the aggregate number and kind of shares which may be issued under this Plan, as well as the number and kind of shares which may be purchased pursuant to any option granted pursuant to paragraph 3 hereof, shall be adjusted in a manner determined in the sole discretion of the Board of Directors of the Bancorp. Reacquired shares of the Bancorp's Common Stock, as well as unissued shares, may be used for the purpose of this Plan. Common Stock of the Bancorp subject to options which have terminated unexercised, either in whole or in part, shall be available for future options granted under this Plan. 3. Participation: Each person who is not an employee of the Bancorp or any Bancorp subsidiary corporation at any annual or special meeting of shareholders of the Bancorp or any Bancorp subsidiary corporation at which directors are elected who will continue as a director after the date of such meeting or who is elected or reelected a director of the Bancorp or any Bancorp subsidiary corporation at such meeting of shareholders of the Bancorp or any Bancorp subsidiary corporation, as of the date of each such annual or special meeting of shareholders, shall automatically be granted an option to purchase 1,000 shares of the Bancorp's Common Stock; provided, however, that (i) no non-employee director of the Bancorp or any Bancorp subsidiary corporation shall receive an option or options to purchase more than 1,000 shares of Common Stock in any calendar year regardless of the number of Boards of Directors of the Companies on which he serves as a director or to which he is elected or reelected, and (ii) the maximum number of shares as to which options may be granted to any non-employee director under this Plan shall be 10,000 shares. The continuation as a director after, or the election or reelection as a director at, an annual or special meeting of shareholders shall constitute the grant of the option to each non-employee director, and the date of such annual or special meeting of shareholders shall be the date of the grant of the option. -1- 4. Administration of Plan: This Plan shall be administered by the Board of Directors of the Bancorp. The Board of Directors of the Bancorp shall adopt such rules for the conduct of its business and administration of this Plan as it considers desirable. A majority of the members of the Board of Directors of the Bancorp shall constitute a quorum for all purposes. The vote or written consent of a majority of the members of the Board of Directors of the Bancorp on a particular matter shall constitute the act of the Board of Directors of the Bancorp on such matter. The Board of Directors of the Bancorp shall have the exclusive right to construe the Plan and the options issued pursuant to it, to correct defects and omissions and to reconcile inconsistencies to the extent necessary to effectuate the purpose of this Plan and the options issued pursuant to it, and such action shall be final, binding and conclusive upon all parties concerned. No member of the Board of Directors of the Bancorp shall be liable for any act or omission (whether or not negligent) taken or omitted in good faith, or for the exercise of any authority or discretion granted in connection with the Plan to the Board of Directors, or for the acts or omissions of any other members of the Board of Directors. 5. Non-Qualified Stock Options, Option Price and Term: (a) Options issued pursuant to this Plan shall be non-qualified stock options. A non-qualified stock option is an option which does not satisfy the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The option price for the non-qualified stock options issued under this Plan shall be equal to the fair market value of the Bancorp's Common Stock on the date of the grant of the option. (b) The "fair market value" of the Bancorp's Common Stock on the date of the grant of the option shall mean the last reported sale price of a share of the Bancorp's Common Stock on the NASDAQ National Market System, as reported by NASDAQ, or on any stock exchange on which such stock is then listed or admitted to trading, on such date, or if no sale took place on such day, the last such date on which a sale took place, or if the Common Stock is not then quoted on the NASDAQ National Market System or listed or admitted to trading on any stock exchange, the average of the high bid and asked prices in the over-the-counter market on such date, as reported by the National Quotation Bureau, or if there are no bid and asked prices available on such date, the average of the high bid and asked prices available on the closest preceding date to such date, or if no bid and asked prices are available for the ninety trading days preceding such date then a price determined by the Board of Directors on the basis of such information as it considers best reflects market value. (c) Options issued pursuant to this Plan shall be issued substantially in the form set forth in Appendix I hereof and shall contain substantially the terms and conditions set forth therein. Options shall expire ten years after the date they are granted, unless terminated earlier as provided herein. 6. Modification, Amendment, Suspension and Termination: Options shall not be granted pursuant to this Plan after the expiration of ten years from and after the date this Plan is approved by the shareholders of the Bancorp. The Board of Directors of the Bancorp reserves the right at any time, and from time to time, to modify or amend this Plan in any way, or to suspend or terminate it, effective as of such date, which date may be either before or after the taking of such action, as may be specified by the Board of Directors of the Bancorp; provided, however, that such action shall not affect options granted under the Plan prior to the actual date on which such action -2- occurred. Notwithstanding the foregoing, the Plan provisions specified in Rule 16(b) - 3(c)(2)(ii)A under the Securities Exchange Act of 1934, as amended, or any future corresponding rule may not be modified or amended more than once over six months, except as permitted by Rule 16(b) - 3(c)(2)(ii)B. If the Board of Directors voluntarily submits a proposed modification, amendment, suspension or termination for shareholder approval, such submission shall not require any future modifications, amendments (whether or not relating to the same provision or subject matter), suspensions or terminations to be similarly submitted for shareholder approval. 7. Effectiveness of Plan: The Plan shall become effective on the date of its adoption by First Home Savings Bank, F.S.B.'s Board of Directors, subject however to approval by the holders of the First Home Savings Bank, F.S.B.'s Common Stock in the manner described in Rule 16 (b) - 3(b) under the Securities Exchange Act of 1934, as amended, or any future corresponding rule. 8. General Conditions: (a) Nothing contained in this Plan or any option granted pursuant to this Plan shall confer upon any director the right to continue as a director of any of the Companies or interfere in any way with the rights of the Companies to terminate him as a director. (b) Corporate action constituting an offer of stock for sale to any director under the terms of the options to be granted hereunder shall be deemed complete as of the date of the annual or special meeting of shareholders at which directors of the Bancorp or Bank subsidiary corporation are elected or reelected regardless of when the option is actually delivered to the director or acknowledged or agreed to by him. (c) The term "subsidiary corporation" as used throughout this Plan shall mean a corporation in which the Bancorp owns, directly or indirectly, shares of stock representing fifty percent or more of the outstanding voting power of all classes of stock of such corporation at the time of the granting of an option under this Plan. (d) The use of the masculine pronoun shall include the feminine gender whenever appropriate. -3- APPENDIX I NON-QUALIFIED STOCK OPTION To: Name Address Date of Grant: You are hereby granted an option, effective as of the date hereof, to purchase _____ shares of common stock, no par value per share ("Common Stock"), of First Home Bancorp, Inc. (the "Bancorp") at a price of $ per share pursuant to the Bancorp's 1994 Stock Option Plan for Non-Employee Directors (the "Plan"). Your option may first be exercised on and after the earlier to occur of (i) three years from the date of its grant or (ii) a "change in control" of the Bancorp, as hereinafter defined, but not before that time. On and after the earlier to occur of (i) three years from the date your option is granted or (ii) a "change in control" of the Bancorp, and prior to ten years from the date of its grant, your option may be exercised in whole, or from time to time in part, for up to the total whole number of shares then subject to the option minus the number of shares previously purchased by exercise of the option (as appropriately adjusted as provided herein). No fractional shares shall be issued or delivered. This option shall terminate and is not exercisable after the expiration of ten years from the date of its grant, except if terminated earlier as hereafter provided. For purposes of your option, a "change in control" of the Bancorp shall have been deemed to conclusively occur when any of the following events shall have occurred without your prior written consent: (1) a change in at least five members of the Bancorp's Board of Directors or the addition of five or more new members to the Bancorp's Board of Directors or any combination of the foregoing, within any two calendar year period, unless such change or addition occurs with the affirmative vote in writing of you in your capacity as a director or a shareholder; or -4- (2) a person or group acting in concert as described in Section 13(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") proposes to hold or acquire beneficial ownership within the meaning of Rule 13(d)(3) promulgated under the Exchange Act of a number of voting shares of the Bancorp which constitutes either (i) more than fifty percent of the shares which voted in the election of directors of the Bancorp at the shareholders' meeting immediately preceding such determination or (ii) more than thirty percent of the Bancorp's outstanding voting shares. The term "proposes to hold or acquire" shall mean when a person or group acting in concert has (A) the right to acquire or merge (whether such right is exercisable immediately or only after the passage of time or upon the receipt of such regulatory approvals as is required by applicable law) pursuant to an agreement, arrangement or understanding (whether or not in writing) or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise; (B) commenced a tender or exchange offer with respect to the voting shares of the Bancorp or securities convertible or exchangeable into voting shares of the Bancorp; or (C) the right to vote pursuant to any agreement, arrangement or understanding (whether or not in writing); provided, however, that such person or group acting in concert, shall not be deemed to have acquired such shares if the agreement, arrangement or understanding to vote such securities arises solely from a revocable proxy given in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations of the Exchange Act and is not also then reportable on Schedule 13D under the Exchange Act or any comparable or successor report. You may exercise your option by giving written notice to the Secretary of the Bancorp on forms supplied by the Bancorp at its then principal executive office, accompanied by payment of the option price for the total number of shares you specify that you wish to purchase. The payment may be in any of the following forms: (i) cash; (ii) certificates representing Common Stock of the Bancorp which will be valued by the Secretary of the Bancorp at the fair market value of a share of the Bancorp's Common Stock (as determined in accordance with the Plan) on the last trading day immediately preceding the delivery of such certificates to the Bancorp accompanied by an assignment of the stock to the Bancorp; or (iii) any combination of cash and Common Stock of the Bancorp valued as provided in clause (ii). Any assignment of stock shall be in form and substance satisfactory to the Secretary of the Bancorp, including guarantees of signature(s) if he deems such guarantees necessary or desirable and payment of all transfer taxes. Your option will, to the extent not previously exercised by you, terminate three months after the date on which you cease to be a director of the Bancorp or a subsidiary corporation for any reason, including death, disability, resignation or removal (whether for cause or otherwise), but in no event later than ten years from the date this option is granted. After the date you cease to be a director, you may exercise this option only for the number of shares which you had a right to purchase and did not purchase on the date you ceased to be a director. If you are a director of a Bancorp subsidiary corporation, your directorship shall be deemed to have terminated on the date such company ceases to be a Bancorp subsidiary corporation, unless you are also a director of the Bancorp or another Bancorp subsidiary corporation, or on that date became a director of the Bancorp or another Bancorp subsidiary corporation. Your directorship shall not be deemed to have terminated if you cease being a director of the Bancorp or a Bancorp subsidiary corporation but are or concurrently therewith become a director of the Bancorp or another Bancorp subsidiary corporation. This option is not transferable by you otherwise than by will or the laws of descent and distribution -5- and is exercisable, during your lifetime, only by you. If you die while a director of the Bancorp or a Bancorp subsidiary corporation, your legatee(s), distributee(s), executor or administrator, as the case may be, may, at any time within three months after the date of your death (but in no event later than ten years from the date this option is granted), exercise the option as to any shares which you had a right to purchase and did not purchase during your lifetime. If your directorship with the Bancorp or a Bancorp subsidiary corporation is terminated by reason of your becoming disabled, you or your legal guardian or custodian may, at any time within three months after the date of such termination (but in no event later than ten years from the date this option is granted), exercise the option as to any shares which you had a right to purchase and did not purchase prior to such termination. Your executor, administrator, guardian or custodian must present proof of his authority satisfactory to the Bancorp prior to being allowed to exercise this option. In the event of any change in the outstanding shares of the Common Stock of the Company by reason of a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, transfer of assets, reorganization, conversion or what the Board of Directors deems in its sole discretion to be similar circumstances, the number and kind of shares subject to this option and the option price of such shares shall be appropriately adjusted in a manner to be determined in the sole discretion of the Board of Directors. This option is not transferable otherwise than by will or the laws of descent and distribution, and is exercisable during your lifetime only by you, including, for this purpose, your legal guardian or custodian in the event of disability. Until the option price has been paid in full pursuant to due exercise of this option and the purchased shares are delivered to you, you do not have any rights as a shareholder of the Bancorp. The Bancorp reserves the right not to deliver to you the shares purchased by virtue of exercise of this option during any period of time in which the Bancorp deems, in its sole discretion, that such delivery may not be consummated without violating a federal, state, local or securities exchange rule, regulation or law. Notwithstanding anything to the contrary contained herein, this option is not exercisable until all the following events occur and during the following periods of time: (1) Until this option and the optioned shares are approved and/or registered with such federal, state and local regulatory bodies or agencies and securities exchanges as the Bancorp may deem necessary or desirable. (2) During any period of time in which the Bancorp deems that the exercisability of this option, the offer to sell the shares to the optionee hereunder, or the sale thereof, may violate a federal, state, local or securities exchange rule, regulation or law, or may cause the Bancorp to be legally obligated to issue or sell more shares than the Bancorp is legally entitled to issue or sell. This option shall be subject to the terms of the Plan in effect on the date this option is granted, which terms are hereby incorporated herein by reference and made a part hereof. In the event of any conflict between the terms of this option and the terms of the Plan in effect on the date of this option, the terms of the Plan shall govern. This option constitutes the entire understanding between the Bancorp and you with respect to the subject matter hereof and no amendment, modification or waiver of this option, in whole or in part, shall be binding upon the Bancorp unless in writing and signed by the Chief Executive Officer of the Bancorp. This option and the performances of the parties hereunder shall be construed in accordance with and governed by the laws of the State of New Jersey. -6- Please sign the copy of this option and return it to the Bancorp's Secretary, thereby indicating your understanding of and agreement with its terms and conditions. FIRST HOME BANCORP By: ---------------------------------- Name: Title: I hereby acknowledge receipt of a copy of the foregoing stock option and, having read it hereby signify my understanding of, and my agreement with, its terms and conditions. (Signature) (Date) -7- EX-10.4 7 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT, made effective as of the 15th day of April, 1987 by and between First Savings and Loan Association of Penns Grove, a savings and loan association incorporated under the laws of the United States (the "Association"), and Stephen D. Miller (the "Executive"). WITNESSETH: WHEREAS, the Executive is employed with the Association on a full time basis; WHEREAS, the Association is converting to a state chartered stock savings and loan association and desires to assure that the Executive remains in its employ after such conversion; and WHEREAS, the Association is willing to employ the Executive and the Executive is willing to accept employment on the terms and conditions set forth in this Agreement; NOW, THEREFORE, intending to be legally bound, the parties agree as follows: 1. Employment The Association hereby employs the Executive, and the Executive hereby accepts such employment and agrees to remain in the employ of the Association, for the period stated in paragraph 3 below and upon the other terms and conditions herein provided. 2. Position and Duties During the Employment Period (as defined in Section 3(a)), the Executive agrees to serve as President of the Association and shall perform such managerial duties and responsibilities for the Association as the Board of Directors of the Association or any superior officer may direct in accordance with the by-laws of the Association, which duties and responsibilities shall be of substantially the same character as or equivalent character to those required by Executive's position on the Effective Date (as defined in Section 3(a)). Throughout the Employment Period, and except for illness, vacation periods and leaves of absence granted by the Association (if any), the Executive shall devote all his business time, attention, skill and efforts to the faithful performance of his duties hereunder, and, subject to Section 7(g)(1), accept such office or offices to which he may be elected by the Board of Directors of the Association. 3. Term (a) Period of Employment The period of the Executive's employment under this Agreement shall commence as of the date of the conversion of the Association from a mutual to stock form (the "Effective Date") and shall, unless sooner terminated by the death of the Executive, mutual agreement or pursuant to Section 7, continue -2- for a period of five (5) years therefrom, (such period being herein referred to as the "Employment Period"), provided, however, subject to Section 3(b), and if the Employment Period has not been terminated by the death of the Executive, by mutual agreement or pursuant to Section 7, that on each December 31 during the Employment Period, the Employment Period shall be extended for one year, so that at all times the Employment Period on each January 1 during the term of this Agreement shall be an unexpired period of five years. The last day of the Employment Period, as from time to time extended, and without regard to any early termination pursuant to Section 7, is hereinafter referred to as the "Expiration Date." (b) Termination of Automatic Extension The Executive or Association may elect to terminate the automatic extension of the Employment Period set forth in subsection 3(a) by giving written notice of such election. Any notice given hereunder shall be effective in the year in which the notice is given, if given between January 1 and June 30 of any calendar year, and in the year following the year in which the notice is given, if given between July 1 and December 31 of any calendar year. Upon effectiveness of any notice given hereunder, Executive's employment under this Agreement shall terminate on the Expiration Date (as last extended) or such earlier date as may be determined pursuant to Section 7. -3- 4. Compensation (a) Salary and Incentive Compensation For all services rendered by the Executive in any capacity during the Employment Period under this Agreement, the Executive shall be paid as compensation (i) an annual salary of $68,500, or such higher salary as may be negotiated from time to time by the Association and the Executive plus (ii) such incentive compensation or bonus as may be awarded to the Executive from time to time by the Board of Directors. Such salary shall be payable in 52 equal weekly installments and any such incentive compensation or bonus shall be payable in the manner and at the time specified by the Board of Directors. (b) Reimbursement of Expenses The Association shall pay or reimburse the Executive, in accordance with the Association's policies and requirements, for all reasonable travel and other expenses incurred by the Executive in performing his obligations under this Agreement. The Executive shall be provided, at his option, with an automobile expense allowance, or the use of a recent model automobile which will be owned by the Association as may be mutually agreed upon by the Executive and the Association. All reasonable business related expenses associated therewith shall be borne by the Association. -4- 5. Participation in Incentive Compensation and Benefit Plans In addition to the payments provided under this Agreement, the Executive (or his beneficiary) may be, or may become, entitled to benefits under any executive or contingent compensation plan, stock option, restricted stock or stock purchase plan, retirement income or pension plan, supplemental or excess benefit plan, group hospitalization, health care, or sick leave plan, life or other insurance or death benefit plan, travel and accident insurance, vacation plan, or other present or future group employee benefit plan or program of the Association for which Executive employees of the Association generally are eligible, and the Executive shall be eligible to receive, with respect to the Employment Period, all benefits and emoluments for which he is eligible under any such benefit plan or program of the Association in accordance with the provisions and requirements of any such plan or program. 6. Vacation and Sick Leave Executive shall be entitled to be compensated for annual vacation, personal and sick leave in accordance with established Association policy. -5- 7. Termination or Suspension of Employment (a) Termination without Cause Notwithstanding anything to the contrary contained in this Agreement, subject to Executive receiving the compensation set forth in subsection (i) of this Section 7, the Association's Board of Directors may terminate the Executive's employment under this Agreement at any time. Termination of Executive's employment under this subsection shall be deemed a breach of this Agreement by the Association. (b) Termination with Cause The Association's Board of Directors may terminate the Executive's employment under this Agreement at any time for cause. The Executive shall have no right to receive compensation or other benefits for any period after termination for cause. The term "for cause" shall include the Executive's personal dishonesty, incompetency, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. If the Association's Board of Directors determines that Executive's employment under this Agreement shall be terminated for cause, -6- then the Board shall forthwith provide Executive with a written notice of said determination. The notice shall contain a detailed statement of the facts which constitute the particulars of the cause for termination. As used herein, the term incompetency shall mean the determination by a court that the Executive is unable to manage his own affairs by reason of insanity, imbecility or feeble mindedness. (c) Suspension Pursuant to Notice If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Association's affairs by a notice served by the Federal Home Loan Bank Board ("FHLBB") or the Federal Savings and Loan Insurance Corporation ("FSLIC") under Section 5(d)(4)(C) or Section 5(d)(5)(A) of the Home Owners' Loan Act (12 U.S.C. 1464(d)(4)(C) and (5)(d)(A)) or under Section 407(g)(3) or Section 407(h) of the National Housing Act (12 U.S.C. 1730 (g)(3) and (h)), the Association's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Executive all or part of the compensation withheld while the Association's obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of the Association's obligations under this Agreement which were suspended. -7- (d) Termination Pursuant to Order If the Executive is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order of the FHLBB or FSLIC issued under Section 5(d)(4)(D) or Section 5(d)(5)(A) of the Home Owners' Loan Act (12 U.S.C. 1464(d)(4)(D) and (d)(5)(A)) or under Section 407(g)(3) or Section 407(h) of the National Housing Act (12 U.S.C. 1730(g)(3) and (h)), all obligations of the Association under this Agreement shall terminate as of the effective date of the order, but vested rights of the Association and Executive shall not be affected. (e) Termination Upon Default Under National Housing Act If the Association is in default (as defined in Section 401(d) of the National Housing Act), all obligations under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the Association and Executive. (f) Termination by FSLIC and FHLBB All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the institution, (i) by FSLIC at the time FSLIC enters into an agreement to provide assistance to or on behalf of the Association -8- under the authority contained in Section 406(f) of the National Housing Act; or (ii) by the FHLBB at the time the FHLBB or its Principal Supervisory Agent (as defined in 12 C.F.R. Section 561.35) approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by the FHLBB to be in an unsafe and unsound condition. Any rights of the Association or Executive that have already vested, however, shall not be affected by such action. (g) Termination by Executive for Good Reason The Executive shall be entitled to terminate his employment hereunder for good reason. Any termination of employment hereunder under any of the following circumstances shall be for good reason, the occurrence of any of which shall be deemed a breach of this Agreement by the Association: (1) without the express written consent of the Executive, the Executive is assigned any duties inconsistent with his positions, duties, responsibilities and status with the Association as in effect on the Effective Date, or his titles is in effect on the Effective Date are changed or the Executive is removed or not re-elected to any of such positions, except in connection with the termination of the Executive's employment pursuant to subsections (b),(c),(d),(e) or (f) of Section 7 of this Agreement, or as a result of his substantial disability or death; -9- (2) the salary of the Executive set forth in Section 4, as the same hereafter may be increased from time to time, is reduced; (3) the Association fails to continue for the Executive any benefit or compensation plan providing the Executive with substantially similar benefits to those plans in which the Executive is participating at the Effective Date or in which the Executive hereafter may participate; or (4) the Association shall fail to observe or perform any convenant or agreement in this Agreement to be observed or performed by the Association; (5) a change in control (as defined below) of the Association occurs. For the purposes of this Agreement, a "change in control of the Association" shall mean a change in control whether by stock transfer, sale of assets, merger, consolidation or otherwise; provided that, without limitation, such a change of control shall be deemed to have occurred if (1) any person (as such term is used in 12 C.F.R. Section 563.18-2(b)(1)), other than those persons in control of Association on the date hereof, acquires the power, directly or indirectly, to direct the management or policies of the Association or to vote 25% or more of any class of voting securities of the Association; or (2) within any period of three consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors of the Association cease for any reason to constitute at least a majority thereof. -10- (h) Termination by Executive Other Than for Good Cause Notwithstanding anything contained herein to the contrary, the Executive may terminate this Agreement by notice (which shall in no event be less than 6 months) to the Association on or after the date that the Executive first becomes eligible to receive benefits under the Association's defined benefit pension plan in which case benefits shall be payable to the Executive in accordance with the provisions of such pension plan and all rights of the Executive under this Agreement shall cease. (i) Remedies for Termination Upon termination of the Executive's employment under this Agreement pursuant to subsections (a) or (g) of this Section 7, the Executive shall receive until the Expiration Date: (1) 200% of the salary set forth in Section 4, as the same may have been increased from time to time, payment of which shall be at the time provided for in this Agreement as if the Executive's employment under this Agreement has not terminated. -11- (2) annually, an amount equal to the average of the three highest annual incentive compensation payments made to Executive by the Association prior to the termination pursuant to subsection (a) or the event given Executive the right to terminate his employment under subsection (g); and (3) medical care, pension and similar benefits, at no cost to Executive, substantially comparable to those furnished to Executive by the Association immediately prior to termination of employment hereunder. (4) upon termination without Cause or termination for "good reason" following a "change in control", the Association shall determine the aggregate present value (pursuant to Section 1274(b)(2) of the Internal Revenue Code) of all amounts payable hereunder, and of all other amounts payable to the Executive upon or by reason of his termination which are determined in good faith by the Association to be "parachute payments", (as defined in Section 280G(b)(2) of the Code and the regulations promulgated thereunder) made pursuant to agreements or plans which are subject to Section 280G. The Association's determination of present value and of other amounts constituting "parachute payments" is binding; provided that if Executive obtains an opinion of counsel satisfactory to the Association or an Internal Revenue Service ruling to the effect that the method -12- of determining present value was improper or that specified payments did not constitute "parachute payments", calculations will be made in accordance with such opinion or ruling. In the event that aggregate present value of all benefits under this Agreement and other "parachute payments" is equal to or in excess of 300% of the Executive's "base amount" as defined in Section 280G(b)(3)(A) and regulations thereunder, the Executive waives the right to "parachute payments" sufficient to reduce the present value of all such payments below 300% of the "base amount." The Executive shall have the right to designate those benefits which shall be waived or reduced in order to comply with this provision, but failing designation by the Executive, the Association may designate those benefits which must be waived or reduced. (5) If it is established pursuant to a final determination of a court of competent jurisdiction or an Internal Revenue Service proceeding that, notwithstanding the good faith of the Executive and the Association in applying the terms of this Section 7, the aggregate "parachute payments" paid to or for the Executive's benefit are in an amount that would result in any portion of such "parachute payments" not being deductible by the Association or an Affiliate by reason of Section 280G of the Code, then the Executive shall have an obligation to pay the Association upon demand an amount equal to the sum of -13- (i) the excess of the aggregate "parachute payments", paid to or for the Executive's benefit without any portion of such "parachute payments" not being deductible by reason of Section 280G of the Code and (ii) interest on the amount set forth in clause (i) above at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of the Executive's receipt of such excess until the date of such payment. Any payment made by Association under this Section shall be deemed to constitute liquidated damages and not a penalty for the Association's breach of this Agreement. Executive shall not be required to mitigate his damages hereunder by seeking employment or otherwise. (j) Disability Termination In the event that the Executive is totally disabled prior to the Expiration Date of this Agreement, the Association shall have the right to terminate Executive's employment on ten (10) days written notice to Executive, provided the Association shall pay the Executive a disability benefit which is equal to the salary provided in Section 4, as the same may have been increased from time to time, received by Executive at the commencement of the Executive's total disability, reduced by the sum of (i) the amount of any benefits to which the Executive may be entitled with respect to the same period -14- under any disability plan or pension plan, including related supplemental and excess benefit plans or agreements, of the Association and (ii) the disability benefits payable under any government regulated plan including workers' compensation benefits. Payment of such disability benefit shall commence with the week coincident with the termination of Executive's employment under this Agreement and shall continue until the earlier of the Expiration Date or the Executive's death. During any period the Executive shall be entitled to receive disability payments from the Association, to the extent that he is physically and mentally able to do so, he shall furnish information and assistance to the Association, and, in addition, upon reasonable request in writing from time to he shall make himself available to the Association to undertake reasonable assignments with the dignity, importance, and scope of his prior position and his physical and mental health. As used in this Agreement, the term "total disability" shall mean the complete inability of the Executive to perform all of his duties under this Agreement as determined by an independent physician selected with the approval of the Board of Directors and the Executive. 8. Withholding of Taxes The Association may withhold from any payments under this Agreement all applicable taxes, as shall be required pursuant to any law or governmental regulation or ruling. -15- 9. Prior Agreements This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof, supersedes all prior and contemporaneous agreements and understandings and any prior employment agreement between the Association and the Executive. 10. Consolidation or Merger Nothing in this Agreement shall preclude the Association from consolidating or merging into or with, or transferring all or substantially all of its assets to, any Person which assumes this Agreement and all obligations of the Association hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term, "Association" shall refer to such other Person and this Agreement shall continue in full force and effect. 11. General Provisions (a) Non-Assignability Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive without the Association's prior written consent; provided, however, that nothing in this subparagraph 11(a) shall preclude the executors, administrators, or other legal representatives of the estate of the Executive from assigning any rights hereunder to the Person or Persons entitled thereto under the Executive's will or, in case of intestacy, to the Person or Persons entitled thereto under the laws of intestacy applicable to the Executive's estate. -16- (b) No Attachment Except as otherwise required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. (c) Binding Agreement This Agreement shall be binding upon and inure to the benefit of the Executive and the Association, the Executive's heirs, executors and assigns and the Association's successors and assigns. (d) "Person" Defined "Person" as used herein means a natural person, joint venture, corporation, sole proprietorship, trust, estate, partnership, cooperative, association, organization, government or governmental entity, or other entity. 12. Legal Expenses The Association shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive in seeking to obtain or enforce any right or benefit provided by this Agreement. -17- 13. Amendment No amendment or modification of this Agreement shall be deemed effective unless and until executed in writing. 14. Severability If for any reason any provision of this Agreement shall be held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and all other such provisions shall to the full extent consistent with law continue in full force and effect. If any such provision shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall likewise to the full extent consistent with law continue in full force and effect. 15. Headings The headings are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 16. Interpretation If any provision of this Agreement shall be the subject of a dispute between the Association and the Executive and a court or arbitrator to which such dispute has been brought shall be unable to resolve which of two reasonable interpretations of such provision is the proper interpretation thereof, then the interpretation most favorable to the Executive shall control. -18- 17. Governing Law This Agreement has been executed and delivered in the State of New Jersey and its validity, interpretation, performance and enforcement shall be governed by and construed in accordance with the laws thereof applicable to contracts executed and to be wholly performed in New Jersey. 18. Consent to Jurisdiction Executive and the Association irrevocable consent to the exclusive jurisdiction of the Courts of Salem County, New Jersey and/or the United States District Court for the District of New Jersey in any action or proceeding pursuant to this Agreement and agree to service of process in accordance with Section 17 herein. 19. Notices All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice: -19- A. If to Executive, to: Stephen D. Miller RD2 Box 125 Woodstown, NJ 08098 B. If to Association, to: First Savings and Loan Association of Penns Grove 125 South Broadway Pennsville, NJ 08070 C. In all cases, copies to: Blank, Rome, Comisky & McCauley 1200 Four Penn Center Plaza Philadelphia, PA 19103 Attn: Barry H. Genkin, Esquire D. and to such other or additional Person or Persons as either party shall have designated to the other party in writing by like notice. 20. Reimbursement of Expenses In the event the Association or any party other than the Executive asserts that this Agreement, in whole or in part, is unenforceable or invalid, than the Association shall reimburse Executive for any costs and expenses including, without limitation, legal fees, incurred by Executive in enforcing this Agreement or defending its validity. -20- IN WITNESS WHEREOF, the Association has caused this Agreement to be executed and its seal to be affixed hereto by its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. ATTEST: FIRST SAVINGS AND LOAN ASSOCIATION OF PENNS GROVE /s/ Joyce A. Hunt By: /s/ Sol L. Davidow, - -------------------------- ---------------------------------- Secretary Sol L. Davidow, Chairman of the Board WITNESS: /s/ Elizabeth F. Homen /s/ Stephen D. Miller - ------------------------- ------------------------------------- Stephen D. Miller -21- AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated 27th day of March 1992, by and between First Home Savings Bank, S.L.A., a savings and loan association incorporated under laws of New Jersey (the "Bank"), and Stephen D. Miller (the "Executive"). W I T N E S S E T H: WHEREAS, the Bank and Executive have entered into an Employment Agreement made effective as of the 15th day of April, 1987 (the "Employment Agreement"); and WHEREAS, the Bank and Executive desire to amend certain of the terms of the Employment Agreement. NOW, THEREFORE, the parties hereto, intended to be legally bound hereby, agree as follows: 1. The first sentence of Section 3(a) of the Employment Agreement shall be amended to read in its entirety as follows: "The period of the Executive's employment under this Agreement shall commence as of the date of the conversion of the Association from a mutual to stock form (the "Effective Date") and shall, unless sooner terminated by the death of the Executive, mutual agreement or pursuant to Section 7, continue for a period of five (5) years therefrom, (such period being herein referred to as the "Employment Period"), provided, however, subject to Section 3(b), and if the Employment Period has not been terminated by the death of the Executive, by mutual agreement or pursuant to Section 7, that on each December 31 during the Employment Period, the Employment Period shall be extended for one year, so that at all times the Employment Period on each January 1 during the year of this Agreement shall be an unexpired period of five years, provided, however, that such extension shall not go into effect unless and until it has been reviewed and approved by the Board of Directors." 2. Section 7(c) is amended to read in its entirety as follows: (c) Suspension Pursuant to Notice If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)), the Association's obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Executive all or part of the compensation withheld while the Bank's obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of the Association's obligations under this Agreement which were suspended. 3. Section 7(d) is amended to read in its entirety as follows: (d) Termination Pursuant to Order If the Executive is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations of the Association under this Agreement shall terminate as of the effective date of the order, but vested rights of the Association and Executive shall not be affected. 4. Section 7(e) is amended to read in its entirety as follows: (e) Termination Upon Default If the Association is in default (as defined in Section 3(X)(1) of the Federal Deposit Insurance Act), all obligations under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the Association and Executive. 5. Section 7(f) is amended to read in its entirety as follows: (f) Termination by Office of Thrift Supervision All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Association, (i) by the Director of the Office of Thrift Supervision or his or her designee at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Association under the authority contained in Section 13(c) of the Federal Deposit Insurance Act; or (ii) by the Director of the Office of Thrift Supervision or his or her designee, at the time such Director or designee approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by such Director to be in an unsafe and unsound condition. Any rights of the Association or Executive that have already vested, however, shall not be affected by such action. -2- 6. Section 7(h) is amended to read in its entirety as follows: Notwithstanding anything contained herein to the contrary, the Executive may terminate this Agreement by notice (which shall in no event be less than 6 months) to the Association on or after the date that the Executive first becomes eligible to receive retirement benefits under the Association's Employee Stock Ownership Plan in which case benefits shall be payable to the Executive in accordance with the provisions of such plan, and all rights of the Executive under this Agreement shall cease. 7. Section 7 of the Employment Agreement is amended by adding at the end thereof a new Section (k) which shall read in its entirety as follows: (k) Limitation. Notwithstanding anything to the contrary contained in this Section, Executive shall not receive and does hereby waive the right to receive any amount upon his termination of employment (whether pursuant to the terms of this Agreement or pursuant to any other policy or arrangement) which would cause Executive to receive an amount which exceeds three times the Executive's annual salary for the year in which Executive's employment is terminated. 8. Section 12 of the Employment Agreement is amended to read in its entirety as follows: "If the Executive obtains a judgment which enforces a right or benefit under this Agreement, the Association shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive in seeking to obtain or enforce such right or benefit." 9. The Employment Agreement is amended by deleting Section 20 in its entirety. 10. The Employment Agreement, as amended by this Amendment, shall remain in full force and effect. -3- IN WITNESS WHEREOF, the Association has caused this Amendment to be executed and its seal to be affixed hereto by its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. FIRST HOME SAVINGS BANK, S.L.A. By: /s/ Sol L. Davidow ------------------------------------ /s/ Stephen D. Miller ------------------------------------ Stephen D. Miller -4- SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated this 25th day of January, 1993, by and between First Home Savings Bank, S.L.A., a savings and loan association incorporated under laws of New Jersey (the "Bank"), and Stephen D. Miller (the "Executive"). W I T N E S S E T H: WHEREAS, the Bank and Executive have entered into an Employment Agreement made effective as of the 15th day of April, 1987 (the "Employment Agreement"); and WHEREAS, the Employment Agreement was amended on March 27, 1992; and WHEREAS, the Bank and Executive desire to make further amendments to certain of the terms of the Employment Agreement. NOW, THEREFORE, the parties hereto, intended to be legally bound hereby, agree as follows: 1. The first sentence of Section 3(a) of the Employment Agreement shall be amended to read in its entirety as follows: "The period of the Executive's employment under this Agreement shall commence as of the date of the conversion of the Association from a mutual to stock form (the "Effective Date") and shall, unless sooner terminated by the death of the Executive,, mutual agreement or pursuant to Section 7, continue for a period of three (3) years therefrom, (such period being herein referred to as the "Employment Period"), provided, however, subject to Section 3(b), and if the Employment Period has not been terminated by the death of the Executive, by mutual agreement or pursuant to Section 7, that on each December 31 during the Employment Period, the Employment Period shall be extended for one year, so that at all times the Employment Period on each January 1 during the year of this Agreement shall be an unexpired period of three years, provided, however, that such extension shall not go into effect unless and until it has been reviewed and approved by the Board of Directors." 2. Section 7(c) is amended to read in its entirety as follows: (c) Suspension Pursuant to Notice If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)), the Association's obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Executive all or part of the compensation withheld while the Bank's obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of the Association's obligations under this Agreement which were suspended. 3. Section 7(d) is amended to read in its entirety as follows: (d) Termination Pursuant to Order If the Executive is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(a)(4) or (g)(1)), all obligations of the Association under this Agreement shall terminate as of the effective date of the order, but vested rights of the Association and Executive shall not be affected. 4. Section 7(e) is amended to read in its entirety as follows: (e) Termination Upon Default If the Association is in default (as defined in Section 3(X)(1) of the Federal Deposit Insurance Act), all obligations under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the Association and Executive. 5. Section 7(f) is amended to read in its entirety as follows: (f) Termination by Office of Thrift Supervision All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Association, (i) by the Director of the Office of Thrift Supervision or his or her designee at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Association under the authority contained in Section 13(c) of the Federal Deposit Insurance Act; or (ii) by the Director of the Office of Thrift Supervision or his or her designee, at the time -2- such Director or designee approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by such Director to be in an unsafe and unsound condition. Any rights of the Association or Executive that have already vested, however, shall not be affected by such action. 6. Section 7(h) is amended to read in its entirety as follows: Notwithstanding anything contained herein to the contrary, the Executive may terminate this Agreement by notice (which shall in no event be less than 6 months) to the Association on or after the date that the Executive first becomes eligible to receive retirement benefits under the Association's Employee Stock Ownership Plan in which case benefits shall be payable to the Executive in accordance with the provisions of such plan, and all rights of the Executive under this Agreement shall cease. 7. Section 7(i)(1) is amended to read in its entirety as follows: 100% of the salary set forth in Section 4, as the same may have been increased from time to time, payment of which shall be at the time provided for in this agreement as if the Executive's employment under this agreement has not terminated. 8. Section 7 of the Employment Agreement is amended by adding at the end thereof a new Section (k) which shall read in its entirety as follows: (k) Limitation. Notwithstanding anything to the contrary contained in this Section, Executive shall not receive and does hereby waive the right to receive any amount upon his termination of employment (whether pursuant to the terms of this Agreement or pursuant to any other policy or arrangement) which would cause Executive to receive an amount which exceeds three times the Executive's annual salary for the year in which Executive's employment is terminated. 9. Section 12 of the Employment Agreement is amended to read in its entirety as follows: "If the Executive obtains a judgment which enforces a right or benefit under this Agreement, the Association shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive in seeking to obtain or enforce such right or benefit." -3- 10. The Employment Agreement is amended by deleting Section 20 in its entirety. 11. The Employment Agreement, as amended by this Amendment, shall remain in full force and effect. IN WITNESS THEREOF, the Association has caused this Amendment to be executed and its seal to be affixed hereto by its officers thereinto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. FIRST ROME SAVINGS BANK, S.L.A. By: /s/ Sol L. Davidow ------------------------------------- Sol L. Davidow, Chairman of the Board /s/ Stephen D. Miller ------------------------------------- Stephen D. Miller -4- THIRD AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated this 5th day of January, 1994, by and between First Home Savings Bank, F.S.B., a savings and loan association incorporated under laws of the United States (the "Bank"), and Stephen D. Miller (the "Executive"). W I T N E S S E T H: WHEREAS, the Bank, as the successor in interest by merger with First Home Savings Bank, S.L.A. (formerly known as First Savings and Loan Association of Penns Grove), and Executive have entered into an Employment Agreement made effective as of the 15th day of April, 1987 (the "Employment Agreement"); and WHEREAS, the Employment Agreement was amended on March 27, 1992 and January 25, 1993; and WHEREAS, the Bank and Executive desire to make further amendments to certain of the terms of the Employment Agreement. NOW, THEREFORE, the parties hereto, intended to be legally bound hereby, agree as follows: 1. All references in the Employment Agreement, as amended, to "Bank" or "Association" shall be deemed to refer to First Home Savings Bank, F.S.B. 2. Section 7(k) of the Employment Agreement is amended to read in its entirety as follows: (k) Limitation. Notwithstanding anything to the contrary contained in this Section, Executive shall not receive and does hereby waive the right to receive any amount upon his termination of employment (whether pursuant to the terms of this Agreement or pursuant to any other policy or arrangement) which would cause Executive to receive an amount which exceeds three times the Executive's Average Annual Compensation (as hereinafter defined). "Average Annual Compensation" means the average of all Compensation (as hereinafter defined) paid to Executive by Bank during each of the five full taxable years (i.e. January 1 to December 31) preceding the year in which Executive's employment is terminated. "Compensation" shall mean "Compensation" as defined in RB 27a, "Executive Compensation and Employment Contracts", dated March 5, 1993, promulgated by the Office of Thrift Supervision. 3. The Employment Agreement, as amended, and as amended by this Amendment, shall remain in full force and effect. IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed and its seal to be affixed hereto by its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. FIRST HOME SAVINGS BANK, F.S.B. By: /s/ Sol L. Davidow ------------------------------------ Sol L. Davidow, Chairman of the Board /s/ Stephen D. Miller ------------------------------------ Stephen D. Miller -2- EX-10.5 8 EMPLOYMENT AGREEMENT Exhibit 10.5 EMPLOYMENT AGREEMENT THIS AGREEMENT, made effective as of the 15th day of April, 1987 by and between First Savings and Loan Association of Penns Grove, a savings and loan association incorporated under the laws of the United States (the "Association"), and Robert A. DiValerio (the "Executive"). WITNESSETH: WHEREAS, the Executive is employed with the Association on a full time basis; WHEREAS, the Association is converting to a state chartered stock savings and loan association and desires to assure that the Executive remains in its employ after such conversion; and WHEREAS, the Association is willing to employ the Executive and the Executive is willing to accept employment on the terms and conditions set forth in this Agreement; NOW, THEREFORE, intending to be legally bound, the parties agree as follows: 1. Employment The Association hereby employs the Executive, and the Executive hereby accepts such employment and agrees to remain in the employ of the Association, for the period stated in paragraph 3 below and upon the other terms and conditions herein provided. 2. Position and Duties During the Employment Period (as defined in Section 3(a)), the Executive agrees to serve as Executive Vice President, Treasurer of the Association and shall perform such managerial duties and responsibilities for the Association as the Board of Directors of the Association or any superior officer may direct in accordance with the by-laws of the Association, which duties and responsibilities shall be of substantially the same character as or equivalent character to those required by Executive's position on the Effective Date (as defined in Section 3(a)). Throughout the Employment Period, and except for illness, vacation periods and leaves of absence granted by the Association (if any), the Executive shall devote all his business time, attention, skill and efforts to the faithful performance of his duties hereunder, and, subject to Section 7(g)(1), accept such office or offices to which he may be elected by the Board of Directors of the Association. 3. Term (a) Period of Employment The period of the Executive's employment under this Agreement shall commence as of the date of the conversion of the Association from a mutual to stock form (the "Effective Date") and shall, unless sooner terminated by the death of the Executive, mutual agreement or pursuant to Section 7, continue -2- for a period of one (1) year therefrom, (such period being herein referred to as the "Employment Period"), provided, however, subject to Section 3(b), and if the Employment Period has not been terminated by the death of the Executive, by mutual agreement or pursuant to Section 7, that on each December 31 during the Employment Period, the Employment Period shall be extended for one year, so that at all times the Employment Period on each January 1 during the term of this Agreement shall be an unexpired period of one (1) year. The last day of the Employment Period, as from time to time extended, and without regard to any early termination pursuant to Section 7, is hereinafter referred to as the "Expiration Date." (b) Termination of Automatic Extension The Executive or Association may elect to terminate the automatic extension of the Employment Period set forth in subsection 3(a) by giving written notice of such election. Any notice given hereunder shall be effective in the year in which the notice is given, if given between January 1 and June 30 of any calendar year, and in the year following the year in which the notice is given, if given between July 1 and December 31 of any calendar year. Upon effectiveness of any notice given hereunder, Executive's employment under this Agreement shall terminate on the Expir- -3- ation Date (as last extended) or such earlier date as may be determined pursuant to Section 7. 4. Compensation (a) Salary and Incentive Compensation For all services rendered by the Executive in any capacity during the Employment Period under this Agreement, the Executive shall be paid as compensation (i) an annual salary of $57,000, or such higher salary as may be negotiated from time to time by the Association and the Executive plus (ii) such incentive compensation or bonus as may be awarded to the Executive from time to time by the Board of Directors. Such salary shall be payable in 52 equal weekly installments and any such incentive compensation or bonus shall be payable in the manner and at the time specified by the Board of Directors. (b) Reimbursement of Expenses The Association shall pay or reimburse the Executive, in accordance with the Association's policies and requirements, for all reasonable travel and other expenses incurred by the Executive in performing his obligations under this Agreement. The Executive shall be provided, at his option, with an automobile expense allowance, or the use of a recent model automobile which will be owned by the Association, as may be mutually agreed upon by the Executive and the -4- Association. All reasonable business related expenses associated therewith shall be borne by the Association. 5. Participation in Incentive Compensation and Benefit Plans In addition to the payments provided under this Agreement, the Executive (or his beneficiary) may be, or may become, entitled to benefits under any executive or contingent compensation plan, stock option, restricted stock or stock purchase plan, retirement income or pension plan, supplemental or excess benefit plan, group hospitalization, health care, or sick leave plan, life or other insurance or death benefit plan, travel and accident insurance, vacation plan, or other present or future group employee benefit plan or program of the Association for which Executive employees of the Association generally are eligible, and the Executive shall be eligible to receive, with respect to the Employment Period, all benefits and emoluments for which he is eligible under any such benefit plan or program of the Association in accordance with the provisions and requirements of any such plan or program. 6. Vacation and Sick Leave Executive shall be entitled to be compensated for annual vacation, personal and sick leave in accordance with established Association policy. -5- 7. Termination or Suspension of Employment (a) Termination without Cause Notwithstanding anything to the contrary contained in this Agreement, subject to Executive receiving the compensation set forth in subsection (i) of this Section 7, the Association's Board of Directors may terminate the Executive's employment under this Agreement at any time. Termination of Executive's employment under this subsection shall be deemed a breach of this Agreement by the Association. (b) Termination with Cause The Association's Board of Directors may terminate the Executive's employment under this Agreement at any time for cause. The Executive shall have no right to receive compensation or other benefits for any period after termination for cause. The term "for cause" shall include the Executive's personal dishonesty, incompetency, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. If the Association's Board of Directors determines that Executive's employment under this Agreement shall be terminated for cause, then the Board shall forthwith provide Exe- -6- cutive with a written notice of said determination. The notice shall contain a detailed statement of the facts which constitute the particulars of the cause for termination. As used herein, the term incompetency shall mean the determination by a court that the Executive is unable to manage his own affairs by reason of insanity, imbecility or feeble mindedness. (c) Suspension Pursuant to Notice If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Association's affairs by a notice served by the Federal Home Loan Bank Board ("FHLBB") or the Federal Savings and Loan Insurance Corporation ("FSLIC") under Section 5(d)(4)(C) or Section 5(d)(5)(A) of the Home Owners' Loan Act (12 U.S.C. 1464(d)(4)(C) and (5)(d)(A)) or under Section 407(g)(3) or Section 407(h) of the National Housing Act (12 U.S.C. 1730 (g)(3) and (h)), the Association's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Executive all or part of the compensation withheld while the Association's obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of the Association's obligations under this Agreement which were suspended. -7- (d) Termination Pursuant to Order If the Executive is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order of the FHLBB or FSLIC issued under Section 5 (d) (4) (D) or Section 5 (d) (5) (A) of the Home Owners' Loan Act (12 U.S.C. 1464(d)(4)(D) and (d)(5)(A)) or under Section 407 (g) (3) or Section 407 (h) of the National Housing Act (12 U.S.C. 1730 (g) (3) and (h)) , all obligations of the Association under this Agreement shall terminate as of the effective date of the order, but vested rights of the Association and Executive shall not be affected. (e) Termination Upon Default Under National Housing Act If the Association is in default (as defined in Section 401(d) of the National Housing Act), all obligations under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the Association and Executive. (f) Termination by FSLIC and FHLBB All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the institution, (i) by FSLIC at the time FSLIC enters into an agreement to provide assistance to or on behalf of the -8- Association under the authority contained in Section 406(f) of the National Housing Act; or (ii) by the FHLBB at the time the FHLBB or its Principal Supervisory Agent (as defined in 12 C.F.R. Section 561.35) approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by the FHLBB to be in an unsafe and unsound condition. Any rights of the Association or Executive that have already vested, however, shall not be affected by such action. (g) Termination by Executive for Good Reason The Executive shall be entitled to terminate his employment hereunder for good reason. Any termination of employment hereunder under any of the following circumstances shall be for good reason, the occurrence of any of which shall be deemed a breach of this Agreement by the Association: (1) without the express written consent of the Executive, the Executive is assigned any duties inconsistent with his positions, duties, responsibilities and status with the Association as in effect on the Effective Date, or his titles as in effect on the Effective Date are changed or the Executive is removed or not re-elected to any of such positions, except in connection with the termination of the Executive's employment pursuant to subsections (b), (c), (d), (e) or (f) of Section 7 of this Agreement, or as a result of his substantial disability or death; -9- (2) the salary of the Executive set forth in Section 4, as the same hereafter may be increased from time to time, is reduced; (3) the Association fails to continue for the Executive any benefit or compensation plan providing the Executive with substantially similar benefits to those plans in which the Executive is participating at the Effective Date or in which the Executive hereafter may participate; or (4) the Association shall fail to observe or perform any convenant or agreement in this Agreement to be observed or performed by the Association; (5) a change in control (as defined below) of the Association occurs. For the purposes of this Agreement, a "change in control of the Association" shall mean a change in control whether by stock transfer, sale of assets, merger, consolidation or otherwise; provided that, without limitation, such a change of control shall be deemed to have occurred if (1) any person (as such term is used in 12 C.F.R. Section 563.18-2(b)(1)), other than those persons in control of Association on the date hereof, acquires the power, directly or indirectly, to direct the management or policies of the Association or to vote 25% or more of any class of voting securities of the Association; or (2) within any period of three consecutive years during the -10- term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors of the Association cease for any reason to constitute at least a majority thereof. (h) Termination by Executive Other Than for Good Cause Notwithstanding anything contained herein to the contrary, the Executive may terminate this Agreement by notice (which shall in no event be less than 6 months) to the Association on or after the date that the Executive first becomes eligible to receive benefits under the Association's defined benefit pension plan in which case benefits shall be payable to the Executive in accordance with the provisions of such pension plan and all rights of the Executive under this Agreement shall cease. Notwithstanding anything contained herein to the contrary, the Executive may terminate this Agreement by notice (which shall in no event be less than 2 months) to the Association. (i) Remedies for Termination Upon termination of the Executive's employment under this Agreement pursuant to subsections (a) or (g) of this Section 7, the Executive shall receive until the Expiration Date: (1) 200% of the salary set forth in Section 4, as the same may have been increased from time to time, payment -11- of which shall be at the time provided for in this Agreement as if the Executive's employment under this Agreement has not terminated. (2) annually, an amount equal to the average of the three highest annual incentive compensation payments made to Executive by the Association prior to the termination pursuant to subsection (a) or the event given Executive the right to terminate his employment under subsection (g); and (3) medical care, pension and similar benefits, at no cost to Executive, substantially comparable to those furnished to Executive by the Association immediately prior to termination of employment hereunder. (4) upon termination without Cause or termination for "good reason" following a "change in control", the Association shall determine the aggregate present value (pursuant to Section 1274(b)(2) of the Internal Revenue Code) of all amounts payable hereunder, and of all other amounts payable to the Executive upon or by reason of his termination which are determined in good faith by the Association to be "parachute payments", (as defined in Section 280G(b)(2) of the Code and the regulations promulgated thereunder) made pursuant to agreements or plans which are subject to Section 280G. The Association's determination of present value and of other amounts constituting "parachute payments" is binding; provided that if Executive obtains an opinion of counsel satisfactory to the -12- Association or an Internal Revenue Service ruling to the effect that the method of determining present value was improper or that specified payments did not constitute "parachute payments", calculations will be made in accordance with such opinion or ruling. In the event that aggregate present value of all benefits under this Agreement and other "parachute payments" is equal to or in excess of 300% of the Executive's "base amount" as defined in Section 280G(b)(3)(A) and regulations thereunder, the Executive waives the right to "parachute payments" sufficient to reduce the present value of all such payments below 300% of the "base amount." The Executive shall have the right to designate those benefits which shall be waived or reduced in order to comply with this provision, but failing designation by the Executive, the Association may designate those benefits which must be waived or reduced. (5) If it is established pursuant to a final determination of a court of competent jurisdiction or an Internal Revenue Service proceeding that, notwithstanding the good faith of the Executive and the Association in applying the terms of this Section 7, the aggregate "parachute payments" paid to or for the Executive's benefit are in an amount that would result in any portion of such "parachute payments" not being deductible by the Association or an Affiliate by reason of Section 280G of the Code, then the Executive shall have an obligation to pay the Association upon demand an -13- amount equal to the sum of (i) the excess of the aggregate "parachute payments" paid to or for the Executive's benefit without any portion of such "parachute payments" not being deductible by reason of Section 280G of the Code and (ii) interest on the amount set forth in clause (i) above at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of the Executive's receipt of such excess until the date of such payment. Any payment made by Association under this Section shall be deemed to constitute liquidated damages and not a penalty for the Association's breach of this Agreement. Executive shall not be required to mitigate his damages hereunder by seeking employment or otherwise. (j) Disability Termination In the event that the Executive is totally disabled prior to the Expiration Date of this Agreement, the Association shall have the right to terminate Executive's employment on ten (10) days written notice to Executive, provided the Association shall pay the Executive a disability benefit which is equal to the salary provided in Section 4, as the same may have been increased from time to time, received by Executive at the commencement of the Executive's total disability, reduced by the sum of (i) the amount of any benefits to which the Executive may be entitled with respect to the same period under any disability plan or pension plan, -14- including related supplemental and excess benefit plans or agreements, of the Association and (ii) the disability benefits payable under any government regulated plan including workers' compensation benefits. Payment of such disability benefit shall commence with the week coincident with the termination of Executive's employment under this Agreement and shall continue until the earlier of the Expiration Date or the Executive's death. During any period the Executive shall be entitled to receive disability payments from the Association, to the extent that he is physically and mentally able to do so, he shall furnish information and assistance to the Association, and, in addition, upon reasonable request in writing from time to he shall make himself available to the Association to undertake reasonable assignments with the dignity, importance, and scope of his prior position and his physical and mental health. As used in this Agreement, the term "total disability" shall mean the complete inability of the Executive to perform all of his duties under this Agreement as determined by an independent physician selected with the approval of the Board of Directors and the Executive. 8. Withholding of Taxes The Association may withhold from any payments under this Agreement all applicable taxes, as shall be required pursuant to any law or governmental regulation or ruling. -15- 9. Prior Agreements This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof, supersedes all prior and contemporaneous agreements and understandings and any prior employment agreement between the Association and the Executive. 10. Consolidation or Merger Nothing in this Agreement shall preclude the Association from consolidating or merging into or with, or transferring all or substantially all of its assets to, any Person which assumes this Agreement and all obligations of the Association hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term, "Association" shall refer to such other Person and this Agreement shall continue in full force and effect. 11. General Provisions (a) Non-Assignability Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive without the Association's prior written consent; provided, howevever, that nothing in this subparagraph 11(a) shall preclude the executors, administrators, or other legal representatives of the estate of the Executive from assigning any rights hereunder to the Person or Persons entitled thereto under the Executive's -16- will or, in case of intestacy, to the Person or Persons entitled thereto under the laws of intestacy applicable to the Executive's estate. (b) No Attachment Except as otherwise required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. (c) Binding Agreement This Agreement shall be binding upon and inure to the benefit of the Executive and the Association, the Executive's heirs, executors and assigns and the Association's successors and assigns. (d) "Person" Defined "Person" as used herein means a natural person, joint venture, corporation, sole proprietorship, trust, estate, partnership, cooperative, association, organization, government or governmental entity, or other entity. 12. Legal Expenses The Association shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive -17- in seeking to obtain or enforce any right or benefit provided by this Agreement. 13. Amendment No amendment or modification of this Agreement shall be deemed effective unless and until executed in writing. 14. Severability If for any reason any provision of this Agreement shall be held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and all other such provisions shall to the full extent consistent with law continue in full force and effect. If any such provision shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall likewise to the full extent consistent with law continue in full force and effect. 15. Headings The headings are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 16. Interpretation If any provision of this Agreement shall be the subject of a dispute between the Association and the Executive and a court or arbitrator to which such dispute has been -18- brought shall be unable to resolve which of two reasonable interpretations of such provision is the proper interpretation thereof, then the interpretation most favorable to the Executive shall control. 17. Governing Law This Agreement has been executed and delivered in the State of New Jersey and its validity, interpretation, performance and enforcement shall be governed by and construed in accordance with the laws thereof applicable to contracts executed and to be wholly performed in New Jersey. 18. Consent to Jurisdiction Executive and the Association irrevocable consent to the exclusive jurisdiction of the Courts of Salem County, New Jersey and/or the United States District Court for the District of New Jersey in any action or proceeding pursuant to this Agreement and agree to service of process in accordance with Section 17 herein. 19. Notices All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice: -19- A. If to Executive, to: Robert A. DiValerio 105 South Carol Boulevard Upper Darby, PA 19082 B. If to Association, to: First Savings and Loan Association of Penns Grove 125 South Broadway Pennsville, NJ 08070 C. In all cases, copies to: Blank, Rome, Comisky & McCauley 1200 Four Penn Center Plaza Philadelphia, PA 19103 Attn: Barry H. Genkin, Esquire D. and to such other or additional Person or Persons as either party shall have designated to the other party in writing by like notice. 20. Reimbursement of Expenses In the event the Association or any party other than the Executive asserts that this Agreement, in whole or in part, is unenforceable or invalid, than the Association shall reimburse Executive for any costs and expenses including, without limitation, legal fees, incurred by Executive in enforcing this Agreement or defending its validity. IN WITNESS WHEREOF, the Association has caused this Agreement to be executed and its seal to be affixed hereto by -20- its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. ATTEST: FIRST SAVINGS AND LOAN ASSOCIATION OF PENNS GROVE /s/ Joyce A. Hunt /s/ Stephen D. Miller __________________________________ By: ______________________________ Secretary Stephen D. Miller, President WITNESS: /s/ Elizabeth F. Homen /s/ Robert A. DiValerio __________________________________ ______________________________ Robert A. DiValerio -21- AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated 27th day of March, 1992, by and between First Home Savings Bank, S.L.A., a savings and loan association incorporated under laws of New Jersey (the "Bank"), and Robert A. DiValerio (the "Executive"). W I T N E S S E T H: WHEREAS, the Bank and Executive have entered into an Employment Agreement made effective as of the 15th day of April, 1987 (the "Employment Agreement"); and WHEREAS, the Bank and Executive desire to amend certain of the terms of the Employment Agreement. NOW, THEREFORE, the parties hereto, intended to be legally bound hereby, agree as follows: 1. The first sentence of Section 3(a) of the Employment Agreement shall be amended to read in its entirety as follows: "The period of the Executive's employment under this Agreement shall commence as of the date of the conversion of the Association from a mutual to stock form (the "Effective Date") and shall, unless sooner terminated by the death of the Executive, mutual agreement or pursuant to Section 7, continue for a period of three (3) years therefrom, (such period being herein referred to as the "Employment Period"), provided, however, subject to Section 3(b), and if the Employment Period has not been terminated by the death of the Executive, by mutual agreement or pursuant to Section 7, that on each December 31 during the Employment Period, the Employment Period shall be extended for one year, so that at all times the Employment Period on each January 1 during the year of this Agreement shall be an unexpired period of three years, provided, however, that such extension shall not go into effect unless and until it has been reviewed and approved by the Board of Directors." 2. Section 7(c) is amended to read in its entirety as follows: "(c) Suspension Pursuant to Notice If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)), the Association's obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discre- tion (i) pay the Executive all or part of the compensation withheld while the Bank's obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of the Association's obligations under this Agreement which were suspended. 3. Section 7(d) is amended to read in its entirety as follows: (d) Termination Pursuant to Order If the Executive is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations of the Association under this Agreement shall terminate as of the effective date of the order, but vested rights of the Association and Executive shall not be affected. 4. Section 7(e) is amended to read in its entirety as follows: (e) Termination Upon Default If the Association is in default (as defined in Section 3(X)(1) of the Federal Deposit Insurance Act), all obligations under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the Association and Executive. 5. Section 7(f) is amended to read in its entirety as follows: (f) Termination by Office of Thrift Supervision All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Association, (i) by the Director of the Office of Thrift Supervision or his or her designee at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Association under the authority contained in Section 13(c) of the Federal Deposit Insurance Act; or (ii) by the Director of the Office of Thrift Supervision or his or her designee, at the time such Director or designee approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by such Director to be in an unsafe -2- and unsound condition. Any rights of the Association or Executive that have already vested, however, shall not be affected by such action. 6. Section 7(h) is amended to read in its entirety as follows: Notwithstanding anything contained herein to the contrary, the Executive may terminate this Agreement by notice (which shall in no event be less than 6 months) to the Association on or after the date that the Executive first becomes eligible to receive retirement benefits under the Association's Employee Stock Ownership Plan in which case benefits shall be payable to the Executive in accordance with the provisions of such plan, and all rights of the Executive under this Agreement shall cease. 7. Section 7 of the Employment Agreement is amended by adding at the end thereof a new Section (k) which shall read in its entirety as follows: (k) Limitation. Notwithstanding anything to the contrary contained in this Section, Executive shall not receive and does hereby waive the right to receive any amount upon his termination of employment (whether pursuant to the terms of this Agreement or pursuant to any other policy or arrangement) which would cause Executive to receive an amount which exceeds three times the Executive's annual salary for the year in which Executive's employment is terminated. 8. Section 12 of the Employment Agreement is amended to read in its entirety as follows: "If the Executive obtains a judgment which enforces a right or benefit under this Agreement, the Association shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive in seeking to obtain or enforce such right or benefit." 9. The Employment Agreement is amended by deleting Section 20 in its entirety. 10. The Employment Agreement, as amended by this Amendment, shall remain in full force and effect. IN WITNESS WHEREOF, the Association has caused this Amendment to be executed and its seal to be affixed hereto by its officers thereunto duly authorized, and the Executive has signed -3- and sealed this Agreement, all as of the day and year first above written. FIRST HOME SAVINGS BANK, S.L.A. Stephen W. Miller, Pres. By:___________________________ /s/ Robert A. DiValerio ___________________________ Robert A. DiValerio -4- SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated this 25th day of January, 1993, by and between First Home Savings Bank, S.L.A., a savings and loan association incorporated under laws of New Jersey (the "Bank"), and Robert A. DiValerio (the "Executive"). W I T N E S S E T H: WHEREAS, the Bank and Executive have entered into an Employment Agreement made effective as of the 15th day of April 1987 (the "Employment Agreement"); and WHEREAS, the Employment Agreement was amended on March 27, 1992; and WHEREAS, the Bank and Executive desire to make further amendments to certain of the terms of the Employment Agreement. NOW, THEREFORE, the parties hereto, intended to be legally bound hereby, agree as follows: 1. The first sentence of Section 3(a) of the Employment Agreement shall be amended to read in its entirety as follows: "The period of the Executive's employment under this Agreement shall commence as of the date of the conversion of the Association from a mutual to stock form (the "Effective Date") and shall, unless sooner terminated by the death of the Executive, mutual agreement or pursuant to Section 7, continue for a period of three (3) years therefrom, (such period being herein referred to as the "Employment Period"), provided, however, subject to Section 3(b), and if the Employment Period has not been terminated by the death of the Executive, by mutual agreement or pursuant to Section 7, that on each December 31 during the Employment Period, the Employment Period shall be extended for one year, so that at all times the Employment Period on each January 1 during the year of this Agreement shall be an unexpired period of three years, provided, however, that such extension shall not go into affect unless and until it has been reviewed and approved by the Board of Directors." 2. Section 7(c) is amended to read in its entirety as follows: "(c) Suspension Pursuant to Notice If Executive in suspended and/or temporarily prohibited from participating in the conduct of the Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)), the Association's obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Executive all or part of the compensation withheld while the Bank's obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of the Association's obligations under this Agreement which were suspended. 3. Section 7(d) is amended to read in its entirety as follows: (d) Termination Pursuant to Order If the Executive is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations of the Association under this Agreement shall terminate as of the effective date of the order, but vested rights of the Association and Executive shall not be affected. 4. Section 7(e) is amended to read in its entirety an follows: (e) Termination Upon Default If the Association is in default (as defined in Section 3(X)(1) of the Federal Deposit Insurance Act), all obligations under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the Association and Executive. 5. Section 7(f) is amended to read in its entirety as follows: (f) Termination by Office of Thrift Supervision All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Association, (i) by the Director of the Office of Thrift Supervision or his or her designee at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Association under the authority contained in Section 13(c) of the Federal Deposit Insurance Act; or (ii) by the Director of the Office of Thrift Supervision or his or her designee, at the time such Director or -2- designee approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by such Director to be in an unsafe and unsound condition. Any rights of the Association or Executive that have already vested, however, shall not be affected by such action. 6. Section 7(h) is amended to read in its entirety as follows: Notwithstanding anything contained herein to the contrary, the Executive may terminate this Agreement by notice (which shall in no event be less than 6 months) to the Association on or after the date that the Executive first becomes eligible to receive retirement benefits under the Association's Employee Stock Ownership Plan in which case benefits shall be payable to the Executive in accordance with the provisions of such plan, and all rights of the Executive under this Agreement shall cease. 7. Section 7(i)(1) is amended to read in its entirety as follows: 100% of the salary set forth in Section 4, as the same may have been increased from time to time, payment of which shall be at the time provided for in this agreement as if the Executive's employment under this agreement has not terminated. 8. Section 7 of the Employment Agreement is amended by adding at the end thereof a new Section (k) which shall read in its entirety as follows: (k) Limitation. Notwithstanding anything to the contrary contained in this Section, Executive shall not receive and does hereby waive the right to receive any amount upon his termination of employment (whether pursuant to the terms of this Agreement or pursuant to any other policy or arrangement) which would cause Executive to receive an amount which exceeds three times the Executive's annual salary for the year in which Executive's employment is terminated. 9. Section 12 of the Employment Agreement is amended to read in its entirety as follows: "If the Executive obtains a judgment which enforces a right or benefit under this Agreement, the Association shall pay to the Executive all reasonable -3- legal fees and expenses incurred by the Executive in seeking to obtain or enforce such right or benefit." 10. The Employment Agreement is amended by deleting Section 20 in its entirety. 11. The Employment Agreement, as amended by this Amendment, shall remain in full force and effect. IN WITNESS WHEREOF, the Association has caused this Amendment to be executed and its seal to be affixed hereto by its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. FIRST HOME SAVINGS BANK, S.L.A. /s/ Sol L. Davidow BY:____________________________ Sol L. Davidow, Chairman of the Board /s/ Robert A. DiValerio ____________________________ Robert A. DiValerio -4- THIRD AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated this 5th day of January, 1994, by and between First Home Savings Bank, F.S.B., a savings and loan association incorporated under laws of the United States (the "Bank"), and Robert A. DiValerio (the "Executive"). W I T N E S S E T H: WHEREAS, the Bank, as the successor in interest by merger with First Home Savings Bank, S.L.A. (formerly known as First Savings and Loan Association of Penns Grove), and Executive have entered into an Employment Agreement made effective as of the 15th day of April, 1987 (the "Employment Agreement"); and WHEREAS, the Employment Agreement was amended on March 27, 1992 and January 25, 1993; and WHEREAS, the Bank and Executive desire to make further amendments to certain of the terms of the Employment Agreement. NOW, THEREFORE, the parties hereto, intended to be legally bound hereby, agree as follows: 1. All references in the Employment Agreement, as amended, to "Bank" or "Association" shall be deemed to refer to First Home Savings Bank, F.S.B. 2. Section 7(k) of the Employment Agreement is amended to read in its entirety as follows: (k) Limitation. Notwithstanding anything to the contrary contained in this Section, Executive shall not receive and does hereby waive the right to receive any amount upon his termination of employment (whether pursuant to the terms of this Agreement or pursuant to any other policy or arrangement) which would cause Executive to receive an amount which exceeds three times the Executive's Average Annual Compensation (as hereinafter defined). "Average Annual Compensation" means the average of all Compensation (as hereinafter defined) paid to Executive by Bank during each of the five full taxable years (i.e. January 1 to December 31) preceding the year in which Executive's employment is terminated. "Compensation" shall mean "Compensation" as defined in RB 27a, "Executive Compensation and Employment Contracts", dated March 5, 1993, promulgated by the Office of Thrift Supervision. 3. The Employment Agreement, as amended, and as amended by this Amendment, shall remain in full force and effect. IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed and its seal to be affixed hereto by its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. FIRST HOME SAVINGS BANK, F.S.B. /s/ Sol L. Davidow By:____________________________ Sol L. Davidow, Chairman of the Board /s/ Robert A. DiValerio ___________________________ Robert A. DiValerio -2- EX-10.6 9 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT, made effective as of the 15th day of April, 1987 by and between First Savings and Loan Association of Penns Grove, a savings and loan association incorporated under the laws of the United States (the "Association"), and Duff P. O'Connor (the "Executive"). WITNESSETH: WHEREAS, the Executive is employed with the Association on a full time basis; WHEREAS, the Association is converting to a state chartered stock savings and loan association and desires to assure that the Executive remains in its employ after such conversion; and WHEREAS, the Association is willing to employ the Executive and the Executive is willing to accept employment on the terms and conditions set forth in this Agreement; NOW, THEREFORE, intending to be legally bound, the parties agree as follows: 1. Employment The Association hereby employs the Executive, and the Executive hereby accepts such employment and agrees to remain in the employ of the Association, for the period stated in paragraph 3 below and upon the other terms and conditions herein provided. 2. Position and Duties During the Employment Period (as defined in Section 3(a)), the Executive agrees to serve as Senior Vice President, Lending Operations of the Association and shall perform such managerial duties and responsibilities for the Association as the Board of Directors of the Association or any superior officer may direct in accordance with the by-laws of the Association, which duties and responsibilities shall be of substantially the same character as or equivalent character to those required by Executive's position on the Effective Date (as defined in Section 3(a)). Throughout the Employment Period, and except for illness, vacation periods and leaves of absence granted by the Association (if any), the Executive shall devote all his business time, attention, skill and efforts to the faithful performance of his duties hereunder, and, subject to Section 7(g)(1), accept such office or offices to which he may be elected by the Board of Directors of the Association. 3. Term (a) Period of Employment The period of the Executive's employment under this Agreement shall commence as of the date of the conversion of the Association from a mutual to stock form (the "Effective Date") and shall, unless sooner terminated by the death of the Executive, mutual agreement or pursuant to Section 7, continue for -2- a period of one (1) year therefrom, (such period being herein referred to as the "Employment Period"), provided, however, subject to Section 3(b), and if the Employment Period has not been terminated by the death of the Executive, by mutual agreement or pursuant to Section 7, that on each December 31 during the Employment Period, the Employment Period shall be extended for one year, so that at all times the Employment Period on each January 1 during the term of this Agreement shall be an unexpired period of one (1) year. The last day of the Employment Period, as from time to time extended, and without regard to any early termination pursuant to Section 7, is hereinafter referred to as the "Expiration Date." (b) Termination of Automatic Extension The Executive or Association may elect to terminate the automatic extension of the Employment Period set forth in subsection 3(a) by giving written notice of such election. Any notice given hereunder shall be effective in the year in which the notice is given, if given between January 1 and June 30 of any calendar year, and in the year following the year in which the notice is given, if given between July 1 and December 31 of any calendar year. Upon effectiveness of any notice given hereunder, Executive's employment under this Agreement shall terminate on the Expiration Date (as last extended) or such earlier date as may be determined pursuant to Section 7. -3- 4. Compensation (a) Salary and Incentive Compensation For all services rendered by the Executive in any capacity during the Employment Period under this Agreement, the Executive shall be paid as compensation (i) an annual salary of $48,000, or such higher salary as may be negotiated from time to time by the Association and the Executive plus (ii) such incentive compensation or bonus as may be awarded to the Executive from time to time by the Board of Directors. Such salary shall be payable in 52 equal weekly installments and any such incentive compensation or bonus shall be payable in the manner and at the time specified by the Board of Directors. (b) Reimbursement of Expenses The Association shall pay or reimburse the Executive, in accordance with the Association's policies and requirements, for all reasonable travel and other expenses incurred by the Executive in performing his obligations under this Agreement. The Executive shall be provided, at his option, with an automobile expense allowance, or the use of a recent model automobile which will be owned by the Association, as may be mutually agreed upon by the Executive and the Association. All reasonable business related expenses associated therewith shall be borne by the Association. -4- 5. Participation in Incentive Compensation and Benefit Plans In addition to the payments provided under this Agreement, the Executive (or his beneficiary) may be, or may become, entitled to benefits under any executive or contingent compensation plan, stock option, restricted stock or stock purchase plan, retirement income or pension plan, supplemental or excess benefit plan, group hospitalization, health care, or sick leave plan, life or other insurance or death benefit plan, travel and accident insurance, vacation plan, or other present or future group employee benefit plan or program of the Association for which Executive employees of the Association generally are eligible, and the Executive shall be eligible to receive, with respect to the Employment Period, all benefits and emoluments for which he is eligible under any such benefit plan or program of the Association in accordance with the provisions and requirements of any such plan or program. 6. Vacation and Sick Leave Executive shall be entitled to be compensated for annual vacation, personal and sick leave in accordance with established Association policy. -5- 7. Termination or Suspension of Employment (a) Termination without Cause Notwithstanding anything to the contrary contained in this Agreement, subject to Executive receiving the compensation set forth in subsection (i) of this Section 7, the Association's Board of Directors may terminate the Executive's employment under this Agreement at any time. Termination of Executive's employment under this subsection shall be deemed a breach of this Agreement by the Association. (b) Termination with Cause The Association's Board of Directors may terminate the Executive's employment under this Agreement at any time for cause. The Executive shall have no right to receive compensation or other benefits for any period after termination for cause. The term "for cause" shall include the Executive's personal dishonesty, incompetency, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. If the Association's Board of Directors determines that Executive's employment under this Agreement shall be terminated for cause, -6- then the Board shall forthwith provide Executive with a written notice of said determination. The notice shall contain a detailed statement of the facts which constitute the particulars of the cause for termination. As used herein, the term incompetency shall mean the determination by a court that the Executive is unable to manage his own affairs by reason of insanity, imbecility or feeble mindedness. (c) Suspension Pursuant to Notice If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Association's affairs by a notice served by the Federal Home Loan Bank Board ("FHLBB") or the Federal Savings and Loan Insurance Corporation ("FSLIC") under Section 5(d)(4)(C) or Section 5(d)(5)(A) of the Home Owners' Loan Act (12 U.S.C. 1464(d)(4)(C) and (5)(d)(A)) or under Section 407(g)(3) or Section 407(h) of the National Housing Act (12 U.S.C. 1730 (g)(3) and (h), the Association's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Executive all or part of the compensation withheld while the Association's obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of the Association's obligations under this Agreement which were suspended. -7- (d) Termination Pursuant to Order If the Executive is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order of the FHLBB or FSLIC issued under Section 5(d)(4)(D) or Section 5(d)(5)(A) of the Home Owners' Loan Act (12 U.S.C. 1464(d)(4)(D) and (d)(5)(A)) or under Section 407(g)(3) or Section 407(h) of the National Housing Act (12 U.S.C. 1730(g)(3) and (h)), all obligations of the Association under this Agreement shall terminate as of the effective date of the order, but vested rights of the Association and Executive shall not be affected. (e) Termination Upon Default Under National Housing Act If the Association is in default (as defined in Section 401(d) of the National Housing Act), all obligations under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the Association and Executive. (f) Termination by FSLIC and FHLBB All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the institution, (i) by FSLIC at the time FSLIC enters into an agreement to provide assistance to or on behalf of the -8- Association under the authority contained in Section 406 (f) of the National Housing Act; or (ii) by the FHLBB at the time the FHLBB or its Principal Supervisory Agent (as defined in 12 C.F.R. Section 561.35) approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by the FHLBB to be in an unsafe and unsound condition. Any rights of the Association or Executive that have already vested, however, shall not be affected by such action. (g) Termination by Executive for Good Reason The Executive shall be entitled to terminate his employment hereunder for good reason. Any termination of employment hereunder under any of the following circumstances shall be for good reason, the occurrence of any of which shall be deemed a breach of this Agreement by the Association: (1) without the express written consent of the Executive, the Executive is assigned any duties inconsistent with his positions, duties, responsibilities and status with the Association as in effect on the Effective Date, or his titles as in effect on the Effective Date are changed or the Executive is removed or not re-elected to any of such positions, except in connection with the termination of the Executive's employment pursuant to subsections (b),(c), (d),(e) or (f) of Section 7 of this Agreement, or as a result of his substantial disability or death; -9- (2) the salary of the Executive set forth in Section 4, as the same hereafter may be increased from time to time, is reduced; (3) the Association fails to continue for the Executive any benefit or compensation plan providing the Executive with substantially similar benefits to those plans in which the Executive is participating at the Effective Date or in which the Executive hereafter may participate; or (4) the Association shall fail to observe or perform any convenant or agreement in this Agreement to be observed or performed by the Association; (5) a change in control (as defined below) of the Association occurs. For the purposes of this Agreement, a "change in control of the Association" shall mean a change in control whether by stock transfer, sale of assets, merger, consolidation or otherwise; provided that, without limitation, such a change of control shall be deemed to have occurred if (1) any person (as such term is used in 12 C.F.R. Section 5563.18-2(b)(1)), other than those persons in control of Association on the date hereof, acquires the power, directly or indirectly, to direct the management or policies of the Association or to vote 25% or more of any class of voting securities of the Association; or (2) within -10- any period of three consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors of the Association cease for any reason to constitute at least a majority thereof. (h) Termination by Executive Other Than for Good Cause Notwithstanding anything contained herein to the contrary, the Executive may terminate this Agreement by notice (which shall in no event be less than 6 months) to the Association on or after the date that the Executive first becomes eligible to receive benefits under the Association's defined benefit pension plan in which case benefits shall be payable to the Executive in accordance with the provisions of such pension plan and all rights of the Executive under this Agreement shall cease. (i) Remedies for Termination Upon termination of the Executive's employment under this Agreement pursuant to subsections (a) or (g) of this Section 7, the Executive shall receive until the Expiration Date: (1) 200% of the salary set forth in Section 4, as the same may have been increased from time to time, payment of which shall be at the time provided for in this Agreement as if the Executive's employment under this Agreement has not terminated. -11- (2) annually, an amount equal to the average of the three highest annual incentive compensation payments made to Executive by the Association prior to the termination pursuant to subsection (a) or the event given Executive the right to terminate his employment under subsection (g); and (3) medical care, pension and similar benefits, at no cost to Executive, substantially comparable to those furnished to Executive by the Association immediately prior to termination of employment hereunder. (4) upon termination without Cause or termination for "good reason" following a "change in control", the Association shall determine the aggregate present value (pursuant to Section 1274(b)(2) of the Internal Revenue Code) of all amounts payable hereunder, and of all other amounts payable to the Executive upon or by reason of his termination which are determined in good faith by the Association to be "parachute payments", (as defined in Section 280G(b)(2) of the Code and the regulations promulgated thereunder) made pursuant to agreements or plans which are subject to Section 280G. The Association's determination of present value and of other amounts constituting "parachute payments" is binding; provided that if Executive obtains an opinion of counsel satisfactory to the Association or an Internal Revenue Service ruling to the -12- effect that the method of determining present value was improper or that specified payments did not constitute "parachute payments", calculations will be made in accordance with such opinion or ruling. In the event that aggregate present value of all benefits under this Agreement and other "parachute payments" is equal to or in excess of 300% of the Executive's "base amount" as defined in Section 280G(b)(3)(A) and regulations thereunder, the Executive waives the right to "parachute payments" sufficient to reduce the present value of all such payments below 300% of the "base amount". The Executive shall have the right to designate those benefits which shall be waived or reduced in order to comply with this provision, but failing designation by the Executive, the Association may designate those benefits which must be waived or reduced. (5) If it is established pursuant to a final determination of a court of competent jurisdiction or an Internal Revenue Service proceeding that, notwithstanding the good faith of the Executive and the Association in applying the terms of this Section 7, the aggregate "parachute payments" paid to or for the Executive's benefit are in an amount that would result in any portion of such "parachute payments" not being deductible by the Association or an Affiliate by reason of Section 280G of the Code, then the Executive shall have an obligation to pay the Association upon demand an amount equal to the sum of -13- (i) the excess of the aggregate "parachute payments" paid to or for the Executive's benefit without any portion of such "parachute payments" not being deductible by reason of Section 280G of the Code and (ii) interest on the amount set forth in clause (i) above at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of the Executive's receipt of such excess until the date of such payment. Any payment made by Association under this Section shall be deemed to constitute liquidated damages and not a penalty for the Association's breach of this Agreement. Executive shall not be required to mitigate his damages hereunder by seeking employment or otherwise. (j) Disability Termination In the event that the Executive is totally disabled prior to the Expiration Date of this Agreement, the Association shall have the right to terminate Executive's employment on ten (10) days written notice to Executive, provided the Association shall pay the Executive a disability benefit which is equal to the salary provided in Section 4, as the same may have been increased from time to time, received by Executive at the commencement of the Executive's total disability, reduced by the sum of (i) the amount of any benefits to which the Executive may be entitled with respect to the same period under any -14- disability plan or pension plan, including related supplemental and excess benefit plans or agreements, of the Association and (ii) the disability benefits payable under any government regulated plan including workers' compensation benefits. Payment of such disability benefit shall commence with the week coincident with the termination of Executive's employment under this Agreement and shall continue until the earlier of the Expiration Date or the Executive's death. During any period the Executive shall be entitled to receive disability payments from the Association, to the extent that he is physically and mentally able to do so, he shall furnish information and assistance to the Association, and, in addition, upon reasonable request in writing from time to he shall make himself available to the Association to undertake reasonable assignments with the dignity, importance, and scope of his prior position and his physical and mental health. As used in this Agreement, the term "total disability" shall mean the complete inability of the Executive to perform all of his duties under this Agreement as determined by an independent physician selected with the approval of the Board of Directors and the Executive. 8. Withholding of Taxes The Association may withhold from any payments under this Agreement all applicable taxes, as shall be required pursuant to any law or governmental regulation or ruling. -15- 9. Prior Agreements This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof, supersedes all prior and contemporaneous agreements and understandings and any prior employment agreement between the Association and the Executive. 10. Consolidation or Merger Nothing in this Agreement shall preclude the Association from consolidating or merging into or with, or transferring all or substantially all of its assets to, any Person which assumes this Agreement and all obligations of the Association hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term, "Association" shall refer to such other Person and this Agreement shall continue in full force and effect. 11. General Provisions (a) Non-Assignability Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive without the Association's prior written consent; provided, however, that nothing in this subparagraph 11(a) shall preclude the executors, administrators, or other legal representatives of the estate of the Executive from assigning any rights hereunder to the Person or -16- Persons entitled thereto under the Executive's will or, in case of intestacy, to the Person or Persons entitled thereto under the laws of intestacy applicable to the Executive's estate. (b) No Attachment Except as otherwise required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. (c) Binding Agreement This Agreement shall be binding upon and inure to the benefit of the Executive and the Association, the Executive's heirs, executors and assigns and the Association's successors and assigns. (d) "Person" Defined "Person" as used herein means a natural person, joint venture, corporation, sole proprietorship, trust, estate, partnership, cooperative, association, organization, government or governmental entity, or other entity. 12. Legal Expenses The Association shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive in seeking to obtain or enforce any right or benefit provided by this Agreement. -17- 13. Amendment No amendment or modification of this Agreement shall be deemed effective unless and until executed in writing. 14. Severability If for any reason any provision of this Agreement shall be held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and all other such provisions shall to the full extent consistent with law continue in full force and effect. If any such provision shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall likewise to the full extent consistent with law continue in full force and effect. 15. Headings The headings are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 16. Interpretation If any provision of this Agreement shall be the subject of a dispute between the Association and the Executive and a court or arbitrator to which -18- such dispute has been brought shall be unable to resolve which of two reasonable interpretations of such provision is the proper interpretation thereof, then the interpretation most favorable to the Executive shall control. 17. Governing Law This Agreement has been executed and delivered in the State of New Jersey and its validity, interpretation, performance and enforcement shall be governed by and construed in accordance with the laws thereof applicable to contracts executed and to be wholly performed in New Jersey. 18. Consent to Jurisdiction Executive and the Association irrevocable consent to the exclusive jurisdiction of the Courts of Salem County, New Jersey and/or the United States District Court for the District of New Jersey in any action or proceeding pursuant to this Agreement and agree to service of process in accordance with Section 17 herein. 19. Notices All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice: -19- A. If to Executive, to: Duff P. O'Connor Cedar Crest Drive Carneys Point, NJ 08069 B. If to Association, to: First Savings and Loan Association of Penns Grove 125 South Broadway Pennsville, NJ 08070 C. In all cases, copies to: Blank, Rome, Comisky & McCauley 1200 Four Penn Center Plaza Philadelphia, PA 19103 Attn: Barry H. Genkin, Esquire D. and to such other or additional Person or Persons as either party shall have designated to the other party in writing by like notice. 20. Reimbursement of Expenses In the event the Association or any party other than the Executive asserts that this Agreement, in whole or in part, is unenforceable or invalid, than the Association shall reimburse Executive for any costs and expenses including, without limitation, legal fees, incurred by Executive in enforcing this Agreement or defending its validity. IN WITNESS WHEREOF, the Association has caused this Agreement to be executed and its seal to be affixed hereto by -20- its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. ATTEST: FIRST SAVINGS AND LOAN ASSOCIATION OF PENNS GROVE /s/ Joyce A. Hunt By: /s/ Stephen D. Miller - ----------------------- ------------------------------------ Secretary Stephen D. Miller, President WITNESS: /s/ Elizabeth J. Homen /s/ Duff P. O'Connor - ---------------------- ------------------------------------- Elizabeth J. Homen Duff P. O'Connor -21- AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated 27th day of March, 1992, by and between First Home Savings Bank, S.L.A., a savings and loan association incorporated under laws of New Jersey (the "Bank"), and Duff P. O'Connor (the "Executive"). W I T N E S S E T H: WHEREAS, the Bank and Executive have entered into an Employment Agreement made effective as of the 15th day of April, 1987 (the "Employment Agreement"); and WHEREAS, the Bank and Executive desire to amend certain of the terms of the Employment Agreement. NOW, THEREFORE, the parties hereto, intended to be legally bound hereby, agree as follows: 1. The first sentence of Section 3(a) of the Employment Agreement shall be amended to read in its entirety as follows: "The period of the Executive's employment under this Agreement shall commence as of the date of the conversion of the Association from a mutual to stock form (the "Effective Date") and shall, unless sooner terminated by the death of the Executive, mutual agreement or pursuant to Section 7, continue for a period of three (3) years therefrom, (such period being herein referred to as the "Employment Period"), provided, however, subject to Section 3(b), and if the Employment Period has not been terminated by the death of the Executive, by mutual agreement or pursuant to Section 7, that on each December 31 during the Employment Period, the Employment Period shall be extended for one year, so that at all times the Employment Period on each January 1 during the year of this Agreement shall be an unexpired period of three years, provided, however, that such extension shall not go into effect unless and until it has been reviewed and approved by the Board of Directors." 2. Section 7(c) is amended to read in its entirety as follows: (c) Suspension Pursuant to Notice If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)), the Association's obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Executive all or part of the compensation withheld while the Bank's obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of the Association's obligations under this Agreement which were suspended. 3. Section 7(d) is amended to read in its entirety as follows: (d) Termination Pursuant to Order If the Executive is removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations of the Association under this Agreement shall terminate as of the effective date of the order, but vested rights of the Association and Executive shall not be affected. 4. Section 7(e) is amended to read in its entirety as follows: (e) Termination Upon Default If the Association is in default (as defined in Section 3(X)(1) of the Federal Deposit Insurance Act), all obligations under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the Association and Executive. 5. Section 7(f) is amended to read in its entirety as follows: (f) Termination by Office of Thrift Supervision All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Association, (i) by the Director of the Office of Thrift Supervision or his or her designee at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Association under the authority contained in Section 13(c) of the Federal Deposit Insurance Act; or (ii) by the Director of the Office of Thrift Supervision or his or her designee, at the time such Director or designee approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by such Director to be in an unsafe and and unsound condition. Any rights of the Association or Executive that have already vested, however, shall not be affected by such action. -2- 6. Section 7(h) is amended to read in its entirety as follows: Notwithstanding anything contained herein to the contrary, the Executive may terminate this Agreement by notice (which shall in no event be less than 6 months) to the Association on or after the date that the Executive first becomes eligible to receive retirement benefits under the Association's Employee Stock Ownership Plan in which case benefits shall be payable to the Executive in accordance with the provisions of such plan, and all rights of the Executive under this Agreement shall cease. 7. Section 7 of the Employment Agreement is amended by adding at the end thereof a new Section (k) which shall read in its entirety as follows: (k) Limitation. Notwithstanding anything to the contrary contained in this Section, Executive shall not receive and does hereby waive the right to receive any amount upon his termination of employment (whether pursuant to the terms of this Agreement or pursuant to any other policy or arrangement) which would cause Executive to receive an amount which exceeds three times the Executive's annual salary for the year in which Executive's employment is terminated. 8. Section 12 of the Employment Agreement is amended to read in its entirety as follows: "If the Executive obtains a judgment which enforces a right or benefit under this Agreement, the Association shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive in seeking to obtain or enforce such right or benefit." 9. The Employment Agreement is amended by deleting Section 20 in its entirety. 10. The Employment Agreement, as amended by this Amendment, shall remain in full force and effect. -3- IN WITNESS WHEREOF, the Association has caused this Amendment to be executed and its seal to be affixed hereto by its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. FIRST HOME SAVINGS BANK, S.L.A. By: /s/ Stephen D. Miller Pres. ------------------------------------ /s/ Duff P. O'Connor ------------------------------------ Duff P. O'Connor -4- SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated this 25th day of January, 1993, by and between First Home Savings Bank, S.L.A., a savings and loan association incorporated under laws of New Jersey (the "Bank"), and Duff P. O'Connor (the "Executive"). W I T N E S S E T H: WHEREAS, the Bank and Executive have entered into an Employment Agreement made effective as of the 15th day of April, 1987 (the "Employment Agreement"); and WHEREAS, the Employment Agreement was amended on March 27, 1992; and WHEREAS, the Bank and Executive desire to make further amendments to certain of the terns of the Employment Agreement. NOW, THEREFORE, the parties hereto, intended to be legally bound hereby, agree as follows: 1. The first sentence of Section 3(a) of the Employment Agreement shall be amended to read in its entirety as follows: "The period of the Executive's employment under this Agreement shall commence as of the date of the conversion of the Association from a mutual to stock form (the "Effective Date") and shall, unless sooner terminated by the death of the Executive, mutual agreement or pursuant to Section 7, continue for a period of three (3) years therefrom, (such period being herein referred to as the "Employment Period"), provided, however, subject to Section 3(b), and if the Employment Period has not been terminated by the death of the Executive, by mutual agreement or pursuant to Section 7, that on each December 31 during the Employment Period, the Employment Period shall be extended for one year, so that at all times the Employment Period on each January 1 during the year of this Agreement shall be an unexpired period of three years, provided, however, that such extension shall not go into affect unless and until it has been reviewed and approved by the Board of Directors." 2. Section 7(c) is amended to read in its entirety as follows: (c) Suspension Pursuant to Notice If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Association's affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(3) and (g)(1)), the Association's obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Association may in its discretion (i) pay the Executive all or part of the compensation withheld while the Bank's obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of the Association's obligations under this Agreement which were suspended. 3. Section 7(d) is amended to read in its entirety as follows: (d) Termination Pursuant to Order If the Executive in removed and/or permanently prohibited from participating in the conduct of the Association's affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. Section 1818(e)(4) or (g)(1)), all obligations of the Association under this Agreement shall terminate as of the effective date of the order, but vested rights of the Association and Executive shall not be affected. 4. Section 7(e) is amended to read in its entirety as follows: (e) Termination Upon Default If the Association is in default (as defined in Section 3(X)(1) of the Federal Deposit Insurance Act), all obligations under this Agreement shall terminate an of the date of default, but this subsection shall not affect any vested rights of the Association and Executive. 5. Section 7(f) is amended to read in its entirety as follows: (f) Termination by Office of Thrift Supervision All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Association, (i) by the Director of the Office of Thrift Supervision or his or her designee at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Association under the authority contained in Section 13(c) of the Federal Deposit Insurance Act; or (ii) by the Director of the office of Thrift Supervision or his or her designee, at the time -2- such Director or designee approves a supervisory merger to resolve problems related to operation of the Association or when the Association is determined by such Director to be in an unsafe and unsound condition. Any rights of the Association or Executive that have already vested, however, shall not be affected by such action. 6. Section 7(h) is amended to read in its entirety as follows: Notwithstanding anything contained herein to the contrary, the Executive may terminate this Agreement by notice (which shall in no event be less than 6 months) to the Association on or after the date that the Executive first becomes eligible to receive retirement benefits under the Association's Employee Stock Ownership Plan in which case benefits shall be payable to the Executive in accordance with the provisions of such plan, and all rights of the Executive under this Agreement shall cease. 7. Section 7(i)(1) is amended to read in its entirety as follows: 100% of the salary set forth in Section 4 as the same may have been increased from time to time, payment of which shall be at the time provided for in this agreement as if the Executive's employment under this agreement has not terminated. 8. Section 7 of the Employment Agreement is amended by adding at the and thereof a new Section (k) which shall read in its entirety as follows: (k) Limitation. Notwithstanding anything to the contrary contained in this Section, Executive shall not receive and does hereby waive the right to receive any amount upon his termination of employment (whether pursuant to the terms of this Agreement or pursuant to any other policy or arrangement) which would cause Executive to receive an amount which exceeds three times the Executive's annual salary for the year in which Executive's employment is terminated. 9. Section 12 of the Employment Agreement is amended to read in its entirety as follows: "If the Executive obtains a judgment which enforces a right or benefit under this Agreement, the Association shall pay to the -3- Executive all reasonable legal fees and expenses incurred by the Executive in seeking to obtain or enforce such right or benefit." 10. The Employment Agreement is amended by deleting Section 20 in its entirety. 11. The Employment, Agreement, as amended by this Amendment, shall remain in full force and effect. IN WITNESS WHEREOF, the Association has caused this Amendment to be executed and its seal to be affixed hereto by its officers therunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. FIRST HOME SAVINGS BANK, S.L.A. By: /s/ Sol L. Davidow ------------------------------------ Sol L. Davidow, Chairman of the Board /s/ Duff F. O'Connor ------------------------------------ Duff F. O'Connor -4- IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed and its seal to be affixed hereto by its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. FIRST HOME SAVINGS BANK, F.S.B. By: /s/ Sol L. Davidow ---------------------------------- Sol L. Davidow, Chairman of the Board /s/ Duff P. O'Connor ---------------------------------- Duff P. O'Connor -2- THIRD AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated this 5th day of January, 1994, by and between First Home Savings Bank, F.S.B., a savings and loan association incorporated under laws of the United States (the "Bank"), and Duff P. O'Connor (the "Executive"). W I T N E S S E T H: WHEREAS, the Bank, as the successor in interest by merger with First Home Savings Bank, S.L.A. (formerly known as First Savings and Loan Association of Penns Grove), and Executive have entered into an Employment Agreement made effective as of the 15th day of April, 1987 (the "Employment Agreement"); and WHEREAS, the Employment Agreement was amended on March 27, 1992 and January 25, 1993; and WHEREAS, the Bank and Executive desire to make further amendments to certain of the terms of the Employment Agreement. NOW, THEREFORE, the parties hereto, intended to be legally bound hereby, agree as follows: 1. All references in the Employment Agreement, as amended, to "Bank" or "Association" shall be deemed to refer to First Home Savings Bank, F.S.B. 2. Section 7(k) of the Employment Agreement is amended to read in its entirety as follows: (k) Limitation. Notwithstanding anything to the contrary contained in this Section, Executive shall not receive and does hereby waive the right to receive any amount upon his termination of employment (whether pursuant to the terms of this Agreement or pursuant to any other policy or arrangement) which would cause Executive to receive an amount which exceeds three times the Executive's Average Annual Compensation (as hereinafter defined). "Average Annual Compensation" means the average of all Compensation (as hereinafter defined) paid to Executive by Bank during each of the five full taxable years (i.e. January 1 to December 31) preceding the year in which Executive's employment is terminated. "Compensation" shall mean "Compensation" as defined in RB 27a, "Executive Compensation and Employment Contracts", dated March 5, 1993, promulgated by the Office of Thrift Supervision. 3. The Employment Agreement, as amended, and as amended by this Amendment, shall remain in full force and effect. EX-10.7 10 EMPLOYMENT AGREEMENT Exhibit 10.7 EMPLOYMENT AGREEMENT THIS AGREEMENT, made effective as of the 1st day of July, 1992 by and between First Home Savings Bank, S.L.A., a savings and loan association incorporated under the laws of New Jersey (the "Bank"), and Stephen R. Selverian (the "Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive has for many years been employed as President of Fidelity Mutual Savings and Loan Association ("Fidelity Mutual"); and WHEREAS, pursuant to the terms of a certain Agreement of Conversion Merger, Fidelity Mutual converted from a mutual savings and loan association to a capital stock savings and loan association and, simultaneously therewith, was merged with and into the Bank, and WHEREAS, the Bank desires that the Executive become an employee of the Bank; and WHEREAS, the Executive is willing to become an employee of the Bank on the terms and conditions set forth in this Agreement; NOW, THEREFORE, intending to be legally bound, the parties agree as follows: 1. Employment The Bank hereby employs the Executive, and the Executive hereby accepts such employment and agrees to remain in the employ of the Bank, for the period stated in paragraph 3 below and upon the other terms and conditions herein provided. 2. Position and Duties During the Employment Period (as defined in Section 3(a)), the Executive agrees to serve as an Executive Vice President of the Bank and shall perform such managerial duties and responsibilities for the Bank as the Board of Directors of the Bank or any superior officer may direct in accordance with the bylaws of the Bank. Throughout the Employment Period, and except for illness, vacation periods and leaves of absence granted by the Bank (if any), the Executive shall devote all his business time, attention, skill and efforts to the faithful performance of his duties hereunder, and, subject to Section 7(g)(1), accept such office or offices to which he may be elected by the Board of Directors of the Bank. Subject to the obligations and responsibilities of the Board of Directors under applicable law, at the first annual meeting of shareholders of the Bank after the Effective Date (as hereinafter defined) the Bank shall recommend to its shareholders that the Executive be elected to serve on the Board of Directors. 3. Term The period of the Executive's employment under this Agreement shall commence as of the date of the merger of Fidelity Mutual with and into the Bank (the "Effective Date") and shall, unless sooner terminated by the death of the Executive, mutual agreement or pursuant to Section 7, continue for a period of one (1) year therefrom, (such period being herein referred to as the "Employment Period"). The last day of the Employment Period, and without regard to any early termination pursuant to Section 7, is hereinafter referred to as the "Expiration Date." 4. Compensation a. Salary and Incentive Compensation For all services rendered by the Executive in any capacity during the Employment Period under this Agreement, the Executive shall be paid as compensation (i) an annual salary of $85,600, plus (ii) such incentive compensation or bonus as may be awarded to the Executive from time to time by the Board of Directors. Such salary shall be payable in 52 equal weekly installments and any such incentive compensation or bonus shall be payable in the manner and at the time specified by the Board of Directors. b. Reimbursement of Expenses The Bank shall pay or reimburse the Executive, in accordance with the Bank's policies and requirements, for all reasonable travel and other expenses incurred by the Executive in performing his obligations under this Agreement. The Executive shall be provided, at his option, with an automobile expense allowance, or the use of a recent model automobile which will be owned by the Bank, as may be mutually agreed upon by the Executive and the Bank. All reasonable business related expenses associated therewith shall be borne by the Bank. 5. Participation in Incentive Compensation and Benefit Plans In addition to the payments provided under this Agreement, the Executive (or his beneficiary) may be, or may become, entitled to benefits under any executive or contingent compensation plan, stock option', restricted stock or stock purchase plan, retirement income or pension plan, supplemental or excess benefit plan, group hospitalization, health care, or sick leave plan, life or other insurance or death benefit plan, travel and -2- accident insurance, vacation plan, or other present or future group employee benefit plan or program of the Bank for which executive employees of the Bank generally are eligible, and the Executive shall be eligible to receive, with respect to the Employment Period, all benefits and emoluments for which he is eligible under any such benefit plan or program of the Bank in accordance with the provisions and requirements of any such plan or program. 6. Vacation and Sick Leave Executive shall be entitled to be compensated for annual vacation, personal and sick leave in accordance with established Bank policy. 7. Termination or Suspension of Employment a. Termination without Cause Notwithstanding anything to the contrary contained in this Agreement, subject to the Executive receiving the compensation set forth in subsection (i) of this Section 7, the Bank's Board of Directors may terminate the Executive's employment under this Agreement at any time. Termination of Executive's employment under this subsection shall be deemed a breach of this Agreement by the Bank. b. Termination with Cause The Bank's Board of Directors may terminate the Executive's employment under this Agreement at any time for cause. The Executive shall have no right to receive compensation or other benefits for any period after termination for cause. The term "for cause" shall include the Executive's personal dishonesty, incompetency, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. If the Bank's Board of Directors determines that Executive's employment under this Agreement shall be terminated for cause, then the Board shall forthwith provide Executive with a written notice of said determination. The notice shall contain a detailed statement of the facts which constitute the particulars of the cause for termination. As used herein, the term incompetency shall mean the determination by a court that the Executive is unable to manage his own affairs by reason of insanity, imbecility or feeble mindedness. -3- c. Suspension Pursuant to Notice If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss.1818(e)(3) and (g)(1)), the Bank's obligations under this Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Executive all or part of the compensation withheld while the Bank's obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of the Bank's obligations under this Agreement which were suspended. d. Termination Pursuant to Order If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. ss.1818(e)(4) or (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but vested rights of the Bank and Executive shall not be affected. e. Termination Upon Default Under National Housing Act If the Bank is in default (as defined in Section 3(X)(1) of the Federal Deposit Insurance Act), all obligations under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the Bank and Executive. f. Termination by Office of Thrift Supervision All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank, (i) by the Director of the Office of Thrift Supervision or his or her designee at the time the Federal Deposit Insurance Corporation or the Resolution Trust Corporation enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of the Federal Deposit Insurance Act; or (ii) by the Director of the Office of Thrift Supervision or his or her designee, at the time such Director or designee approves a supervisory-merger to resolve problems related to operation of the Bank or when the Bank is determined by such Director to be in an unsafe and unsound condition. Any rights of the Bank or Executive that have already vested, however, shall not be affected by such action. -4- g. Terminated by Executive for Good Reason The Executive shall be entitled to terminate his employment hereunder for good reason. Any termination of employment hereunder under any of the following circumstances shall be for good reason, the occurrence of any of which shall be deemed a breach of this Agreement by the Bank: (1) without the express written consent of the Executive, the Executive is assigned any duties inconsistent with his positions, duties, responsibilities and status with the Bank as in effect on the Effective Date, or his titles as in effect on the Effective Date, are changed or the Executive is removed or not re-elected to any of such positions, except in connection with the termination of the Executive's employment pursuant to subsections b., c., d., e. or f. of Section 7 of this Agreement, as a result of his substantial disability or death, or as a result of Executive not being re-elected to serve on the Board of Directors of Bank; (2) the salary of the Executive set forth in Section 4 is reduced, except if such salary is reduced at the request, direction or order of the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, the New Jersey Department of Banking or any other governmental agency; (3) the Bank fails to continue for the Executive any benefit or compensation plan providing the Executive with substantially similar benefits to those plans in which the Executive is participating at the Effective Date or in which the Executive hereafter may participate; or (4) the Bank shall fail to observe or perform any covenant or agreement in this Agreement to be observed or performed by the Bank; (5) a change in control (as defined below) of the Bank occurs. For the purposes of this Agreement, a "change in control of the Bank" shall mean a change in control whether by stock transfer, sale of assets, merger, consolidation or otherwise; provided that, without limitation such a change of control shall be deemed to have occurred if (i) any person other than those persons in control of the Bank on the date hereof, acquires the power, directly or indirectly, to direct the management or policies of the Bank or to vote 25% or more of any class of voting securities of the Bank; or (ii) within any period of three -5- consecutive years during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors of the Bank cease for any reason to constitute at least a majority thereof. h. (Intentionally Omitted] i. Remedies for Termination (1) Upon termination of the Executive's employment under this Agreement pursuant to subsections a. or g. of this Section 7, the Executive shall receive until the Expiration Date: (a) 200% of the salary set forth in Section 4, payment of which shall be at the time provided for in this Agreement as if the Executive's employment under this Agreement has not terminated. (b) annually, an amount equal to the average of the three highest annual incentive compensation payments made to Executive by the Bank prior to the termination pursuant to subsection a. or the event given Executive the right to terminate his employment under subsection g.; and (c) medical care, pension and similar benefits, at no cost to Executive, substantially comparable to those furnished to Executive by the Bank immediately prior to termination of employment hereunder. (d) upon termination without Cause or termination for "good reason" following a "change in control," the Bank shall determine the aggregate present value (pursuant to ss.1274(b)(2) of the Internal Revenue Code) of all amounts payable hereunder, and of all of other amounts payable to the Executive upon or by reason of his termination which are determined in good faith by the Bank to be "parachute payments," (as defined in ss.280G(b)(2) of the Code and the regulations promulgated thereunder) made pursuant to agreements or plans which are subject to Section 280G. The Bank's determination of present value and of other amounts constituting "parachute payments" is binding; provided that if Executive obtains an opinion of counsel satisfactory to the Bank or an Internal Revenue Service ruling to the effect that the method of determining present value was improper or that specified payments did not constitute "parachute payments," calculations will be made in accordance with such opinion or filing. In the event that aggregate present value of all benefits under this Agreement and other "parachute payments" is equal to or in excess of -6- 300% of the Executive's "base amount" as defined in Section 280G(b)(3)(A) and regulations thereunder, the Executive waives the right to "parachute payments" sufficient to reduce the present value of all such payments below 300% of the "base amount." The Executive shall have the right to designate those benefits which shall be waived or reduced in order to comply with this provision, but failing designation by the Executive, the Bank may designate those benefits which must be waived or reduced. If it is established pursuant to a final determination of a court of competent jurisdiction or an Internal Revenue Service proceeding that, notwithstanding the good faith of the Executive and the Bank in applying the terms of this Section 7, the aggregate "parachute payments" paid to or for the Executive's benefit are in an amount that would result in any portion of such "parachute payments" paid to or for the Executive's benefit not being deductible by the Bank or an Affiliate by reason of Section 280G of the Code, then the Executive shall have an obligation to pay the Bank upon demand an amount equal to the sum of (i) the excess of the aggregate "parachute payments" paid to or for the Executive's benefit without any portion of such "parachute payments" not being deductible by reason of Section 280G of the Code and (ii) interest on the amount set forth in clause (i) above at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of the Executive's receipt of such excess until the date of such payment. (2) Any payment made by Bank under this Section shall be deemed to constitute liquidated damages and not a penalty for the Bank's breach of this Agreement. Executive shall not be required to mitigate his damages hereunder by seeking employment or otherwise. (3) Notwithstanding anything to the contrary contained in this Section, Executive shall not receive and does hereby waive the right to receive any amount upon his termination of employment (whether pursuant to the terms of this Agreement or pursuant to any other policy or arrangement) which would cause Executive to receive an amount which exceeds three times the Executive's annualized salary for the year in which Executive's employment is terminated. j. Disability Termination In the event that the Executive is totally disabled prior to the Expiration Date of this Agreement, the Bank shall have the right to terminate Executive's employment on ten (10) days written notice to Executive, provided the Bank shall pay the Executive a disability benefit which is equal to the -7- salary provided in Section 4, received by Executive at the commencement of the Executive's total disability, reduced by the sum of (i) the amount of any benefits to which the Executive may be entitled with respect to the same period under any disability plan or pension plan, including related supplemental and excess benefit plans or agreements, of the Bank and (ii) the disability benefits payable under any government regulated plan including workers' compensation benefits. Payment of such disability benefit shall commence with the week coincident with the termination of Executive's employment under this Agreement and shall continue until the earlier of the Expiration date or the Executive's death. During any period the Executive shall be entitled to receive disability payments from the Bank, to the extent that he is physically and mentally able to do so, he shall furnish information and assistance to the Bank, and, in addition, upon reasonable request in writing from time to time he shall make himself available to the Bank to undertake reasonable assignments with the dignity, importance, and scope of his prior position and his physical and mental health. As used in this Agreement, the term "total disability" shall mean the complete inability of the Executive to perform all of his duties under this Agreement as determined by an independent physician selected with the approval of the Board of Directors and the Executive. 8. Withholding of Taxes The Bank may withhold from any payments under this Agreement all applicable taxes, as shall be required pursuant to any law or governmental regulation or ruling. 9. Prior Agreements This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof, supersedes all prior and contemporaneous agreements and understandings and any prior employment agreement between the Bank and the Executive. 10. Consolidation or Merger Nothing in this Agreement shall preclude the Bank from consolidating or merging into or with or transferring all or substantially all of its assets to, any Person which assumes this Agreement and all obligations of the Bank hereunder. Upon such a consolidation, merger or transfer of assets and assumption, the term, "Bank" shall refer to such other Person and this Agreement shall continue in full force and effect. -8- 11. General Provisions a. Non-Assignability Neither this Agreement nor any right or interest hereunder shall be assignable by the Executive without the Bank's prior written consent; provided, however, that nothing in this subparagraph 11a. shall preclude the executors, administrators, or other legal representatives of the estate of the Executive from assigning any rights hereunder to the Person or Persons entitled thereto under the Executive's will or, in case of intestacy, to the Person or Persons entitled thereto under the laws of intestacy applicable to the Executive's estate. b. No Attachment Except as otherwise required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. c. Binding Agreement This Agreement shall be binding upon and inure to the benefit of the Executive and the Bank, the Executive's heirs, executors and assigns and the Bank's successors and assigns. d. "Person" Defined "Person" as used herein means a natural person, joint venture, corporation, sole proprietorship, trust, estate, partnership, cooperative, association, organization, government or governmental entity, or other entity. 12. Legal Expenses If the Executive obtains a judgment which enforces a right or benefit under this Agreement, the Bank shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive in seeking to obtain or enforce such right or benefit. 13. Amendment No amendment or modification of this Agreement shall be deemed effective unless and until executed in writing. -9- 14. Severability If for any reason any provision of this Agreement shall be held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and all other such provisions shall to the full extent consistent with law continue to in full force and effect. If any such provision shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall likewise to the full extent consistent with law continue in full force and effect. 15. Headings The headings are included solely for convenience of reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 16. Interpretation If any provision of this Agreement shall be the subject of a dispute between the Bank and the Executive and a court or arbitrator to which such dispute has been brought shall be unable to resolve which of two reasonable interpretations of such provision is the proper interpretation thereof, then the interpretation most favorable to the Executive shall control. 17. Governing Law This Agreement has been executed and delivered in the State of New Jersey and its validity, interpretation, performance and enforcement shall be governed by and construed in accordance with the laws thereof applicable to contracts executed and to be wholly performed in New Jersey. 18. Consent to Jurisdictions Executive and the Bank irrevocably consent to the exclusive jurisdiction of the Courts of Salem County, New Jersey and/or the United States District Court for the District of New Jersey in any action or proceeding pursuant to this Agreement and agree to service of process in accordance with Section 19 herein. 19. Notices All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to -10- the following addresses or to such other address as either party may designate by like notice: A. If to Executive, to: Stephen R. Selverian One Oak Terrace Merchantville, NJ 08109 B. If to Bank, to: FIRST HOME SAVINGS BANK, S.L.A. 125 South Broadway Pennsville, NJ 08070 C. In all cases, copies to: Blank, Rome, Comisky & McCauley 1200 Four Penn Center Plaza Philadelphia, PA 19103 Attn: Barry H. Genkin, Esquire and to such other or additional Person or Persons as either party shall have designated to the other party in writing by like notice. IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed and its seal to be affixed hereto by its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. ATTEST: FIRST HOME SAVINGS BANK, S.L.A. /s/ Joyce A. Hunt By: /s/ Stephen D. Miller - ---------------------------- ---------------------------- Secretary Stephen D. Miller, President WITNESS: /s/ /s/ Stephen R. Selverian - ---------------------------- ------------------------ Stephen R. Selverian -11- AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated this 6th day of January, 1994, by and between First Home Savings Bank, F.S.B., a savings and loan association incorporated under laws of the United States (the "Bank"), and Stephen R. Selverian (the "Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Bank, as the successor in interest by merger with First Home Savings Bank, S.L.A., and Executive have entered into an Employment Agreement made effective as of the 1st day of July, 1992 (the "Employment Agreement"); and WHEREAS, the Bank and Executive desire to make amendments to certain of the terms of the Employment Agreement. NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows: 1. All references in the Employment Agreement to "Bank" or "Association" shall be deemed to refer to First Home Savings Bank, F.S.B. 2. Section 3 of the Employment Agreement shall be amended and restated to read in its entirety as follows: (a) Period of Employment The period of the Executive's employment under this Agreement shall commence as of the date of the merger of Fidelity Mutual Savings and Loan Association ("Fidelity Mutual") with and into the Bank (the "Effective Date") and shall, unless sooner terminated by the death of the Executive, mutual agreement or pursuant to Section 7, continue for a period of three (3) years therefrom, (such period being herein referred to as the "Employment Period"), provided, however, subject to Section 3(b), and if the Employment Period has not been terminated by the death of the Executive, by mutual agreement or pursuant to Section 7, that on each December 31 during the Employment Period, the Employment Period shall be extended for one year, so that at all times the Employment Period on each January 1 during the term of this Agreement shall be an unexpired period of three years, provided, however, that such extension shall not go into effect unless and until it has been reviewed and approved by the Board of Directors. The last day of the Employment Period, as from time to time extended, and without regard to any early termination pursuant to Section 7, is hereinafter referred to as the "Expiration Date." (b) Termination of Automatic Extension The Executive or Bank may elect to terminate the automatic extension of the Employment Period set forth in subsection 3(a) by giving written notice of such election. Any notice given hereunder shall be effective in the year in which the notice is given, if given between January 1 and June 30 of any calendar year, and in the year following the year in which the notice is given, if given between July 1 and December 31 of any calendar year. Upon effectiveness of any notice given hereunder, Executive's employment under this Agreement shall terminate on the Expiration Date (as last extended) or such earlier date as may be determined pursuant to Section 7." 3. Section 7(h) of the Employment Agreement is amended to read in its entirety as follows: "(h) Notwithstanding anything contained herein to the contrary, the Executive may terminate this Agreement by notice (which shall in no event be less than 6 months) to the Bank on or after the date that the Executive first becomes eligible to receive retirement benefits under the Bank's Employee Stock Ownership Plan in which case benefits shall be payable to the Executive in accordance with the provisions of such plan, and all rights of the Executive under this Agreement shall cease. 4. Section 7(i)(1)(a) is amended to read in its entirety as follows: "(a) 100% of the salary set forth in Section 4, as the same may have been increased from time to time, payment of which shall be at the time provided for in this Agreement as if the Executive's employment under this Agreement has not terminated." 5. Section 7(k) of the Employment Agreement is amended to read in its entirety as follows: "(k) Limitation. Notwithstanding anything to the contrary contained in this Section, Executive shall not receive and does hereby waive the right to receive any amount upon his termination of employment (whether pursuant to the terms of this Agreement or pursuant to any other policy or arrangement) which would cause Executive to receive an amount which exceeds three times the Executive's Average Annual Compensation (as hereinafter defined). "Average Annual Compensation" means the average of all Compensation (as hereinafter -2- defined) paid to Executive by Bank and/or Fidelity Mutual during each of the five full taxable years (i.e. January 1 to December 31) preceding the year in which Executive's employment is terminated. "Compensation" shall mean "Compensation" as defined in RB 27a, "Executive Compensation and Employment Contracts", dated March 5, 1993, promulgated by the Office of Thrift Supervision." 6. The Employment Agreement, as amended by this Amendment, shall remain in full force and effect. IN WITNESS WHEREOF, the Bank has caused this Amendment to be executed and its seal to be affixed hereto by its officers thereunto duly authorized, and the Executive has signed and sealed this Agreement, all as of the day and year first above written. FIRST HOME SAVINGS BANK, F.S.B. By: /s/ Sol L. Davidow ------------------------------- Sol L. Davidow, Chairman of the Board /s/ Stephen R. Selverian -------------------------------- -3- EX-13 11 1996 ANNUAL REPORT TO SHAREHOLDERS First Home Bancorp Inc. Corporate Profile - -------------------------------------------------------------------------------- First Home Bancorp Inc. (the Company) is a New Jersey corporation and a unitary savings and loan holding company registered under the Home Owners' Loan Act, as amended. The Company is the parent holding company of First Home Savings Bank, F.S.B. (the Bank), a federally chartered savings bank. The Company was organized for the purpose of acquiring all of the capital stock of the Bank in connection with the reorganization of the Bank into the holding company form of ownership. Each outstanding share of common stock of the Bank was converted into one share of common stock of the Company. The reorganization was consummated on May 31, 1996. The Bank operates eight offices in southern New Jersey and two offices in New Castle County, Delaware. The Bank was chartered in 1911 for the purpose of attracting retail savings deposits to provide mortgage funds for the community. The Bank is a full service bank offering a broad range of financial products and services to depositors and borrowers. The Company's common stock is traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the trading symbol "FSPG." The newspaper abbreviation is FstHomeBcp. CONTENTS Report to Shareholders 1 Market and Selected Quarterly Information 2 Five Year Consolidated Financial Summary 3 Management's Discussion and Analysis 5 Consolidated Statements of Financial Condition 14 Consolidated Statements of Income 15 Consolidated Statements of Shareholders' Equity 16 Consolidated Statements of Cash Flows 17 Notes to Consolidated Financial Statements 19 Report of Independent Public Accountants 43 Corporate Information 44 First Home Bancorp Inc. Report to Shareholders - -------------------------------------------------------------------------------- The savings and loan industry experienced a number of changes in 1996, the long-term effect of which could be viewed as positive. In 1996 the industry contributed almost six billion dollars to fully fund the Savings Association Insurance Fund (SAIF). The industry also received a measure of relief with respect to the onerous tax requirement which may cause certain thrifts to recapture all or a portion of their bad debt reserves in the event of a charter change. These changes generally level the competitive playing field among thrifts and other insured financial institutions and should allow many financial institutions increased flexibility to choose the charter through which they wish to operate. The short-term effect of the SAIF recapitalization payment was a direct charge to current earnings. The Company's charge amounted to approximately $1.6 million. Despite this one-time charge, the Company recorded outstanding earnings for 1996 of $4.29 million, or $1.57 per share, which included a recovery of a $732,000 valuation allowance on a deferred tax asset. Overall for 1996 the Company achieved a 13.77% return on shareholders' equity. By comparison, publicly-traded thrifts as a whole achieved a median return on equity of 5.19%. Excluding the effects of non-recurring items, earnings for 1996 would have been $1.67 per share compared to $1.55 per share for the prior year. The Company ended 1996 with assets of $498.4 million, an increase of $45 million over the prior year. As a result of this 10% increase in assets, net interest income increased $1.57 million or over 11.5%. Despite the $45 million asset growth, the ratio of general and administrative expenses to average assets increased a modest four basis points to 1.83%, still considerably lower than most in the industry. The Company continues to meet the challenge to improve the delivery of products and services to its growing list of customers. In 1996 the Company initiated "Homeline," a telephone banking service. "Homeline" allows direct access to accounts for funds transfer, account balance information and individual check reconciliation. This product is currently handling approximately 8,500 phone calls and processing about 17,000 transactions a month. In addition to "Homeline," the Company added business development officers to supplement the mortgage, consumer, commercial loan and new product sales activity. Marketing efforts were stepped up with emphasis on name recognition and market share. On a scheduled basis, retail offices are being upgraded and reconfigured to provide a more attractive and improved banking environment. As a result of the Company's increased marketing effort, loan originations increased 35.1% in 1996 compared to the prior year. Additionally approximately 1,800 new consumer and commercial checking accounts were opened during the year. On January 7, 1997, the Company declared a four-for-three stock split to holders on January 22, 1997. The cash dividend on the split shares was set at $.10 per share, an increase in the payout of 11.11%. This makes the fourth stock split and the seventh time dividends have been increased since the Bank went public in 1987. As a result of the stock splits, investors who purchased 100 shares of stock on the initial offering date of April 15, 1987 at the offering price of $9.00 currently own 316 shares of stock at a cost of $2.85 per share. The Board of Directors and Management recognize the need to continually address the strategic direction of the Company in order to provide the best products and services to our customers and our communities while at the same time delivering strong earnings to our shareholders. As always, we will strive to maintain a high level of earnings and create the greatest value for you our shareholders. Sincerely, Stephen D. Miller Chairman, President and Chief Executive Officer 1 First Home Bancorp Inc. Market and Selected Quarterly Information - -------------------------------------------------------------------------------- Market and Selected Quarterly Information (unaudited) The Company's common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol: "FSPG." The following table sets forth, for the periods indicated, unaudited quarterly results of operations, high and low sales prices per share of the Company's common stock on the Nasdaq National Market tier of the Nasdaq Stock Market and dividends per share. The sales price data was obtained from Nasdaq monthly statistical reports. The earnings per share, dividends per share and quarterly sales price data have been adjusted for stock splits. The amount of cash dividends that the Company may declare and pay are subject to certain regulatory restrictions. See Note 20 of the accompanying consolidated financial statements. As of March 14, 1997, the Company's outstanding common stock was held of record by approximately 1,015 shareholders. This estimate does not include an indeterminate number of shareholders whose shares are held by brokers in "street name."
First Quarter Second Quarter Third Quarter Fourth Quarter --------------------------------------------------------------------------------- (In thousands, except per share data 1996 1995 1996 1995 1996 1995 1996 1995 and quarterly sales prices) - ------------------------------------------------------------------------------------------------------------------ Interest income $8,833 $7,508 $9,029 $8,023 $9,195 $8,370 $9,393 $8,588 Net interest income 3,732 3,335 3,774 3,365 3,797 3,376 3,783 3,441 Net income 1,165 1,433 1,110 1,142 864 1,027 1,146 1,109 Per share data: Net income .43 .53 .41 .42 .31 .38 .42 .41 Dividends declared .09 .09 .09 .09 .09 .09 .10 .09 Quarterly sales prices: High 14.06 10.88 14.06 11.06 14.06 12.94 14.63 14.25 Low 13.13 10.13 13.31 10.31 13.31 10.50 13.50 12.75
2 First Home Bancorp Inc. Five Year Consolidated Financial Summary - --------------------------------------------------------------------------------
(In thousands, except per share data) At or for the year ended December 31, 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------- FINANCIAL CONDITION INFORMATION - ------------------------------------------------------------------------------------------------------------------- Total assets (1) $498,399 $453,039 $388,621 $351,600 $315,211 Loans receivable 258,909 255,217 240,168 216,044 180,619 Mortgage-backed securities 188,607 146,760 94,333 95,979 88,369 Investment securities 27,356 29,304 35,019 19,170 27,436 Deposits 290,298 270,176 239,108 227,327 233,446 FHLB and other borrowed funds 173,148 150,126 123,633 98,331 59,866 Total shareholders' equity (2) 32,645 30,103 23,075 23,097 18,840 Book value per share (3) 12.05 11.12 8.58 8.86 7.27 - ------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT INFORMATION - ------------------------------------------------------------------------------------------------------------------- Total interest income $36,450 $32,489 $26,775 $24,570 $21,695 Total interest expense 21,364 18,972 13,901 12,152 11,864 ------- ------- ------- ------- ------- Net interest income 15,086 13,517 12,874 12,418 9,831 Provision for credit losses 400 600 550 700 717 ------- ------- ------- ------- ------- Net interest income after provision for credit losses 14,686 12,917 12,324 11,718 9,114 Other income 1,387 2,307 1,240 1,784 984 SAIF recapitalization assessment 1,564 --- --- --- --- Other expenses 9,189 7,853 6,866 7,020 6,021 ------- ------- ------- ------- ------- Income before income taxes 5,320 7,371 6,698 6,482 4,077 Income taxes 1,035 2,660 2,495 2,426 1,599 ------- ------- ------- ------- ------- Net income before cumulative effect of a change in accounting principle 4,285 4,711 4,203 4,056 2,478 Cumulative effect of a change in accounting principle --- --- --- 543 --- ------- ------- ------- ------- ------- Net income $ 4,285 $ 4,711 $ 4,203 $ 4,599 $ 2,478 ======= ======= ======= ======= ======= Earnings per share: Income before cumulative effect of a change in accounting principle $ 1.57 $ 1.74 $ 1.56 $ 1.56 $ .95 Cumulative effect of a change in accounting principle --- --- --- .21 --- ------- ------- ------- ------- ------- Primary net income per share (3) $ 1.57 $ 1.74 $ 1.56 $ 1.77 $ .95 ======= ======= ======= ======= ======= Dividends per share (3) $ .37 $ .36 $ .32 $ .24 $ .17 ======= ======= ======= ======= =======
3 First Home Bancorp Inc. Five Year Consolidated Financial Summary - --------------------------------------------------------------------------------
At or for the year ended December 31, 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------- SELECTED OTHER DATA (4) - ------------------------------------------------------------------------------------------------------------------- Return on average assets before cumulative effect of a change in accounting principle .90% 1.11% 1.12% 1.23% .95% Return on average assets after cumulative effect of a change in accounting principle .90% 1.11% 1.12% 1.40% .95% Return on average equity before cumulative effect of a change in accounting principle 13.77% 17.52% 17.79% 19.05% 13.91% Return on average equity after cumulative effect of a change in accounting principle 13.77% 17.52% 17.79% 21.60% 13.91% Dividend payout ratio 23.57% 20.69% 20.35% 13.63% 18.08% Average shareholders' equity to average assets 6.52% 6.34% 6.31% 6.47% 6.85% Capital ratios: GAAP 6.43% 6.64% 5.94% 6.56% 5.98% Tangible and core (2) 6.45% 6.47% 6.69% 6.49% 5.94% Risk-based (2) 16.84% 15.68% 15.65% 14.92% 13.72% Average interest rate spread 3.06% 3.09% 3.42% 3.80% 3.84% Net yield on average interest-earning assets 3.26% 3.29% 3.56% 3.94% 3.99% Ratio of average interest-earning assets to average interest-bearing liabilities 104.36% 104.22% 103.61% 103.58% 103.02% General and administrative expense to average assets 1.83% 1.79% 1.75% 1.94% 2.09% Asset quality ratios: Non-performing loans to total loans 1.22% 1.13% 1.64% 1.07% 1.23% Non-performing assets to total assets .83% .75% 1.25% 1.26% 1.83% Allowance for possible credit losses to non-performing loans 117.04% 121.94% 84.30% 114.09% 93.94% Allowance for possible credit losses to non-performing assets 90.38% 104.52% 68.02% 60.01% 35.81% Full service banking offices at end of period 10 10 8 8 6 - --------------------------------------------
(1) On January 23, 1995, two retail-banking offices located in Elmer and Newfield, New Jersey were acquired and, in connection therewith, assumed deposits of $15.9 million. On June 25, 1993, White Eagle Federal Savings Bank was acquired in a merger transaction accounted for as a pooling-of-interests. On July 1, 1992, approximately $80 million in assets and liabilities of Fidelity Mutual were acquired in a transaction accounted for as a purchase. (2) The Bank exceeds all required regulatory capital requirements. For additional information see Note 16 of the Company's accompanying consolidated financial statements. (3) The Company's book value, earnings per share and dividends per share have been adjusted to give effect to four-for-three stock splits effected in January 1992, February 1993, February 1994 and February 1997. (4) Based on monthly data when averages are indicated. 4 First Home Bancorp Inc. Management's Discussion and Analysis - -------------------------------------------------------------------------------- OVERVIEW Two significant events occurred during 1996. The first was the formation of the holding company which could increase the Company's ability to expand in the future. The second was the resolution of the disparity between the federal insurance premiums paid by Bank Insurance Fund (BIF) insured and SAIF insured financial institutions. While payment of the special assessment to fully capitalize the SAIF fund had a negative affect on earnings, the Company should benefit from future reduced federal insurance premiums. The growth in net interest income continued with an increase to $15.1 million in 1996 from $13.5 million in 1995. Increases in interest earning assets offset the decline in the Company's net interest rate spread to 3.06% in 1996 from 3.09% in 1995. Net income before taxes, excluding non-recurring items of $1.6 million in 1996 attributable to the SAIF recapitalization assessment and $807,000 in 1995 attributable to a $672,000 recovery from an insurance carrier and $135,000 in interest on a tax refund, increased to $6.9 million in 1996 from $6.6 million in 1995. GENERAL The Company is the sole shareholder of the Bank and the Bank represents substantially all of the Company's consolidated assets and liabilities at December 31, 1996. Substantially all of the Company's consolidated revenues are derived from the operations of the Bank. The Bank's business is that of a financial intermediary and consists primarily of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to make mortgage and other loans. The Bank provides consumer banking services in eight retail banking offices in New Jersey and two retail banking offices in Delaware. The Bank is subject to significant competition from other financial institutions, and is also subject to regulation and examination by the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC). The Company's earnings are primarily dependent upon net interest income. Net interest income is obtained from interest earned on loans and investments less interest paid on deposits and borrowings. In addition to net interest income, the Company derives other income from loan servicing fees, fees related to deposit services, and other banking related fees and charges. Major expenses, in addition to interest expense, consist primarily of salaries and employee benefits, occupancy and equipment expenses, provision for credit losses, deposit insurance premiums, and other operating expenses. Earnings are also affected by gains and losses related to mortgage-banking activity and investments held for trading. Funds for lending and investment are obtained from deposit gathering at branch locations, investment and loan repayments, proceeds from loan sales, borrowings, and cash flows from operations. Net interest income is affected by interest rate movements, general economic conditions, and the competition for funds and loans. Lending activities are influenced by a number of factors including the overall level of interest rates, the market demand for housing, conditions in the construction industry and the availability of funds. Availability of funds is affected by loan repayments, loan sales, borrowing capacity and deposit gathering ability. The year 1996 was volatile in terms of interest rates. During the first quarter of the year, interest rates increased sharply in the three year to thirty year sector of the treasury yield curve. These rates continued to climb during the second quarter of 1996. In the third quarter interest rates stabilized and finally during the fourth quarter those rates declined slightly. The yield on interest-earning assets decreased slightly to 7.88% for the year ended December 31, 1996 from 7.90% for the year ended December 31, 1995. The cost of interest-bearing liabilities increased minimally to 4.82% for the year ended December 31, 1996 from 4.81% for the year ended December 31, 1995. 5 First Home Bancorp Inc. Management's Discussion and Analysis - -------------------------------------------------------------------------------- The following table sets forth for the periods indicated, information regarding: (1) the yield on interest-earning assets and cost of interest-bearing liabilities as of December 31, 1996; (2) the average balance of interest-earning assets and the resultant interest income and average yields; (3) the total dollar amount of interest-bearing liabilities (which include $7.6 million, $7.0 million, and $5.2 million of non-interest bearing deposits at December 31, 1996, 1995 and 1994, respectively) and the resultant interest expense and average costs; (4) the net interest income; (5) interest rate spread; (6) the net yield earned on weighted average interest-earning assets; and (7) the ratio of average interest-earning assets to average interest-bearing liabilities. Average balances are calculated on a month-end basis for each of the years indicated. The table is not presented on a tax equivalent basis because the Company's investment in tax-free obligations is insignificant.
Year Ended December 31, 1996 1995 1994 --------------------------- ------------------------- ---------------------------- (dollars in thousands) As of Average Average Average Dec. 31, Average Yield/ Average Yield/ Average Yield/ 1996 Balance Interest Rate Balance Interest Rate Balance Interest Rate ---- ------- -------- ---- ------- -------- ---- ------- -------- ---- Interest-earning assets: Loans (1) 8.37% $257,161 $21,712 8.44% $244,900 $20,490 8.37% $227,611 $17,985 7.90% Mortgage-backed securities 7.31 171,937 12,448 7.24 128,805 9,435 7.32 94,251 6,257 6.64 Other (2) 6.58 33,628 2,290 6.81 37,393 2,564 6.86 39,369 2,533 6.43 ` ---- -------- ------- ---- -------- ------- ---- -------- ------- ---- Total interest-earning assets 7.83 462,726 36,450 7.88 411,098 32,489 7.90 361,231 26,775 7.41 ` ---- -------- ------- ---- -------- ------- ---- -------- ------- ---- Non interest-earning assets 14,326 12,995 13,409 -------- -------- -------- Total assets $477,052 $424,093 $374,640 ======== ======== ======== Interest-bearing liabilities: Deposits 4.37 $278,420 12,121 4.35 $262,095 11,179 4.27 $234,626 8,355 3.56 Borrowings 5.80 164,955 9,243 5.60 132,360 7,793 5.89 114,015 5,546 4.86 ` ---- -------- ------- ---- -------- ------- ---- -------- ------- ---- Total int.-bearing liabilities 4.90 443,375 21,364 4.82 394,455 18,972 4.81 348,641 13,901 3.99 ` ---- -------- ------- ---- -------- ------- ---- -------- ------- ---- Non interest-bearing liabilities 2,557 2,743 2,370 -------- -------- -------- Total liabilities 445,932 397,198 351,011 -------- -------- -------- Shareholders' equity 31,120 26,895 23,629 -------- -------- -------- Total liabilities and shareholders' equity $477,052 $424,093 $374,640 ======== ======== ======== Net interest income $ 15,086 $ 13,517 $ 12,874 ======== ======== ======== Interest rate spread 2.93% 3.06% 3.09% 3.42% ==== ==== ==== ==== Net yield on weighted average interest-earning assets 3.26% 3.29% 3.56% ===== ==== ==== Ratio of average interest-earning assets to average interest-bearing liabilities 104.36% 104.22% 103.61% ====== ====== ====== - ------------------------------------
(1) Amount is net of deferred loan origination costs, loans in process, net unearned discount on loans purchased and allowance for credit losses and includes non-performing loans. (2) Consists of interest-earning deposits, short-term funds, investment securities and Federal Home Loan Bank stock. RATE/VOLUME ANALYSIS Net interest income can also be analyzed in terms of the impact of changing rates and changing volume. The following table describes the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected interest income and interest expense during the periods 6 First Home Bancorp Inc. Management's Discussion and Analysis - ------------------------------------------------------------------------------- indicated. Information is provided on changes in each category attributable to (i) changes due to volume (changes in volume multiplied by prior rate), (ii) changes due to rates (changes in rates multiplied by prior volume) and (iii) net change. The net change attributable to the combined impact of volume and rate has been allocated proportionately to the change due to volume and the change due to rate.
Year Ended December 31, ----------------------- 1996 vs. 1995 1995 vs. 1994 ------------- ------------- (in thousands) Volume Rate Total Volume Rate Total ------ ---- ----- ------ ---- ----- Interest income: Loan portfolio $1,033 $ 189 $1,222 $1,405 $ 1,100 $2,505 Mortgage-backed securities 3,125 (112) 3,013 2,478 700 3,178 Other (1) (256) (18) (274) (132) 163 31 ------ ----- ------ ------ ------- ------ Total interest-earning assets 3,902 59 3,961 3,751 1,963 5,714 ------ ----- ------ ------ ------- ------ Interest expense: Deposits 707 235 942 1,045 1,779 2,824 Borrowings 1,841 (391) 1,450 970 1,277 2,247 ------ ----- ------ ------ ------- ------ Total interest-bearing liabilities 2,548 (156) 2,392 2,015 3,056 5,071 ------ ----- ------ ------ ------- ------ Net change in net interest income $1,354 $ 215 $1,569 $1,736 $(1,093) $ 643 ====== ===== ====== ====== ======= ====== - --------------------------------------------
(1) Consists of interest-earning deposits, short-term funds, investment securities and Federal Home Loan Bank stock. INTEREST RATE RISK MANAGEMENT The Company has a program to control its interest rate risk. The strategy includes an emphasis on originating adjustable rate mortgage (ARM) loans, the purchase of adjustable rate and short-term mortgage-backed securities (MBS) and the origination of short-term consumer loans. The Board of Directors has instructed management to maintain interest rate risk within prescribed limits. An internal asset/liability modeling system monitors the effect on income of changing market interest rates. The difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period (gap) is also monitored. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. When interest rate sensitive liabilities exceed interest rate sensitive assets, the gap is considered negative. However, because all interest rates and yields do not adjust at the same velocity, the gap is only a general indicator of interest rate sensitivity. During a period of rising interest rates, a negative gap tends to adversely affect net interest income while a positive gap tends to increase net interest income. During a period of declining interest rates, a negative gap tends to increase net interest income while a positive gap tends to adversely affect net interest income. The Company's net interest income tends to increase in periods of declining interest rates because its interest-bearing liabilities generally reprice faster than its interest-earning assets. The Company's net interest income tends to decrease in periods of rising interest rates. Therefore, rising interest rates, particularly when combined with a flattening yield curve, could have a significant negative impact on net interest income in future periods. 7 First Home Bancorp Inc. Management's Discussion and Analysis - -------------------------------------------------------------------------------- The following table summarizes the amount of interest-earning assets and interest-bearing liabilities outstanding as of December 31, 1996, which are anticipated to mature, prepay or reprice in each of the time periods shown. Adjustable and floating rate assets are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they are due. Loans and MBS are included in the periods in which they are anticipated to be repaid. If available, estimated prepayment speeds were obtained from external sources. Otherwise, they were estimated by management based on the experience of the portfolio. Non-performing loans have been excluded from interest-earning assets. Money market demand accounts (MMDA) and other accounts, NOW and savings accounts which are subject to immediate withdrawal and repricing are classified at decay rates based upon assumptions provided by the OTS.
Twelve Months 1-3 3-5 5-10 10-20 Over 20 or less Years Years Years Years Years Total ------- ----- ----- ----- ----- ----- ----- (dollars in thousands) Interest-earning assets: Residential mortgage loans Adjustable rate $ 53,499 $ 18,296 $ 393 $ --- $ --- $ --- $ 72,188 Fixed rate 24,886 37,153 25,513 32,013 11,852 255 131,672 Mortgage-backed securities Adjustable rate 94,745 --- --- --- --- --- 94,745 Fixed rate 15,970 25,105 17,691 24,425 13,192 1,177 97,560 Consumer and commercial loans Adjustable rate 10,866 2,676 344 --- --- --- 13,886 Fixed rate 18,223 15,664 5,598 3,026 324 --- 42,835 Loans held for sale 676 --- --- --- --- --- 676 Investment securities 4,348 4,000 17,000 605 --- 9,923 35,876 Investment securities held for trading 60 --- --- --- --- --- 60 -------- -------- -------- ------- ------- ------- -------- Total 223,273 102,894 66,539 60,069 25,368 11,355 489,498 -------- -------- -------- ------- ------- ------- -------- Interest-bearing liabilities: Deposits Savings accounts 4,836 7,735 5,721 8,605 5,952 1,692 34,541 NOW and non-interest bearing demand accounts 5,792 8,799 6,061 8,134 4,466 820 34,072 MMDA and other accounts 15,936 18,583 8,848 6,783 1,227 31 51,408 Certificates of deposit 113,048 46,939 9,912 --- --- --- 169,899 Borrowings 110,588 55,703 6,857 --- --- --- 173,148 -------- -------- -------- ------- ------- ------- -------- Total 250,200 137,759 37,399 23,522 11,645 2,543 463,068 -------- -------- -------- ------- ------- ------- -------- Excess int.-earning assets (liabilities) $(26,927) $(34,865) $ 29,140 $36,547 $13,723 $ 8,812 $ 26,430 ======== ======== ======== ======= ======= ======= ======== Cumulative excess interest-earning assets (liabilities) $(26,927) $(61,792) $(32,652) $ 3,895 $17,618 $26,430 ======== ======== ======== ======= ======= ======= Ratio of GAP during the period to total assets (5.40)% (7.00)% 5.85% 7.33% 2.75% 1.77% ===== ===== ==== ==== ===== ==== Ratio of cumulative GAP to total assets (5.40)% (12.40)% (6.55)% 0.78% 3.53% 5.30% ===== ====== ===== ==== ==== ====
8 First Home Bancorp Inc. Management's Discussion and Analysis - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS The Company's net income for the year ended December 31, 1996 was $4.3 million compared to $4.7 million for 1995 and $4.2 million for 1994. The following discussion describes and explains the significant components and changes in the Company's results of operations for the three years ended December 31, 1996. Interest Income Interest income for the years ended December 31, 1996, 1995, and 1994 was $36.4 million, $32.5 million, and $26.8 million, respectively. The $3.9 million increase in interest income from 1995 to 1996 was due to a $51.6 million increase in average interest-earning assets. This increase in average interest-earning assets was offset by a decrease in the yield on interest-earning assets from 7.90% for the year ended December 31, 1995 to 7.88% for the year ended December 31, 1996. The $5.7 million increase in interest income from 1994 to 1995 was due to a $49.9 million increase in average interest-earning assets. The increase during 1995 was also attributable to an increase in the yield on interest-earning assets from 7.41% for the year ended December 31, 1994 to 7.90% for the year ended December 31, 1995. The increase in interest-earning assets during both years was primarily attributable to the purchase of MBS. MBS increased an average of $43.1 million and $34.6 million, respectively, during 1996 and 1995. Interest Expense Interest expense for the years ended December 31, 1996, 1995 and 1994 was $21.4 million, $19.0 million and $13.9 million, respectively. The increase in interest expense from 1995 to 1996 was primarily attributable to an increase of $48.9 million in average interest-bearing liabilities. An increase in borrowings of $32.6 million and an increase in deposits of $16.3 million account for the increase in average interest-bearing liabilities. The rise in the cost of funds of .01% from 4.81% to 4.82% from 1995 to 1996 did not have a significant impact on interest expense. The increase in interest expense from 1994 to 1995 was primarily attributable to an increase of $45.8 million in average interest-bearing liabilities. An increase in borrowings of $18.3 million and an increase in deposits of $27.5 million, of which $15.9 million was acquired in the purchase of two retail-banking offices, account for the increase in average interest-bearing liabilities. These increases along with an increase in the cost of funds of .82%, to 4.81% from 3.99%, accounted for the $5.1 million increase in interest expense. Net Interest Income Net interest income increased $1.6 million, or 11.6% in 1996 and $643,000, or 5.0% in 1995 over the respective prior years. The increase in 1996 was primarily attributable to the increase in volume of interest-earning assets and interest-bearing liabilities at a positive spread. Net interest income was also increased due to the decline in the cost of borrowings. The Company's borrowed money is generally short-term and the decrease in short-term interest rates during 1996 reduced the cost of borrowed money. During 1995 the increase in net interest income was attributable to the increase in volume of interest earning assets and interest-bearing liabilities at a positive spread. However, the Company's positive spread was reduced by the impact of a flattening yield curve. While short-term interest rates increased, long-term interest rates declined. The combined impact of these changing interest rates increased the Company's cost of interest-bearing liabilities to a greater extent than the increased yield on interest-earning assets. Allowance and Provision for Credit Losses The provision for credit losses amounted to $400,000, $600,000 and $550,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The provision for credit losses was provided after considering the status of non-performing loans, adverse situations that may affect a borrower's ability to repay, the value of 9 First Home Bancorp Inc. Management's Discussion and Analysis - -------------------------------------------------------------------------------- collateral securing the loans, net charge-offs, industry standards and other considerations that effect the perceived risk in the loan portfolio. Commercial loans, which generally have a greater credit risk, comprised $19.2 million, or 7.3%, of the total loan portfolio at December 31, 1996 compared to $16.9 million, or 6.5%, of the total loan portfolio at December 31, 1995. Non-performing loans, net of amounts charged-off, were $3.2 million, or 1.2%, and $2.9 million, or 1.1%, of the total loan portfolio at December 31, 1996 and 1995, respectively. The allowance for credit losses totaled $3.8 million, or 1.4%, and $3.6 million, also 1.4%, of total loans at December 31, 1996 and 1995, respectively. In management's opinion, based on its review of the current quality of the loan portfolio, general economic conditions and historical experience, the allowance for credit losses is adequate to cover future credit losses. See the Company's accompanying consolidated financial statements Note 1 - - Summary of significant accounting policies - Allowance for credit losses. Other Income Other income decreased by $920,000 during 1996 and increased by $1.1 million during 1995. The decrease in 1996 was attributable to non-recurring income received in 1995 of: (i) $672,000 from the recovery of an insurance claim and (ii) $135,000 in interest on a tax refund, and losses on the sale of loans of $84,000 during 1996 (a decrease of $212,000 from the $128,000 profit on sale of loans in 1995). These decreases were partially offset by increases in gains from trading activity of $70,000 and gains from the sale of mortgage-backed securities of $25,000. The increase in 1995 was attributable to the non recurring income discussed above, and gains on the sale of loans of $128,000 (an increase of $772,000 from the $644,000 loss on sale of loans in 1994) and gains from trading activity of $152,000 during 1995 (an increase of $290,000 from the $138,000 loss in 1994). Operating Expenses In 1996 operating expenses, excluding the Savings Association Insurance Fund (SAIF) recapitalization assessment of $1.6 million, increased by $1.3 million, or 17.0%, from 1995, primarily as a result of operating and marketing costs related to the ten retail-banking offices. During 1996, the Company focused on increasing market awareness of the Bank and the services offered to customers by increasing the marketing budget, installing more automated teller machines and introducing "Homeline," a 24 hour telephone banking service. Salaries and employee benefits, other operating expense, net real estate operations expense and occupancy and equipment expense increased $568,000, $414,000, $211,000 and $173,000, respectively, from those of the prior year. On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the DIFA), which required the recapitalization of the SAIF, became law. Accordingly, all depository institutions with SAIF insured deposits were charged a one-time special assessment on their SAIF-assessable deposits as of March 31, 1995 at the rate of 65.7 basis points. The Bank's portion of the special assessment was $1.6 million. In 1995, operating expenses increased by $987,000, or 14.4%, from 1994, primarily as a result of the acquisition of two retail-banking offices in January 1995. The deposit premium related to the acquisition is being amortized over the estimated life of the customer base. Included in operating expense during 1995 is the amortization of $257,000 of the initial deposit premium of $1.1 million. Salaries and employee benefits, other operating expense and occupancy and equipment expense increased $522,000, $281,000, and $175,000, respectively, from those of the prior year. Those increases were offset by a decrease in net real estate operations expense of $314,000. Income Taxes In 1996, the Company expensed $1.8 million in combined federal and state income taxes on pre-tax income of $5.3 million compared to $2.7 million of tax expense in 1995 on pre-tax income of $7.4 million. Tax expense decreased by $893,000, or 33.6%, as pre-tax income decreased by $2.1 million, or 27.8%. The Company's 10 First Home Bancorp Inc. Management's Discussion and Analysis - -------------------------------------------------------------------------------- effective income tax rate decreased to 33.2% for the year ended December 31, 1996 from 36.1% for the year ended December 31, 1995. In 1995, the Company expensed $2.7 million in combined federal and state income taxes on pre-tax income of $7.4 million compared to $2.5 million of tax expense in 1994 on pre-tax income of $6.7 million. Tax expense increased $165,000, or 6.6%, as pre-tax income increased by $673,000, or 10.0%. The Company's effective income tax rate decreased to 36.1% for the year ended December 31, 1995 from 37.2% for the year ended December 31, 1994. A recovery of a valuation allowance related to deferred income taxes was recognized in the amount of $732,000 during the year ended December 31, 1996. The recovery was recognized after considering the impact of a change in the Internal Revenue Code and the estimated timing of temporary differences related to deferred loan fees for tax purposes. FINANCIAL CONDITION Total assets increased to $498.4 million at December 31, 1996 from $453.0 million at December 31, 1995, an increase of 10.0%. This increase primarily reflects the increase in MBS held-to-maturity, MBS available-for-sale and loans receivable. MBS held-to-maturity increased to $97.4 million at December 31, 1996 from $68.0 million at December 31, 1995, an increase of $29.4 million, or 43.2%. MBS available-for-sale increased to $91.2 million at December 31, 1996 from $78.8 million at December 31, 1995, an increase of $12.4 million, or 15.7%. Loans receivable increased to $258.2 million at December 31, 1996 from $254.8 million at December 31, 1995, an increase of $3.4 million, or 1.3%. Total liabilities increased to $465.8 million at December 31, 1996 from $422.9 million at December 31, 1995, an increase of 10.1%. The increase in liabilities of $42.9 million was primarily attributable to increases in FHLB borrowings of $30.8 million and deposits of $20.1 million, offset by a decrease in other borrowed funds of $7.8 million. Shareholders' equity increased to $32.6 million at December 31, 1996 from $30.1 million at December 31, 1995. This increase was primarily the result of net income of $4.3 million, less an increase in unrealized losses on securities available-for-sale of $739,000 (see Notes 1, 4 and 5 of the accompanying consolidated financial statements), and the payment of cash dividends of $1.0 million. At December 31, 1996, the Bank exceeded its core, tangible and risk-weighted assets capital requirements by $17.2 million, $24.7 million and $18.2 million, respectively. For additional information regarding the Bank's regulatory capital requirements, see Note 16 of the accompanying consolidated financial statements. LIQUIDITY, CASH FLOWS AND COMMITTED RESOURCES Liquidity consists of cash on hand and in banks, interest-earning deposits and certain investment securities. The Bank is required under applicable OTS regulations to maintain specified levels of "liquid" investments. At December 31, 1996 and December 31, 1995 the minimum level of liquidity required was 5.0% of net withdrawable savings deposits plus short-term borrowings. The Bank's regulatory liquidity ratio was 7.1% and 6.3% at December 31, 1996 and December 31, 1995, respectively. Management believes that liquidity is being maintained at adequate levels. The Company's primary source of cash is its financing activity. Funds obtained from financing activities include borrowings and net deposit inflows. Net borrowings totaled $23.0 million and net deposit inflows totaled $20.1 million during 1996. During the year ended December 31, 1995, the Company increased net borrowings by $26.5 million while net deposit inflows totaled $15.1 million. 11 First Home Bancorp Inc. Management's Discussion and Analysis - -------------------------------------------------------------------------------- The Company's primary investment activity is lending. Loans originated or purchased for the portfolio totaled $56.4 million, $59.7 million and $80.9 million during the years ended December 31, 1996, 1995 and 1994, respectively. MBS are also a significant investment activity. MBS purchases totaled $55.5 million, $54.8 million and $26.5 million for the years ended December 31, 1996, 1995 and 1994, respectively. Cash flows from investing activities were provided by repayments on existing loans which totaled $52.5 million, $44.2 million and $49.2 million for the years ended December 31, 1996, 1995 and 1994, respectively. At December 31, 1996, the Company had outstanding commitments, including undisbursed loans in process, to originate or purchase loans totaling $18.4 million. Commitments to originate and purchase mortgage loans included $9.5 million in fixed rate mortgage loans. Thirty-year fixed rate mortgage loans originated by the Company are classified as loans held-for-sale. The Company enters forward agreements to sell these loans in the secondary market at the time of commitment. Twenty-year and fifteen-year fixed rate mortgage loans are currently retained by the Company as investments. All commitments are anticipated to fund within one year. It is anticipated that funding for these commitments will be obtained from normal cash flows. The Company has $113.0 million in certificate accounts which are scheduled to mature during the year ending December 31, 1997. It is anticipated that a substantial portion of these maturing deposits will remain in the Company. IMPACT OF INFLATION AND CHANGING PRICES The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles which require the presentation of financial condition and measurement of operating results in terms of historical dollars, disregarding inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than the effects of inflation. Interest rates do not necessarily move in the same direction, or with the same magnitude, as the prices of goods and services, since such prices are affected by inflation. Inflation can have a more direct impact on certain categories of operating expenses such as salaries and wages, employee benefits, occupancy costs and other operating expenses. These expenses fluctuate with changes in general price levels. Because primary assets include substantial fixed rate, fixed term loans and ARM loans which generally reprice annually, changes in interest rates in the economy have a gradual impact on the yield on assets. Primary liabilities include savings deposits which are short term in nature and therefore adjust with changes in the economy. In general, periods of high inflation are accompanied by high interest rates. When interest rates move up rapidly, the cost of funds increases rapidly while the yield on interest-earning assets increases slowly, resulting in a negative impact on net income. Conversely, during periods of low inflation, lower and more moderate interest rates are normally present, which results in a lower cost of funds and a more favorable impact on net income. FINANCIAL INSTITUTION LEGISLATION The DIFA resolved the premium disparity between BIF insured and SAIF insured financial institutions. The legislation provided for a one-time assessment to recapitalize the SAIF. The assessment was equal to 65.7 basis points per $100 of all SAIF assessable deposits held by an institution as of March 31, 1995 (with certain exceptions). The assessment was effective on September 30, 1996 and paid on November 27, 1996. The assessment brought the SAIF's reserve ratio to a level comparable to the BIF reserve ratio of 1.25% of insured deposits. The special assessment paid by the Bank was $1,564,323 before a tax benefit of approximately $563,000. Effective 1997, the annual insurance premium payable by the Bank was reduced from $.23 per $100 of deposits to $.0648 per $100 of deposits, a level competitive premium to deposit insurance payable by BIF insured institutions. 12 First Home Bancorp Inc. Management's Discussion and Analysis - -------------------------------------------------------------------------------- In August 1996 the Small Business Job Protection Act (the Act) was signed into law. The Act repealed the percentage of taxable income method of accounting for bad debts for thrift institutions for years beginning after December 31, 1995 and requires the recapture of bad debt reserves accumulated since 1988. The amount recaptured must be taken into income ratably over a six year period beginning with the 1996 tax year. If certain lending requirements are met, a two year delay in the recognition of the recapture is possible. Since the Bank is currently providing deferred income taxes for these reserves, the change will increase the Bank's tax payments but will not have a material effect on earnings. For additional information regarding the impact of this legislation, see Note 15 of the accompanying consolidated financial statements. 13 First Home Bancorp Inc. Consolidated Statements of Financial Condition - --------------------------------------------------------------------------------
December 31, 1996 1995 ---- ---- ASSETS Cash and amounts due from depository institutions $ 5,133,348 $ 7,015,388 Interest-earning deposits and short-term funds 1,302,081 1,642,052 Investment securities held-to-maturity (market value - 1996 $2,320,716; 1995 $517,000) 2,320,716 517,000 Investment securities held for trading at market value 60,396 57,019 Investment securities available-for-sale at market value 24,975,035 28,729,522 Mortgage-backed securities held-to-maturity (market value - 1996 $98,417,517; 1995 $69,588,486) 97,390,749 67,994,547 Mortgage-backed securities available-for-sale at market value 91,216,261 78,765,677 Loans receivable - net 258,233,455 254,798,690 Loans held for sale at market value 675,700 418,305 Accrued interest receivable 3,013,169 2,903,279 Real estate owned and other repossessed assets 947,722 486,763 Federal Home Loan Bank stock-at cost 7,375,500 5,317,000 Office properties and equipment 2,998,856 2,586,321 Deposit premium (accumulated amortization - 1996 $515,139; 1995 $257,283) 630,776 888,632 Net deferred income taxes 1,347,430 542,473 Prepaid expenses and other assets 777,368 376,057 ------------ ------------ TOTAL ASSETS $498,398,562 $453,038,725 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits $290,297,687 $270,175,738 Borrowings from the Federal Home Loan Bank 136,622,300 105,797,300 Other borrowed funds 36,526,000 44,329,000 Advances by borrowers for taxes and insurance 445,159 393,140 Accrued interest payable 587,875 555,101 Excess of fair value over cost 66,137 315,089 Accounts payable and accrued expenses 1,208,642 1,370,629 ------------ ------------ Total liabilities 465,753,800 422,935,997 ------------ ------------ Commitments and contingencies (Note 19) Shareholders' equity: Preferred stock - no par value; 1,000,000 shares authorized; none issued --- --- Common stock - no par value; 10,000,000 shares authorized; issued and outstanding, 1996, 2,708,426 shares; 1995, 2,706,679 shares --- --- Paid-in capital in excess of par 8,922,941 8,918,639 Retained earnings - partially restricted 24,592,225 21,315,342 Unrealized loss on securities available-for-sale, net (870,404) (131,253) ------------ ------------ Total shareholders' equity 32,644,762 30,102,728 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $498,398,562 $453,038,725 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 14 First Home Bancorp Inc. Consolidated Statements of Income - --------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994 ---- ---- ---- INTEREST INCOME: Interest and fees on loans $21,711,657 $20,490,217 $17,985,212 Interest on mortgage-backed securities 12,447,643 9,434,965 6,256,570 Other interest income and dividends 2,290,284 2,563,980 2,533,107 ----------- ----------- ----------- Total interest income 36,449,584 32,489,162 26,774,889 INTEREST EXPENSE: Interest on deposits 12,120,820 11,179,153 8,354,550 Interest on borrowed money 9,242,806 7,793,121 5,546,177 ----------- ----------- ----------- Total interest expense 21,363,626 18,972,274 13,900,727 ----------- ----------- ----------- NET INTEREST INCOME 15,085,958 13,516,888 12,874,162 PROVISION FOR CREDIT LOSSES 400,000 600,000 550,000 ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 14,685,958 12,916,888 12,324,162 ----------- ----------- ----------- OTHER INCOME: Service charges and other fees 571,557 504,671 379,821 Loan servicing fees 213,953 230,776 194,266 Profit (loss) on sale or valuation of: Loans held for sale (83,749) 128,109 (644,271) Investment securities held for trading 222,848 152,470 (137,989) Mortgage-backed securities available-for-sale 24,726 --- --- Accretion of excess of fair value over cost 248,952 248,952 248,952 Other income 188,916 1,041,787 1,198,918 ----------- ----------- ----------- Total other income 1,387,203 2,306,765 1,239,697 ----------- ----------- ----------- OPERATING EXPENSES: General and administrative expenses: Salaries and employee benefits 4,228,433 3,660,208 3,138,514 Occupancy and equipment 1,296,093 1,123,387 948,534 Federal insurance premiums 543,570 574,362 508,845 Other operating expenses 2,645,173 2,230,803 1,949,439 ----------- ----------- ----------- Total general and administrative expenses 8,713,269 7,588,760 6,545,332 SAIF recapitalization assessment 1,564,323 --- --- Amortization of deposit premium 257,856 257,283 --- Real estate operations - net 217,293 6,698 320,874 ----------- ----------- ----------- Total operating expenses 10,752,741 7,852,741 6,866,206 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 5,320,420 7,370,912 6,697,653 ----------- ----------- ----------- INCOME TAX EXPENSE: Current 1,424,185 2,709,530 2,048,337 Deferred 343,018 (49,530) 446,213 ----------- ----------- ----------- Total current and deferred income taxes 1,767,203 2,660,000 2,494,550 Recovery of deferred tax valuation allowance (732,203) --- --- ----------- ----------- ----------- Total income taxes 1,035,000 2,660,000 2,494,550 ----------- ----------- ----------- NET INCOME $ 4,285,420 $ 4,710,912 $ 4,203,103 =========== =========== =========== Earnings per share data: Primary net income per share $ 1.57 $ 1.74 $ 1.56 Fully diluted net income per share $ 1.57 $ 1.73 $ 1.56 Average number of shares outstanding - primary 2,724,147 2,710,849 2,701,388 Average number of shares outstanding - fully diluted 2,725,512 2,723,608 2,701,388
The accompanying notes are an integral part of these consolidated statements. 15 First Home Bancorp Inc. Consolidated Statements of Shareholders' Equity - --------------------------------------------------------------------------------
Paid-in Unrealized Capital Gain in (Loss) Total Excess Retained on Shareholders' of Par Earnings Securities Equity ------ -------- ---------- ------ Balance at January 1, 1994 $8,636,852 $14,236,871 $ 223,698 $23,097,421 Stock issued upon exercise of stock options 235,442 --- --- 235,442 Cash in lieu of fractional shares --- (5,381) --- (5,381) Dividends $.32 per share --- (855,520) --- (855,520) Unrealized loss on securities, net --- --- (3,600,427) (3,600,427) Net income --- 4,203,103 --- 4,203,103 ---------- ----------- --------- ----------- Balance at December 31, 1994 8,872,294 17,579,073 (3,376,729) 23,074,638 Stock issued upon exercise of stock options 46,345 --- --- 46,345 Dividends $.36 per share --- (974,643) --- (974,643) Unrealized gain on securities, net --- --- 3,245,476 3,245,476 Net income --- 4,710,912 --- 4,710,912 ---------- ----------- --------- ----------- Balance at December 31, 1995 8,918,639 21,315,342 (131,253) 30,102,728 Stock issued upon exercise of stock options 4,302 --- --- 4,302 Cash in lieu of fractional shares --- (6,869) --- (6,869) Dividends $.37 per share --- (1,001,668) --- (1,001,668) Unrealized loss on securities, net --- --- (739,151) (739,151) Net income --- 4,285,420 --- 4,285,420 ---------- ----------- --------- ----------- Balance at December 31, 1996 $8,922,941 $24,592,225 $(870,404) $32,644,762 ========== =========== ========= ===========
The accompanying notes are an integral part of these consolidated financial statements. 16 First Home Bancorp Inc. Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994 ---- ---- ---- OPERATING ACTIVITIES: Net Income $4,285,420 $4,710,912 $4,203,103 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 400,000 600,000 550,000 Depreciation 360,317 299,248 250,047 Accretion of excess fair value over cost (248,952) (248,952) (248,952) Amortization of fair market premiums 50,517 186,488 332,801 Amortization of deposit premiums 257,856 257,283 --- Net (gains) losses on investment securities held for trading (222,848) (152,470) 137,989 Purchase of investment securities held for trading (9,372,271) (1,817,033) (10,258,147) Proceeds from sale of investment securities held for trading 9,591,742 2,368,734 10,339,806 Gains from sale of mortgage-backed securities available-for-sale (24,726) --- --- Loans originated for sale (8,845,461) (6,262,211) (11,441,117) Proceeds from loans sold 8,504,317 6,260,190 17,673,113 Net loss (gain) on sale of loans 83,749 (128,109) 644,271 Increase in accrued interest receivable (109,890) (402,567) (241,114) Increase in accrued interest payable 32,774 106,154 156,662 (Increase) decrease in deferred income taxes (389,185) (49,530) 446,213 Net other (563,298) 167,884 3,761,712 ---------- ---------- ---------- Net cash provided by operating activities 3,790,061 5,896,021 16,306,387 ---------- ---------- ---------- INVESTMENT ACTIVITIES: Proceeds from maturities of investment securities 14,560,833 20,274,738 6,571,609 Proceeds from sale of mortgage-backed securities available-for-sale 3,636,950 --- --- Purchase of: Investment securities (12,847,004) (14,415,676) (22,931,583) Mortgage-backed securities (55,491,075) (54,841,094) (26,493,169) Repayments on mortgage-backed securities 9,085,346 6,799,895 22,482,619 Net decrease in real estate projects --- --- 22,734 Purchase of FHLB stock (2,058,500) (660,300) (705,600) Purchase of property and equipment (772,852) (285,149) (228,082) (Increase) decrease in real estate owned (460,959) 454,233 1,062,490 Principal collected on longer term loans 52,514,984 44,201,081 49,183,319 Loans originated or acquired (56,371,528) (59,707,846) (80,854,174) Cash obtained from acquisition of branches --- 14,511,820 --- ---------- ---------- ---------- Net cash used by investing activities (48,203,805) (43,668,298) (51,889,837) ---------- ---------- ----------
17 First Home Bancorp Inc. Consolidated Statements of Cash Flows - --------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994 ---- ---- ---- FINANCING ACTIVITIES: Net increase (decrease) in: Demand deposits, NOW accounts, and savings accounts 5,276,517 1,050,726 (2,092,729) Certificates of deposit 14,845,432 14,093,061 13,943,306 Net (decrease) increase in other borrowings (7,803,000) 7,999,950 17,081,550 Proceeds from FHLB borrowings 41,625,000 29,413,850 30,711,750 Repayment of FHLB borrowings (10,800,000) (10,900,000) (22,450,000) Cash dividends and cash in lieu of fractional shares (1,008,537) (974,643) (860,901) Proceeds from exercise of common stock options 4,302 46,345 235,442 Net increase (decrease) in advances from borrowers for taxes and insurance 52,019 (83,235) (137,825) ---------- ---------- ---------- Net cash provided by financing activities 42,191,733 40,646,054 36,430,593 ---------- ---------- ---------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,222,011) 2,873,777 847,143 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 8,657,440 5,783,663 4,936,520 ---------- ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF YEAR $6,435,429 $8,657,440 $5,783,663 ========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES During 1995, investments and mortgage backed-securities with a book value of $32,019,901 were transferred from held to maturity to available-for-sale. See Note 1 - Summary of significant accounting policies - investment policy. During 1994, $9,802,761 of loans held for sale were transferred to loans receivable. See Note 7 - Loans held for sale. The Company issued 677,284 shares of Common Stock no par value on February 14, 1997, to effect a four-for-three stock split declared effective December 31, 1996. The accompanying notes are an integral part of these consolidated financial statements. 18 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES First Home Bancorp Inc. (the Company) follows accounting and reporting practices, in accordance with generally accepted accounting principles (GAAP), normally adhered to by financial institutions. The more significant accounting policies are summarized below. Principles of Consolidation - The consolidated financial statements include the accounts of First Home Bancorp Inc., its wholly-owned subsidiary, First Home Savings Bank, F.S.B. (the Bank) and the Bank's wholly owned subsidiaries. The Company's business is conducted primarily through the Bank. Intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior years' financial statements to conform to the classifications used in 1996. Nature of Operations - The Bank conducts business through ten full-service offices located in Camden, Gloucester, and Salem Counties, in New Jersey, and New Castle County in Delaware. The Bank was chartered in 1911 for the purpose of attracting retail savings deposits to provide mortgage funds for the community. Today, while home lending is still the cornerstone of activities, the Bank is a full service bank offering a broad range of products and services to borrowers and depositors. Use of Estimates in the Preparation of Financial Statements - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from the estimates. Cash and Cash Equivalents - Cash and cash equivalents include cash on hand and in banks and interest-earning deposits. Investment Policy - In accordance with Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115), investments are classified into three categories; those held-to-maturity and reported at amortized cost, for which the Company has the positive intent and ability to hold-to-maturity; those classified as available-for-sale and reported at fair value with unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity; and those classified as trading securities and reported at fair value with unrealized gains and losses included in earnings. In December 1995, investments were reclassified with a book value of $32,019,901 and a fair value of $32,888,612 from held-to-maturity to available-for-sale. This reclassification was allowable under Financial Accounting Standards Board (FASB) guidance which permitted institutions to make a one-time reassessment of the appropriateness of investment security classifications. As a result of this reclassification, the net unrealized loss on securities recorded as a component of shareholders' equity decreased approximately $555,975, net of tax. Realized security gains and losses are computed using the specific identification method and are recorded on a trade date basis. The investment in Federal Home Loan Bank stock is carried at cost. Loans Held for Sale - Loans held for sale are carried at the lower of aggregate cost (remaining principal net of unearned premiums and discounts) or market. Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments - During 1996, the Company was a party to financial instruments with off-balance-sheet risk in the normal course of business to reduce its exposure to fluctuations in interest rates (hedging). The off-balance-sheet financial 19 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- instruments were forward commitments. During 1995, the Company did not engage in these activities. Those instruments involved, to varying degrees, elements of credit, interest rate, or liquidity risk in excess of the amounts recognized in the balance sheets. The contract amounts of those instruments represent the extent of the Company's risk in these financial instruments. Credit risk is controlled by conducting transactions with major investment firms and by setting policies for transaction volume limitations and periodic monitoring. Each dealer was carefully evaluated on the basis of its financial strength, reputation and expertise. Unless noted otherwise, the Company does not require collateral or other securities to support derivative financial instruments with credit risk. A forward contract is a legal agreement between two parties to purchase or sell a specific quantity of a financial instrument, at a specified price, with delivery and settlement at a specified future date. Because forward contracts lack the liquidity and protection provided by regulated exchanges, there is a heightened risk of default by the counterparties. There were no open forward commitments for future delivery at December 31, 1996 and 1995. During 1996, forward contracts were purchased to hedge the loans held for sale portfolio and outstanding fixed rate mortgage loan commitments. During 1996, losses of $48,750 were recognized and included in the actual loss on loans sold. No activity occurred during 1995 with regard to forward contracts. Mortgage-Backed Securities - Mortgage-Backed Securities (MBS) including real estate mortgage investment conduits (REMICS) classified as held-to-maturity are carried at cost and are adjusted for amortization of premiums and accretion of discounts over the term of the securities using a method which approximates the interest method. Temporary changes in the market value of the securities are not recognized since it is management's intention to hold these MBS to maturity. In management's opinion, it has the ability to hold these securities to maturity. MBS classified as available-for-sale, in accordance with FAS 115, are reported at fair value, with unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity. Allowance for Credit Losses - An allowance for credit losses is maintained at a level that management considers adequate to provide for losses based upon an evaluation of known and inherent risks attendant with the loan portfolio. Management's evaluation is based on regular review of the loan portfolio and considers such factors as payment history, adverse situations which may affect a borrower's ability to repay, collateral adequacy and current economic conditions. Actual losses may vary from current estimates. These estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the period in which they become known. Allowance for Uncollected Interest -Interest is not recognized on loans deemed to be uncollectible. Generally, this includes loans that are more than three months delinquent. Such interest, if collected, is credited to income in the period of recovery. The allowance for uncollected interest is netted against accrued interest receivable for financial reporting purposes. Unearned Premiums and Discounts - Unearned premiums and discounts on assets purchased or acquired are amortized over the estimated life using a method which approximates the effective interest method. Loan Fees and Origination Costs - Loan origination fees and related direct loan origination costs are deferred and recognized over the life of the loan as an adjustment to yield. The amount of net loan origination fees recognized as a yield adjustment is reflected as interest income in the consolidated statements of income. The unamortized balance of net loan origination fees is reflected in the consolidated statements of financial condition as part of loans receivable-net. 20 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Mortgage Servicing Rights - The cost of mortgage servicing rights is amortized over the period of estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. Fair values are estimated using prepayment assumptions based on current market interest rates. For purposes of measuring impairment, the rights are stratified based on the interest rates of the underlying loans. The amount of impairment recognized is the amount by which the capitalized mortgage servicing rights for a stratum exceed their fair value. Real Estate Owned - Real estate acquired in settlement of loans is carried at the lower of cost or estimated fair value less estimated costs to sell. Subsequent costs directly related to the completion of construction or improvement of the real estate are capitalized to the extent realizable. Gains on the sale of real estate are recognized upon disposition of the property and losses are charged to operations as incurred. Carrying costs, such as maintenance, interest, and taxes, are charged to operations as incurred. Rental income is recognized as a reduction of operating costs. Office Properties and Equipment - Office buildings and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method based on the estimated useful life of the related asset. The cost of leasehold improvements is amortized over the estimated life of the improvement or the term of the lease, whichever is shorter. The asset cost and accumulated depreciation or amortization for property retirements and disposals are eliminated from the respective accounts, and any resultant gain or loss is included in net income as incurred. The cost of maintenance and repairs is charged to operating expense, as incurred. The cost of major additions and improvements is capitalized. Deposit Premium - The premium resulting from the valuation of core deposits acquired in the purchase of branch offices is amortized over the estimated remaining life of the existing customer deposit base acquired using a method which approximates the effective interest method. The estimated life at the time of purchase was ten years. Amortization periods are monitored to determine if events and circumstances require such periods to be reduced. Income Taxes - The Company files a consolidated federal income tax return and separate state tax returns. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109), deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset which is not likely to be realized. Management believes, based upon current facts, that more likely than not there will be sufficient taxable income in future years to realize any deferred tax assets. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. Securities Sold Under Agreements to Repurchase - The Bank enters into sales of securities under agreements to repurchase (reverse repurchase agreements). Reverse repurchase agreements are treated as borrowings. Excess of Fair Value Over Cost - The excess of the fair value over cost of net assets acquired after adjustment of non-current assets resulted from the conversion merger of Fidelity Mutual Savings & Loan Association in July 1992. The excess of fair value over cost is amortized over the economic life of the related long term interest-earning assets estimated to be approximately six years. 21 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Interest Rate Risk - The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to make loans secured by real estate, to purchase mortgage-backed and other investment securities and, to a lesser extent, to make consumer loans. The potential for interest rate risk exists as a result of the shorter duration of the Company's interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising interest rate environment, liabilities will reprice faster than assets thereby reducing the market value of long-term assets and reducing net interest income. For this reason, management regularly monitors the maturity structure of the Company's assets and liabilities in order to measure its level of interest rate risk and plan for future volatility. Business Combination and Acquisitions - On May 31, 1996, the Bank completed a reorganization into a holding company form of ownership, and the Bank became a wholly-owned subsidiary of First Home Bancorp Inc. (the newly formed holding company). The shareholders of the Bank exchanged their shares of the Bank for the same number of shares of First Home Bancorp Inc. The consolidated financial statements of the holding company remain the same as those prior to the reorganization, since the merger was essentially accounted for in a manner similar to that in pooling-of-interests. As of the effective date of the reorganization, the assets, liabilities and shareholders' equity of the Bank were reflected on the Company's consolidated balance sheet at their historical values. Also, the consolidated statement of operations of the Company subsequent to the reorganization reflect the consolidated operations of the Bank as if the reorganization had taken place prior to the periods covered by such financial statements. At December 31, 1996, substantially all of the holding company's assets are invested in capital stock of the Bank (see Note 23). On January 23, 1995, certain assets were purchased and deposit liabilities were assumed pursuant to an agreement entered into on September 21, 1994 to purchase two retail banking offices. The deposit liabilities assumed amounted to $15,924,000 and the net assets received, consisting primarily of cash, amounted to $14,766,000. The fair value of liabilities assumed exceeded the fair value of tangible assets acquired by $1,146,000, and was allocated to deposit premium. Earnings and Dividends Per Share - On January 7, 1997 the Board of Directors declared a four-for-three stock split effective December 31, 1996, which was effected in the form of a stock dividend and distributed on February 14, 1997, to holders of record on January 22, 1997. Accordingly, earnings per share (EPS) and dividends per share have been restated to reflect the increased number of shares outstanding in each prior period. Recently Issued or Proposed Accounting Standards - The FASB issued Statement No. 114, "Accounting by Creditors for Impairment of a Loan" (FAS 114) in May 1993, and FAS 118 "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures" (FAS 118), in October 1994. These statements require creditors to measure certain impaired loans based on the present value of expected future cash flows discounted at the loan's effective interest rate or at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The in-substance foreclosure rules also changed in that "in-substance foreclosures" are classified as loans and stated at the lower of cost or fair value, as defined. These statements are effective for fiscal years beginning after December 15, 1994, and accordingly, the Company adopted the statements as of January 1, 1995. The effect of adopting the statements was not significant. In March 1995, the FASB issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS 121). This statement requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the entity should estimate the future cash flows expected to 22 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use should be based on the fair value of the asset. This statement is effective for financial statements for fiscal years beginning after December 15, 1995, and accordingly, the Company adopted the statement January 1, 1996. The effect of adopting the statement was not significant. In May 1995, the FASB issued Statement No. 122 "Accounting for Mortgage Servicing Rights," (FAS 122), this statement requires that the Company recognize rights to service mortgage loans for others as separate assets regardless of how those servicing rights are acquired. An institution that acquires mortgage servicing rights through either the purchase or origination of mortgage loans and sells those loans with servicing rights retained should allocate a portion of the cost of the loans to mortgage servicing rights. FAS 122 requires that securitizations of mortgage loans be accounted for as sales of mortgage loans and acquisitions of MBS. Additionally, FAS 122 requires that capitalized mortgage servicing rights be assessed for impairment, based on the fair value of those rights. FAS 122 is required to be applied prospectively for fiscal years beginning after December 15, 1995 to transactions in which an entity acquires mortgage servicing rights and to impairment evaluations of all capitalized mortgage servicing rights. Retroactive application is prohibited. The Company adopted the statement January 1, 1996. The effect of the adoption did not have a material effect on consolidated financial position or results of operations. In October 1995, FASB issued Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123). This statement requires certain disclosures about stock-based employee compensation arrangements, defines a fair value based method of accounting for an employee stock option or similar equity instruments, and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for stock-based compensation plans using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Entities electing to remain with the accounting in APB 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in FAS 123 had been applied. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Under the intrinsic value based method, compensation cost is the excess, if any, of the quoted market price of the stock at the grant date, or other measurement date, over the amount an employee must pay to acquire the stock. FAS 123 is effective for fiscal years beginning after December 15, 1995. Under FAS 123, the Company has elected to disclose on a pro forma basis the fair value method of accounting for stock-based compensation. Pro forma disclosures required for entities that elect to continue to measure compensation cost using APB 25 must include the effects of all awards granted in fiscal years that began after December 15, 1994. The Company adopted the statement on January 1, 1996 and will continue accounting for stock-based compensation under APB 25. See footnote 18 for pro forma disclosures required by FAS 123. In June 1996, the FASB issued Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (FAS 125). The Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. Those standards are based upon consistent application of a financial components approach that focuses on control. The Statement also defines accounting treatment for servicing assets and other retained interests in the assets that are transferred. FAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996 and is to be applied prospectively. FAS No. 127 was also issued in 1996 and amended FAS No. 125 by deferring for one year the effective date for certain provisions of FAS No. 125. The Company intends to adopt FAS No. 125, as amended, on January 1, 1997, and FAS No. 127 on January 1, 1998. The adoption of these Statements is not expected to have a material effect on the Company's financial condition or results of operations. 23 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Disclosures about Fair Value of Financial Instruments - The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of FAS 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined by the Bank using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amount the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value amounts.
December 31, 1996 1995 ---- ---- Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- (in thousands) Assets: Cash and cash equivalents $ 6,435 $ 6,435 $ 8,657 $ 8,657 Investment securities held-to-maturity 2,321 2,321 517 517 Investment securities held for trading 60 60 57 57 Investment securities available-for-sale 24,975 24,975 28,730 28,730 Mortgage-backed securities held-to-maturity 97,391 98,418 67,995 69,588 Mortgage-backed securities available-for-sale 91,216 91,216 78,766 78,766 Loans receivable, net 258,781 262,724 255,440 260,605 Loans held for sale 676 676 418 418 Liabilities: Demand deposits 120,020 120,077 114,743 114,870 Time deposits 169,899 170,269 155,224 156,583 Borrowings from the Federal Home Loan Bank 136,622 136,159 105,797 106,644 Other borrowed funds 36,526 36,655 44,329 44,329
Cash and cash equivalents - For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value. Investment securities held-to-maturity, held for trading and available-for-sale - For investment securities held-to-maturity, held for trading and available-for-sale, estimated fair values are based on quoted market prices or dealer quotes. If a quoted market price or dealer quote is not available, fair value is estimated using quoted market prices for substantially similar investments. Mortgage-backed securities held-to-maturity and available-for-sale - Estimated fair value for MBS issued by governmental sponsored agencies is based on quoted market prices. The fair value of MBS issued by non-governmental sponsored agencies is estimated based on similar securities with quoted market prices and adjusted for any differences in credit ratings or maturities. Loans receivable - For certain homogeneous categories of loans, such as residential mortgage loans and other consumer loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics and guarantees. The fair values of other types of loans are estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. Non-performing loans of $3,213,053 and $2,921,459 at December 31, 1996 and 1995, and allowance for credit losses of $3,760,485 and $3,562,330 are not included in the carrying amount or estimated fair value at December 31, 1996 and 1995, respectively. 24 First Home Bancorp Inc. Notes to Consolidated Financial Statements - ------------------------------------------------------------------------------- Demand deposits and time deposits - The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using interest rates currently offered for deposits of similar remaining maturities. Borrowings from the Federal Home Loan Bank and other borrowed funds - Interest rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate the fair value of existing debt. 2. INVESTMENT SECURITIES HELD-TO-MATURITY Investment securities held-to-maturity at December 31, 1996 and 1995 consisted of tax exempt obligations due in less than one year. 3. INVESTMENT SECURITIES HELD FOR TRADING Investment securities held for trading at December 31, 1996 and 1995 consisted of an investment in a mutual fund. The Company buys and sells debt and equity securities that are classified as trading securities. At each reporting period, the Company adjusts the value of these securities to market value. Net gains of $222,848 and $152,470 were recorded in 1996 and 1995, respectively. Net losses in the amount of $137,989 were recorded in 1994. 4. INVESTMENT SECURITIES AVAILABLE-FOR-SALE Investment securities available-for-sale at December 31, 1996 and 1995 consisted of the following:
December 31, 1996 Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ---- ----- ------ ----- U.S. Government Agencies Due after one year through five years $17,975,954 $ 72,448 $(16,515) $18,031,887 Due after five years through ten years --- --- --- --- Corporate Notes Due in one year or less 724,718 1,754 --- 726,472 Due after one year through five years 2,972,203 36,946 --- 3,009,149 Due after five years through ten years 639,207 11,345 --- 650,552 Preferred stock 2,547,723 9,252 --- 2,556,975 ----------- -------- -------- ----------- Total $24,859,805 $131,745 $(16,515) $24,975,035 =========== ======== ======== ===========
25 First Home Bancorp Inc. Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
December 31, 1995 Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ---- ----- ------ ----- U.S. Government Agencies Due after one year through five years $10,991,273 $132,055 $(15,000) $11,108,328 Due after five years through ten years 8,978,750 39,129 (11,400) 9,006,479 Corporate Notes Due in one year or less 1,996,543 19,719 --- 2,016,262 Due after one year through five years 3,668,388 103,305 --- 3,771,693 Due after five years through ten years 645,621 33,639 --- 679,260 Preferred stock 2,096,775 50,725 --- 2,147,500 ----------- -------- -------- ----------- Total $28,377,350 $378,572 $(26,400) $28,729,522 =========== ======== ======== ===========
U.S. Government Agencies consist of $2,000,000 and $11,000,000 of step-up securities with periodic interest rate adjustments and call dates as well as $15,975,954 and $8,970,023 of callable agency notes at December 31, 1996 and 1995, respectively. No investment securities available-for-sale were sold under agreement to repurchase at December 31, 1996. U.S. Government Agencies with amortized costs of $8,978,750 and market values of $9,006,479 were sold under agreement to repurchase at December 31, 1995. There were no sales of investment securities available-for-sale during 1996, 1995 and 1994. 5. MORTGAGE-BACKED SECURITIES A summary of mortgage-backed securities at December 31, 1996 and 1995 consisted of the following:
December 31, 1996 Gross Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ---- ----- ------ ----- Mortgage-Backed Securities Available-for-Sale FNMA pass-through certificates $ 1,862,589 $ 34,577 $ (2,302) $ 1,894,864 FHLMC pass-through certificates 4,342,140 236,560 (167) 4,578,533 GNMA pass-through certificates 6,070,394 389,659 --- 6,460,053 Real estate mortgage investment conduit obligations 80,416,374 277,492 (2,411,055) 78,282,811 ----------- ---------- ----------- ----------- Total mortgage-backed securities available-for-sale $92,691,497 $938,288 $(2,413,524) $91,216,261 =========== ========== =========== =========== Mortgage-Backed Securities Held to Maturity Non-agency pass through certificates $ 6,143,017 $ 47,852 $ (6,699) $ 6,184,170 Real estate mortgage investment conduit obligations 91,247,732 1,202,415 (216,800) 92,233,347 ----------- ---------- ----------- ----------- Total mortgage-backed securities held to maturity $97,390,749 $1,250,267 $ (223,499) $98,417,517 =========== ========== =========== ===========
26 First Home Bancorp Inc. Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
December 31, 1995 Gross Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ---- ----- ------ ----- Mortgage-Backed Securities Available-for-Sale FNMA pass-through certificates $ 2,340,880 $ 38,472 $ --- $ 2,379,352 FHLMC pass-through certificates 5,573,652 332,827 (373) 5,906,106 GNMA pass-through certificates 7,775,011 378,043 --- 8,153,054 Real estate mortgage investment conduit obligations 63,633,391 236,559 (1,542,785) 62,327,165 ----------- -------- ----------- ----------- Total mortgage-backed securities available-for-sale $79,322,934 $ 985,901 $(1,543,158) $78,765,677 =========== ========== =========== =========== Mortgage-Backed Securities Held to Maturity Non-agency pass through certificates $ 7,319,434 $ 79,947 $ (47,265) $ 7,352,116 Real estate mortgage investment conduit obligations 60,675,113 1,651,045 (89,788) 62,236,370 ----------- --------- ----------- ---------- Total mortgage-backed securities held to maturity $67,994,547 $1,730,992 $ (137,053) $69,588,486 =========== ========== =========== ===========
Mortgage-backed securities with amortized costs of $66,690,201 and $36,860,813 and market values of approximately $66,990,150 and $36,863,793 were pledged as collateral for securities sold under agreements to repurchase at December 31, 1996 and 1995, respectively. The Company had FHLMC pass-through certificates with amortized costs of $800,247 and $873,162 and market values of $846,129 and $933,214 pledged for the Treasury, Tax, and Loan Account and the Discount Window at the Federal Reserve Bank of Philadelphia at December 31, 1996 and 1995, respectively. Gains of $24,726 were recognized in 1996 from the sales of MBS available-for-sale. There were no sales of MBS during 1995 and 1994. Expected maturities of MBS will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. 27 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 6. LOANS RECEIVABLE Loans receivable at December 31, 1996 and 1995 consisted of the following:
December 31, 1996 1995 ---- ---- Residential mortgage loans on existing property $203,573,974 $206,264,708 Residential construction mortgage loans 3,823,763 3,258,284 Commercial real estate loans 17,213,802 15,670,880 Commercial business loans 1,948,398 1,232,999 Consumer loans: Home equity loans 19,479,002 16,631,949 Mobile home loans 6,605,623 7,804,508 Equity lines of credit 3,992,872 3,674,874 Automobile loans 4,630,703 4,087,717 Other loans 3,747,576 3,538,614 ------------ ------------ Total 265,015,713 262,164,533 Undisbursed portion of loans in process (1,222,037) (1,680,884) Deferred loan fees, discounts and premiums (net) (1,799,736) (2,122,629) Allowance for credit losses (3,760,485) (3,562,330) ------------ ------------ Total $258,233,455 $254,798,690 ============ ============
The Company originates or purchases both adjustable and fixed interest rate loans. At December 31, 1996 the composition of loans (excluding non-performing loans, deferred loan fees, discounts, premiums, and allowance for credit losses), by maturity or repricing was as follows:
Fixed Adjustable Rate Rate -------- ---------- (in thousands) 1 month - 1 year $ 3,980 $60,387 1 - 3 years 5,886 24,420 3 - 5 years 12,956 1,266 5 - 10 years 33,935 --- 10 - 20 years 103,708 --- over 20 years 14,043 --- -------- ------- Total $174,508 $86,073 ======== =======
Adjustable rate loans have interest rate adjustment limitations and are generally indexed to the 1-year or 3-year U.S.Treasury interest rate. Market factors affect the correlation of the interest rate adjustment to the interest rates the Company pays on short-term deposits which have primarily been used to fund these loans. At December 31, 1996 and 1995, the Company was servicing loans for others amounting to $64,900,000, and $63,400,000, respectively. Servicing loans for others generally consists of collecting mortgage payments, disbursing payments to investors and processing foreclosures. Loan servicing income is recorded upon receipt and includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees. Mortgage servicing rights of $73,117 were capitalized in 1996. Amortization of mortgage servicing rights was $3,656 in 1996. Loans to executive officers and directors at December 31, 1996 and 1995 were $832,093 and $669,504, respectively. Additional loans and repayments for the year ended December 31, 1996 were $235,471 and $72,882, respectively. 28 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- At December 31, 1996 approximately 61% and 13% of mortgage loans receivable were collateralized by property located in New Jersey and Delaware, respectively. The following schedule summarizes the changes in the allowance for credit losses:
Year Ended December 31, 1996 1995 1994 ---- ---- ---- Beginning balance $3,562,330 $3,315,340 $2,662,977 Provision for credit losses 400,000 600,000 550,000 Charge-offs (357,530) (580,427) (43,921) Recoveries 155,685 227,417 146,284 ---------- ---------- ---------- Total $3,760,485 $3,562,330 $3,315,340 ========== ========== ==========
Non-accrual loans at December 31, 1996 and 1995, net of charge-offs, were $3,213,053 and $2,921,459, respectively. The reserve for delinquent interest on loans totaled $261,123 and $269,869 at December 31, 1996 and 1995, respectively, and is netted against accrued interest receivable. At December 31, 1996 and 1995, the recorded investment in loans that are considered to be impaired as defined by FAS 114 totaled $333,613, and $286,446 (of which $159,610 and $219,954 were included in non-accrual loans), respectively. All impaired loans have no allowances for credit losses as a result of $114,831 and $164,000 in charge-offs during 1996 and 1995, respectively. The average recorded investment in impaired loans were $273,919 and $148,719 during the years ended December 31, 1996 and 1995, respectively. Payments received on impaired loans that are not classified non-accrual are recognized as income on the cash basis. For the years ended December 31, 1996 and 1995, the Company recognized interest income of $23,682 and $13,109 on impaired loans. 7. LOANS HELD FOR SALE Loans held for sale at December 31, 1996 and 1995 amounted to $675,700 and $418,305, respectively. Loans held for sale consist of 30 year fixed-rate residential mortgage loans which qualify for sale in the secondary market. These loans are recorded at the lower of cost or market value determined on an aggregate basis. At December 31, 1996 the Company had $1,043,200 in forward loan sale contracts to an agency. No forward loan sales were outstanding at December 31, 1995. Loans held-for-sale and settled and loan applications in various stages of the underwriting process as of December 31, 1996 will be used to satisfy these forward loan sales. During 1994, $7,047,141 in 20 year fixed rate residential loans and $2,755,620 in 30 year fixed rate residential loans were transferred from loans held for sale to loans receivable at the then current market values. Losses in the amount of $193,768 are included in the statement of income as though the loans were actually sold in 1994. Net losses of $83,749 and $644,271 on the sale of loans held for sale were recorded in 1996 and 1994, respectively. Net gains of $128,109 were recorded in 1995. 29 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 8. ACCRUED INTEREST RECEIVABLE Accrued interest receivable at December 31, 1996 and 1995 consisted of the following:
December 31, 1996 1995 ---- ---- Loans $1,565,647 $1,607,790 Mortgage-backed securities 986,454 790,402 Investment securities 461,068 505,087 ---------- ---------- Total $3,013,169 $2,903,279 ========== ==========
9. REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS Real estate owned and other repossessed assets at December 31, 1996 and 1995 consisted of the following:
December 31, 1996 1995 ---- ---- Real estate owned $941,222 $480,763 Other repossessed assets 6,500 6,000 -------- -------- Total $947,722 $486,763 ======== ========
10. OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment are summarized by major classifications as follows:
December 31, 1996 1995 ---- ---- Land, buildings and improvements $3,689,265 $3,435,768 Furniture and equipment 1,437,197 969,719 ---------- ---------- Total 5,126,462 4,405,487 Less accumulated depreciation (2,127,606) (1,819,166) ---------- ---------- Total $2,998,856 $2,586,321 ========== ==========
The Company leases three branch offices and other office space. The leases of these facilities are accounted for as operating leases. Total rental expense was $106,433, $104,049 and $64,944 for the years ended December 31, 1996, 1995 and 1994, respectively. Minimum rental commitments under the operating leases are as follows:
1997 $ 83,808 1998 52,708 1999 29,241 2000 27,108 2001 27,108 2002 and beyond 6,777 -------- Total $226,750 ========
30 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 11. DEPOSITS Deposits at December 31, 1996 and 1995 consisted of the following:
December 31, 1996 1995 ---- ---- Weighted Weighted Average Average Interest Interest Amount Rate Amount Rate ------ ---- ------ ---- NOW accounts $26,477,271 1.54% $ 26,292,766 2.02% Non-interest bearing accounts 7,594,466 --- 7,042,519 --- Money market and other accounts 51,407,656 4.05 41,364,855 4.10 Savings and club accounts 34,541,096 2.77 40,043,245 2.77 ----------- ---- ------------- ---- Subtotal 120,020,489 2.87 114,743,385 2.91 ----------- ---- ------------- ---- Certificates by maturity: 6 months or less 78,431,089 5.26 58,010,512 5.30 6 months to 1 year 34,616,074 5.50 44,724,687 5.51 1 to 2 years 36,985,319 5.51 26,548,551 5.69 2 to 3 years 9,953,736 5.71 14,325,846 5.48 Over 3 years 9,912,572 5.94 11,614,071 6.09 ----------- ---- ------------- ---- Total certificates 169,898,790 5.43 155,223,667 5.50 ----------- ---- ------------- ---- Subtotal 289,919,279 4.37% 269,967,052 4.40% ==== ==== Accrued interest payable 378,408 208,686 ------------ ------------ Total $290,297,687 $270,175,738 ============ ============
Jumbo Certificates of Deposits are accounts in excess of $95,000 that are solicited directly or through brokers in the national market. At December 31, 1996 and 1995 the Company had $35,267,599 and $27,589,266, respectively, in Jumbo Certificates of Deposit of which $14,714,990 and $15,733,969, respectively, were brokered deposits. At December 31, 1996 and 1995, mortgage loans and MBS aggregating $1,616,821 and $813,776, respectively, were pledged for public fund deposits as required by the New Jersey Department of Banking's Governmental Unit Deposit Protection Act. REMICS with amortized costs of $498,229 and $688,213 and market values of $492,313 and $682,941 were pledged for savings deposits at December 31, 1996 and 1995, respectively. Following is a summary of interest expense by type of account:
December 31, 1996 1995 1994 ---- ---- ---- NOW $ 407,851 $ 517,561 $ 478,614 Money market and other 1,858,601 1,359,524 962,891 Savings and club 1,032,328 1,174,685 1,330,618 Certificate 8,822,040 8,127,383 5,582,427 ----------- ----------- ---------- Total $12,120,820 $11,179,153 $8,354,550 =========== =========== ==========
Interest paid on deposits for the years ended December 31, 1996, 1995 and 1994 was $11,951,098, $11,182,881 and $8,286,644, respectively. 31 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 12. BORROWINGS FROM FEDERAL HOME LOAN BANK Borrowings from the Federal Home Loan Bank at December 31, 1996 and 1995 consisted of the following:
December 31, 1996 1995 ---- ---- Weighted Weighted Average Average Interest Interest Amount Rate Amount Rate ------ ---- ------ ---- Maturing during: 1996 $ --- ---% $ 52,500,000 (1)5.73% 1997 94,061,750 (1)5.69 28,399,150 5.84 1998 19,828,180 5.99 15,265,780 5.87 1999 15,875,000 6.03 3,625,000 6.77 2000 6,257,370 6.58 6,007,370 6.56 2001 600,000 7.12 --- --- ------------ ---- ------------ ---- Total $136,622,300 5.82% $105,797,300 5.86% ============ ==== ============ ====
- ------------------------------------ (1) Borrowing rates on the line of credit are presented based on a 31 day average rate. The Bank has a line of credit at the Federal Home Loan Bank for $47,157,230 of which $38,428,000 was outstanding at December 31, 1996. The interest rate adjusts daily based on the Federal Funds rate. Borrowings from the Federal Home Loan Bank include loans that adjust quarterly based on the London Interbank Offered Rate (LIBOR). Adjustable borrowings totaled $10,000,000 at December 31, 1996, and at December 31, 1995. Borrowings from the Federal Home Loan Bank at December 31, 1996 also include securities sold under agreements to repurchase of $27,297,000. These agreements are due within 30 days and have an interest rate of 5.61%. Securities sold under agreement to repurchase were collateralized by mortgage-backed securities with amortized costs of $28,935,254 and market values of approximately $28,816,102. There were no securities sold under agreements to repurchase with the Federal Home Loan Bank as of December 31, 1995. Borrowings from the Federal Home Loan Bank averaged $120,987,383 and $93,037,610 and the maximum outstanding at any month-end was $147,509,300 and $105,797,300 during the years ended December 31, 1996 and 1995, respectively. Borrowings from the Federal Home Loan Bank are collateralized by Federal Home Loan Bank stock and substantially all first mortgage loans. Interest expense on borrowings from Federal Home Loan Bank was as follows:
Years Ended December 31, 1996 1995 1994 ---- ---- ---- Federal Home Loan Bank borrowings $6,702,751 $5,443,740 $4,269,188 Amortization of fair market premium --- (20,670) (41,340) ---------- ---------- ---------- Total $6,702,751 $5,423,070 $4,227,848 ========== ========== ==========
32 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Interest paid on borrowings from Federal Home Loan Bank for the years ended December 31, 1996, 1995 and 1994 was $6,622,854 , $5,420,238 and $4,290,920, respectively. 13. OTHER BORROWED FUNDS Other borrowed funds at December 31, 1996 and 1995 consisted of the following securities sold under agreements to repurchase.
December 31, 1996 1995 ---- ---- Weighted Weighted Average Average Interest Interest Amount Rate Amount Rate ------ ---- ------ ---- Maturing during: 1996 $ --- ---% $44,329,000 6.00% 1997 16,526,000 5.60 --- --- 1998 --- --- --- --- 1999 20,000,000 5.84 --- --- ----------- ---- ----------- ---- 1996 $36,526,000 5.73% $44,329,000 6.00% =========== ==== =========== ====
These agreements are treated as borrowings. Securities sold under agreement to repurchase were collateralized by MBS and U.S. Government agency securities with amortized costs of $37,754,947 and $45,839,563 and market values of approximately $38,174,048 and $45,870,272 at December 31, 1996 and 1995, respectively. The MBS and U.S. Government agency securities underlying the agreements were delivered to, and are held by the dealers who arranged the transactions. Securities sold under agreements to repurchase averaged $43,966,833 and $39,317,783 and the maximum amount outstanding at any month-end was $54,967,000 and $44,516,000 during the years ended December 31, 1996 and 1995, respectively. Interest expense on other borrowed funds for the years ended December 31, 1996, 1995 and 1994 was $2,540,055, $2,370,051 and $1,318,329, respectively. Interest paid on other borrowed funds for the years ended December 31, 1996, 1995 and 1994 was $2,587,178, $2,287,399 and $1,139,935, respectively. 14. SAIF RECAPITALIZATION ASSESSMENT On September 30, 1996, the Deposit Insurance Funds Act of 1996, which includes the recapitalization of the Savings Association Insurance Fund (SAIF), became law. Accordingly, all depository institutions with SAIF insured deposits were charged a one-time special assessment on their SAIF-assessable deposits as of March 31, 1995 at the rate of 65.7 basis points, paid on November 27, 1996. The Bank's assessment was $1,564,323. SAIF will reduce the insurance premium from $.23 per $100 of deposits to $.0648 per $100 of deposits starting in 1997. 15. INCOME TAXES The Bank was previously permitted under the Internal Revenue Code (the Code) to deduct an annual addition to the reserve for bad debts in determining taxable income, subject to certain limitations. The Bank's deduction was based upon the percentage of taxable income method as defined by the Code. The bad debt deduction allowable under this method equaled 8% of taxable income determined without 33 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- regard to that deduction and with certain adjustments. This addition differed from the bad debt experience used for financial accounting purposes. In August 1996, The Small Business Job Protection Act (the Act) was signed into law. The Act repealed the percentage of taxable income method of accounting for bad debts for thrift institutions effective for years beginning after December 31, 1995. The Act provides that bad debt reserves accumulated prior to 1988 be exempt from recapture. Bad debt reserves accumulated after 1987 ("applicable excess reserves") are subject to recapture. The Act requires the Bank as of January 1, 1996 to change its method of computing reserves for bad debts to the experience method. The bad debt deduction allowable under this method is available to financial institutions with assets less than $500 million. Generally, this method will allow the Bank to deduct an annual addition to the reserve for bad debts equal to the increase in the balance of the Bank's reserve for bad debts at the end of the year to an amount equal to the percentage of total loans at the end of the year, computed using the ratio of the previous six years net chargeoffs divided by the sum of the previous six years total outstanding loans at year end. If a financial institution's assets exceed $500 million, it will be permitted to deduct only actual bad debts as they occur. The Act requires that a thrift institution subject to the change in its method of computing reserves for bad debts treat such change as a change in a method of accounting determined solely with respect to the "applicable excess reserves" of the institution. The amount of the applicable excess reserves will be taken into account ratably over a six-taxable year period, beginning with the first taxable year after December 31, 1995. The timing of this recapture may be delayed for a two-year period provided certain residential loan origination requirements are met. The amount of applicable excess reserves subject to recapture totaled approximately $952,000 and the related tax liability included in the Bank's net deferred taxes totaled $342,743 at December 31, 1995. For financial reporting purposes, the Bank will not incur any additional tax expenses. At December 31, 1996, under FAS 109, deferred taxes were provided on the difference between the book reserve at December 31, 1995 and the applicable excess reserve in the amount equal to the Bank's increase in the tax reserve from December 31, 1987 to December 31, 1995. Retained earnings includes approximately $3,229,000 representing bad debt deductions for which no deferred income taxes have been provided at December 31, 1996 and 1995. Under the Code, this amount may become taxable if dissolution, liquidation or certain other distributions occur. However, under FAS 109, the Bank is not required to provide deferred taxes for reserves established prior to December 1987.The following are the major sources of temporary differences and their deferred tax effect at December 31, 1996 and 1995:
December 31, 1996 1995 ---- ---- Deferred Tax Assets: Credit loss reserve $1,353,775 $1,282,439 Unrealized loss on securities available-for-sale 489,602 73,830 Deposit premium 131,592 65,120 Acquisition costs --- 32,435 Deferred loan fees --- 122,378 ---------- ---------- Total deferred tax assets 1,974,969 1,576,202 ---------- ---------- Deferred Tax Liabilities: Deferred loan fees 141,954 --- Unrealized loss on loans held for sale 89,402 20,151 Depreciation 53,065 26,887 Excess reserves subject to recapture 342,743 356,232 Purchase accounting adjustments 375 13,388 ---------- ---------- Total deferred tax liabilities 627,539 416,658 ---------- ---------- Net deferred tax asset 1,347,430 1,159,544 Valuation allowance --- (617,071) ---------- ---------- Net deferred tax asset after valuation allowance $1,347,430 $ 542,473 ========== ==========
34 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- The Company's effective tax rate differs from the statutory federal income tax rate for the following reasons:
Years Ended December 31, 1996 1995 1994 ---- ---- ---- Percentage Percentage Percentage of Pretax of Pretax of Pretax Amount Income Amount Income Amount Income ------ ------ ------ ------ ------ ------ Tax at statutory rate $1,808,943 34.0% $2,506,110 34.0% $2,277,202 34.0% Increase (decrease) in taxes resulting from: Accretion of excess of fair value over cost (84,644) (1.6) (84,644) (1.2) (84,660) (1.3) Increase in valuation allowance for deferred tax asset 115,132 2.2 129,404 1.8 194,132 2.9 Tax-free interest (13,781) (.3) (9,515) (.1) (10,806) (.2) State income tax, net of federal benefit 86,790 1.6 151,140 2.0 133,650 2.0 Other, net (145,237) (2.7) (32,495) (.4) (14,968) (.2) ---------- ---- ---------- ---- ---------- ---- Total current and deferred income taxes $1,767,203 33.2% $2,660,000 36.1% $2,494,550 37.2% ========== ==== ========== ==== ========== ====
Deferred federal income tax expense (benefit) consisted of the following tax effects of temporary differences:
Years Ended December 31, 1996 1995 1994 ---- ---- ---- Accelerated depreciation $ 26,178 $ 14,400 $ 10,327 Deferred loan fees 264,332 42,319 137,858 Acquisition costs 32,435 38,160 54,111 Bad debt (13,489) 149,952 92,880 Loan loss reserve (net) 43,796 40,487 (30,674) Loans held for sale 69,251 (246,963) 267,114 Deposit premium (66,472) (65,120) --- Other, net (13,013) (22,765) (85,403) -------- -------- -------- Total $343,018 $(49,530) $446,213 ======== ======== ========
The Company made income tax payments of $1,711,880, $2,538,696 and $2,107,181 during the years ended December 31, 1996, 1995 and 1994, respectively. A recovery of a valuation allowance related to deferred income taxes was recognized in the amount of $732,203 during the quarter ended September 30, 1996. The recovery was recognized after considering the impact of a recent change in the Code related to the bad debt deduction and the estimated timing of temporary differences related to deferred loan fees for tax purposes. 16. REGULATORY CAPITAL REQUIREMENTS The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. The Office of Thrift Supervision (OTS) sets forth capital standards applicable to all thrifts. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's 35 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of tangible and core capital (as defined in the regulations) to adjusted assets (as defined), and of Tier I and total capital (as defined) to risk-weighted assets (as defined). As of December 31, 1996, management believes that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1996, the most recent notification from the OTS categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized" the Bank must maintain minimum tangible, core and risk-based ratios. There are no conditions or events since that notification that management believes have changed the institution's category. The Bank's regulatory capital amounts differ from those presented under GAAP. The following is a reconciliation of GAAP capital to regulatory capital at December 31, 1996 and 1995.
Regulatory Capital Core, Tangible and Tier 1 Risk-Based Total Risk-Based --------------------- ---------------- (in thousands) At December 31, 1996 GAAP capital $32,029 $32,029 Deposit premium (631) (631) Investment in subsidiary (145) (145) Unrealized losses on certain available for sale securities 876 876 Equity investment --- (75) Allowance for credit losses --- 2,571 ------- ------- Regulatory capital $32,129 $34,625 ======= ======= At December 31, 1995 GAAP capital $30,103 $30,103 Deposit premium (889) (889) Investment in subsidiary (156) (156) Unrealized losses on certain available for sale securities 164 164 Equity investment --- (75) Allowance for credit losses --- 2,525 ------- ------- Regulatory capital $29,222 $31,672 ======= =======
36 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- The table below presents the Bank's actual and regulatory required capital amounts for core, tangible, tier 1 risk-based and total risk-based capital for the years ended December 31, 1996 and 1995.
Required to be Required for Well Capitalized Capital Adequacy Under Prompt Actual Purposes Corrective Action -------------------- ---------------------- -------------------- Amount Percentage Amount Percentage Amount Percentage -------------------- ---------------------- -------------------- (dollars in thousands) At December 31, 1996: Core (Leverage) $32,129 6.45% $14,938 3.0% $24,897 5.0% Tangible 32,129 6.45 7,469 1.5 N/A N/A Tier I risk-based 32,129 15.62 8,226 4.0 12,339 6.0 Total risk-based 34,625 16.84 16,452 8.0 20,565 10.0 At December 31, 1995: Core (Leverage) 29,222 6.47% 13,556 3.0% 22,593 5.0% Tangible 29,222 6.47 6,778 1.5 N/A N/A Tier I risk-based 29,222 14.47 8,080 4.0 12,120 6.0 Total risk-based 31,672 15.68 16,159 8.0 20,199 10.0
17. EMPLOYEE STOCK OWNERSHIP PLANS A non-leveraged Employee Stock Ownership Plan (Plan) is provided for eligible employees. The Plan contains provisions which allow employees to enter into salary reduction arrangements intended to qualify under Section 401(k) of the Code. The number of allocated shares in the Plan was 183,681 and 166,351 at December 31, 1996 and 1995, respectively. The allocation includes shares purchased by plan participants funded by their own self-directed contributions. The Board of Directors approved matching contributions to the Plan with respect to those employees who elected salary reduction contributions. In addition, a discretionary profit sharing contribution may be approved by the Board of Directors. The total Plan contribution, including the discretionary profit sharing contribution, totaled $270,880, $216,000 and $150,000 for the years ended December 31, 1996, 1995 and 1994, respectively. 18. STOCK OPTIONS The Shareholders approved the adoption by the Board of Directors of an Employee Stock Compensation Program and Stock Option Plan for Non-Employee Directors (the Programs). Pursuant to the Programs, stock options may be granted which qualify as incentive stock options as well as stock options that do not qualify as incentive options under the Code. Non-employee directors, full-time officers, and key employees are eligible to receive options under the Programs. There are 417,700 shares of Common Stock available for issuance under the Programs after the four-for-three stock split declared by the Board of Directors on January 7, 1997. A summary of the Company's Programs at December 31, 1996, 1995 and 1994 and changes during the years then ended is presented in the table below. 37 First Home Bancorp Inc. Notes to Consolidated Financial Statements - --------------------------------------------------------------------------------
1996 1995 1994 ---------------------- ---------------------- -------------------- Wtd. Avg. Wtd. Avg. Wtd. Avg. Shares Ex. Price Shares Ex. Price Shares Ex. Price Beginning balance 81,441 $10.54 74,424 $ 8.08 127,321 $ 4.20 Granted 41,029 14.52 26,385 12.59 29,780 10.13 Exercised (1,509) 2.85 (16,271) 2.85 (82,677) 2.85 Forfeiture 0 --- (3,097) 9.28 0 --- ------- ------ ------ ------ ------ ------ Ending balance 120,961 $11.99 81,441 $10.54 74,424 $ 8.08 ======= ====== ====== ====== ====== ====== Exercisable at end of year 0 1,509 17,780 ======= ====== ======
Exercise prices for options outstanding as of December 31, 1996 ranged from $9.28 to $14.63. The weighted average remaining contractual life of those options was 8.55 years. For years beginning January 1, 1995, pro forma information regarding net income and earnings per share is required by FAS 123. The Black-Scholes option pricing model was used to estimate the fair value of options granted during 1996 and 1995. The Black-Scholes model does not consider vesting and transfer restrictions. The model requires input of highly subjective assumptions including the expected stock price volatility. Because input assumptions can materiality affect the fair value estimate, in management's opinion the model does not necessarily provide a reliable single measure of the fair value of its employee stock options. The following table sets forth for the periods indicated information regarding (1) risk-free interest rates; (2) dividend yields; (3) volatility factors of the expected market price of the common stock; (4) weighted-average expected lives of the options; and (5) the weighted-average fair value of options granted. Fair value information:
1996 1995 ---- ---- Risk-free interest rates 6.28% 5.92% Dividend yields 2.55% 2.67% Volatility 23.86% 24.84% Expected life in years 7.5 7.5 Fair value of options granted $4.40 $3.71
In accordance with APB 25 under the intrinsic value based method, the Company is required to recognize compensation expense for the excess of the quoted market price of the stock at the grant date over the amount an employee or non-employee director must pay to acquire the stock. Since all stock options are granted at market, no compensation expense was recognized at the grant date. Since the Company has elected to remain with the accounting in APB 25, disclosures of net income and earnings per share are required as if the fair value based method of accounting defined in FAS 123 had been applied. All options granted to date have 10 year terms and vest and become fully exercisable three years after the grant date. For the purpose of pro forma disclosure, the estimated fair value of the options are amortized to expense over the options' vesting period. Compensation expense related to options granted prior to amortization totaled $180,272 and $97,727 for the years ended December 31, 1996 and 1995, respectively. Since all options vest over a three year period, compensation expense of $40,987 and $6,978 are reflected in the pro forma adjustments. Additionally, since stock options granted to outside directors do not qualify as incentive stock options under the Code, they have been tax effected in the pro forma presentation. 38 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- The Company's net income, primary EPS and fully diluted EPS as reported and on a pro forma basis for the years indicated were as follows:
Years ended December 31, 1996 1995 ---- ---- Net Income As Reported $4,285,420 $4,710,912 Pro Forma $4,250,811 $4,706,447 Primary EPS As Reported $1.57 $1.74 Pro Forma $1.56 $1.73 Fully Diluted EPS As Reported $1.57 $1.73 Pro Forma $1.56 $1.73
Because the FAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation expense may not be representative of that to be expected in future years. 19. COMMITMENTS AND CONTINGENCIES The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit which involve, in varying degrees, elements of credit and interest rate risk that are not recognized in the consolidated statements of financial condition. Exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on balance-sheet instruments. Commitments outstanding at December 31, 1996 and 1995 consisted of the following:
December 31, 1996 1995 ---- ---- Fixed rate mortgage loans (current market rates 6.625% to 8.125% at December 31, 1996) $ 2,310,300 $1,686,700 Adjustable rate mortgage loans 1,106,820 --- Purchase of fixed rate mortgage loans 7,189,033 --- Unused lines of credit 5,420,592 4,618,605 Letters of credit 573,766 1,176,358 Consumer loans 564,258 207,794 Loans in process 1,222,037 1,680,884 ----------- ---------- Total $18,386,806 $9,370,341 =========== ==========
At December 31, 1996, all commitments are expected to be funded within one year. 20. RESTRICTIONS ON RETAINED EARNINGS The Bank is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. At December 31, 1996, approximately $12,042,000 of retained earnings were available for dividend declaration without prior regulatory approval. 39 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 21. RELATED PARTIES The Company effected securities transactions through companies which are controlled by a member of the Board of Directors. The Director is the president and managing partner of these companies which are broker-dealers of securities. The transactions consist of purchases from and sales to these broker-dealers of mortgage-backed securities and other investment securities in the ordinary course of business. The aggregate amount of securities purchased from these broker-dealers during 1996, 1995 and 1994 were approximately $22 million, $23 million and $47 million, respectively. Total securities transactions for 1996, 1995 and 1994 were $91 million, $73 million and $93 million, respectively. The aggregate amount of securities sold to these broker-dealers during 1996 was $1.6 million. The aggregate amount of securities sold during 1996 was $13 million. There were no accounts payable/receivable to or from these companies at December 31, 1996 and 1995. During 1994, the Bank entered into reverse repurchase agreements with these broker-dealers in the amount of $32 million. Offers to purchase from or sell to other unaffiliated broker-dealers are solicited at the time of the purchase or sale to ensure that the terms of these securities transactions are comparable to the terms that could be obtained from other unaffiliated broker-dealers. 22. LITIGATION AND SETTLEMENTS The Company is involved in litigation arising in the normal course of business. In management's opinion, the resolution of all pending litigation will not have a material adverse effect on its financial position, liquidity or results of operations. In March 1995, the Bank received $672,000 in settlement of an insurance claim and in December 1994 received $880,000 in settlement of litigation in regards to the Fidelity Mutual acquisition. Each amount is included in other income in the consolidated statements of income for the respective year. 23. PARENT COMPANY FINANCIAL INFORMATION First Home Bancorp Inc. is a holding company organized under New Jersey law. It was organized by the Bank for the purpose of acquiring all of the capital stock of the Bank in connection with the reorganization of the Bank to the holding company form. The Company was formed on February 22, 1996 and the reorganization was consummated on May 31, 1996. 40 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Condensed financial statements of First Home Bancorp Inc. are as follows: CONDENSED STATEMENT OF FINANCIAL CONDITION
December 31, 1996 ASSETS Cash and amounts due from depository institutions $ 16,019 Interest-earning deposits 483,928 Investment in subsidiary bank 32,029,276 Prepaid expenses and other assets 393,963 ----------- TOTAL ASSETS $32,923,186 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued expenses $ 278,424 ----------- TOTAL LIABILITIES 278,424 Shareholders' equity: Common stock - no par value --- Paid in capital excess of par 8,922,941 Retained earnings 24,592,225 Unrealized loss on securities available for sale, net (870,404) ----------- Total shareholders' equity 32,644,762 ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $32,923,186 ===========
CONDENSED STATEMENT OF INCOME
Period from February 22, 1996 through December 31, 1996 Interest income and dividends $ 8,928 Dividend from subsidiary bank 1,300,000 Equity in undistributed earnings of subsidiary bank 3,009,178 ----------- Total income 4,318,106 Other operating expenses 41,236 ----------- Net income before taxes 4,276,870 Income tax benefit 8,550 ----------- Net income $ 4,285,420 ===========
41 First Home Bancorp Inc. Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- CONDENSED STATEMENT OF CASH FLOWS
Period from February 22, 1996 through December 31, 1996 OPERATING ACTIVITIES: Net income $ 4,285,420 Equity in undistributed earnings of subsidiary bank (3,009,178) Net other (115,539) ----------- Net cash used in operating activities 1,160,703 ----------- INVESTING ACTIVITIES: Investment in subsidiary stock (100) ----------- Net cash provided by investing activities (100) ----------- FINANCING ACTIVITIES: Cash dividends and cash in lieu of fractional shares (764,958) Company formation 100,000 Proceeds from exercise of common stock options 4,302 ----------- Net cash used in financing activities (660,656) ----------- INCREASE IN CASH AND CASH EQUIVALENTS 499,947 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 0 ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 499,947 ===========
42 First Home Bancorp Inc. Report of Independent Public Accountants - -------------------------------------------------------------------------------- ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of First Home Bancorp Inc.: We have audited the accompanying consolidated statements of financial condition of First Home Bancorp Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Home Bancorp Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Philadelphia, Pa. February 10, 1997 43 First Home Bancorp Inc. Corporate Information - -------------------------------------------------------------------------------- ANNUAL MEETING The annual meeting of First Home Bancorp Inc. will be held on April 25, 1997 at 10:30 a.m. at the Holiday Inn, Exit 10, I-295 at Pureland Industrial Complex, Bridgeport, New Jersey. STOCK LISTING The Company's common stock is traded on the Nasdaq National Market tier of the Nasdaq Stock Market under the symbol: "FSPG". Trading information on the Company's common stock can be located in the financial section of most major newspapers. ANNUAL REPORT ON FORM 10-K AND OTHER INVESTOR INFORMATION The Company will furnish upon written request at no charge to any shareholder a copy of the Annual Report on Form 10-K for the year ended December 31, 1996 and the exhibits thereto required to be filed with the Securities Exchange Commission under the Securities Exchange Act of 1934 by writing to: Robert A. DiValerio First Home Bancorp Inc. P.O. Box 189 Pennsville, NJ 08070 TRANSFER AGENT AND REGISTRAR ChaseMellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, N.J. 07660 1-800-851-9677 ACCOUNTANTS Arthur Andersen LLP 1601 Market Street Philadelphia, PA 19103 SECURITIES COUNSEL Blank Rome Comisky & McCauley 1200 Four Penn Center Plaza Philadelphia, PA 19103 GENERAL COUNSEL Warren W. Homan 317 Shell Road Penns Grove, NJ 08069 ADMINISTRATIVE CENTER - --------------------- 125 S. Broadway Pennsville, NJ 08070 (609) 678-4400 LOAN CENTER - ----------- 5 Ferry Road Pennsville, NJ 08070 (609) 678-5100 NEW JERSEY OFFICES - ------------------ CARNEYS POINT 221 Shell Road Carneys Point, NJ 08069 (609) 299-9200 ELMER Main Street and Harding Highway Elmer, NJ 08318 (609) 358-8121 GIBBSTOWN 401 Harmony Road Gibbstown, NJ 08027 (609) 423-8822 NEWFIELD 12 Northwest Blvd. Newfield, NJ 08344 (609) 697-4770 PENNSAUKEN 5714 Westfield Avenue Pennsauken, NJ 08110 (609) 665-2240 PENNS GROVE 157 West Main Street Penns Grove, NJ 08069 (609) 299-1766 PENNSVILLE 125 South Broadway Pennsville, NJ 08070 (609) 678-3133 WESTMONT 302 Haddon Avenue Westmont, NJ 08108 (609) 858-1800 DELAWARE OFFICES - ---------------- STANTON First State Plaza 1608 W. Newport Pike Stanton, DE 19804 (302) 998-6858 WILMINGTON 600 S. Harrison Street Wilmington, DE 19805 (302) 654-6224 44 First Home Bancorp Inc. Directors and Officers - -------------------------------------------------------------------------------- First Home Bancorp Inc. Board of Directors Willard F. Cheeseman Adam J. Gagliardi, Jr. Eugene J. Martell Stephen D. Miller Frederick M. Palfrey W. Kenneth Porch Stephen R. Selverian Rodger D. Shay OFFICERS Stephen D. Miller President, Chief Executive Officer and Chairman of the Board Robert A. DiValerio Senior Executive Vice President, Chief Financial Officer and Secretary Duff P. O'Connor Executive Vice President Stephen R. Selverian Executive Vice President FIRST HOME SAVINGS BANK, F.S.B. EXECUTIVE OFFICERS Stephen D. Miller President, Chief Executive Officer and Chairman of the Board Robert A. DiValerio Senior Executive Vice President, Chief Operating Officer Chief Financial Officer and Secretary Duff P. O'Connor Executive Vice President Loan and Deposit Operations Stephen R. Selverian Executive Vice President Retail Banking OFFICERS AND MANAGERS Victoria A. Buckley Manager, Stanton Office Shawn S. Burkhardt Manager, Consumer Lending Dorothy H. Buzby Assistant Vice President Branch Operations Officer Kimberly A. Cruz Manager, Newfield Office Anthony DeCicco Assistant Vice President Business Development Officer Peter H. Dietrich Vice President Investment Officer Joseph Fiorentino, III Vice President Mortgage Manager Angela Goldberg Assistant Vice President Business Development Officer Doris K. Grant Manager, Human Resources Emily D. Hewitt Manager, Penns Grove Office Elizabeth F. Homan Assistant Secretary Administrative Assistant Tara M. Hornblower-Williams Manager, Carneys Point Office William T. Kennan Vice President/Marketing Kenneth H. Kline Manager, Westmont Office Gloria Y. Kneller Manager, Gibbstown Office Barbara A. Lacy Manager, Pennsauken Office Brenda K. Mehaffey Manager, Elmer Office Thomas N. McDermott Vice President/Treasurer Wayne D. Pelura Assistant Vice President Business Development Officer Jack E. Rothkopf Controller Carolyn L. Rutkowski Manager, Wilmington Office Leah C. Smith Manager, Pennsville Office Renee C. Smith Assistant Controller Pat J. Storione Assistant Vice President Business Development Officer Roland A. Turmol, Jr. Vice President Senior Administration Officer Kathleen A. Warwick Assistant Vice President Data Processing Manager Lorraine A. Williams Assistant Vice President Compliance/Security Officer EX-21 12 SUBSIDIIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIIARIES OF THE REGISTRANT Jurisdiciton or Name Incorporation or Organization ---- ----------------------------- First Home Savings Bank, F.S.B. United States EX-27 13 FINANCIAL DATA SCHEDULE
9 The schedule contains summary financial information extracted from the statements of consolidated financial condition as of December 31, 1996 and the Consolidated Statements of Income for th twelve months ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 0001009195 FIRST HOME BANCORP, INC. 1 US DOLLARS 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 5,133,348 1,302,081 0 60,396 116,191,269 99,711,465 100,738,233 258,909,155 3,760,485 498,398,562 290,297,687 110,587,750 2,307,813 62,560,550 0 0 0 32,644,762 498,398,562 21,711,657 14,737,927 0 36,449,584 12,120,820 21,363,626 15,085,958 400,000 247,574 10,752,741 5,320,420 5,320,420 0 0 4,285,420 1.57 1.57 7.88 3,213,053 0 0 0 3,562,330 357,530 155,685 3,760,485 3,760,485 0 0
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