-----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, FzrkuurtytzxWvbaNrg9AeKQz0Pln8fCAsVi8/1dbz/PUOR1bEDfggUsDPdr++Qj wAANdzB/1gCRMLSDRmcXaQ== 0000908737-96-000208.txt : 19960816 0000908737-96-000208.hdr.sgml : 19960816 ACCESSION NUMBER: 0000908737-96-000208 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIS BANCORP INC CENTRAL INDEX KEY: 0001013049 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] STATE OF INCORPORATION: MA FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20809 FILM NUMBER: 96614540 BUSINESS ADDRESS: STREET 1: P O BOX 3034 STREET 2: 1441 MAIN STREET CITY: SPRINGFIELD STATE: MA ZIP: 01102-3034 BUSINESS PHONE: 4137488000 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended 06/30/96 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commission file number: 000-20809 SIS BANCORP, INC. (Exact Name of Issuer as Specified in its Charter) Massachusetts 04-3303264 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) SIS BANCORP, INC. 1441 Main Street Springfield, Massachusetts 01102 (Address of Principal Executive Offices) (Zip Code) (413) 748-8000 (Issuers Telephone Number , Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate the number of shares outstanding of the registrant's common stock, as of the latest practicable date: 5,722,600 shares as of August 8, 1996. CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Report contains certain "forward-looking statements" including statements concerning plans, objectives, future events or performance and assumptions and other statements which are other than statements of historical fact. SIS Bancorp, Inc. and its subsidiaries (the "Company") wishes to caution readers that the following important factors, among others, may have affected and could in the future affect the Company's actual results and could cause the Company's actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made by or on behalf on the Company herein: (i) the effect of changes in laws and regulations, including federal and state banking laws and regulations, with which the Company must comply, and the associated costs of compliance with such laws and regulations either currently or in the future as applicable; (ii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board, or of changes in the Company's organization, compensation and benefit plans; (iii) the effect on the Company's competitive position within its market area of the increasing consolidation within the banking and financial services industries, including the increased competition from larger regional and out-of-state banking organizations as well as nonbank providers of various financial services; (iv) the effect of unforeseen changes in interest rates; and (v) the effect of changes in the business cycle and downturns in the local, regional or national economies. SIS BANCORP, INC. AND SUBSIDIARIES FORM 10-Q INDEX PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 1996 and 1995.......................... 1 Condensed Consolidated Statements of Financial Condition at June 30, 1996 and December 31, 1995..................................... 2 Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 1996 and 1995.......................... 3 Condensed Consolidated Statements of Changes in Stockholders' Equity for the six months ended June 30, 1996 and 1995............................ 5 Notes to the Unaudited Financial Statements................................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 7 PART II OTHER INFORMATION Item 1. Legal Proceedings................................................................ 26 Item 2. Changes in Securities.............................................. 26 Item 3. Default upon Senior Securities..................................... 26 Item 4. Submission of Matters to a Vote of Security Holders................ 26 Item 5. Other Information.................................................. 26 Item 6. Exhibits and Reports on Form 8-K................................... 26 SIGNATURES..................................................................28
SIS BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Amounts) (Unaudited) (Unaudited) Three Months Ended Six Months Ended -------------------------- ------------------------- June June June June 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Interest and dividend income Loans ......................................................... $ 11,922 $ 11,411 $ 23,474 $ 22,029 Investment securities available for sale ...................... 5,170 2,674 9,296 5,330 Investment securities held to maturity ........................ 3,269 2,769 6,215 5,053 Federal funds sold and interest bearing deposits .............. 45 153 259 617 ---------- ---------- ---------- ---------- Total interest and dividend income ............. 20,406 17,007 39,244 33,029 ---------- ---------- ---------- ---------- Interest expense Deposits ...................................................... 7,992 7,528 16,068 14,244 Borrowings .................................................... 1,957 228 3,148 274 ---------- ---------- ---------- ---------- Total interest expense ......................... 9,949 7,756 19,216 14,518 ---------- ---------- ---------- ---------- Net interest and dividend income ...................................... 10,457 9,251 20,028 18,511 Less: Provision for possible loan losses .............................. 750 1,202 1,450 2,355 ---------- ---------- ---------- ---------- Net interest and dividend income after provision for possible loan losses ...................................... 9,707 8,049 18,578 16,156 Noninterest income: Net gain (loss) on sale of loans .............................. 162 (4) 432 (10) Net gain (loss) on sale of securities ......................... -- 10 2 14 Fees and other income ......................................... 2,575 2,188 4,884 4,236 ---------- ---------- ---------- ---------- Total noninterest income ....................... 2,737 2,194 5,318 4,240 ---------- ---------- ---------- ---------- Noninterest expense: Operating expenses: Salaries and employee benefits ....................... 4,242 3,672 8,492 7,708 Occupancy expense of bank premises, net .............. 795 805 1,577 1,705 Furniture and equipment expense ...................... 514 457 1,056 916 Other operating expenses ............................. 3,656 3,780 6,771 7,315 ---------- ---------- ---------- ---------- Total operating expenses ...................... 9,207 8,714 17,896 17,644 ---------- ---------- ---------- ---------- Foreclosed real estate expense ................................ 63 112 223 442 Net expense of real estate operations ......................... (148) 62 (162) 127 ---------- ---------- ---------- ---------- Total noninterest expense ..................... 9,122 8,888 17,957 18,213 Income before income tax expense ...................................... 3,322 1,355 5,939 2,183 Income tax expense .................................................... 278 74 490 113 ---------- ---------- ---------- ---------- Net income .................................... $ 3,044 $ 1,281 $ 5,449 $ 2,070 ========== ========== ========== ========== Earnings per share and pro forma earnings per share: (1) Primary ...................................................... $ 0.56 $ 0.25 $ 1.00 $ 0.40 Fully diluted ................................................ $ 0.56 $ 0.25 $ 1.00 $ 0.40 Weighted average and pro forma weighted average shares outstanding: (1) Primary ...................................................... 5,434,834 5,117,700 5,432,265 5,117,500 Fully diluted ................................................ 5,450,529 5,130,034 5,445,968 5,123,767 (1) Net income per share for the three and six months ended June 30, 1996 is computed on weighted average shares outstanding for the period. Net income per share for the six months ended June 30, 1995 is computed on a pro forma basis as if the conversion of the Bank from mutual to stock had been completed as of the beginning of the period presented.
See accompanying Notes to the Unaudited Financial Statements 1
SIS BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In Thousands Except Share Amounts) (Unaudited) June 30, December 31, 1996 1995 ----------- ------------ ASSETS Cash and due from banks ..................................................... $ 35,931 $ 30,377 Federal funds sold and interest bearing deposits ............................ 10,045 8,045 Investment securities available for sale .................................... 337,444 246,984 Investment securities held to maturity (fair value: $192,728 at June 30, 1996 and $172,930 at December 31, 1995).......................................... 193,197 172,793 Loans receivable, net of allowance for possible losses ($ 14,913 at June 30, 1996 and $ 14,986 at December 31, 1995) .............. 578,635 558,663 Accrued interest and dividends receivable ................................... 7,946 7,109 Investments in real estate and real estate partnerships ..................... 5,494 6,092 Foreclosed real estate, net ................................................. 427 1,529 Bank premises, furniture and fixtures, net .................................. 25,602 25,706 Other assets ................................................................ 15,122 13,680 ----------- ----------- Total assets ............................................................ $ 1,209,843 $ 1,070,978 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits .................................................................... $ 927,298 $ 885,386 Federal Home Loan Bank advances ............................................. 74,493 41,500 Securities sold under agreements to repurchase .............................. 91,400 31,101 Loans payable ............................................................... 3,026 5,470 Mortgage escrow ............................................................. 4,321 4,193 Accrued expenses and other liabilities ...................................... 22,309 21,859 ----------- ----------- Total liabilities ..................................................... 1,122,847 989,509 ----------- ----------- Stockholders' equity: Preferred stock ($.01 par value; 5,000,000 shares authorized: no shares issued and outstanding) ............................. -- -- Common stock ($.01 par value; 25,000,000 shares authorized; shares issued and outstanding: 5,722,600 in 1996 and 5,710,700 in 1995) ............ 57 57 Unearned compensation ....................................................... (4,503) (4,937) Additional paid in capital .................................................. 42,308 41,790 Retained earnings ........................................................... 48,282 42,833 Net unrealized gain (loss) on investment securities available for sale ...... 852 1,726 ----------- ----------- Total stockholders' equity ............................................ 86,996 81,469 ----------- ----------- Total liabilities and stockholders' equity .................................. $ 1,209,843 $ 1,070,978 =========== ===========
See accompanying Notes to the Unaudited Financial Statements 2
SIS BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars In Thousands) (Unaudited) Six Months Ended June 30, ---------------------- 1996 1995 --------- --------- Cash Flows From Operating Activities Net income .............................................................................................. $ 5,449 $ 2,070 Adjustments to reconcile net income to net cash (used for)/ provided by operating activities Provision for possible loan losses ................................................................. 1,450 2,355 Provision for foreclosed real estate ............................................................... -- 461 Depreciation ....................................................................................... 1,510 1,551 Amortization of premium on investment securities, net .............................................. 1,193 314 ESOP and restricted stock expenses ................................................................. 722 101 Investment security (gains) ........................................................................ (2) (14) (Income) loss from equity investment in partnerships ............................................... (145) 1 (Gain) loss on sale of loans ....................................................................... (432) 10 Disbursements for mortgage loans held for sale ..................................................... (54,864) (29,251) Receipts from mortgage loans held for sale ......................................................... 55,296 29,242 Loss on sale of fixed assets and real estate ....................................................... 342 158 Changes in assets and liabilities: (Increase) in other assets, net ................................................................ (1,644) (73) Decrease (increase) in accrued expenses and other liabilities .................................. 680 (12,464) --------- --------- Net cash (used for)/provided by operating activities ...................................... 9,555 (5,539) --------- --------- Cash Flows From Investing Activities Proceeds from sales of investment securities - available for sale .................................. 12,200 9 Proceeds from maturities and principal payments received on investment securities - available for sale .................................................... 71,652 54,326 Purchase of investment securities - available for sale .............................................. (176,695) (64,563) Proceeds from maturities and principal payments received on investment securities - held to maturity ...................................................... 25,862 7,476 Purchase of investment securities -held to maturity ................................................. (46,583) (50,046) Proceeds from sale of investments in real estate partnerships ....................................... 475 -- Net change in loans receivable ...................................................................... (22,549) (44,923) Net change in foreclosed real estate ................................................................ 1,767 242 Proceeds from sale of loans ......................................................................... 462 250 Proceeds from sale of fixed assets and leases ....................................................... -- 158 Purchase of fixed assets ............................................................................ (1,480) (2,805) --------- --------- Net cash (used for)/provided by investing activities ...................................... (134,889) (99,876) --------- ---------
See accompanying Notes to the Unaudited Financial Statements 3
SIS BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Dollars In Thousands) (Unaudited) Six Months Ended June 30, ------------------- 1996 1995 -------- -------- Cash Flows from Financing Activities Net proceeds from stock conversion .................................................................... -- 35,946 Net increase in deposits .............................................................................. 41,912 8,448 Net increase in borrowings ............................................................................ 90,848 50,837 Net increase (decrease) in mortgagors' escrow deposits ................................................ 128 (271) -------- -------- Net cash provided by/(used for) financing activities ............................................ 132,888 94,960 -------- -------- Increase (decrease) in cash and cash equivalents ........................................................ 7,554 (10,455) Cash and cash equivalents, beginning of year ............................................................ 38,422 55,720 -------- -------- Cash and cash equivalents, at quarter end ............................................................... $ 45,976 $ 45,265 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for interest to depositors and interest on debt ....................................................................... $ 19,217 $ 14,075 Non-cash investing activities: Transfers to foreclosed real estate, net ........................................................... $ 665 $ 74
See accompanying Notes to the Unaudited Financial Statements 4
SIS BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY For The Six Months Ended June 30, 1996 and 1995 (Dollars In Thousands) Net unrealized gain (loss) Additional on investment Common Unearned Paid-In Retained securities avaliable Stock Compensation Capital Earnings for sale Total -------- ------------ ---------- -------- -------------------- --------- Balance at December 31, 1995 ................. $ 57 $ (4,937) $ 41,790 $ 42,833 $ 1,726 $ 81,469 Net income ................................... -- -- -- 5,449 -- 5,449 Issuance of common stock ..................... -- -- -- -- -- -- Unearned compensation ........................ -- (315) 297 -- -- (18) Decrease in unearned compensation ............ -- 749 221 -- -- 970 Change in unrealized gain (loss) on investment -- securities available for sale ............ -- -- -- -- (874) (874) ---------- --------- -------- -------- -------- -------- Balance at June 30, 1996 ..................... $ 57 $ (4,503) $ 42,308 $ 48,282 $ 852 $ 86,996 ========== ========= ======== ======== ======== ======== Balance at December 31, 1994 ................. $ -- $ -- $ -- $ 31,624 $ (3,121) $ 28,503 Net income ................................... -- -- -- 2,070 -- 2,070 Issuance of common stock ..................... 56 -- 39,665 (250) -- 39,471 Unearned compensation ........................ -- (3,560) -- -- -- (3,560) Decrease in unearned compensation ............ -- 190 101 -- -- 291 Change in unrealized gain (loss) on investment securities available for sale ............ -- -- -- -- 4,011 4,011 -------- -------- -------- -------- -------- -------- Balance at June 30, 1995 ..................... $ 56 $ (3,370) $ 39,766 $ 33,444 $ 890 $ 70,786 ======== ======== ======== ======== ======== ========
See accompanying Notes to the Unaudited Consolidated Financial Statements 5 SIS BANCORP, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED FINANCIAL STATEMENTS 1. Holding Company Formation SIS Bancorp, Inc., a Massachusetts corporation, was organized by Springfield Institution for Savings (the "Bank") for the purpose of reorganizing the Bank into a holding company structure. The Company acquired 100% of the outstanding shares of the Bank's common stock, par value $1.00 per share, in a 1:1 exchange for shares of the Company's common stock, par value $.01 per share (the "Company Common Stock"). Upon the effectiveness of such share-for-share exchange (the "Reorganization") on June 21, 1996, the Bank became the wholly-owned subsidiary of the Company and the Bank's former stockholders became stockholders of the Company. The Reorganization was accounted for as a pooling of interests, and accordingly, the information included in the financial statements and their accompanying notes presents the combined results of the Bank and the Company as if the merger had been effected on January 1, 1995. 2. Condensed Consolidated Financial Statements The Condensed Consolidated Financial Statements of the Company included herein are unaudited, and in the opinion of Management all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the financial condition, results of operations and cash flows, as of and for the periods covered herein, have been made. Certain information and note disclosures normally included in Condensed Consolidated Financial Statements prepared in accordance with generally accepted accounting principles have been omitted as they are included in the most recent Federal Deposit Insurance Corporation ("FDIC") Form F-2 Annual Report and accompanying Notes to the Financial Statements (the "Form F2") filed by the Bank for the year ended December 31, 1995. The Form F-2 was included as Exhibit 99.3 in the Form 8-A registration statement filed by the Company with the Securities and Exchange Commission on June 3, 1996. Management believes that the disclosures contained herein are adequate to make a fair presentation. It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the Form F-2. The results for the three and six month interim periods covered hereby are not necessarily indicative of the operating results for a full year. 3. New Accounting Pronouncements Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Service Rights". SFAS 122 amends certain provisions of SFAS 65, "Accounting for Certain Mortgage Banking Activities", to eliminate the accounting distinction between rights to service mortgage loans for others that are acquired through loan origination activities and those acquired through purchase transactions. The adoption of this statement did not have a material affect on the Company's financial position as of June 30, 1996 or on the results of its operations for the three and six month periods then ended. 4. Dividend Policy While the Company does not pay a cash dividend on its common stock at this time, the Board of Directors of the Company periodically reviews the appropriateness of a cash dividend in light of the Company's existing policies. 5. Earnings Per Share and Pro Forma Earnings Per Share Net income per share for the three and six months ended June 30, 1996 and the three months ended June 30, 1995 is computed on weighted shares outstanding for the period. Net income per share for the six months ended June 30, 1995 is computed on a pro forma basis as if the stock issued in the conversion of the Bank from mutual to stock form had been issued as of the beginning of the period. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (DOLLARS IN THOUSANDS) Overview As discussed in Note 1 of the financial statements included in this filing, SIS Bancorp, Inc., a Massachusetts corporation (the "Company"), was organized by Springfield Institution for Savings (the "Bank") for the purpose of reorganizing the Bank into a holding company structure. Upon the effectiveness of the Reorganization on June 21, 1996, the Bank became the wholly-owned subsidiary of the Company and the Bank's former stockholders became stockholders of the Company. The Company's Common Stock is quoted on the NASDAQ National Market System under the symbol "SISB", which had previously been used by the Bank. The Bank is a state chartered, stock form savings bank headquartered in Springfield, MA. The Bank provides a wide variety of financial services which include retail and commercial banking, residential mortgage origination and servicing, commercial real estate lending and consumer lending. The Bank serves its primary market of Hampden and Hampshire Counties through a network of 21 retail branches. The Bank completed a successful conversion from mutual to stock form (the "Conversion") on February 7, 1995. Through the issuance of 5,562,500 shares of common stock, the Bank received proceeds of $35.9 million, net of Conversion related costs and the Company's Employee Stock Ownership Plan (the "ESOP"). The Bank's revenues are derived principally from interest payments on its loan portfolios and mortgage-backed and other investment securities. The Bank's primary sources of funds are deposits, borrowings and principal and interest payments on loans and mortgage-backed securities. Results of Operations for the Three Months Ended June 30, 1996 and June 30, 1995 The Company reported net income of $3.0 million, or $0.56 per share, for the second quarter of 1996 as compared to net income of $1.3 million, or $0.25 per share, for the same period last year. The improved results are primarily attributable to increased net interest income and noninterest income as well as lower provisions for possible loan losses. Net Interest Income Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income is affected by the mix and volume of assets and liabilities, and the movement and level of interest rates. The following table sets forth, for the period indicated, average balances, interest income and expense, and yields earned or rates paid on the major categories of assets and liabilities. Non-accrual loans have been included in the appropriate average balance loan category, but unpaid interest on non-accrual loans has not been included for purposes of determining interest income. In addition, investment securities available for sale are reflected at amortized cost. 7
Three Months Ended June 30, --------------------------------------------------------------------------------- 1996 1995 --------------------------------------- -------------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ----------- ----------- ---------- ---------- ----------- ---------- Interest-earning assets: Fed funds sold and interest-bearing deposits .. $ 3,396 $ 45 5.24% $ 9,814 $ 153 6.17% Investment securities held to maturity ........ 193,672 3,269 6.75% 189,279 2,769 5.85% Investment securities available for sale ...... 319,709 5,170 6.47% 163,414 2,674 6.55% Residential real estate loans ................. 243,998 4,758 7.80% 268,568 5,247 7.81% Commercial real estate loans .................. 119,523 2,573 8.61% 118,882 2,518 8.47% Commercial loans .............................. 128,974 2,841 8.71% 91,905 2,181 9.39% Home equity loans ............................. 76,590 1,592 8.36% 55,902 1,310 9.40% Consumer loans ................................ 7,096 158 8.91% 6,600 155 9.39% ----------- ----------- ------ ---------- ---------- --------- Total interest-earning assets ................. 1,092,958 20,406 7.47% 904,364 17,007 7.52% Allowance for loan losses ..................... (14,737) (17,095) Non-interest-earning assets .................... 84,258 70,642 ----------- ---------- Total assets ...............................$ 1,162,479 $ 20,406 $957,911 $ 17,007 =========== =========== ========== ========== Interest-bearing liabilities Deposits Savings accounts .............................$ 195,987 $ 1,218 2.50% $185,842 $ 1,155 2.49% NOW accounts ................................. 57,412 161 1.13% 53,084 187 1.41% Money market accounts ........................ 206,801 1,701 3.31% 211,113 1,751 3.33% Time deposit accounts ........................ 371,828 4,912 5.31% 344,743 4,435 5.16% ------------ ----------- ------- ---------- ---------- --------- Total interest-bearing deposits ............... 832,028 7,992 3.86% 794,782 7,528 3.80% borrowed funds ................................ 141,217 1,957 5.48% 13,457 228 6.70% ----------- ----------- ------- ---------- ---------- --------- Total interest-bearing liabilities ............ 973,245 9,949 4.11% 808,239 7,756 3.85% Non-interest-bearing liabilities .............. 106,530 80,817 ----------- ---------- Total liabilities ............................. 1,079,775 889,056 Stockholders' equity .......................... 82,704 68,855 ----------- ---------- Total liabilities and stockholders' equity. $ 1,162,479 $ 9,949 $957,911 $ 7,756 =========== =========== ========== ========== Net interest income/spread .................... $ 10,457 3.36% $ 9,251 3.67% =========== ======= ========== ========= Net interest margin as a % of interest- earning assets ................................. 3.83% 4.09% ======= =========
Net interest income for the three months ended June 30, 1996 was $10.5 million compared to $9.3 million for the three months ended June 30, 1995, an increase of $1.2 million or 13.0%. This increase is primarily due to a $188.6 million increase in average earning assets partially offset by a 26 basis points decrease in net interest margin. Total interest income was $20.4 million for the three months ended June 30, 1996, an increase of $3.4 million or 20.0% from the same period last year. This increase is attributable to higher levels of interest-earning assets. Interest-earning assets totaled $1.1 billion in the second quarter of 1996 compared to $904.4 million in the second quarter of 1995, an increase of $188.6 million or 20.9%. Total investments increased $160.7 million reflecting higher deposit levels as well as leveraging a portion of the Company's capital position. Total loans increased $34.3 million as the Company continued to focus on the commercial (small business) and home equity market segments, which grew by $37.1 million or 40.3% and $20.7 million or 37.0%, respectively. Residential real estate loan balances declined $24.6 million or 9.2%, reflecting significant refinancing activity during the first quarter of 1996. The Company originates long-term fixed rate mortgages for sale in the secondary market and generally holds adjustable rate mortgages in the Company's loan portfolio. 8 Total interest expense was $9.9 million for the three months ended June 30, 1996 compared to $7.8 million during the same period in 1995, an increase of $2.1 million or 28.3%. This increase is attributable to increases in interest-bearing deposits and borrowed funds. Interest-bearing deposits totaled $832.0 million for the quarter ended June 30, 1996 compared to $794.8 million for the same period in 1995, an increase of $37.2 million or 4.7%. This growth occurred primarily in Time and Savings deposits, which increased $27.1 and $10.1 million respectively. Time deposits increased as a result of the new "Can't Lose CD" product, which pays an interest rate equal to the prime rate less 350 basis points. Savings deposit growth reflects the continued success of the totally free savings account, a key feature of the Company's consumer strategy. Borrowed funds averaged $141.2 million for the three months ended June 30, 1996 compared to $13.5 million for the same period in 1995 reflecting the use of Federal Home Loan Bank ("FHLB") advances and repurchase agreements to leverage a portion of the Company's capital. The following table presents the changes in net interest income resulting from changes in interest rates or changes in the volume of interest-earning assets and interest-bearing liabilities during the periods indicated. Changes which are attributable to both rate and volume have been allocated evenly between the change in rate and volume components.
Three months ended June 30, 1996 versus 1995 ----------------------------- Increase (Decrease) Due to ----------------------------- Volume Rate Net ------- ------- ------- Interest-earning assets: Federal funds sold and interest bearing deposits ........................ $ (93) $ (15) $ (108) Investment securities held to maturity .............. 70 430 500 Investment securities available for sale ............ 2,541 (45) 2,496 Residential real estate loans ....................... (480) (9) (489) Commercial real estate loans ........................ 14 41 55 Commercial loans .................................... 848 (188) 660 Home equity loans ................................... 457 (175) 282 Consumer loans ...................................... 11 (8) 3 ------- ------- ------- Total interest-earning assets ......................... 3,368 31 3,399 ------- ------- ------- Interest-bearing liabilities: Deposits: Savings accounts .................................... 63 -- 63 NOW accounts ........................................ 14 (40) (26) Money market accounts ............................... (36) (14) (50) Time deposit accounts ............................... 352 125 477 ------- ------- ------- Total deposits ........................................ 393 71 464 Borrowed funds ........................................ 1,968 (239) 1,729 ------- ------- ------- Total interest-bearing liabilities .................... 2,361 (168) 2,193 ------- ------- ------- Change in net interest income ......................... $ 1,007 $ 199 $ 1,206 ======= ======= =======
9 Provision for Possible Loan Losses The Company provided $0.8 million for its provision for possible loan losses in the second quarter of 1996 compared to $1.2 million in the second quarter of 1995. This decrease of $0.4 million reflects an improvement in the credit quality profile of the loan portfolio. The provision for possible loan losses is based upon Management's judgment of the amount necessary to maintain the allowance for possible loan losses at a level which is considered adequate. For further discussion of this topic please refer to the section titled "Allowance for Possible Loan Losses" in the Balance Sheet Analysis section of this document. Non-interest Income Non-interest income is composed of fee income for bank services and gains or losses from the sale of assets. The components of non-interest income for the periods presented are as follows: Three months ended June 30, ------------------------------------ 1996 1995 ------------ ------------ Net gain (loss) on sale of loans $ 162 $ (4) Net gain (loss) on sale of securities - 10 Loan charges and fees 757 788 Deposit related fees 1,544 1,200 Other charges and fees 274 200 -------- -------- $2,737 $2,194 ======== ======== Net gain (loss) on sale of loans increased $0.2 million due to an increase in the amount of loans sold servicing released. Deposit service charges and fees increased $0.3 million due primarily to the Company's larger noninterest bearing account base. Other charges and fees increased $0.1 million reflecting higher brokerage fees. Salaries and Benefits Expense Salaries and benefits expense totaled $4.2 million for the second quarter of 1996 compared to $3.7 million for the same period in 1995, an increase of $0.5 million reflecting standard wage increases, the introduction of new benefit programs including ESOP, restricted stock and 401(k) plan, and higher ESOP and restricted stock expenses as a result of an increase in the Company's stock price. 10 Other Operating Expense The components of other operating expense for the periods presented are as follows: Three months ended June 30, ---------------------------------- 1996 1995 -------------- --------------- Marketing and public relations $ 493 $ 365 Insurance 93 891 Professional services 851 825 Outside processing 1,098 803 Other 1,121 896 ---------- --------- $3,656 $3,780 ========== ========= Marketing and public relations expense increased $0.1 million reflecting a higher level of advertising expenses directed towards the Company's consumer strategy of obtaining consumer deposit accounts in connection with its increased emphasis on community banking activities. Insurance expense includes FDIC deposit insurance expense, which totaled $1 thousand in the second quarter of 1996 compared to $0.7 million in the same period in 1995. This decrease is attributable to a significant reduction in FDIC premiums. Outside processing increased $0.3 million reflecting higher transaction and account volume associated with increased account activity resulting from the Company's consumer strategy, as well as costs associated with the outsourcing of the Company's item processing operations in 1996. Other operating expenses increased $0.2 million primarily due to supplies and postage costs associated with growth in consumer deposit accounts as a result of the Company's consumer strategy. Net Expense of Real Estate Operations The Company has certain subsidiaries that are engaged in various real estate investments directly or in joint ventures with unaffiliated partners. The Company has terminated its real estate development activities and is in the process of selling its remaining real estate investments. Net expense of real estate operations reflects the net operating results of these activities, writedowns on real estate properties and gains/losses on sales of these properties. Net expense of real estate operations of $(0.1) million and $0.1 million for the three months ended June 30, 1996 and June 30, 1995, respectively, reflects normal operating results. Income Taxes The Company recorded $0.3 million of state and federal alternative minimum tax provision in the second quarter of 1996 compared to $0.1 million in the second quarter of 1995. This increase in taxes resulted from the increase in pretax earnings between the periods ended June 30, 1995 and 1996. 11 Results of Operations for the Six Months Ended June 30, 1996 and June 30, 1995 The Company reported net income of $5.4 million, or $1.00 per share, for the six months ended June 30, 1996 as compared to net income of $2.1 million, or $0.40 per share, on a pro forma basis, for the same period last year. The improved results are primarily attributable to increased net interest income and noninterest income as well as the lower provisions for possible loan losses. Net Interest Income Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income is affected by the mix and volume of assets and liabilities, and the movement and level of interest rates. The following table sets forth, for the period indicated, average balances, interest income and expense, and yields earned or rates paid on the major categories of assets and liabilities. Non-accrual loans have been included in the appropriate average balance loan category, but unpaid interest on non-accrual loans has not been included for purposes of determining interest income. In addition, investment securities available for sale are reflected at amortized cost.
Six Months Ended June 30, ---------------------------------------------------------------------------------- 1996 1995 --------------------------------------- --------------------------------------- Average Average Average Average Balance Interest Yield/Cost Balance Interest Yield/Cost ----------- ----------- ----------- ----------- ----------- ----------- Interest-earning assets: Fed funds sold and interest-bearing deposits ...$ 9,594 $ 259 5.34% $ 20,840 $ 617 5.89% Investment securities held to maturity ......... 182,841 6,215 6.80% 169,885 5,053 5.95% Investment securities available for sale ....... 291,192 9,296 6.38% 169,397 5,330 6.29% Residential real estate loans .................. 249,899 9,792 7.84% 264,141 10,266 7.77% Commercial real estate loans ................... 119,102 5,018 8.43% 121,424 4,958 8.17% Commercial loans ............................... 120,248 5,333 8.77% 86,952 4,039 9.24% Home equity loans .............................. 72,971 3,077 8.48% 53,373 2,469 9.33% Consumer loans ................................. 6,977 254 7.32% 6,677 297 8.90% ---------- ----------- -------- ---------- ---------- ---------- Total interest-earning assets .................. 1,052,824 39,244 7.45% 892,689 33,029 7.40% Allowance for loan losses ...................... (15,286) (16,611) Non-interest-earning assets .................... 82,267 70,299 ---------- ---------- Total assets ...................................$ 1,119,805 $ 39,244 $ 946,377 $ 33,029 ========== =========== ========== ========== Interest-bearing liabilities Deposits Savings accounts .............................$ 192,419 $ 2,395 2.50% $ 184,769 $ 2,279 2.49% NOW accounts ................................. 55,829 328 1.18% 53,194 374 1.42% Money market accounts ........................ 205,305 3,397 3.33% 218,305 3,471 3.21% Time deposit accounts ........................ 371,205 9,948 5.39% 337,178 8,120 4.86% ---------- ----------- -------- ----------- ---------- ---------- Total deposits ................................. 824,758 16,068 3.92% 793,446 14,244 3.62% Borrowed funds ................................. 112,469 3,148 5.54% 7,808 274 6.98% ---------- ----------- -------- ----------- ---------- ---------- Total interest-bearing liabilities ............. 937,227 19,216 4.12% 801,254 14,518 3.65% Non-interest-bearing liabilities ............... 101,415 84,047 ---------- --------- Total liabilities .............................. 1,038,642 885,301 Total stockholders' equity ..................... 81,163 61,076 ---------- --------- Total liabilities and stockholders' equity .$ 1,119,805 $ 19,216 $ 946,377 $ 14,518 ========== =========== ========== ========== Net interest income/spread ..................... $ 20,028 3.33% $ 18,511 3.75% ========== ======== ========== ========== Net interest margin as a % of interest- earning assets ................................. 3.80% 4.15% ======== ==========
12 Net interest income for the six months ended June 30, 1996 was $20.0 million compared to $18.5 million for the six months ended June 30, 1995, an increase of $1.5 million or 8.2%. This increase is primarily due to a $160.1 million increase in average earning assets partially offset by a 35 basis points decrease in net interest margin. Total interest income was $39.2 million for the six months ended June 30, 1996, an increase of $6.2 million or 18.8% from the same period last year. This increase is primarily attributable to higher levels of interest-earning assets. Interest-earning assets totaled $1.1 billion for the six months ended June 30, 1996 compared to $892.7 million for the same period in 1995, an increase of $160.1 million or 17.9%. Total investments increased $134.8 million reflecting higher deposit levels as well as leveraging of a portion of the Company's capital position. Total loans increased $36.6 million as the Company continued to focus on the commercial (small business) and home equity market segments, which grew by $33.3 million or 38.3% and $19.6 million or 36.7%, respectively. Residential real estate loan balances declined $14.2 million or 5.4% reflecting significant refinancing activity to a fixed rate market during the first quarter of 1996. The Company originates long-term fixed rate mortgages for sale in the secondary market and generally holds adjustable rate mortgages in the Company's loan portfolio. Total interest expense was $19.2 million for the six months ended June 30, 1996 compared to $14.5 million during the same period in 1995, an increase of $4.7 million or 32.4%. This increase is attributable to increases in interest-bearing deposits, deposit rates and borrowed funds. Interest-bearing deposits totaled $824.8 million for the six months ended June 30, 1996 compared to $793.4 million for the same period in 1995, an increase of $31.3 million or 4.0%. This growth occurred primarily in Time deposits, which increased $34.0 million principally as a result of the new "Can't Lose CD." The Can't Lose CD pays an interest rate equal to the prime rate less 350 basis points. The average rate paid on deposits was 3.92% for the six months ended June 30, 1996 compared to 3.62% for the six months ended June 30, 1995, an increase of 30 basis points or 8.3% principally reflecting repricing of the existing portfolio as well as continued competitive pricing pressures and the introduction of the Can't Lose CD. Borrowed funds averaged $112.5 million for the six months ended June 30, 1996 reflecting the use of FHLB advances and repurchase agreements to leverage a portion of the Company's capital. The following table presents the changes in net interest income resulting from changes in interest rates or changes in the volume of interest-earning assets and interest-bearing liabilities during the periods indicated. Changes which are attributable to both rate and volume have been allocated evenly between the change in rate and volume components.
Six months ended June 30, 1996 versus 1995 ------------------------------- Increase (Decrease) Due to ------------------------------- Volume Rate Net ------- ------- ------- Interest-earning assets: Federal funds sold and interest bearing deposits .................................................. $ (318) $ (40) $ (358) Investment securities held to maturity ........................................ 413 749 1,162 Investment securities available for sale ...................................... 3,859 107 3,966 Residential real estate loans ................................................. (556) 82 (474) Commercial real estate loans .................................................. (96) 156 60 Commercial loans .............................................................. 1,512 (218) 1,294 Home equity loans ............................................................. 866 (258) 608 Consumer loans ................................................................ 12 (55) (43) ------- ------- ------- Total interest-earning assets ................................................... 5,692 523 6,215 ------- ------- ------- Interest-bearing liabilities: Deposits: Savings accounts .............................................................. 95 21 116 NOW accounts .................................................................. 17 (63) (46) Money market accounts ......................................................... (211) 137 (74) Time deposit accounts ......................................................... 866 962 1,828 ------- ------- ------- Total deposits .................................................................. 767 1,057 1,824 Borrowed funds .................................................................. 3,301 (427) 2,874 ------- ------- ------- Total interest-bearing liabilities .............................................. 4,068 630 4,698 ------- ------- ------- Change in net interest income ................................................... $ 1,624 $ (107) $ 1,517 ======= ======= =======
13 Provision for Possible Loan Losses The Company provided $1.5 million for its provision for possible loan losses for the six months ended June 30, 1996 compared to $2.4 million for the same period in 1995. This decrease of $0.9 million reflects an improvement in the credit quality profile of the loan portfolio. The provision for possible loan losses is based upon Management's judgment of the amount necessary to maintain the allowance for possible loan losses at a level which is considered adequate. For further discussion of this topic please refer to the section titled "Allowance for Possible Loan Losses" in the Balance Sheet Analysis section of this document. Non-interest Income Non-interest income is composed of fee income for bank services and gains or losses from the sale of assets. The components of non-interest income for the periods presented are as follows: Six months ended June 30, --------------------------------- 1996 1995 ----------------- -------------- Net gain/(loss) on sale of loans $ 432 $ (10) Net gain/(loss) on sale of securities 2 14 Loan charges and fees 1,480 1,595 Deposit related fees 2,947 2,289 Other charges and fees 457 352 --------- --------- $5,318 $4,240 ========= ========= Net gain (loss) on sale of loans increased $0.4 million due to an increase in the amount of loans sold servicing released. Deposit service charges and fees increased $0.6 million due primarily to the Company's larger noninterest bearing account base. Other charges and fees increased $0.1 million reflecting an increase in brokerage fees. Salaries and Benefits Expense Salaries and benefits expense totaled $8.5 million for the six months ended June 30, 1996 compared to $7.7 million for the same period in 1995, an increase of $0.8 million reflecting standard wage increases, the introduction of new benefit programs including ESOP, restricted stock and 401(k) plan, and higher ESOP and restricted stock expenses as a result of an increase in the Company's stock price. Occupancy Expense Total occupancy expense was $1.6 million for the six months ended June 30, 1996, a decrease of $0.1 million from the same period in 1995 as a result of the improved operating results of SIS Center, the Company's corporate headquarters. 14 Other Operating Expense The components of other operating expense for the periods presented are as follows: Six months ended June 30, ------------------------------------------- 1996 1995 ------------------ ------------------ Marketing and public relations $ 877 $ 672 Insurance 194 1,692 Professional services 1,490 1,472 Outside processing 2,055 1,698 Other 2,156 1,781 --------- ---------- $6,772 $7,315 ========= ========== Marketing and public relations expense increased $0.2 million reflecting a higher level of advertising expenses directed towards the Company's consumer strategy for obtaining consumer deposit accounts in connection with its increased emphasis on community banking activities. Insurance expense includes FDIC deposit insurance expense, which totaled $2 thousand for the six months ended June 30, 1996 compared to $1.4 million in the same period in 1995. This decrease is attributable to a significant reduction in FDIC premiums. Outside processing increased $0.4 reflecting higher transaction and account volume associated with increased account activity resulting from the Company's consumer strategy, as well as costs associated with the outsourcing of the Company's item processing operations in 1996. Other operating expenses increased $0.4 million primarily due to supplies and postage costs associated with growth in consumer deposit accounts as a result of the Company's consumer strategy. Foreclosed Real Estate Expense Foreclosed real estate expense reflects losses on sales, writedowns and net operating results of foreclosed properties. These expenses were $0.2 million for the six months ended June 30, 1996 compared to $0.4 million for the same period in 1995. This $0.2 million decrease reflects lower levels of foreclosed properties. Net Expense of Real Estate Operations The Company has certain subsidiaries that are engaged in various real estate investments directly or in joint ventures with unaffiliated partners. The Company has terminated its real estate development activities and is in the process of selling its remaining real estate investments. Net expense of real estate operations reflects the net operating results of these activities, writedowns on real estate properties and gains/losses on sales of these properties. Net expense of real estate operations of $(0.2) million and $0.1 million for the six months ended June 30, 1996 and June 30, 1995 respectively, reflects normal operating results. Income Taxes The Company recorded $0.5 million of state and federal alternative minimum tax provision in the six months ended June 30, 1996 compared to $0.1 million for the same period in 1995. This increase in taxes resulted from the increase in pretax earnings between the periods ended June 30, 1995 and 1996. 15 BALANCE SHEET ANALYSIS - COMPARISON AT JUNE 30, 1996 TO DECEMBER 31, 1995 Total assets increased from $1.07 billion at December 31, 1995 to $1.21 billion at June 30, 1996. This increase reflects growth in loans and investments funded through an increase in deposits and wholesale borrowings. Investments The Company's investment portfolio increased $110.8 million from $419.8 million at December 31, 1995 to $530.6 million at June 30, 1996. The Company engages in investment activities for both investment and liquidity purposes. The Company maintains an investment securities portfolio which consists primarily of U.S. Government and Agency securities, corporate obligations, asset-backed securities, collateralized mortgage obligations, Federal Home Loan Bank stock, and marketable equity securities. Other short-term investments held by the Company periodically include interest-bearing deposits and federal funds sold. The Company also maintains a mortgage-backed securities portfolio consisting of securities issued and guaranteed by the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Company ("FHLMC") in addition to publicly traded mortgage-backed securities issued by private financial intermediaries which are rated "AA" or higher by rating agencies of national prominence. Securities which the Company has the intent and ability to hold until maturity are classified as held-to-maturity and are carried at amortized cost, while those securities which have been identified as assets that may be sold prior to maturity or assets for which there is not a positive intent to hold to maturity are classified as available-for-sale and are carried at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity. The table below sets forth certain information regarding the amortized cost and fair value of the Corporation's investment portfolio at the dates indicated.
June 30, 1996 ---------------------------------------------- Available for Held to Sale Maturity ----------------------- --------------------- Amortized Amortized Cost Fair Value Cost Fair Value ---------- ---------- --------- ---------- U.S. government and agency obligations ......................... $ 15,060 $ 14,948 $ -- $ -- Mortgage-backed securities ..................................... 299,841 300,065 166,577 166,217 Other bonds and short term obligations ......................... 8,648 8,581 26,620 26,511 Other securities ............................................... 13,924 13,850 -- -- ----------- -------- -------- -------- Total ...................................................... $ 337,473 $337,444 $193,197 $192,728 =========== ======== ======== ======== December 31, 1995 ----------------------------------------------- Available for Held to Sale Maturity ----------------------- ---------------------- Amortized Amortized Cost Fair Value Cost Fair Value ----------- ---------- --------- ---------- U.S. government and agency obligations ......................... $ 7,700 $ 7,699 $ -- $ -- Mortgage-backed securities ..................................... 222,673 224,101 161,168 161,481 Other bonds and short term obligations ......................... 9,300 9,300 11,625 11,449 Other securities ............................................... 5,884 5,884 -- -- ----------- -------- -------- -------- Total ...................................................... $ 245,557 $246,984 $172,793 $172,930 =========== ======== ======== ========
16 Loan Portfolio Composition Gross loans comprised $592.7 million or 49.0% of total assets as of June 30, 1996. The following table sets forth information concerning the Company's loan portfolio in dollar amounts and percentages, by type of loan at June 30, 1996 and at December 31, 1995.
June 30, 1996 December 31, 1995 ------------------------ ----------------------- Percent of Percent of Amount Total Amount Total --------- ----------- --------- ----------- Residential real estate loans .............................................. $ 244,100 41.18% $ 263,551 45.99% Commercial real estate loans ............................................... 118,435 19.98% 118,005 20.59% Commercial loans ........................................................... 139,557 23.55% 117,674 20.53% Home equity loans .......................................................... 83,806 14.14% 67,657 11.81% Consumer loans ............................................................. 6,822 1.15% 6,196 1.08% --------- -------- --------- --------- Total loans receivable, gross ........................................... 592,720 100.00% 573,083 100.00% Less: Unearned income and fees .................................................... (828) (566) Allowance for possible loan losses .......................................... 14,913 14,986 --------- --------- Total loans receivable, net .............................................. $ 578,635 $ 558,663 ========= =========
The Company continues to actively originate loans secured by first mortgages on one to four family residences, and offers a variety of fixed and adjustable rate mortgage loan products. The Company originates long-term fixed rate mortgages for sale in the secondary market and generally holds adjustable rate mortgages in the Company's loan portfolio. During the six months ended June 30, 1996, the Company experienced an increase in prepayments in its adjustable rate mortgage portfolio due to lower interest rates. These prepayments offset new originations and resulted in a $19.5 million decrease in residential real estate loans between December 31, 1995 and June 30, 1996. During the six months ended June 30, 1996 commercial loan balances increased $21.9 million, reflecting the Company's continued focus on lending activities in the small business market. Home equity loans outstanding have increased $16.1 million since December 31, 1995 resulting from the Company's pricing strategy, the waiver of closing costs and the active promotion of these products. The growth in the Company's consumer loan portfolio from December 31, 1995 to June 30, 1996 reflects increases of $1.0 million in student loans and $0.8 million in overdraft protection lines, partially offset by runoff in personal installment loan balances. The Company offered student loans to its customers until June 30, 1996. These loans are subsidized by the government and held by the Company while the student is in school. When the student graduates and repayment begins the loans are sold to the Student Loan Marketing Association ("SLMA"). Effective July 1, 1996 the Company discontinued the origination of student loans. The Company continues to offer applications to prospective borrowers and refers these customers to SLMA. The company continues to offer overdraft protection lines associated with the transaction accounts of its customers. The company has discontinued offering most types of personal installment loans. This decision was made based on the low volumes achieved by the Company and the highly competitive nature of consumer products offered by Bank and non-Bank competitors. 17 Non-performing Assets Non-performing assets totaled $10.5 million as of June 30, 1996 compared to $13.9 million as of December 31, 1995, a decrease of $3.4 million or 24.5%. The following table sets forth information regarding the components of non-performing assets for the periods presented: June 30, 1996 December 31, 1995 ------------- ----------------- Non-accrual loans (1): Residential real estate loans $2,246 $2,553 Commercial real estate loans 5,123 5,745 Commercial loans 1,151 638 Home equity loans 340 90 Consumer loans 12 11 -------- -------- Total non-accrual loans 8,872 9,037 -------- -------- Loans past due 90 days still accruing (2) 296 587 -------- -------- Total non-performing loans 9,168 9,624 Foreclosed real estate (3) 427 1,529 Restructured loans on accrual status (4) 891 2,732 ======== ======== Total non-performing assets $10,486 $13,885 ======== ======== Total non-performing loans to total gross loans 1.55% 1.68% Total non-performing assets to total assets 0.87% 1.30% Allowance for possible losses to non-performing loans 162.66% 155.71% (1) Non-accrual loans are loans that are contractually past due in excess of 90 days, for which the Bank has discontinued the accrual of interest, or loans which are not past due but on which the Bank has discontinued the accrual of interest based on Management's assessment of the circumstances surrounding these loans. (2) Accruing loans past due 90 days or more are loans which have not been placed on non-accrual status as, in management's opinion, the collection of the loan, in full, is not in doubt. (3) Foreclosed real estate includes OREO, defined as real estate acquired through foreclosure or acceptance of a deed in lieu of foreclosure. The Bank carries foreclosed real estate at net realizable value, which approximates fair value less estimated selling costs. (4) Restructured loans are loans for which concessions, including reduction of interest rates or deferral of interest or principal payments have been granted due to the borrower's financial condition. Restructured loans on non-accrual status are reported in the non-accrual loan category. Restructured loans on accrual status are those loans that have complied with terms of a restructuring agreement for a satisfactory period (generally six months). Potential Problem Loans The Bank maintains a "watch list" of potential problem loans, which are performing loans that have potential weaknesses that require Management's attention. These potential weaknesses may stem from a variety of factors including, among other things economic or market conditions, adverse trends in the obligor's operations or balance sheet weaknesses. Potential problem loans totaled $15.6 million (1.3% of total assets) at June 30, 1996. 18 Allowance for Possible Loan Losses The allowance for possible loan losses reflects an amount that in Management's judgment is adequate to provide for potential losses in the loan portfolio. In addition, examinations of the adequacy of the loan loss reserve are conducted periodically by various regulatory agencies. The Company's loan loss reserve methodology emphasizes an evaluation of non-performing loans and those loans that have been identified as having a higher risk of becoming non-performing loans. The overall analysis is a continuing process that gives consideration to such factors as size and risk characteristics of the loan portfolio, the risk rating of individual credits, general economic conditions, historic delinquency and charge-off experience and the borrowers' financial capabilities and the underlying collateral, including, when appropriate, independent appraisals of real estate properties. In addition, Management periodically reviews the methodology of allocating reserves to the various loan categories based on similar factors. The Company's allowance for possible loan losses is decreased by loan charge-offs and increased by provisions for possible loan losses and recoveries on loans previously charged-off. When commercial and residential real estate loans are foreclosed, the loan balance is compared with the fair value of the property. If the net carrying value of the loan at the time of foreclosure exceeds the fair value of the property less estimated selling costs, the difference is charged to the allowance for possible loan losses and the fair value of the property becomes the new cost basis of the real estate owned. The Company has or obtains current appraisals on real estate owned at the time it obtains possession of the property. Real estate owned is subsequently carried at the lower of cost or fair value less estimated selling costs with any further adjustments reflected as a charge against operations. The Company assesses the value of real estate owned on a periodic basis. The allowance for possible loan losses at June 30, 1996 was $14.9 million, compared to $16.0 million at June 30, 1995. The activity in the allowance for possible loan losses for the six months ended June 30, 1996 and 1995 was as follows:
Six Months ended June 30, --------------------------------------- 1996 1995 --------------- --------------- Balance at beginning of period $14,986 $15,844 Provision for possible loan losses 1,450 2,355 Charge-offs: Residential real estate loans (563) (323) Commercial real estate loans (2,102) (2,048) Commercial loans (180) (45) Home equity loans (138) (25) Consumer loans (38) (91) --------------- ---------------- Total charge-offs (3,021) (2,532) --------------- ---------------- Recoveries: Residential real estate loans 577 51 Commercial real estate loans 762 160 Commercial loans 100 99 Home equity loans 39 28 Consumer loans 20 44 --------------- ---------------- Total recoveries 1,498 382 --------------- ---------------- Net charge-offs (1,523) (2,150) --------------- ---------------- Balance, end of period $14,913 $16,049 =============== ================ Ratio of allowance for possible loan losses to total loans at the end of the period 2.51% 2.89% Ratio of allowance for possible loan losses to non-performing loans at the end of the period 162.66% 116.28%
19 At June 30, 1996, the recorded investment in loans that are considered impaired under SFAS 114 was $8.3 million. Included in this amount is $3.8 million of impaired loans for which the related SFAS 114 allowance is $0.5 million and $4.5 million of impaired loans for which the SFAS 114 allowance is zero. The average recorded investment in impaired loans during the three and six months ended June 30, 1996 was approximately $8.2 million and $9.4 million, respectively. For the three and six month periods ended June 30, 1996, the Company recognized interest income on these impaired loans of zero and $0.2 million, respectively. The following table shows the allocation of the allowance for possible loan losses to the various types of loans as well as the percentage of loans in each category to total loans.
June 30, 1996 December 31, 1995 -------------------- --------------------- % of Total % of Total Allowance Allowance for for Amount Loan Losses Amount Loan Losses ------ ----------- ------- ----------- Residential real estate loans .............................. $ 1,269 8.51% $1,881 12.55% Commercial real estate loans ............................... 8,372 56.14% 6,784 45.27% Commercial loans ........................................... 4,517 30.29% 5,480 36.57% Home equity loans .......................................... 536 3.59% 672 4.48% Consumer loans ............................................. 219 1.47% 169 1.13% ---------- --------- -------- --------- Total allowance for possible loan losses .................................. $ 14,913 100.00% $14,986 100.00% ========== ========= ======== =========
20 Deposit Distribution The principal source of funds for the Company are deposits from local consumers and businesses. There were no brokered deposits at June 30, 1996. The Company's deposits consist of demand and NOW accounts, passbook and statement savings accounts, Money Market accounts and Time deposit accounts. Total deposits were $927.3 million at June 30, 1996 compared to $885.4 million at December 31, 1995, an increase of $41.9 million. This growth occurred primarily in Demand deposits, Savings accounts and Time deposits. Demand deposits and Savings accounts increased $15.6 million and $11.4 million, respectively as customers continue to take advantage of free savings and checking accounts offered as a result of the Company's consumer deposit strategy to attract and retain core deposits, which provides the Company with a lower cost source of funds. Also contributing to the growth of Demand deposit balances is an increase in business checking accounts of $3.6 million resulting from the Company's focus on small business banking. The growth in Time deposits is primarily attributable to the introduction of a new nine month CD in June of 1996. As of June 30, total balances for this new product were $8.4 million. The following table presents the composition of deposits for the periods indicated: June 30, 1996 December 31, 1995 ------------------- ------------------- Percent Percent of of Amount Total Amount Total -------- ------- -------- ------- Demand deposits ................ $ 87,173 9.40% $ 71,539 8.08% NOW accounts ................... 58,579 6.32% 57,271 6.47% Savings accounts ............... 197,003 21.24% 185,555 20.96% Money market accounts .......... 206,880 22.31% 203,313 22.96% Time deposits .................. 377,663 40.73% 367,708 41.53% -------- ------- -------- ------- Total deposits .............. $927,298 100.00% $885,386 100.00% ======== ======= ======== ======= 21 Regulatory Capital Under current FDIC capital regulations, state-chartered, non-member banks (i.e., banks that are not members of the Federal Reserve System), such as the Bank, are required to comply with three separate minimum capital requirements: a "Tier 1 leverage capital ratio" and two "risk-based" capital requirements: "Tier 1 risk-based capital ratio" and "Total risk-based capital ratio". The Tier 1 leverage capital ratio is expressed as a percentage of Tier 1 capital to total quarterly average assets. Tier 1 capital generally includes common stockholders' equity (including retained earnings), qualifying noncumulative perpetual preferred stock and any related surplus and minority interests in the equity accounts of fully consolidated subsidiaries. In addition, deferred tax assets are allowable up to a certain limit. Intangible assets, other than properly valued purchased mortgage servicing rights up to certain specified limits, must be deducted from Tier 1 capital. The unrealized gain or loss on securities available for sale is not included as a component of Tier 1 capital under the current guidelines. The Tier 1 risk-based capital ratio is expressed as a percentage of Tier 1 capital to total risk-weighted assets. Risk-weighted assets are calculated by assigning assets to one of several broad categories (0%, 20%, 50%, or 100%) based primarily on credit risk. The aggregate dollar value of the amount in each category is then multiplied by the risk-weight associated with the category. Risk weights for all off-balance sheet items are determined by a two-step process. First, the "credit equivalent amount" of off-balance sheet items is determined in most cases by multiplying the off-balance sheet item by a credit conversion factor. Second, the credit equivalent amount is treated like any balance sheet asset and generally is assigned to the appropriate risk category. The resulting weighted values from each of the risk categories are added together, and this sum is the Company's total risk-weighted assets that comprise the denominator of the risk-based capital ratios. The Total risk-based capital ratio is expressed as a percentage of "Qualifying total capital" to total risk-weighted assets. Qualifying total capital consists of the sum of Tier 1 capital plus Tier 2 capital, which consists of cumulative perpetual preferred stock, mandatory convertible debt, term subordinated debt, and a certain portion of the allowance for loan losses up to a maximum of 1.25% of risk-weighted assets. The following table reflects the regulatory capital position of the Bank as of June 30, 1996 and December 31, 1995 as well as the June 30, 1996 minimum regulatory capital requirements for well-capitalized institutions. June 30, December 31, FDIC 1996 1995 Requirement ------- ---------- ----------- Tier 1 leverage capital ratio ......... 7.38% 7.57% 5.00% Tier 1 risk-based capital ratio ....... 12.22% 12.52% 6.00% Total risk-based capital ratio ........ 13.48% 13.77% 10.00% Under current Federal Reserve Board (the "FRB") capital regulations, bank holding companies, such as the Company, are also required to comply with minimum capital requirements, which are substantially the same as those which apply to the Bank under the FDIC regulations. As of June 30, 1996, the Company's capital ratios, which on a consolidated basis are substantially the same as those set forth above with respect to the Bank, qualify the Copany as "well capitalized" under applicable FRB regulations. 22 Interest Rate Risk Management The operations of the Company are subject to the risk of interest rate fluctuations to the extent that there is a substantial difference in the amount of the Company's assets and liabilities repricing or maturing within specific time periods. An asset-sensitive position indicates that there are more rate-sensitive assets than rate-sensitive liabilities repricing or maturing within specific time horizons, which would generally imply a favorable impact on net interest income in periods of rising interest rates and a negative impact in periods of falling interest rates. A liability-sensitive position would generally imply a negative impact on net interest income in periods of rising interest rates and a positive impact in periods of falling interest rates. The objective of the Company's interest rate risk management process is to identify, manage and control its interest rate risk within established limits in order to produce consistent earnings that are not contingent upon favorable trends in interest rates. This is attained by monitoring the levels of interest rates, the relationships between the rates paid on assets and the rates paid on liabilities, the absolute amount of assets and liabilities which reprice or mature over similar periods, and the effect of all of these factors on the estimated level of net interest income. There are a number of industry standards used to measure a financial institution's interest rate risk position. Most common among these is the one-year gap which is the difference between assets, liabilities, and off-balance sheet instruments that will mature or reprice within one year expressed as a percentage of total assets. Using Management's estimates of asset prepayments and core deposit decay in its computation, the Company estimates that its cumulative one-year gap position was a positive $55.7 million or 4.61% of total assets at June 30, 1996. The Company also utilizes income simulation modeling in measuring its interest rate risk and managing its interest rate sensitivity. Income simulation not only considers the impact of changing market interest rates on forecasted net interest income, but also takes into consideration other factors such as yield curve relationships, the volume and mix of assets and liabilities, customer preferences and general market conditions. The following table sets forth the amounts of assets and liabilities outstanding at June 30, 1996, which are anticipated by the Company to mature or reprice in each of the future time periods shown using certain assumptions based on its historical experience, the current interest rate environment, and other data available to management. Management believes that these assumptions approximate actual experience and considers such assumptions reasonable, however, the interest rate sensitivity of the Company's assets and liabilities could vary substantially if different assumptions were used or actual experience differs from the assumptions used. Management periodically reviews and, when appropriate, changes assumptions used in creating this table. 23
GAP Position at June 30, 1996 ------------------------------------------------------------------ More than six Less than months less six months than one year 1 - 5 Years Over 5 Yrs TOTAL ---------- ------------- ----------- ---------- -------- Assets: Federal funds sold and interest bearing deposits ............... $ 10,045 $ -- $ -- $ -- $ 10,045 Investment securities .................. 293,322 129,373 72,129 35,817 530,641 Residential real estate loans.............. 79,361 62,637 85,538 14,620 242,156 Commercial real estate loans............... 36,896 18,781 57,629 -- 113,306 Commercial loans .......................... 65,154 8,455 61,351 3,630 138,590 Home equity loans.......................... 66,806 853 10,257 5,971 83.887 Consumer loans ............................ 2,223 3,655 594 265 6,737 Other assets .............................. -- -- -- 84,481 84,481 ---------- ---------- ---------- --------- --------- Total assets .............................. $ 553,807 $ 223,754 $ 287,498 $ 144,784 $1,209,843 ========== ========== ========== ========= ========= Liabilities & stockholders' equity: Savings accounts .......................... $ 29,550 $ 29,550 $ 137,903 $ -- $ 197,003 NOW accounts .............................. 8,786 8,786 41,007 -- 58,579 Money market accounts...................... 62,064 62,064 82,752 -- 206,880 Time deposits ............................. 200,527 118,451 58,685 -- 377,663 Borrowed funds ............................ 167,450 23 210 1,236 168,919 Other liabilites & stockholders equity..... 17,286 17,286 51,859 114,368 200,799 ---------- ---------- ---------- --------- --------- Total liabilities & stockholders' equity... $ 485,663 $ 236,160 $ 372,416 $ 115,604 $1,209,843 ========== ========== ========== ========= ========= Period GAP position........................ $ 68,144 $ (12,406) $ (84,918) $ 29,180 Net period GAP as a percentage of total assets.................................. 5.63% (1.03%) (7.02%) 2.41% Cumulative GAP ............................ $ 68,144 $ 55,738 $ (29,180) -- Cumulative GAP as a percentage of total assets ................................. 5.63% 4.61% (2.41%) --
For purposes of the above interest sensitivity analysis: Residential loans held for sale at June 30, 1996 totaling $3.2 million are in the less than six month interest sensitivity period. Fixed rate assets are scheduled by contractual maturity and adjustable rate assets are scheduled by their next repricing date. In both cases, assets that have prepayment optionality are adjusted for the Bank's estimate of prepayments. Loans do not include non accrual loans of $8.9 million. Loans do not include the allowance for loan loss of $14.9 million. In certain deposit categories where there is no contractual maturity, Management assumed the sensitivity characteristics listed below based on the current interest rate environment and the Company's historical experience. Management reviews these assumptions on a quarterly basis and may modify them as circumstances dictate. - Savings accounts are assumed to decay at an annual rate of 30%. - NOW accounts are assumed to decay at an annual rate of 30%. - Money market accounts are assumed to decay at an annual rate of 60%. - Non-interest bearing accounts of $87.2 million are included in other liabilities and are assumed to decay at an annual rate of 40%. Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, while certain assets and liabilities may have similar contractual maturities or periods to repricing, they may react in different ways to changes in market interest rates. Further, in the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Additionally, certain assets, such as adjustable rate mortgages, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Finally, the ability of borrowers to service their adjustable rate mortgages may decrease in the event of an interest rate increase. 24 Liquidity Liquidity measures the ability of the Company to meet its maturing obligations and existing commitments, to withstand fluctuations in deposit levels, to fund its operations and to provide for customer credit needs. The Company's principal sources of funds are deposits, advances from the FHLB of Boston, repurchase agreements, repayments and maturities on loans and securities, proceeds from the sale of securities in the available-for-sale portfolio, and funds provided by operations. While scheduled loan and security amortization and maturities are relatively predictable sources of funds, deposit flows and loan and security prepayments are greatly influenced by economic conditions, the general level of interest rates and competition. The Company utilizes particular sources of funds based on comparative costs and availability. The Company generally manages the pricing of its deposits to maintain a steady deposit balance, but has from time to time decided not to pay rates on deposits as high as its competition, and when necessary, will supplement deposits with longer term and/or less expensive alternative sources of funds such as advances from the FHLB and repurchase agreements. Liquidity management is both a daily and long-term responsibility of Management. The Company adjusts its investments in cash and cash equivalents based upon Management's assessment of expected loan demand, projected security maturities, expected deposit flows, yields available on interest-bearing deposits, and the objectives of its asset/liability management program. If the Company requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB and collateral eligible for repurchase agreements. Because the Company has a stable retail deposit base, Management believes that significant borrowings will not be necessary to maintain its current liquidity position. The Company's ongoing principal use of capital resources remains the origination of single-family residential mortgage loans, commercial real estate loans, commercial loans, and consumer loans secured by residential real estate. 25 Part II. Other Information Item 1. Legal Proceedings The Company is involved in litigation arising in the normal course of business. Management does not believe that the ultimate liabilities arising from such litigation, if any, would be material in relation to the consolidated results of operations or financial position of the Company. Item 2. Changes in Securities Not applicable Item 3. Defaults upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote Security Holders Not applicable Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 2. Agreement and Plan of Reorganization dated as of January 31, 1996 between the Company and the Bank (incorporated by reference from Appendix A to the Proxy Statement-Prospectus dated March 27, 1996 included as Exhibit 99.5 to the Company's Registration Statement on Form 8-A). 3.(i) Articles of Incorporation (incorporated by reference from Exhibit 99.1 to the Company's Registration Statement on Form 8-A). 3.(ii) Bylaws (incorporated by reference from Exhibit 99.2 to the Company's Registration Statement on Form 8-A). 10.1 Employment agreement dated August 23, 1994 for Mr. F. William Marshall, Jr. 10.2 The form of employment agreement for Messrs. Frank W. Barrett, B. John Dill and John F. Treanor. 10.3 The form of employment agreement for Messrs. Gilbert F. Ehmke, Henry J. McWhinnie, Ms. Jeanne Rinaldo, Messrs. Christopher A. Sinton, and Michael E. Tucker (incorporated by reference from Exhibit B to the FDIC Form F-2 filed as Exhibit 99.3 to the Company's Registration Statement on Form 8-A). 10.4 Directors Stock Option Plan and Management Stock Option Plan 10.5 Directors Restricted Stock Plan and Management Restricted Stock Plan 11. Computation of Earnings per Share and Proforma Earnings per Share. 27. Financial Data Schedule. 26 (b) Report on Form 8-K Form 8-K, dated June 21, 1996, was filed reporting the completion of the reorganization of the Bank into a holding company form of organization. 27 SIGNATURES Under the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIS BANCORP, INC. (Registrant) Date: August 14, 1996 By: /s/ John F. Treanor John F. Treanor Executive Vice President and Chief Financial Officer (authorized officer and principal financial officer) 28 EX-10.1 2 EXHIBIT 10.1 EMPLOYMENT AGREEMENT This Employment Agreement (this "Agreement"), dated as of August 23, 1994, is made by and among Springfield Institution for Savings, a state savings bank organized under the laws of the Commonwealth of Massachusetts, having its principal offices at 1441 Main Street, P.O. Box 30, Springfield, Massachusetts 02102- 3034 (the "Bank"), and F. William Marshall, Jr., residing at 10 Crescent Hill, Springfield, Massachusetts 01155 (the "Executive") and shall be effective as of the above date (the "Effective Date"). Recitals 1. The Bank desires to employ the Executive as President and Chief Executive Officer of the Bank, and to enter into an employment agreement embodying the terms of such relationship. 2. The Executive is willing to be employed as President and Chief Executive Officer of the Bank on the terms set forth herein. Agreement NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and for other good and valuable consideration, the Bank and the Executive hereby agree as follows. 1. Definitions. 1.1 "Affiliate" means any person or entity of any kind effectively controlling, effectively controlled by or effectively under common control with the Bank. 1.2 "Board" means the board of trustees of the Bank, if the Bank is a mutual savings bank, and the board of directors of the Bank, if the Bank is a stock savings bank. 1.3 "Cause" means termination due to the Executive's (a) personal dishonesty, (b) incompetence, (c) willful misconduct, (d) breach of fiduciary duty involving personal profit, (e) intentional failure to perform stated duties, (f) willful violation of any law, rule or regulation (other than traffic violations or similar offenses), or final cease-and- desist order, or (g) material breach of any provision of this Agreement. 1.4 "Change in Control" means, after the date of this Agreement, (a) a change in control of the Bank of a nature that would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than any change in control directly related to or in connection with the conversion of the Bank from a state chartered mutual savings bank to a state chartered stock savings bank; (b) a change in control of the Bank within the meaning of 12 U.S.C. ss. 1817(i), the change in Bank Control Act, and 12 C.F.R. ss. 574.4 of the Acquisition of Control of Savings Association regulations of the Office of Thrift Supervision, other than any change in control directly related to or in connection with the conversion of the Bank from a state chartered mutual savings bank to a state chartered stock savings bank; (c) individuals who constitute the Board as of the date of this Agreement (the "Incumbent Board") cease for any reason, including in connection with the conversion of the Bank from a state chartered mutual savings bank to a state chartered stock savings bank, to constitute at least a majority thereof, provided that any person becoming a director or a trustee, as the case may be, subsequent to the date of this Agreement whose election was approved by a vote of at least three-quarters of the directors or the trustees, as the case may be, then comprising the Incumbent Board, or whose nomination for election by the Bank's depositors or shareholders, as the case may be, was approved by the Bank's nominating committee then serving under the Board, shall be, for purposes of this clause (c), considered as though he or she was a member of the Incumbent Board (but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents; (d) approval by the depositors or shareholders of the Bank, as the case may be, of a reorganization, merger or consolidation, or the consummation of any such reorganization, merger or consolidation, other than, in any case (i) any such transaction occurring in connection with or directly related to the conversion of the Bank from a state chartered mutual savings bank to a state chartered stock savings bank, or (ii) a reorganization, merger or consolidation with respect to which all or substantially all of the individuals and entities who were the beneficial owners, immediately prior to such reorganization, merger or consolidation, of the Voting Interest in the Bank beneficially own, directly or indirectly, immediately after such reorganization, merger or consolidation more than 80 percent of the Voting Interest of the corporation or other entity resulting from such reorganization, merger or consolidation in substantially the same proportions as their respective ownership, immediately prior to such reorganization, merger or consolidation, of the Voting Interest in the Bank; (e) approval by the depositors or shareholders of the Bank, as the case may be, of (i) a complete liquidation or dissolution of the Bank, or (ii) the sale or other disposition of all or substantially all of the assets of the Bank, or the occurrence of any such liquidation, dissolution, sale or other disposition, other than, in any case, to a Subsidiary, directly or indirectly, of the Bank, or any Affiliate, or in connection with or directly related to any conversion of the Bank from a state chartered mutual savings bank to a state chartered stock savings bank; -2- and/or (f) the solicitation of proxies from depositors or shareholders of the Bank, by someone other than the current management of the Bank and without the approval of the Board, seeking depositor or shareholder approval of a plan of reorganization, merger or consolidation of the Bank with one or more corporations as a result of which the depositors' or shareholders' interests in the Bank are actually exchanged for or converted into securities not issued by the Bank. No failure on the part of the Executive to exercise any rights upon the occurrence of a Change in Control shall be deemed a waiver of any subsequent events or circumstances constituting a Change in Control. 1.5 "Code" means the Internal Revenue Code of 1986, as amended, as in effect from time to time, and/or any successor code thereto. 1.6 "Date of Termination" means the date specified in the Notice of Termination (as defined in Section 6.8 of this Agreement); provided, however, that if, within thirty (30) days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgement, order or decree of a court of competent jurisdiction, including all appeals, unless the time for appeal therefrom has expired and no appeal has been perfected; provided, further, however, that the Date of Termination shall (a) in no case be later than the date on which the Term of Employment expires, and (b) be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. 1.7 "Excise Tax" means any excise tax imposed under Section 4999 of the Code and/or any successor section thereto. 1.8 "Good Reason" means, and shall be deemed to exist if, without the written consent of the Executive, (a) the Bank (or any Parent for the balance of this Section 1.8) fails to appoint or reappoint the Executive as President and Chief Executive Officer of the Bank, (b) there occurs any reduction of Base Salary or material reduction in other benefits or any material change by the Bank to the Executive's function, duties, or responsibilities in effect on the date hereof and/or as set forth in Section 4.1 of this Agreement, which change would cause the Executive's position with the Bank to become one of lesser responsibility, importance, or scope from the position and attributes thereof in effect on the date hereof and/or as set forth in Section 4.1 of this Agreement (and any such material change shall be deemed a continuing breach of this Agreement), (c) there occurs any material breach of this Agreement by the Bank, (d) a Change in Control occurs, or (e) the Bank, if and after a Suspension for Disability (as defined in Section 6.2(a)) -3- occurs and after a Change in Control occurs, fills the Executive's position (in the manner set forth in Section 6.2(b) of this Agreement). 1.9 "Parent" means any corporation which has a direct or indirect legal or beneficial ownership interest in the Bank, but only if any such corporation owns or controls, directly or indirectly, securities possessing at least 50% of the total combined voting power of all classes of securities of the Bank. 1.10 "Subsidiary" means any corporation (other than the Bank) in which the Bank or any Parent has a direct or indirect legal or beneficial ownership interest, but only if the Bank or the Parent, as the case may be, owns or controls, directly or indirectly, securities possessing at least 50% of the total combined voting power of all classes of securities in any such corporation. 1.11 "Retirement" means the termination of the Executive's employment with the Bank for any reason by the Executive at any time after the Executive attains age 65. 1.12 "Voting Interest" means securities of any class or classes or other ownership interests having general voting power under ordinary circumstances to elect members of a board of directors or trustees of any entity. 2. Employment. 2.1 General. Subject to the terms and provisions set forth in this Agreement, the Bank, during the Term of Employment, agrees to continue to employ Executive as President and Chief Executive Officer of the Bank and the Executive hereby accepts such continued employment. 2.2 FDIC Suspension. If the Executive is suspended from office 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.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 shall (i) pay the Executive all or part of the compensation withheld while its contract obligations were suspended, and (ii) reinstate (in whole or in part) any of its obligations which were suspended. 3. Term of Employment. 3.1 Term. The term of employment under this Agreement shall commence as of the Effective Date and, unless extended as provided below or earlier terminated by the Bank or the Executive under Section 6 of this Agreement, shall continue until the third anniversary of the Effective Date (the "Term of Employment"). As of each anniversary of the date of this Agreement, a one year -4- extension of the then Term of Employment shall automatically be effected, unless either the Bank or the Executive shall give written notice to the other party, not less than four months prior to the anniversary of the date of this Agreement of the intent of such party to terminate at the expiration of the Term of Employment. 3.2 FDIC Removal. Notwithstanding anything to the contrary in this Agreement, 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.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/or the Executive, if any, shall not be affected. 4. Positions, Responsibilities and Duties. 4.1 Positions and Duties. During the Term of Employment, the Executive shall be employed and shall serve as President and Chief Executive Officer of the Bank. In such position(s), the Executive shall have the duties, responsibilities and authorities and authority as determined and designated from time to time by the Board, including, without limitation, complete management authority with respect to, and total responsibility for, the overall operations and day-to-day business and affairs of the Bank. The Executive shall serve under the direction and supervision of, and report only to, the Board. Notwithstanding the above, the Executive shall not be required to perform any duties and responsibilities (a) which would result in a noncompliance with or violation of any applicable law, regulation, regulatory bulletin, and/or any other regulatory requirement or (b) on a regular basis in any locations outside the counties of Berkshire, Franklin, Hampden or Hampshire, unless agreed upon by the Executive. 4.2 Attention to Duties and Responsibilities. During the Term of Employment, the Executive shall, except for periods of absence occasioned by illness, vacation in accordance with Section 5.6, and reasonable leaves of absence in accordance with the practices of the Bank as of the date of this Agreement, devote substantially all of his business time to the business and affairs of the Bank and the Executive shall use his best efforts, business skills, ability and fidelity to perform faithfully and efficiently the duties and responsibilities contemplated by this Agreement; provided, however, that the Executive shall be allowed, to the extent such activities do not present a conflict or substantially interfere with the performance by the Executive of his duties and responsibilities hereunder, (a) to manage the Executive's personal affairs, and (b)(i) to serve on boards or committees of civic or charitable organizations or trade associations, and (ii) after obtaining the consent of the Board, as evidenced by a written resolution of the Board and under the terms and conditions specified in any such resolution, to serve -5- on the boards of directors or trustees of companies or other organizations and associations; provided, further, however, that all offices or positions which the Executive currently holds or has held prior to the date of this Agreement and those set forth on Exhibit "A", annexed hereto are designated as currently consented to positions. 5. Compensation and Other Benefits. 5.1 Base Salary. During the Term of Employment, the Executive shall receive a base salary of $325,000 per annum ("Base Salary") payable in accordance with the Bank's normal payroll practices. Such Base Salary shall be reviewed annually by the Board for increase in the Board's sole discretion. Such Base Salary as so increased shall then constitute the Executive's "Base Salary" for purposes of this Agreement. Notwithstanding the foregoing, after a Change in Control occurring during the Term of Employment, the Base Salary of the Executive shall be increased not less than often than once every twelve calendar months during the Term of Employment in an amount not less than the average increase the Executive had received in the prior three (3) years or for the length of the Executive's employment. 5.2 Annual Bonus. During the Term of Employment, the Executive shall be entitled to participate in an equitable manner with other executive officers of the Bank in such discretionary bonus payment or awards as may be authorized, declared, and paid by the Board to the Bank's executive employees. No other compensation or additional benefits provided for in this Agreement shall be deemed a substitute for the Executive's right, if any, to receive such bonuses if, when and as declared by the Board. 5.3 Incentive, Retirement, and Savings Plan. During the Term of Employment, the Executive shall participate in all incentive, pension, retirement, supplemental retirement, savings, stock option and other stock grant plans, as well as other employee benefit plans and programs, if any, maintained from time to time by the Bank for the benefit of senior executives and/or other employees of the Bank. 5.4 Welfare Benefit Plans. During the Term of Employment, the Executive, the Executive's spouse, if any, and their eligible dependents, if any, shall participate in and be covered by all the welfare benefit plans and programs, if any, maintained by the Bank for the benefit of senior executives and/or other employees of the Bank. 5.5 Expense Reimbursement. During the Term of Employment, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses, including reasonable business travel expenses, incurred by the Executive in performing his duties and responsibilities hereunder in accordance with the policies and procedure of the Bank as in effect at the time the expense was incurred, as the same may be changed from time to time. -6- 5.6 Vacation and Fringe Benefits. During the Term of Employment, the Executive shall be entitled to five (5) weeks paid vacation each calendar year at such times which do not materially interfere with the performance of the Executive's duties hereunder. In addition, during the Term of Employment, the Executive shall be eligible to benefit from such fringe benefits and prerequisites, if any, in accordance with the policies of the Bank and as in effect and provided from time to time to senior executives of the Bank. Notwithstanding the above, the Executive, during the Term of Employment, shall retain, pursuant to current policy and practice of the Bank, all privileges, if any, including club memberships and automobile usage of a bank-owned vehicle, to which he is entitled on the date of this Agreement. 6. Termination. 6.1 Termination Due to Death. In the event of the Executive's death during the Term of Employment, the Term of Employment shall thereupon end and his estate or other legal representative, as the case may be, shall, subject to Sections 2.2, 3.2, 6.9, 6.11 and 6.12 of this Agreement, only be entitled to: (a)(i)(A) Base Salary continuation at the rate in effect (as provided in Section 5.1 of this Agreement) on the Date of Termination for a six month period commencing on such Date of Termination, or (B), if the Board so determines in its sole discretion and in lieu of such one year salary continuation described above in (A), a lump sum payment equal in amount to the present value of such Base Salary continuation (reasonably determined using a discount rate equal to the most recent quote available for the one year United States Treasury Bill rate on the Date of Termination) payable within thirty business days after the Date of Termination, and (ii) a pro-rata annual bonus for the fiscal year in which such termination occurs, such pro-rata bonus amount to be (I) pro-rated based on a minimum of six months service during the fiscal year of the Bank (prior to the Date of Termination), (II) determined in good faith by the Board (but in its sole discretion), and (III) if any such bonus is payable, paid on or about the same date that the annual bonus amounts payable in respect of such fiscal year, if any, to the senior executives of the Bank are actually paid to them; (b)any Base Salary accrued, but not less than for a period of six months to the Date of Termination or any bonus actually awarded, but not yet paid as of the Date of Termination; -7- (c)reimbursement for all expenses (under Section 5.5 incurred as of the Date of Termination, but not yet paid as of the Date of Termination; (d)payment of the per diem of any unused vacation days accruing during the Term of Employment and the unused, unaccrued portion of any vacation days available through the end (but not beyond) of the calendar year of the Bank in which such termination occurs; (e)any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs, if any, of the Bank or any Subsidiary; and (f)continuation of the welfare benefits of the Executive and Executive's dependents, or any of the same, at the level in effect (as provided for by Section 5.4 of this Agreement) on, and at the same out-of-pocket cost to the Executive as of, the Date Termination for a six (6) month period commencing on the Date of Termination (or, if such continuation is not permitted by applicable law or if the Board so determines in its sole discretion, the Bank shall provide the economic equivalent in lieu thereof); (g)any rights to indemnification in accordance with Section 11 of this Agreement. 6.2 Suspension for Disability. (a)If, during the Term of Employment, the Executive shall have been absent from his duties with the Bank on a full-time basis due to physical or mental illness for six (6) consecutive months, the Bank may give thirty (30) days written notice of potential suspension. If the Executive shall not have returned to the full-time performance of his duties within such 30-day period, the Bank may suspend the Executive's employment for "Disability" (a "Suspension for Disability"). (b)If a Suspension for Disability occurs during the Term of Employment, the Bank will pay the Executive a bi-weekly payment equal to two-thirds (2/3) of the Executive's bi-weekly rate of Base Salary on the effective date of the Suspension for Disability. These payments shall commence on the effective date of the Executive's Suspension for Disability and will end on the earlier of (i) the date the Executive returns to the full-time employment of the Bank; (ii) the Executive's equivalent full-time employment by another employer; (iii) the Executive's retirement; (iv) the Executive's death; or (v) the Term of Employment. After a Suspension for Disability occurs, the Bank shall be free to fill the Executive's position, but such action by the Bank, shall constitute Good Reason if it occurs after a Change in Control. -8- Upon the Executive being able to return to full-time employment before the expiration of the Term of Employment, the Executive shall be offered an equivalent available position and otherwise be subject to the provisions of this Agreement. The disability payments hereunder will be in addition to any benefit payable from any qualified or nonqualified retirement plans or programs maintained by the Bank but will be reduced by payments received by the Executive on account of such disability under any long-term disability plan maintained for the Bank's employees or maintained by the Executive. The Executive shall maintain any such disability insurance during the Term of Employment. (c)During the Term of Employment, the Bank will cause to be continued life and health coverage and such other benefits substantially identical to the coverage and benefits maintained by the Bank for the Executive prior to the occurrence of any Suspension for Disability. (d)Notwithstanding the foregoing, there will be no reduction in the compensation (except as otherwise provided in Section 6.2(b) above, accrued benefits or pension granted or accruing to the Executive during the Term of Suspension. Nothing in this Section 6.2 shall abrogate or limit other provisions of this Agreement granting rights to the Executive or the Executive's spouse or the Executive's estate following death, retirement or termination, if applicable. (e)continuation of the welfare benefits of the Executive and the Executive's dependents, or any of the same, at the level in effect (as provided for by Section 5.4 of this Agreement) on, and at the same out-of-pocket cost to the Executive as of, the Date of Termination for the three-year period commencing on the Date of Termination (or, if such continuation is not permitted by applicable law or if the Board so determines in its sole discretion, the Bank shall provide the economic equivalent in lieu thereof); 6.3 Termination by the Board for Cause. The Board may terminate the Executive's employment hereunder for Cause, as provided below. If the Board terminates the Executive's employment hereunder for Cause, the Term of Employment (if not already expired) shall thereupon end as set forth below and the Executive shall, subject to Sections 2.2, 3.2, 6.9, 6.11, and 6.12 of this Agreement, only be entitled to: (a)Base Salary up to and including the Date of Termination; (b)any bonus actually awarded, but not yet paid as of the Date of Termination; -9- (c)reimbursement for all expenses (under Section 5.5) incurred as of the Date of Termination, but not yet paid as of the Date of Termination; (d)payment of the per diem value of any unused vacation days accruing during the Term of Employment and, to the extent not prohibited by applicable law, regulation, regulatory bulletin, and/or any other regulatory requirement, as the same exists or may hereafter be promulgated or amended the unused, unaccrued portion of any vacation days available through the end and (but not beyond) of the calendar year of the Bank in which such termination occurs; (e)to the extent not prohibited by applicable law, regulation, regulatory bulletin, and/or any other regulatory requirement, as the same exists or may hereafter be promulgated or amended, any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs, if any, of the Bank or any Subsidiary; and (f)any rights to indemnification in accordance with Section 11 of this Agreement. In each case, in determining Cause the alleged acts or omissions of the Executive shall be measured against standards generally prevailing in the banking industry generally and the ultimate existence of Cause must be confirmed by not less than 51% of the Incumbent Board (as constituted in accordance with Section 1.4(c) of this Agreement) as a meeting prior to any termination therefor; provided, however, that it shall be the Bank's burden to prove the alleged facts and omissions and the prevailing nature of the standards the Bank shall have alleged are violated by such acts and/or omissions of the Executive. In the event of such a confirmation by 51% or more of the Board, the Bank shall notify the Executive that the Bank intends to terminate the Executive's employment for Cause under this Section 6.3 (the "Confirmation Notice"). The Confirmation Notice shall specify the act, or acts, upon the basis of which the Board has confirmed the existence of Cause and must be delivered to the Executive within ninety (90) days after a majority of the Board (excluding, if applicable, the Executive) has actual knowledge of the events giving rise to such purported termination. If the Executive notifies the Bank in writing (the "Opportunity Notice") within thirty (30) days after the Executive has received the Confirmation Notice, the Executive (together with counsel) shall be provided one opportunity to meet with the Board (or a sufficient quorum thereof) to discuss such act or acts. Such opportunity to meet with the Board shall be fixed and shall occur on a date selected by the Board (such date being not less than ten (10) nor more than forty-five (45) days after the Bank receives the Opportunity Notice from the Executive). Such meeting shall take place at the principal offices of the Bank or such other location as agreed to by the Executive and the Bank. During the period commencing on the date the Bank receives the Opportunity Notice and ending on the date next succeeding the date -10- on which such meeting between the Board (or a sufficient quorum thereof) and the Executive is scheduled to occur and not withstanding anything to the contrary in this Agreement, the Executive shall be suspended from employment with the Bank (with pay to the extent not prohibited by applicable law, regulation, regulatory bulletin, and/or any other regulatory requirement, as the same exists or may hereafter be promulgated or amended) and the Board may, during such suspension period, reasonably limit the Executive's access to the principal offices of the Bank or any of its assets. If the Board properly sets the date of such meeting and if the Board (or a sufficient quorum thereof) attends such meeting and in good faith does not rescind its confirmation of Cause at such meeting or if the Executive fails to attend such meeting for any reason, the Executive's employment by the Bank shall, immediately upon the closing for such meeting and the delivery to the Executive of the Notice of Termination, be terminated for Cause under this Section 6.3. If the Executive does not respond in writing to the Confirmation Notice in the manner and within the time period specified in this Section 6.3, the Executive's employment with the Bank shall, on the thirty-first day after the receipt by the Executive of the Confirmation Notice, be terminated for Cause under this Section 6.3. In the event of any dispute hereunder, Executive shall be entitled, to the extent not prohibited by applicable law, regulation, regulatory bulletin, and/or any other regulatory requirement, as the same exists or may hereafter be promulgated or amended, until the earlier to occur of (i) the Date of Termination, (ii) the expiration of the current state Term of Employment, or (iii) the resolution of such dispute to (A) be paid bi-weekly his then Base Salary, and (b) continue to receive all other benefits; and there shall be no reduction whatsoever of any amounts subsequently paid to the Executive upon resolution of such dispute as a result of, or in respect to, such interim payments or coverage. The procedure set forth in this Section 6.3 to determine the existence of Cause shall at all times be subject to the requirements of applicable law, regulation, regulatory bulletin or other regulatory requirements. 6.4 Terminate Without Cause or for Good Reason. The Bank may terminate the Executive's employment hereunder at any time without Cause. The Executive may terminate his employment hereunder for Good Reason at any time by delivery or written notice to the Bank within the six-month period commencing after the occurrence of the Good Reason effective forty-five (45) days after such written notice is delivered. If the Bank terminates the Executive's employment hereunder without Cause (other than due to Retirement, death, Disability or the normal expiration of the full Term of Employment), or if the Executive terminates his employment hereunder for Good Reason, the Term of Employment shall thereupon end (if not already expired) and the Executive shall, subject to Sections 2.2, 3.2, 6.9, 6.11, and 6.12 of this Agreement, only be entitled to: (a)as liquidated damages, a cash lump sum equal to two (2) times the Executive's "Highest Annual Compensation" (as herein defined), provided that if the Executive terminates for Good Reason -11- following a Change in Control, the cash lump sum shall be equal to three (3) times the Executive's "Highest Annual Compensation". For purposes of this Agreement, "Highest Annual Compensation" shall mean the sum of (i) the highest per annum rate of Base Salary, and (ii) the aggregate bonus amounts paid to the Executive (or which would have been paid but for an election to defer payment to a later period), in respect of any fiscal year of the Bank at any time during the Term of Employment; (b)any Base Salary accrued to the Date of Termination or any bonus actually awarded, but not yet paid as of the Date of Termination; (c)reimbursement for all expenses (under Section 5.5) incurred as of the Date of Termination, but not yet paid as of the Date of Termination; (d)payment of the per diem value of any unused vacation days accruing during the Term of Employment and the unused, unaccrued portion of any vacation days available through the end (but not beyond) of the calendar year of the Bank in which such termination occurs; (e)continuation of the welfare benefits of the Executive and dependents, or any of the same, at the level in effect (as provided for by Section 5.4 of this Agreement) on, and at the same out-of-pocket cost to the Executive as of, the Date of Termination for the three-year period commencing on the Date of Termination (or, if such continuation is not permitted by applicable law or if the Board so determines in its sole discretion, the Bank shall provide the economic equivalent in lieu thereof); (f)any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans or programs, if any, of the Bank or any Subsidiary; and (g)any rights to indemnification in accordance with Section 11 of this Agreement. In the event of any dispute hereunder, the Executive shall be entitled until the earlier to occur of (i) the Date of Termination, (ii) the expiration of the current stated Term of Employment, or (iii) the resolution of such dispute to (A) be paid bi-weekly his then Base Salary, and (B) continue to receive all other benefits; and there shall be no reduction whatsoever of any amounts subsequently paid to the Executive upon resolution of such dispute as a result of, or in respect to, such interim payments or coverage. 6.5 Voluntary Termination. During the Term of Employment, the Executive may effect, upon sixty (60) days prior written notice to the Bank, a Voluntary Termination of his employment hereunder and thereupon the Term -12- of Employment (if not already expired) shall end. A "Voluntary Termination" shall mean a termination of employment by the Executive on his own initiative other than (a) a termination due to death or Disability, (b) a termination for Good Reason, (c) a termination due to Retirement, or (d) a termination as a result of the normal expiration of the full Term of Employment. A Voluntary Termination shall, subject to Sections 2.2, 3.2, 6.9, 6.11, and 6.12 of this Agreement, entitled the Executive only to all of the payments and benefits which the Executive would be entitled to in the event of a termination of his employment by the Bank for Cause. 6.6 Termination Due to Retirement. The Executive may terminate the Executive's employment hereunder due to Retirement upon thirty (30) days prior written notice to the Bank. If, during the Term of Employment, the Executive's employment is so terminated due to Retirement, the Term of Employment shall thereupon and the Executive shall, subject to Sections 2.2, 3.2, 6.9, 6.11, and 6.12 of this Agreement, only be entitled to: (a)Base Salary up to and including the Date of Termination; (b)any bonus actually awarded, but not yet paid as of the Date of Termination; (c)reimbursement for all expenses (under Section 5.5) incurred as of the Date of Termination, but not yet paid as of the Date of Termination; (d)(i) continuation of the Executive's welfare benefits (as described in Sections 5.4 of this Agreement) at the level in effect on the Date of Termination for the one-year period following the termination of the Executive's employment due to Retirement (or, if such continuation is not permitted by applicable law or if the Board so determines in its sole discretion, the Bank shall provide the economic equivalent in lieu thereof), and (ii) any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs, if any, of the Bank or any Subsidiary; (e)payment of the per diem value of any unused vacation days accruing during the Term of Employment and the unused, unaccrued portion of any vacation days available through the end (but not beyond) of the calendar year of the Bank in which such termination occurs; and (f)any rights to indemnification in accordance with Section 11 of this Agreement. 6.7 No Mitigation; No Offset. In the event of any termination of employment under this Section 6, the Executive shall be under no obligation to seek other employment or to mitigate damages and there shall be no offset -13- against any amounts due the Executive under this Agreement for any reason, including, without limitation, on account of any remuneration attributable to any subsequent employment that the Executive may obtain. Any amounts due under this Section 6 are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. 6.8 Notice of Termination. Any termination of the Executive's employment under this Section 6 requiring advance written notice shall be communicated by a notice of termination to the other party hereto given in accordance with Section 12.3 of this Agreement (the "Notice of Termination"). The Notice of Termination, in the case of a termination by the Bank for Cause, or a termination by the Executive for Good Reason, shall (a) indicate the specific termination provision in this Agreement relied upon, and (b) set forth in reasonable detail the dates, facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 6.9 Code Section 280G Reduction. 6.9.1 Notwithstanding any other provisions of this Agreement or of any other agreement, contract, understanding, plan or program entered in to or maintained by the Bank, if any payment or benefit received or to be received by the Executive in connection with the termination of the Executive's employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with (a) the Bank or any Affiliate, Parent or Subsidiary of the Bank, or (b) any person affiliated with the Bank or any such person) (all such payments and/or benefits, including the payments and benefits, if any, under this Section 6, being hereinafter referred to as the "Total Payments") would subject the Executive to an Excise Tax, and if such Total Payments less the Excise Tax is less than the maximum amount of Total Payments which would otherwise be payable to the Executive without imposition of an Excise Tax, then, to the extent necessary to eliminate the imposition of an Excise Tax (and after taking into account any reduction in the Total payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement), (i) the cash and non-cash payments and benefits payable under this Agreement shall first be reduced (but not below zero),and (ii) all other cash and non-cash payments and benefits shall next be reduced (but not below zero); but only if, by reason of any such reduction, the Total Payments with any such reduction shall exceed the Total Payments without any such reduction. For purposes of this Section 6.9, (A) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the Date of Termination shall be taken into account, (B) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected in good faith by the Bank does not constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code, including -14- (without limitation) by reason of Section 280G(b)(4)(A) of the Code, (C) the payments and/or benefits under this Agreement shall be reduced only to the extent necessary as that the Total Payments (other than those referred to in clauses (A) and (B) above) in their entirety constitute reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B)of the Code or are otherwise not subject to disallowance as deductions, in the opinion of the tax counsel referred to above in clause (B), and (D) the value of any non-cash payment or benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Bank's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. Except as otherwise provided above, the foregoing calculations and determinations shall be made in good faith by the Bank and the Executive. If no agreement on the calculations is reached, then the Executive and the Bank will agree to the selection of an accounting firm to make the calculations. If no agreement can be reached regarding the selection of an accounting firm the Bank will select a prominent national accounting firm which has no current or recent business relationship with the Bank. The Bank shall pay all costs and expenses incurred in connection with any such calculations or determinations. Any calculations or determinations made in accordance with this Section 6.9 shall be conclusive and binding on all parties. 6.9.2 Notwithstanding any other provisions of this Agreement or of any other agreement, contract, understanding, plan or program entered into or maintained by the Bank, if any payment or benefit received or to be received by the Executive in connection with the termination of the Executive's employment (pursuant to a Change in Control, any amount payable under this Agreement or any other payments to which Executive is entitled under any benefit plan, option or stock grant plan, incentive plan or other agreement with the Bank constitute "excess parachute payments" (as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")), the Bank shall pay to the Executive an additional sum equal to: (i) the excise tax imposed by Section 4999 of the Code on the excess parachute payments (including any payments made pursuant to this sentence), and (ii) the Executive's federal, state and local income and payroll taxes imposed upon the payments made pursuant to this sentence. 6.10 Payment. Except as otherwise provided in this Agreement, any payments to which the Executive shall be entitled to under this Section 6, including, without limitation, any economic equivalent of any benefit, shall be made, to the extent practicable, within five (5) business days following the Date of Termination. 6.11 Bank Regulatory Limitations. 6.11.1 Any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. ss. 1828(k) and any regulations promulgated thereunder. -15- 6.11.2 To the extent required by applicable law, regulation, regulatory bulletin, and/or any other regulatory requirement, the aggregate amount and/or value of the Compensation paid as a result of any termination of the Executive's employment with the Bank, regardless of the reason for any such termination of employment, shall not exceed the limit prescribed by applicable law, rule or regulation. 6.12 Other Required Provisions. 6.12.1 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 Section 6.12.1 shall not affect the vested rights of the Bank and/or the Executive, if any. 6.12.2 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, or his or her designee, at the time the Federal Deposit Insurance 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, or his designee, at the time the director, or his or her 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 or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by any such actions. 6.13 Post-Termination Obligations. During the Term of Employment and for one (1) full year after the expiration or termination thereof, or subject to ordinary court process, the Executive shall, upon reasonable notice, use his reasonable best efforts to cooperate with the Bank by providing such information and assistance to the Bank as may reasonably be required by the Bank at the Bank's expense in connection with any litigation not commenced by or involving the Executive in which the Bank or any of its Subsidiaries or Affiliates is, or may become, a party. 7. Non-exclusivity of Rights; Non-extension Severance. 7.1 Other Benefits. Except as is otherwise specifically provided in this Agreement, the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided or maintained by the bank, and for which the Executive may be eligible and qualify, shall not be prevented or limited, and the Executive's rights under any future agreements with the Bank and/or any Affiliate, including, without limitation, any stock option agreements shall not be limited or prejudiced. Subject to Section 7.2 -16- below, this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of a kind elsewhere provided. Except as otherwise specifically provided in this Agreement, no provision of this Agreement shall be interpreted to mean or result in the Executive receiving fewer benefits than those available to him without reference to this Agreement. 7.2 Non-extension Severance. If (a)(i) the Executive's employment hereunder is not terminated or suspended under Sections 6.1, 6.2, 6.3, 6.4, 6.5 or 6.6 of this Agreement prior to the expiration of the Term of Employment, or (ii) any such termination or suspension of the Executive's employment is not initiated prior to the expiration of the Term of Employment, (b) the Term of Employment is not extended by the Bank, and (c) the Executive's employment with the Bank terminates after the expiration of the Term of Employment (other than for Cause), the Executive shall be entitled to receive, in lieu of any severance payments or severance benefits under any other plan or program maintained by the Bank or any Affiliate, (1) Base Salary continuation at the rate in effect (as provided in Section 5.1 of this Agreement) as of the expiration of the Term of Employment, and (2) welfare benefit continuation, at the level in effect (as provided for by Section 5.4 of this Agreement) on, and at the same out-of-pocket cost to the Executive as of, the expiration of the Term of Employment, in each case (1) and (2), for the greater of (A) the period ending six (6) months after the Executive's employment terminates, or (B) the period commencing on the date the Executive's employment terminates and ending as of the Term of Employment. Notwithstanding the above, if the Board determines in its sole discretion and in lieu only of such Base Salary continuation in (1), a lump sum payment, equal to the present value of such Base Salary continuation (reasonably determined using the discount rate specified in Section 6.1(a)(1)), shall be paid to the Executive within thirty (30) days after the date the Executive's employment terminates. Notwithstanding anything to the contrary in this Section 7.2, if (x) there occurs a Change in Control during the Term of Employment, (y) the Term of Employment is not extended by the Bank up to and/or through the Term of Employment, and (z) the Executive's employment with the Bank is subsequently terminated (other than for Cause), the Executive, in lieu of the Base Salary and welfare benefits continuation under this Section 7.2, shall be entitled to receive the payments and benefits set forth in Section 6.4 of this Agreement. 8. Resolution of Dispute. With the exception of proceedings for equitable relief brought pursuant to this Section or Section 9.2 of this Agreement, any dispute or controversy arising under or in connection with this Agreement may, at either the Bank's or the Executive option, be settled exclusively by arbitration in Springfield, Massachusetts in accordance with the rules of the American Arbitration Association then in effect and at the Bank's expense. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek -17- specific performance in court of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. If a claim for any payments or benefits under this Agreement or any other provision of this Agreement is disputed by the Bank and the Executive, the Executive shall, to the extent and at such time or times as is not prohibited by applicable law, regulation, regulatory bulletin, and/or any other regulatory requirement, as the same exists or may be hereafter promulgated or amended, if the Executive is successful in his claim, be reimbursed for all reasonable attorney's fees and expenses incurred by the Executive in pursuing such claim. 9. Confidential Information. 9.1 Confidentiality. The Executive will not, during or after the Term of Employment, disclose any confidential information relating to the business activities of the Bank or any Affiliate thereof which has not been previously disclosed by any person to any person, firm corporation, bank or other entity for any reason or purpose whatsoever. Notwithstanding the foregoing, the Executive may disclose any knowledge or other information relating to banking, financing and/or economic principles, concepts or ideas which are based on experience and which are not derived from the business plans and activities of the Bank, and may disclose such confidential information in connection with legal and/or regulatory proceedings. 9.2 Injunctive Relief. The Executive acknowledges and agrees that the Bank will have no adequate remedy at law, and would be irreparably harmed, if the Executive breaches or threatens to breach any of the provisions of this Section 9 of this Agreement. The Executive agrees that the Bank shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of this Section 9, and to specific performance of each of the terms of such Section in addition to any other legal or equitable remedies that the Bank may have. The Executive further agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of this Section 9, raise the defense that the Bank has an adequate remedy at law. 9.3 Special Severability. The terms and provisions of this Section 9 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. 10. Successors. 10.1 The Executive. This Agreement is personal to the Executive and, without the prior express written consent of the Bank, shall not be assignable by the Executive, except that the Executive's rights to receive any -18- compensation or benefits under this Agreement may be transferred or disposed of pursuant to testamentary disposition, intestate succession or pursuant to a qualified domestic relations order. This Agreement shall inure to the benefit of and be enforceable by the Executive's heirs, beneficiaries and/or legal representatives. 10.2 The Bank. This Agreement shall inure to the benefit of and be binding upon the Bank and its successors and assigns; provided, however, that no assignment of this Agreement may be made without written consent of the Executive. 11. Indemnification. The Executive (and his heirs, executors and administrators) shall be indemnified and held harmless by the Bank to the fullest extent permitted by applicable law, regulations, regulatory bulletin, and/or any other regulatory requirement, as the same exists or may hereafter be promulgated or amended, against all expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, excise taxes or penalties and amounts paid or to be paid in settlement) reasonable incurred or suffered by the Executive as a consequence of the Executive being or having been made a party to, or being or having been involved, in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the Executive is or was a trustee, director or officer of the Bank or is or was serving at the request of the Bank as a trustee, director or officer or of another corporation (including, but not limited to, a subsidiary or an Affiliate of the Bank), and such indemnification shall continue after the Executive shall cease to be an officer, director or trustee. The right to indemnification conferred hereby shall be a contract right and shall also include, to the extent permitted by applicable regulation, the right to be paid by the Bank the expenses incurred in defending any such proceeding in advance of the final disposition upon receipt by the Bank of an undertaking by or on behalf of the Executive to repay such amounts or a portion thereof, if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Bank pursuant hereto or as otherwise authorized by law but such repayment by the Executive shall only be in an amount ultimately determined to exceed the amount to which the Executive was entitled to be indemnified. 12. Miscellaneous. 12.1 Applicable Law. This Agreement shall, to the extent not superseded by federal law, be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts, without regard to principles of conflict of laws. 12.2 Amendments/Waiver. This Agreement may not be amended, waived, or modified otherwise than by a written agreement executed by the parties to this Agreement or their respective successors and legal representatives. No waiver by any party to this Agreement of any breach of any -19- term, provision or condition of this Agreement by the other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, or any prior or subsequent time. 12.3 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when received by hand-delivery to the other party, by facsimile transmission, by overnight courier, or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: with a copy to: If to the Bank: with a copy to: or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notices and communications shall be effective when actually received by the addressee. 12.4 Withholdings. The Bank may withhold from any amounts payable under this Agreement such taxes as shall be required to be withheld pursuant to any applicable law or regulation. 12.5 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 12.6 Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. 12.7 Entire Agreement. This Agreement contains the entire agreement between the parties to this Agreement concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties with respect thereto. 12.8 Representation. The Executive represents and warrants that the performance of the Executive's duties and obligations under this Agreement will not violate any agreement between the Executive and any other person, firm, partnership, corporation, or organization. -20- 12.9 Survivorship. The respective rights and obligations of the parties to this Agreement, including, without limitation, any rights of the Executive and the Bank under Section 11 of this Agreement, shall survive any termination of this Agreement or the Executive's employment hereunder for any reason to the extent necessary to the intended preservation of such rights and obligations. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Bank has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the Effective Date. SPRINGFIELD INSTITUTION FOR SAVINGS By: /s/ Albert E. Steiger, Jr. Name: Title: Chairman /s/ F. William Marshall, Jr. F. William Marshall, Jr. -21- EX-10.2 3 EXHIBIT 10.2 FORM OF EMPLOYMENT AND SEVERANCE AGREEMENT FOR EXECUTIVE VICE PRESIDENTS OF SPRINGFIELD INSTITUTION FOR SAVINGS This AGREEMENT is made as of [date] by and between ___________ (the "Executive") and SPRINGFIELD INSTITUTION FOR SAVINGS, a Massachusetts savings bank (the "Bank"). WHEREAS, the Bank recognizes the substantial contribution the Executive has made and is expected to make to the Bank and wishes to protect his position therewith for the period provided in this Agreement; and WHEREAS, the Executive has been elected to, and has agreed to serve in the position of Executive Vice President of the Bank, a position of substantial responsibility; NOW, THEREFORE, in consideration of the contribution and responsibilities of the Executive, and upon the other terms and conditions hereinafter provided, the parties hereto agree as follows: 1. TERM OF AGREEMENT. The term of this Agreement shall be deemed to have commenced as of the date hereof and shall continue for a period of twelve (12) full calendar months thereafter. Commencing on the first anniversary date of this Agreement and continuing at each anniversary date thereafter, the term of this Agreement shall renew for an additional year unless written notice is provided to the Executive by the Bank, or to the Bank by the Executive, at least ninety (90) days and not more than one hundred eighty (180) days prior to any such anniversary date, that this Agreement shall cease at the end of the then current term hereof. 2. DEFINITIONS. For purposes of this Agreement, (a) "Affiliate" means any person or entity of any kind effectively controlling, effectively controlled by or effectively under common control with the Bank. (b) "Board" means the board of trustees of the Bank, if the Bank is a mutual savings bank, and the board of directors of the Bank, if the Bank is a stock savings bank. (c) "Change in Control" means a change in control of the Bank of a nature that would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than any change in control directly related to or in connection with the conversion of the Bank from a state-chartered mutual savings bank to a state-chartered stock savings bank; a change in control of the Bank within the meaning of 12 U.S.C. ss.1817(i), the Change in Bank Control Act, and the Rules and Regulations promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. ss.303.4(a), other than any change in control directly related to or in connection with the conversion of the Bank from a state-chartered mutual savings bank to state-chartered stock savings bank; individuals who constitute the Board immediately after the consummation of the process of converting the Bank from a mutual-form savings bank to a stock-form savings bank (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to such consummation whose election was approved by a vote of at least three-quarters of the directors then comprising the Incumbent Board, or whose nomination for election by the Bank's shareholders was approved by the Bank's nominating committee then serving under the Board, shall be, for purposes of this clause (iii), considered as though he or she was a member of the Incumbent Board (but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents; approval by the depositors or shareholders of the Bank of a reorganization, merger or consolidation, or the consummation of any such reorganization, merger or consolidation, other than, in any case any such transaction occurring in connection with or directly related to the conversion of the Bank from a state-chartered mutual savings bank to a state-chartered stock savings bank, or a reorganization, merger or consolidation with respect to which all or substantially all of the individuals and entities who were the beneficial owners, immediately prior to such reorganization, merger or consolidation, of the Voting Interest in the Bank beneficially own, directly or indirectly, immediately after such reorganization, merger or consolidation more than eighty percent (80%) of the Voting Interest of the corporation or other entity resulting from such reorganization, merger or consolidation in substantially the same proportions as their respective ownership, immediately prior to such reorganization, merger or consolidation, of the Voting Interest in the Bank; approval by the depositors or shareholders of the Bank, as the case may be, of a complete liquidation or dissolution of the Bank, or the sale or other disposition of all or substantially all of the assets of the Bank, or the occurrence of any such liquidation, dissolution, sale or other disposition, other than, in any case, to a Subsidiary, directly or indirectly, of the Bank, or any Affiliate, or in connection with or directly related to any conversion of the Bank from a state-chartered mutual savings bank to a state-chartered stock savings bank; and/or the solicitation of proxies from shareholders or depositors of the Bank by someone other than the current management of the Bank and without the approval of the Board, seeking depositor or shareholder approval of a plan or reorganization, merger or consolidation of the Bank with one or more corporations as a result of which the depositors' or the shareholders' interests in the Bank are actually exchanged for or converted into securities not issued by the Bank. No failure on the part of the Executive to exercise any rights upon the occurrence of a Change in Control shall be deemed a waiver of or otherwise impair the rights of the Executive in respect of any subsequent events or circumstances constituting a Change in Control. (d) "Code" means the Internal Revenue Code of 1986, as amended, and as in effect from time to time, and/or any successor code thereto. (e) "Excise Tax" means any excise tax imposed under Section 4999 of the Code and/or any successor section thereto. (f) "Good Reason" means, and shall be deemed to exist if, without the written consent of the Executive, the Bank fails to appoint or reappoint the Executive as [Executive\Senior] Vice-President of the Bank, there occurs any reduction of base salary or material reduction in other benefits or any material change by the Bank to the Executive's function, duties, or responsibilities in effect on the date hereof, which change would cause the Executive's position with the Bank to become one of lesser responsibility, importance, or scope from the position and attributes thereof in effect on the date hereof, or there occurs any material breach of this Agreement by the Bank. (g) "Subsidiary" means any corporation in which the Bank has a direct or indirect legal or beneficial ownership interest, but only if the Bank owns or controls, directly or indirectly, securities possessing at least 50% of the total combined voting power of all classes of securities in any such corporation. (h) "Voting Interest" means securities of any class or classes or other ownership interests having general voting power under ordinary circumstances to elect members of a board of directors or trustees of any entity. 2 3. PAYMENTS TO EXECUTIVE UPON TERMINATION. (a) The provisions of Section 4(a) hereof shall apply upon: (i) the involuntary termination of the Executive's employment at any time during the term of this Agreement, other than Termination for Cause (as defined below), following the occurrence of a Change in Control; or (ii) the voluntary termination of the Executive's employment for Good Reason at any time during the term of this Agreement, following the occurrence of a Change of Control. (b) The provisions of Section 4(b) shall apply upon the involuntary termination of the Executive's employment at any time during the term of this Agreement, other than for Termination for Cause, prior to the occurrence of a Change in Control. (c) The term "Termination for Cause" shall mean termination because of a material loss to the Bank or one of its Subsidiaries caused by the Executive's personal dishonesty, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule, regulation (other than traffic violations or similar offenses) or final cease and desist order, or any material breach of this Agreement. For purposes of this Section, no act, or the failure to act, on Executive's part shall be "willful" unless done, or omitted to be done, not in good faith and without reasonable belief that the action or omission was in the best interest of the Bank or its Subsidiaries. Notwithstanding the foregoing, Executive shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a Notice of Termination which shall include a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the members of the Board at a meeting of the Board called and held for that purpose (after reasonable notice to Executive and an opportunity for him, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board, the Executive was guilty of conduct justifying Termination for Cause and specifying the particulars thereof in detail. The Executive shall not have the right to receive compensation or other benefits for any period after Termination for Cause (except as required by the Employment Retirement Income Security Act of 1974, as amended ("ERISA") or other applicable law). Any stock options and limited rights granted to Executive under any stock option plan or unvested awards granted to Executive under any recognition and retention plan of the Bank, or any Subsidiary or Affiliate thereof, shall become null and void effective upon Executive's receipt of Notice of Termination for Cause and shall not be exercisable by Executive at any time subsequent to such Termination for Cause. 4. TERMINATION BENEFITS. (a) Upon the termination of the Executive's employment by the Bank as described in Section 3(a) hereof, the Bank shall be obligated to make a lump sum severance payment, within thirty (30) days of such termination to the Executive, or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, in an amount equal to two (2) years' salary (at the then applicable annual salary of the Executive). In addition, the Executive shall be entitled to any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs of the Bank. (b) Upon the termination of the Executive's employment by the Bank as described in Section 3(b) hereof, the Bank shall be obligated to make a lump sum severance payment within thirty (30) days of such termination to the Executive, or in the event of his subsequent death, his beneficiary or beneficiaries, or his estate, as the case may be, in an amount equal to one (1) year's salary (at the then applicable annual salary of the Executive). In addition, the Executive shall be entitled to any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans and programs, if any, of the Bank. 3 5. NOTICE OF TERMINATION. (a) Any purported termination by the Bank, or by the Executive shall be communicated by Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (b) "Date of Termination" shall mean the date specified in the Notice of Termination which, in the instance of Termination for Cause, shall be immediate. 6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS. This Agreement contains the entire understanding between the parties hereto and supersedes any prior agreement between the Bank and the Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to Executive of a kind elsewhere provided. No provision of this Agreement shall be interpreted to mean that Executive is subject to receiving fewer benefits than those available to him without reference to this Agreement. Nothing in this Agreement shall confer upon the Executive the right to continue in the employ of the Bank or shall impose on the Bank any obligation to employ or retain the Executive in its employ for any period. 7. NO ATTACHMENT. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment,encumbrance, charge, pledge, or hypothecation, or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to affect any such action shall be null, void, and of no effect. 8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and inure to the benefit of, the Executive, the Bank and their respective successors and assigns. 9. MODIFICATION AND WAIVER. (a) This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. (b) No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument of the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 4 10. SEVERABILITY. If, for any reason, any provision of this Agreement, or any part of any provision, is held invalid, such invalidity shall not affect any other provision of this Agreement or any part of such provision not held so invalid, and each such other provision and part thereof shall to the full extent consistent with law continue in full force and effect. 11. HEADINGS FOR REFERENCE ONLY. The headings of sections and paragraphs herein are included solely for convenience of this reference and shall not control the meaning or interpretation of any of the provisions of this Agreement. 12. GOVERNING LAW. The validity, interpretation, performance, and enforcement of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. 13. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Springfield, Massachusetts as hereinbelow provided. If a dispute or controversy hereunder arises and, within thirty (30) days of each party's written notice thereof, such dispute or controversy has not been resolved by mutual accord, then such dispute or controversy shall be conclusively determined by three arbitrators, one arbitrator being selected by the Executive, one arbitrator being selected by the Bank and the third being selected by the two arbitrators so selected. In the event of their inability to agree on the selection of a third arbitrator, the third arbitrator shall be designated in accordance with the rules of the American Arbitration Association then in effect. In the event that within ten (10) business days after the above-referenced 30-day period expires without resolution of any dispute or controversy by mutual accord any party shall not have selected its arbitrator and given written notice thereof to the other party, such arbitrator shall be selected in accordance with the rules of the American Arbitration Association as then in effect. All determinations made by the arbitrators selected pursuant to the provisions of this Section shall be by majority vote and shall be final. Notice of any such determination shall be forthwith given to each party. Judgment may be entered on the arbitrators' award in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 14. INDEMNIFICATION AND ATTORNEYS' FEES. (a) The Bank shall indemnify, hold harmless and defend the Executive against reasonable costs, including legal fees, incurred by him in connection with his consultation with legal counsel or arising out of any action, suit or proceeding in which he may be involved, as a result of his efforts, in good faith, to defend or enforce the terms of this Agreement. (b) In the event any dispute or controversy arising under or in connection with the Executive's termination is resolved in favor of the Executive, whether by judgment, arbitration or settlement, the Executive shall be entitled to the payment of all back-pay, including salary, bonuses and any other cash compensation, fringe benefits and any compensation and benefits due the Executive under this Agreement. 5 (c) The Bank shall indemnify, hold harmless and defend Executive for all acts or omissions taken or not taken by him in good faith while performing services for the Bank to the same extent and upon the same terms and conditions as other similarly situated officers and directors of the Bank. If and to the extent that the Bank maintains, at any time during its employment of the Executive an insurance policy covering the other officers and directors of the Bank against law suits, the Bank shall use its best efforts to cause Executive to be covered under such policy upon the same terms and conditions as other similarly situated officers and directors. IN WITNESS WHEREOF, SPRINGFIELD INSTITUTION FOR SAVINGS has caused this Agreement to be executed by its duly authorized officer, and the Executive has signed this Agreement, as of the ____ day of _______________, 199__. ATTEST: SPRINGFIELD INSTITUTION FOR SAVINGS _________________________ BY:_____________________________________________ Secretary Name: F. William Marshall, Jr. Title: President and Chief Executive Officer [SEAL] WITNESS: ________________________ __________________________________ [Name of Executive] 6 EX-10.4 4 EXHIBIT 10.4 SIS BANCORP, INC. DIRECTOR STOCK OPTION PLAN AND MANAGEMENT STOCK OPTION PLAN (Amended and restated as of July 31, 1996) 1. PURPOSE The purpose of the SIS Bancorp, Inc. Director Stock Option Plan (the "Director Plan") and Management Stock Option Plan (the "Management Plan") (together, the "Plans") is to attract directors and key employees of SIS Bancorp, Inc. (the "Company") and its Subsidiaries (as hereinafter defined) and to encourage them to continue their association with the Company, by providing favorable opportunities for them to participate in the ownership of the Company and in its future growth through the granting of stock options with respect to the Company's stock. The term "Subsidiary" as used in the Plans means a corporation, including, without limitation, any banking or thrift institution, of which the Company owns, directly or indirectly through an unbroken chain of ownership, fifty percent (50%) or more of the total combined voting power of all classes of stock. The term "Optionee," as used in the Plans, refers to any individual to whom an Option has been granted. 2. ADMINISTRATION OF THE PLANS The Plans shall be administered by the Compensation Committee (the "Committee") composed of at least three members of the Board of Directors of the Company (the "Board"), and may include those members serving at any time and from time to time as the Compensation Committee of the Board; provided, however, that during the period of one year immediately preceding any action by the Committee under the Plans, no member of the Committee may have been granted an option, or stock, or stock appreciation right or similar right under any plan of the Company under which any person exercises discretion to determine the recipients or terms or conditions of such grants. In the event that a vacancy occurs on account of the resignation of a member or the removal of a member by vote of the Board, a successor member shall be appointed by vote of the Board. The Committee shall from time to time determine to whom options shall be granted under the Management Plan, whether options granted shall be incentive stock option ("ISOs") or non-qualified stock options ("NSOs"), the terms of the options and the number of shares which may be granted under options. The Committee shall report to the Board the names of individuals to whom such options are to be granted, the number of shares covered and the terms and conditions of each grant. The Committee shall select one of its members as Chairman and shall hold meetings at such times and places as it may determine. A majority of the Committee shall constitute a quorum, and acts of the Committee at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee, shall be the valid acts of the Committee. The Committee shall have the authority to adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plans. All questions of interpretation and application of such rules and regulations, of the Plans and of options granted thereunder (the "Options"), shall be subject to the determination of the Committee, which shall be final and binding. Notwithstanding the foregoing, the Committee shall have no discretionary or interpretative power or authority with respect to any award under the Director Plan which would cause any non-employee director to fail to be a "disinterested person" as defined in Rule 16b-3 of the Securities Exchange Commission, as in effect prior to August 15, 1996. All decisions and determinations by the Committee in the exercise of its power shall be final and binding upon the Company and Optionees. The Management Plan shall be administered in such a manner as to permit those Options granted thereunder and specially designated under Section 5 to qualify as incentive stock options as described in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). 3. STOCK SUBJECT TO THE PLANS Director Plan. The total number of shares of stock which may be subject to Options under the Director Plan shall be 111,250 shares of the Company's common stock, $.01 par value per share (the "Common Stock"), provided that the number of shares stated in this sentence shall be subject to adjustment in accordance with the provisions of Section 9. Shares of Common Stock subject to an Option under the Director Plan that is not fully exercised shall again become available for grant under the terms of the Director Plans. Management Plan. The total number of shares of stock which may be subject to Options under the Management Plan shall be 695,000 shares of the Company's Common Stock and the total number of shares that may be so issued to any single employee under the Management Plan shall not exceed an aggregate of fifty percent (50%) of the allocated shares of Common Stock; provided that the number of shares stated in this sentence shall be subject to adjustment in accordance with the provisions of Section 9. Shares of Common Stock subject to an Option under the Management Plan that is not fully exercised shall again become available for grant under the terms of the Management Plan. The shares of Common Stock which may be subject to Options granted under the Plans may be authorized but unissued shares or treasury shares. 4. DIRECTOR PLAN Options shall be granted under the Director Plan pursuant to this Section 4 only to members of the Board who are not officers or full-time employees of the Company or any of its Subsidiaries (each, an "Eligible Director"). 2 (a) Amount of Award. Options under which an aggregate total of 95,800 shares of Common Stock may be acquired have been granted by the Company's predecessor in interest under the Plans, Springfield Institution for Savings (the "Bank") to eligible members of the Board of Directors of the Bank. Each Eligible Director who is first elected to serve after June 21, 1996 shall be granted an Option under which a total of 6,600 shares of Common Stock may be acquired on the day following his election to office. In the event the aggregate number of remaining shares of Common Stock authorized to be awarded under the Director Plan is insufficient to make such awards in full to each Eligible Director first elected to office on the same date, each such Eligible Director shall be awarded an Option to acquire a pro-rated portion of the available shares. (b) Limitations of Awards. Notwithstanding the foregoing provisions of this Section 4, no Eligible Director shall be eligible to receive any Option under this Section 4, if at the date of grant of such Option such person beneficially owns in excess of ten percent (10%) of the outstanding Common Stock of the Company. No Eligible Director shall receive any Option or other award under the Plans except as provided under this Section 4. (c) Exercise Price. The option exercise price per share of Common Stock under each Option shall be the fair market value of the Common Stock on the date the Option is granted. Payment of the exercise price shall be made in cash or, at the Optionee's election (but only if such election shall not cause such Optionee to cease to be a "disinterested director"), by delivery of shares of Common Stock of the Company or by a "cashless exercise" through a broker acceptable to the Company, as described in Section 7 below. (d) Exercise. (i) Each Option shall be exercisable in one or more installments, on or after the applicable anniversary of the date the Option was granted, in accordance with the schedule set forth below, but not later than the date the Option expires: Option Shares Subject to Exercise --------------------------------- Incremental Cumulative Date Amount Amount - ---- ----------- ---------- On or after First Anniversary............... 20% 20% On or after Second Anniversary.............. 20% 40% On or after Third Anniversary............... 20% 60% On or after Fourth Anniversary.............. 20% 80% On or after Fifth Anniversary............... 20% 100% Notwithstanding the foregoing schedule, in the event of an Eligible Director's retirement on account of attainment of maximum age ("Retirement"), permanent disability ("Disability"), or death, all Options then outstanding shall become immediately exercisable. 3 (ii) The minimum number of shares with respect to which an Option may be exercised at any one time shall be 100 shares, or such lesser number as is subject to exercise under the Option at the time. (iii) In the event of an Eligible Director's Retirement, Disability, death or other termination of service, the Option (to the extent exercisable under the provisions hereof) may be exercised by the Eligible Director (or, if he is not living, by his heirs, legatees or legal representatives) during its specified term within one year of the date of Retirement, Disability, death or termination; provided, however, that in the event an Eligible Director is removed for cause, his Options shall expire on the date of his removal from office. (iv) In the event of a Change in Control of the Company (as defined in Section 9(c) below), all Options outstanding as of the date of such Change in Control shall become immediately exercisable. (e) Expiration. Notwithstanding any other provision of the Director Plan or of any option agreement, each Option granted under the Director Plan shall expire ten (10) years after the date on which the Option was granted, or, if earlier, on the date the Optionee ceases to be a director of the Company or the Bank for any reason other than Retirement, Disability, death or resignation. 5. MANAGEMENT PLAN: ELIGIBILITY FOR AWARDS; TERMS AND CONDITIONS OF OPTIONS The individuals who shall be eligible for discretionary grants of Options under the Management Plan shall be key employees of the Company or a Subsidiary. Incentive Stock Options ("ISO") shall not be granted to any individual who is not an employee of the Company or a Subsidiary. Every Option under the Management Plan shall be evidenced by a written Stock Option Agreement in such form as the Committee shall approve from time to time, specifying the number of shares of Common Stock that may be purchased pursuant to the Option, the time or times at which the Option shall become exercisable in whole or in part, whether the option is intended to be an ISO or a NSO, and such other terms and conditions as the Committee shall approve, and containing or incorporating by reference the following terms and conditions: (a) Duration. The duration of each Option shall be as specified by the Committee in its discretion; provided, however, that no ISO shall expire later than ten (10) years from its date of grant, and no ISO granted to an employee who owns (directly or under the attribution rules of Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Subsidiary shall expire later than five (5) years from its date of grant. 4 (b) Exercise Price. The exercise price of each Option shall be any lawful consideration, as specified by the Committee in its discretion; provided, however, that the price with respect to an ISO shall be at least one hundred percent (100%) of the fair market value of the shares on the date on which the Committee awards the Option, which shall be considered the date of grant of the Option for purposes of fixing the price; and provided further that the price with respect to an ISO granted to an employee who at the time of grant owns (directly or under the attribution rules of Section 424(d) of the Code) stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or of any Subsidiary shall be at least one hundred ten percent (110%) of the fair market value of the shares on the date of grant of the ISO. For purposes of the Management Plan, except as may be otherwise explicitly provided in the Management Plan or in any Stock Option Agreement or similar document, the "fair market value" of a share of Common Stock at any particular date shall be determined according to the following rules: (i) if the Common Stock is at the time listed or admitted to trading on any stock exchange or NASDAQ, then the fair market value shall be the reported closing price of the Common Stock on such date on the principal exchange or NASDAQ, as the case may be; or (ii) if the Common Stock is not at the time listed or admitted to trading on a stock exchange of NASDAQ, the fair market value shall be the closing price of the Common Stock on the date in question in the over-the-counter market, as such price is reported in a publication of general circulation selected by the Board and regularly reporting the price of the Common Stock in such market; provided, however, that if the price of the Common Stock is not so reported, that fair market value shall be determined in good faith by the Board, which may take into consideration (1) the price paid for the Common Stock in the most recent trade of a substantial number of shares known to the Board to have occurred at arm's length between willing and knowledgeable investors, or (2) an appraisal by an independent party, or (3) any other method of valuation undertaken in good faith by the Board, or some or all of the above as the Board shall in its discretion elect. (c) Notice of ISO Stock Disposition. The Optionee must notify the Company promptly in the event that he or she sells, transfers, exchanges or otherwise disposes of any shares of Common Stock issued upon exercise of an ISO, before the later of (i) the second anniversary of the date of grant of the ISO, and (ii) the first anniversary of the date the shares were issued upon his or her exercise of the ISO. (d) Effect of Cessation of Employment. The Committee shall determine in its discretion and specify in each Stock Option Agreement the effect, if any, of the termination of the Optionee's employment upon the exercisability of the Option. (e) Substituted Option. With the consent of the Optionee, the Committee shall have the authority at any time and from time to time to terminate any outstanding Option and grant in substitution for it a new Option covering the same number of a different number of shares, provided that the option price under the new Option shall be no less than the fair market value of the Common Stock on the date of grant of the new Option. 5 6. MANAGEMENT PLAN: METHOD OF GRANTING OPTIONS The grant of Options shall be made by action of the Board at a meeting at which a quorum of its members is present, or by unanimous written consent of all its members; provided, however, that if an individual to whom a grant has been made fails to execute and deliver to the Committee a Stock Option Agreement within ten (10 ) days after it is submitted to him, the Option granted under the agreement shall be voidable by the Company at its election, without further notice to the Optionee. 7. METHOD OF EXERCISING OPTIONS To the extent that it has become exercisable under the terms of the Stock Option Agreement, an Option may be exercised from time to time by written notice to the Secretary, or Assistant Secretary or Chief Financial Officer of the Company stating the number of shares with respect to which the Option is being exercised and accompanied by payment of the exercise price in cash or check payable to the Company. Alternatively, payment of the exercise price may be made, in whole or in part, in shares of Common Stock owned by the Optionee; provided, however, that the Optionee may not make payment in shares of Common Stock that he or she acquired upon the earlier exercise of any ISO, unless he has held the shares until at least two (2) years after the date the ISO was granted and at least one (1) year after the date the ISO was exercised. If payment is made in whole or in part in shares of Common Stock, then the Optionee shall deliver to the Company certificates registered in his name representing a number of shares of Common Stock legally and beneficially owned by him, fully vested and free of all liens, claims and encumbrances of every kind and having a fair market value on the date of delivery that is not greater than the exercise price, such certificates to be duly endorsed, or accompanied by stock powers duly endorsed, by the record holder of the shares presented by such certificates. If the exercise price exceeds the fair market value of the shares for which certificates are delivered, the Optionee shall also deliver cash or a check payable to the order of the Company in an amount equal to the amount of that excess. Options may be exercised by means of a "cashless exercise" procedure in which a broker (i) transmits the option price to the Company in cash or acceptable cash equivalents, either (1) against the Optionee's notice of exercise and the Company's confirmation that it will deliver to the broker stock certificates issued in the name of the broker for at least that number of shares having fair market value equal to the option price, or (2) as the proceeds of a margin loan to the Optionee; or (ii) agrees to pay the option price to the Company in cash or acceptable cash equivalents upon the broker's receipt from the Company of stock certificates issued in the name of the broker for at least that number of shares having fair market value equal to the Option price. The Optionee's written notice of exercise of an Option pursuant to a "cashless 6 exercise" procedure must include the name and address of the broker involved, a clear description of the procedure, and such other information or undertaking by the broker as the Committee shall reasonably require. At the time specified in a Optionee's notice of exercise, which shall not be earlier than the fifteenth (15th) day after the date of the notice except as may be mutually agreed, the Company shall, without issue or transfer tax to the Optionee, deliver to him at the Main Office of the Company, or such other place as shall be mutually acceptable, a certificate for the shares as to which his or her Option is exercised. If the Optionee fails to pay for or to accept delivery of all or any part of the number of shares specified in his or her notice upon tender of delivery thereof, his or her right to exercise the Option with respect to those shares shall be terminated, unless the Company otherwise agrees. 8. REQUIREMENTS OF LAW AND REGULATIONS; GOVERNING LAW (a) The Company shall not be required to sell or issue any shares upon the exercise of any Option if the issuance of such shares will result in a violation by the Optionee or the Company of any provisions of any law, statute or regulation of any governmental authority, and the grant of Options hereunder or the obligation of the Company to issue shares upon the exercise of Options hereunder shall be subject to the obtaining of all approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. Specifically, in connection with the Securities Act of 1933, as amended (the "Securities Act"), the Company shall not be required to issue shares upon the exercise of any Option unless the Board has received evidence satisfactory of it to the effect that the Optionee will not transfer such shares except pursuant to a registration statement in effect under the Securities Act or unless an opinion of counsel satisfactory to the Company has been received by the Company to the effect that such registration is not required. Any determination in this connection by the Board shall be conclusive. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of an Option to comply with any law or regulations of any governmental authority, including, without limitation, the Securities Act or applicable state securities laws. (b) The Plans shall be governed by Massachusetts law, except to the extent that such law is preempted by federal law. 9. CHANGES IN CAPITAL STRUCTURE (a) In the event that the outstanding shares of Common Stock are hereafter changed into or exchanged for a different number or kind of shares or other securities of the Company, by reason of a reorganization, recapitalization, exchange of shares, stock split, combination of shares or dividend payable in shares or other securities, a corresponding adjustment shall be made by the Committee in the number and kind of shares or other securities covered by outstanding Options, and for which Options may be granted under the Plans. Any such adjustment in outstanding Options shall be made without change in the total price applicable to the unexercised portion of the Option, but the 7 price per share specified in each Stock Option Agreement shall be correspondingly adjusted; provided, however, that no adjustment shall be made with respect to an ISO that would constitute a modification as defined in Section 424 of the Code. Any such adjustment made by the Committee shall be conclusive and binding upon all affected persons, including the Company and all Optionees. If while unexercised Options remain outstanding under the Plans the Company merges or consolidates with one or more corporations (whether or not the Company is the surviving corporation), or if the Company is liquidated or sells or otherwise disposes of substantially all of its assets to another entity, then, except as otherwise specifically provided to the contrary in an Optionee's Stock Option Agreement, the Committee, in its discretion, shall amend the terms of all outstanding Options so that either: (i) after the effective date of such merger, consolidation or sale, as the case may be, each Optionee shall be entitled, upon exercise of an Option, to receive in lieu of shares of Common Stock the number and class of shares of such stock or other securities to which he or she would have been entitled pursuant to the terms of the merger, consolidation or sale if he had been the holder of record of the number of shares of Common Stock as to which the Option is being exercised, or shall be entitled to receive from the successor entity a new stock option of comparable value, or (ii) all outstanding Options shall be canceled as of the effective date of any such merger, consolidation, liquidation or sale, provided that each Optionee shall have the right to exercise his or her Option according to its terms during the period of twenty (20) days ending on the day preceding the effective date of such merger, consolidation, liquidation or sale; and in addition to the foregoing, the Committee may in its discretion amend the terms of an Option by canceling some or all of the restrictions on its exercise, to permit its exercise pursuant to this paragraph (ii) to a greater extent than that permitted on its existing terms. All adjustments to ISOs or assumptions of ISOs by any successor corporation shall preserve their status as ISOs. (b) Except as expressly provided to the contrary in this Section 9, the issuance by the Company of shares of stock of any class for cash or property or for services, either upon direct sale or upon the exercise of rights or warrants, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect the number, class or price of shares of Common Stock then subject to outstanding Options. (c) "Change in Control" means (i) a change in control of the Company of a nature that would be required to be reported in response to Item 1 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); 8 (ii) any acquisition of control of the Company by any company within the meaning of 12 U.S.C. ss. 1841(a)(2), the Bank Holding Company Act of 1956, as amended, or by any person within the meaning of 12 U.S.C. ss. 1817(j), the Change in Bank Control Act of 1978, as amended; (iii) individuals who constitute the Board as of June 21, 1996 (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to June 21, 1996 whose election was approved by a vote of at least three-quarters of the directors then comprising the Incumbent Board, or whose nomination for election by the Company's shareholders was approved by the Company's Nominating Committee then serving under the Board, shall be, for purposes of this clause (iii), considered as though he or she was a member of the Incumbent Board but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents; (iv) approval by the shareholders of the Company of a reorganization, merger or consolidation, or the consummation of any such reorganization, merger or consolidation, other than a reorganization, merger or consolidation with respect to which all or substantially all of the individuals and entities who were the beneficial owners, immediately prior to such reorganization, merger or consolidation, of the Voting Interest in the Company beneficially own, directly or indirectly, immediately after such reorganization, merger or consolidation more than eighty percent (80%) of the Voting Interest of the corporation or other entity resulting from such reorganization, merger or consolidation in substantially the same proportions as their respective ownership, immediately prior to such reorganization, merger or consolidation, of the Voting Interest in the Company; (v) approval by the shareholders of the Company of (1) a complete liquidation or dissolution of the Company, or (2) the sale or other disposition of all or substantially all of the assets of the Company, or the occurrence of any such liquidation, dissolution, sale or other disposition, other than, in any case, to a Subsidiary, directly or indirectly, of the Company, or any affiliate; and/or (vi) the solicitation of proxies from shareholders of the Company, by someone other than the current management of the Company and without the approval of the Board, seeking shareholder approval of a plan of reorganization, merger or consolidation of the Company with one or more corporations as a result of which the shareholders' interests in the Company are actually exchanged for or converted into 9 securities not issued by the Company. "Voting Interest" means securities of any class or classes or other ownership interests having general voting power under ordinary circumstances to elect members of a board of directors or trustees of any entity. 10. MISCELLANEOUS (a) Nonassignability of Options. No Option shall be assignable or transferable by the Optionee except by will or by the laws of descent and distribution. During the life of an Optionee, the Option shall be exercisable only by the Optionee. (b) No Rights as Stockholder. An Optionee shall have no rights as a stockholder with respect to any shares covered by an Option until the date of issuance of a certificate to him for the shares. No adjustment shall be made for dividends or other rights for which the record date is earlier than the date the certificate is issued, other than as required or permitted pursuant to Section 9. (c) No Guarantee of Employment or Continuation in Office. The Director Plan shall not give any Eligible Director the right to continue in office as a director or to be nominated for reelection to office as a director, or give the Company the right to require an Eligible Director to continue in office. Neither the Management Plan nor any Stock Option Agreement shall give an employee the right to continue in the employment of the Company or its Subsidiary, or give the Company or its Subsidiary the right to require an employee to continue in employment. (d) Tax Withholding. To the extent required by law, the Company or its Subsidiary shall withhold or cause to be withheld income and other taxes with respect to any income recognized by an Optionee by reason of the exercise of an Option (or the disqualifying disposition of shares acquired by exercise of an ISO), and as a condition to the receipt of any Option the Optionee shall agree that if the amount payable to him by the Company and any Subsidiary in the ordinary course is insufficient to pay such taxes, then he shall upon the request of the Company pay to the Company or its Subsidiary an amount sufficient to satisfy its tax withholding obligations. Without limiting the foregoing, the Committee may in its discretion permit any Optionee's withholding obligation to be paid in whole or in part in the form of shares of Common Stock, by withholding from the shares to be issued or by accepting delivery from the Optionee of shares already owned by him or her. The fair market value of the shares for such purposes shall be determined as set forth in Section 5(b). An Optionee may not make any such payment in the form of shares of Common Stock acquired upon the exercise of an ISO until the shares have been held by him or her for at least two (2) years after the date the ISO was granted and at least one (1) year after the date the ISO was exercised. If payment of withholding taxes is made in whole or in part in shares of Common Stock, the Optionee shall deliver to the Company certificates registered in his name representing shares of Common Stock legally and beneficially owned by him, fully vested and free of all liens, claims and 10 encumbrances of every kind, duly endorsed or accompanied by stock powers duly endorsed by the record holder of the shares represented by such certificates. (e) Use of Proceeds. The proceeds from the sale of shares pursuant to Options shall constitute general funds of the Company. 11. DURATION, AMENDMENT AND TERMINATION OF PLANS The Committee may grant Options under the Management Plan from time to time until the close of business on the day prior to June 1, 2005. Unless earlier terminated by action of the Board of Directors, the Plans shall expire on the day prior to June 1, 2005. The Board of Directors may amend the Plans at any time, and from time to time, subject to any required regulatory approval and to the limitation that, except as provided in Section 9 hereof, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve (12) months before or after the date of adoption of such amendment, where such amendment will: (a) increase the number of shares of Common Stock as to which options may be granted under the Plans; (b) change in substance any provision relating to eligibility to participate in, or price, amount, timing or vesting of awards under the Director Plan; (c) change in substance Section 5 hereof relating to eligibility to participate in awards under the Management Plan; (d) reduce the minimum option price; or (e) increase the maximum term of options provided herein. Except as required to comply with the requirements of the Code or the Employee Retirement Income Security Act of 1974, as amended, no amendment to the provisions of the Director Plan relating to the amount, price and timing of awards under the Director Plan shall be made unless at least six (6) months have elapsed since the adoption of the Director Plan or any subsequent amendment affecting such provisions. Except as provided in Section 9 hereof, rights and obligations under any Option granted before any amendment of the Plans shall not be adversely affected by such amendment, except with the consent of the Optionee. The Plans may be terminated at any time by action of the Board, but any such termination will not terminate Options then outstanding, without the consent of the Optionee. 11 12. EFFECTIVE DATE OF PLANS; STOCKHOLDER APPROVAL The Plans became effective, as Plans of the Bank, on June 1, 1995 and were approved by the Bank's stockholders on May 31, 1995. The Plans were assumed by the Company upon consummation of the reorganization contemplated by an Agreement and Plan of Reorganization between the Company and the Bank on June 21, 1996. No option may be granted under the Plans on or after the tenth anniversary of the effective date of the Plans. 12 EX-10.5 5 EXHIBIT 10.5 SIS BANCORP, INC. DIRECTOR RESTRICTED STOCK PLAN AND MANAGEMENT RESTRICTED STOCK PLAN (Amended and restated as of July 31, 1996) 1. PURPOSE The purpose of the SIS Bancorp, Inc. Director Restricted Stock Plan (the "Director Plan") and Management Restricted Stock Plan (the "Management Plan") (together, the "Plans") is to attract directors and key employees of SIS Bancorp, Inc. (the "Company") and its Subsidiaries (as hereinafter defined) and to encourage them to continue their association with the Company, by providing favorable opportunities for them to participate in the ownership of the Company and in its future growth through the granting of shares of the Company's stock. The term "Subsidiary" as used in the Plans means a corporation, including, without limitation, any banking or thrift institution, of which the Company owns, directly or indirectly through an unbroken chain of ownership, fifty percent (50%) or more of the total combined voting power of all classes of stock. The term "Grantee," as used in the Plans refers to any individual to whom Restricted Stock has been granted. 2. ADMINISTRATION OF THE PLANS The Plans shall be administered by the Compensation Committee (the "Committee") composed of at least three members of the Board of Directors of the Company (the "Board"), and may include those members serving at any time and from time to time as the Compensation Committee of the Board; provided, however, that during the period of one year immediately preceding any action by the Committee under the Plans, no member of the Committee may have been granted an option, or stock, or stock appreciation right or similar right under any plan of the Company under which any person exercises discretion to determine the recipients or terms or conditions of such grants. In the event that a vacancy occurs on account of the resignation of a member or the removal of a member by vote of the Board, a successor member shall be appointed by vote of the Board. The Committee shall from time to time determine to whom stock shall be granted under the Management Plan, and the number of shares which may be granted, and the terms upon and restrictions under which such shares shall be granted. The Committee shall report to the Board the names of individuals to whom shares of stock are to be granted, the number of shares covered and the terms and conditions of each grant. The Committee shall select one of its members as Chairman and shall hold meetings at such times and places as it may determine. A majority of the Committee shall constitute a quorum, and acts of the Committee at which a quorum is present, or acts reduced to or approved in writing by all the members of the Committee, shall be the valid acts of the Committee. The Committee shall have the authority to adopt, amend and rescind such rules and regulations, as in its opinion, may be advisable in the administration of the Plans. All questions of interpretation and application of such rules and regulations, of the Plans and of the Common Stock transferred subject to restrictions under the Plans ("Restricted Stock") shall be subject to the determination of the Committee, which shall be final and binding. Notwithstanding the foregoing, the Committee shall have no discretionary or interpretative power or authority with respect to any award under the Director Plan which would cause any non-employee director to fail to be a "disinterested person" as defined in Rule 16b-3 of the Securities Exchange Commission, as in effect prior to August 15, 1996. All decisions and determinations by the Committee in the exercise of its power shall be final and binding upon the Company and Grantees. 3. STOCK SUBJECT TO THE PLANS (a) Director Plan. The total number of shares of stock which may be subject to the grant under the Director Plan shall be 55,625 of the Company's common stock, $.01 par value per share (the "Common Stock"), provided that the number of shares stated in this sentence shall be subject to adjustment in accordance with the provisions of Section 10(a). Shares of Restricted Stock granted under the Director Plan that fail to vest shall again become available for grant under the terms of the Director Plan. (b) Management Plan. The total number of shares of stock which may be subject to grant under the Management Plan shall be 166,875 shares of the Company's Common Stock and the total number of shares that may be so granted to any single employee under the Management Plan shall not exceed an aggregate of fifty-percent (50%) of the allocated shares of Common Stock, provided that the number of shares stated in this sentence shall be subject to adjustment in accordance with the provisions of Section 10(a). Shares of Restricted Stock granted under the Management Plan that fail to vest shall again become available for grant under the terms of the Management Plan. The shares of Common Stock which may be subject to Restricted Stock grants under the Plans may be authorized but unissued shares or treasury shares. 4. DIRECTOR PLAN Restricted Stock shall be granted under the Director Plan only to members of the Board who are not officers or full-time employees of the Company or any of its Subsidiaries (each, an "Eligible Director"). (a) Amount of Award. An aggregate of 32,100 shares of Restricted Stock have been granted by the Company's predecessor in interest under the Plans, Springfield Institution for Savings (the "Bank") to eligible members of the Board of Directors of the Bank. Each Eligible Director who is first elected to serve after June 21, 1996 shall be granted 2,200 shares of Restricted Stock 2 on the day following his or her election to office. In the event the aggregate number of shares of Common Stock authorized to be awarded under this Section 4 is insufficient to make such awards in full, each Eligible Director shall be awarded a pro-rata portion of the available shares as Restricted Stock. (b) Limitations on Awards. Notwithstanding the foregoing provisions of this Section 4, no Eligible Director shall be eligible to receive any grant of Restricted Stock under this Section 4, if at the date of the grant such person beneficially owns in excess of ten percent (10%) of the outstanding Common Stock of the Company. No Eligible Director shall receive any award under the Plans except as provided under this Section 4. (c) Vesting of Restricted Stock. An Eligible Director shall be vested in the shares of Restricted Stock awarded to him or her pursuant to the Director Plan in accordance with the following schedule: (i) Upon Completion of the following period of service as a Director of the Company and/or the Bank from the date of grant of Restricted Stock: Vested Portion -------------------------- Incremental Cumulative Date Amount Amount - ---- -------- ------- On or after First Anniversary.................... 20% 20% On or after Second Anniversary................... 20% 40% On or after Third Anniversary.................... 20% 60% On or after Fourth Anniversary................... 20% 80% On or after Fifth Anniversary.................... 20% 100% Notwithstanding the foregoing schedule, in the event of an Eligible Director's retirement on account of attainment of maximum age, permanent disability or death, all Restricted Stock then outstanding shall become immediately fully vested. (ii) In the event of a Change of Control of the Company (as defined in Section 10(b) below), all Restricted Stock outstanding as of the date of such Change in Control shall become immediately fully vested. 5. MANAGEMENT PLAN: ELIGIBILITY FOR DISCRETIONARY AWARDS; TERMS AND CONDITIONS OF AWARDS The individuals who shall be eligible for grants of Restricted Stock under the Management Plan shall be key employees who have contributed or may be expected to contribute materially to the success of the Company or a Subsidiary. The Committee may grant or award shares of Restricted Stock in respect of such number of shares of Common Stock, and subject to such terms or conditions (including, without limitation, conditioning the vesting of the 3 Restricted Stock in the Grantee upon satisfaction of specified performance goals or completion of a period of employment with the Company or its Subsidiaries), as it shall determine and specify in a Restricted Stock Agreement. A holder of Restricted Stock shall have all the rights of a stockholder of the Company, including the right to vote the shares and the right to receive any cash dividends, unless the Committee shall otherwise determine. Certificates representing Restricted Stock shall be imprinted with a legend to the effect that the shares represented may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of except in accordance with the terms of the Restricted Stock Agreement, and if the Committee so determines, the Grantee may be required to deposit the certificates with an escrow agent designated by the Committee, together with the stock power or other instrument of transfer appropriately endorsed in blank. 6. MANAGEMENT PLAN: METHOD OF GRANTING RESTRICTED STOCK The grant of Restricted Stock shall be made by action of the Board at a meeting at which a quorum of its members is present, or by unanimous written consent of all its members; provided, however, that if an individual to whom a grant has been made fails to execute and deliver to the Committee a Restricted Stock Agreement within ten (10) days after it is submitted to him or her, the Restricted Stock granted under the agreement shall be voidable by the Company at its election, without further notice to the Grantee. 7. REQUIREMENTS OF LAW AND REGULATIONS; GOVERNING LAW (a) The Company shall not be required to transfer any Restricted Stock if the issuance of such shares will result in a violation by the Grantee or the Company of any provisions of any law, statute or regulation of any governmental authority, and the obligation of the Company to issue Restricted Stock hereunder shall be subject to the obtaining of all approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. Specifically, in connection with the Securities Act of 1933, as amended (the "Securities Act"), upon the grant of a Restricted Stock award the Company shall not be required to issue shares unless the Board has received evidence satisfactory to it to the effect that the Grantee will not transfer such shares except pursuant to a registration statement in effect under the Securities Act or unless an opinion of counsel satisfactory to the Company has been received by the Company to the effect that such registration is not required. Any determination in this connection by the Board shall be conclusive. The Company shall not be obligated to take any other affirmative action in order to cause the transfer of Restricted Stock to comply with any law or regulations of any governmental authority, including, without limitation, the Securities Act or applicable state securities laws. (b) The Plans shall be governed by Massachusetts law, except to the extent that such law is preempted by federal law. 4 8. MISCELLANEOUS (a) No Guarantee of Continuation in Office or Employment. The Director Plan shall not give any Eligible Director the right to continue in office as a director or to be nominated for reelection to office as a director, or give the Company the right to require an Eligible Director to continue in office. Neither the Management Plan nor any Restricted Stock Agreement shall give an employee the right to continue in the employment of the Company or any of its Subsidiaries, or give the Company or its Subsidiary the right to require an employee to continue in employment. (b) Tax Withholding. To the extent required by law, the Company or its Subsidiary shall withhold or cause to be withheld income and other taxes with respect to any income recognized by a Grantee by reason of the grant or vesting of Restricted Stock, and as a condition to the receipt of any Restricted Stock the Grantee shall agree that if the amount payable to him or her by the Company and its Subsidiary in the ordinary course is insufficient to pay such taxes, then he or she shall upon the request of the Company pay to the Company or its Subsidiary an amount sufficient to satisfy its tax withholding obligations. Without limiting the foregoing, the Committee may in its discretion permit any Grantee's withholding obligation to be paid in whole or in part in the form of shares of Common Stock, by withholding from the shares to be issued or by accepting delivery from the Grantee of shares already owned by him. The fair market value of the shares for such purposes shall be determined as set forth in Section 10(c). A Grantee may not make any such payment in the form of shares of Common Stock acquired upon the exercise of an incentive stock option (an "ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") until the shares have been held by him or her for at least two (2) years after the date the ISO was granted and at least one (1) year after the date the ISO was exercised. If payment of the withholding taxes is made in whole or in part in shares of Common Stock, the Grantee shall deliver to the Company certificates registered in his or her name representing shares of Common Stock legally and beneficially owned by him, fully vested and free of all liens, claims and encumbrances of every kind, duly endorsed or accompanied by stock powers duly endorsed by the record holder of the shares represented by such certificates. 9. DURATION, AMENDMENT AND TERMINATION OF PLANS The Committee may grant Restricted Stock under the Management Plan from time to time until the close of business on the day prior to June 1, 2005. Unless earlier terminated by action of the Board of Directors, the Plans shall expire on the day prior to June 1, 2005. The Board of Directors may amend the Plans at any time, and from time to time, subject to any required regulatory approval and to the limitation that no amendment shall be effective unless approved by the stockholders of the 5 Company in accordance with applicable law and regulations at an annual or special meeting held within twelve months before or after the date of adoption of such amendment, where such amendment will: (a) increase the number of shares of Common Stock as to which Restricted Stock grants may be made under the Plans; (b) change in substance any provision relating to eligibility to participate in, or price, amount, timing or vesting of awards under the Director Plan; or (c) change in substance Section 5 hereof relating to eligibility to participate in awards under the Management Plan. Except as required to comply with the requirements of the Code or the Employee Retirement Income Security Act of 1974, as amended, no amendment to the provisions of the Director Plan relating to the amount, price and timing of awards under the Director Plan shall be made unless at least six months have elapsed since the adoption of the Director Plan or any subsequent amendment affecting such provisions. The Plans may be amended or terminated at any time by action of the Board, but any such amendment or termination will not adversely affect Restricted Stock then outstanding, without the consent of the Grantee. 10. CHANGE IN CAPITAL STRUCTURE; CHANGE IN CONTROL; DETERMINATION OF FAIR MARKET VALUE (a) In the event that the outstanding shares of Common Stock are hereafter changed into or exchanged for a different number or kind of shares or other securities of the Company, by reason of reorganization, recapitalization, exchange of shares, stock split, combination of shares or dividend payable in shares or other securities, a corresponding adjustment shall be made by the Committee in the number and kind of shares of outstanding Restricted Stock and for which Restricted Stock may be granted under the Plans. Any such adjustment made by the Committee shall be conclusive and binding upon all affected persons, including the Company and all Grantees. (b) "Change in Control" means (i) a change in control of the Company of a nature that would be required to be reported in response to Item 1 of the current report Form 8-K as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); (ii) any acquisition of control of the Company by any company within the meaning of 12 U.S.C. ss. 1841(a)(2), the Bank Holding Company Act of 1956, as amended, or by any person within the meaning of 12 U.S.C. ss. 1817(j), the Change in Bank Control Act of 1978, as amended; 6 (iii) individuals who constitute the Board as of June 21, 1996 (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to June 21, 1996 whose election was approved by a vote of at least three-quarters of the directors then comprising the Incumbent Board, or whose nomination for election by the Company's shareholders was approved by the Company's Nominating Committee then serving under the Board, shall be, for purposes of this clause (iii), considered as though he or she was a member of the Incumbent Board but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents; (iv) approval by the shareholders of the Company of a reorganization, merger or consolidation, or the consummation of any such reorganization, merger or consolidation, other than a reorganization, merger or consolidation with respect to which all or substantially all of the individuals and entities who were the beneficial owners, immediately prior to such reorganization, merger or consolidation, of the Voting Interest in the Company beneficially own, directly or indirectly, immediately after such reorganization, merger or consolidation more than eighty percent (80%) of the Voting Interest of the Company or other entity resulting from such reorganization, merger or consolidation in substantially the same proportions as their respective ownership, immediately prior to such reorganization, merger or consolidation, of the Voting Interest in the Company; (v) approval by the shareholders of the Company of (1) a complete liquidation or dissolution of the Company, or (2) the sale or other disposition of all or substantially all of the assets of the Company, or the occurrence of any such liquidation, dissolution, sale or other disposition, other than, in any case, to a Subsidiary, directly or indirectly, of the Company, or any affiliate; and/or (vi) the solicitation of proxies from shareholders of the Company, by someone other than the current Management of the Company and without the approval of the Board, seeking shareholder approval of a plan of reorganization, merger or consolidation of the Company with one or more corporations as a result of which the shareholders' interest in the Company are actually exchanged for or converted into securities not issued by the Company. "Voting Interest" means securities of any class or classes or other ownership interests having general voting power under ordinary circumstances to elect members of the board of directors or trustees of any entity. 7 (c) For purposes of the Plans, except as may be otherwise explicitly provided in the Plans or in any Restricted Stock Agreement or similar document, the "fair market value" of a share of Common Stock at any particular date shall be determined according to the following rules: (i) if the Common Stock is at the time listed or admitted to trading on any stock exchange or NASDAQ, then the fair market value shall be the reported closing price of the Common Stock on such date on the principal exchange or NASDAQ, as the case may be; or (ii) if the Common Stock is not at the time listed or admitted to trading on a stock exchange or NASDAQ, the fair market value shall be the closing price of the Common Stock on the date in question in the over-the-counter market, as such price is reported in a publication of general circulation selected by the Board and regularly reporting the price of the Common Stock in such market; provided, however, that if the price of the Common Stock is not so reported, the fair market value shall be determined in good faith by the Board, which may take into consideration (1) the price paid for the Common Stock in the most recent trade of a substantial number of shares known to the Board to have occurred at arm's length between willing and knowledgeable investors, or (2) an appraisal by an independent party, or (3) any other method of valuation undertaken in good faith by the Board, or some or all of the above as the Board shall in its discretion elect. 11. EFFECTIVE DATE OF PLANS; STOCKHOLDER APPROVAL The Plans became effective, as Plans of the Bank, on June 1, 1995 and were approved by the Bank's stockholders on May 31, 1995. The Plans were assumed by the Company upon consummation of the reorganization contemplated by an Agreement and Plan of Reorganization between the Company and the Bank on June 21, 1996. No Restricted Stock may be granted under the Plans on or after the tenth anniversary of the effective date of the Plans. 8 EX-11 6 EXHIBIT 11
SIS BANCORP, INC. AND SUBSIDIARIES COMPUTATION OF PRO FORMA PRIMARY AND FULLY DILUTED EARNINGS PER SHARE (In Thousands Except Per Share Amounts) Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- Primary: Net income $ 3,044 $ 1,281 $ 5,449 $ 2,070 Weighted average and pro forma weighted average shares outstanding during the period 5,574 5,562 5,568 5,562 Unearned ESOP shares (390) (445) (390) (445) Stock options considered outstanding during the period 105 - 105 - Restricted stock shares considered outstanding during the period 146 - 149 - ------- ------- ------- ------- Total shares 5,435 5,117 5,432 5,117 ======= ======= ======= ======= Net income per share $ 0.56 $ 0.25 $ 1.00 $ 0.40 ======= ======= ======= ======= Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 1996 1995 1996 1995 ---- ---- ---- ---- Fully Diluted: Net income $ 3,044 $ 1,281 $ 5,449 $ 2,070 Weighted average and pro forma weighted average shares outstanding during the period 5,574 5,562 5,568 5,562 Unearned ESOP shares (390) (445) (390) (445) Stock options considered outstanding during the period 120 9 119 5 Restricted stock shares considered outstanding during the period 146 4 149 2 ------- ------- ------- ------- Total shares 5,450 5,130 5,446 5,124 ======= ======= ======= ======= Net income per share $ 0.56 $ 0.25 $ 1.00 $ 0.40 ======= ======= ======= =======
Net income per shares for the three and six months ended June 30, 1996 and the three months ended June 30, 1995 is computed on weighted shares outstanding for the period. Net income per share for the six months ended June 30, 1995 is computed on a pro forma basis as if the stock issued in the conversion had been issued as of the beginning of the period presented. This computation includes the impact of the Restricted Stock Plan ("RSP") and the Stock Option Plan which were approved by stockholders at the Annual Meeting of the Stockholders held on May 31, 1995. EX-27 7
9 This schedule contains summary financial information extracted from the unaudited financial statements of SIS Bancorp. Inc. for the six months ended June 30, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 35,931 45 10,000 0 337,444 193,197 192,728 578,635 14,913 1,209,843 927,298 165,893 26,630 3,026 0 0 57 86,939 1,209,843 23,474 15,511 259 39,244 16,068 19,216 20,028 1,450 2 6,771 5,939 5,939 0 0 5,449 1.00 1.00 7.45 8,872 296 891 14,965 14,986 3,021 1,498 14,913 14,913 0 0
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