UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{ X } Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended March 31, 2002 or
{ } Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition period from___________
To ___________
Commission File Number: 0-23605
CAVALRY BANCORP, INC.
---------------------
(exact name of registrant as specified in its charter)
Tennessee 62-1721072
--------------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) I.D. Number)
114 West College Street, Murfreesboro, Tennessee 37130
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(615) 893-1234
---------------------
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13or 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 has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Issued and Outstanding: 6,973,624 as of May 10, 2002.
CAVALRY BANCORP, INC.
Table of Contents
Part I Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 2002 (unaudited)
and December 31, 2001 1
Consolidated Statements of Income (unaudited) for the Three Months
Ended March 31, 2002 and 2001 2
Consolidated Statements of Comprehensive Income (unaudited) for the
Three Months Ended March 31, 2002 and 2001 3
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 2002 and 2001 4
Notes to Consolidated Financial Statements (unaudited) 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
Part II Other Information 11-12
Signatures 13
Part I. Financial Information
ITEM 1. FINANCIAL STATEMENTS
CAVALRY BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 (UNAUDITED) AND DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
ASSETS March 31, 2002 December 31, 2001
- --------------------------------------------------------------------------- ---------------- -------------------
(Unaudited)
Cash and due from banks $ 16,148 $ 23,596
Interest-bearing deposits with other financial institutions 273 393
Federal funds sold 39,642 45,292
---------------- -------------------
Cash and cash equivalents 56,063 69,281
Investment securities available-for-sale at fair value (amortized cost:
$33,775 and $41,571 at March 31, 2002 and December 31, 2001, respectively) 33,781 41,808
Investment securities held to maturity - at amortized cost (fair value:
$617 and $632 at March 31, 2002 and December 31, 2001, respectively) 621 637
Federal Home Loan Bank of Cincinnati and
Federal Reserve Bank stock - at cost 3,423 2,159
Loans held for sale, at estimated fair value 10,936 10,423
Loans receivable, net of allowances for loan losses of $4,570 in 2002 and
$4,470 in 2001 284,850 280,239
Accrued interest receivable 2,026 2,139
Office properties and equipment, net 17,286 15,554
Bank owned life insurance 7,532 7,500
Foreclosed assets, net 225 184
Goodwill 1,741 -
Other assets 2,489 2,950
---------------- -------------------
Total assets $ 420,973 $ 432,874
================ ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------
Liabilities:
Deposits:
Interest-bearing $ 323,397 $ 332,688
Non-interest-bearing 44,862 48,302
---------------- -------------------
Total deposits 368,259 380,990
Advances from Federal Home Loan Bank of Cincinnati 984 998
Accrued expenses and other liabilities 3,197 2,080
---------------- -------------------
Total liabilities 372,440 384,068
---------------- -------------------
Shareholders' equity:
Preferred stock, no par value
Authorized- 250,000 shares; none issued or outstanding at
March 31, 2002 and December 31, 2001 - -
Common stock, no par value
Authorized- 49,750,000 shares; issued and outstanding
6,989,120 and 7,079,801 at March 31, 2002
and December 31, 2001, respectively 10,649 11,683
Retained earnings 41,462 40,700
Unallocated ESOP Shares (3,582) (3,723)
Accumulated other comprehensive income, net of tax 4 146
---------------- -------------------
Total shareholders' equity 48,533 48,806
---------------- -------------------
Total liabilities and shareholders' equity $ 420,973 $ 432,874
================ ===================
<FN>
Note: The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date
but does not include all of the information and footnotes required by generally accepted accounting principles for
complete financial statements.
See accompanying notes to consolidated financial statements.
1
CAVALRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31,
2002 2001
---------- ----------
Interest and dividend income:
Loans $ 5,226 $ 6,492
Investment securities 520 584
Other 172 424
---------- ----------
Total interest and dividend income 5,918 7,500
---------- ----------
Interest expense - deposits 1,924 3,628
Interest expense - borrowings 5 14
---------- ----------
Total interest expense 1,929 3,642
---------- ----------
Net interest income 3,989 3,858
Provision for loan losses 109 103
---------- ----------
Net interest income after provision
for loan losses 3,880 3,755
---------- ----------
Non-interest income:
Servicing income 69 75
Gain on sale of loans, net 569 403
Deposit servicing fees and charges 879 822
Trust service fees 256 293
Other operating income 698 169
---------- ----------
Total non-interest income 2,471 1,762
---------- ----------
Non-interest expenses:
Salaries and employee benefits 2,792 2,345
Occupancy expense 270 239
Supplies, communications and other
office expenses 259 229
Federal insurance premiums 16 16
Advertising expense 87 96
Equipment and service bureau expense 624 552
Other operating expense 456 379
---------- ----------
Total non-interest expenses 4,504 3,856
---------- ----------
Income before income taxes 1,847 1,661
Income tax expense 778 704
---------- ----------
Net income $ 1,069 $ 957
========== ==========
Basic earnings per share $ 0.16 $ 0.15
========== ==========
Diluted earnings per share $ 0.16 $ 0.15
========== ==========
Weighted average shares outstanding -Basic 6,495,260 6,444,654
========== ==========
Weighted average shares outstanding -Diluted 6,643,655 6,458,994
========== ==========
Dividends declared $0.05 per share payable April 12, 2002 for shareholders of
record date March 31, 2002.
See accompanying notes to consolidated financial statements.
2
CAVALRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Ended
March 31,
2002 2001
---- ----
Net income $1,069 $ 957
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities
available-for-sale (142) 124
------- ------
Comprehensive income $ 927 $1,081
======= ======
See accompanying notes to consolidated financial statements.
3
CAVALRY BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(DOLLARS IN THOUSANDS)
(UNAUDITED)
2002 2001
--------- ---------
Operating activities:
Net cash provided (used) by operating activities $ 3,259 ($4,751)
--------- ---------
Investing activities:
Decrease ( increase) in loans receivable, net (4,842) 1,191
Principal payments on investment securities 742 11
Purchase of investment securities
available for sale - (14,496)
Purchase of Federal Reserve Stock (1,240) -
Proceeds from maturities of investment securities 7,000 6,350
Purchase of office properties and equipment (2,052) (553)
Proceeds from sale of real estate acquired
through foreclosure 81 -
Cash paid in acquisition of Miller & Loughry (1,964) -
--------- ---------
Net cash used in investing activities (2,275) (7,497)
--------- ---------
Financing activities:
Net increase (decrease) in deposits (12,731) 23,170
Retirement of common stock (1,150) -
Dividends paid (307) (310)
Net decrease in borrowings (14) (539)
--------- ---------
Net cash provided by (used in)
financing activities (14,202) 22,321
--------- ---------
Increase (decrease) in cash and cash equivalents (13,218) 10,073
Cash and equivalents, beginning of period 69,281 45,025
--------- ---------
Cash and cash equivalents, end of period $ 56,063 $ 55,098
========= =========
SUPPLEMENT DISCLOSURES OF CASH
FLOW INFORMATION:
Payments during the period for:
Interest $ 1,870 $ 3,553
========= =========
Income taxes $ - $ -
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Increase (decrease) in deferred tax asset related
to unrealized loss on investments $ 89 $ (77)
========= =========
Net unrealized gain (losses) on investment
securities available for sale $ (231) $ 201
========= =========
Dividends declared and payable $ 307 $ 310
========= =========
See accompanying notes to consolidated financial statements.
4
CAVALRY BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Cavalry Bancorp, Inc. (the "Company"), a Tennessee corporation, is the holding
company for Cavalry Banking (the "Bank") which is a state chartered Federal
Reserve member commercial bank. Miller & Loughry Insurance and Services, Inc.
("Miller & Loughry"), an independent insurance agency, is a wholly-owned
subsidiary of the Bank.
The unaudited consolidated financial statements include the accounts of Miller &
Loughry, the Bank and the Company. All material intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying consolidated financial statements of the Company have been
prepared in accordance with Instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. However, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of operations for the three months ended March 31, 2002, are not
necessarily indicative of the results to be expected for the year ending
December 31, 2002. The consolidated financial statements and notes thereto
should be read in conjunction with the audited consolidated financial statements
and notes thereto for the year ended December 31, 2001.
2. Acquisitions
On January 4, 2002, Cavalry Banking, a wholly owned subsidiary of Cavalry
Bancorp, Inc., completed the acquisition of 100% of the capital stock issued and
outstanding of Miller & Loughry Insurances and Services, Inc., for a cash
purchase price of approximately $2.0 million.
Due to the insignificant effect on the financial position and results of
operations, no pro-forma data of this acquisition is required or presented.
3. Earnings Per Share
The following schedule reconciles the numerators and denominators of the basic
and diluted earnings per share ("EPS") computations for the three months ended
March 31, 2002 and 2001. Diluted common shares arise from the potentially
dilutive effect of the Company's stock options outstanding.
Quarter Ended March 31
----------------------
2002 2001
---------- ----------
Basic EPS:
Net income $1,069,000 $ 957,000
Average common shares outstanding 6,495,260 6,444,654
---------- ----------
Earnings per share - basic $ 0.16 $ 0.15
========== ==========
Diluted EPS:
Net income $1,069,000 $ 957,000
---------- ----------
Average common shares outstanding 6,495,260 6,444,654
Dilutive effect of stock options 148,395 14,340
---------- ----------
Average dilutive shares outstanding 6,643,655 6,458,994
---------- ----------
Earnings per share - diluted $ 0.16 $ 0.15
========== ==========
5
4. Business Segments
The Company and its subsidiary provide community oriented banking services to
individuals and businesses primarily within Rutherford and Bedford counties in
Middle Tennessee.
The Company's segments are identified by the products and services offered,
principally distinguished as banking, trust, insurance, and mortgage banking
operations. The majority of loans originated for sale are sold with the
servicing rights attached.
Segment information is derived from the internal reporting system utilized by
management with accounting policies and procedures consistent with those
described in Note 1 of the 2001 Annual Report to Shareholders. Segment
performance is evaluated by the Company based on profit or loss before income
taxes. Revenue, expense, and asset levels reflect those which can be
specifically identified and those assigned based on internally developed
allocation methods. These methods have been consistently applied.
Mortgage
For the quarter ended Banking Banking Trust Insurance Eliminations Consolidated
March 31, 2002:
Interest revenue $ 5,918 $ - $ - $ - $ - $ 5,918
Other income-external customers 1,123 69 256 454 - 1,902
Interest expense 1,929 - - - - 1,929
Depreciation and amortization 246 44 11 9 - 310
Other significant items:
Provision for loan losses 109 - - - - 109
Gain on sales of assets - 569 - - - 569
Segment profit (loss) 1,724 (5) 73 76 (21) 1,847
Segment assets 409,343 11,047 332 2,722 (2,471) 420,973
Mortgage
For the quarter ended Banking Banking Trust Consolidated
March 31, 2001:
Interest revenue $ 7,500 $ - $ - $ 7,500
Other income-external customers 991 75 293 1,359
Interest expense 3,642 - - 3,642
Depreciation and amortization 224 41 8 273
Other significant items:
Provision for loan losses 103 - - 103
Gain on sale of assets - 403 - 403
Segment profit (loss) 1,593 (6) 74 1,661
Segment assets 396,860 11,490 383 408,733
5. New Accounting Standards Pronouncements
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," was issued in September 2000. This statement
replaces SFAS No. 125, and requires certain disclosures, but carries over most
of the provisions of SFAS No. 125. SFAS 140 was effective for transfers and
servicing of financial assets and extinguishments of liabilities of the Company
occurring after March 31, 2001 and did not have a material impact on the
Company's financial statements.
SFAS No. 141, "Business Combinations" issued on June 29, 2001 requires business
combinations entered into after June 30, 2001 to be accounted for using the
purchase method of accounting. Specifically identifiable intangible assets
acquired, other than goodwill, will be amortized over their estimated useful
economic life. This pronouncement had no material effect on the Company's
financial statements.
6
SFAS No. 142, "Goodwill and Other Intangible Assets," issued on June 29, 2001,
addresses how intangible assets that are acquired individually or with a group
of other assets should be accounted for in financial statements upon their
acquisition. This statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. This statement results in the end to systematic goodwill
and other intangible amortization and requires impairment testing on those
balances at least annually or if circumstances arise that suggest that
impairment may be an issue. SFAS No. 142 was effective for the Company
beginning on January 1, 2002 and is applicable to all goodwill and other
intangible assets regardless of when those assets were initially recognized.
6. Deferred Compensation and Retirement Plans
The Company has entered into separate deferred compensation arrangements
with the Board of Directors and certain senior officers. The plans call for
certain amounts payable at retirement, death or disability. The estimated
present value of the deferred compensation will be accrued over the remaining
expected term of active employment. The Bank has purchased life insurance
policies that it intends to use to finance this liability. Since these
agreements were adopted in May of 2002 there was no liability accrued during the
first quarter of 2002.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Private Securities Litigation Reform Act Safe Harbor Statement
This Quarterly Report contains forward-looking statements within the meaning of
the federal securities laws. These statements are not historical facts, rather
statements based on the Company's current expectations regarding its business
strategies and their intended results and its future performance.
Forward-looking statements are preceded by terms such as "expects," "believes,"
"anticipates," "intends," and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous
risks and uncertainties could cause the Company's actual results, performance,
and achievements to be materially different from those expressed or implied by
the forward-looking statements. Factors that may cause or contribute to these
differences include, without limitation, general economic conditions, including
changes in market interest rates and changes in monetary and fiscal policies of
the federal government; legislative and regulatory changes; and other factors
disclosed periodically in the Company's filings with the Securities and Exchange
Commission.
Because of the risks and uncertainties inherent in forward-looking statements,
readers are cautioned not to place undue reliance on them, whether included in
this report or made elsewhere from time to time by the Company or on its behalf.
The Company assumes no obligation to update any forward-looking statements.
Comparison of Financial Condition at March 31, 2002 and December 31, 2001
Total assets were $421.0 million at March 31, 2002, compared to $432.9 million
at December 31, 2001, a decrease of $11.9 million or 2.75%. This decline was
primarily a result of a decline in total deposits. As a result of the decline
in deposits, cash and cash equivalents decreased from $69.3 million at December
31, 2001, to $56.1 million at March 31, 2002. Investment securities
available-for-sale decreased from $41.8 million at December 31, 2001, to $33.8
million at March 31, 2002 as a result of maturing securities being used to fund
increases in office properties and equipment. Loans receivable net increased
$4.7 million from $280.2 million at December 31, 2001, to $284.9 million at
March 31, 2002. Office properties and equipment increased from $15.6 million at
December 31, 2001 to $17.3 million at March 31, 2002. This increase was a
result of the purchase of land for a future branch location, completion of the
first floor of the Financial Services Building, and purchase of computers and
banking equipment. The first floor of the Financial Services Building now
houses Miller and Loughry, the Investment Management and Trust Department and
Cavalry Investment services. The computer and equipment purchases were in
anticipation of the upcoming computer system conversion. The Bank has entered
into an agreement to change computer service bureaus from BISYS Group, Inc. to
FISERV, Inc. This conversion will take place in the second quarter of this
year. In the quarter ended March 31, 2002, the Company completed the purchase
of Miller & Loughry, an independent insurance agency, for $2.0 million. The
increase in goodwill was a result of the purchase of Miller & Loughry.
Deposit accounts decreased $12.7 million from $381.0 million at December 31,
2001, to $368.3 million at March 31, 2002. Certificates of deposit increased
$400,000 from $145.6 million at December 31, 2001 to $146.0 million at March 31,
2002. Savings deposits increased $1.2 million from $13.9 million at December
31, 2001 to $15.1 million at March 31, 2002. Money market accounts increased
$300,000 from $91.6 million at December 31, 2001 to $91.9 million at March 31,
2002. NOW accounts declined $11.3 million from $81.6 million at December 31,
2001 to $70.3 million at March 31, 2002. Transaction accounts decreased $3.4
million from $48.3 million at December 31, 2001 to $44.9 million at March 31,
2002. Management feels that these declines are temporary, and will continue to
market deposit relationships.
7
Stockholders' equity decreased by $300,000 from $48.8 million at December 31,
2001, to $48.5 million at March 31, 2002. This decline was a result of the
repurchase and retirement of $1.2 million in Company common stock, a decrease in
unrealized gains on available-for-sale securities of $142,000, net of taxes, and
dividends of $307,000. These decreases were partially offset by net income of
$1.1 million for the three months ended March 31, 2002, and the release of ESOP
shares of $257,000.
Non-performing assets were $394,000 at December 31, 2001 and $596,000 at March
31, 2002.
Comparison of Operating Results for the Three Months Ended March 31, 2002 and
March 31, 2001.
Net Income. Net income was $1.1 million for the three months ended March 31,
2002 compared to $957,000 for the three months ended March 31, 2001. Return on
average assets increased from 1.01% for the three months ended March 31, 2001,
to 1.04% for the same period in 2002. Return on average equity also increased
from 8.78% for the three months ended March 31, 2001, to 9.00% for the same
period in 2002. Earnings per share increased from $0.15 per diluted share for
the three months ended March 31, 2001, to $0.16 per diluted share for the same
period in 2002. This increase was primarily a result of higher net interest
income and higher non-interest income. These increases were partially offset by
higher non-interest expenses and a larger provision for loan losses.
Net Interest Income. Net interest income increased $100,000 from $3.9 million
for the three months ended March 31, 2001, to $4.0 million for the same period
in 2002. Interest rate spread increased from 3.78% for the three months ended
March 31, 2001, to 4.18% for the same period in 2002. Net interest margin
decreased slightly from 4.45% for the three months ended March 31, 2001, to
4.44% for the same period in 2002. The ratio of average interest-earning
assets to average interest-bearing liabilities decreased from 116.15% for the
three months ended March 31, 2001, to 111.75% for the same period in 2002.
Interest income decreased 21.3% to $5.9 million for the three months ended March
31, 2002, from $7.5 million for the same period in 2001. Interest on loans
decreased from $6.5 million for the three months ended March 31, 2001, to $5.2
million for the same period in 2002. Average loans outstanding decreased from
$283.4 million for the three months ended March 31, 2001, to $281.8 million for
the same period in 2002. The average yield decreased from 9.29% for the three
months ended March 31, 2001, to 7.52% for the same period in 2002, as a result
of declining interest rates. Income on all other investments consisting of
mortgage backed securities, other investments, Federal Home Loan Bank and
Federal Reserve Bank stock, bank deposits and federal funds decreased from $1.0
million for the three months ended March 31, 2001, to $692,000 for the same
period in 2002. Average investments increased from $67.8 million for the three
months ended March 31, 2001, to $82.8 million for the same period in 2002. The
average yield decreased from 6.03% for the three months ended March 31, 2001, to
3.39% for the same period in 2002.
Interest expense decreased from $3.6 million for the three months ended March
31, 2001, to $1.9 million for the same period in 2002. Average interest-bearing
deposits increased from $300.9 million for the three months ended March 31,
2001, to $325.3 million for the same period in 2002. This increase was a result
of continuing efforts to increase market share of deposits. The average cost of
deposits decreased from 4.89% for the three months ended March 31, 2001, to
2.40% for the same period in 2002. Average borrowings decreased from $1.5
million at an average cost of 3.70% for the three months ended March 31, 2001 to
$989,000 at an average cost of 2.05% for the same period in 2002. The total
cost of funds decreased from 4.88% for the three months ended March 31, 2001, to
2.40% for the same period in 2002. Average interest-bearing liabilities
increased from $302.4 million for the three months ended March 31, 2001, to
$326.3 million for the same period in 2002.
Provision for Loan Losses. Provision for loan losses are charges to earnings to
bring the total allowance for loan losses to a level considered by management as
adequate to provide for estimated loan losses based on management's evaluation
of the collectibility of the loan portfolio, including the nature of the
portfolio, credit concentrations, trends in historical loss experience, specific
impaired loans and economic conditions. Management also considers the level of
problem assets, giving greater weight to the level of classified assets than to
the level of nonperforming assets because classified assets include not only
nonperforming assets but also performing assets that otherwise exhibit, in
management's judgment, potential credit weaknesses.
8
The provision for loan losses increased from $103,000 for the three months ended
March 31, 2001 to $109,000 for the same period in 2002. The increase in the
provision was primarily a result of increases in total loans outstanding between
the two periods. Management deemed the allowance for loan losses adequate at
March 31, 2002.
Non-interest Income. Non-interest income increased from $1.8 million for the
three months ended March 31, 2001, to $2.5 million for the same period in 2002.
In the mortgage banking segment, net gain on sale of loans increased from
$403,000 for the three months ended March 31, 2001, to $569,000 for the same
period in 2002. The higher gain in 2002 was a result of increased production.
Loan servicing fees decreased slightly from $75,000 for the three months ended
March 31, 2001, to $69,000 for the same period in 2002. In the banking segment,
deposit fees and other operating incomes increased from $822,000 for the three
months ended March 31, 2001, to $879,000 for the same period in 2002. This
increase was a result of growth in the number of transaction accounts and
increased charges. The Bank also implemented an overdraft privilege program
coupled with a new free checking account program. These factors also helped to
increase deposit and overdraft fees. In the trust segment, trust fees decreased
from $293,000 for the three months ended March 31, 2001, to $256,000 for the
same period in 2002 as a result of declines in market values of trust assets
under management. The acquisition of Miller & Loughry contributed income of
$454,000 in commissions and related income.
Non-interest Expense. Non-interest expense increased from $3.9 million for the
three months ended March 31, 2001, to $4.5 million for the same period in 2002.
Salaries and employee benefits increased from $2.3 million for the three months
ended March 31, 2001 to $2.8 million for the same period in 2002. This increase
was a result of the purchase of Miller & Loughry, increased commissions, and
costs of medical insurance. The increase in occupancy expense was primarily a
result of the opening of the new operations building and increases in the cost
of utilities. The increases in other expenses were primarily due to increased
loan and deposit activity.
Income taxes. The provision for income taxes was $778,000 for the three months
ended March 31, 2002, compared to $704,000 for the same period in 2001. This
increase was primarily a result of higher income before taxes.
Liquidity and Capital Resources
The Company's primary sources of funds are customer deposits, proceeds from loan
principal and interest payments, sale of loans, maturing securities and Federal
Home Loan Bank (FHLB) of Cincinnati advances. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are influenced greatly by general interest rates, other
economic conditions, and competition. The Company and the Bank generally
maintain sufficient cash and short-term investments to meet short-term liquidity
needs. At March 31, 2002, cash and cash equivalents totaled $56.1 million or
13.32% of total assets, and investment securities available-for-sale totaled
$33.8 million. At March 31, 2002, the Bank also maintained, but did not draw
upon, a line of credit with the FHLB of Cincinnati in the amount of $10.0
million.
As of March 31, 2002, the Bank's regulatory capital was in excess of all
applicable regulatory requirements. At March 31, 2002, under the regulations of
the Federal Reserve Board, the Bank's actual leverage, Tier 1 risk-based, and
risked-based capital ratios were 8.55%, 11.46% and 12.71%, respectively,
compared to requirements of 3.0%, 4.0% and 8.0%, respectively.
At March 31, 2002, the Bank had loan commitments of approximately $32.9 million.
In addition, at March 31, 2002, the unused portion of lines of credit extended
by the Bank was approximately $6.4 million for consumer loans and $26.7 million
for commercial loans. Standby letters of credit and financial guarantees are
conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. Most guarantees extend from one to two
years. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. At March 31,
2002, the Bank had $4.9 million of letters of credit outstanding.
9
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto,
presented elsewhere herein, have been prepared in accordance with U.S.GAAP,
which require the measurement of financial condition and operating results in
terms of historical dollars without considering the change in relative
purchasing power of money over time due to inflation. The impact of inflation
is reflected in the increased cost of the Company's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Company are
financial. As a result, interest rates have a greater impact on the Company's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a financial institution, the Company's primary component of market risk is
interest rate risk. Ultimately, fluctuations in interest rates will impact
liquidity, the level of income and expense recorded on most of the Company's
assets and liabilities, and the market value of interest-earning assets and
interest-bearing liabilities. The company is not subject to foreign exchange or
commodity price risk. The Company does not own any trading assets.
Interest rate risk is managed by management in accordance with policies approved
by the Bank's Board of Directors. Management formulates strategies based on
appropriate levels of interest rate risk. In determining the appropriate level
of interest rate risk, management considers the impact on earnings and capital
of the current outlook on interest rates, potential changes in interest rates,
regional economy, liquidity, business strategies and other factors. Management
meets regularly to review, among other things, the sensitivity of assets and
liabilities to interest rate changes, the book and market value of assets and
liabilities, unrealized gains and losses, purchase and sales activities,
commitments to originate loans and the maturities of investments. Management
uses an analysis of relationships between interest-earning assets and
interest-bearing liabilities to manage interest rate risk.
The following table presents the Company's repricing gap at March 31, 2002. The
table indicates that at March 31, 2002 the Company was liability sensitive up to
six months and had a negative cumulative GAP for the time periods up to and
including one year. This would indicate a decline in earnings in a rising rate
environment. However, management does not consider NOW accounts and passbook
savings rate sensitive and if those amounts are excluded from the six-month time
frame, the Company becomes asset sensitive.
Six After After
Within Months One to Three Over
Six To One Three to Five Ten
Months Year Years Years Years Total
--------------- ---------- -------- --------- ---------- ---------
(in thousands)
Interest-earning assets:
Loans receivable, net $ 112,719 $ 53,595 $79,612 $ 39,068 $ 10,792 $295,786
Investment securities held-to-maturity 404 217 - - - 621
FHLB & FRB stock 3,423 - - - - 3,423
Investment securities available-for-sale 20,811 3,235 6,862 2,625 248 33,781
Federal funds sold overnight and other
interest-bearing deposits 39,915 - - - - 39,915
--------------- ---------- -------- --------- ---------- ---------
Total rate sensitive assets $ 177,272 $ 57,047 $86,474 $ 41,693 $ 11,040 $373,526
=============== ========== ======== ========= ========== =========
Interest-bearing liabilities:
Deposits:
NOW accounts $ 70,345 $ - $ - $ - $ - $ 70,345
Passbook savings accounts 15,128 - - - - 15,128
Money market accounts 91,890 - - - - 91,890
Certificates of deposit 77,649 34,884 28,548 4,949 4 146,034
Borrowings 26 26 105 105 722 984
--------------- ---------- -------- --------- ---------- ---------
Total rate sensitive liabilities $ 255,038 $ 34,910 $28,653 $ 5,054 $ 726 $324,381
=============== ========== ======== ========= ========== =========
Excess (deficiency) of interest sensitive
assets over interest sensitive liabilities ($77,766) $ 22,137 $57,821 $ 36,639 $ 10,314 $ 49,145
Cumulative excess (deficiency) of
interest sensitive assets ($77,766) ($55,629) $ 2,192 $ 38,831 $ 49,145 $ 49,145
Cumulative ratio of interest-earning assets
to interest-bearing liabilities 69.51% 80.81% 100.69% 112.00% 115.15% 115.15%
Interest sensitivity gap to total rate sensitive assets (20.82)% 5.93% 15.48% 9.81% 2.76% 13.16%
Ratio of interest-earning assets to
interest -bearing liabilities 69.51% 163.41% 301.80% 824.95% 1,520.66% 115.15%
Ratio of cumulative gap to total rate sensitive assets (20.82)% (14.89)% 0.59% 10.40% 13.16% 13.16%
10
Part II. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
None
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Exhibits
3.1 Charter of the Registrant*
3.2 Bylaws of the Registrant*
10.1 Employment Agreement with Ed C. Loughry, Jr.**
10.2 Employment Agreement with Ronald F. Knight **
10.3 Severance Agreement with Hillard C. Gardner**
10.4 Severance Agreement with Ira B. Lewis **
10.5 Severance Agreement with R. Dale Floyd **
10.6 Severance Agreement with M. Glenn Layne **
10.7 Severance Agreement with Joy B. Jobe**
10.8 Severance Agreement with William S. Jones**
10.9 Severance Agreement with David W. Hopper**
10.10 Cavalry Banking Key Personnel Severance Compensation Plan**
10.11 Cavalry Banking Employee Stock Ownership Plan**
10.12 Management Recognition Plan with William H. Huddleston III***
10.13 Management Recognition Plan with Gary Brown ***
10.14 Management Recognition Plan with Ed Elam ***
10.15 Management Recognition Plan with Frank E. Crosslin, Jr. ***
10.16 Management Recognition Plan with Tim J. Durham ***
10.17 Management Recognition Plan with James C. Cope ***
10.18 Management Recognition Plan with Terry G. Haynes ***
10.19 Management Recognition Plan with Ed C. Loughry, Jr. ***
10.20 Management Recognition Plan with Ronald F. Knight ***
10.21 Management Recognition Plan with William S. Jones ***
10.22 Management Recognition Plan with Hillard C. Gardner ***
10.23 Management Recognition Plan with R. Dale Floyd ***
10.24 Management Recognition Plan with David W. Hopper ***
10.25 Management Recognition Plan with Joe W. Townsend ***
10.26 Management Recognition Plan with M. Glenn Layne ***
10.27 Management Recognition Plan with Joy B. Jobe ***
10.28 Management Recognition Plan with Ira B. Lewis, Jr. ***
10.29 Management Recognition Plan with Elizabeth L. Green ***
10.30 Management Recognition Plan with James O. Sweeney, III ***
10.31 Director Supplemental Retirement Plan
10.32 Executive Supplemental Retirement Plan
13 Annual Report to Stockholders****
21 Subsidiaries of the Registrant****
* Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1, as amended (333-40057).
** Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997, as filed with the Securities and
Exchange Commission on March 30, 1998.
*** Incorporated herein by reference to the Registrant's Annual Meeting Proxy
Statement dated March 15, 1999, as filed with the Securities and Exchange
Commission on March 15, 1999.
**** Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 2001, as filed with the Securities and
Exchange Commission on March 27, 2002.
11
(b) Reports on Form 8-K
On January 15, 2002, Cavalry Bancorp, Inc. announced the acquisition of 100
percent of the issued and outstanding stock of Miller & Loughry Insurance
and Services, Inc., a locally owned and operated, general insurance agency
by its subsidiary Cavalry Banking. The transaction closed on January 4,
2002. The press release read as follows:
Cavalry Banking Announces New Insurance Division
Murfreesboro, Tennessee (January 13, 2002)----Cavalry Bancorp, Inc.
(NASDAQ:CAVB) today announced a new division that will include insurance
and human resources services. Miller & Loughry Insurance and Services, Inc.
has been purchased, and will retain the name as a division of Cavalry
Banking.
Ronnie Knight, President and Chief Operating Officer of Cavalry Banking,
said, "We are excited about our expansion into insurance services. Our new
insurance division will diversify Cavalry Banking's efforts to provide our
customers with one-stop financial services, and is consistent with our
philosophy of doing business with local people we have know for years and
have trust in their abilities."
Miller & Loughry Insurance and Services, Inc., has been located in
Murfreesboro, Tennessee since 1949. It is one of the oldest and largest
independent insurance agencies in Rutherford County. In addition to
offering a full array of insurance products and services, the firm will
continue to provide Human Resource services to small businesses, including
recruiting, training programs, assistance in government compliance such as
the Drug Free Workplace, consulting and much more. The firm's fully
licensed and experienced staff is available to meet the needs of its
customers by providing highly personalized and hands-on claim services, 24
hours a day, 7 days a week. Insurance services will include both business,
personal life and employee benefits for groups and individuals.
Edward E. Miller, III, Chairman of Miller & Loughry, stated, "Being a part
of the Cavalry Banking team will provided us access to more resources that
will help us better serve our clients. We look forward to expanding the
insurance services and other products we provide to customers in the
communities where Cavalry Banking is located."
William S. Jones, Executive Vice President of Cavalry Banking, went on to
say, "The acquisition of Miller & Loughry Insurance and Services, Inc.
should be a positive contributor to earnings this fiscal year. Cavalry
Banking continues achieve solid financial results and operates in a sound
financial condition, and we believe this division will help deliver
increased long-term returns to our stockholders. We remain very optimistic
about the future for Cavalry Banking."
The insurance division of Cavalry Banking will temporarily remain in its
current office at 301 West Main Street, Murfreesboro Tennessee.
Construction has begun on offices on the first floor of the bank's
financial center in Murfreesboro, where the insurance division will be
housed in early spring.
With assets in excess of $400 million, Cavalry Bancorp, the parent of
Cavalry Banking, is a community-oriented financial institution operating
nine offices in Central Tennessee.
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:
The statements contained in this release which are not historical facts
contain forward looking information with respect to plans, projections or
future performance of the Company, the occurrence of which involve certain
risks and uncertainties detailed in the Company's filings with the
Securities and Exchange Commission.
12
Pursuant to the requirements of section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
CAVALRY BANCORP, INC.
Date: May 10, 2002 by: /s/Ronald F. Knight
-----------------------
Ronald F. Knight
President and
Chief Operating Officer
Date: May 10, 2002 by: /s/ Hillard C. Gardner
----------------------
Hillard C. Gardner
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
13
EXHIBIT 10.31
DIRECTOR SUPPLEMENTAL RETIREMENT PLAN
DIRECTOR SUPPLEMENTAL RETIREMENT PLAN
WHEREAS, the Director is now serving on the Board of the Bank (hereinafter
referred to as the "Board") and has for many years faithfully served the Bank.
It is the consensus of the Board of Directors that the Director's services have
been of exceptional merit, in excess of the compensation paid and an invaluable
contribution to the profits and position of the Bank in its field of activity.
The Board further believes that the Director's experience, knowledge of
corporate affairs, reputation and industry contacts are of such value, and the
Director's continued services so essential to the Bank's future growth and
profits, that it would suffer severe financial loss should the Director
terminate his/her service on the Board;
ACCORDINGLY, the Board has adopted the Cavalry Banking Director Supplemental
Retirement Plan (hereinafter referred to as the "Director Plan") and it is the
desire of the Bank and the Director to enter into an Agreement under which the
Bank will agree to make certain payments to the Director upon the Director's
retirement and to the Director's beneficiary(ies) in the event of the Director's
death pursuant to the Director Plan;
FURTHERMORE, it is the intent of the parties hereto that this Director Plan be
considered an unfunded arrangement maintained primarily to provide supplemental
retirement benefits for the Director, and to be considered a non-qualified
benefit plan for purposes of the Employee Retirement Security Act of 1974, as
amended ("ERISA"). The Director is fully advised of the Bank's financial status
and has had substantial input in the design and operation of this benefit plan;
and
NOW THEREFORE, in consideration of services the Director has performed in the
past and those to be performed in the future, and based upon the mutual promises
and covenants herein contained, the Bank and the Director agree as follows:
I. DEFINITIONS
A. Effective Date:
---------------
The Effective Date of the Director Plan shall be January 01, 2002.
B. Plan Year:
Any reference to the "Plan Year" shall mean a calendar year from January 1st to
December 31st. In the year of implementation, the term "Plan Year" shall mean
the period from the Effective Date to December 31st of the year of the Effective
Date.
C. Retirement Date:
----------------
Retirement Date shall mean retirement from service with the Bank in accordance
with the individual participant's Retirement Agreement.
D. Termination of Service:
------------------------
Termination of Service shall mean the Director's voluntary resignation from
service on the Board or failure to be re-elected to the Board, prior to the
Normal Retirement Age (Subparagraph I [J]).
E. Pre-Retirement Account:
-----------------------
A Pre-Retirement Account shall be established as a liability reserve account on
the books of the Bank for the benefit of the Director. Prior to the Director's
Retirement Date (Subparagraph I [C]), such liability reserve account shall be
increased or decreased each Plan Year, until the aforestated event occurs, by
the Index Retirement Benefit (Subparagraph I [F]).
F. Index Retirement Benefit:
--------------------------
The Index Retirement Benefit for each Director in the Director Plan will be
calculated each year based on a relationship between the excess (if any) of the
Index (Subparagraph I [G]) for that Plan Year and the Cost of Funds Expense
(Subparagraph I [H]) for that Plan Year.
G. Index:
-----
The Index for any Plan Year shall be the aggregate annual after-tax income from
life insurance contract(s) as defined by FASB Technical Bulletin 85-4. This
Index shall be applied as if such insurance contracts were purchased on the
Effective Date of the Director Plan.
2
In either case, references to the life insurance contracts are merely for
purposes of calculating a benefit. The Bank has no obligation to purchase such
life insurance and, if purchased, the Director and the Director's
beneficiary(ies) shall have no ownership interest in such policy and shall
always have no greater interest in the benefits under this Director Plan than
that of an unsecured creditor of the Bank.
If contracts of life insurance are actually purchased by the Bank, then the
actual policies as of the dates they were actually purchased shall be used in
calculations under this Director Plan. If such contracts of life insurance are
not purchased or are subsequently surrendered or lapsed, then the Bank shall
receive annual policy illustrations that assume the above-described policies
were purchased, or had not subsequently surrendered or lapsed. Said
illustrations shall be received from the respective insurance companies and will
indicate the increase in policy values for purposes of calculating the amount of
the Index.
H. Cost of Funds Expense:
------------------------
The Cost of Funds Expense for any Plan Year shall be calculated by taking the
sum of the amount of premiums for the life insurance policies described in the
definition of "Index" plus the amount of any after-tax benefits paid to the
Executive pursuant to the Executive Plan (Paragraph II hereinafter) plus the
amount of all previous years' after-tax Cost of Funds Expense, and multiplying
that sum by the lesser of either: (i) Average After-Tax Cost of Funds
(Subparagraph I [K]); (ii) the average after tax yield of a one year Treasury
Bill for the Plan Year.
I. Change in Control:
-------------------
Each of the events specified in the following clauses (i) through (iii) of this
Subparagraph I (I) shall be deemed a "Change in Control": (i) any third person,
including a "group" as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, shall become the beneficial owner of shares of Cavalry Bancorp,
Inc. ("Cavalry") with respect to which twenty-five percent (25%) or more of the
total number of votes for the election of the Board of Cavalry may be cast, (ii)
as a result of, or in connection with, any cash tender offer, merger or other
business combination, sale of assets or contested election, or combination of
the foregoing, the persons who were directors of Cavalry shall cease to
constitute a majority of the Board of Cavalry, or (iii) the stockholders of
Cavalry shall approve an agreement providing either for a transaction in which
the corporation will cease to be an independent publicly-owned corporation or
for a sale or other disposition of all or substantially all the assets of
Cavalry.
3
J. Normal Retirement Age:
Normal Retirement Age shall mean the age designated in each individual
participant's Retirement Agreement.
K. Average After-Tax Cost of Funds:
-------------------------------
Average After-Tax Cost of Funds means, at any particular time, a ratio, the
numerator of which is the total annualized interest expense as set forth on
Schedule RI-Income Statement of the Bank's most recently filed Consolidated
Report of Condition and Income (the "Call Report") and the denominator of which
is an amount equal to: (i) the amount of deposits in domestic offices (sum of
total of columns A and C from Schedule RC-E of the Call Report), plus (ii) the
amount of Federal funds purchased and securities sold under agreements to
repurchase, as set forth on Schedule RC-Balance Sheet of the Call Report, times
the inverse of the Bank's combined federal and state marginal income tax rate.
II. INDEX BENEFITS
A. Retirement Benefits:
--------------------
Subject to Subparagraph II (D) hereinafter, a Director who remains on the Board
until the Normal Retirement Age (Subparagraph I [J]) shall be entitled to
receive the balance in the Pre-Retirement Account in fifteen (15) equal annual
installments commencing thirty (30) days following the Director's Retirement
Date. In addition to these payments and commencing in conjunction therewith,
the Index Retirement Benefit (Subparagraph I [F]) for each Plan Year subsequent
to the Director's Retirement Date, and including the remaining portion of the
Plan Year following said retirement date, shall be paid to the Director until
the Director's death. Notwithstanding the foregoing, the total amount of said
annual benefit (i.e. the Pre-Retirement Account solely or combined with the
Index Retirement Benefit) to be received by the Director shall be a maximum of
the amount of the Director's full years fees in the final full year of service
on the Board of the Bank, said amount to be increased each year from the
Retirement Date by three percent (3%) from the previous years amount.
B. Termination of Service:
------------------------
Subject to Subparagraph II (D), should a Director suffer a Termination of
Service the Director shall be entitled to receive twenty percent (20%) times the
number of full years of service on the Board of the Bank from the Effective Date
of this Agreement (to a maximum of 100%), to the date of termination of service
times the balance in the Pre-Retirement Account payable to the Director in
fifteen (15) equal annual installments commencing thirty (30) days following the
Director's Normal Retirement Age (Subparagraph I [J]). In addition to these
payments and commencing in conjunction therewith, twenty percent (20%) times the
number of full years of service on the Board with the Bank from the Effective
Date of this Agreement to the date of termination of service (to a maximum of
100%), times the Index Retirement Benefit for each Plan Year subsequent to the
year in which the Director attains Normal Retirement Age, and including the
remaining portion of the Plan Year in which the Director attains Normal
Retirement Age, shall be paid to the Director until the Director's death.
Notwithstanding the foregoing, the maximum total amount of said annual benefit
(i.e. the Pre-Retirement Account solely or combined with the Index Retirement
Benefit) to be received by the Director at Normal Retirement Age shall be the
Director's vested percentage in said benefits, as set forth hereinabove, times
the amount of the Director's full years fees in the final full year of service
on the Board of the Bank, said amount to be increased each year from the
Director's Normal Retirement Age by three percent (3%) from the previous years
amount.
C. Death:
-----
Should the Director die while there is a balance in the Director's
Pre-Retirement Account (Subparagraph I [E]), said unpaid balance shall be paid
in a lump sum to the individual or individuals the Director may have designated
in writing and filed with the Bank. In the absence of any effective beneficiary
designation, the unpaid balance shall be paid as set forth herein to the duly
qualified executor or administrator of the Director's estate. Said payment due
hereunder shall be made the first day of the second month following the decease
of the Director. Provided, however, that anything hereinabove to the contrary
notwithstanding, no death benefit shall be payable hereunder if the Director
dies on or before the 31st day of December, 2003.
D. Discharge for Cause:
---------------------
Should the Director be Discharged for Cause at any time, all benefits under this
Director Plan shall be forfeited. The term "for cause" shall mean any of the
following that result in an adverse effect on the Bank: (i) gross negligence or
gross neglect; (ii) the commission of a felony or gross misdemeanor involving
moral turpitude, fraud, or dishonesty; (iii) the willful violation of any law,
rule, or regulation (other than a traffic violation or similar offense) or
removal from office by or pursuant to a formal regulatory order; (iv) an
intentional failure to perform stated duties; or (v) a breach of fiduciary duty
involving personal profit. If a dispute arises as to discharge "for cause,"
such dispute shall be resolved by arbitration as set forth in this Director
Plan.
4
E. Disability Benefit:
-------------------
In the event the Director becomes disabled prior to Termination of Service, and
the Director's employment is terminated because of such disability, he shall be
one-hundred percent (100%) vested in the benefits set forth in Subparagraph III
(A) above. Such benefit shall begin at the Director's Normal Retirement Age and
the Director shall be one hundred percent (100%) vested in the entire benefit
amount. If there is a dispute regarding whether the Director is disabled, such
dispute shall be resolved by a physician selected by the Bank and such
resolution shall be binding upon all parties to this Agreement.
F. Death Benefit:
--------------
Except as set forth above, there is no death benefit provided under this
Agreement.
III. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any fund or
money with which to pay its obligations under this Director Plan. The Directors,
their beneficiary(ies), or any successor in interest shall be and remain simply
a general creditor of the Bank in the same manner as any other creditor having a
general claim for matured and unpaid compensation.
The Bank reserves the absolute right, at its sole discretion, to either fund the
obligations undertaken by this Director Plan or to refrain from funding the same
and to determine the extent, nature and method of such funding. Should the Bank
elect to fund this Director Plan, in whole or in part, through the purchase of
life insurance, mutual funds, disability policies or annuities, the Bank
reserves the absolute right, in its sole discretion, to terminate such funding
at any time, in whole or in part. At no time shall any Director be deemed to
have any lien nor right, title or interest in or to any specific funding
investment or to any assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity policy
upon the life of the Director, then the Director shall assist the Bank by freely
submitting to a physical exam and supplying such additional information
necessary to obtain such insurance or annuities.
5
IV. CHANGE OF CONTROL
Upon a Change of Control (Subparagraph I [I]), if the Director subsequently
suffers a Termination of Service (Subparagraph I [D]), then the Director shall
receive the benefits promised in this Director Plan upon attaining Normal
Retirement Age, as if the Director had been continuously serving the Bank until
the Director's Normal Retirement Age. The Director will also remain eligible
for all promised death benefits in this Director Plan.
V. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
------------------------------------------
Neither the Director, nor the Director's surviving spouse, nor any other
beneficiary(ies) under this Director Plan shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute, modify or
otherwise encumber in advance any of the benefits payable hereunder nor shall
any of said benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance owed by the Director or the
Director's beneficiary(ies), nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event the Director or any
beneficiary attempts assignment, commutation, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate.
B. Binding Obligation of the Bank and any Successor in Interest:
-------------------------------------------------------------------
The Bank shall not merge or consolidate into or with another bank or sell
substantially all of its assets to another bank, firm or person until such bank,
firm or person expressly agrees, in writing, to assume and discharge the duties
and obligations of the Bank under this Director Plan. This Director Plan shall
be binding upon the parties hereto, their successors, beneficiaries, heirs and
personal representatives.
C. Amendment or Revocation:
-------------------------
It is agreed by and between the parties hereto that, during the lifetime of the
Director, this Director Plan may be amended or revoked at any time or times, in
whole or in part, by the mutual written consent of the Director and the Bank.
6
D. Gender:
------
Whenever in this Director Plan words are used in the masculine or neuter gender,
they shall be read and construed as in the masculine, feminine or neuter gender,
whenever they should so apply.
E. Effect on Other Bank Benefit Plans:
---------------------------------------
Nothing contained in this Director Plan shall affect the right of the Director
to participate in or be covered by any qualified or non-qualified pension,
profit-sharing, group, bonus or other supplemental compensation or fringe
benefit plan constituting a part of the Bank's existing or future compensation
structure.
F. Headings:
--------
Headings and subheadings in this Director Plan are inserted for reference and
convenience only and shall not be deemed a part of this Director Plan.
G. Applicable Law:
---------------
The validity and interpretation of this Agreement shall be governed by the laws
of the State of Tennessee.
H. 12 U.S.C. 1828(k):
-------------------
Any payments made to the Director pursuant to this Director Plan, or otherwise,
are subject to and conditioned upon their compliance with 12 U.S.C. 1828(k) or
any regulations promulgated thereunder.
I. Partial Invalidity:
-------------------
If any term, provision, covenant, or condition of this Director Plan is
determined by an arbitrator or a court, as the case may be, to be invalid, void,
or unenforceable, such determination shall not render any other term, provision,
covenant, or condition invalid, void, or unenforceable, and the Director Plan
shall remain in full force and effect notwithstanding such partial invalidity.
J. Continuation as Director:
--------------------------
Neither this Plan nor the payment of any benefits thereunder shall be construed
as giving to the Director any right to be retained as a member of the Board of
Directors of the Bank.
7
VI. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
------------------------------------------
The "Named Fiduciary and Plan Administrator" of this Director Plan shall be
Cavalry Banking until its resignation or removal by the Board. As Named
Fiduciary and Plan Administrator, the Bank shall be responsible for the
management, control and administration of the Director Plan. The Named
Fiduciary may delegate to others certain aspects of the management and operation
responsibilities of the Director Plan including the employment of advisors and
the delegation of ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration:
-----------------------------------
In the event a dispute arises over benefits under this Director Plan and
benefits are not paid to the Director (or to the Director's beneficiary(ies) in
the case of the Director's death) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the Named Fiduciary
and Plan Administrator named above within sixty (60) days from the date payments
are refused. The Named Fiduciary and Plan Administrator shall review the
written claim and if the claim is denied, in whole or in part, they shall
provide in writing within sixty (60) days of receipt of such claim the specific
reasons for such denial, reference to the provisions of this Director Plan upon
which the denial is based and any additional material or information necessary
to perfect the claim. Such written notice shall further indicate the additional
steps to be taken by claimants if a further review of the claim denial is
desired. A claim shall be deemed denied if the Named Fiduciary and Plan
Administrator fail to take any action within the aforesaid sixty-day period.
If claimants desire a second review they shall notify the Named Fiduciary and
Plan Administrator in writing within sixty (60) days of the first claim denial.
Claimants may review this Director Plan or any documents relating thereto and
submit any written issues and comments it may feel appropriate. In their sole
discretion, the Named Fiduciary and Plan Administrator shall then review the
second claim and provide a written decision within sixty (60) days of receipt of
such claim. This decision shall likewise state the specific reasons for the
decision and shall include reference to specific provisions of the Plan upon
which the decision is based.
8
If claimants continue to dispute the benefit denial based upon completed
performance of this Director Plan or the meaning and effect of the terms and
conditions thereof, then claimants may submit the dispute to an arbitrator for
final arbitration. The arbitrator shall be selected by mutual agreement of the
Bank and the claimants. The arbitrator shall operate under any generally
recognized set of arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and assigns shall be bound by
the decision of such arbitrator with respect to any controversy properly
submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the Director "for cause,"
such dispute shall likewise be submitted to arbitration as above described and
the parties hereto agree to be bound by the decision thereunder.
VII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE
LAW, RULES OR REGULATIONS
The Bank is entering into this Plan upon the assumption that certain existing
tax laws, rules and regulations will continue in effect in their current form.
If any said assumptions should change and said change has a detrimental effect
on this Director Plan, then the Bank reserves the right to terminate or modify
this Plan accordingly. Upon a Change of Control (Subparagraph I [I]), this
paragraph shall become null and void effective immediately upon said Change of
Control.
9
EXHIBIT 10.32
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
WHEREAS, the Executive is now in the employ of the Bank and has for many years
faithfully served the Bank. It is the consensus of the Board of Directors
(hereinafter referred to as the "Board") that the Executive's services have been
of exceptional merit, in excess of the compensation paid and an invaluable
contribution to the profits and position of the Bank in its field of activity.
The Board further believes that the Executive's experience, knowledge of
corporate affairs, reputation and industry contacts are of such value, and the
Executive's continued services so essential to the Bank's future growth and
profits, that it would suffer severe financial loss should the Executive
terminate their services;
ACCORDINGLY, the Board has adopted the Cavalry Banking Executive Supplemental
Retirement Plan (hereinafter referred to as the "Executive Plan") and it is the
desire of the Bank and the Executive to enter into an Agreement under which the
Bank will agree to make certain payments to the Executive upon the Executive's
retirement or to the Executive's beneficiary(ies) in the event of the
Executive's death pursuant to the Executive Plan;
FURTHERMORE, it is the intent of the parties hereto that this Executive Plan be
considered an unfunded arrangement maintained primarily to provide supplemental
retirement benefits for the Executive, and be considered a non-qualified benefit
plan for purposes of the Employee Retirement Security Act of 1974, as amended
("ERISA"). The Executive is fully advised of the Bank's financial status and has
had substantial input in the design and operation of this benefit plan; and
NOW THEREFORE, in consideration of services the Executive has performed in the
past and those to be performed in the future, and based upon the mutual promises
and covenants herein contained, the Bank and the Executive agree as follows:
I. DEFINITIONS
A. Effective Date:
---------------
The Effective Date of the Executive Plan shall be January 01, 2002.
B. Plan Year:
Any reference to the "Plan Year" shall mean a calendar year from January 1st to
December 31st. In the year of implementation, the term "Plan Year" shall mean
the period from the Effective Date to December 31st of the year of the Effective
Date.
C. Retirement Date:
----------------
Retirement Date shall mean retirement from service with the Bank in accordance
with the individual participant's Retirement Agreement.
D. Termination of Service:
------------------------
Termination of Service shall mean the Executive's voluntary resignation of
service by the Executive or the Bank's discharge of the Executive without cause,
prior to the Normal Retirement Age (Subparagraph I [J]).
E. Pre-Retirement Account:
-----------------------
A Pre-Retirement Account shall be established as a liability reserve account on
the books of the Bank for the benefit of the Executive. Prior to the
Executive's Retirement Date (Subparagraph I [C]), such liability reserve account
shall be increased or decreased each Plan Year, until the aforestated event
occurs, by the Index Retirement Benefit (Subparagraph I [F]).
F. Index Retirement Benefit:
--------------------------
The Index Retirement Benefit for each Executive in the Executive Plan will be
calculated each year based on a relationship between the excess (if any) of the
Index (Subparagraph I [G]) for that Plan Year and the Cost of Funds Expense
(Subparagraph I [H]) for that Plan Year.
2
G. Index:
-----
The Index for any Plan Year shall be the aggregate annual after-tax income from
life insurance contract(s) as defined by FASB Technical Bulletin 85-4. This
Index shall be applied as if such insurance contract(s) were purchased on the
Effective Date of the Executive Plan.
In either case, references to the life insurance contracts are merely for
purposes of calculating a benefit. The Bank has no obligation to purchase such
life insurance and, if purchased, the Executive and the Executive's
beneficiary(ies) shall have no ownership interest in such policy and shall
always have no greater interest in the benefits under this Executive Plan than
that of an unsecured creditor of the Bank.
If contracts of life insurance are actually purchased by the Bank, then the
actual policies as of the dates they were actually purchased shall be used in
calculations under this Executive Plan. If such contracts of life insurance are
not purchased or are subsequently surrendered or lapsed, then the Bank shall
receive annual policy illustrations that assume the above-described policies
were purchased, or had not subsequently surrendered or lapsed. Said
illustrations shall be received from the respective insurance companies and will
indicate the increase in policy values for purposes of calculating the amount of
the Index.
H. Cost of Funds Expense:
------------------------
The Cost of Funds Expense for any Plan Year shall be calculated by taking the
sum of the amount of premiums for the life insurance policies described in the
definition of "Index" plus the amount of any after-tax benefits paid to the
Executive pursuant to the Executive Plan (Paragraph II hereinafter) plus the
amount of all previous years' after-tax Cost of Funds Expense, and multiplying
that sum by the lesser of either: (i) Average After-Tax Cost of Funds
(Subparagraph I [K]); (ii) the average after tax yield of a one year Treasury
Bill for the Plan Year.
I. Change in Control:
-------------------
Each of the events specified in the following clauses (i) through (iii) of this
Subparagraph I (I) shall be deemed a "Change in Control": (i) any third person,
including a "group" as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, shall become the beneficial owner of shares of Cavalry Bancorp,
Inc. ("Cavalry") with respect to which twenty-five percent (25%) or more of the
total number of votes for the election of the Board of Cavalry may be cast, (ii)
as a result of, or in connection with, any cash tender offer, merger or other
business combination, sale of assets or contested election, or combination of
the foregoing, the persons who were directors of Cavalry shall cease to
constitute a majority of the Board of Cavalry, or (iii) the stockholders of
Cavalry shall approve an agreement providing either for a transaction in which
the corporation will cease to be an independent publicly-owned corporation or
for a sale or other disposition of all or substantially all the assets of
Cavalry.
J. Normal Retirement Age:
-----------------------
Normal Retirement Age shall mean the age designated in each individual
participant's Retirement Agreement.
K. Average After-Tax Cost of Funds:
-------------------------------
Average After-Tax Cost of Funds means, at any particular time, a ratio, the
numerator of which is the total annualized interest expense as set forth on
Schedule RI-Income Statement of the Bank's most recently filed Consolidated
Report of Condition and Income (the "Call Report") and the denominator of which
is an amount equal to: (i) the amount of deposits in domestic offices (sum of
total of columns A and C from Schedule RC-E of the Call Report), plus (ii) the
amount of federal funds purchased and securities sold under agreements to
repurchase, as set forth on Schedule RC-Balance Sheet of the Call Report times
the inverse of the Bank's combined federal and state marginal income tax rate.
II. INDEX BENEFITS
A. Retirement Benefits:
--------------------
Subject to Subparagraph II (D) hereinafter, an Executive who remains in the
employ of the Bank until the Normal Retirement Age (Subparagraph I [J]) shall be
entitled to receive the balance in the Pre-Retirement Account in fifteen (15)
equal annual installments commencing thirty (30) days following the Executive's
retirement date. In addition to these payments and commencing in conjunction
therewith, the Index Retirement Benefit (Subparagraph I [F]) for each Plan Year
subsequent to the Executive's retirement date, and including the remaining
portion of the Plan Year following said retirement date, shall be paid to the
Executive until the Executive's death. Notwithstanding the foregoing, the total
amount of said annual benefit (i.e. the Pre-Retirement Account solely or
combined with the Index Retirement Benefit) to be received by the Executive each
year shall be indicated in each individual's Participation Agreement.
3
B. Termination of Service:
------------------------
Subject to Subparagraph II (D), should an Executive suffer a Termination of
Service the Executive shall be entitled to receive twenty percent (20%) times
the number of full years of employment with the Bank from the Effective Date of
this Agreement (to a maximum of 100%), to the date of termination of service
times the balance in the Pre-Retirement Account payable to the Executive in
fifteen (15) equal annual installments commencing thirty (30) days following the
Executive's Normal Retirement Age (Subparagraph I [J]). In addition to these
payments and commencing in conjunction therewith, twenty percent (20%) times the
number of full years of employment with the Bank from the Effective Date of this
Agreement (to a maximum of 100%), to the date of termination of service times
the Index Retirement Benefit for each Plan Year subsequent to the year in which
the Executive attains Normal Retirement Age, and including the remaining portion
of the Plan Year in which the Executive attains Normal Retirement Age, shall be
paid to the Executive until the Executive's death. Notwithstanding the
foregoing, the maximum total amount of said annual benefit (i.e. the
Pre-Retirement Account solely or combined with the Index Retirement Benefit) to
be received by the Executive at Normal Retirement Age shall be the Executive's
vested percentage in said benefits, as set forth as indicated in each
Participant's Agreement.
C. Death:
-----
Should the Executive die while there is a balance in the Executive's
Pre-Retirement Account (Subparagraph I [E]), said unpaid balance of the
Executive's Pre-Retirement Account shall be paid in a lump sum to the individual
or individuals the Executive may have designated in writing and filed with the
Bank. In the absence of any effective beneficiary designation, the unpaid
balance shall be paid as set forth herein to the duly qualified executor or
administrator of the Executive's estate. Said payment due hereunder shall be
made the first day of the second month following the decease of the Executive.
Provided, however, that anything hereinabove to the contrary notwithstanding, no
death benefit shall be payable hereunder if the Executive dies on or before the
31st day of December, 2003.
D. Discharge for Cause:
---------------------
Should the Executive be Discharged for Cause at any time, all benefits under
this Executive Plan shall be forfeited. The term "for cause" shall mean any of
the following that result in an adverse effect on the Bank: (i) gross negligence
or gross neglect; (ii) the commission of a felony or gross misdemeanor involving
moral turpitude, fraud, or dishonesty; (iii) the willful violation of any law,
rule, or regulation (other than a traffic violation or similar offense) or
removal from office by or pursuant to a formal regulatory order; (iv) an
intentional failure to perform stated duties; or (v) a breach of fiduciary duty
involving personal profit. If a dispute arises as to discharge "for cause,"
such dispute shall be resolved by arbitration as set forth in this Executive
Plan.
E. Disability Benefit:
-------------------
In the event the Executive becomes disabled prior to Termination of Service, and
the Executive's employment is terminated because of such disability, he shall be
one-hundred percent (100%) vested in the benefits set forth in Subparagraph III
(A) above. Such benefit shall begin at the Executive's Normal Retirement Age
and the Executive shall be one hundred percent (100%) vested in the entire
benefit amount. If there is a dispute regarding whether the Executive is
disabled, such dispute shall be resolved by a physician selected by the Bank and
such resolution shall be binding upon all parties to this Agreement.
F. Death Benefit:
--------------
Except as set forth above, there is no death benefit provided under this
Agreement.
III. RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any fund or
money with which to pay its obligations under this Executive Plan. The
Executive, their beneficiary(ies), or any successor in interest shall be and
remain simply a general creditor of the Bank in the same manner as any other
creditor having a general claim for matured and unpaid compensation.
The Bank reserves the absolute right, at its sole discretion, to either fund the
obligations undertaken by this Executive Plan or to refrain from funding the
same and to determine the extent, nature and method of such funding. Should the
Bank elect to fund this Executive Plan, in whole or in part, through the
purchase of life insurance, mutual funds, disability policies or annuities, the
Bank reserves the absolute right, in its sole discretion, to terminate such
funding at any time, in whole or in part. At no time shall any Executive be
deemed to have any lien nor right, title or interest in or to any specific
funding investment or to any assets of the Bank.
If the Bank elects to invest in a life insurance, disability or annuity policy
upon the life of the Executive, then the Executive shall assist the Bank by
freely submitting to a physical exam and supplying such additional information
necessary to obtain such insurance or annuities.
4
IV. CHANGE OF CONTROL
Upon a Change of Control (Subparagraph I [I]), if the Executive subsequently
suffers a Termination of Service (Subparagraph I [D]), then the Executive shall
receive the benefits promised in this Executive Plan upon attaining Normal
Retirement Age, as if the Executive had been continuously employed by the Bank
until the Executive's Normal Retirement Age. The Executive will also remain
eligible for all promised death benefits in this Executive Plan.
V. MISCELLANEOUS
A. Alienability and Assignment Prohibition:
------------------------------------------
Neither the Executive, nor the Executive's surviving spouse, nor any other
beneficiary(ies) under this Executive Plan shall have any power or right to
transfer, assign, anticipate, hypothecate, mortgage, commute, modify or
otherwise encumber in advance any of the benefits payable hereunder nor shall
any of said benefits be subject to seizure for the payment of any debts,
judgments, alimony or separate maintenance owed by the Executive or the
Executive's beneficiary(ies), nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event the Executive or any
beneficiary attempts assignment, commutation, hypothecation, transfer or
disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease
and terminate.
B. Binding Obligation of the Bank and any Successor in Interest:
-------------------------------------------------------------------
The Bank shall not merge or consolidate into or with another bank or sell
substantially all of its assets to another bank, firm or person until such bank,
firm or person expressly agrees, in writing, to assume and discharge the duties
and obligations of the Bank under this Executive Plan. This Executive Plan
shall be binding upon the parties hereto, their successors, beneficiaries, heirs
and personal representatives.
C. Amendment or Revocation:
-------------------------
It is agreed by and between the parties hereto that, during the lifetime of the
Executive, this Executive Plan may be amended or revoked at any time or times,
in whole or in part, by the mutual written consent of the Executive and the
Bank.
5
D. Gender:
------
Whenever in this Executive Plan words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or neuter
gender, whenever they should so apply.
E. Effect on Other Bank Benefit Plans:
---------------------------------------
Nothing contained in this Executive Plan shall affect the right of the Executive
to participate in or be covered by any qualified or non-qualified pension,
profit-sharing, group, bonus or other supplemental compensation or fringe
benefit plan constituting a part of the Bank's existing or future compensation
structure.
F. Headings:
--------
Headings and subheadings in this Executive Plan are inserted for reference and
convenience only and shall not be deemed a part of this Executive Plan.
G. Applicable Law:
---------------
The validity and interpretation of this Agreement shall be governed by the laws
of the State of Tennessee.
H. 12 U.S.C. 1828(k):
-------------------
Any payments made to the Executive pursuant to this Executive Plan, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) or any regulations promulgated thereunder.
I. Partial Invalidity:
-------------------
If any term, provision, covenant, or condition of this Executive Plan is
determined by an arbitrator or a court, as the case may be, to be invalid, void,
or unenforceable, such determination shall not render any other term, provision,
covenant, or condition invalid, void, or unenforceable, and the Executive Plan
shall remain in full force and effect notwithstanding such partial invalidity.
6
J. Employment:
----------
No provision of this Executive Plan shall be deemed to restrict or limit any
existing employment agreement by and between the Bank and the Executive, nor
shall any conditions herein create specific employment rights to the Executive
nor limit the right of the Employer to discharge the Executive with or without
cause. In a similar fashion, no provision shall limit the Executive's rights to
voluntarily sever the Executive's employment at any time.
VI. ERISA PROVISION
A. Named Fiduciary and Plan Administrator:
------------------------------------------
The "Named Fiduciary and Plan Administrator" of this Executive Plan shall be
Cavalry Banking until its resignation or removal by the Board. As Named
Fiduciary and Plan Administrator, the Bank shall be responsible for the
management, control and administration of the Executive Plan. The Named
Fiduciary may delegate to others certain aspects of the management and operation
responsibilities of the Executive Plan including the employment of advisors and
the delegation of ministerial duties to qualified individuals.
B. Claims Procedure and Arbitration:
-----------------------------------
In the event a dispute arises over benefits under this Executive Plan and
benefits are not paid to the Executive (or to the Executive's beneficiary(ies)
in the case of the Executive's death) and such claimants feel they are entitled
to receive such benefits, then a written claim must be made to the Named
Fiduciary and Plan Administrator named above within sixty (60) days from the
date payments are refused. The Named Fiduciary and Plan Administrator shall
review the written claim and if the claim is denied, in whole or in part, they
shall provide in writing within sixty (60) days of receipt of such claim the
specific reasons for such denial, reference to the provisions of this Executive
Plan upon which the denial is based and any additional material or information
necessary to perfect the claim. Such written notice shall further indicate the
additional steps to be taken by claimants if a further review of the claim
denial is desired. A claim shall be deemed denied if the Named Fiduciary and
Plan Administrator fail to take any action within the aforesaid sixty-day
period.
If claimants desire a second review they shall notify the Named Fiduciary and
Plan Administrator in writing within sixty (60) days of the first claim denial.
Claimants may review this Executive Plan or any documents relating thereto and
submit any written issues and comments it may feel appropriate. In their sole
discretion, the Named Fiduciary and Plan Administrator shall then review the
second claim and provide a written decision within sixty (60) days of receipt of
such claim. This decision shall likewise state the specific reasons for the
decision and shall include reference to specific provisions of the Plan upon
which the decision is based.
7
If claimants continue to dispute the benefit denial based upon completed
performance of this Executive Plan or the meaning and effect of the terms and
conditions thereof, then claimants may submit the dispute to an arbitrator for
final arbitration. The arbitrator shall be selected by mutual agreement of the
Bank and the claimants. The arbitrator shall operate under any generally
recognized set of arbitration rules. The parties hereto agree that they and
their heirs, personal representatives, successors and assigns shall be bound by
the decision of such arbitrator with respect to any controversy properly
submitted to it for determination.
Where a dispute arises as to the Bank's discharge of the Executive "for cause,"
such dispute shall likewise be submitted to arbitration as above described and
the parties hereto agree to be bound by the decision thereunder.
VII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE
LAW, RULES OR REGULATIONS
The Bank is entering into this Plan upon the assumption that certain existing
tax laws, rules and regulations will continue in effect in their current form.
If any said assumptions should change and said change has a detrimental effect
on this Executive Plan, then the Bank reserves the right to terminate or modify
this Plan accordingly. Upon a Change of Control (Subparagraph I [I]), this
paragraph shall become null and void effective immediately upon said Change of
Control.
8