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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1945 FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 0-28894
ACCESS ANYTIME BANCORP, INC.
(Name of small business issuer in its charter)
DELAWARE 85-0444597
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
801 PILE STREET, CLOVIS, NEW MEXICO 88101
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (505) 762-4417
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK $.01 PAR VALUE
---------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 / /
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. /X/
The issuer's revenues for the year ended December 31, 1996, were
$8,278,239.
The aggregate market value of the voting stock held by non-affiliates of
the issuer, computed by reference to the average of the closing bid and asked
prices of such stock on the Nasdaq Small-Cap Market as of March 3, 1997 was
approximately $4,502,000. (The exclusion from such amount of the market
value of the shares owned by any person shall not be deemed an admission by
the issuer that such person is an affiliate of the issuer.)
As of March 3, 1997, the issuer had outstanding 1,020,652 shares of
Common Stock, par value $0.01 per share, its only class of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The following document is incorporated by reference into Part III of this
Annual Report on Form 10-KSB: Definitive Proxy Statement for the issuer's
1997 Annual Meeting of Stockholders.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Description of Business............................................ 4
Overview........................................................... 4
Lending Activities................................................. 4
General....................................................... 4
Loan Portfolio Composition.................................... 6
One-to-Four Family Residential Mortgage Lending............... 8
Multi-Family and Commercial Real Estate Lending............... 9
Commercial Business Lending................................... 10
Construction Lending.......................................... 10
Consumer Lending.............................................. 10
Loan Servicing................................................ 11
Originations, Purchases and Sales of Loans......................... 11
Asset Quality...................................................... 12
Delinquent Loans.............................................. 12
Non-Performing Assets......................................... 13
Criticized Assets............................................. 14
Allowance for Loan Losses..................................... 14
Investment Activities.............................................. 16
General....................................................... 16
Other Investments............................................. 18
Sources of Funds................................................... 18
The Company................................................... 18
The Bank...................................................... 18
Borrowings.................................................... 22
Subsidiary of the Bank............................................. 22
Regulation......................................................... 22
General....................................................... 22
Regulation of the Company..................................... 23
Federal Securities Law........................................ 24
Insurance of Accounts and Regulations by the FDIC............. 24
Regulatory Capital Requirements............................... 25
Limitations on Dividends and Other Capital Distributions...... 27
Liquidity..................................................... 28
Accounting.................................................... 28
Qualified Thrift Lender Test.................................. 28
Community Reinvestment Act.................................... 29
Transactions with Affiliates.................................. 29
Federal Home Loan Bank System................................. 30
Written Agreements with OTS................................... 30
Regulatory Environment for 1997............................... 31
Federal and State Taxation......................................... 32
Federal Taxation.............................................. 32
State Taxation................................................ 34
New Accounting Standard............................................ 34
Competition........................................................ 34
Employees.......................................................... 34
(Continued)
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TABLE OF CONTENTS
(CONTINUED)
PAGE
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Item 2. Description of Property............................................ 35
Item 3. Legal Proceedings.................................................. 35
Item 4. Submission of Matters to a Vote of Security Holders................ 36
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters........................................ 36
Item 6. Management's Discussion and Analysis or Plan of Operation.......... 37
Selected Consolidated Financial Highlights......................... 37
General............................................................ 39
Regulatory Matters................................................. 40
Results of Operations.............................................. 41
Comparison of Years Ended December 31, 1996 and 1995.......... 43
Comparison of Years Ended December 31, 1995 and 1994.......... 43
Asset/Liability Management and Interest Rate Sensitivity........... 44
Liquidity and Capital Resources.................................... 47
Asset Quality...................................................... 49
Allowance for Loan Losses..................................... 49
Non-Performing Assets......................................... 50
Investment Securities......................................... 50
Off-Balance Sheet Financial Instruments............................ 51
Income Taxes....................................................... 51
Impact of Inflation and Changing Prices............................ 52
Impact of New Accounting Standard.................................. 52
Forward-Looking Information........................................ 52
Item 7. Financial Statements............................................... 52
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosures............................... 52
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.................. 53
Item 10. Executive Compensation............................................. 53
Item 11. Security Ownership of Certain Beneficial Owners and Management..... 53
Item 12. Certain Relationships and Related Transactions..................... 53
Item 13. Exhibits and Reports on Form 8-K................................... 54
Signatures.................................................................. 56
Index to Consolidated Financial Statements.................................. F-1
Glossary of Certain Terms................................................... G-1
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
PLEASE REFER TO THE GLOSSARY OF CERTAIN TERMS (PAGE G-1) FOR DEFINITIONS OF
VARIOUS TERMS.
OVERVIEW
Access Anytime Bancorp, Inc. (the "Company") is a Delaware corporation
which was organized in 1996 for the purpose of becoming the thrift holding
company of First Savings Bank, F.S.B. a.k.a. First Bank (the "Bank"). The
Company owns all of the outstanding stock of the Bank, which is the Company's
principal asset. The Bank was originally chartered by the FHLBB in 1934.
Currently, deposits with the Bank are insured to maximum extent permitted by
the SAIF, which is under the supervision of the FDIC. The Bank is a member
of the FHLB system and the Company and the Bank are subject to comprehensive
regulation, examination, and supervision of the OTS and the FDIC.
The Bank is the third largest financial institution headquartered in
Clovis, New Mexico, with approximately $107 million in assets. The Bank
conducts full service banking operations through three offices located in
Clovis and Portales, New Mexico and through a loan production office in Rio
Rancho, New Mexico, near Albuquerque. The Company's executive offices are
located at 801 Pile Street, Clovis, New Mexico. The telephone number at that
address is (505) 762-4417. In general, the Bank has a normal lending
territory, as defined by federal regulations, that includes all areas within
the State of New Mexico, and a 100 mile radius from the Company's main office
in Clovis, New Mexico, which extends into the State of Texas. The primary
service area's economic base is derived from Cannon Air Force Base, a
regional switching headquarters for the Burlington Northern Santa Fe
Railroad, Eastern New Mexico University, and farming and ranching.
The Company's and the Bank's revenues are derived principally from
interest on loans and securities, servicing fee income, income from deposit
account service charges and gains on the sale of loans. The results of
operations of the Company and the Bank, in general, are significantly
influenced by general economic conditions, the monetary and fiscal policies
of the federal government, competition in the Company's and the Bank's market
area, and the policies of financial institution regulatory authorities.
The Bank, since 1991, has been primarily engaged in the business of
attracting deposits from the general public, making loans secured by first
liens on single-family homes (primarily for sale into the secondary market)
and investing in mortgage related securities. The principal sources of funds
for the Bank's lending and investing activities include the sale of loans,
principal payments and prepayments on loans and mortgage related securities,
and deposits. The Bank's primary sources of income are income on loans and
securities, loan servicing fees, income from deposit account service charges,
and gains on the sale of loans. Its principal expenses are interest paid on
deposits and borrowings and general operating expenses. The earnings of the
Bank depend primarily on the differences between its income from lending and
investment activities and the interest cost of its deposits and borrowings.
LENDING ACTIVITIES
GENERAL. The Bank has historically originated fixed-rate and
adjustable-rate mortgage loans. In order to reduce its exposure to changes
in interest rates, it has also, since the early 1980's, emphasized the
origination and retention of ARM loans. Management's strategy has been to
increase assets in its portfolio which more frequently reprice or which have
shorter maturities. In response to customer demand, however, the Bank
continues to originate conventional fixed-rate mortgages.
The Bank's primary focus in lending activities is on the origination of
loans secured by first mortgages on owner-occupied, one-to-four family
residences. The Bank also originates residential construction, commercial
real estate and consumer loans in its market area. Most residential mortgage
loans originated by the Bank are in conformity with FHLMC, FNMA and GNMA loan
underwriting standards so that they may be sold
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in the secondary market. Mortgage loans made by the Bank are generally
long-term loans, amortized on a monthly basis, with principal and interest
due each month. The initial contractual loan payment period for residential
loans typically ranges from 15 to 30 years. The Bank's experience indicates,
however, that real estate loans remain outstanding for significantly shorter
periods than their contractual terms. Borrowers may refinance or prepay loans
at their option, subject to any prepayment penalty provisions, if included in
the note. Most mortgage loans are underwritten and approved by the Bank's
loan committee.
All of the Bank's lending is subject to written underwriting standards
and to loan origination procedures. Decisions on loan applications are made
on the basis of detailed applications and property valuations (consistent
with the Bank's written appraisal policy) by independent appraisers. The
loan applications are designed primarily to determine the borrower's ability
to repay and the more significant items on the application are verified
through use of credit reports, financial statements, tax returns and/or
confirmations.
In connection with the loan approval process, the Bank's loan personnel
analyze the loan application and the property involved. All real estate
loans are processed and presented by the officers to the loan committee.
Consumer loans are approved by loan committee and/or individual loan
officers, in accordance with policies established by the Bank's Board of
Directors.
Loan applicants are notified of the Bank's decision setting forth the
terms and conditions of the decision. If approved, these terms and
conditions include the amount of the loan, interest rate, amortization term,
a brief description of the real estate to be mortgaged to the Bank, and the
requirement of fire and casualty insurance coverage to be maintained to
protect the Bank's interest.
It is the policy of the Bank to obtain a title insurance policy insuring
that it has a valid lien on all property securing real estate loans. Hazard
insurance or homeowner's policies must be obtained by the borrower prior to
closing. If required by federal rules and regulations, flood insurance
policies are required. Upon closing, most borrowers are required to advance
funds for the establishment of a mortgage escrow account. Thereafter, the
borrower makes contributions to this account along with monthly principal and
interest payments. Disbursements are made from this account for items such as
real estate taxes, hazard insurance premiums, and private mortgage insurance
premiums.
The Bank receives loan origination fees for originating loans and also
receives commitment fees for making commitments to originate construction,
residential, commercial, and multi-family residential loans, as well as
various fees and charges related to existing loans, which include late
charges and assumption fees.
As part of the loan application, the borrower pays the Bank for its
out-of-pocket costs in reviewing the application, such as the appraisal fee,
whether or not the borrower closes the loan. The interest rate charged is
normally the prevailing rate at the time the loan application is approved.
In the case of larger construction loans, the Bank normally charges a 1%
commitment fee, which may be included in the loan origination charge when the
loan is made. Commitment fees and other terms of commercial and multi-family
residential loans are individually negotiated.
The Bank also maintains an escrow account for most of its loans secured
by real estate (as well as for loans serviced for others), in order to ensure
that the borrower provides funds to cover property taxes in advance of the
required payment. These accounts are analyzed annually to confirm that
adequate funds are available. For loans which do not include an escrow
requirement, an annual review of tax payments is performed by the Bank in
order to confirm payment. In order to monitor the adequacy of cash flows on
income-producing properties, the borrower or lead lender is notified
periodically and asked to provide financial information including rental
rates and income, maintenance costs and an update of real estate property tax
payments.
The aggregate amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower, including related
entities, is limited generally to the greater of 15% of unimpaired capital
and surplus or $500,000. At December 31, 1996, the maximum amount which the
Bank could have lent to any one borrower and the borrower's related entities
was approximately $863,000. One loan in excess of $863,000 with a
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remaining principal balance of $1,572,814 at December 31, 1996 is described
in "ASSET QUALITY-NON-PERFORMING ASSETS, NOTE (2)", in this Item. This loan
was made prior to the implementation of the current loan to one borrower
limitations.
LOAN PORTFOLIO COMPOSITION. The following table shows the composition of
the Bank's loan portfolio in dollar amounts and in percentages as of dates
indicated.
<TABLE>
December 31
----------------------------------------------------------------
1996 1995 1994
--------------------- -------------------- -------------------
Amount Percent Amount Percent Amount Percent
-------- -------- -------- --------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans (a):
Residential mortgage loans:
One-to-four family . . . . . . $ 26,921 56.76% $ 22,991 63.94% $ 22,950 61.53%
Multi-family . . . . . . . . . 961 2.03 995 2.76 1,047 2.81
Other dwelling units . . . . . 1,060 2.23 1,114 3.10 1,168 3.13
Commercial . . . . . . . . . . . 9,260 19.52 5,683 15.81 8,230 22.06
-------- ------ -------- ------ -------- ------
Total real estate loans . . 38,202 80.54 30,783 85.61 33,395 89.53
-------- ------ -------- ------ -------- ------
Other loans:
Savings accounts . . . . . . . . 867 1.83 897 2.50 851 2.28
Other consumer items (b) . . . . 8,360 17.63 4,276 11.89 3,055 8.19
-------- ------ -------- ------ -------- ------
Total other loans . . . . . 9,227 19.46 5,173 14.39 3,906 10.47
-------- ------ -------- ------ -------- ------
Total loans . . . . . . . . 47,429 100.00% 35,956 100.00% 37,301 100.00%
------ ------ ------
------ ------ ------
Less:
Loans in process . . . . . . . 1,077 863 317
Discounts, deferred loan
fees and other. . . . . . . . 327 333 853
Allowance for loan losses. . . 429 428 461
-------- -------- --------
Total loans receivable,
net. . . . . . . . . . . . $ 45,596 $ 34,332 $ 35,670
-------- -------- --------
-------- -------- --------
</TABLE>
(a) Includes construction loans to be converted to permanent loans and
refinanced loans.
(b) Includes, among other things, student, automobile, credit card and home
improvement loans.
6
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The following table shows the composition of the Bank's loan portfolio by
fixed- and adjustable-rate categories at the dates indicated.
<TABLE>
December 31
----------------------------------------------------------------
1996 1995 1994
--------------------- -------------------- -------------------
Amount Percent Amount Percent Amount Percent
-------- -------- -------- --------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-rate loans:
Real estate (a):
Residential mortgage loans:
One-to-four family . . . . . $ 15,345 32.35% $ 10,554 29.35% $ 9,671 25.93%
Multi-family . . . . . . . . 573 1.21 562 1.57 578 1.55
Other dwelling units . . . . 321 0.68 324 0.90 330 0.88
Commercial. . . . . . . . . . . 4,518 9.52 1,176 3.27 3,485 9.34
-------- ------ -------- ------ -------- ------
Total real estate loans . 20,757 43.76 12,616 35.09 14,064 37.70
-------- ------ -------- ------ -------- ------
Other :
Savings accounts. . . . . . . . 867 1.83 897 2.50 851 2.28
Consumer (b). . . . . . . . . . 8,038 16.95 1,859 5.16 731 1.96
-------- ------ -------- ------ -------- ------
Total consumer loans. . . 8,905 18.78 2,756 7.66 1,582 4.24
-------- ------ -------- ------ -------- ------
Total fixed-rate loans. . 29,662 62.54 15,372 42.75 15,646 41.94
-------- ------ -------- ------ -------- ------
Adjustable-rate loans:
Real estate (a):
Residential mortgage loans:
One-to-four family . . . . . 11,576 24.40 12,437 34.59 13,279 35.60
Multi-family . . . . . . . . 388 0.82 433 1.21 469 1.26
Other dwelling units . . . . 739 1.56 790 2.20 838 2.25
Commercial. . . . . . . . . . . 4,742 10.00 4,507 12.53 4,745 12.72
-------- ------ -------- ------ -------- ------
Total real estate loans . 17,445 36.78 18,167 50.53 19,331 51.83
Consumer (b) . . . . . . . . . . . 322 0.68 2,417 6.72 2,324 6.23
-------- ------ -------- ------ -------- ------
Total adjustable-rate
loans. . . . . . . . . . 17,767 37.46 20,584 57.25 21,655 58.06
-------- ------ -------- ------ -------- ------
Total loans receivable. . 47,429 100.00% 35,956 100.00% 37,301 100.00%
------ ------ ------
------ ------ ------
Less:
Loans in process. . . . . . . . 1,077 863 317
Discounts, deferred loan fees
and other. . . . . . . . . . . 327 333 853
Allowance for loan losses . . . 429 428 461
-------- -------- --------
Total loans receivable,
net. . . . . . . . . . . $ 45,596 $ 34,332 $ 35,670
-------- -------- --------
-------- -------- --------
</TABLE>
(a) Includes construction loans to be converted to permanent loans and
refinanced loans.
(b) Includes, among other things, student, automobile, credit card and home
improvement loans.
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The following table outlines the specific loan types with contractual
maturity dates as of December 31, 1996. Loans which have adjustable or
renegotiable rates are shown as maturing during the period when the contract
is due. This schedule does not reflect the effects of possible principal
prepayments by the borrower.
<TABLE>
Real Estate Non-Real Estate
----------------------------------- -------------------------------------
Commercial
Mortgages Construction Consumer Business Total
----------------- ----------------- ----------------- ----------------- ------------------
Weighted Weighted Weighted Weighted Weighted
average average average average average
Amount rate Amount rate Amount rate Amount rate Amount rate
------- ---- ------ ---- ------ ----- ------ ---- ------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Within one year $ 1,495 8.94% $1,975 8.91% $1,228 9.71% $ 280 9.80% $ 4,978 9.17%
More than one year
through two years 1,593 8.52 -- -- 690 11.11 11 10.78 2,294 9.31
More than two years
through three years 201 8.73 -- -- 1,006 11.12 442 7.02 1,649 9.73
More than three years
through five years 1,189 9.54 -- -- 4,023 10.67 230 8.91 5,442 10.35
More than five years
through ten years 3,481 8.73 -- -- 1,046 12.10 241 9.72 4,768 9.52
More than ten years
through fifteen years 12,164 8.20 -- -- -- -- -- -- 12,164 8.20
More than fifteen years 16,104 8.21 -- -- 30 5.50 -- -- 16,134 8.20
------- ---- ------ ---- ------ ----- ------ ---- ------- -----
Total loans receivable $36,227 8.34% $1,975 8.91% $8,023 10.78% $1,204 8.60% $47,429 8.79%
------- ---- ------ ---- ------ ----- ------ ---- ------- -----
------- ---- ------ ---- ------ ----- ------ ---- ------- -----
</TABLE>
As of December 31, 1996, the total amount of loans with maturities longer
than one year which had fixed interest rates was approximately $25 million
and with floating or adjustable interest rates was approximately $17 million.
ONE-TO-FOUR FAMILY RESIDENTIAL MORTGAGE LENDING. The primary
lending activity of the Bank has been the granting of conventional loans to
enable borrowers to purchase new or existing homes. The Bank also originates
VA-guaranteed and FHA-insured loans. Residential loan originations are
generated by the Bank's marketing efforts, its present customers, walk-in
customers and referrals from realtors and builders. The Bank has focused its
lending efforts primarily on the origination of loans secured by first
mortgages on owner-occupied, single-family residences in its market area.
The Bank's fixed-rate loans generally conform to secondary market
standards (I.E., FHLMC, FNMA and GNMA standards) and, since 1991, have been
primarily originated for sale in the secondary market. A portion of these
loans has been originated pursuant to forward sales commitments. Most of the
Bank's fixed-rate residential loans have contractual terms to maturity of 30
years. As a part of its asset/liability management strategy and in response
to an increase in refinancing activity, the Bank also originates 15 year
fixed-rate, fully amortizing loans. Interest rates charged on these
fixed-rate loans are competitively priced according to market conditions.
The Bank has offered ARM loans at rates, terms and fees determined in
accordance with market and competitive factors. The programs currently
offered primarily meet the standards and requirements of the secondary market
for residential loans. The Bank's current one-to-four family residential ARM
loans are fully amortizing loans with contractual maturities of up to 30
years. The interest rates on the ARM loans originated by
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the Bank are subject to adjustment at stated intervals and are subject to
annual and lifetime adjustment limits below and above the initial rate. Most
of the Bank's ARM loans have interest rates which adjust annually based on a
margin over one of several indices. These loans' annual and lifetime caps on
interest rate increases may reduce the extent to which they can help protect
the Bank against interest rate risk. The Bank has from time to time offered
ARM loans at below the fully-indexed rate; however, borrowers of ARM loans
are qualified at the fully-indexed rates.
The Bank retains ARM loans in its portfolio consistent with its ongoing
asset/liability objectives. ARM loans decrease the risks associated with
changes in interest rates but involve other risks, primarily because as
interest rates rise, the payment by the borrower rises to the extent
permitted by the terms of the loan, thereby increasing the potential for
default. At the same time, the marketability of the underlying property may
be adversely affected by higher interest rates. The Bank believes that these
risks, which have not had a material adverse effect on the Bank to date,
generally are less than the risks associated with holding fixed-rate loans in
a rising interest rate environment. In this regard, the Bank's delinquency
experience on its ARM loans has generally been similar to its experience on
fixed-rate residential loans.
The Bank evaluates both the borrower's ability to make principal,
interest and escrow payments and the value of the property that will secure
the loan. The Bank originates residential mortgage loans with loan-to-value
ratios up to 95%. On any mortgage loan exceeding an 80% loan-to-value ratio
at the time of origination, the Bank will generally require private mortgage
insurance in an amount intended to reduce the Bank's exposure to 80% or less
of the appraised value of the underlying property, unless otherwise approved
by the Bank's Board of Directors.
The Bank's residential mortgage loans customarily include a due-on-sale
clause giving the Bank the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or
otherwise disposes of the property subject to the mortgage and the loan is
not repaid. The Bank has generally enforced due-on-sale clauses in its
mortgage loan contracts. Yield increases may be obtained through the
authorization of assumptions of existing loans at higher rates of interest,
assuming the current rates are higher than the existing note rate, and the
imposition of assumption fees. ARM loans may be assumed provided home buyers
meet the Bank's underwriting standards and the applicable fees are paid.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. The Bank's multi-family and
commercial real estate loan portfolio includes loans secured by apartment
buildings, office buildings, retail stores and other properties, most of
which are located in the Bank's normal lending territory. The Bank intends
to originate multi-family and commercial real estate loans in the future,
subject to regulatory restrictions. Multi-family and commercial real estate
loans generally are originated in amounts up to 75% of the appraised value of
the property securing the loan. Commercial and multi-family loans are made
at both fixed and adjustable interest rates for terms of up to 25 years. The
terms and conditions of multi-family and commercial real estate loans are
negotiated on a case-by-case basis.
Appraisals on properties securing multi-family and commercial real estate
loans originated by the Bank are performed by an independent appraiser
subject to regulatory guidelines at the time the loan is made. All
appraisals on multi-family and commercial real estate loans are reviewed by
the Bank's management. In addition, the current underwriting procedures
require verification of the borrower's credit history, income and financial
statements, banking relationships, references and income projections for the
property. Personal guarantees are generally obtained for the Bank's
multi-family and commercial real estate loans.
Multi-family and commercial real estate lending affords the Bank an
opportunity to receive interest at rates higher than those generally available
from one-to-four family residential lending. Nevertheless, loans secured by
such properties are generally larger and involve a greater degree of risk than
one-to-four family residential mortgage loans. Because payments on loans
secured by multi-family and commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be subject to adverse conditions in the real estate market or
the economy. If the cash flow from the
9
<PAGE>
project is reduced (for example, if leases are not obtained or renewed), the
borrower's ability to repay the loan may be impaired. In addition,
adjustable-rate multi-family and commercial real estate loans are subject to
increased risk of delinquency or default as interest rates increase. The
Bank has attempted to minimize these risks through its underwriting standards
and by lending primarily on existing income-producing properties.
COMMERCIAL BUSINESS LENDING. The Bank began offering commercial business
loans guaranteed by the SBA in 1991. The SBA program provides lenders with
the ability to offer flexible terms and longer maturities on loans to small
businesses and professionals. The program provides the lender a guaranteed
portion (generally 75%-80%) of principal and interest. Since these loans are
guaranteed, they generally offer minimal risk to the Bank. These loans are
made with adjustable and fixed interest rates with maturities of up to 25
years, depending on the underlying collateral. The loans are approved by the
SBA. The Bank intends to expand its commercial lending by utilizing the SBA
program.
The Bank intends to provide short and medium term credit to businesses in
the Bank's primary lending territory. Commercial loans include revolving
credit lines and term loans, or a combination thereof, and are generally
secured by equipment, accounts receivable, inventories, real estate or other
business assets or a combination thereof. Commercial business loans are made
pursuant to specified loan approval limits set by the Bank's Board of
Directors. The Bank usually requires that business borrowers maintain their
operating accounts with the Bank in the form of demand deposits. Loans made
to corporations are generally personally guaranteed by the principals of the
corporation.
CONSTRUCTION LENDING. The Bank originates loans to finance the
construction of single-family residences and commercial businesses. Many of
these loans are made to individuals who will ultimately be the
owner-occupants of the residence. Such loans are generally made, although
not required, with permanent financing on the constructed property to be
provided by the Bank. Construction loans are generally made with a six month
term on a fixed-rate, interest-only basis. Residential construction loans to
owner-occupants are generally underwritten using the same criteria as for
one-to-four family residential loans. Commercial construction loans are
generally made with 12 to 24 month maturities. Loan proceeds are disbursed
in increments as construction progresses and inspections warrant.
Construction loans afford the Bank the opportunity to charge loan
origination fees, to increase the frequency of repricing of its loan
portfolio and to earn yields higher than those obtainable on loans secured by
existing one-to-four family residential properties. The higher yields
reflect the higher risks associated with construction lending, which include
principally the difficulty in evaluating accurately the total funds required
to complete a project and the post-completion value of the project. As a
result, the Bank places a strong emphasis upon the borrower's ability to
repay and the experience and expertise of the builder who has contracted to
construct the property.
CONSUMER LENDING. Management considers consumer lending to be an
important component of its strategic plan. Specifically, consumer loans
generally have shorter terms to maturity (thus reducing the Bank's exposure
to changes in interest rates) and carry higher rates of interest than do
one-to-four family residential mortgage loans. In addition, management
believes that the offering of consumer loan products helps to expand and
create stronger ties to its existing customer base by increasing the number
of customer relationships and providing cross-marketing opportunities. Under
applicable federal laws, the Bank is authorized to invest up to 35% of its
assets in consumer loans excluding credit card and education loans.
The Bank offers a variety of secured consumer loans, including home
improvement loans, auto loans, personal lines of credit, equity lines of
credit and loans secured by savings deposits. The Bank also offers a limited
amount of unsecured and credit card loans. The Bank currently originates all
of its consumer loans in its market area. Consumer loan terms vary according
to the type of collateral, length of contract and creditworthiness of the
borrower. The Bank's consumer loans generally have fixed rates of interest.
The Bank currently has three arrangements to originate consumer automobile
loans on an indirect basis (I.E., where loan contracts are purchased from
automobile retailers which have extended credit to their
10
<PAGE>
customers). The Bank applies the underwriting standards mentioned below in
the approval process of purchasing these contracts. These loans have a fixed
interest rate and maturities of 6 years or less. As of December 31, 1996,
the Bank had $3,734,552 in indirect automobile contracts or 7.9% of its loan
portfolio before net items.
The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's payment history on other debts and
an assessment of the ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the
value of the security, if any, in relation to the proposed loan amount.
Consumer loans may entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured, or
secured by rapidly depreciable assets, such as automobiles. In such cases,
any repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition,
consumer loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be affected by adverse
personal circumstances. Furthermore, the application of various federal and
state laws, including bankruptcy, may limit the amount which can be recovered
on such loans. Although the level of delinquencies in the Bank's consumer
loan portfolio has generally been low (at December 31, 1996, $24,000, or .26%
of the consumer loan portfolio, was 60 days or more delinquent), there can be
no assurance that delinquencies will not increase in the future.
LOAN SERVICING. In addition to servicing its own loans, the Bank
services mortgage loans for others. It is the practice of the Bank to sell
most fixed-rate loans and retain most adjustable-rate loans. Most
conventional loans are sold to FNMA and the servicing is retained. VA and
FHA loans are sold to private investors such as New Mexico Mortgage Finance
Authority, Norwest Funding, Inc., and the Prudential Home Mortgage Company,
Inc. with the servicing released. The fee for selling loans with servicing
released is generally 1/4% to 1 3/4%. The Bank generally retains the
servicing on conventional loans sold to FNMA and receives a fee payable
monthly of approximately 1/4% per annum of the unpaid balance of each loan.
As of December 31, 1996, the Bank was servicing loans for others in the
amount of approximately $44.8 million. These loans are not reflected in the
consolidated statement of financial condition.
ORIGINATIONS, PURCHASES AND SALES OF LOANS
As described previously, the Bank originates loans through its marketing
efforts, its existing customer base, walk-in customers, and real estate
brokers and builders. Commercial real estate loan originations are obtained
by direct solicitation. The Bank originates both adjustable-rate and
fixed-rate loans. Its ability to originate loans is dependent upon the
relative customer demand in the origination market which is affected by
market conditions such as short-term and long-term interest rates as well as
the expected future level of interest rates.
The Bank made no purchases or sales of pooled whole loans in 1996 and had
no commitments to purchase any loans or mortgage-backed securities at
December 31, 1996. At the same date, the Bank had loan origination
commitments of $606,081 and commitments to sell residential loans of
$564,361. The Bank expects to continue to sell part of its residential
mortgage loans in order to enhance liquidity and to maintain its risk-based
capital position. This has generally been the procedure since 1991. When
these loans are sold, the Bank usually retains the responsibility for
servicing the loans.
11
<PAGE>
The following table sets forth the principal amount of the Bank's
mortgage loan origination, purchase and sales activity for the periods
indicated.
Year Ended December 31
--------------------------
1996 1995 1994
-------- -------- ------
(Dollars in Thousands)
Originations by loan type
Fixed-rate:
Construction loans................... $ 2,026 $ 766 $ 934
Conventional loans................... 14,581 6,113 6,470
Loans refinanced..................... 4,331 1,676 6,040
Adjustable-rate:
Conventional loans................... 612 794 1,792
Loans refinanced..................... 207 703 1,565
------- ------- ------
Total loans originated........... 21,757 10,052 16,801
------- ------- ------
Purchases:
Loans purchased...................... -- -- --
------- ------- ------
Sales and repayments:
Sales (1)............................ 8,913 7,504 14,439
Principal repayments................. 2,141 3,634 8,003
------- ------- ------
Total reductions................. 11,054 11,138 22,442
------- ------- ------
Increase (decrease) in other items, net.. 264 (62) 141
------- ------- ------
Net increase (decrease).......... $ 10,967 $(1,148) $(5,500)
------- ------- ------
------- ------- ------
(1) Consists entirely of one-to-four family fixed rate loans
ASSET QUALITY
DELINQUENT LOANS. When a borrower fails to make a required payment on a
loan, the Bank attempts to cause the delinquency to be cured by contacting
the borrower. In the case of residential loans, a late notice is sent 16
days after the due date. If the delinquency is not cured by the thirtieth
day, contact with the borrower is made by telephone or a letter is sent.
Additional written and verbal contacts are made with the borrower between 35
and 70 days after the due date.
In the event a real estate loan payment is past due for 45 days or more,
the Bank performs an in-depth review of the loan status, the condition of the
property and circumstances of the borrower. Based upon the results of its
review, the Bank may negotiate and accept a repayment program with the
borrower, accept a voluntary deed in lieu of foreclosure or when deemed
necessary, initiate foreclosure proceedings. If foreclosed on, real property
is sold at a public sale and the Bank may bid on the property to protect its
interest. A decision as to whether and when to initiate foreclosure
proceedings is based on such factors as the amount of the outstanding loan in
relation to the original indebtedness, the extent of delinquency and the
borrower's ability and willingness to cooperate in curing delinquencies.
Delinquent consumer loans are handled in a generally similar manner,
except that contacts are made beginning when the payment is 10 days past due.
If these efforts fail to bring the loan current, appropriate action may be
taken to collect any loan payment that remains delinquent. The Bank's
procedures for repossession and
12
<PAGE>
sale of consumer collateral are subject to various requirements under New
Mexico consumer protection laws. Loans are generally placed on non-accrual
status after 90 days delinquency or notice of bankruptcy.
The following table sets forth the Bank's loan delinquencies by type,
amount, and percentage of type at December 31, 1996.
<TABLE>
Loans Delinquent For
----------------------------------------------------- Total Loans Delinquent
60-89 Days 90 Days And Over 60 Days or More
------------------------- ------------------------- --------------------------
Percent Percent Percent
of loan of loan of Loan
Number Amount category Number Amount category Number Amount category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to-four family....... 2 $ 83 0.31% 1 $ 53 0.20% 3 $ 136 0.51%
Other dwelling units..... -- -- -- -- -- -- -- -- --
Commercial real estate... -- -- -- -- -- -- -- -- --
Consumer loans............... 5 24 0.26 -- -- -- 5 24 0.26
---- ---- ---- ---- ---- ----- ---- ----- ------
Total loans.................. 7 $107 0.23% 1 $ 53 0.11% 8 $ 160 ` 0.34%
---- ---- ---- ---- ---- ----- ---- ----- ------
---- ---- ---- ---- ---- ----- ---- ----- ------
</TABLE>
NON-PERFORMING ASSETS. Non-performing assets consist of loans on which
interest is no longer being accrued, troubled debt restructurings, real
estate acquired by foreclosure or deed-in-lieu of foreclosure and repossessed
assets.
The following table sets forth the amounts and categories of
non-performing assets in the Bank's portfolio. Loans are generally placed on
non-accrual status after 90 days delinquency.
December 31
-----------------------------
1996 1995 1994
------- -------- -------
(Dollars in Thousands)
Non-accrual loans (1)......................... $ 53 $ -- $ 148
Past due 90 days or more and still accruing... -- -- 37
Renegotiated loans (2)........................ 1,573 1,573 3,145
Real estate owned (3)......................... 86 114 421
------ ------ ------
Total non-performing assets................... $1,712 $1,687 $3,751
------ ------ ------
------ ------ ------
Ratio of non-performing assets to total asset. 1.60% 1.44% 2.98%
------ ------ ------
------ ------ ------
(1) Generally refers to loans that are contractually delinquent (i.e.,
payments were due and unpaid for more than 90 days).
(2) The Bank's largest restructured note of approximately $1,573,000
originated in 1987 for $2,000,000 as a permanent loan on a shopping center
of 47,457 square feet, located on 56,943 square feet of land in Santa Fe,
New Mexico. The terms of the note were modified in 1992 and an additional
borrower was added to the loan. The interest rate of 5% in 1995 increased to
6% in 1996 and escalates to 7% in 1997 with interest due monthly and
principal reductions due at the end of each year. Final maturity is December
1997. The loan was current and performing under the terms of the modified
agreement at December 31, 1996. However, the Bank is monitoring this loan
and it is included in the table "Criticized Assets" listed as special
mention in this Item, due to the nature of the restructure.
(3) Refers to real estate acquired by the Bank through foreclosure or
voluntary deed in lieu of loan foreclosure.
13
<PAGE>
For the year ended December 31, 1996, gross interest income which would
have been recorded had the non-accruing loans and renegotiated loans been
current in accordance with their original terms amounted to $132,563. The
amount that was included in interest income on such loans was $119,377 for the
year ended December 31, 1996.
CRITICIZED ASSETS. Federal regulations provide for the classification of
loans and other assets, such as debt and equity securities considered by the OTS
to be of lesser quality, as "substandard," "doubtful" or "loss." An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories, but possess weaknesses,
are required to be designated "special mention" by management.
When an insured institution classifies problem assets as either substandard
or doubtful, it may establish general allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances
which have been established to recognize the inherent risk associated with
lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to
charge-off such amount. An institution's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the regulatory authorities, who may order the establishment of additional
general or specific loss allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Bank regularly reviews
the problem loans in its portfolio to determine whether any loans require
classification in accordance with applicable regulations. Criticized assets of
the Bank at December 31, 1996 were as follows:
December 31,
1996
--------------
(In Thousands)
Substandard............................ $ 443
Doubtful............................... --
Loss................................... --
--------------
Total classified assets................ 443
Special mention assets................. 3,193
--------------
Total criticized assets................ $ 3,636
--------------
--------------
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's quarterly asset
classification review and evaluation of the risk inherent in its loan portfolio
and changes in the nature and volume of its loan activity. Such evaluation,
which includes a review of all loans of which full collectibility may not be
reasonably assured, considers among other matters, the estimated value of the
underlying collateral, economic conditions, cash flow analyses, historical loan
loss experience,
14
<PAGE>
discussions held with delinquent borrowers and other factors that warrant
recognition in providing for an adequate loan allowance. Although management
believes it uses the best information available to make such determinations,
future adjustments to reserves may be necessary, and net income could be
significantly affected, if circumstances differ substantially from the
assumptions used in making the initial determinations. The Bank's quarterly
asset classification review determines which loans to charge-off.
The following table sets forth an analysis of the Bank's allowance for
loan losses for the years indicated.
Year ended December 31
---------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(Dollars in Thousands)
Balance at beginning of year.... $ 428 $ 461 $ 509 $ 535 $ 878
Provision charged (credited).... 14 (15) 4 21 386
Charge-offs:
Mortgage loans:
Single family............... -- -- (50) (33) (53)
Commercial real estate...... -- -- -- -- (649)
Consumer loans.................. (18) (21) (3) (33) (67)
Recoveries:
Mortgage loans:
Single family............... 2 -- -- -- 15
Commercial real estate...... -- -- -- -- --
Consumer loans.................. 3 3 1 19 25
------ ------ ------ ------ ------
Balances at end of year......... $ 429 $ 428 $ 461 $ 509 $ 535
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of net charge-offs during
the period to average loans
outstanding during the period. .03% .05% .14% .11% 1.39%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Allowance for loan losses to
non-performing loans, at the
end of the period............. 25.06% 25.37% 12.29% 8.23% 5.55%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Allowance for loan losses to
total loans, at end of period. .94% 1.25% 1.29% 1.38% 1.19%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
15
<PAGE>
INVESTMENT ACTIVITIES
GENERAL. The Bank has maintained high levels of investments that qualify
as liquid assets under OTS regulations. Liquidity may increase or decrease
depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Historically, the Bank has
maintained liquid assets at levels above the minimum requirements imposed by
the OTS regulations and at levels believed adequate to meet the requirements
of normal operations, including repayments of maturing debt and potential
deposit outflows. Cash flow projections are regularly reviewed and updated
to assure that adequate liquidity is maintained. For the month of December
1996, the Bank's liquidity ratio (liquid assets as a percentage of net
withdrawable savings deposits and current borrowings) was 19.27%.
Federally chartered thrift institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions,
federally chartered thrift institutions may also invest their assets in
commercial paper, investment grade corporate debt securities and mutual funds
whose assets conform to the investments that a federally chartered thrift
institution is otherwise authorized to make directly.
Generally, the investment policy of the Bank is to invest funds among
various categories of investments and maturities based upon the Bank's
asset/liability management policies, investment quality and marketability,
liquidity needs and performance objectives.
The Bank has a substantial portfolio of mortgage-backed securities.
Historically, most of the Bank's mortgage-backed securities were long-term,
fixed-rate federal agency securities. In recent years, the Bank began to
purchase other types of mortgage-backed securities consistent with its
asset/liability management and balance sheet objectives. In this regard, the
Bank emphasizes the purchase of adjustable-rate or short or intermediate term
fixed-rate mortgage-backed securities for asset/liability management
purposes and to supplement the Bank's origination of ARM loans. At December
31, 1996, approximately $25 million or 48% of the Bank's mortgage-backed
securities carried adjustable rates of interest. The Bank also has pooled
fixed-rate loans in its existing loan portfolio to create mortgage-backed
securities.
Under the OTS' risk-based capital requirements, GNMA mortgage-backed
securities have a zero percent risk-weighting and FNMA, FHLMC and AA- or
higher rated mortgage-backed securities have a 20% risk-weighting, in
contrast to the 50% risk-weighting carried by performing one-to-four family
residential mortgage loans. None of the mortgage-backed securities held by
the Bank had a risk-weight for regulatory capital purposes above 20%.
All of the Bank's mortgage-backed securities are backed by FHLMC, GNMA or
FNMA, or rated AA or higher. Accordingly, management believes that the
Bank's mortgage-backed securities generally are resistant to credit problems.
The Bank's holdings of mortgage-backed securities have decreased in
recent years primarily as a result of increase in the Bank's loan portfolio
and, to a lesser extent, reduced levels of deposit portfolio. FHLMC, GNMA
and FNMA mortgage-backed securities generally carry a yield approximately 50
to 100 basis points below that of the corresponding type of residential loan
(due to the insurance or guarantee feature of such securities and the
retention of a servicing spread by the loan servicer), and the Bank's other
mortgage-backed securities also carry lower yields (because such securities
tend to have shorter actual durations than 30-year loans). The Bank will
continue to evaluate mortgage-backed securities purchases and loan
securitizations of its existing loans in the future based on its strategic
and asset/liability objectives, market conditions and alternative investment
opportunities.
16
<PAGE>
The following table sets forth the composition of the Bank's investment
portfolio at the dates indicated.
<TABLE>
December 31
--------------------------------------------------------------
1996 1995 1994
------------------ ----------------- -----------------
Carrying % of Carrying % of Carrying % of
value total value total value total
-------- ------ -------- ------ -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale:
Mortgage-backed securities:
GNMA adjustable rate.................. $23,640 100.0% $28,096 84.9% $ 2,980 100.0%
Obligation of U.S. government agencies.... -- -- 4,994 15.1 -- --
------- ----- ------- ----- ------- -----
Total available-for-sale......... $23,640 100.0% $33,090 100.0% $ 2,980 100.0%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
Held-to-maturity:
Mortgage-backed securities:
FNMA participation certificates....... $ 5,355 18.4% $ 6,225 17.1% $ 7,019 9.1%
FHLMC participation certificates...... 21,896 75.2 27,873 76.6 32,066 41.4
FHLMC adjustable rate................. 1,862 6.4 2,306 6.3 2,650 3.4
GNMA adjustable rate.................. -- -- -- -- 28,782 37.1
Obligation of U.S. government agencies.... -- -- -- -- 6,988 9.0
------- ----- ------- ----- ------- -----
Total held-to-maturity........... 29,113 100.0% 36,404 100.0% 77,505 100.0%
------- ----- ------- ----- ------- -----
----- ----- -----
FHLB stock................................ 1,572 1,483 1,392
------- ------- -------
Other interest-earning assets:
Interest-bearing deposits with banks.. 381 476 389
------- ------- -------
Total............................ $54,706 $71,453 $82,266
------- ------- -------
------- ------- -------
Average remaining life or term to
repricing of investment securities
excluding other-interest-earning
assets and FHLB stock(1)................ 14 years 16 years 17 years
</TABLE>
- ---------------------
(1) The average remaining lives of securities with "call" features are
calculated using the date of maturity.
The following table sets forth the composition and contractual maturities
of the Bank's investment securities.
<TABLE>
December 31, 1996
----------------------------------------------------------------------
Total investment
securities
-------------------
Within 1 to 5 5 to 10 10 to 20 Over 20 Amortized Market
one year years years years years cost value
-------- ------ ------- -------- ------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale:
Mortgage-backed securities:
GNMA adjustable rate........ $ -- $ -- $ -- $ 1,005 $22,833 $ 23,838 $23,640
-------- ------ ------- -------- ------- --------- -------
Total securities
available-for-sale... $ -- $ -- $ -- $ 1,005 $22,833 $ 23,838 $23,640
-------- ------ ------- -------- ------- --------- -------
-------- ------ ------- -------- ------- --------- -------
Weighted average yield.......... --% --% --% 6.50% 6.63% 6.62%
-------- ------ ------- -------- ------- ---------
-------- ------ ------- -------- ------- ---------
</TABLE>
17
<PAGE>
<TABLE>
December 31, 1996
-----------------------------------------------------------------------------
Total
investment
securities
--------------------
Within 1 to 5 5 to 10 10 to 20 Over 20 Amortized Market
one year years years years years cost value
-------- ------- ------- -------- ------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
Mortgage-backed securities:
FNMA participation certificates........ $ 4,314 $ 1,041 $ -- $ -- $ -- $ 5,355 $ 5,193
FHLMC participation certificates....... 7,790 14,106 -- -- -- 21,896 21,448
FHLMC adjustable-rate certificates..... -- -- -- -- 1,862 1,862 1,829
------- ------- ------- ------- ------ ------- -------
Total securities held-to-maturity.... $12,104 $15,147 $ -- $ -- $1,862 $29,113 $28,470
------- ------- ------- ------- ------ ------- -------
------- ------- ------- ------- ------ ------- -------
Weighted average yield................... 5.25% 5.39% -- -- 5.89% 5.36%
------- ------- ------- ------- ------ -------
------- ------- ------- ------- ------ -------
</TABLE>
OTHER INVESTMENTS. At December 31, 1996, the Bank's interest bearing
deposits with banks was $380,570 or .4% of total assets. As of such date,
the Bank also had a $1,572,334 investment in FHLB stock, satisfying its
requirement for membership in the FHLB of Dallas. It is the Bank's general
policy to purchase investment securities which are U.S. Government securities
and federal agency obligations and other issues that are rated investment
grade or have credit enhancements. The Bank's investment securities
portfolio at December 31, 1996 was entirely comprised of securities issued by
the United States Government, or its agencies.
SOURCES OF FUNDS
THE COMPANY. The Company's primary source of funds are dividends from
the Bank, of which none have been paid to date, borrowings from the Bank in
the form of advances ($269,357 at December 31, 1996), and outside borrowings.
On February 12, 1997, the Company obtained a line of credit in the amount
of $100,000 from a correspondent bank for six months at a market rate of
interest, the funds of which are to be used for general corporate purposes.
No borrowings under the line of credit have been made to date.
THE BANK. The Bank's primary sources of funds are deposits, amortization
and prepayment of loan principal, sales or maturities of loans, investment
securities, mortgage-backed securities and short-term investments, borrowings
and funds provided from operations.
Borrowing, predominantly from the FHLB of Dallas, may be used on a
short-term basis to compensate for seasonal reductions in deposits or deposit
inflows at less than projected levels, and may be used in the future on a
longer-term basis to support lending and investing activities.
The Bank offers a variety of deposit accounts having a wide range of
interest rates and terms. The Bank's deposits consist of statement savings,
NOW accounts and money market accounts and CDs. The Bank relies primarily on
advertising, competitive pricing policies and customer service to attract and
retain these deposits. The Bank solicits deposits from its primary market
area only and does not use brokers to obtain deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. During the fiscal year ended December 31, 1996, total deposits
decreased by approximately $12.5 million. To maintain proper capital ratios
and improve its net interest margin, management decided in 1995 to be less
aggressive in bidding for public fund deposits and the decline in
18
<PAGE>
deposits is partially attributed to that strategic plan as well as
management's overall strategy to change the product mix offered to its
customers. This policy continues to date.
Management believes that customers continue to place a value on federal
insurance on deposit accounts and that, to the extent the Bank maintains
competitive rates, it will be able to maintain its deposit and liquidity
levels. The Bank manages the pricing of its deposits in keeping with its
asset/liability management and profitability objectives.
Based on its experience, the Bank believes that its savings accounts,
interest-bearing and non-interest-bearing checking accounts are relatively
stable sources of deposits. However, the ability of the Bank to attract and
maintain CDs, and the rates paid on these deposits, has been and will
continue to be significantly affected by market conditions.
The following tables set forth the deposits in the various programs
offered by the Bank at the dates indicated:
<TABLE>
Balance at Balance at Balance at Balance at
December 31, % of Increase December % of Increase December % of Increase December
1996 deposits (decrease) 31, 1995 deposits (decrease) 31, 1994 deposits (decrease) 31, 1993
----------- -------- ---------- - --------- -------- ---------- --------- -------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Transactional
accounts $ 8,416 8.57% 453 7,963 7.19% $ 298 $ 7,665 6.80% $(1,882) $ 9,547
Jumbo CDs 7,722 7.87 (5,173) 12,895 11.66 (64) 12,959 11.49 (3,329) 16,288
Savings accounts 8,321 8.48 (960) 9,281 8.39 (1,979) 11,260 9.98 (3,078) 14,338
Money market
deposit accounts 10,511 10.71 (903) 11,414 10.32 (2,353) 13,767 12.21 (6,855) 20,622
IRA accounts 9,811 9.99 (512) 10,323 9.33 (4) 10,327 9.16 (737) 11,064
Other CDs 53,383 54.38 (5,374) 58,757 53.11 1,962 56,795 50.36 (2,036) 58,831
------- -------- -------- -------- ------- -------- -------- ------ -------- --------
$98,164 100.00% $(12,469) $110,633 100.00% $(2,140) $112,773 100.00% $(17,917) $130,690
------- -------- -------- -------- ------- -------- -------- ------ -------- --------
------- -------- -------- -------- ------- -------- -------- ------ -------- --------
</TABLE>
19
<PAGE>
<TABLE>
December 31, 1996 December 31, 1995 December 31, 1994
--------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
average Percentage average Percentage average Percentage
Minimum interest of total interest of total interest of total
amount Category rate Balance deposits rate Balance deposits rate Balance deposits
- ------- ------------- -------- ------- ---------- -------- ------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
$ 100 Transactional
accounts zero-rate 0.00% $ 1,516 1.54% 0.00% $ 576 0.52% 0.00% $ 429 0.38%
100 Transactional
accounts 1.63 6,900 7.03 2.47 7,387 6.68 2.90 7,236 6.42
1,000 Money market 3.06 9,647 9.83 3.65 11,414 10.32 3.90 13,767 12.21
100 Savings accounts 2.50 8,321 8.48 2.75 9,281 8.39 3.20 11,260 9.98
2,500 Access money
market 4.57 864 0.88 -- -- -- -- -- --
Certificates of
Deposit
1,000 30-60 day CDs 3.03 175 0.18 4.31 376 0.34 4.18 564 0.50
1,000 91 day CDs 3.71 1,110 1.13 4.52 1,465 1.32 4.17 2,375 2.11
1,000 6 month CDs 4.60 15,407 15.70 5.05 15,928 14.40 4.08 16,406 14.55
1,000 1 year CDs 4.82 18,164 18.51 5.57 20,422 18.46 4.16 15,788 14.00
1,000 18 month CDs 5.05 1,662 1.69 5.56 2,131 1.93 3.91 2,144 1.90
1,000 2 year CDs 5.54 4,574 4.66 5.08 5,819 5.26 4.27 5,732 5.08
1,000 30 month CDs 5.81 4,265 4.34 5.62 4,407 3.98 4.99 5,864 5.20
1,000 3 year CDs 0.00 -- 0.00 8.00 5 0.00 7.15 17 0.02
1,000 4 year CDs 5.59 3,045 3.10 5.65 3,276 2.96 5.43 2,844 2.52
1,000 5 year CDs 5.77 4,981 5.07 5.90 5,028 4.54 6.18 5,061 4.49
90,000 Jumbo CDs 5.01 7,722 7.87 5.67 12,795 11.57 4.62 12,959 11.49
100 IRA floating rate 5.05 4,733 4.82 5.24 5,169 4.67 5.63 5,351 4.74
100 1 year IRA 5.03 1,993 2.03 5.74 1,932 1.75 3.85 1,932 1.71
100 3 year IRA 5.40 1,582 1.61 5.34 1,875 1.69 4.99 1,841 1.63
100 5 year IRA 5.85 1,503 1.53 6.13 1,347 1.22 6.28 1,203 1.07
----- ------- ------- ----- -------- ------- ----- -------- -------
4.31% $98,164 100.00% 4.69% $110,633 100.00% 3.65% $112,773 100.00%
----- ------- ------- ----- -------- ------- ----- -------- -------
----- ------- ------- ----- -------- ------- ----- -------- -------
</TABLE>
The following table sets forth the savings flows of the Bank during the
periods indicated. Net deposits (withdrawals) refer to the amount of
deposits during a period less the amount of withdrawals during the same
period. Deposit flows at savings institutions may also be influenced by
external factors such as governmental credit policies and, particularly in
recent periods, depositors' perceptions of the adequacy of federal insurance
of accounts.
Year Ended December 31
--------------------------
1996 1995 1994
-------- -------- -------
(Dollars in Thousands)
Net deposits (withdrawals) before interest
credited .........................................$(17,178) $(7,452) $(22,309)
Interest credited................................... 4,709 5,312 4,392
--------- -------- ---------
Net decrease in savings deposits.............$(12,469) $(2,140) $(17,917)
--------- -------- ---------
--------- -------- ---------
Percent decrease.................................... (11.27)% (1.90)% (13.71)%
20
<PAGE>
The following table shows interest rate and maturity information for the
Bank's CDs as of December 31, 1996.
<TABLE>
0.00- 3.00- 5.00- 7.00- Percent
2.99% 4.99% 6.99% 8.99% Total of total
----- ------- ------- ---- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate accounts
maturing in quarter
ending:
- --------------------
March 31, 1997........ $ 26 $13,178 $ 8,255 $ 53 $21,512 30.33%
June 30, 1997......... -- 14,495 4,353 10 18,858 26.59
September 30, 1997.... -- 5,269 3,938 5 9,212 12.99
December 31, 1997..... -- 5,724 3,514 -- 9,238 13.03
March 31, 1998........ -- 239 1,679 99 2,017 2.84
June 30, 1998......... -- 1,035 1,026 -- 2,061 2.91
September 30, 1998.... -- 288 562 41 891 1.26
December 31, 1998..... -- 425 1,377 -- 1,802 2.54
March 31, 1999........ -- 226 299 323 848 1.20
June 30, 1999......... -- 73 773 -- 846 1.19
September 30, 1999.... -- 26 550 -- 576 0.81
December 31, 1999..... -- 14 517 -- 531 0.75
Thereafter............ -- 11 2,299 214 2,524 3.56
----- ------- ------- ---- ------- ------
Total $ 26 $41,003 $29,142 $745 $70,916 100.00%
----- ------- ------- ---- ------- ------
----- ------- ------- ---- ------- ------
Percent of total .0% 57.8% 41.1% 1.1% 100.0%
----- ------- ------- ---- -------
----- ------- ------- ---- -------
</TABLE>
The following table indicates the amount of the Bank's CDs by size or from
public entities, by time remaining until maturity as of December 31, 1996.
<TABLE>
Maturity
---------------------------------------------
Over Over
3 months 3 to 6 6 to 12 Over
or less months months 12 months Total
-------- ------- ------- --------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
CDs less than $100,000...... $18,162 $16,784 $16,486 $11,285 $62,717
CDs of $100,000 or more..... 2,850 2,016 1,964 811 7,641
Public funds(1)............. 500 58 -- -- 558
------- ------- ------- ------- -------
Total CDs and public funds.. $21,512 $18,858 $18,450 $12,096 $70,916
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
- ----------------------
(1) Certificates of deposit from government and other public entities.
21
<PAGE>
From time to time, the Bank has had greater amounts of public funds. The
amount of public funds held by the Bank at December 31, 1996 and 1995 was
$726,268 and $2,792,186, respectively. The Bank is required to pledge
collateral against such funds equal to 100% of such funds.
BORROWINGS. Although deposits are the Bank's primary source of funds,
the Bank's policy has been to utilize borrowings when there is a net outflow
of deposits, when advances are a less costly source of funds or when funds
from advances can be invested at a positive spread. In addition, the Bank
has relied upon selected borrowings for short-term liquidity needs.
The Bank may obtain advances from the FHLB of Dallas upon the security of
its capital stock of the FHLB of Dallas and certain of its mortgage loans,
investment securities and mortgage-backed securities. Such advances may be
made pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. At December 31, 1996, the Bank had
$3,000,000 of FHLB borrowings outstanding.
During fiscal 1996, the Bank utilized advances from FHLB of Dallas to
cover net deposit outflows and, to a lesser extent, partially fund mortgage
loans.
The following table sets forth maximum balance, average balance, and
average rate paid on FHLB advances for the period indicated.
Year ended December 31
----------------------------
1996 1995 1994
------- -------- --------
(Dollars in Thousands)
Maximum amount of borrowings outstanding . . . . $ 3,900 $ 7,400 $ 11,600
Approximate average borrowings outstanding . . . $ 459 $ 1,305 $ 5,038
Approximate weighted average interest rate paid . 5.38% 6.13% 4.92%
SUBSIDIARY OF THE BANK
In 1974, the Bank incorporated First Equity Development Corporation
("FEDCO"), a New Mexico corporation, as a wholly-owned subsidiary of the
Bank. The directors and officers of FEDCO also serve as officers of the Bank.
Prior to 1991, FEDCO's primary business was real estate acquisition,
development and construction, and investment in the Bank's former data
processing service bureau. FEDCO had $1,697 in cash at December 31, 1996 and
1995, and no other assets or liabilities and is currently an inactive
corporation. Thrift institutions are permitted to invest an amount equal to
2% of their assets, through a subsidiary, with an additional investment of 1%
of assets where such investment serves primarily community, inner-city and
community development purposes.
REGULATION
GENERAL. The Bank is subject to extensive regulation, examination and
supervision by the OTS, as its chartering agency, and the FDIC, as its deposit
insurer. The Bank's deposit accounts are insured up to applicable limits by the
SAIF administered by the FDIC, and it is a member of the FHLB of Dallas. The
Bank must file reports with the OTS and the FDIC concerning its activities and
financial condition, and it must obtain regulatory approvals prior to entering
into certain transactions, such as mergers with, or acquisitions of, other
depository institutions. The OTS and the FDIC conduct periodic examinations to
assess the Bank's compliance with various regulatory requirements. Such
regulation and supervision establish a comprehensive framework of activities in
which an institution may engage and are intended primarily for the protection of
the insurance fund and depositors. The Company, as a unitary thrift holding
company, is required to file certain reports with, and otherwise comply with,
the rules and regulations of the OTS and of the Securities and Exchange
Commission ("Commission") under the federal securities laws.
22
<PAGE>
The OTS and the FDIC have significant discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment
of adequate loan loss reserves for regulatory purposes. Any change in such
regulation and policies, whether by the OTS, the FDIC or action of the United
States Congress, could have a material adverse impact on the Company, the
Bank and the operations of both.
In 1992, the Bank was deemed to be undercapitalized by the OTS and agreed
to the issuance in July 1993 of a Prompt Corrective Action Directive, which
was amended in August 1994. The directive required the Bank to submit a
capital restoration plan to the OTS, prescribed restrictions on dividends,
management fees, asset growth, branching and other matters and established
increased capital levels for the Bank. The Bank is currently in compliance
with the provisions of the directive. The Bank entered into a Supervisory
Agreement with the OTS effective as of June 17, 1996. The Supervisory
Agreement provides for the Bank to increase its core capital position to 6%
by December 31, 1996 and to a level of 7% no later than June 30, 1997. The
6% requirement at December 31, 1996 was subsequently waived by the OTS in
November 1996. To comply with certain other terms of the Supervisory
Agreement, the Board of Directors of the Bank appointed outside directors to
the Bank's Asset/Liability and Investment Committee, revised its business and
capital plan and reports quarterly on variances of actual results to budgeted
projections.
REGULATION OF THE COMPANY. The Company, as a unitary thrift holding
company, is a savings and loan holding company within the meaning of HOLA.
As such, the Company is required to register with the OTS and is subject to
OTS regulations, examinations, supervision and reporting requirements. In
addition, the OTS has enforcement authority over the Company and its
non-thrift subsidiaries, if any. Among other things, this authority permits
the OTS to restrict or prohibit activities that are determined to be a
serious risk to the financial safety, soundness or stability of a subsidiary
savings association.
Except under limited circumstances, thrift holding companies are
prohibited from acquiring, without prior approval of the OTS, control of any
other savings institutions or thrift holding company or substantially all the
assets thereof or more than five percent of the voting shares of a thrift
institution or holding company thereof which is not a subsidiary. In
evaluating an application by a holding company to acquire a thrift
association, the OTS must consider the financial and managerial resources and
future prospects of the company and thrift association involved, the effect
of the acquisition on the risk to the insurance funds, the convenience and
needs of the community and competitive factors. Acquisitions which result in
a thrift holding company controlling thrift associations in more than one
state are generally prohibited except in supervisory transactions involving
failing savings associations or based on specific state authorization to
permit such acquisitions.
Federal law also requires OTS approval prior to any change of control of
the Company or the Bank. Under OTS regulations, "control" is presumed to
exist if an individual or company acquires more than twenty-five percent of
any class of voting stock of a thrift association or holding company.
Control is also presumed to exist, subject to being rebutted, if a person
acquires more than ten percent of any class of voting stock (or more than
twenty-five percent of any class of non-voting stock) and is subject to any
of several control factors, including, among other matters, the relative
ownership position of a person, the existence of control agreements and other
factors.
As a unitary thrift holding company, the Company generally will not be
restricted under existing laws to the types of business activities in which
it may engage, provided that the Bank continues to satisfy the QTL test. Upon
any non-supervisory acquisition by the Company of another thrift or savings
bank that meets the QTL test and is deemed to be a savings association by the
OTS and that will be held as a separate subsidiary, the Company would become
a multiple thrift holding company and would be subject to limitations on the
types of business activities in which it could engage. HOLA generally limits
the activities of a multiple thrift holding company and its non-insured
association subsidiaries primarily to activities permissible for bank holding
companies under the Bank Holding Company Act, subject to the prior approval
of the OTS, and to other activities authorized by OTS regulation.
23
<PAGE>
A thrift association or a thrift holding company is required to give 30
days prior written notice to the OTS of any proposed appointment of a
director or senior executive officer if the institution has been chartered
less than two years, has undergone a change in control within the preceding
two years, or is not in compliance with the minimum capital requirements or
otherwise is in a troubled condition. The OTS then has the opportunity to
disapprove any such appointment.
Transactions between the Bank and the Company and its other subsidiaries
are subject to various conditions and limitations. The Bank will be required
to give 30 days written notice to the OTS prior to any declaration of the
payment of any dividends or other capital distributions to the Company.
FEDERAL SECURITIES LAW. The stock of the Company is registered with the
Commission under the Exchange Act ("Exchange Act"). The Company is subject
to the information, proxy solicitation, insider trading restrictions and
other requirements of the Commission under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Bank may not be resold without
registration or unless sold in accordance with certain resale restrictions.
If the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.
INSURANCE OF ACCOUNTS AND REGULATIONS BY THE FDIC. The Bank is a member
of the SAIF, which is administered by the FDIC. Deposits are insured up to
applicable limits by the FDIC and such insurance is backed by the full faith
and credit of the United States Government. As insurer, the FDIC imposes
deposit insurance premiums and is authorized to conduct examinations of and
to require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the FDIC. The FDIC also has
the authority to initiate enforcement actions against thrift associations,
after giving the OTS an opportunity to take such action, and may terminate
the deposit insurance if it determines that the institution has engaged or is
engaging in unsafe or unsound practices, or is in an unsafe or unsound
condition.
Federal law also required the FDIC to implement a risk-based deposit
insurance assessment system. Pursuant to this requirement, the FDIC adopted a
transitional risk-based assessment system, effective January 1, 1993, under
which all insured thrift institutions are placed into one of nine categories
and assessed insurance premiums, ranging from .0% to .27% of deposits, based
upon their level of capital and supervisory evaluation. The permanent system,
adopted in June 1993 and effective January 1, 1994, continued the risk
classification system established under the transitional rule. Under the
system institutions classified as well capitalized [i.e., a core capital ratio
of at least 5%, a ratio of Tier 1 or core capital to risk-weighted assets
("Tier 1 risk-based capital") of at least 6% and a risk-based capital ratio
of at least 10%]and considered healthy would pay the lowest premiums while
institutions that are less than adequately capitalized (i.e., core and Tier 1
risk-based capital ratios of less than 4% or a risk-based capital ratio of
less than 8%) and considered of substantial supervisory concern would pay the
highest premium. Risk classification of all insured institutions will be made
by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semi-annual
basis, if it determines that the reserve ratio of the SAIF will be less than
the designated reserve ratio of 1.25% of SAIF insured deposits. In setting
these increased assessments, the FDIC must seek to restore the reserve ratio
to that designated reserve level, or such higher reserve ratio as established
by the FDIC. In addition, under the FDICIA, the FDIC may impose special
assessments on SAIF members to repay amounts borrowed from the United States
Treasury for any other reason deemed necessary by the FDIC.
As is the case with the SAIF, the FDIC is authorized to adjust the
insurance premium rates for banks that are insured by the BIF of the FDIC in
order to maintain the reserve ratio of the BIF at 1.25% of BIF insured
deposits. The FDIC's premium schedule provides a charge on deposits so that
well-capitalized and healthy banks will pay the lowest premiums.
24
<PAGE>
On September 30, 1996, EGRPRA was passed. The EGRPRA contains a
comprehensive approach to recapitalize the SAIF and assure payment of the
FICO obligations. A key provision of Subtitle G of EGRPRA imposed a special
assessment on SAIF assessable deposits held in the Bank as of March 31, 1995.
The "Special SAIF Assessment Statement" received by the Bank was for
$761,686, which represented a charge of .006570 on an Assessment Deposit Base
of $115,933,923 as of March 31, 1995. This charge was accrued by the Bank as
an Insurance Fund Expense in the third quarter ending September 30, 1996.
The charge was paid November 27, 1996.
Other key provisions of SAIF/FICO reform are summarized as follows:
- The FICO obligation is to be shared by the SAIF and BIF insured
institutions beginning January 1, 1997;
- The BIF and SAIF are to be merged into a new DIF effective January 1,
1999, if saving associations do not exist;
- Creation of SAIF Special Reserve;
- Refund of amounts in DIF in excess of Designated Reserve Amount;
- Assessment Rates for SAIF members may not be less than Assessment
Rates for BIF members;
- Assessments authorized only if needed to maintain the reserve ratio of
the Deposit Insurance Fund;
- The Secretary of Treasury is to report to Congress by March 31, 1997 on
issues relevant to a common depository institution charter;
- The Special Assessments may be deducted as a trade or business expense
in the year paid.
In addition, the law significantly expands the authority of the Bank to
make consumer and commercial loans. The primary changes are as follows:
- To permit credit card loans to count as qualified thrift investments
without QTL limits;
- To permit education loans to be made without QTL limits;
- To increase the current 10% of asset limit to 20% on a commercial
loans;
- To expand other consumer loans (excluding credit card and education
loans) QTL limits from 10% to 20%;
- To expand interstate branching if QTL test is met and if a state thrift
from the federal thrift's home state could branch into that other
state.
REGULATORY CAPITAL REQUIREMENTS. Federally insured thrift associations,
such as the Bank, are required to maintain a minimum level of regulatory
capital. The OTS has established capital standards, including a tangible
capital requirement, a leverage ratio (or core capital) requirement and a
risk-based capital requirement applicable to such thrift associations. These
capital requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose
capital requirements in excess of these standards on individual associations
on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage
servicing rights, must be deducted from tangible capital.
The OTS regulations establish special capitalization requirements for
thrift associations that own subsidiaries. Under these regulations certain
subsidiaries are consolidated for capital purposes and others are excluded
from assets and capital. In determining compliance with the capital
requirements, all subsidiaries engaged solely in activities permissible for
national banks or engaged in certain other activities solely as agent for its
customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership, including the
assets of includable subsidiaries in which the association has a minority
interest that is not consolidated for generally accepted accounting
principles ("GAAP") purposes. For excludable subsidiaries, the debt and
equity investments in such subsidiaries are deducted from assets and capital,
with a five-year transition period beginning on July 1, 1990, for investments
made before April 12, 1989.
25
<PAGE>
At December 31, 1996, the Bank had tangible capital of $5,295,531 or 4.95% of
adjusted total assets, which was $3,689,970 above the minimum requirement of
1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets (as defined by regulation). Core capital generally
consists of tangible capital plus certain intangible assets, including a
limited amount of purchased credit card relationships. As a result of the
prompt corrective action provisions discussed below, however, a thrift
association must maintain a core capital ratio of at least 4% to be
considered adequately capitalized unless its supervisory condition is such to
allow it to maintain a 3% ratio. At December 31, 1996, the Bank had no
intangibles which were subject to these tests.
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only those thrift associations
rated as a composite one (the highest rating) under their rating system will
be permitted to operate at or near the regulatory minimum leverage ratio of
3%. All other thrift associations will be required to maintain a minimum
leverage ratio of 4% to 5%. The OTS will assess each individual thrift
association through the supervisory process on a case-by-case basis to
determine the applicable requirement. No assurance can be given as to the
final form of any such regulation, the date of its effectiveness or the
requirement applicable to the Bank.
At December 31, 1996, the Bank had core capital equal to $5,295,531 or
4.95% of adjusted total assets, which was $2,084,410 above the minimum
leverage ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires thrift associations to have total
capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary
capital consists of certain permanent and maturing capital instruments that
do not qualify as core capital and general valuation loan and lease loss
allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary
capital may be used to satisfy the risk-based requirement only to the extent
of core capital. The OTS is also authorized to require a thrift association
to maintain an additional amount of total capital to account for
concentration of credit risk and the risk of non-traditional activities. At
December 31, 1996, the Bank had no capital instruments that qualify as
supplementary capital. In addition, general loss reserves at that date were
less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investment (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. The Bank had no such
exclusions from capital and assets at December 31, 1996.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one-to-four family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at
origination unless insured to such ratio by an insurer approved by the FNMA
or FHLMC.
At December 31, 1996, the Bank had risk-based capital of $5,724,772 or
13.47% of risk-weighted assets. This amount was $2,323,572 above the 8%
requirement in effect on that date.
The OTS has adopted a final rule that requires every thrift association
with more than normal interest rate risk to deduct from its total capital,
for purposes of determining compliance with such requirement, an amount equal
to 50% of its interest rate risk exposure multiplied by the present value of
its assets. This exposure is a measure of the potential decline in the net
portfolio value of a thrift association, greater than 2% of the present value
of its assets, based upon a hypothetical 200 basis point increase or decrease
in interest rates (whichever results in a greater decline). Net portfolio
value is the present value of expected cash flows from assets, liabilities
and off-balance sheet contracts. The rule provides for a two quarter lag
between calculating interest rate risk and recognizing any deduction from
capital. Any thrift association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement unless
the OTS determines
26
<PAGE>
otherwise. The first time thrift institutions will be required to
incorporate interest rate risk into their risk-based capital calculations is
undetermined for regulatory reporting purposes. Based upon financial data as
of December 31, 1996, management believes that compliance with the new
interest rate risk measure will not have a material impact on the Bank's
risk-based capital position.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against thrift associations that fail to
meet their capital requirements. The OTS is generally required to take
action to restrict the activities of an "undercapitalized association"
(generally defined to be one with less than either a 4% core capital ratio, a
4% Tier 1 risked-based capital ratio or an 8% risk-based capital ratio). Any
such association must submit a capital restoration plan and until such plan
is approved by the OTS may not increase its assets, acquire another
institution, establish a branch or engage in any new activities, and
generally may not make capital distributions. The OTS is authorized to
impose the additional restrictions, discussed below, that are applicable to
significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that is will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any thrift association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions. These actions and restrictions include requiring the issuance
of additional voting securities; limitations on asset growth; mandated asset
reduction; changes in senior management; divestiture, merger or acquisition
of the association; restrictions on executive compensation; and any other
action the OTS deems appropriate. An association that becomes "critically
undercapitalized" (i.e., a tangible capital ratio of 2% or less) is subject
to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the
OTS must appoint a receiver (or conservator with the concurrence of the FDIC)
for a thrift association, with certain limited exceptions, within 90 days
after it becomes critically undercapitalized.
Any undercapitalized association is also subject to other possible
enforcement actions by the OTS or the FDIC. Such actions could include a
capital directive, a cease-and-desist order, civil money penalties, the
establishment of restrictions on all aspects of the Bank's operations or the
appointment of a receiver or conservator or a forced merger into another
institution.
If the OTS determines that an association is in an unsafe or unsound
condition or is engaged in an unsafe or unsound practice, it is authorized to
reclassify a well-capitalized association as an adequately capitalized
association and if the association is adequately capitalized, to impose the
restrictions applicable to an undercapitalized association. If the
association is undercapitalized, the OTS is authorized to impose the
restrictions applicable to a significantly undercapitalized association.
The imposition by the OTS or the FDIC of any of these measures on the
Bank may have a substantial adverse effect on the Company's operations and
profitability. The Company's shareholders do not have preemptive rights, and
therefore, if the Bank is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution in the
percentage of ownership of the Bank.
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. OTS
regulations impose various restrictions on thrift associations with respect
to their ability to make distributions of capital, which include dividends,
stock redemptions or repurchases, cash-out mergers and other transactions
charged to the capital account. OTS regulations also prohibit a thrift
association from declaring or paying any dividends or from repurchasing any
of its stock if, as a result, the regulatory capital of the association would
be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.
Generally, thrift associations, such as the Bank, that before and after
the proposed distribution meet their capital requirements, may make capital
distributions during any calendar year equal to the greater of 100% of net
27
<PAGE>
income for the year-to-date plus 50% of the amount by which the lesser of the
association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or requirement for such capital component, as measured at the
beginning of the calendar year, or 75% of its net income for the most recent
four quarter period. However, an association deemed to be in need of more
than normal supervision by the OTS may have its dividend authority restricted
by the OTS. The Bank may pay dividends in accordance with this general
authority.
Thrift associations proposing to make any capital distributions need only
submit written notice to the OTS 30 days prior to such distribution. Thrift
associations that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution, however, must obtain
OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30 day period notice based on safety and soundness
concerns.
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a thrift association may make
a capital distribution without notice to the OTS (unless it is a subsidiary
of a holding company) provided that it has a CAMEL 1 or 2 rating, is not of
supervisory concern and would remain adequately capitalized (as defined in
the OTS prompt corrective action regulations) following the proposed
distribution. Thrift associations that would remain adequately capitalized
following the proposed distribution but do not meet the other noted
requirements must notify the OTS 30 days prior to declaring a capital
distribution. The OTS stated it will generally regard as permissible that
amount of capital distributions that do not exceed 50% of the institution's
excess regulatory capital plus net income to date during the calendar year.
A thrift association may not make a capital distribution without prior
approval of the OTS and the FDIC if it is undercapitalized before, or as a
result of, such a distribution. As under the current rule, the OTS may
object to a capital distribution if it would constitute an unsafe or unsound
practice. No assurance may be given as to whether or in what form the
regulations may be adopted.
LIQUIDITY. All thrift associations, including the Bank, are required to
maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. This liquid
asset ratio requirement may vary from time to time (between 4% and 10%)
depending upon economic conditions and savings flows of all thrift
associations. At the present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (i.e., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's
average daily balance of net withdrawable deposit accounts and current
borrowings. Penalties may be imposed upon associations for violations of
either liquid asset ratio requirement. At December 31, 1996, the Bank was in
compliance with both requirements, with an overall liquid asset ratio of
19.27% and short-term liquid assets ratio of 2.84%.
ACCOUNTING. An OTS policy statement applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
thrift association must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance
with GAAP. Under the policy statement, management must support its
classification of and accounting for loans and securities (i.e., whether held
for investment, sale or trading) with appropriate documentation. The Bank is
in compliance with this policy statement.
The OTS had adopted an amendment to its accounting regulations to require
that transactions be reported in a manner that best reflects their
underlying economic substance and inherent risk and that financial reports
must incorporate any other accounting regulations or orders prescribed by the
OTS. Such regulations may result in reporting transactions in a manner that
is more stringent than may be required by GAAP.
QUALIFIED THRIFT LENDER TEST. All thrift associations, including the
Bank, are required to meet a QTL test to avoid certain restrictions on their
operations. The HOLA sets specific limits on the types and amounts of loans
that federal thrift associations may make. Prior to the enactment of EGRPRA,
commercial, corporate,
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business, or agricultural loans were limited in the aggregate to 10% of a
thrift's assets; education loans were limited to 5% of a thrift's assets;
and, in general, qualified thrift investments (I.E., housing related
investments) had to equal 65% of the thrift's portfolio assets for the thrift
to be deemed a QTL. EGRPRA amended the HOLA to provide that a federal thrift
association is a QTL if it qualifies as a domestic building and loan
association as defined by the Internal Revenue Code or meets the QTL test
outlined in the HOLA. The amendment further permits federal thrift
associations to invest in, sell or otherwise deal in education and credit
card loans without limitation, and raises from 10 to 20% of total assets the
aggregate amount of commercial, corporate, business, or agricultural loans or
investments that may be made by a thrift but requires that amounts in excess
of 10% of total assets must be used only for small business loans. In
addition, "qualified thrift investment" is defined to include, without limit,
education, small business, and credit card loans; and removes the 10% limit
on personal, family or household loans for purposes of the QTL test. At
December 31, 1996, the Bank met the QTL test and has always met the test
since its inception.
Any thrift association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains
a QTL. Requalification as a QTL is restricted to one time only. If an
association does not requalify and converts to a national bank charter, it
must remain SAIF-insured until the FDIC permits it to transfer to the BIF.
If an association that fails the test has not yet requalified and has not
converted to a national bank, its new investments and activities are limited
to those permissible for both a thrift association and a national bank, and
it is limited to national bank branching rights in its home state. In
addition, the association is immediately ineligible to receive any new FHLB
borrowings and is subject to national bank limits for payment of dividends.
If such association has not requalified or converted to a national bank
within three years after the failure, it must divest of all investments and
cease all activities not permissible for a national bank. In addition, it
must repay promptly any outstanding FHLB borrowings, which may result in
prepayment penalties. If any association that fails the QTL test is
controlled by a holding company, then within one year after the failure, the
holding company must register as a bank holding company and become subject to
all restrictions on bank holding companies.
COMMUNITY REINVESTMENT ACT. Under the CRA, every FDIC insured
institution has a continuing and affirmative obligation consistent with safe
and sound banking practices to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the
types of products and services that it believes are best suited to its
particular community, consistent with the CRA. The CRA requires the OTS, in
connection with the examination of the Bank, to assess the institution's
record of meeting the credit needs of its community and to take such record
into account in its evaluation of certain applications, such as a merger or
the establishment of a branch, by the Bank. An unsatisfactory rating may be
used as the basis for the denial of an application by the OTS. The most
recent CRA examination as of September 30, 1996 classified the Bank as
satisfactory.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the
CRA in the past few years, the Bank may be required to devote additional
funds for investment and lending in its local community.
TRANSACTIONS WITH AFFILIATES. Generally, transactions between a thrift
association or its subsidiaries and its affiliates are required to be on
terms as favorable to the association as transactions with non-affiliates.
In addition, certain of these transactions, such as loans to an affiliate,
are restricted to a percentage of the association's capital. Affiliates of
the Bank include the Company and any company which is under common control
with the Bank. In addition, a thrift association may not lend to any
affiliate engaged in activities not permissible for a bank holding company or
acquire the securities of most affiliates. The OTS has the discretion to
treat subsidiaries of thrift associations as affiliates on a case-by-case
basis.
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Certain transactions with directors, officers of controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions
on loans to such persons and their related interests. Among other things,
such loans must be made on terms substantially the same as for loans to
unaffiliated individuals. At December 31, 1996, loans to directors and
officers of the Bank were $315,605.
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of
Dallas which is one of 12 regional FHLBs that administer the home financing
credit function of thrift associations. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of
the FHLB System. It makes loans to members (i.e., advances) in accordance
with policies and procedures established by the board of directors of the
FHLB. These policies and procedures are subject to the regulation and
oversight of the Federal Housing Finance Board. All advances from the FHLB
are required to be fully secured by sufficient collateral as determined by
the FHLB. In addition, all long-term advances are required to provide funds
for residential home financing.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled thrift associations and to contribute to low- and
moderately-priced housing programs through direct loans or interest subsidies
on advances targeted for community investment and low- and moderate-income
housing projects. These contributions have affected adversely the level of
FHLB dividends paid and could continue to do so in the future. These
contributions could also have an adverse effect on the value of FHLB stock in
the future. A reduction in value of the Bank's FHLB stock may result in a
corresponding reduction in the Bank's capital.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Dallas. At December 31, 1996, the Bank had $1,572,334 in FHLB stock,
which was in compliance with this requirement. The Bank has received
dividends on its FHLB stock, which have averaged 4.86% over the past five
calendar years and were 6.04% for calendar year 1996.
For the year ended December 31, 1996, stock and cash dividends paid by
the FHLB of Dallas to the Bank totaled $89,110 which constitutes a $2,825
decrease from the amount of dividends received in fiscal year 1995. The
$22,747 dividend received for the quarter ended December 1996 reflects an
annualized rate of 5.85% or .63% below the rate for calendar 1995.
WRITTEN AGREEMENTS WITH OTS. In 1992, the Bank was deemed to be
undercapitalized by the OTS and agreed to the issuance in July 1993 of a
Prompt Corrective Action Directive ("APCAD"), which was amended in August
1994. The APCAD required the Bank to submit a capital restoration plan to
the OTS, prescribed restrictions on dividends, management fees, asset growth,
branching and other matters and established unreserved capital levels for the
Bank. The Bank is currently in compliance with the APCAD. The following
table represents the Bank's capital ratios and the APCAD requirements as of
December 31, 1996.
Actual
APCAD December 31,
required 1996 Excess
-------- ------------ ------
Core capital......................... 4.0% 4.95% .95%
Leverage ratio capital............... 4.0 4.95 .95
Risk-based capital................... 8.0 13.47 5.47
However, the OTS has sole discretion as to if and when the APCAD will
be removed.
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Effective as of June 17, 1996, the Board of Directors of the Bank and the
OTS signed a Supervisory Agreement which states that it is of mutual benefit
for the Bank to do the following:
1. Complete and submit a revised business and capital plan which will:
a. Increase core capital to 6% as of December 31, 1996,
b. Increase core capital to 7% as of June 30, 1997.
2. Create an asset/liability and investment committee of the Board to
oversee and review pricing activities, investment selection and
interest rate risk.
3. Report quarterly on the Bank's operating results and explain variances
of actual results to budgeted projections.
This agreement may be suspended in part or in whole by the OTS Regional
Director. In November 1996, the OTS waived the 6% core capital requirement
contained in the Supervisory Agreement. However, the June 30, 1997 core
capital requirement of 7% is still applicable. The Company estimates that
between $2 million and $2.5 million of proceeds from a rights offering and
supplemental offering, discussed below, will be needed to achieve the June
30, 1997 core capital requirement of 7%.
Beginning in December 1996, the Company offered to the then existing
stockholders of the Company subscription rights for the issuance of 732,198
shares of the Company's common stock. The subscription price was $5.25 per
share. Holders of the subscription rights were able to exercise their
subscription rights until the expiration date on February 14, 1997. An
aggregate of 286,054 shares of the 732,198 shares of common stock were
subscribed which amounted to $1,501,783. The proceeds of the offering, while
meeting the minimum subscription requirement of $1,500,000 outlined in the
offering, are not sufficient to meet the June 30, 1997 core capital
requirement. The Company estimates that an additional $800,000 will be
needed to meet such requirement. The remaining 446,144 shares are now being
offered to other investors at the same subscription price of $5.25 per share.
The supplemental offering of the remaining shares will expire on March 19,
1997 unless it is extended by the Company. Management is currently unable to
determine how many shares, if any, will be sold to other investors prior to
the expiration of the supplemental offering.
REGULATORY ENVIRONMENT FOR 1997. It is anticipated that in 1997 the
regulator agendas will continue to focus on three major areas: regulatory
compliance, financial management, and cost control.
The major issues to be reviewed in each of these areas are as follows:
- REGULATORY COMPLIANCE. Regulatory compliance should focus on four main
areas:
- - Risk management in all areas of banking with specific attention
to compliance and fair lending.
- - Nondeposit investment products sold only by broker-dealers or
properly licensed registered representatives and proper
disclosures or no FDIC insurance of these products.
- - Enhancement of individual financial privacy as it relates to new
home banking, interest banking and smart card usage products.
- - Expansion of goals geared to establish know-your-customer policy
to prevent fraud, protect safety and soundness of the
institution, and protect name and reputation of the Bank.
- FINANCIAL MANAGEMENT. Regulations governing investment securities are
scheduled for review by the regulatory agencies. Regulators also may
finalize proposals for measuring interest rate risk for risk-based
capital purposes. The Financial Accounting Standards Board ("FASB")
is likely to take further action in the area of market valuation, as
well as in the areas of financial statement disclosures, and
accounting for derivatives and hedging activities. Banks' use of
simple gap models for asset/liability management may be reviewed again
by regulators. Falling rates may adversely affect any concentrated
investment by banks in mortgage-backed securities.
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- COST CONTROL. Reengineering of retail delivery systems, focus on
the customer, customer and product profitability models, and a new
emphasis on the internal audit function all should get attention
during 1997.
In addition, the Federal Reserve and the Office of Comptroller of the
Currency issued new risk management guidelines, which they began using in
1996 as part of a new rating system for the banks they examine. The FDIC
informally has been following a similar approach of managing bank risk for
some time now.
The federal banking agencies' new management guidelines measure a bank's
control of six different types of risks:
- Credit risk - Operational risk
- Market risk - Legal risk
- Liquidity risk - Reputation risk
According to the new guidelines, effective control of each of these must
include:
- - Active board and senior management oversight
- - Adequate policies, procedures, and limits
- - Adequate risk measurement, monitoring, and management information systems
- - Comprehensive internal controls
This new approach for examiners incorporates all-inclusive measurement
guidelines of the risks associated with managing a bank, and they represent a
major shift in regulatory risk assessment: from activities (i.e., commercial
loans, investing in mortgage-backed securities, etc.) to risk exposures.
This shift might result in many changes in examination procedures and bank
evaluation standards.
It is also anticipated that much legislative time will be devoted to the
issues of changing the Glass-Stegall Act and Bank Holding Company Act to
permit common ownership of commercial banks, securities firms and insurance
companies.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION. Thrift institutions are subject to provisions of the
Internal Revenue Code ("Code") in the same general manner as other
corporations. However, institutions such as the Bank, which meet certain
definitional tests and other conditions prescribed by the Code, will receive
benefits with favorable provisions regarding their deductions from taxable
income for annual additions to their bad debt reserve. For purposes of the
bad debt reserve deductions, loans are separated into "qualifying real
property loans", which generally are loans secured by certain interests in
real property, and "non-qualifying loans", which are all other loans. The
bad debt reserve deduction with respect to non-qualifying real property loans
may be based upon actual loss experience or a percentage of taxable income
before such deduction.
The Company, which files a consolidated federal income tax return with
the Bank on a calendar year basis, has elected to use the bad debt deduction
method which results in the greatest deduction for federal income tax
purposes.
Under the percentage of taxable income method, the bad debt reserve
deduction for qualifying real property loans is computed as 8% of taxable
income with certain adjustments. However, due to the decrease in the maximum
corporate tax rate under the 1986 Act (discussed below), the effective tax
rate for the Bank was not changed materially. Under prior law, no deduction
based on percentage of taxable income is allowed if less than 60% of total
dollar amount of the assets of the institution falls within certain
categories. As of December 31, 1996, the Bank's total assets qualified the
Bank to take the maximum allowable bad debt deduction.
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Furthermore, the deduction under the percentage of taxable income method is
available only to the extent that the accumulated bad debt reserve for losses
on qualifying real property loans does not exceed 6% of such loans at year
end. This limitation is not expected to restrict the Bank from making the
maximum addition to its bad debt reserve.
The bad debt deduction under the percentage of taxable income method is
limited to the amount which, when added to the bad debt reserve for losses on
non-qualifying loans, equals the amount by which 12% of total deposits or
withdrawable accounts of depositors at year end exceeds the sum of the
surplus, undivided profits and reserves at the beginning of the year. It is
not expected that this limitation will restrict the Bank from making the
maximum addition to its bad debt reserve. The deduction under the percentage
of taxable income method has also historically been reduced by all or a
portion of the addition to the reserve for losses on non-qualifying loans.
Under the 1986 Act, the deduction under the percentage of taxable income
method has been reduced by all of the additions to the reserve for losses on
non-qualifying loans.
Under the 1986 Act, for taxable years beginning after December 31, 1986,
the existing corporate minimum tax was replaced by a corporate alternative
minimum tax which is imposed to the extent it exceeds the corporation's
regular income tax for the year (as specially adjusted). The alternative
minimum tax is imposed at the rate of 20% of a specially computed tax base.
Included in this base are a number of preference items, including the
following: (i) 100% of the excess of a thrift institution's bad debt
deduction over the amount that would have been allowable on the basis of
actual experience; (ii) interest on certain tax-exempt bonds issued after
August 7, 1986; and (iii) for years beginning 1987, 1988, and 1989, an amount
equal to one-half of the amount by which a corporation's "book income" (as
specially defined) exceeds its taxable income with certain adjustments,
including the addition of preference items (for taxable years commencing
after 1989, this preference item was replaced with a new item relating to
"adjusted current earnings" as specially computed). In addition, for
purposes of the alternative minimum tax, the amount of alternative minimum
taxable income that may be offset for net operating losses is limited to 90%
of the alternative minimum taxable income.
In addition to the changes discussed above, the 1986 Act, among other
things, for taxable years beginning after December 31, 1986 (i) required most
corporations, including thrift institutions, to utilize the accrual method of
accounting for tax purposes; and (ii) disallows a thrift institution's
interest expense allocated to certain tax-exempt obligations. The 1986 Act
also extends the carryforward period for a thrift's net operating losses
incurred in taxable years beginning after 1986 and before 1986 from five to
eight years and permits a three-year carryback and a 15-year carryforward for
net operating losses incurred in taxable years beginning after 1986.
Effective January 1, 1993, the Revenue Reconciliation Act of 1993 changes the
maximum corporate income tax rate to 35%.
Earnings appropriated to the Bank's bad debt reserve and claimed as a tax
deduction are not available for payment of cash dividends or for distribution
to stockholders (including distributions made on dissolution or liquidation),
without payment of federal income taxes on such dividends or distributions by
the Bank at the then current tax rates on the amount deemed removed from the
bad debt reserve. The amount deemed removed from such reserve and thus
treated as income to the Bank would include only the amount actually
distributed, but is also increased (subject to certain limitations) by the
amount of the tax payable by reason of such distribution.
The Bank's federal income tax returns have not been examined by the
Internal Revenue Service since 1990.
At December 31, 1996 the Company had remaining net operating loss ("NOL")
carryforwards of approximately $6,487,000 for federal income tax purposes
which expire in varying amounts through 2010. Section 382 of the Code
provides that these tax NOL carryforwards would be subjected to an annual
limitation should there be a change of over 50% in the stock ownership of the
Company during any three year testing period. Due to the fact that the
Company has a tax NOL carryforward, it is required to report changes in
ownership of 5% or greater of stockholders annually to the Internal Revenue
Service. The statute and applicable Treasury regulations are extremely
complex. The Company believes that no change of ownership as defined in
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applicable Section 382 regulations occurred through the three-year testing
period ended December 31, 1996. However, the issuance of the stock
contemplated by the supplemental offering described in REGULATION - WRITTEN
AGREEMENTS WITH OTS may result in such a change in ownership. If such a
change in ownership occurs, the annual use of the tax NOL carryforwards would
be subject to an annual limitation.
STATE TAXATION. As a Delaware holding company, the Company is exempted
from Delaware corporate income tax but is required to file an annual report
with and pay an annual fee to the State of Delaware. The Bank is also
subject to an annual franchise tax imposed by the State of Delaware.
The State of New Mexico has a corporate tax which subjects the Bank's New
Mexico taxable income to tax rates ranging from 4.8% to 7.65%. New Mexico
taxable income is computed by applying certain modifications to federal
taxable income. The principal difference between state and federal taxable
income is that interest earned on U.S. government obligations is not taxable
for state purposes.
The Bank's income tax returns have not been audited by state authorities
during the past five years.
NEW ACCOUNTING STANDARD
In June 1996, the FASB issued Statement of Financial Accounting Standard
("SFAS") No. 125, ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS
AND EXTINGUISHMENTS OF LIABILITIES, which was amended in December 1996. The
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. The Bank is
required to adopt certain provisions of SFAS No. 125 for the year beginning
January 1, 1997 and other provisions of the Statement for the year beginning
January 1, 1998. The adoption of the new standard, as amended, is not
expected to have a material impact on the Bank's financial position or
results of operations.
COMPETITION
The Bank's primary service area, which presently represents the principal
operating activities of the Company, includes the New Mexico counties of
Bernalillo, Cibola, Curry, De Baca, Los Alamos, Roosevelt, Sandoval, Santa
Fe, Torrance, Valencia, and the Texas counties of Parmer and Bailey The Bank
attracts all of its deposits and loans through its branch offices and loan
production office, primarily from the communities in which those branch
offices are located; therefore, competition for those deposits is principally
from other thrift institutions and commercial banks located in the same
communities as well as brokerage firms and insurance companies.
EMPLOYEES
As of December 31, 1996, the Bank had 55 full-time and 13 peak-time
employees. The Bank's employees are not represented by any collective
bargaining group. Management considers its employee relations to be good.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal asset is the common stock of the Bank.
The following table sets forth information relating to each of the Bank's
current offices. Net book value and total investment figures are for land,
building, furniture and fixtures.
Net book value at Branch deposits at
Location Date acquired December 31, 1996 December 31, 1996
- -------------------------- ------------- ----------------- ------------------
MAIN OFFICE:
806 Pile Street 1966 $921,219 $50,723,898
Clovis, New Mexico
BRANCH OFFICES:
Prince and Parkland Streets 1978 284,915 13,889,078
Clovis, New Mexico
400 West First Street 1982 682,066 33,551,025
Portales, New Mexico
LOAN PRODUCTION OFFICE:
4061 Ridgerock Road, Suite C 1996 36,205 Not applicable
Rio Rancho, New Mexico
The book value of the Bank's investment in land, premises and equipment,
less accumulated depreciation, totaled $1,924,405 at December 31, 1996.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Bank is involved in litigation
which, in the Bank's opinion, will not have a material effect on the Bank.
The following is a discussion of additional litigation involving the Bank.
On February 1, 1996, an Order of Dismissal was entered by the court with
respect to a certain derivative lawsuit ("Derivative Lawsuit") which had been
filed on May 19, 1994 and amended on November 2, 1994. The Derivative
Lawsuit was filed by two stockholders, one of whom was a former director of
the Bank, alleging a number of intentional and negligent acts and omissions
in the management of the Bank which allegedly resulted in damages and losses
suffered by the Bank. The court dismissed, with prejudice, all claims
against all defendants, except a former president, who was also chief
executive officer and a director (the "Former President") of the Bank. A
dismissal with prejudice means that the charges cannot be refiled. The court
also ordered plaintiffs to pay reasonable expenses, including attorney's
fees, to the Bank's former independent auditors. A notice of appeal was
filed by the plaintiff. The Bank cannot currently predict the outcome of the
appeal.
If final judgment in their favor is received in the Derivative Lawsuit,
certain of the current and former director defendants may make demand on the
Bank for indemnification of their legal expenses pursuant to OTS regulations.
The disinterested members of the Bank's Board of Directors must approve said
indemnification and give 60 days notice to the OTS of the Bank's intention to
make such indemnification. No such indemnification shall be made if the OTS
advises the Bank in writing, within the 60 day notice period, of its
objection thereof. Currently, no demand for indemnification has been made by
any of the current defendants.
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With respect to the Former President, the court dismissed the claims in
the Derivative Lawsuit without prejudice in order to allow the Bank to pursue
such claims in Federal Court. In May 1995, the Bank filed a lawsuit against
the Former President in the United States District Court for the District of
New Mexico. In the lawsuit, the Bank asserts that the defendant engaged in
fraudulent conduct and breached his duties of loyalty and care to the Bank,
all of which resulted in losses and damages to the Bank. The Bank is seeking
recovery of damages from the defendant in excess of $2.8 million, plus
interest and punitive damages. The Bank's lawsuit against the Former
President is scheduled for trial in March 1997. Legal fees to date with
respect to the Bank's lawsuit against the Former President have been accrued
and paid. The Company does not anticipate that any future legal fees and
expenses with respect to this lawsuit will materially adversely affect its
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of the stockholders of the Bank on October 28, 1996,
an agreement and plan of reorganization by and between the Bank and the
Company, a newly-formed unitary thrift holding company was approved whereby
the Bank became a wholly-owned subsidiary of the Company under a
stock-for-stock exchange. The number of affirmative and negative votes cast
for the agreement were 450,041.7 and 24,447, respectively, while the number
of abstentions was 3,624.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Bank was traded in the over-the-counter market on
the NASDAQ Small Cap Market under the symbol "FSBC," and the Common Stock of
the Company is traded in the over-the-counter market on the NASDAQ Small Cap
Market under the symbol "AABC". As of March 3, 1997, the Company had
1,020,652 shares of common stock outstanding and 444 holders of record.
The following table sets forth the high and low sales prices of the
Common Stock of the Company and the Common Stock of the Bank prior to the
formation of the Company as a unitary thrift holding company as quoted on the
NASDAQ Small Cap Market.
Price range
--------------------------
Dividends
High Low per share
------ ------- ---------
1995
First Quarter $ 4.44 $ 4.00 --
Second Quarter $ 5.75 $ 4.25 --
Third Quarter $ 5.75 $ 5.25 --
Fourth Quarter $ 7.00 $ 5.75 --
1996
First Quarter $ 7.25 $ 6.00 --
Second Quarter $ 7.00 $ 5.50 --
Third Quarter $ 6.00 $ 5.25 --
Fourth Quarter $ 6.00 $ 5.50 --
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For a foreseeable period of time, the principal source of cash revenues
to the Company will be dividends paid by the Bank with respect to the Bank's
common stock. There are certain statutory and regulatory limitations on the
payment of such dividends (and other capital distributions) including OTS
regulatory capital requirements. In some cases, the OTS may prohibit a
dividend payment that meets these requirements on the basis that such a
distribution would be an unsafe or unsound practice. Furthermore, the Bank
may not pay a dividend if it will cause the institution to become
"undercapitalized."
The Bank is subject to an OTS Supervisory Agreement effective as of June
17, 1996 which requires, among other things, that the Bank increase its
capital. This agreement will inhibit the payment of dividends by the Bank for
the foreseeable future.
The Bank is required to give the OTS thirty days prior notice of the
proposed declaration by its directors of any dividend. Any such dividend
declared within the thirty day period or without giving such notice shall be
invalid and shall confer no rights or benefits on the Company as the sole
stockholder of the Bank.
Under the Federal Deposit Insurance Act, an insured bank is prohibited
from paying dividends on its capital stock while in default in the payment of
any assessment due to the FDIC except in those cases where the amount of the
assessment is in dispute and the insured bank has deposited satisfactory
security. The Bank is not in default in the payment of any such assessment.
The Bank last paid a stock dividend in 1989 and a cash dividend in 1988.
The Company's Board of Directors does not currently intend to declare any
cash dividends at any time in the foreseeable future.
At a special meeting of the stockholders of the Bank on October 18, 1996,
an agreement and plan of reorganization by and between the Bank and the
Company was approved whereby the Bank became a wholly-owned subsidiary of the
Company under a stock for stock exchange with the existing stockholders of
the Bank. The 732,198 outstanding shares of Bank Common Stock were exchanged
for an equal number of shares of Company Common Stock effective on October 21,
1996. The shares of Company Common Stock were not registered under the
Securities Act of 1933 in reliance on the Section 3(a)(12) exemption
thereunder relating to the formation of a thrift holding company under
specified conditions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
SELECTED CONSOLIDATED FINANCIAL HIGHLIGHTS
The Company became the unitary thrift holding company for the Bank as a
result of the consummation of an Agreement and Plan of Reorganization and
related Plan of Merger on October 21, 1996 (the "Merger"). The Company did
not have any material assets prior to the Merger. Following the Merger, the
Company's consolidated statement of financial condition and statement of
operations are not materially different from the Bank's statement of
financial condition and statement of operations. The Company is the
successor registrant to the Bank under the Securities Act of 1933. The
following table sets forth selected consolidated historical financial and
operating data for the Company as of an for the each of the five fiscal years
ended December 31, 1996 and has been derived from and should be read in
conjunction with the audited consolidated financial statements of the
Company. The following summary financial information is qualified in its
entirety by and should be read in conjunction with the detailed information
and financial statements of the Company, including the notes thereto, which
information as of December 31, 1996 and 1995 and for each of the three years
in the period ended December 31, 1996, are included in this Form 10-KSB.
37
<PAGE>
<TABLE>
For the years ended December 31
SELECTED CONSOLIDATED OPERATING -----------------------------------------------------
DATA: 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars In Thousands Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Income statement data:
Interest income $ 7,473 $ 8,417 $ 7,888 $ 8,538 $ 10,608
Interest expense 4,717 5,423 4,563 4,943 6,821
-------- -------- -------- -------- --------
Net interest income before
provision for loan losses 2,756 2,994 3,325 3,595 3,787
Provision for loan losses 14 (15) 4 21 386
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses 2,742 3,009 3,321 3,574 3,401
Net gain (loss) on mortgage
loans held-for-sale 141 118 (19) 331 254
Net gain (loss) on sale of
securities -- -- 5 258 (124)
Real estate operations, net (43) (58) (273) (616) (1,196)
Other income, net 664 716 752 744 950
Other expenses (4,238) (3,371) (3,635) (3,677) (3,417)
-------- -------- -------- -------- --------
Income (loss) before income taxes (734) 414 151 614 (132)
Income tax expense (benefit) -- -- (189) -- --
-------- -------- -------- -------- --------
Net income (loss) $ (734) $ 414 $ 340 $ 614 $ (132)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per share data:
Weighed average common
shares outstanding 710,404 695,698 695,698 695,698 695,698
Net income (loss) per
common share $ (1.03) $ 0.59 $ 0.49 $ 0.88 $ (0.19)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
December 31
SELECTED CONSOLIDATED FINANCIAL ------------------------------------------------------
CONDITIONS DATA: 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars In Thousands)
Loans receivable, net $ 45,596 $ 34,332 $ 35,670 $ 36,980 $ 45,027
Loans held-for-sale 564 862 671 4,861 4,136
Mortgage-backed securities, net -- -- -- -- 57,511
Investment securities -- -- -- -- 9,384
Securities held-to-maturity 29,113 36,404 77,505 65,909 --
Securities available-for-sale 23,640 33,090 2,980 10,722 --
Real estate owned, net 86 114 421 2,967 5,669
Total assets 106,853 116,966 125,709 136,338 139,109
Deposits 98,164 110,633 112,773 130,690 133,639
Borrowings 3,000 -- 7,400 -- --
Net unrealized depreciation on
available-for-sale securities,
net (199) (204) (363) (28) --
Stockholders' equity 5,086 5,620 5,048 5,043 4,458
</TABLE>
(Continued)
38
<PAGE>
<TABLE>
SELECTED FINANCIAL RATIOS AND
OTHER DATA: 1996 1995 1994 1993 1992
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on assets (ratio of net
income/(loss) to average total
assets) (0.66)% 0.34% 0.26% 0.45% (0.09)%
Interest rate spread information:
Average during period 2.43 2.45 2.62 2.89 3.07
End of period 2.68 2.13 2.42 2.88 3.56
Net interest margin (1) 2.54 2.54 2.64 2.83 2.88
Ratio of operating expense to
average total assets 3.83 2.83 2.98 3.12 3.25
Return on equity (ratio of net
income/(loss) to average equity) (13.70) 7.75 6.73 12.93 (2.92)
QUALITY RATIOS:
Non-performing assets to total
assets at end of year 1.60% 1.44% 2.98% 4.54% 6.93%
Allowance for loan losses to
non-performing loans 25.07 25.36 12.29 8.22 5.55
Allowance for loan losses to
total loans 0.94 1.25 1.29 1.38 1.19
CAPITAL RATIOS:
Equity to total assets at the
end of year 4.76% 4.81% 4.02% 3.70% 3.20%
Average equity to average assets 4.78 4.40 3.85 3.45 3.18
Ratio of average interest-earning
assets to average interest-bearing
liabilities 102.55 101.99 100.66 98.29 95.96
</TABLE>
(1) Net interest income divided by average interest earning assets
GENERAL
The Company is a Delaware corporation which was organized in 1996 for the
purpose of becoming the thrift holding company of the Bank. The Bank is a
federally chartered stock savings bank conducting business from three banking
locations in Clovis and Portales, New Mexico and a loan production office in
Rio Rancho, New Mexico. The Bank has a wholly-owned subsidiary, FEDCO, which
is currently inactive.
The Bank is principally engaged in the business of attracting retail
deposits from the general public and investing those funds in first mortgage
loans in owner occupied, single-family residential loans and mortgage-backed
securities. To a lesser extent, the Bank originates residential construction
loans and commercial real estate loans. The Bank also originates consumer
loans, including loans for the purchase of automobiles and home improvement
loans, and commercial loans including SBA loans.
The most significant outside factors influencing the operations of the
Bank and other financial institutions include general economic conditions,
competition in the local market place and the related monetary and fiscal
policies of agencies that regulate financial institutions. More
specifically, the cost of funds, primarily consisting of deposits, is
influenced by interest rates on competing investments and general market
rates of interest. Lending activities are influenced by the demand for real
estate financing and other types of loans, which in turn is affected by the
interest rates at which such loans may be offered and other factors affecting
loan demand and funds availability.
39
<PAGE>
Beginning in 1994, the nation's economy experienced an increasing
interest rate environment. After several years of declining interest rates,
rates increased drastically during 1994 and the first part of 1995. The Bank
experienced a stable interest rate environment in 1996 while adjustable rate
assets repriced on a delayed basis. The net interest yield, or net interest
income as a percentage of average earning assets, has increased during 1996.
A higher volume of permanent single family lending activity has occurred as
a result of the stabilized interest rate environment. The Bank has also been
able to generate new sources of commercial and single family construction
lending, consumer lending and commercial real estate lending to compliment
the volume of permanent single family lending. The Bank reduced its Real
Estate Owned levels by approximately $2.5 million during 1994 and an
additional $307,000 in 1995, allowing the institution to increase its earning
assets.
REGULATORY MATTERS
In 1992, the Bank was deemed to be undercapitalized by the OTS and agreed
to the issuance in July 1993 of a APCAD, which was amended in August 1994.
The APCAD required the Bank to submit a capital restoration plan to the OTS,
prescribed restrictions on dividends, management fees, asset growth,
branching and other matters and established unreserved capital levels for the
Bank. The Bank is currently in compliance with the APCAD. The following
table represents the Bank's capital ratios and the APCAD requirements as of
December 31, 1996.
Actual
APCAD December 31,
required 1996 Excess
-------- ------------ ------
Core capital . . . . . . . . . . . . 4.0% 4.95% .95%
Leverage ratio capital . . . . . . . 4.0 4.95 .95
Risk-based capital . . . . . . . . . 8.0 13.47 5.47
However, the OTS has sole discretion as to if and when the APCAD will be
removed.
Effective as of June 17, 1996, the Board of Directors of the Bank and the
OTS signed a Supervisory Agreement which states that it is of mutual benefit
for the Bank to do the following:
1. Complete and submit a revised business and capital plan which will:
a. Increase core capital to 6% as of December 31, 1996,
b. Increase core capital to 7% as of June 30, 1997.
2. Create an asset/liability and investment committee of the Board to
oversee and review pricing activities, investment selection and
interest rate risk.
3. Report quarterly on the Bank's operating results and explain variances
of actual results to budgeted projections.
This agreement may be suspended in part or in whole by the OTS Regional
Director. In November 1996, the OTS waived the 6% core capital requirement
contained in the Supervisory Agreement. However, the June 30, 1997 core
capital requirement of 7% is still applicable. The Company estimates that
between $2 million and $2.5 million of proceeds from a rights offering and
supplemental offering, discussed below, will be needed to achieve the June
30, 1997 core capital requirement of 7%.
Management's intent is to raise additional capital through the net
proceeds of a subscription offering it undertook between December 26, 1996
and February 14, 1997 and a supplemental subscription offering it is
currently undertaking. Beginning in December 1996, the Company offered to the
then existing stockholders of the Company subscription rights for the
issuance of 732,198 shares of the Company's common stock. The subscription
price was $5.25 per share. Holders of the subscription rights were able to
exercise their subscription rights until the expiration date on February 14,
1997. An aggregate of 286,054 shares of the 732,198 shares of common stock
were subscribed which amounted to $1,501,783. The proceeds of the offering,
while meeting the
40
<PAGE>
minimum subscription requirement of $1,500,000 outlined in the offering, are
not sufficient to meet the June 30, 1997 core capital requirement. The
Company estimates that an additional $800,000 will be needed to meet such
requirement. The remaining 446,144 shares are now being offered to other
investors at the same subscription price of $5.25 per share. The
supplemental offering of the remaining shares will expire on March 19, 1997
unless it is extended by the Company. Management is currently unable to
determine how many shares, if any, will be sold to other investors prior to
the expiration of the supplemental offering.
RESULTS OF OPERATIONS
Operating results are impacted by many factors, the most important factor
being the interest spread between the yield on loans and investments and the
cost of funds. The following table presents for the periods indicated the
total dollar amount of interest income from average interest-earning assets
and the resultant yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and rates. No tax
equivalent adjustments were made and all average balances are monthly average
balances. Non-accruing loans have been included in the table as loans
carrying a zero yield.
<TABLE>
Year ended December 31,
(Dollars in Thousands)
----------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------------------------
Average Interest Average Interest Average Interest
outstanding earned/ Yield/ outstanding earned/ Yield/ outstanding earned/ Yield/
balance paid rate balance paid rate balance paid rate
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $ 40,095 $ 3,477 8.67% $ 36,856 $ 3,643 9.88% $ 39,271 $ 3,176 8.09%
Mortgage-backed securities 59,161 3,434 5.80 69,759 4,060 5.82 77,288 4,219 5.46
Investment securities 5,028 293 5.83 8,185 516 6.30 6,208 359 5.78
Other interest-earning assets 4,193 269 6.42 3,119 198 6.35 3,059 134 4.38
-------- ------- ------ -------- ------- ------ -------- -------- -----
Total interest-earning
assets (1) $108,477 $ 7,473 6.89% $117,919 $ 8,417 7.14% $125,826 $ 7,888 6.27%
-------- ------- ------ -------- ------- ------ -------- -------- ------
-------- ------- ------ -------- ------- ------ -------- -------- ------
Interest-bearing liabilities:
Savings deposits $105,319 $ 4,692 4.46% $114,315 $ 5,343 4.67% $119,967 $ 4,315 3.60%
Federal Home Loan Bank
advances 459 25 5.47 1,305 80 6.13 5,038 248 4.92
-------- ------- ------ -------- ------- ------ -------- -------- ------
Total interest-bearing
liabilities $105,778 $ 4,717 4.46% $115,620 $ 5,423 4.69% $125,005 $ 4,563 3.65%
-------- ------- ------ -------- ------- ------ -------- -------- -----
-------- ------- ------ -------- ------- ------ -------- -------- -----
Net interest income $ 2,756 $ 2,994 $ 3,325
------- ------- --------
------- ------- --------
Net interest rate spread 2.43% 2.45% 2.62%
----- ----- -----
----- ----- -----
Net interest-earning assets $ 2,699 $ 2,299 $ 821
-------- -------- -------
-------- -------- -------
Net yield on average
interest-earning assets 2.54% 2.54% 2.64%
----- ----- -----
----- ----- -----
Average interest-earning
assets to average interest-
bearing liabilities 102.55% 101.99% 100.66%
------ ------ ------
------ ------ ------
</TABLE>
(1) Calculated net of loans in process
41
<PAGE>
The following table presents the weighted average yields earned on loans,
investments, and other interest-earning assets, and the weighted average
rates paid on deposits and borrowings and the resultant interest rate spreads
at the dates indicated. Weighted average rates are based on the balances at
the end of the period.
At December 31,
------------------------
1996 1995 1994
---- ---- ----
WEIGHTED AVERAGE YIELD ON:
Loans receivable 8.59% 8.90% 8.65%
Mortgage-backed securities 5.84 5.90 5.70
Investment securities and other
interest-earning assets 6.24 6.15 6.09
---- ---- ----
COMBINED WEIGHTED AVERAGE YIELD ON
INTEREST-EARNING ASSETS 7.11 6.90 6.62
---- ---- ----
WEIGHTED AVERAGE RATE PAID ON:
Savings deposits 2.50 2.75 3.20
Transaction accounts 2.39 3.09 3.48
CDs 5.02 5.39 4.40
Borrowings 5.50 -- 5.59
---- ---- ----
COMBINED WEIGHTED AVERAGE RATE PAID
ON INTEREST-BEARING LIABILITIES 4.34 4.77 4.20
---- ---- ----
SPREAD 2.77% 2.13% 2.42%
---- ---- ----
---- ---- ----
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets
and interest-bearing liabilities and distinguishes between the increase
related to higher or lower outstanding balances and the volatility of
interest rates. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to (i) changes in volume (i.e., changes in volume multiplied by old rate) and
(ii) changes in rate (i.e., changes in rate multiplied by old volume). For
purposes of this table, changes attributable to both rate and volume, which
cannot be segregated, have been presented separately.
<TABLE>
Year ended December 31
-----------------------------------------------------------------------------
1996 vs 1995 1995 vs 1994
------------------------------------ -------------------------------------
Increase (decrease) due to Increase (decrease) due to
------------------------------------ -------------------------------------
Rate/ Rate/
Volume Rate volume Total Volume Rate volume Total
------ ----- ------ ----- ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loan portfolio $ 320 $(447) $(39) $(166) $(195) $ 705 $ (43) $ 467
Investments (199) (39) 15 (223) 114 33 10 157
Mortgage-backed securities (617) (11) 2 (626) (411) 278 (26) (159)
Other interest earning assets 68 2 1 71 3 60 1 64
----- ----- ---- ----- ----- ------ ----- ------
Total interest-earning assets $(428) $(495) $(21) $(944) $(489) $1,076 $ (58) $ 529
----- ----- ---- ----- ----- ------ ----- ------
----- ----- ---- ----- ----- ------ ----- ------
Interest-bearing liabilities:
Savings deposits $(420) $(250) $ 19 $(651) $(203) $1,288 $ (57) $1,028
Federal Home Loan Bank advances (52) (10) 7 (55) (184) 61 (45) (168)
----- ----- ---- ----- ----- ------ ----- ------
Total interest-bearing liabilities $(472) $(260) $ 26 $(706) $(387) $1,349 $(102) $ 860
----- ----- ---- ----- ----- ------ ----- ------
----- ----- ---- ----- ----- ------ ----- ------
Change in net interest income $ 44 $(235) $(47) $(238) $(102) $ (273) $ 44 $ (331)
----- ----- ---- ----- ----- ------ ----- ------
----- ----- ---- ----- ----- ------ ----- ------
</TABLE>
42
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995.
Net loss for the year ended December 31, 1996 was $734,000 (primarily due
to a one time FDIC insurance charge of $762,000, see NONINTEREST EXPENSE) or
$1.03 per share, compared to net income of $414,000 or $.59 per share for
1995. The 1996 loss as compared to earnings in 1995 resulted from a decrease
in net interest income after provision for loan losses of $267,000 and an
increase in noninterest expense of $852,000.
NET INTEREST INCOME. Net interest income before provision for loan
losses is the difference between interest earned on interest-earning assets
and interest paid on interest-bearing liabilities. Net interest income
before provision for loan losses decreased $238,000 to $2,756,000 for 1996
compared to $2,994,000 in 1995. The decrease primarily is the result of the
early recognition in interest income of $365,000 in 1995 and the foregone
interest thereon in 1996 resulting from the 1995 pay-off of a previously
renegotiated loan. These decreases were offset by a 8.5% decrease in average
interest-bearing liabilities.
PROVISION FOR LOAN LOSSES. Management determines the amount of the
allowance for loan loss which covers specific loans as well as estimated
losses inherent in the loan portfolio. The level of the allowance is based
on such factors as the amount of non-performing assets, historical loss
experience, regulatory policies, general economic conditions, the estimated
fair value of the underlying collateral and other factors which may affect
the collectibility of the loans. During 1996, the provision for loan losses
changed to $14,000 from a negative $15,000 for 1995. The 1996 net provision
included an aggregate negative provision of $65,000 recorded in early 1996
resulting from management's determination that the previously recorded
allowance for loan losses was excessive at that time given the level of
inherent risk in the loan portfolio at that time. As the level of lending
increased in 1996, an additional provision of $79,000 was provided. The
increased levels of lending encompassed increases in commercial real estate
lending, permanent single family residential, consumer and construction
lending. As underlying loan portfolios increased, management provided
increased levels of loan loss allowances to compensate for the aggregate
increase in credit risk.
NONINTEREST INCOME. Noninterest income was $806,000 in 1996 compared to
$833,000 in 1995. The decrease of 3.2% was caused primarily by reduced
levels of loans sold into the secondary market in 1996 which caused decreases
in loan servicing fees. The decreased levels of servicing fees were
partially offset by an increase in gains on loans held-for-sale as a result
of management's efforts to more selectively sell loans into the secondary
market and achieve higher returns.
NONINTEREST EXPENSE. Noninterest expense increased $852,000 or 24.8% to
$4,281,000 in 1996 compared to $3,429,000 in 1995. Salaries and employee
benefits increased $89,000 primarily as a result of the opening of a loan
production office in Rio Rancho, New Mexico during the third quarter of 1996.
Deposit insurance premiums increased $741,000 due primarily to a one-time
charge for the SAIF assessment of $762,000 accrued for the quarter ending
September 30, 1996, which was paid in November 1996. Other expenses
increased $40,000. The aforementioned increases were partially offset by a
$15,000 decrease in real estate operations, net, which is reflective of
continuing lower levels of foreclosed real estate.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
Net income for the year ended December 31, 1995 was $414,000 or $.59 per
share, compared to $340,000 or $.49 per share for 1994. The increase in net
income resulted from an increase in noninterest income of $95,000 and a
decrease in noninterest expenses of $479,000 which were offset by a decrease
in net interest income after provision for loan losses of $312,000, despite
the early recognition in interest income of $365,000 resulting from the
pay-off of a renegotiated loan. In addition, there was a reduced level of
income tax benefits of $189,000 in 1994 to none in 1995.
NET INTEREST INCOME. Net interest income before provision for loan
losses decreased $331,000 to $2,994,000 for 1995 compared to $3,325,000 in
1994. The decrease primarily reflects the 28.49% increase in the cost of
average interest-bearing liabilities to 4.69% in 1995 compared to 3.65% for
1994. The decline was offset
43
<PAGE>
somewhat by the recording of $365,000 in interest income in 1995 which
stemmed from the pay-off, prior to maturity, of a renegotiated loan.
PROVISION FOR LOAN LOSSES. Management determines the amount of the
allowance for loan loss which covers specific loans as well as estimated
losses inherent in the loan portfolio. The level of the allowance is based
on such factors as the amount of non-performing assets, historical loss
experience, regulatory policies, general economic conditions, the estimated
fair value of the underlying collateral and other factors which may affect
the collectibility of the loans. During 1995, the provision for loan losses
was a negative $15,000 which was a reduction of $19,000 from the provision of
$4,000 recorded in 1994. The reduction in 1995 was primarily reflective of
management's estimate of a lower level of allowance for loan losses necessary
as a result of an overall decline in non-performing assets of $3,751,000 at
December 31, 1994 to $1,687,000 at December 31, 1995. In addition, the net
loan portfolio at December 31, 1995 was $34,332,000 which represented a
decline of $1,338,000, or 3.75% from the December 31, 1994 balance of
$35,670,000.
NONINTEREST INCOME. Noninterest income was $833,000 in 1995 compared to
$738,000 in 1994. The increase of 12.8% was caused primarily by improvement
in the results of loans sold during 1995, net gains of $118,000 as compared
to net losses of $19,000 in 1994. The overall improvement was the result of
more favorable pricing obtained from the secondary market on loans sold in
1995 which was attributable to more stable interest rates from that
experienced in 1994. The increase in other income was also the result of an
increase in loan servicing and other fees of $20,000 which was offset by a
decline in other income of $55,000.
NONINTEREST EXPENSE. Noninterest expense decreased $479,000 or 12.26% to
$3,429,000 in 1995 compared to $3,908,000 in 1994. Salaries and employee
benefits decreased $110,000 primarily as the result of a lower average number
of employees maintained throughout 1995. Deposit insurance premiums
decreased $45,000 resulting from a reduction of premiums charged by the FDIC
due to lower levels of insured deposits. Real estate operations, net
decreased $215,000 primarily reflecting a decrease in real estate expenses
which was the result of continuing lower levels of foreclosed real estate.
Professional fees increased $58,000 due to activities specifically related to
the regulatory agreement under which the Bank operates as well as activities
related to the certain litigation in which the Bank has been involved with
since 1992. Other expenses also declined $136,000 primarily as the result of
reductions in office supplies and miscellaneous operating expense.
PROVISION FOR INCOME TAXES. There was no net provision for income taxes
in 1995 as compared to the recognition of an income tax benefit of $189,000
in 1994. The 1994 benefit stemmed from management's estimate of near-term
future benefits to the Bank from its net operating loss carryforwards. Those
estimates remained unchanged as of the end of 1995 and therefore the
underlying net deferred tax asset remained unchanged.
ASSET/LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY
The Bank attempts to maximize net interest income by achieving a positive
interest rate spread that can be sustained during fluctuations in prevailing
interest rates. Management monitors the mix of earning assets on a
continuous basis in order to react to fluctuating interest rate environments.
Risk-based capital guidelines and the corresponding asset risk weighting
have resulted in an incentive to invest in mortgage-backed and U.S. Agency
Securities, particularly those issued by government sponsored entities such
as FNMA, GNMA, and FHLMC. In addition, the favorable risk weighting assigned
to residential loans provided the incentive to invest in these assets. This
asset mix has always been the basis on which the Bank has focused.
44
<PAGE>
The Bank assumes a high level of interest rate risk as a result of its
policy to originate fixed-rate single family home loans. These risks are
minimized by selling mostly thirty year mortgage loans into the secondary
market. These loans generally have longer terms than the short term
characteristics and liabilities of customer accounts and borrowed money.
During much of 1993 and early 1994, falling interest rates resulted in record
prepayment of high yielding loans in mortgage-backed securities and the Bank
was unable to reinvest the proceeds in investment instruments with similar
yields. The result has been a contraction of interest rates spreads placing
pressure on the Bank's net interest income. In order to reach the Bank's
desired 4.0% core capital level, management began the reduction of the asset
size of the Bank by reducing deposits and FHLB borrowings through cash flows.
The Bank was able to payoff FHLB borrowings through cash flows in 1995 and
1996.
Interest rate sensitivity is the rate at which the Bank's assets and
liabilities are subject to repricing at future time periods. Management
seeks to effectively manage interest rate sensitivity to insure that net
interest income is maximized while the impact of change on market interest
rates is minimized. It is the objective of the Bank to reduce the
sensitivity of its earnings to fluctuating interest rates by diversifying the
sources of funds, improving its interest rate spread, and improving the
ratio of earning assets to interest bearing liabilities. Also, the Bank
needs to maintain a match of maturities and interest rate sensitivity of its
assets and liabilities.
The differences between the volume of assets and liabilities in the
Bank's current portfolio, which are subject to repricing in future time
periods, are known as interest rate sensitivity gaps. Certain estimates and
assumptions are included in the data in the table below which sets forth the
interest rate sensitivity analysis at December 31, 1996.
The following table sets forth the assumed repricing and maturity periods
of the Bank's interest-earning assets and interest-bearing liabilities at
December 31, 1996 and the interest rate sensitivity gap percentages at the
dates indicated. The interest rate sensitivity gap is defined as the amount
by which assets repricing within the respective periods exceed liabilities
repricing within such periods. The effect of these assumptions is to
quantify the dollar amount of items that are interest-rate sensitive and can
be repriced within each of the periods specified. Such repricing can occur in
one of three ways: (1) the rate of interest to be paid on an asset or
liability may adjust periodically on the basis of an index; (2) an asset or
liability such as a mortgage loan may amortize, permitting reinvestment of
cash flows at the then-prevailing interest rates; or (3) an asset or
liability may mature, at which time the proceeds can be reinvested at current
market rates.
<TABLE>
Maturing or repricing amount
--------------------------------------------------------------------------------
Within one Over 1 to 3 Over 3 to 5 Over 5 to Over 10 to Over 20
year years years 10 years 20 years years Total
---------- ----------- ----------- --------- ---------- ------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Rate Sensitive Assets:
Mortgages:
Adjustable-rate (1) $12,224 $ -- $ -- $ -- $ -- $ -- $ 12,224
Fixed-rate (2) 1,174 3,281 2,699 4,041 2,300 191 13,686
Construction(6) 898 -- -- -- -- -- 898
Non-residential adjustable (2) 3,792 1,690 -- -- -- -- 5,482
Non-residential fixed 1,436 695 621 206 2,389 -- 5,347
Non-Mortgages:
Consumer and Commercial (2)(6) 3,111 5,412 704 -- -- -- 9,227
Investments:
Investment securities (3) 285 96 -- -- -- 1,572 1,953
Mortgage-backed (1)(2) 33,446 13,594 5,912 -- -- -- 52,952
Funds sold (3) 1,138 -- -- -- -- -- 1,138
------- ------- ------ ------ ------ ------ --------
TOTAL $57,504 $24,768 $9,936 $4,247 $4,689 $1,763 $102,907
------- ------- ------ ------ ------ ------ --------
------- ------- ------ ------ ------ ------ --------
(Table continues on next page)
</TABLE>
45
<PAGE>
<TABLE>
Maturing or repricing amount
-----------------------------------------------------------------------------------------
Within one Over 1 to 3 Over 3 to 5 Over 5 to Over 10 to Over 20
year years years 10 years 20 years years Total
---------- ----------- ----------- --------- ---------- ------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Rate Sensitive Liabilities:
Deposits:
Certificates of deposit (3) $ 51,484 $ 8,148 $ 1,473 $ -- $ -- $ -- $ 61,105
IRAs 7,336 1,509 966 -- -- -- 9,811
Money market (4) 5,255 5,256 -- -- -- -- 10,511
NOW accounts (4) 166 3,974 1,380 1,380 -- -- 6,900
Savings accounts (4) 200 4,793 1,664 1,664 -- -- 8,321
Advances 3,000 -- -- -- -- -- 3,000
--------- -------- -------- -------- -------- -------- ---------
TOTAL $ 67,441 $ 23,680 $ 5,483 $ 3,044 $ -- $ -- $ 99,648
--------- -------- -------- -------- -------- -------- ---------
--------- -------- -------- -------- -------- -------- ---------
December 31, 1996
Cumulative GAP (5) $ (9,937) $ (8,849) $ (4,396) $ (3,193) $ 1,496 $ 3,259
GAP (5) as a percent of assets (9.30)% (8.28)% (4.11)% (2.99)% 1.40 % 3.05 %
December 31, 1995
GAP (5) as a percent of assets 4.71 % 6.27 % 1.73 % 0.99 % 1.23 % 1.30 %
December 31, 1994
GAP (5) as a percent of assets (3.96)% (7.12)% (4.54)% (1.83)% (1.31)% (1.31)%
</TABLE>
(1) MOST ADJUSTABLE RATE ASSETS ARE INCLUDED IN THE UNDER 1 YEAR CATEGORY, AS
THEY ARE SUBJECT TO AN INTEREST RATE ADJUSTMENT EVERY SIX OR TWELVE MONTHS,
DEPENDING UPON LOAN PLAN.
(2) MATURITY/RATE SENSITIVITY IS BASED UPON CONTRACTUAL MATURITY WITH PROJECTED
REPAYMENT OF PRINCIPAL.
(3) BASED ON CONTRACTUAL MATURITY OF THE INVESTMENTS.
(4) SAVINGS ACCOUNT DECAY RATES USED ASSUME THAT THE ACCOUNTS HAVE A MARKET
VALUE SENSITIVITY APPROXIMATING THAT OF A 2 1/2 YEAR TREASURY BOND.
(5) THE DIFFERENCE BETWEEN RATE SENSITIVE ASSETS AND RATE SENSITIVE
LIABILITIES.
(6) GENERALLY FIXED RATE.
During 1995 and 1994 the Bank sold fixed-rate whole loans "held-for-sale"
while retaining adjustable-rate mortgages. During 1996, the Bank began to
retain certain fixed-rate loans rather than placing them in the secondary
markets. In 1994, the Bank increased its investment portfolio with the purchase
of FNMA and FHLMC participation certificates with three to five year durations
and U.S. government agency securities which step-up annually. These purchases
were primarily from cash flow during 1994, however cash flow was used since the
third quarter of 1994 through the first quarter of 1995 to reduce FHLB advances.
Throughout the remainder of 1995, cash flow from operations and investment
activities have been placed in lower interest earning, but highly liquid, cash
and cash equivalents. Beginning in the third quarter of 1996, FHLB advances
were used to supplement cash flow from operations as the Bank's lending
activities began to increase.
Presented below, as of December 31, 1996, is an analysis of the Bank's
interest rate risk provided by OTS as measured by changes in NPV for
instantaneous and sustained parallel shifts in the yield curve, in 100 basis
point increments, up and down 400 basis points. As illustrated in the table,
the Bank's NPV is as sensitive to rising rates as declining rates. This occurs
principally because, as rates rise, the market value of fixed-rate loans
declines due to both the rate increase and slowing prepayments (and the NPV
focuses on the Bank's entire portfolio, not just assets that are subject to
adjustment or maturity within one year). When rates decline, the Bank does not
experience a significant rise in market value for these loans because borrowers
repay at relatively high rates.
46
<PAGE>
Change in At December 31, 1996
interest rate ------------------------
(basis points) $ Change % Change
------------- ---------- --------
(000's)
+400 $ (3,639) (50)%
+300 (2,420) (33)
+200 (1,364) (19)
+100 (561) (8)
0 -- --
-100 368 5
-200 577 8
-300 728 10
-400 1,249 17
Management reviews these measurements periodically. In addition to
monitoring selected measures on NPV, management also monitors effects on net
interest income resulting from increases or decreases in rates. This measure is
used in conjunction with NPV measures to identify excessive interest rate risk.
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on
certain types of assets and liabilities may fluctuate in advance of changes in
market rates. Additionally, certain assets, such as adjustable rate mortgage
loans, have features which restrict changes in interest rates on a short-term
basis and over the life of the asset. 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. Finally, the ability
of many borrowers to service their debt may decrease in the event of an interest
rate increase.
In addition, the previous table does not necessarily indicate the impact of
general interest rate movements on the Bank's net interest income because the
repricing of certain categories of assets and liabilities is subject to
competitive and other pressures beyond the Bank's control. As a result, certain
assets and liabilities indicated as maturing or otherwise repricing within a
stated period may in fact mature or reprice at different times and at different
volumes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current liquidity and capital resources are dependent on
its ability to borrow funds from the Bank and other sources as well as
receive dividends from the Bank. The Bank's primary sources of funds are
deposits, sales of mortgage loans, principal and interest payments on loans
and mortgage-backed securities, borrowings, and funds provided by operations.
While scheduled loan and mortgage-backed securities principal repayments are
a relatively predictable source of funds, deposits flows, prepayments of
principal on loans and mortgage-backed securities, and sales of mortgage
loans are greatly influenced by general interest rates, economic conditions,
and competition. Current OTS regulations require the Bank to maintain cash
and eligible investments in an amount equal to at least 5% of customer
accounts and short-term borrowings to assure its ability to meet demands for
withdrawals and repayment of short-term borrowings. As of December 31, 1996,
the Bank's liquidity ratio was 19.27% which was in excess of the minimum
regulatory requirements.
47
<PAGE>
During the year ended December 31, 1996, total deposits decreased
approximately $12,469,000 or 11.3%, and total assets decreased by $10,113,000
or 8.6% as a part of management's overall strategy to change the product mix
of deposit accounts offered to its customers and decreasing reliance on
public fund deposits.
The decline in deposits was funded primarily by a reduction in cash and
cash equivalents of $4,553,000, and proceeds from maturities and principal
repayments of securities available-for-sale and securities held-to-maturity,
net, of approximately $9,450,000 and $7,291,000, respectively, during 1996.
In addition to the funding of deposit reductions, the maturities and
increased principal prepayments on available-for-sale and held-to-maturity
securities during 1996 were used to fund an increase in loans receivable of
approximately $11,264,000, which is also the result of the Bank's strategy to
enhance future earnings through a change in the overall asset/liability mix
of the Bank's interest-earning assets as they relate to its interest-bearing
liabilities. The primary changes in the Bank's loan portfolio at December 31,
1996 as compared to that at December 31, 1995 were in conventional first
mortgage loans ($6,403,000 or 25.5% increase), consumer and installment loans
($4,435,000 or 96.2% increase), and construction loans ($915,000 or 86.3%
increase).
The Bank's capital for regulatory purposes at December 31, 1996 was
$5,295,531 or 4.95% of total regulatory assets. Regulations require savings
institutions to have a minimum regulatory tangible capital ratio equal to
1.5% of adjustable tangible assets, a minimum 3% core capital ratio, and a
minimum 8% risk-based capital ratio. At December 31, 1996 and 1995, the Bank
was in compliance with all applicable capital standards.
In August 1993, OTS issued a final rule which added an interest rate
component to the OTS risk-based capital requirement effective January 1,
1994. Under the final rule, savings institutions will be required to
incorporate IRR into their risk-based capital calculation as of a yet to be
determined date. Under the rule, IRR is measured as the ratio of the greater
decline in net portfolio value resulting from a 200 basis point increase or
decrease in market interest rates to the estimated economic value of assets,
as calculated by an OTS model. A savings institution whose measured IRR
exceeds 2% must deduct from total capital an IRR component equal to one-half
of the difference between its measured IRR and 2% multiplied by the estimated
economic value of its total assets. Institutions unable to satisfy the IRR
component would be required to submit a capital plan to the OTS describing
how they will attain compliance in the future. Management believes that
compliance with the new IRR measure will not have a material impact on the
Bank's risk-based capital position.
Regulatory agreements between the Bank and the OTS require the Bank to
maintain certain capital levels as described herein (See REGULATORY MATTERS).
The table below presents the Bank's capital position at December 31, 1996
relative to the existing regulatory requirements:
Percent of
Amount assets (1)
------ ----------
(000's)
Tangible capital $5,296 4.95%
Tangible capital requirement 1,606 4.00
------ -----
Excess tangible capital $3,690 .95%
------ -----
------ -----
Core capital $5,296 4.95%
Core capital requirement 3,211 4.00
------ -----
Excess core capital $2,085 .95%
------ -----
------ -----
Total capital (i.e., core and supplemental capital) $5,725 13.47%
Risk-based capital requirement 3,401 8.00
------ -----
Excess total capital $2,324 5.47%
------ -----
------ -----
(1) Based upon adjusted assets for purposes of the tangible capital and
core capital requirements, and risk-weighted assets for purposes of
the risk-based capital requirement.
48
<PAGE>
The OTS Capital Distribution Regulation differentiates thrift
institutions primarily by their capital levels and prescribes the amount of
capital distributions that can be made without prior OTS approval.
The Bank has met its liquidity requirements with funds generated from
operations, proceeds from repayment or sale of loans and investment
securities, and short-term borrowings. The Bank believes its requirements
for 1997 will be met from similar sources. If alternative funding is needed,
the Bank can generate additional funds from several other sources.
Currently, the FHLB system functions as a source of credit for the Bank.
ASSET QUALITY
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's quarterly asset
classification review and evaluation of the risk inherent in its loan
portfolio and changes in the nature and volume of its loan activity. Such
evaluation, which includes a review of all loans of which full collectibility
may not be reasonably assured, considers among other matters, the estimated
fair value of the underlying collateral, economic conditions, cash flow
analysis, historical loan loss experience, discussions held with delinquent
borrowers and other factors that warrant recognition in providing for
allowance for loan losses.
During 1996, net loans increased approximately $11,264,000 or 32.8% from
December 31, 1995 and the allowance for loan losses increased $1,000. The
low level of provision for loan losses and lower levels of charge-offs during
1996 were primarily due to lower levels of non-performing loans. With the
decrease in non-performing loans, management feels the allowance for loan
losses is adequate for future needs.
The following presents an analysis of the allowance for loan losses for
years ended December 31, 1996, 1995, and 1994.
Year ended December 31
----------------------------------
1996 1995 1994
-------- -------- --------
MORTGAGE LOANS AND CONTRACTS:
Balance at beginning of year $230,865 $230,865 $280,865
Loans charged-off -- -- (50,000)
Recoveries 1,800 -- --
-------- -------- --------
Net loans charged-off 1,800 -- (50,000)
Provision for loan losses charged
(credited) to operations -- -- --
-------- -------- --------
BALANCE AT END OF YEAR $232,665 $230,865 $230,865
-------- -------- --------
-------- -------- --------
CONSUMER AND OTHER:
Balance at beginning of year $197,024 $230,058 $227,732
Loans charged-off (17,882) (20,878) (2,917)
Recoveries 3,795 2,844 1,376
-------- -------- --------
Net loans charged-off (14,087) (18,034) (1,541)
Provision for loan losses charged
(credited) to operations 13,639 (15,000) 3,867
-------- -------- --------
BALANCE AT END OF YEAR $196,576 $197,024 $230,058
-------- -------- --------
-------- -------- --------
(Table continues on next page)
49
<PAGE>
Year ended December 31
----------------------------------
1996 1995 1994
-------- -------- --------
TOTAL ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of year $427,889 $460,923 $508,597
Loans charged-off (17,882) (20,878) (52,917)
Recoveries 5,595 2,844 1,376
-------- -------- --------
Net loans charged-off (12,287) (18,034) (51,541)
Provision for loan losses charged
(credited) to operations 13,639 (15,000) 3,867
-------- -------- --------
BALANCE AT END OF YEAR $429,241 $427,889 $460,923
-------- -------- --------
-------- -------- --------
Allowance for loan losses as
a percentage of total loans
outstanding 0.93% 1.23% 1.28%
-------- -------- --------
-------- -------- --------
NON-PERFORMING ASSETS. Total non-performing assets increased by
approximately $25,000 during 1996. The non-performing assets to total assets
ratio is one indicator of the exposure to credit risk. Non-performing assets
of the Bank consist of non-accruing loans, troubled debt restructurings, and
real estate which was acquired as a result of foreclosure. The composition of
the Bank's portfolio of non-performing assets is shown in the following table:
1996 1995 1994
-------- -------- --------
(Dollars in Thousands)
Non-accruing loans* $ 53 $ -- $ 148
Past due 90 days or more and
still accruing -- -- 37
Renegotiated loans** 1,573 1,573 3,145
Other real estate 86 114 421
-------- -------- --------
Total non-performing assets $ 1,712 $ 1,687 $ 3,751
-------- -------- --------
-------- -------- --------
Ratio of non-performing assets
to total assets 1.60% 1.44% 2.98%
-------- -------- --------
-------- -------- --------
* Primarily loans which are past due for 90 days or more
** Renegotiated loans are those for which the interest rate was reduced
because of the inability of the borrower to service the obligation under
the original terms of the agreement.
Interest lost on non-performing assets amounted to $13,186 in 1996
compared to $75,195 in 1995.
INVESTMENT SECURITIES - The Bank's available-for-sale and
held-to-maturity investment securities portfolios experienced significant
fair market value declines during the year ended December 31, 1996. This
decline was primarily the result of long-term interest rate increases in the
market during that period which resulted in lower fair market values
associated with the Bank's investments securities portfolios which contain
fixed rate instruments. In management's opinion, the fair market value
decline was not caused by the underlying credit risk of the investments as
they are comprised entirely of obligations conditionally or unconditionally
guaranteed by the full faith and credit of the U.S. Government or guaranteed
by U.S. Government entities.
50
<PAGE>
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Bank may be a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuation in interest rates.
These financial instruments include commitments to extend credit (including
credit cards), standby letters of credit, and financial guarantees. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated statements of
financial position. The contract or notional amounts of these instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
At December 31, 1996, unfunded credit commitments are as follows:
Commitments to extend credit $897,097
Lines of credit $291,016
Credit cards $519,321
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Some of the commitments are
expected to expire without being drawn upon. The total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the customers.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. Currently, letters of credit are not extended
beyond one year. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Bank holds collateral and personal guarantees as deemed
necessary. At December 31, 1996, the Bank had no standby letters of credit
outstanding.
At December 31, 1996, the Bank had no open interest rate swaps, futures,
options, or forward contracts.
At December 31, 1996 and 1995, the Bank had $1,170,442 and $1,832,398,
respectively, of commitments to sell newly-originated single family
residential loans.
INCOME TAXES
At December 31, 1996 the Company had remaining net operating loss ("NOL")
carryforwards of approximately $6,487,000 for federal income tax purposes
which expire in varying amounts through 2010. Section 382 of the Code
provides that these tax NOL carryforwards would be subjected to an annual
limitation should there be a change of over 50% in the stock ownership of the
Company during any three year testing period. Due to the fact that the
Company has a tax NOL carryforward, it is required to report changes in
ownership of 5% or greater of stockholders annually to the Internal Revenue
Service. The statute and applicable Treasury regulations are extremely
complex. The Company believes that no change of ownership as defined in
applicable Section 382 regulations occurred through the three-year testing
period ended December 31, 1996. However, the issuance of the stock
contemplated by the supplemental offering described in REGULATORY MATTERS may
result in such a change in ownership. If such a change in ownership occurs,
the annual use of the tax NOL carryforwards would be subject to an annual
limitation.
51
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data have been prepared
in accordance with generally accepted accounting principles which require
measurement of financial position and operating results in terms of
historical dollars, without considering changes in relative purchasing power
over time due to inflation.
Virtually all of the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates generally have a more
significant impact on the Company's and the Bank's performance than does the
effect of inflation.
IMPACT OF NEW ACCOUNTING STANDARD
In June 1996, the FASB issued SFAS No. 125, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, which was
amended in December 1996. The Statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment
of liabilities. The Bank is required to adopt certain provisions of SFAS No.
125 for the year beginning January 1, 1997 and other provisions of the
Statement for the year beginning January 1, 1998. The adoption of the new
standard, as amended, is not expected to have a material impact on the
Company's and the Bank's financial position or results of operations.
FORWARD-LOOKING INFORMATION
When used in this report, the words "believes," "anticipates," "expect"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could
cause actual results to differ materially, including, but not limited to,
those set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations." READERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF
THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE
THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE
MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT
THE OCCURRENCE OF UNANTICIPATED EVENTS.
ITEM 7. FINANCIAL STATEMENTS
Financial statements are filed as a part of this report at the end of
Part III hereof beginning at page F-1, Index to Consolidated Financial
Statements, and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
The information required by Part III is omitted from this report because
the Company will file a definitive Proxy Statement for the Company's 1997
Annual Meeting of Stockholders (the "Proxy Statement") pursuant to Regulation
14A of the Securities Exchange Act of 1934 not later than 120 days after the
end of the fiscal year covered by this Form 10-KSB and certain information
included therein is incorporated herein by reference.
52
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item is incorporated by reference to the
Proxy Statement.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Proxy Statement.
53
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
- ---------- -------------------------------------------------------------------
3.1 Certificate of Incorporation of the Company (incorporated by
reference from the Company's Registration Statement on Form 8-A,
filed October 11, 1996, SEC File No. 001-12309)**
3.2 Bylaws of the Company (incorporated by reference from the Company's
Registration Statement on Form 8-A, filed October 11, 1996, SEC
File No. 001-12309)**
10.1 Agreement and Plan of Reorganization and Plan of Merger
(incorporated by reference from the Company's Registration
Statement on Form 8-A, filed October 11, 1996, SEC File No.
001-12309)**
***10.2 1986 Stock Option and Incentive Plan (incorporated by reference
from the Company's Registration Statement on Form 8-A, filed
October 11, 1996, SEC File No. 001-12309)**
10.3 Profit Sharing and Employee Stock Ownership Plan of First Savings
Bank, F.S.B. (incorporated by reference from the Company's
Registration Statement on Form 8-A, filed October 11, 1996, SEC
File No. 001-12309)**
10.3.1 Amendment Number One to Profit Sharing and Employee Stock
Ownership Plan of First Savings Bank, F.S. B. (refiled)
(incorporated by reference from the Company's Registration
Statement on Form 8-A, filed October 11, 1996, SEC File No.
001-12309)**
10.4 Agreement for Standby Letter of Credit Advances/Confirmation,
Collateral Pledge and Security Agreement with FHLB of Dallas
(incorporated by reference from the Company's Registration
Statement on Form 8-A, filed October 11, 1996, SEC File No.
001-12309)**
10.5 Amended Prompt Corrective Action Directive (incorporated by
reference from the Company's Registration Statement on Form 8-A,
filed October 11, 1996, SEC File No. 001-12309)**
***10.6 Employment Agreement with Kenneth J. Huey, Jr. (incorporated by
reference from the Company's Registration Statement on Form 8-A,
filed October 11, 1996, SEC File No. 001-12309)**
***10.7 Employment Agreement with Norman R. Corzine*
10.8 Bisys Document Processing, Inc. Item Processing Agreement
(incorporated by reference from the Company's Registration
Statement on Form 8-A, filed October 11, 1996, SEC File No.
001-12309)**
10.8.1 Bisys Document Processing, Inc. Item Processing Agreement
(incorporated by reference from the Company's Registration
Statement on Form 8-A, filed October 11, 1996, SEC File No.
001-12309)**
10.9 Bisys Data Processing Acknowledgment and Assignment (incorporated
by reference from the Company's Registration Statement on Form 8-A,
filed October 11, 1996, SEC File No. 001-12309)**
21 Subsidiaries of the Small Business Issuer*
23 Consent of Independent Accountants*
27 Financial Data Schedule*
99.1 Supervisory Agreement between the Bank and the OTS (incorporated
by reference from the Company's Registration Statement on Form
8-A, filed October 11, 1996, SEC File No. 001-12309)**
- -------------------
* Filed herewith
** Previously filed
*** Designates each management contract or compensatory plan or arrangement
required to be identified pursuant to Item 13(a) of Form 10-KSB.
54
<PAGE>
(b) REPORTS ON FORM 8-K
The following subparagraphs set forth information concerning two Forms 8-K
filed during the fourth quarter ended December 31, 1996:
1. On October 18, 1996, the Company's predecessor Registrant, the Bank,
filed a Form 8-K with the OTS relating to a special meeting of
the stockholders of the Bank wherein an agreement and plan of
reorganization dated August 28, 1996 by and between the Bank and
the Company was approved. The Form 8-K also announced the
October 21, 1996 replacement of the Bank's trade symbol on the
NASDAQ Small Cap Market with the new symbol for the Company.
2. On December 23, 1996, the Company filed a Form 8-K relating the
Company's intent to issue non-transferable Subscription Rights
for up to 732,198 shares of common stock at a subscription price
of $5.25 for stockholders of record as of December 20, 1996.
55
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ACCESS ANYTIME BANCORP, INC.
Date: March 11, 1997 /s/ Norman R. Corzine
----------------------------------------
Norman R. Corzine, Chairman of the Board,
Chief Executive Officer
(DULY AUTHORIZED REPRESENTATIVE)
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Norman R. Corzine By: /s/ Robert C. Lydick
------------------------------ -----------------------------------
Norman R. Corzine R. Chad Lydick
Chairman of the Board Director
Chief Executive Officer
Director
Date: March 11, 1997 Date: March 11, 1997
By: /s/ Ken Huey, Jr. By: /s/ Charles Guthals
------------------------------ -----------------------------------
Ken Huey, Jr. Charles Guthals
President, Chief Financial Officer Director
Director
Date: March 11, 1997 Date: March 11, 1997
By: /s/ Carl Deaton By: /s/ Everett L. Frost
------------------------------ -----------------------------------
Carl Deaton Everett L. Frost
Director Director
Date: March 11, 1997 Date: March 11, 1997
By: /s/ Harry Eastham By: /s/ Thomas W. Martin, III
------------------------------ -----------------------------------
Harry Eastham Thomas W. Martin, III
Director Director
Date: March 11, 1997 Date: March 11, 1997
56
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants..................................... F-2
Financial Statements:
Consolidated Statements of Financial Condition.................... F-3
Consolidated Statements of Operations............................. F-4
Consolidated Statements of Stockholders' Equity................... F-5
Consolidated Statements of Cash Flows............................. F-6
Notes to Consolidated Financial Statements........................ F-8
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Access Anytime Bancorp, Inc.
Clovis, New Mexico
We have audited the accompanying consolidated statements of financial
condition of Access Anytime Bancorp, Inc. and subsidiary as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Access Anytime
Bancorp, Inc. and subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for loan servicing rights during 1995.
Robinson Burdette Martin & Cowan, L.L.P.
Lubbock, Texas
February 17, 1997
F-2
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
December 31
-----------------------------
ASSETS 1996 1995
- ------ ------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 2,199,227 $ 6,752,606
Certificates of deposit 380,570 476,425
Securities available-for-sale (amortized cost
of $23,838,281 and $33,294,495) 23,639,686 33,090,085
Securities held-to-maturity (aggregate fair
value of $28,470,335 and $36,025,403) 29,113,430 36,404,135
Loans held-for-sale (aggregate fair value
of $576,994 and $874,512) 564,361 861,454
Loans receivable 45,596,212 34,331,988
Interest receivable 598,327 692,771
Real estate owned 86,114 113,820
FHLB stock 1,572,334 1,483,434
Premises and equipment 1,924,405 1,984,860
Servicing rights 345,554 359,854
Organizational cost, net of accumulated
amortization of $9,814 163,373 --
Other assets 669,764 414,867
------------ ------------
Total assets $106,853,357 $116,966,299
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $ 98,164,001 $110,633,124
Federal Home Loan Bank advances 3,000,000 --
Accrued interest and other liabilities 351,135 401,641
Advanced payments by borrowers for
taxes and insurance 252,099 311,157
------------ ------------
Total liabilities 101,767,235 111,345,922
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 4,000,000
shares authorized; none issued -- --
Common stock, $.01 par value; 6,000,000 shares
authorized; 732,198 and 695,698 shares issued
and outstanding in 1996 and 1995, respectively 7,322 6,957
Capital in excess of par value 7,019,577 6,826,442
Accumulated deficit (1,742,182) (1,008,612)
Net unrealized depreciation on available-for-sale
securities, net (198,595) (204,410)
------------ ------------
Total stockholders' equity 5,086,122 5,620,377
------------ ------------
Total liabilities and stockholders' equity $106,853,357 $116,966,299
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Years ended December 31
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans receivable $3,476,520 $3,642,581 $3,176,265
U.S. government agency securities 292,926 515,950 358,973
Mortgage-backed securities 3,434,232 4,060,235 4,219,157
Other interest income 268,950 197,783 133,789
---------- ---------- ----------
Total interest income 7,472,628 8,416,549 7,888,184
---------- ---------- ----------
Interest expense:
Deposits 4,692,438 5,342,347 4,315,565
FHLB advances 24,663 80,248 247,969
---------- ---------- ----------
Total interest expense 4,717,101 5,422,595 4,563,534
---------- ---------- ----------
Net interest income before provision
for loan losses 2,755,527 2,993,954 3,324,650
Provision for loan losses charged (credited) 13,639 (15,000) 3,867
---------- ---------- ----------
Net interest income after
provision for loan losses 2,741,888 3,008,954 3,320,783
---------- ---------- ----------
Noninterest income:
Loan servicing and other fees 339,058 371,843 352,449
Net realized gains on sales of
available-for-sale securities -- -- 4,672
Net realized gains (losses) on
sales of loans 141,175 117,840 (18,541)
Other income 325,378 343,705 399,362
---------- ---------- ----------
Total other income 805,611 833,388 737,942
---------- ---------- ----------
Noninterest expenses:
Salaries and employee benefits 1,606,397 1,517,416 1,626,802
Occupancy expense 371,413 367,023 368,794
Deposit insurance premium 1,144,417 403,218 448,217
Advertising 28,347 27,348 57,587
Real estate operations, net 42,826 57,880 272,946
Professional fees 250,673 258,961 200,756
Other expense 836,996 796,874 932,720
---------- ---------- ----------
Total other expenses 4,281,069 3,428,720 3,907,822
---------- ---------- ----------
Income (loss) before income taxes (733,570) 413,622 150,903
Income tax benefit -- -- (188,650)
---------- ---------- ----------
Net income (loss) $ (733,570) $ 413,622 $ 339,553
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per share
of common stock $ (1.03) $ .59 $ .49
---------- ---------- ----------
---------- ---------- ----------
Average shares outstanding 710,404 695,698 695,698
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
Net
Unrealized
Depreciation
Common Stock On
-------------------- Available-
Capital In For-Sale
Number Of Excess Of Accumulated Securities,
Shares Amount Par Value Deficit Net Total
--------- ------ ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 695,698 $6,957 $6,826,442 $(1,761,787) $ (28,408) $5,043,204
Net income -- -- -- 339,553 -- 339,553
Net changes in unrealized
depreciation on available-for-
sale securities, net -- -- -- -- (334,995) (334,995)
------- ------ ---------- ----------- --------- ----------
Balance at December 31, 1994 695,698 6,957 6,826,442 (1,422,234) (363,403) 5,047,762
Net income -- -- -- 413,622 -- 413,622
Net changes in unrealized
depreciation on available-for-
sale securities, net -- -- -- -- 158,993 158,993
------- ------ ---------- ----------- --------- ----------
Balance at December 31, 1995 695,698 6,957 6,826,442 (1,008,612) (204,410) 5,620,377
Net loss -- -- -- (733,570) -- (733,570)
Common stock issued 36,500 365 193,135 -- -- 193,500
Net changes in unrealized
depreciation on available-for-
sale securities, net -- -- -- -- 5,815 5,815
------- ------ ---------- ----------- --------- ----------
Balance at December 31, 1996 732,198 $7,322 $7,019,577 $(1,742,182) $(198,595) $5,086,122
------- ------ ---------- ----------- --------- ----------
------- ------ ---------- ----------- --------- ----------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Years ended December 31
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (733,570) $ 413,622 $ 339,553
Adjustments to reconcile net income (loss) to cash
provided (used) by operating activities:
Depreciation 133,970 132,527 128,914
Deferred income taxes -- -- (188,650)
Provision for loan losses charged (credited) 13,639 (15,000) 3,867
Provision for losses on held-for-sale loans transferred
to loans receivable -- -- 88,771
Amortization of premiums on investment securities 300,594 207,830 232,387
Amortization of loan premiums, discounts and deferred
fees, net (6,148) (520,723) (53,622)
Amortization of organizational costs 9,814 -- --
Gain on sale of loans held-for-sale (176,011) (105,321) (70,230)
Proceeds from sales of loans held-for-sale 9,058,465 7,625,886 15,205,572
Originations of loans held-for-sale (8,620,197) (7,698,757) (13,111,011)
Provision for losses on foreclosed real estate 512 1,670 59,748
(Gain) loss on disposition of assets 16,112 (3,095) (1,200)
Gains on sale of mutual funds -- -- (4,672)
Net (increase) decrease in accrued interest receivable
and other assets (105,052) 12,188 253,877
Net decrease in trading securities mutual funds -- -- 3,183,503
Increase (decrease) in accrued expense and other liabilities (50,506) 140,723 (101,522)
------------- ------------- -------------
Net cash provided by (used in) operating activities (158,378) 191,550 5,965,285
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from maturities and principal repayments of
available-for-sale securities 9,319,271 2,061,754 1,181,634
Purchases of held-to-maturity securities (5,017,969) (750,000) (16,520,005)
Proceeds from maturities and principal repayments of
held-to-maturity securities 12,145,023 9,630,086 10,917,250
Net (increase) decrease in certificates of deposit 95,855 (87,832) 484,505
Net (increase) decrease in loans (11,302,134) 2,037,984 3,950,943
Proceeds from sales of foreclosed real estate 57,613 140,882 1,972,322
Proceeds from sale of premises and equipment and other
assets -- -- 245,541
Purchases of premises and equipment (89,627) (64,711) --
------------- ------------- -------------
Net cash provided by investing activities 5,208,032 12,968,163 2,232,190
------------- ------------- -------------
Cash flows from financing activities:
Net decrease in deposits (12,469,123) (2,139,405) (17,917,092)
Net change in other borrowed funds 3,000,000 (7,400,000) 7,400,000
Net increase (decrease) in advance payments by borrowers
for taxes and insurance (59,058) 83,324 (15,400)
Organizational costs incurred (173,187) -- --
Rights offering costs incurred (95,165) -- --
Net proceeds from issuance of common stock 193,500 -- --
------------- ------------- -------------
Net cash used in financing activities (9,603,033) (9,456,081) (10,532,492)
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (4,553,379) 3,703,632 (2,335,017)
Cash and cash equivalents at January 1 6,752,606 3,048,974 5,383,991
------------- ------------- -------------
Cash and cash equivalents at December 31 $ 2,199,227 $ 6,752,606 $ 3,048,974
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
(Continued)
F-6
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
Years ended December 31
-----------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,827,856 $ 5,312,477 $ 4,392,409
Income taxes -- -- 9,600
Supplemental disclosure of non-cash investing activities
Real estate acquired in settlement of loans 53,419 104,509 251,103
Loans to facilitate the sale of real estate owned 23,000 269,150 765,000
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-7
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION, PRINCIPLES OF CONSOLIDATION AND USE OF ESTIMATES -
Access Anytime Bancorp, Inc. (the "Company") is a thrift holding company for
its wholly-owned subsidiary First Savings Bank, F.S.B. a.k.a. First Bank (the
"Bank") and the Bank's wholly-owned subsidiary, First Equity Development
Corporation ("FEDCO"). The consolidated financial statements include the
accounts and transactions of the Company, the Bank and FEDCO. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company was formed in 1996 and, through an agreement and plan of
reorganization by and between the Company and the Bank, became the holding
company for the Bank under a stock-for-stock exchange. As a result of this
reorganization, all prior year's financial statements are presented to
reflect the result of the reorganization. There was no effect on those year's
net income or net income per share of common stock.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash, due from
banks and all certificates of deposit with original maturities of three
months or less. There are no amounts subject to withdrawal or usage
restrictions.
TRADING SECURITIES - Prior to December 31, 1994, the Bank maintained some of
its excess liquidity in a mutual fund. The Bank currently holds no mutual
funds as they were liquidated in 1994. The investment was for interest rate
yield enhancement and held principally for the purpose of selling for
liquidity needs or when better investment opportunities became available.
The mutual fund was recorded at fair value with both unrealized gains and
losses reported in the consolidated statements of operation.
SECURITIES AVAILABLE-FOR-SALE - Securities to be held for indefinite periods
of time and not intended to be held-to-maturity are classified as
available-for-sale. Assets included in this category are those assets that
management intends to use as part of its asset/liability management strategy
and that may be sold in response to changes in liquidity needs, interest
rates, resultant prepayment risk, and other factors related to interest rate
and resultant prepayment risk changes. Securities available-for-sale are
recorded at fair value. Both unrealized gains and losses on securities
available-for-sale, net of taxes, are included as a separate component of
stockholders' equity in the consolidated statements of financial condition
until these gains or losses are realized. If a security has a decline in
fair value that is other than temporary, the security is written down to its
fair value by recording a loss in the consolidated statements of operations.
(Continued)
F-8
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES HELD-TO-MATURITY - Securities for which the Bank has the positive
intent and ability to hold to maturity are reported at cost, adjusted for
premiums and discounts that are recognized in interest income using the
interest method over period to maturity. If a security has a decline in fair
value below its amortized cost that is other than temporary, the security is
written down to its new cost basis by recording a loss in the consolidated
statements of operations. The Bank has not experienced a permanent decline
on securities that would result in a charge to operations.
LOANS HELD-FOR-SALE - Loans to be held for indefinite periods of time and not
intended to be held-to-maturity are classified as held-for-sale. Loans
held-for-sale are recorded at the lower of amortized cost or fair value with
only net unrealized losses included in the consolidated statements of
operations.
FEDERAL HOME LOAN BANK (FHLB) STOCK - This asset is owned due to regulatory
requirements and is carried at cost. This stock is pledged as collateral to
secure FHLB advances.
LOANS RECEIVABLE - Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal adjusted for any unearned discount,
the allowance for loan losses and any deferred fees or costs on originated
loans.
Unearned discount on installment loans is recognized as income over terms
which approximate the interest method. Interest on other loans is recognized
using the simple-interest method on the daily balances of the principal
amounts outstanding.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they
become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. If the ultimate collectibility of principal, wholly or
partially, is in doubt, any payment received on a loan on which the accrual
of interest has been suspended is applied to reduce principal to the extent
necessary to eliminate such doubt. Otherwise, interest income is recognized
for such payments.
Loan origination fees and direct origination costs are deferred and
recognized as an adjustment of the yield of the related loan.
The allowance for loan losses is increased by charges to income and decreased
by revisions in the estimate of the necessary allowance and by charge-offs
(net of recoveries). Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
(Continued)
F-9
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOAN SERVICING - The cost of mortgage servicing rights is amortized in
proportion to, and over the period of, estimated net servicing revenues.
Impairment of mortgage servicing rights is assessed based on the fair value
of those rights. Fair values are estimated using discounted cash flows based
on a current market interest rate. For purposes of measuring impairment, the
rights are stratified based on the predominant risk characteristics of the
underlying loans. The amount of impairment recognized is the amount by which
the capitalized mortgage servicing rights for a stratum exceed their fair
value.
When participating interests in loans sold have an average contractual
interest rate, adjusted for normal servicing fees, that differs from the
agreed yield to the purchaser, gains or losses are recognized equal to the
present value of such differential over the estimated remaining life of such
loans. The resulting "excess servicing receivable" or "deferred servicing
revenue" is amortized over the estimated life using a method approximating
the interest method.
Quoted market prices are not available for the excess servicing receivables.
Thus, the excess servicing receivables and the amortization thereon are
periodically evaluated in relation to estimated future servicing revenues,
taking into consideration changes in interest rates, current prepayment
rates, and expected future cash flows. The Bank evaluates the carrying value
of the excess servicing receivables by estimating the future servicing income
of the excess servicing receivables based on management's best estimate of
remaining loan lives and discounted at the original discount rate.
Effective July 1, 1995, the Bank adopted Statement of Financial Accounting
Standards ("SFAS") NO. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, AN
AMENDMENT OF SFAS NO. 65. SFAS No. 122 eliminated 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 effect of adopting this new accounting standard was to increase 1995 net
income by $11,338.
PREMISES AND EQUIPMENT - Land is carried at cost. Premises and equipment are
carried at cost, less accumulated depreciation computed by the straight-line
method over the estimated useful life of the assets. Maintenance and repairs
are charged to expense as incurred and improvements are capitalized.
The Company adopted SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS TO BE DISPOSED OF during 1996. The Statement establishes accounting
standards for determining the impairment of the Company's long-lived assets.
Implementation of the Statement did not result in any adjustments to the
carrying values of the Company's assets.
(Continued)
F-10
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FORECLOSED REAL ESTATE - Real estate properties acquired through foreclosure,
or in lieu of foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. Any excess
of the loan balance and foreclosure costs over the fair value at the date of
foreclosure is charged to the allowance for loan losses. After foreclosure,
valuations are periodically performed by management and the real estate is
carried at the lower of carrying amount or fair value less cost to sell.
Revenue and expenses from operations and changes in the valuation allowance
are included in loss on foreclosed real estate.
ORGANIZATIONAL COSTS - Organizational costs are being amortized using the
straight-line method over five years.
INCOME TAXES - The Company and its subsidiary file consolidated income tax
returns. Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
NET INCOME (LOSS) PER SHARE - Net income (loss) per share of common stock has
been computed on the basis of the weighted-average number of shares of common
stock outstanding during the period. Stock options have not had a dilutive
effect.
IMPACT OF NEW ACCOUNTING STANDARD - In June 1996, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 125, ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, which was
amended in December 1996. The Statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishment
of liabilities. The Bank is required to adopt certain provisions of SFAS No.
125 for the year beginning January 1, 1997 and other provisions of the
Statement for the year beginning January 1, 1998. The adoption of the new
standard, as amended, is not expected to have a material impact on the
Company's or Bank's financial position or results of operations.
RECLASSIFICATIONS - Certain amounts for prior years have been reclassified to
conform with the current year presentation. These reclassifications had no
effect on net income (loss) or stockholders' equity.
(Continued)
F-11
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 SECURITIES
Securities have been classified in the consolidated statements of financial
condition according to management's intent. The carrying amount of
securities and their approximate fair value at December 31 follow:
<TABLE>
Amortized Gross unrealized Fair
Cost Gains Losses Value
----------- ------- -------- -----------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
December 31, 1996:
Mortgage-backed securities:
GNMA adjustable rate $23,838,281 $18,365 $216,960 $23,639,686
----------- ------- -------- -----------
$23,838,281 $18,365 $216,960 $23,639,686
----------- ------- -------- -----------
----------- ------- -------- -----------
December 31, 1995:
Mortgage-backed securities:
GNMA adjustable rate $28,295,654 $30,691 $230,364 $28,095,981
Obligation of U.S. government agencies 4,998,841 10,000 14,737 4,994,104
----------- ------- -------- -----------
$33,294,495 $40,691 $245,101 $33,090,085
----------- ------- -------- -----------
----------- ------- -------- -----------
Amortized Gross unrealized Fair
Cost Gains Losses Value
----------- ------- -------- -----------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES:
December 31, 1996:
Mortgage-backed securities:
FNMA participation certificates $ 5,355,122 $ -- $162,192 $ 5,192,930
FHLMC participation certificates 21,896,565 4,818 453,206 21,448,177
FHLMC adjustable rate 1,861,743 -- 32,515 1,829,228
----------- ------- -------- -----------
$29,113,430 $ 4,818 $647,913 $28,470,335
----------- ------- -------- -----------
----------- ------- -------- -----------
December 31, 1995:
Mortgage-backed securities:
FNMA participation certificates $ 6,225,192 $ -- $118,411 $ 6,106,781
FHLMC participation certificates 27,872,939 43,254 268,133 27,648,060
FHLMC adjustable rate 2,306,004 -- 35,442 2,270,562
----------- ------- -------- -----------
$36,404,135 $43,254 $421,986 $36,025,403
----------- ------- -------- -----------
----------- ------- -------- -----------
</TABLE>
(Continued)
F-12
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 SECURITIES (CONTINUED)
During December 1995, the Bank transferred $32,206,642 of mortgage-backed
securities and U.S. government agency obligations from the Bank's
held-to-maturity portfolio into its available-for-sale portfolio. This
transfer was made by the Bank for asset/liability and liquidity management
purposes and was made in accordance with an implementation guide for SFAS No.
115 entitled ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
issued by the FASB in November 1995.
Due to the uncertainty of the future utilization of unrealized losses, should
they be realized, the income tax benefit has been offset by a valuation
allowance against the resulting deferred tax asset.
The scheduled maturities of securities available-for-sale and
held-to-maturity at December 31, 1996 were as follows:
<TABLE>
Available-for-sale securities: Held-to-maturity securities:
------------------------------ ----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less $ -- $ -- $ 2,958,156 $ 2,942,355
Due from one to five years -- -- 24,293,530 23,698,752
Due from five to ten years -- -- -- --
Due after ten years 23,838,281 23,639,686 1,861,744 1,829,228
----------- ----------- ----------- -----------
$23,838,281 $23,639,686 $29,113,430 $28,470,335
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
For purposes of the maturity table, mortgage-backed securities, which are not
due at a single maturity date, have been allocated over maturity groupings
based on the weighted-average contractual maturities of underlying
collateral. The mortgage-backed securities may mature earlier than their
weighted-average contractual maturities because of principal prepayments.
Securities of $8,047,826 and $3,319,414 were pledged to secure public
deposits and for other purposes required as permitted by law at December 31,
1996 and 1995, respectively.
(Continued)
F-13
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3 LOANS HELD-FOR-SALE
The carrying amount of loans held-for-sale and their estimated fair value, as
determined on an aggregate basis, at December 31, follows:
Gross unrealized
-------------------
December 31 Amortized cost Gains Losses Fair value
- ----------- -------------- ------- ------ ----------
1996 $564,361 $12,633 $ -- $576,994
1995 861,454 13,058 -- 874,512
Proceeds from sale of loans held-for-sale were $9,058,465, $7,625,886, and
$15,205,572 for the years ended December 31, 1996, 1995 and 1994,
respectively. Gains of $176,411 and losses of $400 were recognized in 1996,
while gains of $105,507 and losses of $186 were recognized in 1995, and gains
of $136,199 and losses of $65,969 were recognized in 1994.
NOTE 4 LOANS RECEIVABLE
The components of loans in the consolidated statements of financial condition
were as follows:
December 31
-------------------------
1996 1995
----------- -----------
First mortgage loans:
Conventional $31,513,687 $25,110,648
FHA insured and VA guaranteed 4,326,093 4,059,531
Consumer and installment loans 9,047,776 4,612,586
Consumer timeshare loans 179,494 560,320
Construction loans 1,975,000 1,059,954
Other 387,600 552,822
----------- -----------
47,429,650 35,955,861
Less:
Loans in process 1,077,121 862,760
Unearned discounts, deferred loan fees, and other 327,076 333,224
Allowance for loan losses 429,241 427,889
----------- -----------
$45,596,212 $34,331,988
----------- -----------
----------- -----------
(Continued)
F-14
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 LOANS RECEIVABLE (CONTINUED)
An analysis of the changes in allowance for loan losses follows:
<TABLE>
Years ended December 31
---------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $ 427,889 $ 460,923 $ 508,597
Loans charged-off (17,882) (20,878) (52,917)
Recoveries 5,595 2,844 1,376
---------- ---------- ----------
Net loans charged-off (12,287) (18,034) (51,541)
Provision for loan losses charged (credited) to operations 13,639 (15,000) 3,867
---------- ---------- ----------
Balance at end of year $ 429,241 $ 427,889 $ 460,923
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
An analysis of the changes of loans to directors and executive officers is as
follows:
<TABLE>
Years ended December 31
---------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $ 262,180 $ 348,854 $ 651,361
Loans originated 110,623 30,882 31,099
Loan principal payments and other reductions (57,198) (117,556) (333,606)
---------- ---------- ----------
Balance at end of year $ 315,605 $ 262,180 $ 348,854
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Bank had outstanding commitments to originate loans at December 31, 1996 and
1995 of approximately $606,000 and $971,000, respectively.
During 1994, loans previously classified as available-for-sale were reclassified
to loans. The Bank had recognized a loss resulting from a lower of amortized
cost or fair market adjustment in the amount of $88,771 prior to this transfer.
The recorded amount at the date of transfer was $2,077,261. At December 31,
1996 and 1995, the remaining unamortized discount related to this transfer was
$69,786 and $76,617, respectively.
Impairment of loans having recorded investments of $1,572,814 at December 31,
1996 and 1995 has been recognized in conformity with SFAS No. 114, as amended by
SFAS No. 118. Recorded investments in other impaired loans were $138,742 at
December 31, 1996 and $113,820 at December 31, 1995. The average recorded
investment in impaired loans during 1996, 1995 and 1994 was $1,609,095,
$2,718,350 and $4,969,170, respectively. Interest income on impaired loans of
$119,377, $261,358 and $262,914 was recognized for cash payments received in
1996, 1995 and 1994, respectively.
The Bank is not committed to lend additional funds to borrowers with
non-performing or renegotiated loans.
(Continued)
F-15
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5 PREMISES AND EQUIPMENT
Components of premises and equipment included in the consolidated statements of
financial condition at December 31, 1996 and 1995 were as follows:
1996 1995
---- ----
Cost:
Land $ 407,593 $ 407,593
Bank premises 2,155,531 2,151,745
Furniture and equipment 1,318,310 1,281,138
Automobiles 77,646 77,646
----------- -----------
Total cost 3,959,080 3,918,122
Less accumulated depreciation 2,034,675 1,933,262
----------- -----------
Net book value $ 1,924,405 $ 1,984,860
----------- -----------
----------- -----------
Certain Bank facilities and equipment are leased under various operating leases.
Rental expense was $8,253 in 1996 and $-0- in 1995.
Future minimum rental commitments under noncancelable leases are:
1997 $ 18,771
1998 18,771
1999 17,369
2000 16,443
2001 9,592
Thereafter --
-----------
$ 80,946
-----------
-----------
NOTE 6 LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid balances of these
loans at December 31 are summarized as follows:
<TABLE>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Mortgage loans underlying pass through certificates:
GNMA $ 2,868,539 $ 3,594,512 $ 3,890,825
FHLMC 6,574,245 7,637,528 8,669,839
Mortgage loan portfolios serviced for:
FNMA 33,904,655 35,531,557 37,689,044
Other investors 1,418,465 1,637,020 1,845,001
------------ ------------ ------------
$ 44,765,904 $ 48,400,617 $ 52,094,709
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
(Continued)
F-16
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 6 LOAN SERVICING (CONTINUED)
Custodial escrow balances maintained in connection with the foregoing loan
servicing were $416,134 and $496,680 at December 31, 1996 and 1995,
respectively.
Mortgage servicing rights of $37,842 and $12,519 were capitalized in 1996 and
1995, respectively.
Following is an analysis of the aggregate changes in servicing rights asset
balances for the years 1996, 1995 and 1994.
Balance, January 1, 1994 $ 458,221
Amortization* (62,584)
-----------
Balance, January 1, 1995 395,637
Amortization* (48,302)
Originated mortgage servicing rights 12,519
-----------
Balance, January 1, 1996 359,854
Amortization* (52,142)
Originated mortgage servicing rights 37,842
-----------
Balance, December 31, 1996 $ 345,554
-----------
-----------
* Includes valuation adjustments, if any, due to changes in prepayment
assumptions
NOTE 7 FORECLOSED REAL ESTATE
Net losses from foreclosed real estate operations were as follows:
Years ended December 31
-----------------------------------------
1996 1995 1994
---------- ---------- -----------
Income:
Rental income $ 493 $ 1,000 $ 2,706
Gains on sale of real estate 957 13,105 882
Expenses:
Real estate expenses (42,807) (57,209) (215,905)
Loss on sale of real estate (1,469) (14,776) (60,629)
---------- ---------- -----------
Real estate operations, net $ (42,826) $ (57,880) $ (272,946)
---------- ---------- -----------
---------- ---------- -----------
(Continued)
F-17
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7 FORECLOSED REAL ESTATE (CONTINUED)
An analysis of the allowance for losses on real estate owned is as follows:
Years ended December 31
--------------------------------
1996 1995 1994
------- ------- ----------
Balance at beginning of period $40,000 $40,000 $1,433,722
Less charges against the allowance -- -- 1,393,722
------- ------- ----------
Balance at end of period $40,000 $40,000 $ 40,000
------- ------- ----------
------- ------- ----------
There were no provisions for further losses on real estate owned during 1996,
1995 and 1994.
NOTE 8 CONCENTRATION OF CREDIT RISK
The Bank invests available funds in mortgage-backed securities and
interest-bearing deposits and maintains funds in other depository
institutions, including the FHLB of Dallas. The Bank currently holds no
mutual funds as they were liquidated during 1994. Generally, the Bank's
investments in U.S. Government securities and mortgage-backed securities are
recorded in book entry form only, and the Bank does not take possession of
the actual investment certificates. The Bank's investment in interest-bearing
deposits, excluding those with the FHLB of Dallas, is normally limited to
amounts covered by applicable Federal Deposit Insurance Corporation (FDIC)
limits.
The Bank has two full service bank locations in Clovis, New Mexico and
another in Portales, New Mexico. The Bank has also opened a loan production
office in Rio Rancho, New Mexico, near Albuquerque. The Bank's primary
service area includes the New Mexico counties of Bernalillo, Cibola, Curry,
De Baca, Los Alamos, Roosevelt, Sandoval, Santa Fe, Torrance, Valencia, and
the Texas counties of Parmer and Bailey.
The Bank has historically been a major lender of mortgage loans in the
Eastern New Mexico area and is dedicated to the promotion of thrift through
the solicitation of savings accounts. The Bank's four offices primarily
service the Curry and Roosevelt counties of New Mexico and the adjoining West
Texas counties. The Bank offers a comprehensive range of credit and
depository services, while conducting business in a manner based on financial
stability, service, and community involvement.
The Bank grants consumer, commercial business, commercial real estate, and
residential loans to customers in its trade area. Generally, the loans are
secured by real estate; however, the Bank does make consumer loans and
commercial loans. The loans are expected to be repaid from the cash flow of
the borrowers. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon their own economic situation.
(Continued)
F-18
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 8 CONCENTRATION OF CREDIT RISK (CONTINUED)
The Bank's collateral policy is to secure all real estate loans by mortgages,
place first liens on available assets underlying commercial loans, and
perfect purchase money liens on consumer loan products. The Bank grants
unsecured loans to its customers.
NOTE 9 DEPOSITS
The composition of deposits and the effective rates of interest at December
31 were as follows:
<TABLE>
1996 1995
----------- ------------
<S> <C> <C>
Checking accounts - noninterest bearing $ 1,516,040 $ 575,811
Savings accounts (1996 - 2.50%; 1995 - 2.75%) 8,321,164 9,281,440
Insured Money Market accounts (1996 - 2.80%-4.65%; 1995 - 2.30%-3.70%) 10,511,090 11,414,311
Transaction accounts (1996 - 1.25%-2.70%; 1995 - 2.30%-3.30%) 6,899,439 7,386,076
Certificates of deposit:
2.01% - 3.00% 88,325 --
3.01% - 4.00% 1,059,988 997,702
4.01% - 5.00% 44,704,647 14,103,880
5.01% - 6.00% 18,517,979 52,596,029
6.01% - 7.00% 5,998,426 13,086,788
7.01% - 8.00% 546,903 1,144,070
8.01% - 9.00% -- 47,017
----------- ------------
$98,164,001 $110,633,124
----------- ------------
----------- ------------
</TABLE>
At December 31, 1996, the scheduled maturities of certificates of deposits are
as follows:
<TABLE>
Percent of
Amount total
----------- ------------
<S> <C> <C>
1997 $21,512,160 30.3%
1998 39,325,240 55.5
1999 5,603,120 7.9
2000 2,288,868 3.2
2001 1,373,703 1.9
Thereafter 813,177 1.2
----------- ------------
$70,916,268 100.0%
----------- ------------
----------- ------------
</TABLE>
At December 31, 1996 and 1995, individual deposit accounts in excess of
$100,000 amounted to $2,341,263 and $5,272,739, respectively.
(Continued)
F-19
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 9 DEPOSITS (CONTINUED)
Interest expense on deposits for the years ended December 31 was as follows:
1996 1995 1994
---------- ---------- ----------
Savings accounts $ 225,687 $ 294,322 $ 353,869
Money Market accounts 319,687 502,089 486,675
Transaction accounts 150,649 154,712 219,561
Certificates of Deposit 3,996,415 4,391,224 3,255,460
---------- ---------- ----------
$4,692,438 $5,342,347 $4,315,565
---------- ---------- ----------
---------- ---------- ----------
At December 31, 1996 and 1995, the Bank had accrued interest payable on
certificates of deposit totaling $98,320 and $213,729, respectively. The
weighted average interest rate on deposits was 4.46%, 4.67%, and 3.60% for
the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 10 FEDERAL HOME LOAN BANK ADVANCES
Each FHLB is authorized to make advances to its members, subject to such
regulations and limitations as the FHLB may prescribe. At December 31, 1996,
advances from FHLB were collateralized by investment securities totaling
$5,068,000 and accrued interest at rates ranging between 5.45% and 5.5% and
mature in January 1997. The Bank is also required to maintain stock ownership
in the FHLB of at least a minimum percentage of its loans. At December 31,
1996, the Bank maintained an excess investment in stock of the FHLB. There
were no advances from FHLB at December 31, 1995.
NOTE 11 INCOME TAXES
At December 31, 1996, the Company had remaining net operating loss ("NOL")
carryforwards of approximately $6,487,000 for federal income tax purposes
which expire in varying amounts through 2010. The Company also has a capital
loss carryforward of $88,000 for tax purposes which will expire in 1998 and
1999. In addition, the alternative minimum tax ("AMT") NOL carryforward and
AMT credit carryforward were approximately $6,860,000 and $101,000,
respectively, which expire in varying amounts through 2010. Investment tax
credit carryforwards of approximately $44,000 expire in varying amounts
through 2005. At December 31, 1996, the Bank had remaining NOL carryforwards
of approximately $43,947,000 for state income tax purposes which expire in
varying amounts through 2005. These state NOL carryforwards are
substantially more than the federal NOL carryforwards as a result of the
exclusion of U.S. investment security and other income for state income tax
purposes.
(Continued)
F-20
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 11 INCOME TAXES (CONTINUED)
Section 382 of the Internal Revenue Code ("Code") provides that the
aforementioned tax NOL carryforwards would be subjected to an annual
limitation should there be a change of over 50% in the stock ownership of the
Company during any three year testing period. Due to the fact that the
Company has a tax NOL carryforward, it is required to report changes in
ownership of 5% or greater of stockholders annually to the Internal Revenue
Service. The statute and applicable Treasury regulations are extremely
complex. The Company believes that no change of ownership as defined in
applicable Section 382 regulations occurred through the three-year testing
period ended December 31, 1996. However, the issuance of the stock
contemplated by the supplemental offering described in Note 18 may result in
such a change in ownership. If such a change in ownership occurs, the
annual use of the tax NOL carryforwards would be subject to an annual
limitation.
Under the Code, the Company is allowed a special bad debt deduction related
to additions to tax bad debt reserves established for the purpose of
absorbing losses on mortgage loans. For taxable years beginning before
January 1, 1987, the provision of the Code permitted the Bank to deduct from
taxable income an addition to the tax bad debt reserve based on a percentage
of taxable income (ranging from 32% to 60%). Due to changes made by the Tax
Reform Act of 1986, for tax years beginning after December 31, 1986, the
percentage has been reduced to 8%.
Stockholders' equity at December 31, 1996 includes approximately $2,100,000
for which no provision for Federal income tax has been accrued. These
amounts represent allocation of income to bad debt reserves for tax purposes
only. Reduction of amounts so allocated for purposes other than losses on
loans will create income for tax purposes only, which will be subject to the
then current corporate tax rate.
The Company, the Bank and FEDCO are parties to a tax sharing agreement. The
general provisions of the agreement require the Bank and FEDCO to pay the
Company on the tax due date the taxes due calculated for each entity. The
Company in turn calculates the taxes due on a consolidated basis and forwards
the required payments to the taxing authorities.
The reasons for the differences between the statutory federal income tax
rates and the effective tax rates for the years ended December 31 are
summarized as follows:
1996 1995 1994
----- ----- -------
Statutory rates 34.0 % 34.0 % 34.0 %
Effect of net operating loss (34.0)% (34.0)% (34.0)%
Deferred tax asset valuation
allowance adjustment -- -- (125.01)%
----- ----- -------
-- % -- % (125.01)%
----- ----- -------
----- ----- -------
The tax effect of significant temporary differences representing deferred tax
assets and liabilities and changes thereon were as follows:
(Continued)
F-21
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 11 INCOME TAXES (CONTINUED)
<TABLE>
December 31, Net December 31, Net December 31,
1994 change 1995 change 1996
----------- -------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
OPERATIONAL ITEMS:
- ------------------
Deferred taxes assets:
Net operating loss carryforward $ 2,255,000 $(99,000) $ 2,156,000 $ 361,000 $ 2,517,000
Bad debt deduction and deferred
loan fees 182,000 (20,000) 162,000 1,000 163,000
Other -- 7,000 7,000 1,000 8,000
----------- -------- ----------- --------- -----------
2,437,000 2,325,000 2,688,000
Valuation allowance (1,795,000) 161,000 (1,634,000) (320,000) (1,954,000)
----------- -------- ----------- --------- -----------
Deferred tax assets 642,000 49,000 691,000 43,000 734,000
----------- -------- ----------- --------- -----------
Deferred tax liabilities:
Depreciation (271,000) (9,000) (280,000) 5,000 (275,000)
FHLB stock dividend (182,000) (36,000) (218,000) (34,000) (252,000)
Originated mortgage servicing
rights -- (4,000) (4,000) (14,000) (18,000)
----------- -------- ----------- --------- -----------
Deferred tax liabilities (453,000) (49,000) (502,000) (43,000) (545,000)
----------- -------- ----------- --------- -----------
Net deferred tax asset $ 189,000 $ -- $ 189,000 $ -- $ 189,000
----------- -------- ----------- --------- -----------
----------- -------- ----------- --------- -----------
EQUITY ITEMS:
- -------------
Deferred tax assets:
Investments $ 124,000 $(54,000) $ 70,000 $ (2,000) $ 68,000
----------- -------- ----------- --------- -----------
124,000 70,000 68,000
Valuation allowance (124,000) 54,000 (70,000) 2,000 (68,000)
----------- -------- ----------- --------- -----------
Deferred tax assets -- -- -- -- --
Deferred tax liabilities -- -- -- -- --
----------- -------- ----------- --------- -----------
Net deferred tax asset $ -- $ -- $ -- $ -- $ --
----------- -------- ----------- --------- -----------
----------- -------- ----------- --------- -----------
</TABLE>
NOTE 12 REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary,
actions by regulators that, if undertaken, could have a direct material
effect on the Bank's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
(Continued)
F-22
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 REGULATORY MATTERS (CONTINUED)
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and the implementation of Office of Thrift Supervision (OTS)
regulations on December 7, 1989, effective date of the new capital standards,
the Bank must have: (1) core capital equal to 3% of adjusted total assets;
(2) tangible capital equal to 1.5% of adjusted total assets; and (3) total
capital equal to 8.0% of risk-weighted assets, which includes off-balance
sheet items.
The following table is a reconciliation of the Bank's capital for regulatory
purposes at December 31, 1996 as reported to the OTS.
<TABLE>
Tangible Core Risk-based
Assets capital capital capital
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total assets $106,864,176
Liabilities carried net of assets
for regulatory purposes (25,400)
Net unrealized depreciation on
available-for-sale securities, net 198,595
------------
Adjusted regulatory total assets $107,037,371
------------
------------
Risk-based assets $ 42,515,000
------------
------------
Stockholders' equity $5,096,936 $5,096,936 $5,096,936
Net unrealized depreciation on
available-for-sale securities, net 198,595 198,595 198,595
General valuation allowance -- -- 429,241
---------- ---------- ----------
Regulatory capital 5,295,531 5,295,531 5,724,772
Regulatory capital required 1,605,561 3,211,121 3,401,200
---------- ---------- ----------
Excess regulatory capital $3,689,970 $2,084,410 $2,323,572
---------- ---------- ----------
---------- ---------- ----------
Bank's capital to adjusted
regulatory assets 4.95% 4.95%
---------- ----------
---------- ----------
Bank's capital to risk-based assets 13.47%
----------
----------
</TABLE>
(Continued)
F-23
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 12 REGULATORY MATTERS (CONTINUED)
In 1992, the Bank was deemed to be undercapitalized by the OTS and agreed to the
issuance in July 1993 of a Prompt Corrective Action Directive ("APCAD"), which
was amended in August 1994. The APCAD required the Bank to submit a capital
restoration plan to the OTS, prescribed restrictions on dividends, management
fees, asset growth, branching and other matters and established unreserved
capital levels for the Bank. The Bank is currently in compliance with the
APCAD. The following table represents the Bank's capital ratios and the APCAD
requirements as of December 31, 1996.
Actual
APCAD December
required 31, 1996 Excess
-------- --------- ------
Core capital ........................... 4.0% 4.95% .95%
Leverage ratio capital ................. 4.0 4.95 .95
Risk-based capital ..................... 8.0 13.47 5.47
However, the OTS has sole discretion as to if and when the APCAD will be
removed.
Effective as of June 17, 1996, the Board of Directors of the Bank and the OTS
signed a Supervisory Agreement which states that it is of mutual benefit for the
Bank to do the following:
1. Complete and submit a revised business and capital plan which
will:
a. Increase core capital to 6% as of December 31, 1996,
b. Increase core capital to 7% as of June 30, 1997.
2. Create an asset/liability and investment committee of the
Board to oversee and review pricing activities, investment
selection and interest rate risk.
3. Report quarterly on the Bank's operating results and explain
variances of actual results to budgeted projections.
This agreement may be suspended in part or in whole by the OTS Regional
Director. In November 1996, the OTS waived the 6% core capital requirement
contained in the Supervisory Agreement. However, the June 30, 1997 core capital
requirement of 7% is still applicable.
NOTE 13 STOCK OPTION PLAN
Under the 1986 Stock Option and Incentive Plan ("Plan"), as amended, the Bank
could grant Incentive and Non-Incentive Stock Options, as well as Stock
Appreciation Rights ("SARs") to officers, directors, key employees and other
persons up to a maximum of 68,250 shares of the Bank's common stock. The Plan
was administered by a committee of the Board of Directors. The Plan terminated
in August 1996.
(Continued)
F-24
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 13 STOCK OPTION PLAN (CONTINUED)
Under the provisions of the Plan, stock options have a term that was determined
by the committee, but not to exceed ten years from the date of grant. However,
in the case of optionees who own in excess of 10% of the outstanding common
stock of the Bank, the term of the stock option may not exceed five years. The
aggregate fair market value of the options for which any persons could be
granted in any calendar year could not exceed $100,000.
The following table summarize certain information relative to stock options:
December 31
---------------------
1996 1995
------- -----------
Number of shares under non-incentive option 12,809 39,000
Option price of shares under option $ 5.50 $5.25-$6.00
Weighted average option price of shares under option $ 5.50 $5.35
Number of shares exercisable 12,809 39,000
During 1996, 36,500 shares of common stock were issued in connection with
exercises of stock options. The aggregate amount of the exercises was $193,500.
The remaining 2,500 options existing at December 31, 1995 expired during 1996.
There were no stock options exercised during the two years in the period ended
December 31, 1995.
As a result of the aforementioned August 1996 termination of the Plan, there are
no remaining shares of the Bank's common stock available for the issuance of
additional options under the terms of the Plan.
The Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION during
1996. The Statement defines a fair value based method of accounting (i.e.,
using an option pricing model such as Black-Scholes) for employee stock options
or similar equity instrument plans, but also allows an entity to measure
compensation costs for those plans using the intrinsic value (the amount by
which the market price of the underlying stock exceeds the underlying price of
the option) based method accounting as prescribed by Accounting Principles Board
Opinion No. 25. The Company has elected to continue using the intrinsic value
based method as allowed by the Statement. Management believes that had the fair
value of options issued during 1996 and 1995 been recorded as compensation
expense, there would have been an insignificant impact on those year's net
income (loss) and net income (loss) per share of common stock.
(Continued)
F-25
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 14 PROFIT SHARING AND 401(K) PLANS
The Company and the Bank have a profit sharing/employee stock ownership plan for
which substantially all employees are eligible. Contributions, when made, may
be made in the form of cash or in common stock of the Company. Contribution
amounts are based upon employee's compensation, but may not exceed maximum
deductible limits for federal income tax purposes. No contributions were made
in 1996, 1995, and 1994.
Effective January 1, 1989, this plan was amended to include a 401(k) before-tax
salary deferral feature. Employees may elect to contribute to the plan and such
contributions may be matched by the Bank as a percentage of each employee's
contribution. Employer contributions made to the 401(k) plan for the years
ended December 31, 1996, 1995, and 1994 totaled $3,431, $1,753, and $1,821,
respectively. Total contributions per employee, for all parts of the plan, made
by the Bank or the employee, cannot exceed the lesser of $30,000 or 25% of the
employee's compensation.
NOTE 15 FINANCIAL INSTRUMENTS
The Bank may be a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuation in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit, and
financial guarantees. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of financial position. The contract or notional amounts
of these instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
At December 31, 1996, unfunded credit commitments are as follows:
Commitments to extend credit $ 897,097
Lines of credit $ 291,016
Credit cards $ 519,321
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Some of the commitments are expected to expire
without being drawn upon. The total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the customers.
(Continued)
F-26
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 15 FINANCIAL INSTRUMENTS (CONTINUED)
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to
a third party. Currently, letters of credit are not extended beyond one
year. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers. The
Bank holds collateral and personal guarantees as deemed necessary. At
December 31, 1996, the Bank had no standby letters of credit outstanding.
At December 31, 1996, the Bank had no open interest rate swaps, futures,
options, or forward contracts.
At December 31, 1996 and 1995, the Bank had $1,170,442 and $1,832,398,
respectively, of commitments to sell newly-originated single family
residential loans.
SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosure of fair value information about financial instruments, whether or
not recognized on the balance sheet, for which it is practicable to estimate
that value. Quoted market prices, if available, are utilized as an estimate
of the fair value of financial instruments. Because no quoted market prices
exist for a part of the Bank's financial instruments, the fair value of such
instruments has been derived based on management's assumptions with respect
to future economic conditions, the amount and timing of future cash flows and
estimated discount rates. Different assumptions could significantly affect
these estimates. Accordingly, the estimates provided herein do not
necessarily indicate amounts which could be realized in a current exchange.
Further, as it is management's intent to hold a portion of its financial
instruments to maturity, it is not probable that the fair values shown below
will be realized in a current transaction. In addition, fair value estimates
are based solely on existing on- and off-balance sheet financial instruments
without attempting to estimate the value of anticipated future business and
the value of assets and liabilities that are not considered financial
instruments. Examples would include portfolios of loans serviced for others,
investments in real estate, premises and equipment, and deferred tax assets.
Because of the wide range of permissible valuation techniques and the
numerous estimates which must be made, it may be difficult to make reasonable
comparisons of the fair value information to that of other financial
institutions. The aggregate fair value amount should in no way be construed
as representative of the underlying value of the Company and/or the Bank.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate
that value:
CASH AND CASH EQUIVALENTS - The carrying amount for cash and cash equivalents
approximates the assets' fair value because of the short maturity of those
instruments.
SECURITIES - The fair value of long-term investments such as U.S. Government
and agency obligations and mortgage-backed securities is estimated based on
bid quotations received from securities dealers and the FHLB.
(Continued)
F-27
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 15 FINANCIAL INSTRUMENTS (CONTINUED)
LOANS RECEIVABLE - Fair values are estimated for portfolios of loans with
similar financial characteristics. Mortgage loans are segregated by type,
including but not limited to residential, commercial and construction.
Consumer loans are segregated by type, including but not limited to home
improvement loans, automobile loans, loans secured by deposits and secured
and unsecured personal loans. Each loan category may be segmented, as
appropriate, into fixed and adjustable interest rate terms, ranges of
interest rates, performing and non-performing, and repricing frequency.
For certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair values of other types of loans are estimated by
discounting the future scheduled and unscheduled cash flows using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. Unscheduled cash flows take
the form of estimated prepayments and may be based upon historical experience
as well as anticipated experience derived from current and prospective
economic and interest rate environments. For certain types of loans,
anticipated prepayment experience exists in published tables from securities
dealers.
The fair value of significant non-performing mortgage loans is based on
estimated value of the collateral. Where appraisals are not available,
estimated cash flows are discounted using a rate commensurate with the credit
risk associated with those cash flows. Assumptions regarding credit risk,
cash flows and discount rates are judgementally determined using available
market information and specific borrower information. The fair value of
non-performing consumer loans is based on historical experience with such
loans.
The fair value of loans held-for-sale is estimated based on outstanding
commitments from investors or current market prices for similar loans.
FEDERAL HOME LOAN BANK STOCK - The fair value of stock in the FHLB is
estimated to be equal to its carrying amount given it is not a publicly
traded equity security, it has an adjustable dividend rate, and all
transactions in the stock are executed at the stated par value.
DEPOSITS AND ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE - The fair value
of deposits with no stated maturity, such as interest-bearing or
non-interest-bearing checking accounts, savings accounts, money market
accounts and advances from borrowers for taxes and insurance is equal to the
amount payable upon demand. The fair value of certificates of deposit is
based on the lower of redemption or discounted value of contractual cash
flows. Discount rates for certificates of deposit are estimated using
current market rates.
FEDERAL HOME LOAN BANK ADVANCES - The estimated fair value of the FHLB
advances is normally based upon the discounted value of the differences
between contractual interest rates and current market rates for similar
agreements. However, the estimated fair value is the same as the carrying
value due to the short-term nature of the advances.
(Continued)
F-28
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 15 FINANCIAL INSTRUMENTS (CONTINUED)
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - The fair value of commitments to
extend credit is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels
of interest rates and the committed rates. The fair value of guarantees and
letters of credit is based on fees currently charged for similar agreements
or on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.
The fair value of off-balance sheet financial instruments is estimated to
equal the carrying amount at December 31, 1996 and 1995.
NON-FINANCIAL INSTRUMENTS - SFAS No. 107 does not permit financial
institutions to take into account the value of long-term relationships with
depositors, commonly known as core deposit intangibles, when estimating the
fair value of deposit liabilities. These intangibles are considered to be
separate intangible assets that are not financial instruments. Nonetheless,
financial institutions' core deposits have typically traded at premiums to
their book values under both historical and current market conditions.
Likewise, SFAS No. 107 does not permit financial institutions to take into
account the value of the cash flows and income stream derived from its
portfolio of loans serviced for others.
The estimated fair values of the Bank's financial instruments are shown below:
<TABLE>
December 31, 1996 December 31, 1995
------------------------- --------------------------
Carrying Estimated fair Carrying Estimated fair
amount value amount value
-------- -------------- -------- --------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 2,199 $ 2,199 $ 6,753 $ 6,753
Certificates of deposit 381 383 476 477
Securities available-for-sale 23,640 23,640 33,090 33,090
Securities held-to-maturity 29,113 28,470 36,404 36,025
Loans held-for-sale 564 577 861 875
Loans receivable 45,596 45,856 34,332 35,919
Accrued interest receivable 598 598 693 693
FHLB stock 1,572 1,572 1,483 1,483
Financial liabilities:
Deposits 98,164 95,821 110,633 111,710
Accrued interest payable 351 351 402 402
Advance payments by borrowers for taxes and
insurance 252 252 311 311
FHLB advances 3,000 3,000 -- --
</TABLE>
(Continued)
F-29
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 15 FINANCIAL INSTRUMENTS (CONTINUED)
The deferred income amounts arising from unrecognized financial instruments
are not significant. Also, these financial instruments have contractual
interest rates at or above current market rates. Therefore, no market value
disclosure is provided for these items.
NOTE 16 CONTINGENCIES
In the normal course of business, the Bank is involved in litigation which,
in the Bank's opinion, will not have a material effect on the Bank. The
following is a discussion of additional litigation involving the Bank.
On February 1, 1996, an Order of Dismissal was entered by the court with
respect to a certain derivative lawsuit ("Derivative Lawsuit") which had been
filed on May 19, 1994 and amended on November 2, 1994. The Derivative
Lawsuit was filed by two stockholders, one of whom was a former director of
the Bank, alleging a number of intentional and negligent acts and omissions
in the management of the Bank which allegedly resulted in damages and losses
suffered by the Bank. The court dismissed, with prejudice, all claims
against all defendants, except a former president, who was also chief
executive officer and a director (the "Former President") of the Bank. A
dismissal with prejudice means that the charges cannot be refiled. The court
also ordered plaintiffs to pay reasonable expenses, including attorney's
fees, to the Bank's former independent auditors. A notice of appeal was filed
by the plaintiff. The Bank cannot currently predict the outcome of the
appeal.
If final judgment in their favor is received in the Derivative Lawsuit,
certain of the current and former director defendants may make demand on the
Bank for indemnification of their legal expenses pursuant to OTS regulations.
The disinterested members of the Bank's Board of Directors must approve said
indemnification and give 60 days notice to the OTS of the Bank's intention to
make such indemnification. No such indemnification shall be made if the OTS
advises the Bank in writing, within the 60 day notice period, of its
objection thereof. Currently, no demand for indemnification has been made by
any of the current defendants.
With respect to the Former President, the court dismissed the claims in the
Derivative Lawsuit without prejudice in order to allow the Bank to pursue
such claims in Federal Court. In May 1995, the Bank filed a lawsuit against
the Former President in the United States District Court for the District of
New Mexico. In the lawsuit, the Bank asserts that the defendant engaged in
fraudulent conduct and breached his duties of loyalty and care to the Bank,
all of which resulted in losses and damages to the Bank. The Bank is seeking
recovery of damages from the defendant in excess of $2.8 million, plus
interest and punitive damages. The Bank's lawsuit against the Former
President is scheduled for trial in March 1997. Legal fees to date with
respect to the Bank's lawsuit against the Former President have been accrued
and paid. The Company does not anticipate that any future legal fees and
expenses with respect to this lawsuit will materially adversely affect its
financial condition or results of operations.
(CONTINUED)
F-30
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 17 PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The following condensed statement of financial condition as of December 31,
1996 and statements of operations and cash flows for the year then ended for
the Company should be read in conjunction with the consolidated financial
statements and notes thereto.
STATEMENT OF FINANCIAL CONDITION
Assets:
Cash and cash equivalents $ 5
Investment in the Bank 5,096,936
Organizational cost, net 163,373
Other assets 95,165
-----------
Total assets $ 5,355,479
-----------
Liabilities: -----------
Accounts payable and accrued expenses $ 269,357
-----------
Total liabilities 269,357
-----------
Stockholders' equity:
Common stock 7,322
Additional paid-in capital 7,019,577
Accumulated deficit (1,742,182)
Net unrealized depreciation on
available-for-sale securities, net (198,595)
-----------
Total stockholders' equity 5,086,122
-----------
Total liabilities and stockholders'
equity $ 5,355,479
-----------
-----------
(CONTINUED)
F-31
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 17 PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
Equity in loss of the Bank $ (723,756)
Other expense (9,814)
-----------
Net loss $ (733,570)
-----------
-----------
STATEMENT OF CASH FLOWS
Operating activities:
Net loss $ (733,570)
Equity in loss of the Bank 723,756
Amortization 9,814
-----------
Net cash provided by operating activities --
-----------
Investing activities:
Purchase of common stock of the Bank (1,000)
-----------
Net cash used in investing activities (1,000)
-----------
Financing activities:
Organization costs (173,187)
Rights offering costs incurred (95,165)
Increase in payable to Bank 269,357
-----------
Net cash provided by financing activities 1,005
-----------
Net increase in cash and cash equivalents 5
Cash and cash equivalents at beginning of period --
-----------
Cash and cash equivalents at end of period $ 5
-----------
-----------
(Continued)
F-32
<PAGE>
ACCESS ANYTIME BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 18 SUBSEQUENT EVENTS
Beginning in December 1996, the Company offered to the then existing
stockholders of the Company subscription rights for the issuance of 732,198
shares of the Company's common stock at a subscription price of $5.25 per share.
Holders of the subscription rights were able to exercise their subscription
rights until the expiration date on February 14, 1997. An aggregate of 286,054
shares of the 732,198 shares of common stock were subscribed which amounted to
$1,501,783. The remaining 446,144 shares are now being offered to other
investors at the same subscription price of $5.25 per share. The supplemental
offering of the remaining shares will expire on March 19, 1997 unless it is
extended by the Company. Management is currently unable to determine how many
shares, if any, will be sold to other investors prior to the expiration of the
supplemental offering.
On February 12, 1997, the Company entered into a line of credit with a borrowing
capacity of $100,000. The note bears interest at a prime rate as quoted by THE
WALL STREET JOURNAL and is payable on demand and matures August 12, 1997. The
note is collateralized by all of the Company's monies, instruments and savings,
checking and other deposit accounts.
F-33
<PAGE>
GLOSSARY OF CERTAIN TERMS
The following are definitions of certain terms used in this report on Form
10-KSB.
ARM................Adjustable Rate Mortgage
BIF................Bank Insurance Fund
CAMEL..............Capital adequacy, Asset quality, Management/administration,
Earnings, Liquidity-asset/liability management
CD.................Certificate of Deposit
CRA................Community Reinvestment Act
DIF................Deposit Insurance Fund
EGRPRA.............Economic Growth and Regulatory Paperwork Reduction Act of
1996
FDIC...............Federal Deposit Insurance Corporation
FDICIA.............Federal Deposit Insurance Corporation Improvement Act
FHA................Federal Housing Administration
FHLB...............Federal Home Loan Bank
FHLBB..............Federal Home Loan Bank Board
FHLMC..............Federal Home Loan Mortgage Corporation
FICO...............Financing Corporation Funding
FNMA...............Federal National Mortgage Association
GNMA...............Government National Mortgage Association
HOLA...............Home Owners' Loan Act
IRR................Interest Rate Risk
NOW................Negotiable Order of Withdrawal
NPV................Net Present Value
OTS................Office of Thrift Supervision
QTL................Qualified Thrift Lender
SAIF...............Savings Association Insurance Fund
SBA................Small Business Administration
VA.................Veterans Administration
G-1
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ---------- -------------------------------------------------------------------
3.1 Certificate of Incorporation of the Company (incorporated by
reference from the Company's Registration Statement on Form 8-A,
filed October 11, 1996, SEC File No. 001-12309)**
3.2 Bylaws of the Company (incorporated by reference from the Company's
Registration Statement on Form 8-A, filed October 11, 1996, SEC
File No. 001-12309)**
10.1 Agreement and Plan of Reorganization and Plan of Merger
(incorporated by reference from the Company's Registration
Statement on Form 8-A, filed October 11, 1996, SEC File No.
001-12309)**
***10.2 1986 Stock Option and Incentive Plan (incorporated by reference
from the Company's Registration Statement on Form 8-A, filed
October 11, 1996, SEC File No. 001-12309)**
10.3 Profit Sharing and Employee Stock Ownership Plan of First Savings
Bank, F.S.B. (incorporated by reference from the Company's
Registration Statement on Form 8-A, filed October 11, 1996, SEC
File No. 001-12309)**
10.3.1 Amendment Number One to Profit Sharing and Employee Stock
Ownership Plan of First Savings Bank, F.S. B. (refiled)
(incorporated by reference from the Company's Registration
Statement on Form 8-A, filed October 11, 1996, SEC File No.
001-12309)**
10.4 Agreement for Standby Letter of Credit Advances/Confirmation,
Collateral Pledge and Security Agreement with FHLB of Dallas
(incorporated by reference from the Company's Registration
Statement on Form 8-A, filed October 11, 1996, SEC File No.
001-12309)**
10.5 Amended Prompt Corrective Action Directive (incorporated by
reference from the Company's Registration Statement on Form 8-A,
filed October 11, 1996, SEC File No. 001-12309)**
***10.6 Employment Agreement with Kenneth J. Huey, Jr. (incorporated by
reference from the Company's Registration Statement on Form 8-A,
filed October 11, 1996, SEC File No. 001-12309)**
***10.7 Employment Agreement with Norman R. Corzine*
10.8 Bisys Document Processing, Inc. Item Processing Agreement
(incorporated by reference from the Company's Registration
Statement on Form 8-A, filed October 11, 1996, SEC File No.
001-12309)**
10.8.1 Bisys Document Processing, Inc. Item Processing Agreement
(incorporated by reference from the Company's Registration
Statement on Form 8-A, filed October 11, 1996, SEC File No.
001-12309)**
10.9 Bisys Data Processing Acknowledgment and Assignment
(incorporated by reference from the Company's Registration
Statement on Form 8-A, filed October 11, 1996, SEC File
No. 001-12309)**
21 Subsidiaries of the Small Business Issuer*
23 Consent of Independent Accountants*
27 Financial Data Schedule*
99.1 Supervisory Agreement between the Bank and the OTS (incorporated
by reference from the Company's Registration Statement on Form
8-A, filed October 11, 1996, SEC File No. 001-12309)**
- -------------------
* Filed herewith
** Previously filed
*** Designates each management contract or compensatory plan or arrangement
required to be identified pursuant to Item 13(a) of Form 10-KSB.
<PAGE>
EXHIBIT 10.7
FIRST SAVINGS BANK, F.S.B.
CLOVIS, NEW MEXICO
EMPLOYMENT AGREEMENT
AGREEMENT, made this 22nd day of November, 1995, by and between First
Savings Bank, F.S.B. (BANK), a federally chartered stock savings bank and
Norman R. Corzine (Officer).
The Officer is an employee of the BANK and has been duly elected.
The BANK desires to provide for the employment of the Officer in order to
reinforce and encourage his continued attention and dedication to the growth
and success of the BANK as a member of the BANK's management;
The Officer desires to serve the BANK on the terms and conditions
contained in this Agreement;
THEREFORE, in consideration of the premises and respective agreements
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. EMPLOYMENT. The BANK agrees to employ and the Officer agrees to serve
the BANK on the terms and conditions set forth in this Agreement.
2. TERM. The term of this Agreement shall commence on or before January 1,
1996 and shall continue for a period of two years through JANUARY 1, 1998,
subject to the terms and conditions herein set forth. As required by Thrift
Regulatory Bulletin No. 27a (#RB 27a) the Board of Directors of the BANK must
review and approve any renewals or extensions of this contract and if
required the Board must obtain prior regulatory approval for any renewals or
extensions hereof.
1
<PAGE>
NORMAN R. CORZINE - 11/22/95
3. POSITION AND RESPONSIBILITIES. It is intended that at all times during
the term of this Agreement the Officer shall serve as Vice President and
Strategic Planning Officer. The Officer shall devote time and attention to
the business and affairs of the BANK (excluding periods of vacation,
sickness, and permitted leaves of absence as provided for in the BANK's
personnel policies).
(a) MAJOR DUTIES AND RESPONSIBILITIES. The Officer will provide
leadership and direction in obtaining additional capital for the BANK,
coordinate the BANK's strategic planning activities, and guide the BANK's
investment activities to ensure the short-term and long-term profitability
and liquidity of the BANK:
(i) Coordinate and guide the BANK's efforts to raise additional capital
by working with current stockholders and/or potential investors; and
(ii) Coordinate the efforts of the BANK's investment activities through
guidance and direction of the investment portfolio, interest rate risk
management, and net interest margin management; and
(iii) Contribute to the effective, profitable operation of the BANK by
participating in asset management, executive, investment, stockholder, and
marketing activities; and
(iv) Represent the BANK and provide leadership in key community
activities, including business, charitable, civic, and social organizations
to maintain a proper responsible citizen stature for the BANK.
4. COMPENSATION. During the period of the Officer's employment, the BANK
shall provide said Officer with the following compensation and other benefits:
(a) SALARY. The BANK shall pay to the Officer a salary at a rate not
less than $90,000.00 per annum, payable in accordance with the standard
payroll practices of the BANK. This salary may be increased from time to time
by the Board of Directors of the BANK (with regulatory approval when
required), taking into account, among other things, individual performance
and general business conditions.
(b) INCENTIVE/BONUS COMPENSATION. The Officer shall be eligible to
participate in Board-approved incentive or bonus compensation plans.
2
<PAGE>
NORMAN R. CORZINE - 11/22/95
(c) EMPLOYEE BENEFITS. The Officer shall be eligible to participate in
all benefit programs of the BANK, including but not limited to profit
sharing/employee stock ownership, 401K plan, group life insurance, group
health insurance, sick leave, salary continuation, disability, vacation, and
holidays.
(d) PERQUISITES AND BUSINESS EXPENSES. The Officer shall be entitled to
prompt reimbursement of all reasonable expenses incurred by said Officer in
performing services hereunder and is to be provided additional perquisites
customary for the BANK. The BANK shall provide a late model automobile for
use by the Officer during the term of this Agreement.
(e) STOCK OPTION PLAN. Subject to the approval of this Agreement by the
Office of Thrift Supervision (OTS), the Board of Directors shall cause the
BANK to grant under its stock option plan (First Savings Bank, F.S.B., 1986
Stock Option and Incentive Plan) 17,000 shares of BANK common stock to the
Officer effective July 18, 1995. The option may be exercisable during this
Agreement and any extension thereof at the fair market price of the common
stock at the date of the grant, unless an earlier expiration date is
indicated by the stock option plan.
(f) 12 USC 1828(k) COMPLIANCE. Any payments made to the Officer pursuant
to this agreement, or otherwise, are subject to, and conditioned upon, their
compliance with 12 USC 1828(k) and any regulations promulgated thereunder.
5. TERMINATION.
The following events shall constitute grounds for termination:
(a) DISABILITY OR DEATH. If, as a result of the Officer's incapacity due
to physical or mental illness, the Officer shall have been absent from his
duties hereunder on a full-time basis for 150 consecutive days, then the BANK
shall be entitled to deliver written notice of termination to the Officer,
and if, within 30 days after any such written notice of termination is given,
the Officer shall not have returned to the performance of his duties
hereunder on a full-time basis, the BANK may terminate the Officer's
employment hereunder. Upon the death of the Officer, the BANK shall continue
to pay the Officer's estate the Base salary for a period of 180 days
following the Officer's death, following which the obligations of the BANK
hereunder shall terminate. Termination hereunder shall not affect the
3
<PAGE>
NORMAN R. CORZINE - 11/22/95
Officer's entitlement to any vested benefits of the Officer hereunder or
under any plan or arrangement contemplated by Section 4 above.
(b) CAUSE. The BANK may terminate the Officer's employment at any time,
but any termination by the BANK other than termination for cause, shall not
prejudice the Officer's right to receive compensation or other benefits under
this Agreement. The Officer shall have no right to receive compensation or
other benefits for any period after termination for cause. Termination for
cause shall include termination because of the Officer's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of
any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and desist order, or material breach of any
provision of this Agreement.
If the Officer is suspended and/or temporarily prohibited from
participation 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.
1818(e)(3) and (g)(1)) the BANK's obligations under this Agreement shall be
suspended as of the date of service unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the BANK may, at its discretion,
(i) pay the Officer all or part of the compensation withheld while its
Contract (Agreement) obligations were suspended and (ii) reinstate (in whole
or in part) any of its obligations which were suspended.
If the Officer is removed and/or permanently prohibited from participating
in the conduct in 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. 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 contracting
parties shall not be affected.
The BANK shall exercise its right to terminate the Officer's employment
for Cause by giving him a prompt written notice of termination specifying in
reasonable detail the circumstances constituting such Cause and specifying
such date of termination as the BANK shall determine.
In the event of a termination for Cause, the BANK shall have no further
liability for payments (other than previously accrued and unpaid
compensation) under section 4 of this Agreement.
4
<PAGE>
NORMAN R. CORZINE - 11/22/95
(c) DEFAULT. 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 paragraph shall not affect any
vested rights of the contracting parties.
Further, all obligations under this Agreement shall be terminated,
except to the extent determined that continuation of this Agreement is
necessary [for] the continued operation of the BANK[:]
(i) by the Director of the Office of Thrift Supervision or his or her
designee, at the time of the Federal Deposit Insurance Corporation or the
Resolution Trust Corporation enters into an agreement to provide assistance
to or on behalf of the BANK under the authority contained in section 13(c) of
the Federal Deposit Insurance Act; or
(ii) by the Director of the Office of Thrift Supervision or his or her
designee, at the time 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 the Director to be in an unsafe or unsound
condition.
(d) OTHER. The BANK may terminate the Officer's employment for reasons
other than for cause. In such circumstances, the BANK shall pay to said
Officer salary and employee benefits for the remainder of the term of the
Agreement, unless otherwise prohibited herein.
(e) TOTAL COMPENSATION. The total compensation to the Officer upon
departure, for any reason, will not exceed three times the Officer's average
annual compensation, based on the five most recent taxable years. In the case
of termination for cause, however, no payments will be made.
6. Other Miscellaneous Covenants.
(a) TAX WITHHOLDING. The BANK shall have the right to deduct from any
payment required to be made to the Officer or said Officer's estate or
beneficiaries, any federal, state, or local taxes of any kind required by law
to be withheld with respect to such payments.
(b) NOTICES. Any notice hereunder to the BANK shall be addressed to
Chairman of the Board of Directors, P.O. Drawer 1569, Clovis, New Mexico
88102-1569. Any notice to the Officer shall be directed to said Officer at
Officer's last known address contained in the BANK'S files. Either party may
designate an address at any time hereafter in writing.
5
<PAGE>
NORMAN R. CORZINE - 11/22/95
(c) ENTIRE AGREEMENT. This Agreement sets forth the entire Agreement and
understanding of the parties with respect to the subject matter herein and is
subject to prior approval (no objection) by the Office of Thrift Supervision
(OTS).
(d) SUCCESSORS; ASSIGNS. Except as herein expressly provided, the
respective rights and obligations of the Officer and the BANK under this
Agreement shall not be assigned by either party without the written consent
of the other party but shall inure to the benefit of, and be binding upon,
the parties or its permitted successors or assigns. With respect to the BANK,
successors shall include any other corporation or entity with which the BANK
may be merged or otherwise combined or which may acquire all or substantially
all of the business (ownership) of the BANK. With respect to the Officer,
successors shall include Officer's estate, beneficiaries, or other legal
representatives. Nothing herein expressed or implied is intended to confer on
any person other than the parties hereto any rights, remedies, obligations,
or liabilities under or by reason of this Agreement.
(e) AMENDMENT; WAIVER. No provision of this Agreement may be amended or
waived without written authorization of both the Board of Directors and the
Officer.
(f) SEVERABILITY. In the event that any provision of this Agreement shall
be determined to be invalid or unenforceable, the remaining provisions of the
Agreement shall remain in full force and effect.
(g) GOVERNING LAW. This Agreement shall be deemed a Contract under, and
for all purposes shall be construed with, the laws of the State of New Mexico.
(h) ARBITRATION. Any dispute or disagreement arising under this Agreement
shall be settled by arbitration conducted by a member of the American
Arbitration Association in accordance with the rules of said association.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction. The expense of such arbitration shall be borne by the BANK if
the Officer receives a judgment in said Officer's favor against the BANK.
(i) INVESTMENTS. Nothing contained in this contract shall prevent the
Officer from investing or trading stocks, bonds, securities, real estate, or
other forms of investment for said Officer's own benefit (directly or
indirectly), provided such investments do not significantly interfere or
conflict with Officer's services to be rendered hereunder.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day,
month, and year first written above.
FIRST SAVINGS BANK, F.S.B.
By: /s/ Robert C. Lydick
--------------------------------------
Robert "Chad" Lydick, Chairman
Board of Directors
OFFICER
By: /s/ Norman R. Corzine
---------------------------------------
Norman R. Corzine
7
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE SMALL BUSINESS ISSUER
<TABLE>
<S> <C> <C>
State or Other Jurisdiction of Names Under Which
Name of Subsidiary Incorporation or Organization Subsidiary Does Business
- -------------------------- ------------------------------ ------------------------
First Savings Bank, F.S.B. Federal Charter - Savings and "First Bank"
Loan Association
First Equity Development New Mexico N/A
Corporation
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Access Anytime Bancorp, Inc. on Form S-2 (File No. 333-15443) of our report
dated February 17, 1997, on our audits of the consolidated financial
statements of Access Anytime Bancorp, Inc. as of December 31, 1996 and 1995,
and for the years ended December 31, 1996, 1995, and 1994, which report is
included in this Annual Report on Form 10-KSB.
Robinson Burdette Martin & Cowan, L.L.P.
Lubbock, Texas
March 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND RELATED STATEMENTS OF
OPERATIONS AND CASH FLOWS FOR THE TWELVE MONTH PERIOD ENDING DECEMBER 31, 1996
OF ACCESS ANYTIME BANCORP, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,199
<INT-BEARING-DEPOSITS> 381
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 564
<INVESTMENTS-CARRYING> 29,113
<INVESTMENTS-MARKET> 23,640
<LOANS> 45,596
<ALLOWANCE> 429
<TOTAL-ASSETS> 106,853
<DEPOSITS> 98,164
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 603
<LONG-TERM> 0
0
0
<COMMON> 7
<OTHER-SE> 5,079
<TOTAL-LIABILITIES-AND-EQUITY> 106,853
<INTEREST-LOAN> 3,816
<INTEREST-INVEST> 3,727
<INTEREST-OTHER> 269
<INTEREST-TOTAL> 7,473
<INTEREST-DEPOSIT> 4,692
<INTEREST-EXPENSE> 4,717
<INTEREST-INCOME-NET> 2,756
<LOAN-LOSSES> 14
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,281
<INCOME-PRETAX> (734)
<INCOME-PRE-EXTRAORDINARY> (734)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (734)
<EPS-PRIMARY> (1.03)
<EPS-DILUTED> (1.03)
<YIELD-ACTUAL> 6.89
<LOANS-NON> 53
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,573
<LOANS-PROBLEM> 139
<ALLOWANCE-OPEN> 428
<CHARGE-OFFS> 18
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 429
<ALLOWANCE-DOMESTIC> 429
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
