<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998
or
[_] Transitional Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-17292
Wilshire Financial Services Group Inc.
(Exact name of registrant as specified in its charter)
Delaware 93-1223879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1776 SW Madison Street, Portland, OR 97205
(Address of principal executive offices) (Zip Code)
(503) 223-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 1998
Common Stock, par value $.01 per share 11,070,000 Shares
================================================================================
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WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
Item 1. Financial Statements.
Consolidated Statements of Financial Condition.......................3
Consolidated Statements of Operations................................4
Consolidated Statements of Cash Flows................................5
Consolidated Statements of Stockholders' Equity......................8
Notes to Interim Financial Statements................................9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..........................................11
Item 3 Quantitative and Qualitative Disclosures About Market Risk..........16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................19
Item 2. Changes in Securities...............................................19
Item 3. Defaults Upon Senior Securities.....................................19
Item 4. Submission of Matters to a Vote of Security-Holders.................19
Item 5. Other Information...................................................19
Item 6. Exhibits and Reports on Form 8-K....................................19
2
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
ASSETS (Unaudited)
(Dollars in thousands)
<S> <C> <C>
Cash and cash equivalents .................................... $ 45,915 $ 66,115
Mortgage-backed securities available for sale, at fair value . 331,301 298,964
Mortgage-backed securities held to maturity, at amortized cost 17,593 18,468
Securities held to maturity, at amortized cost ............... 5,950 5,946
Trading account securities ................................... 20,674 38,969
Loans, net ................................................... 142,864 153,908
Discounted loans, net ........................................ 446,994 463,355
Loans held for sale, net, at lower of cost or market ......... 460,586 310,694
Stock in Federal Home Loan Bank of San Francisco, at cost .... 5,106 5,031
Real estate owned, net ....................................... 185,008 169,612
Leasehold improvements and equipment, net .................... 3,289 2,507
Due from affiliate, net ...................................... 43,772 42,171
Accrued interest receivable .................................. 5,382 6,641
Prepaid expenses and other assets ............................ 63,612 46,646
----------- -----------
TOTAL .......................................................... $ 1,778,046 $ 1,629,027
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits ..................................................... $ 368,990 $ 362,598
Short-term borrowings ........................................ 1,068,091 966,500
Notes payable ................................................ 184,245 184,245
Accounts payable and other liabilities ....................... 25,414 16,562
----------- -----------
Total liabilities .......................................... 1,646,740 1,529,905
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock ................................................. 118,335 55,897
Preferred stock .............................................. -- 27,500
Treasury stock ............................................... (124) (124)
Retained earnings ............................................ 13,700 18,782
Accumulated other comprehensive income ....................... (605) (2,933)
----------- -----------
Total stockholders' equity ................................. 131,306 99,122
----------- -----------
TOTAL .......................................................... $ 1,778,046 $ 1,629,027
=========== ===========
</TABLE>
See notes to interim financial statements.
3
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
INTEREST INCOME: (Dollars in thousands)
Loans .......................................... $ 24,889 $ 18,310
Mortgage-backed securities ..................... 9,107 416
Securities and federal funds sold .............. 822 940
------------ ------------
Total interest income ........................ 34,818 19,666
------------ ------------
INTEREST EXPENSE:
Deposits ....................................... 5,386 7,007
Borrowings ..................................... 25,074 6,967
------------ ------------
Total interest expense ....................... 30,460 13,974
------------ ------------
NET INTEREST INCOME .............................. 4,358 5,692
PROVISION FOR ESTIMATED LOSSES ON LOANS .......... (1,500) (1,869)
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
ESTIMATED LOSSES ON LOANS....................... 5,858 7,561
------------ ------------
OTHER INCOME:
Servicing revenue .............................. 1,371 161
Real estate owned, net ......................... 73 1,182
Bankcard income, net ........................... 500 465
Gain on sale of loans .......................... -- --
Gain on sale of securities ..................... 2,085 --
Trading income ................................. 1,458 14
Other, net ..................................... 651 679
------------ ------------
Total other income ........................... 6,138 2,501
------------ ------------
OTHER EXPENSES:
Compensation and employee benefits ............. 5,917 3,041
Loan service fees and expenses paid to affiliate 8,858 4,995
Professional services .......................... 1,393 313
Occupancy ...................................... 433 161
FDIC insurance premiums ........................ 236 230
Other general and administrative expenses ...... 2,960 1,217
------------ ------------
Total other expenses ......................... 19,797 9,957
------------ ------------
INCOME (LOSS) BEFORE INCOME TAX PROVISION ........ (7,801) 105
INCOME TAX PROVISION (BENEFIT) ................... (3,136) 42
------------ ------------
NET (LOSS) INCOME ................................ $ (4,665) $ 63
============ ============
EARNINGS PER SHARE ............................... $ (0.52) $ 0.01
WEIGHTED AVERAGE SHARES OUTSTANDING .............. 9,742,778 7,570,000
</TABLE>
See notes to interim financial statements.
4
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
------------------------------
1998 1997
-------------- --------------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (4,665) $ 63
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for estimated loan losses ......................... (1,500) (1,869)
Provision for losses on real estate owned.................... 990 --
Depreciation and amortization ............................... 267 111
Gain on sale of real estate owned ........................... (1,450) (1,273)
Origination of loans held for sale........................... (85,722) --
Purchase of loans held for sale ............................. (78,985) (187,487)
Gain on sale of securities .................................. (2,085) --
Unrealized gain on trading securities........................ (1,458) --
Amortization of discounts and deferred fees ................. (5,130) (7,089)
Other ....................................................... (249) (143)
Change in:
Trading account securities .................................. 20,038 6,783
Accrued interest receivable ................................. 1,259 (5,051)
Prepaid expenses and other assets ........................... (16,392) (1,445)
Due from affiliate, net ..................................... (2,018) 32,539
Accounts payable and other liabilities ...................... 8,852 10,001
-------------- --------------
Net cash used in operating activities (168,248) (154,860)
-------------- --------------
</TABLE>
See notes to interim financial statements.
(Continued)
5
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
----------------------------
1998 1997
----------- ---------------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of loans ................................................. (38,043) (184,397)
Loan repayments ................................................... 47,513 35,434
Loan originations ................................................. (5,876) (13,015)
Purchase of mortgage-backed securities available for sale ......... (37,082) (93,715)
Repayments of mortgage-backed securities available for sale ....... 8,222 240
Repayments of mortgage-backed securities held to maturity ......... 855 715
Purchases of real estate owned .................................... (11,855) --
Proceeds from sale of real estate owned ........................... 42,442 13,007
Purchases of leasehold improvements and equipment ................. (1,049) (45)
Other ............................................................. -- (57)
----------- ---------------
Net cash provided by (used in) investing activities ............. 5,127 (241,833)
----------- ---------------
</TABLE>
See notes to interim financial statements.
(Continued)
6
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-----------------------------
1998 1997
-------------- -------------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits ........................................... 6,392 (38,625)
Issuance of common stock ...................................................... 62,438 --
Proceeds from short-term borrowings ........................................... 463,683 360,146
Repayments of short-term borrowings ........................................... (362,092) (27,597)
Redemption of preferred stock ................................................. (27,500) --
Proceeds from notes payable ................................................... -- 9,245
-------------- -------------
Net cash provided by financing activities ................................... 142,921 303,169
-------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ....................................... (20,200) (93,524)
CASH AND CASH EQUIVALENTS:
Beginning of period ........................................................... 66,115 152,298
-------------- -------------
End of period ................................................................. $ 45,915 $ 58,774
============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION-Cash paid during the quarter for:
Interest ...................................................................... $ 30,449 $ 10,696
Income taxes .................................................................. 5,015 3,500
NONCASH INVESTING AND FINANCING ACTIVITIES:
Additions to real estate owned acquired in settlement of loans ................ 45,523 19,612
Equipment acquired through capital lease ...................................... -- 493
Pay in kind preferred stock dividend .......................................... 417 --
</TABLE>
See notes to interim financial statements.
(Concluded)
7
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Treasury Stock
------------------- -------------------- -----------------
Shares Amount Shares Amount Shares Amount
-------- -------- ---------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996..................... -- $ -- 1,300,863 $ 6,800 -- $ --
Net income.................................
Unrealized loss on available-for-sale
securities-net of tax....................
Exchange of subordinated debt
for Common Stock......................... 1,606,618 11,000
Issuance of Common Stock................... 4,662,519 38,097
-------- -------- ---------- --------- -------- --------
BALANCE, December 31, 1996................... -- -- 7,570,000 55,897 -- --
Net income.................................
Issuance of Preferred Stock................ 27,500 27,500
Preferred Stock dividend...................
Unrealized loss on available-for-sale
securities-net of tax....................
Treasury Stock............................. 5,000 (124)
-------- -------- ---------- --------- -------- --------
BALANCE, December 31, 1997................... 27,500 27,500 7,570,000 55,897 5,000 (124)
Net loss...................................
Preferred Stock dividend...................
Preferred Stock redemption................. (27,500) (27,500)
Issuance of Common Stock................... 3,500,000 62,438
Unrealized gain on available-for-sale
securities-net of tax....................
Unrealized loss on foreign
currency translation.....................
-------- -------- ---------- --------- -------- --------
BALANCE, March 31, 1998
(unaudited)................................ -- $ -- 11,070,000 $118,335 5,000 $ (124)
======== ======== ========== ========= ======== ========
<CAPTION>
Retained
Earnings Accumulated Other
Accumulated Comprehensive
Deficit Income (Loss) Total
-------- ------------ ---------
(Dollars in thousands)
<S> <C> <C> <C>
BALANCE, January 1, 1996..................... $ 255 $ (16) $ 7,039
Net income................................. 4,967 4,967
Unrealized loss on available-for-sale
securities-net of tax.................... (81) (81)
Exchange of subordinated debt
for Common Stock......................... 11,000
Issuance of Common Stock................... 38,097
-------- -------- --------
BALANCE, December 31, 1996................... 5,222 (97) 61,022
Net income................................. 15,164 15,164
Issuance of Preferred Stock................ 27,500
Preferred Stock dividend................... (1,604) (1,604)
Unrealized loss on available-for-sale
securities-net of tax.................... (2,836) (2,836)
Treasury Stock............................. (124)
-------- -------- --------
BALANCE, December 31, 1997................... 18,782 (2,933) 99,122
Net loss................................... (4,665) (4,665)
Preferred Stock dividend................... (417) (417)
Preferred Stock redemption................. (27,500)
Issuance of Common Stock................... 62,438
Unrealized gain on available-for-sale
securities-net of tax.................... 2,476 2,476
Unrealized loss on foreign
currency translation..................... (148) (148)
-------- -------- --------
BALANCE, March 31, 1998
(unaudited)................................ $ 13,700 $ (605) $131,306
======== ======== ========
</TABLE>
See notes to interim financial statements.
8
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO INTERIM FINANCIAL STATEMENTS
(Dollars in thousands)
1. BASIS OF PRESENTATION
The consolidated interim financial statements of Wilshire Financial Services
Group Inc. and subsidiaries (the "Company") are unaudited and should be read in
conjunction with the 1997 Annual Report on Form 10-K. A summary of the Company's
significant accounting policies is set forth in Note 1 to the Consolidated
Financial Statements in the 1997 Annual Report on Form 10-K.
In the opinion of management, all adjustments generally comprised of normal
recurring accruals necessary for fair presentations of the interim financial
statements have been included and all intercompany accounts and transactions
have been eliminated in consolidation. Operating results for the quarter ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
Certain reclassifications of 1997 amounts were made in order to conform to the
1998 presentation, none of which affect previously reported net income.
2. COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
In hedging the interest rate exposure of a fixed-rate or lagging-index asset,
the Company may create a hedge which matches the principal amortization of such
asset against the maturity of the Company's liabilities generally by entering
into short or forward sales of U.S. Treasury securities, Government Securities
or interest rate future contracts. This results in market gains or losses on
hedging instruments, in response to interest rate increases or decreases,
respectively, which approximate the amount of the corresponding market losses or
gains, respectively, on loans being hedged.
At March 31, 1998, the Company had open short positions on 40 U.S. Treasury
Bond, 440 10-year U.S. Treasury Note, 309 2-year U.S. Treasury Note, 1,306 5-
year U.S. Treasury Note, and 450 French Franc futures contracts. The aggregate
net losses on these instruments are deferred as an adjustment to the basis of
the hedged assets. The total amount deferred as of March 31, 1998 in the
consolidated statement of financial condition was $3,715. The Bank utilizes
interest rate swaps to convert deposits to fixed rate liabilities to maintain a
more predictable spread between the fixed income on loans and the interest
expense on borrowings. At March 31, 1998, the notional amount of interest rate
swaps related to deposits was $173,379. The weighted average fixed payments and
floating-rate receipts of interest were 6.07% and 0.29% over USD LIBOR,
respectively.
The Company also utilizes interest rate swaps to convert certain fixed rate
borrowings to variable rate. The notional amount of interest rate swaps related
to the 13% Series A Notes was $20.0 million at March 31, 1998. The weighted
average fixed receipts and floating-rate payments of interest were 13% and
2.50% over USD LIBOR, respectively.
From time to time, the Company enters into various commitments and letters of
intent relating to purchases of loans, foreclosed real estate portfolios and
discrete operating companies. There can be no assurance that any of such
9
<PAGE>
transactions will ultimately be consummated. It is the Company's policy to
generally record such transactions in the financial statements in the period in
which such transactions are closed.
3. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued Statement of
Financial Accounting Standards No. 131 "Disclosure About Segments of an
Enterprise and Related Information" which establishes standards for the way
public entities report information about operating segments in annual financial
statements and requires that those entities report selected information about
operating segments in interim financial reports issued to stockholders. This
Statement is effective for fiscal years beginning after December 15, 1997 with
interim periods presented following the initial presentation in annual financial
statements. The Company will incorporate appropriate disclosures at the time
these pronouncements are adopted.
The American Institute of Certified Public Accountants recently issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-up
Activities," which has been cleared by the FASB. This SOP provides guidance on
the financial reporting of start-up and organizational costs. Specifically, it
requires costs of start-up activities and organizational costs to be expensed as
incurred and is effective for financial statements for fiscal years beginning
after December 15, 1998. The initial application of this SOP should be reported
as a cumulative effect of a change in accounting principle. If the Company were
to adopt this SOP as of March 31, 1998, the estimated effect on the Company's
operations would be $443.
4. FOREIGN OPERATIONS
As a result of start-up operations in the United Kingdom, France and Ireland,
the Company incurred foreign losses. Additional loan portfolios will be
acquired in the second and third quarter and the Company expects the foreign
operations to be profitable by the fourth quarter of 1998. The Company recorded
deferred tax assets associated with the foreign tax losses in the United
Kingdom, France and Ireland. Although realization of these assets is not
assured, management believes it is more likely than not that these losses will
be realized by offsetting future taxable earnings in these countries.
5. COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income", which requires companies to report all
changes in equity during a period, except those relating to investment by
owners and distributions to owners, in a financial statement for the period in
which they are recognized. The Company has chosen to disclose comprehensive
income which encompasses net income and unrealized gains (losses) on available
for sale securities and foreign currency translation as presented below.
Quarter Ended March 31,
-------------------------
1998 1997
----------- -----------
Net income (loss) $ (4,665) $ 63
Other comprehensive (loss) income:
Unrealized holding gain on available
for sale securities, net of tax provision
of $1,065 and $32 for the
three months ended March 31, 1998 and 1997,
respectively............................... 2,476 74
Unrealized loss on foreign currency
translation ............................... (148) --
----------- -----------
Total comprehensive (loss) income $ (2,337) $ 137
=========== ===========
6. EARNINGS PER SHARE
The Company has outstanding stock options which are considered common stock
equivalents in the calculation of diluted earnings per share. During the quarter
ended March 31, 1998, the Company experienced a net loss, which resulted in
common stock equivalents having an anti-dilutive effect on earnings per share.
Weighted average shares outstanding is therefore equivalent for basic and
diluted earnings per share.
7. SIGNIFICANT TRANSACTIONS
Effective February 9, 1998, the Company completed a public offering of 3,500,000
shares of its common stock. A portion of the proceeds were used to redeem the
Company's 27,500 shares of outstanding 14% cumulative, pay-in-kind preferred
stock. The remaining proceeds provide capital for the Company's leveraged
acquisition of pools of loans and other investments.
In the first quarter of 1998, the Company completed an exchange offer, pursuant
to which the holders of the Series A Notes exchanged their Series A Notes for
13% Series B Notes due 2004 of the Company, which contain substantially
identical terms as the Series A Notes, except with respect to restrictions on
transfer.
During the quarter ended March 31, 1998, the Company completed the purchase of
certain assets of an unaffiliated mortgage originator for a purchase price of
approximately $2.8 million.
In October 1997, the Company established Wilshire Real Estate Investment Trust,
Inc. (the "Wilshire REIT"), which intends to qualify and will elect to be taxed
as a Real Estate Investment Trust. On April 6, 1998, the Wilshire REIT
consummated an initial public offering of its common stock, upon which, the
Company sold to the Wilshire REIT certain of its (i) U.S. commercial real estate
assets for approximately $29.6 million, (ii) mortgage-backed securities for
approximately $95.0 million and (iii) international discounted and non-
discounted loans in the United Kingdom for approximately $3.4 million. In
addition, the Company granted the Wilshire REIT (i) an option to purchase all or
a portion of the Company's interest in two portfolios of discounted and non-
discounted loans in France for a purchase price up to $110.0 million and (ii) a
right of first refusal on future acquisitions of U.S. commercial real estate
assets other than U.S. commercial performing loans, mortgage-backed securities
and international real estate assets.
The Company has engaged an investment banking firm to facilitate the acquisition
of Wilshire Credit Corporation, an affiliated entity which conducts servicing
and sub-servicing activities for the Company and various third parties.
The Company has entered into negotiations for the acquisition of a commercial
mortgage banker located in Southern California.
During 1998, the Office of Thrift Supervision increased their asset growth
limitation previously imposed on First Bank of Beverly Hills, FSB, the primary
thrift banking subsidiary of the Company, from $553 million to $750 million
prior to their regular examination in July 1998.
10
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WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and notes thereto.
Wilshire Financial Services Group Inc. ("WFSG" or the "Company") is a
diversified financial services company. The Company conducts business in the
U.S. and Europe, specializing in loan portfolio acquisition and securitization,
correspondent lending and servicing. The Company offers wholesale banking
through its subsidiary, First Bank of Beverly Hills, F.S.B. ("FBBH" or "First
Bank").
Prior to December 31, 1997, the principal operations of WFSG were conducted
through a nonbank subsidiary, Wilshire Funding Corporation ("WFC") and two
second-tier subsidiary savings banks, Girard Savings Bank, F.S.B. ("GSB" or
"Girard") and First Bank (collectively, the "Savings Banks"). On December 31,
1997, First Bank was merged into Girard and the surviving entity was renamed
First Bank of Beverly Hills, F.S.B. As a result, the Company's operations are
currently conducted primarily through WFC and First Bank. First Bank is a
federally chartered savings institution regulated by the Office of Thrift
Supervision ("OTS") with one branch and a merchant bankcard center in Southern
California. Administrative headquarters of the Company, WFC and First Bank are
located in Portland, Oregon.
Results of Operations -- Quarter Ended March 31, 1998 Compared to Quarter Ended
March 31, 1997
Net Income (Loss)
The Company had a net loss of approximately $4.7 million for the quarter
ended March 31, 1998 compared to net income of approximately $63,000 for the
quarter ended March 31, 1997. The reduction in net income was primarily
attributable to higher financing and servicing costs associated with discounted
loans acquired in the second half of 1997. The Company currently recognizes
interest income on discounted loans as cash is received (typically 9 to 21
months after acquisition), which tends to reduce the Company's net interest
margin in early months following acquisition, as financing costs are not
offset by income from such loans. Servicing expenses increased due to cost of
collections associated with discounted loans, growth in the total loan
portfolio, and growth in loans serviced for unaffiliated third parties which is
subserviced by Wilshire Credit Corporation ("WCC"), an affiliated entity. In
addition, the Company chose not to complete a securitization or whole loan sale
during the quarter ended March 31, 1998, opting instead to delay any such sale
until the second quarter in order to obtain the best execution on any such
securitization.
Net Interest Income
The Company's net interest income was approximately $4.4 million for the
quarter ended March 31, 1998 compared to approximately $5.7 million for the
quarter ended March 31, 1997, a decrease of 23.4%. Interest income of $34.8
million for the first quarter of 1998 increased by $15.2 million or 77.0% over
the first quarter of 1997 primarily as a result of an increase of $493.8 million
in interest-earning assets (excluding real estate owned) from March 31, 1997 to
March 31, 1998. Interest expense of $30.5 million for the first quarter of 1998
increased by $16.5 million or 118.0% over the comparable period in the prior
year as a result of an increase of $643.9 million in interest-bearing
liabilities from March 31, 1997 to March 31, 1998. Also, the Company's weighted
average cost of funds increased from 7.17% at March 31, 1997 to 7.58% at March
31, 1998.
The Company's net interest margin and loan expenses are substantially
impacted by the cash basis accounting for its discounted loan portfolio. The
Company recognizes expenses on discounted loans but defers revenues during the
earlier lives of these portfolios since financing expense and foreclosure costs
are incurred throughout the life of a discounted loan while income is only
recognized when cash is received on resolution. At March 31, 1998, the Company's
discounted loan portfolio made up 43% of the Company's total loan portfolio for
which expenses were recognized and revenues deferred during the first quarter.
In the fourth quarter of 1997, the Company acquired approximately $200 million
of discounted loans.
11
<PAGE>
Provisions for Estimated Losses on Loans
Provision for estimated losses on loans for the quarter ended March 31,
1998 was a net recovery of approximately $1.5 million resulting from First
Bank's recapture of reserves on loans sold or paid off which was offset by an
additional provision of $0.6 million. This compares with a provision for
estimated losses on loans for the quarter ended March 31, 1997, which was a net
recovery of approximately $1.9 million resulting from the reversal of $2.5
million of excess reserves on loans previously sold, which was partially offset
by an additional provision of approximately $0.6 million.
Other Income
The Company's other income was approximately $6.1 million for the quarter
ended March 31, 1998 compared to approximately $2.5 million for the quarter
months ended March 31, 1997, an increase of 145.4%. The components of the
Company's non-interest income are reflected in the following table:
Quarter Ended
March 31,
------------------------
1998 1997
---------- ---------
(Dollars in thousands)
Other income:
Servicing revenue .............................. $ 1,371 $ 161
Real estate owned, net ......................... 73 1,182
Bankcard income, net ........................... 500 465
Gain on sale of loans .......................... -- --
Gain on sale of securities ..................... 2,085 --
Trading income ................................. 1,458 14
Other, net ..................................... 651 679
---------- ---------
Total other income ............................. $ 6,138 $ 2,501
========== =========
The increase in other income for the quarter ended March 31, 1998 is
primarily attributable to (i) the sale of securities and securities trading
income, which resulted in a gain of approximately $3.5 million and (ii) an
increase in servicing fees paid by unaffiliated third parties. The Company chose
not to complete a securitization or whole loan sale during the quarter ended
March 31, 1998, opting instead to delay any such sale until the second quarter
in order to obtain the best execution on any such securitization.
Gain on the Sale of Securities. The gain on the sale of securities of
approximately $2.1 million for the quarter ended March 31, 1998 is a result of
the sale of approximately $17.6 million of mortgage-backed securities retained
from previous securitizations by the Company. The Company's strategy is to
invest in subordinate classes of mortgage-backed securities that the Company
believes are likely to experience a ratings upgrade as a result of payment
history, prepayment or default experience or otherwise. The Company believes
that its experience in acquiring pools of loans allows it to more effectively
evaluate the risks associated with a pool of loans that supports an issue of
mortgage-backed securities being considered for purchase and price those
securities. The Company recently granted a right of first refusal to the
Wilshire REIT on future purchases of mortgage-backed securities.
Servicing Revenue. The increase in servicing revenue of approximately $1.2
million in the quarter ended March 31, 1998 was primarily the result of
contracting for servicing rights on loan portfolios owned by unaffiliated third
parties and arranging for such loan portfolios to be sub-serviced by Wilshire
Credit Corporation ("WCC"), an affiliate of the Company, at a rate which is
lower than the rate received by the Company.
12
<PAGE>
Other Expenses
The Company's other expenses totaled approximately $19.8 million for the
quarter ended March 31, 1998 compared to approximately $10.0 million for the
quarter ended March 31, 1997, an increase of 98.8%, attributable primarily to an
increase in loan service fees and expenses paid to affiliates resulting from
increases in the Company's total loan portfolio, proportionally higher servicing
costs associated with discounted loans acquired in late 1997, third party
servicing (which is sub-serviced by WCC), and increased compensation and
employee benefits and other general and administrative expenses resulting from
the expansion of business operations and infrastructure necessary to accommodate
anticipated growth (including growth in Europe).
Loan Service Fees and Expenses Paid to Affiliate. Loan expenses and service
fees increased by $3.9 million during the first quarter of 1998 compared to the
comparable period in 1997 due to loan expenses related to the discounted loan
portfolio and overall portfolio asset growth. For the quarter ended March 31,
1998, the Company paid $4.5 million of loan-related expenses (exclusive of loan
service fees) due primarily to the Company's discounted loan portfolio. These
expenses, including various expenditures to ready the asset for sale, generally
precede cash receipts and revenue and, therefore, tend to reduce net income in
the early periods following acquisition.
Compensation and Employee Benefits. Compensation and employee benefits was
approximately $5.9 million for the quarter ended March 31, 1998, compared to
approximately $3.0 million for the quarter ended March 31, 1997, an increase of
94.6%. The increase was due primarily to an increase in the average number of
full-time equivalent employees from 138 for the quarter ended March 31, 1997 to
258 for the quarter ended March 31, 1998, reflecting the expansion of business
activities, particularly loan acquisition activities, European operations, and
the growth of activities at the non-bank subsidiaries.
Other general administrative expenses increased from approximately $1.2
million for the quarter ended March 31, 1997 to approximately $3.0 for the
quarter ended March 31, 1998, an increase of 143.2%, due primarily to the
expansion of business activities at the non-bank subsidiaries, particularly loan
acquisition activities (such as due diligence costs) and European operations.
Changes in Financial Condition
Mortgage-Backed and Other Securities. The Company's holdings of mortgage-
backed securities and other securities increased approximately $13.2 million
during the quarter ended March 31, 1998 primarily as a result of purchasing
certain subordinated securities offset by the sale of approximately $17.6
million of mortgage-backed securities. For accounting purposes, the Company's
mortgage-backed and other securities are classified as available for sale,
trading account securities and held to maturity. The Company has agreed to grant
the Wilshire REIT a right of first refusal with respect to mortgage-backed
securities. As a consequence, the opportunity for the Company to invest in such
assets would be limited to the extent the Wilshire REIT takes advantage of such
investment opportunities.
Loans, Net. The Company's portfolio of non-discounted loans and discounted
loans, net of discounts and allowances, increased by approximately $122.5
million during the quarter ended March 31, 1998 primarily as a result of the
Company's business strategy of aggressively acquiring discounted loans and other
mortgage loans coupled with the availability of capital resulting from the
Company's issuance of $100.0 million of Series A Notes and approximate proceeds
of $62.4 million from the common stock offering completed by the Company during
1998. The Company also granted a right of first refusal to the Wilshire REIT
with respect to certain domestic commercial real estate assets and certain
international real estate assets, which could limit the Company's ability to
acquire these assets in the future.
Real Estate Owned, Net. Real estate owned, net consists of properties
acquired through foreclosure or deed-in-lieu thereof on loans held by the
Company or purchased directly. Real estate owned increased by approximately
$15.4
13
<PAGE>
million during the quarter ended March 31, 1998 primarily due to the increase in
the Company's discounted loans and purchases of real estate owned. The Company
actively manages its portfolio of real estate owned with a view to accelerating
and maximizing the realization of cash from the disposition of that real estate.
Due from Affiliate, Net. Due from affiliate, net of approximately $43.8
million at March 31, 1998 was primarily attributable to payments received in the
normal course of servicing operations by WCC, which had not yet been remitted to
the Company.
Prepaid Expenses and Other Assets. Prepaid expenses and other assets
consists primarily of capitalized mortgage servicing rights, deferred issuance
costs, deferred tax asset and miscellaneous other items.
Deposits. Deposits increased by approximately $6.4 million or 1.8% during
the quarter ended March 31, 1998. Pursuant to the Cease and Desist Order, as
amended (the "Order"), imposed on First Bank by its regulators, First Bank is
prohibited from increasing its total assets, as measured at the end of each
calendar quarter above $750 million, unless such increase is an amount that
represents the total net interest credited on deposit liabilities earned during
that quarter plus any increase permitted by the Order in prior quarters. The OTS
recently amended the growth restriction (prior to its regularly scheduled exam
in July 1998) to allow total assets of $750 million, an increase of $197 million
from the $553 million limitation in place during the prior quarter.
Notes Payable. In the fourth quarter of 1996 and the first quarter of 1997,
the Company issued $84.2 million of notes payable. In the third quarter of 1997,
the Company issued $100.0 million of Series A Notes. In the first quarter of
1998, the Company completed an exchange offer, pursuant to which the holders of
the Series A Notes exchanged their Series A Notes for 13% Series B Notes due
2004 of the Company (the "Series B Notes"), which contain substantially
identical terms as the Series A Notes, except with respect to restrictions on
transfer.
Short-Term Borrowings. Short-term borrowings increased by approximately
$101.6 million during the quarter ended March 31, 1998, resulting from increased
use of repurchase agreements and warehouse financing to fund the purchase of
loans and securities.
Stockholders' Equity. Stockholders equity also increased from $99.1 million
at December 31, 1997 to $131.3 million for the quarter ended March 31, 1998, an
increase of 32.5%. This increase was primarily due to the completion of the
Company's secondary equity offering which was partially offset by the redemption
of the Company's 14% pay-in-kind preferred stock. In addition, the Company's
unrealized loss on securities available for sale decreased from ($2.9) million
to ($0.5) million during the quarter ended March 31, 1998.
Liquidity and Capital Resources
Liquidity is the measurement of the Company's ability to meet potential
cash requirements, including ongoing commitments to repay borrowings, fund
investments, purchase pools of loans, real estate and newly originated mortgage
and manufactured housing loans, and for general business purposes. The Company's
sources of cash flow include certificates of deposit, securitizations, net
interest income and borrowings under its warehouse and repurchase financing
facilities and from institutional investors and other lenders and public and
private debt offerings, including the Notes and the Series A Notes. In certain
limited circumstances, the Company also has borrowed money from WCC in order to
fund the acquisition of loans. The Company repaid such borrowings with PIK
Preferred Stock on July 31, 1997. The Company redeemed the PIK Preferred Stock
in February 1998. In addition, First Bank obtains funding through FHLB advances.
The Company's liquidity is actively managed on a daily basis and reviewed
periodically by the Board of Directors of the Company. This process is intended
to ensure the maintenance of sufficient funds to meet the needs of the Company,
including adequate cash flows for off-balance sheet instruments.
Sources of liquidity for First Bank include wholesale and brokered
certificates of deposit. At March 31, 1998, First Bank had approximately $361.1
million of certificates of deposit. At March 31, 1998, scheduled maturities of
certificates of deposit during the 12 months ending March 31, 1999 and
thereafter amounted to approximately $310.2 million and $50.9 million,
respectively. Brokered and other wholesale deposits generally are more
responsive to changes in interest rates than core deposits and, thus, are more
likely to be withdrawn by the investor upon maturity as changes in interest
rates and other factors are perceived by investors to make other investments
more attractive. However, management of First Bank believes it can adjust the
rates paid on certificates of deposit to retain deposits in changing interest
rate environments and that brokered and other wholesale deposits can be both a
relatively cost-effective and stable source of funds.
At March 31, 1998, the Company's sources of borrowing included (i) an
uncommitted master repurchase agreement between First Bank and Bear Stearns
Mortgage Capital Corporation as to which the parties have orally agreed that
approximately $210 million would be available for the purchase of loans, (ii) a
committed $150 million warehouse lending agreement with Prudential Securities
Credit Corporation and (iii) certain repurchase arrangements
14
<PAGE>
with major investment banks, including $425 million (committed) under a
repurchase agreement with Credit Suisse First Boston Mortgage Capital LLC and
$357.5 million (committed) under several repurchase agreements with Salomon
Brothers Realty Corp. Sources of borrowings also include FHLB advances, which
are required to be secured by eligible securities collateral, and reverse
repurchase agreements. At March 31, 1998, First Bank had no FHLB advances
outstanding, and was eligible to borrow up to an aggregate of $4.1 million
from the FHLB of San Francisco and had $4.3 million of unencumbered mortgage-
backed and related securities which could be pledged to secure such borrowings.
The Company's uses of cash include the funding of purchases of U.S.
residential discounted loans and non-discounted loans, U.S. commercial
non-discounted loans, mortgage-backed securities and newly originated mortgage
and manufactured housing loans, payment of interest expenses, repayment of
loans, funding of initial over-collateralization requirements for
securitizations, operating and administrative expenses, income taxes and capital
expenditures. The Company's purchases of pools of loans and other assets are
expected to utilize secured borrowings and be highly leveraged. The actual
dollar amount of secured borrowings incurred by the Company will vary depending
on a number of factors, including the amount of leverage lenders are willing to
make available (which will be affected by market conditions), and management's
determination as to the appropriate amount of leverage. With respect to pools of
U.S. discounted loans and U.S. non-discounted loans, the Company generally seeks
to fund 90% and 95%, respectively, of the purchase price of such pools of loans
with borrowed money. The Company draws on a number of sources to obtain such
funds including certificates of deposit and repurchase arrangements with major
investment banks. Capital expenditures by the Company have not been material.
The Company is party to various off-balance sheet financial instruments in
the normal course of business to manage its interest rate risk. The Company
conducts business with a variety of financial institutions and other companies
in the normal course of business, including counterparties to its off-balance
sheet financial instruments. The Company is subject to potential financial loss
if the counterparty is unable to complete an agreed upon transaction. The
Company seeks to limit counterparty risk through financial analysis and other
monitoring procedures.
Adequate credit facilities and other sources of funding, including the
ability of the Company to securitize loans, are essential to the continuation of
the Company's ability to purchase pools of loans, mortgage-backed securities and
newly originated mortgage and manufactured housing loans. The Company believes
that cash flow from operations, the proceeds of certificates of deposit, the
availability under the warehouse financing facility and other borrowings, and
the net proceeds from securitizations will be sufficient to fund current
operating needs, commitments and capital expenditures in the near term.
Given the Company's rapid growth and assuming that the Company continues to
experience such growth, management believes that additional debt and/or equity
financing may be required to sustain this level of growth once a substantial
portion of the Company's equity offering, which was completed in February 1998,
is invested. The Notes and Series B Notes contain certain limitations on
indebtedness which may restrict the ability of the Company to issue additional
indebtedness in the future and the Company may be obligated to seek equity
financing. There can be no assurance that any such debt or equity financing will
be available to the Company on financially attractive terms in the future.
The Company is required to maintain funds sufficient to meet two semiannual
interest payments on the Notes and the Series B Notes in liquid assets. In
addition, First Bank is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of U.S.
Government, federal agency and other investments having maturities of five years
or less. Current OTS regulations require that a savings association
15
<PAGE>
maintain liquid assets of not less than 4% of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less, of
which short-term liquid assets must consist of not less than 1%. Monetary
penalties may be imposed for failure to meet applicable liquidity requirements.
The Company and First Bank have complied with these requirements.
IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. All of the statements
contained in this Quarterly Report on Form 10-Q which are not identified as
historical should be considered forward-looking. In connection with certain
forward-looking statements contained in this Quarterly Report on Form 10-Q and
those that may be made in the future by or on behalf of the Company which are
identified as forward-looking, the Company notes that there are various factors
that could cause actual results to differ materially from those set forth in any
such forward-looking statements. Such factors include but are not limited to,
the real estate market, the cease and desist orders, the availability of loan
portfolios at acceptable prices, the availability of financing for loan
portfolio acquisitions, interest rates and expansion outside the U.S.
Accordingly, there can be no assurance that the forward-looking statements
contained in this Quarterly Report on Form 10-Q will be realized or that actual
results will not be significantly higher or lower. The forward-looking
statements have not been audited by, examined by or subjected to agreed-upon
procedures by independent accountants, and no third-party has independently
verified or reviewed such statements. Readers of this Quarterly Report on Form
10-Q should consider these facts in evaluating the information contained herein.
The inclusion of the forward-looking statements contained in this Quarterly
Report on Form 10-Q should not be regarded as a representation by the Company or
any other person that the forward-looking statements contained in this Quarterly
Report on Form 10-Q will be achieved. In light of the foregoing, readers of this
Quarterly Report on Form 10-Q are cautioned not to place undue reliance on the
forward-looking statements contained herein.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
It is the objective of the Company to attempt to control risks associated
with interest rate movements. In general, management's strategy is to limit the
Company's exposure to earnings variations and variations in the value of assets
and liabilities as interest rates change over time. The Company's asset and
liability management strategy is formulated and monitored by the asset and
liability committees for the Company and First Bank (the "Asset and Liability
Committees") which meet regularly to review, among other things, the sensitivity
of the Company's assets and liabilities to interest rate changes, the book and
market values of assets and liabilities, unrealized gains and losses, including
those attributable to hedging transactions, purchase and securitization
activity, and maturities of investments and borrowings. The Asset and Liability
Committees coordinate with First Bank's board of directors and the Company's
investment committees with respect to overall asset and liability composition.
The Company's interest rate risk analysis focuses less on managing the
overall gap and more on ensuring that individual pools of loans are properly
hedged. In hedging the interest rate exposure of a fixed-rate or lagging-index
asset that is held for sale, the Company creates a hedge which matches the
principal amortization of such asset against the maturity of the Company's
liabilities generally by entering into short sales or forward sales of U.S.
Treasury securities, Government securities, interest rate futures contracts,
interest rate swap agreements or the purchase of interest only mortgage
securities. This results in market gains or losses on hedging instruments, in
response to interest rate increases or decreases, respectively, which
approximate the amount of the corresponding market losses or gains,
respectively, on loans being hedged. The Company evaluates the interest rate
sensitivity of each pool of loans and decides whether to hedge the interest rate
exposure of a particular pool of loans. The Company generally does not hedge the
interest rate risk associated with holding non-lagging index adjustable-rate
mortgages pending their sale or securitization due to the decreased significance
of such risk. In general, when a pool
16
<PAGE>
of loans is acquired, the Company will determine whether or not to hedge and,
with respect to any sale or financing of any pool of loans through
securitization, the Company will determine whether or not to discontinue its
duration-matched hedging activities with respect to the relevant loans.
The Company will seek to purchase interest only securities ("IOs") to hedge
against maturity extension risk in the Company's loan and securities portfolio
in the event that the Company encounters slower than anticipated prepayments
while still anticipating an acceptable return on the purchase of such IOs.
Accordingly, if the underlying mortgage collateral prepays (including
prepayments as a result of default and repurchases by the seller) at a rate
faster than anticipated, the weighted average life of the IO will be reduced,
and the yield to maturity of the IO adversely affected. Conversely, if the
underlying mortgage collateral prepays at a rate slower than anticipated, the
weighted average life of the IO will be extended, with a consequent positive
effect on the anticipated yield to maturity of the IO.
The Asset and Liability Committees are authorized to utilize a wide variety
of off-balance sheet financial techniques to assist them in the management of
interest rate risk. These techniques include interest rate swap agreements,
pursuant to which the parties exchange the difference between fixed-rate and
floating-rate interest payments on a specified principal amount (referred to as
the "notional amount") for a specified period without the exchange of the
underlying principal amount. Interest rate swap agreements are utilized by the
Company to protect against the narrowing of the interest spread between fixed
rate loans and associated liabilities funding those loans. The Company had
approximately $173.4 million notional principal amount of interest rate swap
agreements outstanding at December 31, 1997, which had the effect of decreasing
the Company's net interest income on loans held by First Bank by approximately
$0.04 million during the quarter ended March 31, 1998.
In addition, as required by OTS regulations, the Asset and Liability
Committees also regularly review interest rate risk by forecasting the impact of
alternative interest rate environments on net interest income and market value
of portfolio equity ("MVPE"), which is defined as the net present value of an
institution's existing assets, liabilities and off-balance sheet instruments,
and evaluating such impacts against the maximum potential changes in net
interest income and MVPE that is authorized by the board of directors of First
Bank. Management does not believe that First Bank's interst rate sensitivity of
MVPE arising from a change in rates from 0 to 400 basis points has materially
changed since December 31, 1997.
Management of First Bank believes that the assumptions (including
prepayment assumptions) used by it to evaluate the vulnerability of First
Bank's operations to changes in interest rates approximate actual experience and
considers them reasonable; however, the interest rate sensitivity of First
Bank's assets and liabilities and the estimated
17
<PAGE>
effects of changes in interest rates on First Bank's net interest income and
MVPE could vary substantially if different assumptions were used or actual
experience differs from the historical experience on which they are based.
18
<PAGE>
WILSHIRE FINANCIAL SERVICES GROUP INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is involved in various legal proceedings occurring in the
ordinary course of business which management of the Company believes will not
have a material adverse effect on the financial condition or operations of the
Company.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
The Company is not in material default with respect to any indebtedness
exceeding 5% of the total assets of the Company and its consolidated
subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period
covered by this report.
Item 5. Other Information.
The Company is currently considering the acquisition of WCC in part to
(i) integrate servicing operations and eliminate servicing fees being paid to
WCC, (ii) increase fee based revenues, through servicing for unaffiliated third
parties, (iii) acquire the revenue stream in excess of the Company's servicing
costs that would otherwise have been payable to the WCC, (iv) reduce potential
regulatory concerns regarding the relationship between First Bank and WCC, and
(v) eliminate the potential conflicts of interest between the Company and WCC.
WCC is wholly-owned by the Company's principal shareholders, Andrew A.
Wiederhorn and Lawrence A. Mendelsohn. In light of Messrs. Wiederhorn's and
Mendelsohn's ownership of WCC, the acquisition would be subject to the approval
of the independent members of the Company's Board of Directors and the receipt
of a fairness opinion from a nationally recognized investment banking firm. No
final decision has been made regarding the acquisition. There can be no
assurance as to when or if the acquisition will occur.
In October 1997, the Company established Wilshire Real Estate
Investment Trust Inc. (the "Wilshire REIT"), which intends to qualify and will
elect to be taxed as a Real Estate Investment Trust. On April 6, 1998, the
Wilshire REIT consummated an initial public offering of its common stock, upon
which, the Company sold to the Wilshire REIT certain of its (i) U.S. commercial
real estate assets for approximately $29.6 million, (ii) mortgage-backed
securities for approximately $95.0 million and (iii) international discounted
and non-discounted loans in the United Kingdom for approximately $3.4 million.
In addition, the Company granted the Wilshire REIT (i) an option to purchase all
or a portion of the Company's interest in two portfolios of discounted and non-
discounted loans in France for a purchase price up to $110.0 million and (ii) a
right of first refusal on future acquisitions of U.S. commercial real estate
assets other than U.S. commercial performing loans, mortgage-backed securities
and international real estate assets.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 11 Statement re Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WILSHIRE FINANCIAL SERVICES GROUP INC.
Date: May 15, 1998 By: /s/ Lawrence A. Mendelsohn
-----------------------------------
Lawrence A. Mendelsohn
President
By: /s/ Chris Tassos
-----------------------------------
Chris Tassos
Chief Financial Officer
20
<PAGE>
Exhibit 11
Three Months Ended
March 31,
---------------------------
1998 1997
------------ -----------
(Dollars in thousands)
Diluted net income per share:
Net income ..................................... $ (4,665) $ 63
Preferred Stock dividend ....................... (417) --
------------ -----------
Net income available to common shareholders ... $ (5,082) $ 63
============ ===========
Average number of shares outstanding .......... 9,742,778 7,570,000
Net effect of dilutive stock options-based on
treasury stock method ....................... -- 345,294
------------ -----------
Total average shares ........................... 9,742,778 7,915,294
============ ===========
Fully dilutive net income per share ............ $ (0.52) $ 0.01
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AS OF MARCH 31, 1998 AND STATEMENT OF EARNINGS FOR THE
THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 45,914
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 20,674
<INVESTMENTS-HELD-FOR-SALE> 331,301
<INVESTMENTS-CARRYING> 23,543
<INVESTMENTS-MARKET> 23,687
<LOANS> 1,050,444
<ALLOWANCE> 350,297
<TOTAL-ASSETS> 1,778,046
<DEPOSITS> 368,990
<SHORT-TERM> 1,068,091
<LIABILITIES-OTHER> 25,414
<LONG-TERM> 184,245
0
0
<COMMON> 118,335
<OTHER-SE> 12,971
<TOTAL-LIABILITIES-AND-EQUITY> 1,778,046
<INTEREST-LOAN> 24,889
<INTEREST-INVEST> 9,929
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 34,818
<INTEREST-DEPOSIT> 5,386
<INTEREST-EXPENSE> 30,460
<INTEREST-INCOME-NET> 4,398
<LOAN-LOSSES> (1,500)
<SECURITIES-GAINS> 3,543
<EXPENSE-OTHER> 19,797
<INCOME-PRETAX> (7,801)
<INCOME-PRE-EXTRAORDINARY> (4,665)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,665)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 38,281
<LOANS-PROBLEM> 5,829
<ALLOWANCE-OPEN> 118,275
<CHARGE-OFFS> 4,802
<RECOVERIES> 2,100
<ALLOWANCE-CLOSE> 350,297
<ALLOWANCE-DOMESTIC> 350,297
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
