Version 3 29
11/2/94
2:12 PM
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
/X/ For the Quarterly Period Ended September 30, 1994, or
Transition Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________.
Commission File Number 0-11008
CU BANCORP
(Exact name of registrant as specified in its charter)
California 95-3657044
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
818-907-9122
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address, and former fiscal year if changes
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
As of September 30, 1994, the Registrant has outstanding 4,473,312 shares
of its Common stock, no par value.
CU Bancorp
Quarter Ended September 30, 1994
Table of Contents - Form 10-Q
Page
Part I. Financial Information
Item 1. Financial Statements
Management's Discussion and Analysis of Financial
Condition and Results of Operation. 3
Consolidated Statements of Financial Condition:
-September 30, 1994, and December 31, 1993. 19
Consolidated Statements of Income:
-Three and Nine month Periods Ended September 30, 1994,
and September 30, 1993. 20
Consolidated Statements of Cash Flows:
-Nine month Periods Ended September 30, 1994, and
September 30, 1993. 21
Notes to Consolidated Financial Statements 22
Signatures 25
Part II. Other Information
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Filings on Form 8-K 26
Management Discussion and Analysis
Overview
The Company earned $671 thousand, or $0.14 per share, during the third
quarter of 1994, compared to $566 thousand, or $0.13 per share, during the
same period in 1993. Third quarter 1994 earnings included profitable
performance by the Bank and a gain on the sale of a portion of the mortgage
servicing rights retained by the Bank when its mortgage origination network
was sold in 1993.
The Bank's asset quality ratios continue to be exceptionally strong. At
September 30, 1994, nonperforming assets were $113 thousand, down $0.9
million, or 89%, from the prior quarter, and $0.9 million, or 89% from the
third quarter of 1993. At September 30, 1994, the Bank did not have any
real estate acquired through foreclosure.
The Bank's allowance for loan losses as a percent of both nonperforming
loans and nonperforming assets at the end of the third quarter of 1994 was
6611%, compared to third quarter 1993 levels of 536% and 142%,
respectively. The allowance for loan losses as a percentage of
nonperforming loans and assets has increased as both nonperforming
categories were reduced. During the first nine months of 1994, the Bank
enjoyed a net recovery as recoveries exceeded chargeoffs for the third
consecutive quarter. Net recoveries further increase the allowance's
coverage of the nonperforming loans and assets.
Capital ratios are strong, substantially exceeding levels required to be in
the "well capitalized" category established by bank regulators. The Total
Risk-Based Capital Ratio was 16.9%, the Tier 1 Risk-Based Capital Ratio was
15.6%, and the Leverage Ratio was 10.6% at September 30, 1994, compared to
16.7%, 15.4%, and 9.2%, respectively, at year-end 1993. Regulatory
requirements for Total Risk-Based, Tier 1 Risk-Based, and Leverage capital
ratios are a minimum of 8%, 4%, and 3%, respectively, and for
classification as well capitalized, 10%, 6%, and 5%, respectively.
The successful results in 1993 and 1994 concerning asset quality,
regulatory relations, growth of middle market lending and strategic focus
make expansion and growth possible. Two new loan production offices were
opened in January 1994. These offices have allowed expanded market
penetration and commercial portfolio diversification. Both offices have
since been converted to branches. On April 1, 1994, the Bank acquired the
deposits of the Encino branch of Mechanics National Bank from the FDIC, to
expand and improve deposit mix. In October 1994, another loan production
office was opened in Camarillo, California to be the Ventura County
regional center.
Balance Sheet Analysis
Loan Portfolio Composition and Credit Risk
Significant improvements in loan portfolio composition and credit quality
are the result of management's commitment to middle market commercial
lending and a strong credit culture. The credit standards established over
two years ago have allowed creation of a high quality commercial loan
portfolio and nearly eliminated non performing assets. Real estate
concentrations established before that time have been reduced to the point
that they are no longer concentrations. Concentrations of loans in any
industry or collateral are now discouraged and limited by the Bank's credit
policy.
The Bank's focus on middle market lending, in its infancy at year-end 1992,
gained momentum in 1993 and has further accelerated in 1994. Total loans
increased over $19 million from December 31, 1993 to September 30, 1994.
Offsetting this, the remaining Held for Sale mortgages of $10.4 million at
December 31, 1993 were sold in the first quarter of 1994. Excluding this
planned liquidation, loans increased by almost $30 million, or 23%, for the
nine months ended September 30, 1994.
<TABLE>
Table 1 Loan Portfolio Composition
<CAPTION>
Amounts in thousands of dollars September 30, December 31, September 30,
1994 1993 1993
<S> <C> <C> <C>
Commercial & Industrial Loans $152,548 $120,513 $119,285
Real Estate Loans:
Held for Sale 0 10,426 93,999
Mortgages 6,383 8,496 9,183
Construction 18 1,226 232
Other Loans 861 0 187
Total loans net of unearned fees $159,810 $140,661 $222,886
</TABLE>
Historically, the Bank's real estate loans secured by single family
residences were principally mortgages held for sale that were originated by
the Mortgage Banking Operation. These were sold to investors through firm
commitments, generally in less than 90 days. The loans amounted to $10.4
million, or 7.4% of the December 31, 1993, loan portfolio. This part of
the loan portfolio historically presented almost no credit risk. The sale
of the mortgage origination operation eliminated this loan concentration.
The remainder of real estate loans are generally collateralized by a first
or second trust deed position.
Lending efforts have been directed away from commercial real estate, as
well as construction and multifamily lending. The Bank is now focused on
business lending to middle market customers. Current credit policy in
general now permits commercial real estate lending only as part of a
complete commercial banking relationship with a middle market customer.
Existing commercial real estate loans, 13% of the loan portfolio, or $21
million at September 30, 1994, compared to $27 million at year-end 1993,
are secured by first or second liens on office buildings and other
structures. The loans are secured by real estate that had appraisals in
excess of loan amounts at origination.
Monitoring and controlling the Bank's allowance for loan losses is a
continuous process. All loans are assigned a risk grade, as defined by
credit policies, at origination and are monitored to identify changing
circumstances that could modify their inherent risks. These classifications
are one of the criteria considered in determining the adequacy of the
allowance for loan losses.
The amount and composition of the allowance for loan losses is as follows:
<TABLE>
Table 2 Allocation of Allowance for Loan Losses
<CAPTION>
Amounts in thousands of dollars September 30, December 31, September 30,
1994 1993 1993
<S> <C> <C> <C>
Commercial & Industrial Loans $6,916 $5,699 $4,923
Real estate loans - Held for Sale 0 67 67
Real estate loans - Mortgages 197 225 196
Real estate loans - Construction 0 10 28
Other loans 0 0 17
Loans 7,115 6,001 5,231
Unfunded commitments and letters 355 512 478
of credit
Total Allowance for loan losses $7,470 $6,513 $5,709
</TABLE>
Adequacy of the allowance is determined using management's estimates of the
risk of loss for the portfolio and individual loans. Included in the
criteria used to evaluate credit risk are, wherever appropriate, the
borrower's cash flow, financial condition, management capabilities, and
collateral valuations, as well as industry conditions. A portion of the
allowance is established to address the risk inherent in general loan
categories, historic loss experience, portfolio trends, economic
conditions, and other factors. Based on this assessment, a provision for
loan losses may be charged against earnings to maintain the adequacy of the
allowance. The allocation of the allowance based upon the risks by type of
loan, as shown in Table 2, implies a degree of precision that is not
possible when using judgment. While the systematic approach used does
consider a variety of segmentations of the portfolio, management considers
the allowance a general reserve available to address risks throughout the
entire loan portfolio.
Activity in the allowance, classified by type of loan, is as follows:
<TABLE>
Table 3 Analysis of the Changes in the Allowance for Loan Loss
<CAPTION>
Amounts in thousands of dollars For the Periods Ended
September 30, December 31, September 30,
1994 1993 1993
<S> <C> <C> <C>
Balance at January 1 $6,513 $12,986 $12,986
Loans charged off:
Real estate secured loans 486 3,266 3,266
Commercial loans secured and unsecured 574 6,582 6,203
Loans to individuals, installment and 99 901 484
other loans
Total charge-offs 1,159 10,749 9,953
Recoveries of loans previously charged off:
Real estate secured loans 545 393 135
Commercial loans secured and unsecured 1,568 3,189 1864
Loans to individuals, installment and 3 244 227
other loans
Total recoveries of loans previously 2,116 3,826 2,226
charged off
Net charge-off (recovery) (957) 6,923 7,727
Provision for loan losses 0 450 450
Balance at end of period $7,470 $6,513 $5,709
Net loan charge-offs (recoveries) as a
percentage of average gross loans
outstanding during the period ended (0.48%) 3.49% 2.98%
</TABLE>
The Bank's policy concerning nonperforming loans is more conservative than
is generally required. It defines nonperforming assets as all loans ninety
days or more delinquent, loans classified nonaccrual, and foreclosed, or in
substance foreclosed real estate. Nonaccrual loans are those whose
interest accrual has been discontinued because the loan has become ninety
days or more past due or there exists reasonable doubt as to the full and
timely collection of principal or interest. When a loan is placed on
nonaccrual status, all interest previously accrued but uncollected is
reversed against operating results. Subsequent payments on nonaccrual loans
are treated as principal reductions. At September 30, 1994, nonperforming
loans amounted to $113 thousand, down 93% from $1.4 million at December 31,
1993.
<TABLE>
Table 4: Nonperforming Assets
<CAPTION>
Amounts in thousands of dollars September 30, December 31, September 30,
1994 1993 1993
<S> <C> <C> <C>
Loans not performing (1) $113 $1,378 $1,065
Other real estate owned 0 920 2,968
Total nonperforming assets $113 $2,298 $4,033
Allowance for loan losses as a percent of:
Nonperforming loans 6611% 473% 536%
Nonperforming assets 6611% 283% 142%
Nonperforming assets as a 0.0% 0.8% 3.3%
percent of total assets
Nonperforming loans as a 0.1% 1.0% 3.0%
percent of total loans
Note 1:
Loans not performing
Performing as agreed $113 $9 $937
Partial performance 0 369 6
Not performing 0 1000 122
$113 $1,378 $1,065
Nonaccrual:
Loans $113 $378 $1,065
Troubled debt restructurings 0 0 0
</TABLE>
Securities
The securities portfolio at September 30, 1994, totaled $64 million,
compared to $88 million at year-end 1993. The securities are all held in a
Held for Investment portfolio. This portfolio is recorded at amortized
cost. It is the Bank's intention to hold these securities to their
individual maturity dates. There was no Held for Sale portfolio at
September 30, 1994 or year-end 1993.
There have been no realized gains or losses on securities in the first nine
months of 1994. Gains of $77 thousand were realized in the first nine
months of 1993. At September 30, 1994, there were unrealized gains of $16
thousand and losses of $1.7 million in the securities portfolio.
Additional information concerning securities is provided in the footnotes
to the accompanying financial statements.
Other Real Estate Owned
At September 30, 1994, there was no Other Real Estate Owned on the Bank's
balance sheet, compared with $920 thousand at December 31, 1993. The
carrying values of these properties are at fair value, which is determined
using recent appraisal values adjusted, if necessary, for other market
conditions. Loan balances in excess of fair value are charged to the
allowance for loan losses when the loan is reclassified to other real
estate. Subsequent declines in fair value are charged against an allowance
for real estate owned losses created by charging a provision to other
operating expenses.
During the third quarter of 1994, the bank sold one property held as Other
Real Estate Owned, realizing a gain of $494 thousand, bringing year to date
gains on real estate sales to $585 thousand. There were no comparable
sales in 1993. Expenses related to Other Real Estate Owned were $21
thousand in the nine months ended September 30, 1994, with $9 thousand
incurred in the third quarter. This compares to $74 thousand and $232
thousand in the three and nine month periods ended September 30, 1993.
Deposit Concentration
Due to its historic focus on real estate related activities, the Bank
developed a concentration of deposit accounts from title insurance and
escrow companies. These deposits are generally noninterest bearing
transaction accounts that contribute to the Bank's interest margin.
Noninterest expense related to these deposits is included in other
operating expense. The Bank monitors the profitability of these accounts
through an account analysis procedure.
The Bank offers products and services allowing title insurance and escrow
customers to operate with increased efficiency. A substantial portion of
the services, provided through third party vendors, are automated data
processing and accounting for trust balances maintained on deposit at the
Bank. These and other banking related services, such as messenger and
deposit courier services, will be limited or charged back to the customer
if the deposit relationship profitability does not meet the Bank's
expectations.
Noninterest bearing deposits represent nearly the entire title and escrow
relationship. These balances have been reduced substantially as the Bank
focused on middle market business loans. The balance at September 30,
1994, was $39 million compared to $58 million at December 31, 1993. Costs
relative to servicing the above relationships are the significant portion
of the Bank's customer data processing and messenger and courier costs.
There have been no significant changes in these costs in the first nine
months of 1994.
The Bank had $20.4 million in certificates of deposit larger than $100
thousand dollars at September 30, 1994. The maturity distribution of these
deposits is relatively short term, with $15.7 million maturing within 3
months and the balance maturing within 12 months.
Liquidity and Interest Rate Sensitivity
The objective of liquidity management is to ensure the Bank's ability to
meet cash requirements. The liquidity position is managed giving
consideration to both on and off-balance sheet sources and demands for
funds.
Sources of liquidity include cash and cash equivalents (net of Federal
Reserve requirements to maintain reserves against deposit liabilities),
securities eligible for pledging to secure borrowings from dealers pursuant
to repurchase agreements, loan repayments, deposits, and borrowings from a
$20 million overnight federal funds line available from a correspondent
bank. Potential significant liquidity requirements are withdrawals from
noninterest bearing demand deposits and funding of commitments to loan
customers.
During 1993, the Bank maintained a $20 million line of credit with a major
purchaser of the mortgage loans originated by the mortgage origination
operation. This warehouse line was terminated in conjunction with the sale
of that operation.
From time to time the Bank may experience liquidity shortfalls ranging from
one to several days. In these instances, the Bank will either purchase
federal funds, and/or sell securities under repurchase agreements. These
actions are intended to bridge mismatches between funding sources and
requirements, and are designed to maintain the minimum required balances.
The Bank had no Federal Funds purchased or borrowings under repurchase
agreements in the first nine months of 1994.
The Bank's portfolio of large certificates of deposit (those of $100
thousand or more) at September 30, 1994 was 8.4% of total deposits,
compared to 8.1% at December 31, 1993. This funding source has
traditionally been used to manage liquidity needs within the deposit
portfolio.
<TABLE>
Table 6 Interest Rate Maturities of Earning Assets and Funding
Liabilities at September 30, 1994
<CAPTION>
Amounts in thousands of dollars Amounts Maturing or Repricing in
More Than 3 More Than 6 More Than 9
Months But Months But Months But
Less Than Less Than Less Than Less than 12 Months
3 Months 6 Months 9 Months 12 Months & Over
Earning Assets
<S> <C> <C> <C> <C> <C>
Gross Loans $148,940 $1,692 $4,231 $105 $4,842
Securities 4,388 3,009 3,000 3,002 51,052
Federal funds sold & other 12,000 --- --- --- ---
Total earning assets 165,328 4,701 7,231 3,107 57,271
Interest-bearing deposits:
Now and money market 77,393
Savings 10,337
Time certificates of deposit:
Under $100 14,296 1,879 1,530 2,600 96
$100 or more 15,709 2,857 1,335 400 105
Non interest-bearing demand deposits 35,397 --- --- --- ---
Total funding liabilities 153,132 4,736 2,865 3,000 201
Interest rate sensitivity gap 12,196 (35) 4,366 107 57,070
Cumulative interest rate sensitivity gap 12,196 12,161 16,527 16,634 73,704
Off balance sheet financial instruments 0 0 0 0 0
Net cumulative gap $12,196 $12,161 $16,527 $16,634 $73,704
Adjusted cumulative ratio of rate sensitive
assets to rate sensitive liabilities (1) 1.08% 1.08% 1.10% 1.10% 1.45%
</TABLE>
(1) Ratios greater than 1.0 indicate a net asset sensitive position.
Ratios less than 1.0 indicate a liability sensitive position. A ratio
of 1.0 indicates a risk neutral position.
Assets and liabilities shown on Table 6 are categorized based on
contractual maturity dates. Maturities for those accounts without
contractual maturities are estimated based on the Bank's experience with
these customers. Noninterest bearing deposits of title and escrow
companies, having no contractual maturity dates, are considered subject to
more volatility than similar deposits from commercial customers. The net
cumulative gap position shown in the table above indicates that the Bank
does not have a significant exposure to interest rate fluctuations during
the next twelve months.
Capital
Total shareholders' equity was $29.0 million at September 30, 1994,
compared to $27.0 million at year-end 1993. This increase was due to
earnings, plus the exercise of stock options. The Bank is guided by
statutory capital requirements, which are measured with three ratios, two
of which are sensitive to the risk inherent in various assets and which
consider off-balance sheet activities in assessing capital adequacy.
During 1994 and 1993, the Bank's capital levels exceeded the "well-
capitalized" standards, the highest classification established by bank
regulators.
<TABLE>
Table 7 Capital Ratios
<CAPTION>
Regulatory Standards
September 30, December 31, Adequately Well
1994 1993 Capitalized Capitalized
<S> <C> <C> <C> <C>
Total Risk Based Capital 16.9% 16.7% 8.0 % 10.0%
Tier 1 Risk Base Capital 15.6 15.4 4.0 6.0
Leveraged Capital 10.6 9.2 4.0 5.0
</TABLE>
No dividends have been paid in 1994 or 1993. Capital being generated by
current earnings is currently expected to be used to support anticipated
growth of the Bank.
The common stock of the Company is listed on the National Association of
Securities Dealers Automated Quotation (NASDAQ) National Market Systems
where it trades under the symbol CUBN.
<TABLE>
Table 8 Stock Prices
<CAPTION>
1994 1993
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $7.50 $6.50 $6.25 $3.38
Second Quarter 7.00 5.75 7.00 4.75
Third Quarter 7.50 6.00 6.25 5.00
Fourth Quarter --- --- 7.25 5.75
Earnings by Line of Business
Prior to the sale of the mortgage origination network in November, 1993,
the Bank operated a commercial bank and a mortgage bank as two distinct
business segments. In 1994, real estate lending is generally only done as
part of a commercial banking relationship. For 1994, therefore, the Bank
consists of only a single segment, the commercial banking operation.
Tables 9A and 9B show the pre-tax operating contributions by the Commercial
Banking and Mortgage Banking divisions for the three and nine months ended
September 30, 1994 and 1993.
Table 9A Pre-tax operating contribution by line of business (i)
</TABLE>
<TABLE>
Amounts in thousands of dollars
<CAPTION>
For the three For the three
months ended months ended
September 30, September 30, 1993
1994
Commercial Mortgage
Consolidated Consolidated Banking Banking
<S> <C> <C> <C> <C>
Net interest income $3,702 $3,863 $3,556 $307
Provisions for loan losses 0 150 75 75
Risk adjusted net interest income 3,702 3,713 3,481 232
Noninterest revenue 1041 8242 284 7,958
Total revenues 4,743 11,955 3,765 8,190
Salaries and related benefits 1,599 2,867 1,447 1,420
Restructuring charge 600 0 0 0
Other operating expenses 1,985 8,141 1,900 6,203
Total operating expenses 4,184 11,008 3,347 7,623
Operating income 559 947 418 567
Gain on sale of mortgage servicing
portfolio 625 --- --- ---
Income before taxes $1,184 $947 $418 $567
(i) Inter-divisional transactions for 1993 have been eliminated at the
</TABLE>
division level.
<TABLE>
Table 9B Pre-tax operating contribution by line of business (i)
Amounts in thousands of dollars
<CAPTION>
For the nine For the nine
months ended months ended
September 30, September 30, 1993
1994
Commercial Mortgage
Consolidated Consolidated Banking Banking
<S> <C> <C> <C> <C>
Net interest income $9,774 $11,507 $10,562 $945
Provisions for loan losses 0 450 300 150
Risk adjusted net interest income 9,774 11,507 10,262 795
Noninterest revenue 2,536 18,575 746 17,829
Total revenues 12,310 29,632 11,008 18,624
Salaries and related benefits 4,678 8,129 4,649 3,480
Restructuring charge 600 0 0 0
Other operating expenses 5,943 18,978 5,633 13,218
Total operating expenses 11,221 27,107 10,282 16,698
Operating income 1,089 2,525 726 1,926
Gain on sale of mortgage servicing
portfolio 2,183 --- --- ---
Income before taxes $ 3,272 $ 2,525 $ 726 $1,926
</TABLE>
(i) Inter-divisional transactions for 1993 have been eliminated at the
division level.
The Bank continues to take steps to facilitate the expansion and market
penetration of the commercial bank including the creation of loan
production offices, establishment of a Small Business Administration
("SBA") loan production group, and development of an international trade
services group.
Branches have been established in two strategic locations in Southern
California. These will serve the San Gabriel Valley area and the South Bay
area. The offices are staffed with seasoned commercial lenders whose
primary focus is business development. Such offices are cost effective
approaches to business development and allow the Bank access to wider
market exposure. While these offices are primarily staffed with existing
personnel, when appropriate, key people with specific market knowledge and
experience have been hired. In October 1994, the Bank opened a loan
production office in Camarillo, California as its regional center for
Ventura County.
The Bank has established a group of lenders to focus on the production of
commercial loans that can be participated with the SBA. These loans are
subject to the same credit quality policies and procedures as all
commercial loan production. Fees generated from the sale of the guaranteed
portion of the loans will be an important new source of noninterest income.
Another new product was added with the creation of an international trade
services group. Many of the Bank's existing commercial customers and
prospects are involved in import and/or export. This product line includes
letters of credit, foreign exchange, and foreign collections, and is
another important element in the total banking relationship offered to our
business customers.
Net Interest Income and Interest Rate Risk
Net interest income is the difference between interest and fees earned on
earning assets and interest paid on funding liabilities. Net interest
income was $3.7 million and $9.8 million for the three and nine month
periods ended September 30, 1994, compared to $3.9 million and $11.5
million for the comparable periods in 1993. The change is primarily
attributable to changes in volume. As a result of efforts to deal with
credit quality issues and refocus the Bank on middle market business
customers, loans outside target markets have been motivated to leave the
Bank. Initially this has an adverse affect on net interest margin but
subsequent growth of the middle market loan portfolio replaces these assets
and provides a more reliable and valuable source of interest margin.
<TABLE>
Table 10 Analysis of Changes in Net Interest Income (1)
<CAPTION>
Amounts in thousands of dollars Nine months ended September 30, Nine months ended September 30,
1994 compared to 1993 1993 compared to 1992
Increases(Decreases) Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans, net $(3,936) $423 $(3,513) $(2,943) $(133) $(3,076)
Investments 826 75 901 (1,063) (541) (1,604)
Federal Funds Sold 221 132 353 (358) (114) (472)
Total interest income (2,889) 630 (2,259) (4,364) (788) (5,152)
Interest Expense
Interest-bearing deposits:
Demand and Savings 70 (95) (25) (305) (531) (836)
Time Certificates of deposit
Under $100 (226) 27 (199) 409 (53) 356
$100 or more (234) 62 (172) (349) (197) (546)
Federal funds purchased / Repos (22) (22) (43) (11) (9) (20)
Other borrowings (92) 5 (87) 341 0 341
Total interest expense (503) (23) (526) 84 (789) (705)
Net interest income $(2,386) $653 $(2,765) (4,448) 1 (4,447)
</TABLE>
(1) The change in interest income or interest expense that is attributable
to both change in average balance and average rate has been allocated to
the changes due to (i) average balance and (ii) average rate in
proportion to the relationship of the absolute amounts of the changes in
each.
Yields on earning assets were approximately 7.7% and 7.4% for the three and
nine months ended September 30, 1994, compared to 7.7% and 8.0% for the
comparable periods in 1993. The lower average yield on earning assets in
1994 is largely due to the higher mix of Fed Funds and government
securities held in 1994 compared with higher concentrations of mortgage
loans in 1993. Through October 8, 1993, net interest income continued to
benefit from an interest rate swap agreement, discussed below. Rates on
interest-bearing deposits resulted in an average cost of funds of 2.7% in
1994, compared to 2.9% for the same period in 1993.
Shrinkage in the Bank's earning asset and funding liability portfolios
contributed to the reduction in net interest income. Average loans during
the third quarter of 1994 decreased $44 million from $187 million in the
third quarter of 1993. As previously discussed, this resulted from the sale
of the held for sale mortgage loans, discussed below, and management's
efforts to improve the quality of the loan portfolio and redirect
production to middle market commercial loans. Earning assets averaged $224
million in 1994, down $21 million from $245 million in the same period of
1993.
<TABLE>
Table 11 Average Balance Sheets and Analysis of Net Interest Income
<CAPTION>
Nine months ended Nine months ended
Amounts in thousands of dollars ----September 30, 1994---- ----September 30, 1993-----
Interest Annual Interest Annual
Income Yield or Income Yield or
Balance or Rate Balance or Rate
Expense Expense
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets
Loans, Net $134,840 $9,660 9.55% $189,955 $13,173 9.25%
Investments 65,511 2,059 4.19 35,781 1,100 4.10
Certificates of Deposit
in other banks 1,183 46 5.10 4,615 104 3.00
Federal Funds Sold 22,804 656 3.83 14,291 303 2.83
Total Earning Assets 224,338 12,421 7.38 244,642 14,680 8.00
Non Earning Assets
Cash & Due From Banks 29,306 44,008
Other Assets 7,825 16,602
Total Assets $261,469 $305,252
Interest-bearing Liabilities
Demand and savings $80,938 1,427 2.35 $77,107 1,452 2.51
Time Certificates of Deposits
Less Than $100 17,829 509 3.80 25,777 708 3.66
More Than $100 17,535 457 3.47 26,705 629 3.14
Fed Funds Purchased / Repos
--- -- --- 1,908 43 3.10
Total interest-bearing 116,302 2,393 2.74 131,497 2,832 2.87
Noninterest-bearing Deposits 109,505 139,110
Total Deposits 225,807 2,393 1.41 270,607 2,832 1.40
Other Borrowings 5,184 254 6.53 7,057 341 6.44
Total Funding Liabilities 230,991 2,647 1.53 277,664 3,173 1.52
Other Liabilities 2,878 2,159
Shareholders' Equity 27,600 25,429
Total Liabilities and
Shareholders' Equity $261,469 $305,252
Net Interest Income $9,774 5.81% $11,507 6.27%
Shareholders' Equity to Total
Assets 10.56% 8.17%
</TABLE>
Expressing net interest income as a percent of average earning assets is
referred to as margin. Margin was 6.18% and 5.81% for the three and nine
months ended September 30, 1994, compared to 6.00 and 6.27% for the same
periods in 1993. The Bank's margin is strong because it has funded itself
with a significant amount of noninterest bearing deposits. The lower
margin in 1994 is largely due to the maturing of the interest rate swap
discussed below.
Through October 8, 1993, the Bank continued to benefit from an interest
rate swap agreement entered into October 8, 1991, which had a notional
value of $100 million. Under this arrangement, the Bank received a fixed
rate of 8.18% and paid interest at prime rate, which was 6.0% during 1993.
The income earned from the interest rate swap agreement was $550 thousand
and $1.6 million in the three and nine month periods ending September 30,
1993.
Other Operating Income
The majority of other operating income in prior years was earned as the
Mortgage Banking Operation originated and sold mortgage loans. The trends
and composition of other operating income are shown in the following table.
<TABLE>
Table 12A Other operating income
<CAPTION>
Amounts in thousands of dollars For the three --------- For the three---------
months ended ----------months ended----------
September 30, September 30, 1993
1994
Commercial Mortgage
Consolidated Consolidated Banking Banking
<S> <C> <C> <C> <C>
Processing fees $363 $363
Capitalization of excess 9 9
servicing rights
Fees on loans sold 232 232
Premium on sales of mortgage 6,479 6,479
loans
Servicing income 247 495 495
Documentation fees 29 281 19 262
Other service fees and charges 271 383 265 118
Securities & other nonoperating gains 0 0 0 0
Gain on sale of real estate owned 494
Gain on sale of mortgage
servicing portfolio 625 --- --- ---
Total $1,666 $8,242 $284 $7,958
</TABLE>
<TABLE>
Table 12B Other operating income
<CAPTION>
Amounts in thousands of dollars For the nine For the nine
months ended months ended
September 30, September 30, 1993
1994
Commercial Mortgage
Consolidated Consolidated Banking Banking
<S> <C> <C> <C> <C>
Processing fees $929 $959
Capitalization of excess 207 207
servicing rights
Fees on loans sold $15 938 938
Premium on sales of mortgage loans 83 9,357 9,357
Servicing income 961 1,498 1,498
Documentation fees 73 766 79 687
Other service fees and charges 819 888 590 298
Securities & other nonoperating gains 0 77 77
Gain on sale of real estate owned 585
Gain on sale of mortgage
servicing portfolio 2,183 --- --- ---
Total $4,719 $18,575 $746 $17,829
</TABLE>
The Mortgage Banking Operation earned fee income on loans originated, and
gains as loans were sold to permanent investors. Loans for which servicing
was retained are conventional mortgages under approximately $200 thousand
which were sold to the Federal National Mortgage Association, the Federal
Home Loan Mortgage Corporation, and other institutional investors. Excess
servicing rights were capitalized, and related gains recognized, based on
the present value of the servicing cash flows discounted over a period of
seven years. When loan prepayments occur within this period, the remaining
capitalized cost associated with the loan is written off.
The servicing rights were retained by the bank following sale of the
mortgage origination operation. The Bank has entered into an agreement with
the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation to dispose of any remaining portion of this portfolio
by the end of 1994 because, with the sale of the mortgage origination
operation, the Bank is no longer a qualified seller/servicer of such loans.
During the first nine month of 1994, the bank sold a portion of the
retained servicing rights realizing a gain of $2,183, including a gain of
$625 thousand in the current quarter.
Operating Expense
The Bank restructured its branch operations functions in the third quarter
of 1994, re-engineering its entire work flow and information handling
activities. This resulted in a one time charge of $600 thousand for
severance pay and other expenses associated with the changes to the
operating policies and procedures. Operating expense for the commercial
bank excluding this charge was $3.6 million and $10.6 million in the three
and nine months ended September 30, 1994, compared to $3.3 million and
$10.3 million for the same periods in 1993. Operating expenses for the
consolidated Bank have declined in 1994, primarily due to the sale of the
mortgage origination operation at the end of 1993.
Provision for Loan Losses
The Bank has made no provision for loan losses in 1994 compared with $150
thousand and $450 thousand for the three and nine month periods ended
September 30, 1993. This change in provision was made possible by the
significant reduction of nonperforming loans. The relationship between the
level and trend of the allowance for loan losses and nonperforming assets,
combined with the results of the ongoing review of credit quality,
determine the level of provisions.
Legal and Regulatory Matters
In June 1992, the Bank entered into an agreement with the Office of the
Comptroller of the Currency (OCC), the Bank's primary federal regulator,
which required the implementation of certain policies and procedures for
the operation of the bank to improve lending operations and management of
the loan portfolio. In November 1993, after completion of its annual
examination, the OCC released the Bank from the Formal Agreement.
Following this, the Federal Reserve Bank of San Francisco ("Fed") notified
the Company on November 29, 1993, that the Memorandum of Understanding,
which it had signed, was terminated because the requirements of the
agreement were satisfied.
<TABLE>
Consolidated Statements of Financial Condition CU Bancorp and Subsidiary
<CAPTION>
Amounts in thousands of dollars Sept.30, December 31,
1994 1993
Assets
<S> <C> <C>
Cash and due from banks $43,228 $18,440
Federal funds sold 12,000 28,000
Total cash and cash equivalents 55,228 46,440
Time deposits with other financial institutions 397 1,377
Investment securities (Market value of $62,787 and
$87,889 at September 30, 1994 and December 31, 1993,
respectively) 64,451 88,034
Loans, (Net of allowance for loan losses of $7,470 and
$6,513 at September 30, 1994, and December 31, 1993,
respectively) 152,340 134,148
Premises and equipment, net 779 924
Other real estate owned, net 0 920
Accrued interest receivable and other assets 7,241 7,363
Total Assets $280,436 $279,206
Liabilities and Shareholders' equity
Deposits:
Demand deposits $113,995 $125,665
Savings deposits 87,730 66,214
Time deposits under $100 20,401 27,753
Time deposits of $100 or more 20,406 19,296
Total deposits 242,532 238,928
Accrued interest payable and other liabilities 8,878 13,288
Total liabilities 251,410 252,216
Shareholders' equity:
Preferred stock, no par value:
Authorized -- 10,000,000 shares
No shares issued or outstanding in 1994 or 1993 ---
Common stock, no par value:
Authorized - 20,000,000 shares
Issued and outstanding - 4,473,312 in 1994, and
4,424,306 in 1993 . 26,429 26,250
Retained earnings 2,597 740
Total Shareholders' equity 29,026 26,990
Total Liabilities and Shareholders' equity $280,436 $279,206
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
Consolidated Statements of Income CU Bancorp and Subsidiary
<CAPTION>
Amounts in thousands of dollars, except per share data For the three months For the nine months
ended Sept.30, ended Sept. 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Revenue from earning assets:
Interest and fees on loans $3,617 $3,821 $9,660 $11,542
Benefits of interest rate hedge transactions 0 550 0 1,631
Interest on taxable investment securities 761 263 2,049 1,068
Interest on tax exempt investment securities 8 9 10 32
Interest on time deposits with other financial institutions 14 33 46 104
Interest on federal funds sold 257 200 656 303
Total revenue from earning assets 4,657 4,876 12,421 14,680
Cost of funds:
Interest on interest-bearing demand deposits 481 400 1,259 1,193
Interest on savings deposits 67 85 168 259
Interest on time deposits under $100 160 273 509 708
Interest on time deposits of $100 or more 181 156 457 629
Interest on federal funds purchased & securities sold
under agreements to repurchase 0 0 0 43
Interest on other borrowings 66 99 254 341
Total cost of funds 955 1,013 2,647 3,173
Net revenue from earning assets before provision for
loan losses 3,703 3,863 9,774 11,507
Provision for loan losses 0 150 0 450
Net revenue from earning assets 3,703 3,713 9,774 11,057
Other operating revenue:
Capitalization of excess servicing rights 0 9 0 207
Servicing income - mortgage loans sold 247 495 961 1,498
Other fees & charges - commercial 296 283 735 667
Fees on loans sold 0 232 15 938
Premium on sales of mortgage loans 0 6,479 83 13,272
Other fees and charges - mortgage 4 744 157 1,916
Gain on sale of mortgage servicing portfolio 625 --- 2183 ---
Gain on sale of real estate owned 494 585
Gain on sale of investment securities (before taxes of $0,
and $11, in 1994, 1993, respectively) 0 0 0 28
Gain on sale of securities held for sale (before taxes of $0
and $20 in 1994 and 1993, respectively) 0 0 0 49
Total other operating revenue 1,666 8,242 4,719 18,575
Other operating expenses:
Salaries and related benefits 1,599 2,867 4,678 8,129
Selling expenses - mortgage loans 87 4,436 333 9,621
Restructuring charge 600 0 600 0
Other operating expenses 1,898 3,705 5,610 9,357
Total operating expenses 4,184 11,008 11,221 27,107
Income before provision for income taxes 1,184 947 3,272 2,525
Provision for income taxes 513 381 1,415 1,019
Net income $671 $566 $1,857 $1,507
Earnings per share $0.14 $0.13 $0.40 $0.34
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
Consolidated Statement of Cash Flows CU Bancorp and Subsidiary
<CAPTION>
Amounts in thousands of dollars --For the nine months ended--
Sept. 30,
1994 1993
<S> <C> <C>
Increase(decrease) in cash and cash equivalents
Cash flows from operating activities
Net income $1,857 $1,507
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for depreciation and amortization 349 630
Amortization of real estate mortgage servicing rights 15 243
Provision for losses on loans and other real estate owned 0 450
Gain on sale of investment securities, net 0 (49)
(Increase) decrease in other assets 1,997 (1,104)
(Decrease) in other liabilities (4,386) (1,556)
(Increase) Decrease in accrued interest receivable (970) (397)
Increase in deferred loan fees 181 24
Capitalization of excess mortgage servicing rights 0 207
(Decrease) in accrued interest payable (24) (133)
Net amortization of premium on securities 813 148
Accrued benefits from interest rate hedge transactions 0 36
Total adjustments (2,025) (1,501)
Net cash provided by operating activities (168) 6
Cash flows from investing activities
Proceeds from investment securities sold or matured 52,861 16,362
Proceeds from held for sale securities sold 0 41,755
Purchase of investment securities (30,091) 0
Net decrease in time deposits with other financial
institutions 0 (1,516)
Net (increase) decrease in loans (18,373) (24,008)
(Purchases) of premises and equipment, net (204) (493)
Net cash provided by (used in) investing activities 4,193 32,100
Cash flows from financing activities
Net increase (decrease) in demand and savings deposits 9,846 (60,355)
Net increase (decrease) in time certificates of deposit (5,261) 3,004
Proceeds from exercise of stock options and director
warrants 179 190
Net cash provided (used) by financing activities 4,764 (57,161)
Net increase in cash and cash equivalents 8,789 (25,055)
Cash and cash equivalents at beginning of year 46,440 55,989
Cash and cash equivalents at end of year $55,229 $30,934
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Notes to Consolidated Financial Statements
September 30, 1994
UNAUDITED
Note A. BASIS OF PRESENTATION
The accounting and reporting policies of CU Bancorp ("the Company") and its
wholly owned subsidiary, California United Bank, N.A. ("the Bank"), are
prepared in accordance with generally accepted accounting principles used
in the banking industry. All material inter company balances have been
eliminated and all material interim period adjustments which, in the
opinion of management, are necessary for a fair presentation of financial
condition, results of operations, and cash flow have been made.
Note B. EARNINGS PER SHARE
Net income per share is computed using the weighted average number of
shares of common stock and common stock equivalents outstanding during the
periods presented, except when the effect of the latter would be anti-
dilutive.
NOTE C. SECURITIES
The Bank has the intent and ability to hold its investment securities until
maturity. Accordingly, investment securities are carried at cost, adjusted
for amortization of premiums and accretion of discounts on a straight-line
basis, which approximates the effective interest method. Gains and losses
recognized on the sale of investment securities are based upon the adjusted
cost and determined using the specific identification method.
The Bank has no securities classified as "held for sale", indicating the
willingness to sell these securities under certain conditions. These
securities would be carried at current market value with unrealized gains
or losses not recognized as current income, but reported as an increase or
decrease to capital in the statements of financial condition and in the
statements of shareholders' equity.
The following tables set forth the book value and market value, of
investment securities at Sept. 30, 1994.
<TABLE>
Gross Gross
<CAPTION>
Book Unrealized Unrealized Market
(Thousands of dollars) Value Gains Losses Value
<S> <C> <C> <C>
U.S. Treasury Securities $57,418 $(1,602) $55,816
U.S. Government Agency Securities 5,850 (78) 5,772
State and Municipal Securities 750 $16 766
Federal Reserve Bank Stock 433 - - 433
Total $64,451 $16 $(1,680) $62,787
</TABLE>
At June 30, 1994, investment securities with a book value of $43.3 million
were pledged to secure U.S. District Court deposits and for other purposes
as required or permitted by law. Included in interest on investment
securities is $10 thousand of interest from tax-exempt securities.
Note D. AVERAGE FEDERAL RESERVE BALANCES
The average cash reserve required to be maintained at the Federal Reserve
Bank was approximately $5.9 million, $9.0 million, and $8.0 million for the
periods ending September 30, 1994 and December 31 and September 30, 1993,
respectively.
Note E. PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. Amortization of leasehold
improvements is also computed using the straight-line method over the
shorter of the useful life of the improvement or the term of the lease.
Note F. OTHER REAL ESTATE OWNED
Real estate owned, acquired either through foreclosure or deed in lieu of
foreclosure, is carried at the lower of cost or fair value. When acquired,
any excess of the loan amount over the fair value is charged to the
allowance for loan losses. Subsequent write-downs, if any, are charged to
operation expenses in the periods that they become known. There was no
other real estate owned as of September 30, 1994. Other real estate owned
at December 31, and September 30, 1993 was $0.9 million and $3.0 million,
respectively.
Note G. INCOME TAXES
Effective January 1, 1993, the Bank implemented the provisions of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
implementation had no significant impact on the financial condition or
operations of the Bank. SFAS No. 109 utilizes the liability method and
deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws.
Note H. LOANS
Loans are carried at face amount, less payments collected, allowance for
loan losses, and unamortized deferred fees. Interest on loans is accrued
monthly on a simple interest basis. The general policy of the Bank is to
discontinue the accrual of interest and transfer loans to nonaccrual (cash
basis) status where reasonable doubt exists with respect to the timely
collectibility of such interest. Payments on nonaccrual loans are accounted
for using a cost recovery method.
Loan origination fees and commitment fees, offset by certain direct loan
origination costs, are deferred and recognized over the contractual life of
the loan as a yield adjustment.
The allowance for loan losses is maintained at a level considered adequate
to provide for losses that can reasonably be anticipated. Management
considers current economic conditions, historical loan loss experience, and
other factors in determining the adequacy of the allowance. The allowance
is based on estimates and ultimate losses may differ from current
estimates. These estimates are reviewed periodically and, as adjustments
become necessary, they are charged to earnings in the period in which they
become known. The allowance is increased by provisions charged to operating
expenses, increased for recoveries of loans previously charged-off, and
reduced by charge-offs.
Note I. RESTRUCTURING CHARGE
The Bank restructured its branch operations functions in the third quarter
of 1994, re-engineering its entire work flow and information handling
activities. This resulted in a one time charge of $600 thousand for
severance pay and other expenses associated with the changes to the
operating policies and procedures.
Note J. RECLASSIFICATIONS
Certain items have been reclassified in the prior period financial
statements presented herein, in order to conform to classifications
followed for September 30, 1994.
Note K. LEGAL MATTERS
In the normal course of business the Bank occasionally becomes a party to
litigation. In the opinion of management, based upon consultation with
legal counsel, other than as set forth below, pending or threatened
litigation involving the Bank will have no adverse material effect upon its
financial condition, or results of operations.
The Bank is a defendant in multiple lawsuits related to the failure of two
real estate investment companies, Property Mortgage Company, Inc., ("PMC")
and S.L.G.H., Inc. ("SLGH"). The lawsuits, consist of a federal action by
investors in PMC and SLGH (the "Federal Investor Action"), at least three
state court actions by groups of Investors (the "State Investor Actions"),
and an action filed by the Resolution Agent for the combined and
reorganized bankruptcy estate of PMC and SLGH (the "Neilson" Action). An
additional action was filed by an individual investor and his related
pension and profit sharing plans (the "Individual Investor Action").
Other defendants in these multiple actions and in related actions include
financial institutions, title companies, professionals, business entities
and individuals, including the principals of PMC and SLGH. The Bank was a
depository bank for PMC, SLGH and related companies and was a lender to
certain principals of PMC and SLGH ("Individual Loans").
Plaintiffs allege that PMC/SLGH was or purported to be engaged in the
business of raising money from investors by the sale and issuance of
interests in loans evidenced by promissory notes secured by real property.
Plaintiffs allege that false representations were made, and the investment
merely constituted a "Ponzi" scheme. Other charges relate to the Bank's
conduct with regard to the depository accounts, the lending relationship
with the principals and certain collateral taken , pledged by PMC and SLGH
in conjunction with the Individual Loans. The lawsuits allege inter alia
violations of federal and state securities laws, fraud, negligence, breach
of fiduciary duty, and conversion as well as conspiracy and aiding and
abetting counts with regard to these violations. The Bank denies the
allegations of wrongdoing.
Damages in excess of $100 million have been alleged, and compensatory and
punitive damages have been sought generally against all defendants,
although no specific damages have been prayed for with regard to the Bank,
nor has there been any apportioning of liability among defendants or
attributable to the various claims asserted. A former officer and director
of the Bank has also been named as a defendant. The Bank and the named
officer/director have notified
the Bank's insurance carriers of the various lawsuits.
In August 1994, the Bank entered into a settlement agreement with the
representatives of the various plaintiffs, which, if approved as more fully
set forth below, will dismiss all of the above referenced cases, with
prejudice, against the Bank, its officers and directors, with the exception
of the officer/director previously named. In connection with the
settlement, the Bank will release its security interest in certain disputed
collateral and cash proceeds thereof, which the Bank received from PMC,
SLGH, or the principals, in connection with the Individual Loans. This
collateral has been a subject of dispute in the Neilson Action, with both
the Bank and the representatives of PMC/SLGH asserting the right to such
collateral. All the loans have been charged off, previously. The Bank
will also make a cash payment to the Plaintiffs in connection with the
settlement. In connection with the settlement the Bank will assign its
rights, if any, under various insurance policies, to the Plaintiffs. The
settlement does not resolve the claims asserted against the
officer/director.
The settlement requires the approval of each of the courts in which actions
have been filed. The Federal Bankruptcy Court approved the settlement in
October, 1994. There are a number of technical issues related to the
settlement which must be resolved prior to its effectiveness.
Note K. REGULATORY MATTERS
On November 2, 1993, the Office of the Comptroller of the Currency ("OCC"),
after completion of their annual examination of the Bank, terminated the
Formal Agreement entered into in June, 1992. In December 1993, the Fed
terminated the Memo of Understanding (MOU) entered into in August, 1992.
The Formal Agreement and the MOU required the implementation of certain
policies and procedures for the operation of the Bank and the Company to
improve lending operations and management of the loan portfolio.
SIGNATURES
Pursuant to the Securities Exchange Act of 1934, the Registrant has
caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CU BANCORP
November 9, 1994
By:_Patrick Hartman________
Patrick Hartman
Chief Financial Officer
Part II - Other Information
Item 1. Legal Proceedings
Please refer to Notes J and K, on pages 23 and 24 above, for a complete
discussion of both legal and regulatory matters.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Filings on Form 8-K
(a) Exhibits:
(10) Material Contracts
(i) Mortgage Servicing Purchase and Sale Agreement
Dated August 31, 1994 pg. 27
(b) Reports on Form 8-K:
None.
MORTGAGE SERVICING PURCHASE
AND SALE AGREEMENT # 1
between
California United Bank
and
Temple Inland Mortgage Corporation
Dated as of: August 31, 1994
MORTGAGE SERVICING PURCHASE AND SALE AGREEMENT
This Mortgage Servicing Purchase and Sale Agreement (the
"Sale Agreement") is dated as of the 31st day of
August , 19 94 , by and between Temple Inland Mortgage
Corporation, a Nevada Corporation with offices located at 901 South
MoPac Expressway, Suite 300, Austin, TX, 78746 (the "Purchaser") and
California United Bank , a National bank,
with offices located at 16030 Ventura Blvd., Encino, California
91436-4487 (the "Seller").
W I T N E S S E T H:
WHEREAS, Seller owns the right to service approximately 853
single family mortgage loans described in Exhibit A attached hereto
(collectively the "Mortgages" or individually the "Mortgage") having
an aggregate outstanding principal balance of 118,407,520
as of May 31 , 1994 which are owned by the Federal National
Mortgage association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC") (FNMA and FHLMC are hereinafter collectively
referred to as the "Agencies" and individually as an "Agency").
WHEREAS, the rights and responsibilities of Seller with
respect to servicing the Mortgages under the Servicing Agreements
and the maintenance and servicing of the related escrow accounts
are sometimes hereinafter referred to as the "Servicing":
WHEREAS, it is contemplated that FNMA and FHLMC will
consent to the assumption of the Servicing by Purchaser and to
Seller's transfer or assignment of the Servicing to Purchaser
as provided herein; and
WHEREAS, Purchaser desires to purchase and Seller desires
to sell all right, title and interest in and to the Servicing in
accordance with the terms and conditions of this Sale Agreement;
NOW, THEREFORE, in consideration of the mutual
covenants made herein and for other good and valuable
consideration the sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
1.1 "Agency" or "Agencies": FNMA and/or FHLMC as applicable.
1.2 "Business Day": any day other than (a) a Saturday or
Sunday, or (b) a day on which banking institutions in the State of
Texas are authorized or obligated by law or by executive order to be
closed.
1.3 "Delinquent Mortgage": A Mortgage which is two (2)
payments or more past due, the subject matter of filed or pending
litigation, in bankruptcy, foreclosed or in foreclosure as of the
Sale Date, not including loans on Exhibit H.
1.4 "Economic Benefits": All economic rights and benefits in
connection with the Servicing, including without limitation all
rights to servicing fees, late charges, fees related to the sale or
administration of insurance policies associated with the Mortgages,
management of escrow accounts and other financial benefits.
1.5 "FHLMC": As defined in the recitals hereof.
1.6 "FNMA": As defined in the recitals hereof.
1.7 "Legal Title": All indicia of legal ownership to the
Servicing, including without limitation Agency seller/servicer
status, mortgagee-of-record status, and all other legal rights,
obligations and duties with respect to the Servicing of the
Mortgages.
1.8 "Mortgage": As defined in the recitals hereof.
1.9 "PMI": A policy of mortgage guaranty insurance issued by a
qualified insurer with respect to certain mortgage loans.
1.10 "Prior Servicer": All servicers who serviced any of the
Mortgages prior to Seller.
1.11"Purchase Price": As defined in Paragraph 3.1 hereof.
1.12 "Purchase Price Percentage": As defined in Paragraph 3.1
hereof.
1.13 "Purchaser": As defined in the recitals hereof or its
assigns.
1.14 "Recourse Mortgage": A Mortgage as to which the Agency has
recourse against the servicer, whether by way of repurchase or
reimbursement, as to expenses and/or losses, other than ordinary
Agency limitations on expense reimbursement arising out of a
mortgagor's default with respect to the Mortgage.
1.15 "Related Escrow Accounts": Mortgage escrow/impound and
suspense accounts maintained by Seller relating to the Servicing.
1.16 "Sale Agreement": As defined in the first paragraph of
this agreement.
1.17 "Sale Date": August 31, 1994
1.18 "Seller": As defined in the first paragraph of this
Agreement.
1.19 "Servicing": As defined in the recitals hereof.
1.20 "Servicing Agreements": The mortgage loan servicing
agreements applicable to the Servicing including the Agency
regulations, contracts guidelines and directives of the Agencies
pursuant to which Seller is currently servicing the Mortgages.
1.21 "Subservicing Period": As defined in paragraph 2.6(b).
1.22 "Transfer Date": October 1, 1994 with regard to FNMA loans
and October 16, 1994 with regard to FHLMC loans.
ARTICLE II
SALE AND TRANSFER OF SERVICING
2.1 Items to be Sold. Subject to, and upon the terms and
conditions of this Sale Agreement, Seller shall, as hereinafter
provided, sell, transfer, assign and deliver to Purchaser all
right, title and interest in and to (a) the Servicing and (b)
Related Escrow Accounts.
2.2 Sale Date. On the Sale Date title to the Servicing shall
pass to Purchaser and Seller shall assign to Purchaser the right to
receive the Economic Benefit on such Mortgages subject to the
compensation provided for subservicing the Mortgages as provided in
Section 2.6(b). Seller shall retain Agency servicer status and
mortgagee of record status until the Transfer Date.
2.3 Transfer Date. On the Transfer Date, Purchaser shall
assume all servicing responsibilities related to, and Seller shall
cease all servicing responsibilities related to, the Mortgages sold
pursuant to Section 2.2. Legal Title including mortgagee of
record status where applicable, shall be transferred to Purchaser.
2.4 Actions Required Prior to the Transfer Date. The
following actions shall be taken with respect to Mortgages and the
related pools for which the servicing is being sold to Purchaser:
(a) Prior to the Transfer Date, Seller shall, subject to
Agency requirements purchase all Mortgages having defects
which will prevent, recertification, and/or that are the
subject matter of filed or pending litigation materially
impairing the related Servicing or Mortgages for which a
repurchase notice or requirement by the Agency exists.
(b) On or prior to the Transfer Date (except that Seller
shall have fifteen days after the Transfer Date to prepare and
send assignments where required to the appropriate recorder's
office for recording with a certified copy to Purchaser) Seller
shall at its sole cost and expense:
(i) Assign to Purchaser by appropriate endorsements and individual
assignments, all of Seller's right, title and interest in and to the
Servicing Agreements and the pools, notes and mortgages (or deeds
of trust) related to the Servicing as required by appropriate
Investor requirements. Seller shall prepare and record the
assignments including intervening assignments if not previously
prepared and recorded. Seller shall also prepare assignments of
mortgages from Purchaser to Agencies in accord with Agency
requirements, and form reasonably acceptable to Purchaser and
Purchaser's custodian and provide such assignments and copies of
executed assignments required by the first two sentences of this
subparagraph (with a certification that each assignment has been
submitted for recording) to Purchaser. Additionally, Seller
shall deliver such other appropriately executed and authenticated
instruments of sale, assignment, transfer and conveyance to
Purchaser including limited powers of attorney as Purchaser, or its
counsel, may reasonably request in order to accomplish the transfer
to Purchaser of all of Seller's rights related to the Servicing (for
example, Seller's rights with respect to foreclosures, bankruptcies
and insurance/ guarantee claims). Such instruments provided by
Purchaser must be approved in form by the Seller and its counsel,
such approval not to be unreasonably withheld.
(ii) Cause its document custodian to deliver to Purchaser's
document custodian a complete custodial file for each Mortgage for
which documents are required by the Agency to be held by a
custodian. Each such custodial file shall contain all documents
required by applicable regulations and contractual provisions. In
the event all required documents are not contained in a custodial
file and are not provided by Seller or Seller's custodian or
otherwise satisfied in accord with Agency requirements within sixty
(60) days following written request by Purchaser, Seller, upon
Agency approval if required, shall repurchase such Mortgage as
provided in Paragraph 10.4 hereof.
(iii) With respect to each Mortgage Loan for which the servicer
maintains the original documents, create a separate document
file identified by mortgagor name and loan number containing only
the original documents, i.e. note (if held by servicer),
mortgage/deed of trust, mortgage insurance certificate, loan
guarantee certificate, complete chain of assignments and loan title
policy.
2.5 Examination of Mortgage Documents. Purchaser shall,
during the period prior to the Transfer Date, have reasonable access
during business hours to Seller's books, servicing system, records
and accounts with respect to the Mortgages. In the event
Purchaser's examination reveals that any information contained in
any of the Exhibits or the offering documents is not true and
correct in all material respects or any of the representations
contained herein concerning a Mortgage is not true and accurate,
Seller shall have ten (10) Business Days following receipt of notice
from Purchaser to cure all defects in the Mortgage or repurchase
such Mortgage as provided in Paragraph 10.4 hereof. Seller shall
provide Purchaser, within five (5) Business Days after request
with all information reasonably requested of Seller with
respect to the Mortgages and the Servicing. Any such review
or examination shall not affect Seller's obligations or
responsibilities with respect to the Servicing or information
provided as set forth in this Sale Agreement.
2.6 Obligations of Seller.
(a) Seller covenants and agrees, from the date hereof until
the Transfer Date that Seller shall pay, perform and
discharge all liabilities and obligations relating to
ownership of the Servicing and all the rights obligations and
duties with respect to the Related Escrow Accounts until the
transfer of such items on the Transfer Date.
(b) For the period between the Sale Date and the Transfer Date
("Subservicing Period"), Seller agrees to service the Mortgages
on behalf of Purchaser for a fee of $5.00 per Mortgage per
month, prorated for any partial months, with Seller retaining
ancillary income exclusive of late charges collected with
respect to the Servicing during the Subservicing Period.
During such period Seller agrees to service the Mortgages in
accordance with all applicable Agency requirements and shall at
all times service the Mortgages in accordance with all
applicable statutes, federal and state regulations, contractual
provisions of the Servicing Agreements and PMI insurers, and in
accordance with prudent mortgage banking practices. It is
understood and agreed that Servicer shall exercise the same
standard of care that it exercises in the servicing of
mortgages for its own account. Seller shall pay at
Seller's expense any compensating or paid-in-full interest
required to be paid in addition to the interest received from
the mortgagor with respect to any Mortgage for which payoff
funds are received within thirty (30) days of the Sale
Date. During the Subservicing Period Seller shall remit
servicing fees and late charges collected due the Purchaser,
together with supporting documentation, not later than the
tenth Business Day of each month covering the prior month's
servicing and shall provide Purchaser with reports and
supervised on-line system access at the Seller's offices, and
access to the servicing operation and related documentation, as
it relates to the portfolio the Purchaser is acquiring, as
Purchaser reasonably requests, to monitor the portfolio and
confirm Seller's adherence to this section during the
Subservicing Period.
2.7 Undertaking by Purchaser. Purchaser covenants and
agrees, upon acceptance of the assignment of the Servicing and
Related Escrow Accounts, to service the same in accordance with the
terms and conditions of the Servicing Agreements. Purchaser shall
not be responsible for the acts and omissions of Seller or Prior
Servicers nor for any other obligations or liabilities of Seller or
Prior Servicers or the loan originator whatsoever, except those
obligations or liabilities in the Servicing Agreements which are
assumed by Purchaser.
2.8 Approval of the Agencies. Processing of the request for
approval by the Agencies shall take place as follows:
(a) Seller shall be responsible for obtaining approvals
from the applicable Agencies. Seller shall prepare the
requests for approval in a manner to secure from the applicable
Agency, a prompt written determination of the acceptability of
the transfer of Servicing.
(b) Seller shall prepare all forms, documents and other
information requested by the Agencies.
2.9 Cooperation. The parties hereto shall, to the extent such
is reasonable and practical, cooperate with and assist each other,
as requested, in carrying out the other's covenants, agreements,
duties and responsibilities under this Sale Agreement and related
matters.
ARTICLE III
CONSIDERATION
3.1 Purchase Price. In full consideration for the sale of the
Servicing as specified in Article II hereof, and upon the terms and
conditions of this Sale Agreement Purchaser shall pay to Seller the
purchase price (the "Purchase Price") as follows:
(a) 103 basis points (1.03%) (the "Purchase Price
Percentage") of the aggregate unpaid principal balance of the
Mortgages, excluding any Delinquent Mortgages, as of the Sale
Date.
(b) It is understood and agreed that if the principal balance
of any of the Mortgages used in computing the amount of the
Purchase Price shall be found to be incorrectly computed or
that the principal balance of a Delinquent Mortgage was
included in the computation of the Purchase Price, the Purchase
Price shall be promptly and appropriately adjusted on the
basis of the Purchase Price Percentage and payment shall be
promptly made by the appropriate party.
(c) It is understood and agreed that if the service fee rate
or any other material characteristic of the aggregate mortgage
loans specified in the offering documents or the exhibits shall
be found to be incorrectly stated as to any Mortgages on the
Sale Date or the Transfer Date, the Purchase Price shall be
promptly and appropriately reduced.
(d) The Purchase Price with respect to any Mortgage for which
payoff funds are received within thirty (30) days of the Sale
Date and the Purchase Price with respect to any mortgage that a
payoff statement was sent by the seller prior to the Sale Date
for which payoff funds are received within ninety (90) days of
the Sale Date ("Payoff Refund") shall be refunded to Purchaser
as provided below.
(e) The Servicing as to any Mortgage for which Agency approval
of the transfer is not received by the Transfer Date shall not
transfer and the Purchase Price shall be reduced accordingly.
3.2 Payment. The Purchase Price shall be paid by wire
transfer of immediately available funds as follows:
(a) On the Sale Date Purchaser will pay funds to Seller which
total twenty percent (20%) of the estimated Purchase Price.
(b) Seller shall remit funds held in the various
servicing accounts and Related Escrow Accounts no later than
three (3) Business Days of the applicable Transfer Date which
may be remitted net of the collectable receivables referred to
in Section 5.19. Within three (3) Business Days after the
Seller's timely delivery in all material respects of the funds
information and data covering the Servicing and the Related
Escrow Accounts, the Purchaser shall remit an amount which when
added to the amount previously paid will equal ninety percent
(90%) of the Purchase Price applicable to that Transfer Date.
(c) The remaining ten percent (10%) of the Purchase Price less
the Payoff Refund will be remitted to the seller the latter of,
fifteen (15) business days of the receipt of all loan documents
including a copy of the assignments sent to be recorded and
unrecorded assignments as applicable, or January Seventh (7),
1995.
(d) The requirements of this paragraph concerning payment
shall not apply if the transfer of Servicing is not completed
on the Transfer Date. In the event Seller in all material
respects, has not complied with all provisions hereof, and
provided all requested information to Purchaser on or before
the Transfer Date, or in a timely manner thereafter for items
to be subsequently delivered, Purchaser's obligation to pay the
Purchase Price for any such affected Mortgage shall be
postponed until all required performance and all requested
information is provided by Seller.
3.3 Other Costs.
(a) Seller shall bear the entire cost of securing Agency
approval of the transfer of Servicing from Seller to
Purchaser including all transfer fees due to the Agencies.
(b) Seller shall comply, at its sole cost and expense, with
Purchaser's reasonable requirements pertaining to the
processing and shipping of loan files, insurance files, tax
records and collection records which are reasonably necessary
to service the Mortgages or are required to be maintained by
the Agency(s), including but not limited to the relabeling of
each loan file and creating separate document files.
ARTICLE IV
GENERAL REPRESENTATIONS AND WARRANTIES OF SELLER
As an inducement to Purchaser to enter into this Sale
Agreement Seller represents and warrants as follows (it being
acknowledged that each such representation and warranty relates to
material matters upon which Purchaser relied, and it being
understood that each such representation and warranty is made to the
Purchaser as of the Sale Date and the Transfer Date):
4.1 Organization. Seller is duly organized and validly
existing under the laws of the United States , and is qualified
or licensed to do business in all states in which its activities
with respect to the Mortgages or the Servicing require it to
be qualified or licensed.
4.2 Authority and Capacity. Seller has all requisite power,
authority and capacity to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions
contemplated hereby.
4.3 Defaults. Subject to the receipt of all prior Agency(s)
approvals and consents necessary to effect the Sale, the execution,
delivery and performance of this Agreement by Seller does not
and the consummation of the transactions contemplated hereby
will not (a) violate any material provision of law applicable to
Seller, (b) conflict with any of the terms of (i) Seller's Charter,
Articles of Incorporation or Bylaws, or (ii) any other governing
instrument relating to the conduct of Seller's business or the
ownership of its properties, or (c) result in a material breach of
any other agreement to which Seller is a party or by which it is
bound with respect to the Servicing. No event has occurred and not
been cured which would constitute an event of default under any
Servicing Agreement related to the Servicing, or result in the
cancellation of PMI insurance with respect to any Mortgage. The
Seller has not been the subject of an audit by the Agencies in which
allegations were made concerning Seller's failure to comply with
applicable loan origination, servicing or claims procedures, which
resulted in a refusal to purchase any mortgages, honor a claim,
refusal of conveyance or reconveyance, or a request for
indemnification in connection with any mortgage.
4.4 Binding Agreement. The Agreement has been duly
authorized and, subject to the Agency's approval of the assignment
of the servicing rights from Seller to Purchaser, is a valid and
binding obligation of Seller, enforceable against Seller in
accordance with its terms (except as enforcement thereof may be
limited by applicable bankruptcy, insolvency or similar laws
affecting the rights of creditors generally or the application
of general principles of equity).
ARTICLE V
REPRESENTATIONS AND WARRANTIES AS TO SERVICING AND THE MORTGAGES
As further inducement to Purchaser to enter into this Sale
Agreement, Seller represents and warrants to Purchaser as of the
Sale Date and the Transfer Date, except as to Section 5.3 which is
made as of the Sale Date only,with respect to the Servicing and each
Mortgage as follows:
5.1 Title. Seller is the lawful owner of the Servicing.
Subject to the receipt of all Agency approvals and consents
necessary to effect the Sale, the Sale and transfer of the
Servicing by Seller to Purchaser in accordance with the terms and
subject to the conditions of this Agreement will give Purchaser good
and marketable title to the Servicing, free and clear of any and all
valid claims, charges, defenses, offsets and encumbrances of any
kind or nature except as is set forth in the related Servicing
Agreements.
5.2 Mortgage Documents. The Mortgage documents are genuine,
legally valid, binding and enforceable obligations of the borrower
and have been duly executed by a borrower of legal capacity, and all
insertions in any Mortgage document were correct when made. The
Mortgage documents were in compliance with applicable law, PMI
requirements, and Agency(s) requirements, guidelines and directives
upon origination and are complete in all material respects with
regard to origination and servicing activity.
5.3 Physical Damage. There exists no physical damage to the
collateral securing the Mortgage from fire, flood, windstorm,
earthquake, tornado, hurricane or any other similar casualty which
physical damage would cause any Mortgage to become delinquent or
adversely affect the value or marketability of any Mortgage, the
related Servicing or the collateral, except those mortgage loans
listed on Exhibit H.
5.4 Application of Funds. All monies received with respect to
each Mortgage have been accounted for and applied in accordance with
generally accepted accounting practices.
5.5 Certification. The Mortgage documents for each Mortgage
will contain, upon transfer of the Servicing to Purchaser,
all items required by applicable Agency regulations, and such
documents and Servicing records will be complete and in compliance
with all applicable Agency and PMI requirements and guidelines. All
Mortgages shall be, when transferred to Purchaser eligible for
applicable recertification by Purchaser's custodian, and Seller
will be responsible for the costs of curing any deficiencies that
must be cured in order for Purchaser to obtain such
recertification. The principal balance outstanding and owing on the
Mortgages equals or exceeds the amount owing to the corresponding
agency.
5.6 Litigation and Compliance with Law. There is no
litigation or governmental investigation pending or threatened,
nor is there any order, injunction or decree outstanding against or
relating to Seller, which could have a material adverse effect upon
the Servicing, Mortgages, or the Seller's ability to comply with the
Seller's obligations to Purchaser, established by this Agreement,
nor any material basis for any such litigation. Neither Seller nor
any prior servicer or originator has violated any applicable law,
regulation, ordinance, order, injunction or decree, or any other
requirement of any governmental body, court or Agency or insurer in
connection with the origination or servicing of the Mortgages, the
violation of which would have a material adverse effect on any of
the Servicing, the Mortgages, or the Seller's ability to comply with
the Seller's obligations to the Purchaser established by this
Agreement.
5.7 Statements Made. No representation, warranty or
statement made by Seller in this Agreement, in any Exhibit, the
offering documents the Servicing records and documents provided
pursuant to Exhibits C and D or any written statement or
certificate furnished by Seller to Purchaser in connection with the
transactions contemplated hereby, including specifically the
servicing fee rate applicable to the Mortgages, contains or will
contain any untrue statement of a material fact or omits or will
omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
5.8 Mortgage Disbursement. Seller warrants that any and all
Mortgages were fully disbursed and made or consummated in accordance
with applicable law and regulations, a violation of which would have
a material adverse effect on the Servicing.
5.9 Unpaid Balances. The amount of the unpaid balance for each
Mortgage is correct as set forth in the trial balance provided and
there are no defenses, setoffs or counterclaims against such
Mortgages.
5.10 Security Interests. The security interest granted by the
borrower in the collateral is a valid first priority lien on the
collateral. Neither the collateral nor any party to any related
security agreement has been released, with the exception of partial
releases, releases required by divorce decree and releases required
by assumptions.
5.11 Payment of Taxes Insurance Premiums. etc. The
responsibilities of Seller and Prior Servicers with respect to
all applicable taxes, special assessments, ground rents,
flood insurance premiums, hazard insurance premiums and PMI
premiums that are related to the Mortgages have been met.
5.12 Effective Insurance. All required insurance policies,
including PMI, remain in full force and effect. Seller, the
originator, and any prior servicer, has complied with all insurance
contract obligations which, if not complied with, might have a
material adverse effect on the Servicing.
5.13 Tax Identifications. All tax identifications and property
descriptions contained in any Mortgage document are complete and
legally sufficient.
5.14 Compliance with Contractual Obligations. Seller, and all
Prior Servicers and originators have complied with all of their
contractual obligations including all applicable Agency and PMI
requirements, which relate to the origination, underwriting or
the prior servicing of each Mortgage, the breach of which might
adversely affect the Servicing.
5.15 Filing of Reports. Seller has filed or will have filed by
the Transfer Date all reports required by any Agency any PMI, and
any federal, state or municipal law, regulation or ordinance,
except where any failure to do so would not have a material adverse
effect on the Servicing, Mortgages or the Related Escrow Accounts.
5.16 Escrow Accounts. Seller is the lawful fiduciary of all
Related Escrow Accounts, and such Accounts are being maintained in
accordance with applicable law the terms of the Servicing
Agreements related to the Servicing and the Mortgage documents, and,
where applicable, in accordance with the regulations of the
Agency(s), insurers and other governmental agencies having
jurisdiction. Except for payments which are past due under the
terms of the Mortgage documents, all escrow balances required by the
Mortgage documents and paid to Seller for the account of the
mortgagors and Seller are on deposit in the appropriate escrow
accounts.
5.17 No Accrued Liabilities. Except for such transfer and
termination fees as may be imposed in connection with the Sale and
which are to be paid by Seller, there are no accrued liabilities of
Seller with respect to the Mortgages or the Servicing and there are
no circumstances or events existing that could result in any such
accrued liabilities arising against Purchaser as successor to the
Servicing.
5.18 No Recourse; Residential Loans. No Mortgage is either (i)
a Recourse Mortgage or (ii) secured by a property that does not
qualify as a single family (1-4 unit) property, and all mortgages
are first liens.
5.19 Collectable Receivables. All advances and other
receivables associated with the Servicing for which Purchaser pays
funds to Seller pursuant to paragraph 3.2(b) have been properly made
and are documented and reasonable and are reimbursable in full under
the applicable Servicing Agreement.
5.20 Interest on Escrows. Seller has credited to the account of
mortgagors all interest required to be paid on any
escrow/impound account through the Transfer Date. Evidence of such
credit shall be provided to Purchaser upon written request.
5.21 Agency Agreements. No Mortgage is subject to any special
underwriting provision or specially negotiated contract terms which
materially increases servicer's risk, servicing responsibilities, or
recourse responsibility with respect to the Mortgage from that
assumed under a standard Agency nonrecourse contract.
5.22 Adjustable Rate Mortgages. All adjustable rate loans were
originated and set-up on the sellers servicing system according to
agency guidelines in strict adherence to the mortgage documents.
All rate adjustments made prior to Transfer Date have been made in
accordance with agency guidelines, the mortgage documents and all
Federal requirements.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
As an inducement to Seller to enter into this Sale Agreement,
Purchaser represents and warrants as follows (it being acknowledged
that each such representation and warranty relates to material
matters upon which Seller relied, and it being understood that each
such representation and warranty is made to the Seller as of the
Sale Date and the Transfer Date):
6.1 Due Incorporation and Good Standing. Purchaser is a
corporation duly organized and validly existing under the laws of
the State of Nevada. Purchaser is qualified or licensed to transact
business in each jurisdiction in which its activities with respect
to the Mortgages or the Servicing require it to be qualified
or licensed.
6.2 Authority and Capacity. Purchaser has all requisite
power, authority and capacity to enter into this Sale Agreement and
to perform the obligations required of it hereunder and thereunder.
The execution and delivery of this Sale Agreement and the
consummation of the transactions contemplated hereby, have each been
duly and validly authorized by all necessary corporate action. This
Sale Agreement constitutes valid and legally binding
agreements of Purchaser enforceable in accordance with their terms,
and no offset, counterclaim or defense exists to the full
performance of this Sale Agreement.
6.3 Effective Agreement. The execution, delivery and
performance of this Sale Agreement by Purchaser, its compliance
with the terms hereof and the consummation of the transactions
contemplated hereby will not violate, conflict with, result in a
breach of, constitute a default under, be prohibited by, or require
any additional approval under the certificate of incorporation,
bylaws or any instrument or agreement to which it is a party or by
which it is bound or which affects the Servicing, or any state or
federal law, rule or regulation or any judicial or administrative
decree, order, ruling or regulation applicable to it or to the
Servicing.
6.4 Good Standing. Purchaser is a mortgage lender and
servicer in good standing with all appropriate regulatory
authorities and agencies.
ARTICLE VII
COVENANTS
7.1 Notice to Mortgagors. Seller shall, at Seller's expense,
mail to the mortgagor of each Mortgage no later than fifteen (15)
days prior to the Transfer Date a letter advising the mortgagor of
the transfer of Servicing to Purchaser; provided, however, the
content and format of the letter shall have the prior written
approval of Purchaser.
7.2 Notice to Mortgage and Hazard Insurers. Seller shall, at
Seller's expense, notify all relevant mortgage insurance companies
and PMI companies not later than the Transfer Date, by certified
mail, return receipt requested, that all insurance premium billings
for the Mortgages must thereafter be sent to Purchaser. Seller
shall provide Purchaser with copies of the certified
receipts. Additionally, Seller shall, prior to the Transfer Date,
obtain the written consent of any PMI insurance companies which have
the contractual right to approve transfer of the Servicing. No later
than the Transfer Date Seller shall, at Seller's expense, transmit
to the applicable hazard and flood companies and/or agents
notification of the assignment of the Servicing to Purchaser,
directions to name Purchaser as mortgagee and notice to deliver all
notices and premium billings to Purchaser from and after the
Transfer Date. Seller shall maintain a record of such
notification.
7.3 Delivery of Servicing Records. Seller shall forward to
Purchaser on the Transfer Date all servicing records in Seller's
possession relating to each Mortgage, including the information
enumerated in Exhibit C and any other record which is to be
maintained pursuant to the Servicing Agreements.
7.4 Delivery of Loan Documents. Seller shall provide
Purchaser on the Transfer Date the loan documentation described in
Exhibit D.
7.5 Escrow/Impound Balances: Unearned Fees. Seller shall
provide Purchaser within three (3) Business Days of the Transfer
Date, with immediately available funds in the amount of:
(a) The escrow, suspense balances and other servicing account
balances associated with the Mortgages net of the collectible
receivables. Seller shall provide Purchaser with an
accounting statement of escrow and suspense balances and loss
draft balances sufficient to enable Purchaser to reconcile the
amount of such payment with the accounts of the Mortgages; and
(b) All collected but unearned assumption or service fees as
of the Transfer Date.
7.6 Mortgage Payments Received Prior to Transfer Date. Prior
to the Transfer Date, all payments received by Seller on each
Mortgage shall be properly applied by Seller to the account of the
particular mortgagor.
7.7 Mortgage Payments Received After Transfer Date. The
amount of any Mortgage payments received by Seller after the
Transfer Date shall be forwarded to Purchaser by overnight mail
within three (3) Business Days of the date of receipt for a period
of sixty (60) days after the Transfer Date; provided, however
Seller will forward with payments sufficient information to
permit processing of the payment by Purchaser. After sixty (60)
days Seller shall return the payments to the mortgagor with
instructions to make the payments to Purchaser.
7.8 Misapplied Payments. Misapplied payments shall be
processed as follows:
(a) Both parties shall cooperate in correcting misapplication
errors.
(b) The party receiving notice of a misapplied payment
occurring prior to the Transfer Date and discovered after the
Transfer Date shall immediately notify the other party.
(c) If a misapplied payment which occurred prior to the
Transfer Date cannot be identified by either party and said
misapplied payment has resulted in a shortage in a Mortgage
account, Seller shall be liable for the amount of such
shortage. Seller shall reimburse Purchaser for the amount of
such shortage within thirty (30) days after receipt of written
demand therefor from Purchaser.
(d) If a misapplied payment has created an improper Purchase
Price as the result of an inaccurate outstanding principal
balance, a check shall be issued to the party shorted by the
improper payment application within ten (10) Business Days
after notice thereof by the other party.
(e) Any check issued under the provisions of this Paragraph
7.8 shall be accompanied by a statement indicating the purpose
of the check, the mortgagor and property address involved, and
the corresponding Seller and/or Purchaser account number.
7.9 Approvals. Seller shall, at its expense as provided in
Paragraphs 8.4 hereof receive the Agencies approval of the transfer
of Servicing from Seller to Purchaser pursuant hereto on or before
the Transfer Date.
7.10 Review of Mortgage Files. Seller shall provide Purchaser
between the contract date and Transfer Date during regular business
hours reasonable access to the books, records, servicing system and
accounts of Seller with respect to the Mortgages.
7.11 Taxes. No later than the Transfer Date Seller shall at
Seller's expense, provide for transfer of the life of loan tax
service contract for each Mortgage to Purchaser's account and
provide purchaser with a loan level audit tape including all
mortgages. With regard to all escrowed mortgage loans, Seller shall
pay all taxes which have a "tax due date", which is defined as the
date by which taxes must be paid to avoid loss of any discount or
accrual of any penalty or interest, within sixty (60) days of the
Transfer Date. If bills for such taxes are not available prior to
the Transfer Date, Seller shall provide Purchaser with such tax
bills not less than fifteen (15) days prior to such tax due date.
If such taxes are not paid or bills are not delivered Seller shall
reimburse Purchaser for any penalty and costs incurred plus a fifty
dollar ($50) administration fee for each Mortgage Loan
involved.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser under this Sale Agreement are
subject, at Purchaser's option, to the satisfaction at or prior to
the Transfer Date of each of the following conditions:
8.1 Delivery of Servicing Data and Records. Seller shall
provide Purchaser with servicing information consisting of a master
loan tape, a history tape, and a Solomon style format tape. A set
of tapes shall be sent as reasonably requested by the purchaser
including upon execution of this Sale Agreement. A final set of
tapes shall be sent on the Transfer Date. Seller shall cooperate
with Purchaser's efforts to establish an efficient and accurate
conversion of tape data to Purchaser's system. The tapes shall be
accompanied with a hard copy trial balance and related reports and
shall include the information set forth in Exhibit C. On the
Transfer Date Seller shall deliver to Purchaser the servicing
files containing the documentation set forth in Exhibit D,
including copies of original loan documents maintained in custodian
files, and, in separately identified boxes or transmittal, the
original document custodial file for each mortgage created pursuant
to Section 2.4(b)(iii). Seller acknowledges that failure to provide
the information or documents on Exhibits C and D may give rise to a
claim under Section 10.2 to the extent such failure results in a
loss, expense, cost or other damage to Purchaser.
8.2 Correctness of Representations and Warranties. The
representations and warranties made by Seller in this Sale
Agreement are true and correct in all material respects and shall
continue to be true and correct on the Sale Date and the Transfer
Date.
8.3 Compliance with Conditions. All of the terms, covenants
and conditions of this Sale Agreement required to be complied with
and performed by Seller at or prior to the Transfer Date shall have
been duly complied with and performed in all material respects.
8.4 Regulatory Approval. Seller shall, at its expense,
obtain approval from the Agencies for the transfer of the Servicing
from Seller to Purchaser pursuant hereto.
8.5 Books and Records. Purchaser shall have determined to its
reasonable satisfaction that:
(a) The books, records and accounts of Seller with respect to the
Mortgages are in order pursuant to Agency and PMI requirements;
(b) The information provided in Exhibit A is substantially correct;
(c) The Mortgages have been originated, pooled and serviced in
accordance with Agency requirements and sound and prudent mortgage
banking practice.
In this connection Purchaser shall perform its due diligence review
pursuant to Section 2.5 and, if any material noncompliance is
determined to exist such as materially impair the value of the
Servicing, Seller shall correct such noncompliance.
8.6 Contingency Purchase. The execution of a second
Purchase and Sale Agreement by the Seller and the Purchaser with
regard to a second portfolio of mortgage servicing rights whose
characteristics and size have no significant variance from those
mortgage servicing rights contained in this Purchase and Sale
Agreement, and whose Sale Date will occur within thirty-two days of
this Agreement and whose Transfer Date(s) will coincide with this
Agreement.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under this Sale Agreement are
subject, at Seller's option, to the satisfaction at or prior to the
Transfer Date of each of the following conditions:
9.1 Correctness of Representations and Warranties. The
representations and warranties made by Purchaser in this Sale
Agreement are true and correct and shall continue to be true and
correct on the Transfer Date.
9.2 Compliance with Conditions. All of the terms, conditions
and covenants of this Sale Agreement required to be complied with
and performed by Purchaser at or prior to the Transfer Date shall
have been duly complied with and performed.
ARTICLE X
MISCELLANEOUS
10.1 Costs and Expenses. Costs and expenses incurred in
connection with the transactions contemplated hereby shall be paid
as follows:
(a) Seller shall pay all the reasonable costs associated with
the transfer of the Servicing to Purchaser involving the costs
of shipping files to Purchaser and to Purchaser's custodian,
any recording or filing fees, Agency transfer fees, Seller
custodian charges, and all other costs associated with the
preparation, filing and due recording of Mortgage assignments
including intervening assignments, and any other expenses
incurred by Seller or its affiliates; and
(b) Except as provided in (a) above, Purchaser shall pay the
expenses incurred by it or its affiliates in connection with the
transactions contemplated hereby.
10.2 Indemnification by Seller. Seller shall indemnify and hold
Purchaser harmless from and shall reimburse Purchaser for any
losses, damages, deficiencies, claims, causes of action or expenses
of any nature (including reasonable attorneys' fees, investigative
expenses and operational costs) incurred by Purchaser before or
after the Sale Date which:
(a) Result from any breach or violation of any representation
or warranty made by Seller in Articles IV and V including
Section 5.3 and the mortgages listed on Exhibit H of this Sale
Agreement; as to any representation or warranty Seller shall be
obligated to indemnify Purchaser as to any such matter
regardless of whether Seller did or did not have knowledge of
such matter;
(b) Result from the non-fulfillment of any covenant or
condition of Seller contained in this Sale Agreement or in any
schedule, written statement or certificate furnished by Seller
pursuant to this Sale Agreement;
(c) Result from litigation existing or pending on the Sale
Date involving the Servicing or any of the Mortgages or
litigation arising out of matters occurring prior to the
Transfer Date; or
(d) Result from missing servicing records or documents not
included in the servicing file or Seller's failure to timely
provide such records.
10.3 Indemnification by Purchaser. Purchaser shall indemnify
and hold Seller harmless from and shall reimburse Seller for any
losses, damages, deficiencies, claims, causes of action or expenses
of any nature (including reasonable attorneys' fees, investigative
expenses and operational costs) incurred by Seller and arising after
the Transfer Date, or in regard to Subsection (b) are incurred by
Seller and arise after the Sale Date, which:
(a) Result from any misrepresentation made by Purchaser in
this Sale Agreement, or in any schedule, written statement or
certificate furnished by Purchaser pursuant to this Sale
Agreement;
(b) Result from any breach of warranty by Purchaser, or the
non-fulfillment of any covenant of Purchaser contained in this
Sale Agreement, or in any schedule, written statement or
certificate furnished by Purchaser pursuant to this Sale
Agreement;
(c) Result from errors of Purchaser in servicing any of the
Mortgages after the Transfer Date; or
(d) Result from litigation arising out of matters occurring
subsequent to the Transfer Date involving the Servicing or any
of the Mortgages.
10.4 Repurchase of Servicing. In the event Purchaser
discovers that any of the representations and warranties contained
in Articles IV and V excluding section 5.3 unless demand for
repurchase is made by an agency, hereof were not accurate in
material respects at the time they were made by Seller whether or
not Seller had knowledge of such inaccuracy, Purchaser shall give
prompt written notice of such fact to Seller, and subject to Seller
having an opportunity to cure any such defect or violation as is
reasonable under the circumstances then existing and is permitted by
the applicable Agency, Purchaser may demand that Seller repurchase
from Purchaser the right to service those Mortgages which are
affected by the inaccurate representation and warranty or, in the
event such Mortgages are required to be repurchased by the Agency,
Seller shall pay to Purchaser the cost to repurchase such Mortgages.
When Seller is required by this paragraph to repurchase servicing
rights related to a Mortgage from Purchaser or pay the cost to
repurchase a Mortgage, Seller shall pay Purchaser a repurchase price
for the related servicing equal to 108 Basis Points (1.08%) of the
then outstanding principal balance for such Mortgages. The
repurchase price of a Mortgage shall be the unpaid principal balance
plus accrued interest at the applicable note rate plus any
outstanding advances and uncollected receivables. When Seller is
required to either provide for repurchase of a Mortgage or
repurchase servicing of a Mortgage from Purchaser, such repurchase
shall be accomplished within the time period permitted or
required by the Agency and such repurchase shall be accomplished
within fifteen (15) Business Days following receipt from Purchaser
of written demand and support documentation from Purchaser pursuant
hereto. Upon completion of such purchase or repurchase by Seller,
Purchaser shall promptly forward to Seller at Purchaser's cost and
expense all servicing records and all documents relating to such
repurchased Mortgages or Servicing.
10.5 Supplementary Information. From time to time prior to and
after the Transfer Date, Seller shall furnish Purchaser such
incidental information, which is reasonably available to Seller,
supplementary to the information contained in the documents and
schedules delivered pursuant hereto and shall file such reports as
Purchaser may reasonably request to service in accordance with
applicable Agency requirements.
10.6 Access to Information. Seller shall give to Purchaser and
its counsel, accountants and other representatives reasonable access
during normal business hours throughout the period prior to the
Transfer Date, to all of Seller's files, books and records relating
to the Servicing and Related Escrow Accounts provided Purchaser has
provided Seller reasonable notice.
10.7 Confidentiality of Information: Prohibition on
Solicitation.
(a) Seller and Purchaser and their affiliates shall, and shall
cause their respective directors, officers, employees and
authorized representatives to hold in strict confidence and not use
or disclose to any other party without the prior written consent of
the other party all information concerning customers or proprietary
business procedures, servicing fees or prices, policies or plans of
the other party or any of its affiliates received by them from the
other party in connection with the transactions contemplated
hereby.
(b) Seller shall not use, and shall prohibit its affiliates,
successors or assigns from using, the mortgagor list of the
Mortgages or other data or information related to the Mortgages for
purposes of soliciting a refinancing of the Mortgages or conducting
marketing programs of any type, such list, data and information
after the Sale Date being the sole property of Purchaser. Seller
shall not take any action which would permit use of such list,
information or data by a third party.
10.8 No Broker's Fees. Each party hereto represents and
warrants to the other that it has made no agreement to pay any
agent, finder, or broker or any other representative, any fee or
commission in the nature of a finder's or originator's fee arising
out of or in connection with the subject matter of this Sale
Agreement other than Seller's agreement with Hamilton, Carter, Smith
& Co., Incorporated. Seller agrees to indemnify and hold Purchaser
harmless from any liability in connection with its agreement
with Hamilton, Carter, Smith & Co., Incorporated and both the
parties hereto covenant with each other and agree to indemnify and
hold each other harmless from and against any such obligation or
liability and any expense incurred in investigation or
defending (including reasonable attorneys' fees) any claim based
upon the other party's actions in connection with such obligation.
10.9 Survival of Representations and Warranties. Each party
hereto covenants and agrees that the representations and warranties
in this Sale Agreement, and in any document delivered or to be
delivered pursuant hereto, shall survive the Sale Date and Transfer
Date; provided that Seller's obligation to indemnify Purchaser under
Section 10.2(a) shall terminate as to any matter for which notice of
a breach or violation of a representation and warranty is not given
within fifteen (15) years of the Transfer Date.
10.10 Form of Payment to be Made. Purchaser shall pay to
Seller the amounts required by Article III by wire of Fed funds to
Seller's account at California United Bank , ABA 1222-3911-5 , for
the account of California United Bank , Acct. 03-910-3002, Attn:
Greg Tipton or other account as specified by Seller in writing.
10.11 Notices. All notices, requests, demands and other
communications which are required or permitted to be given under
this Sale Agreement shall be in writing and shall be deemed to have
been duly given upon the delivery, express mail delivery or mailing
thereof by registered or certified mail, return receipt requested,
postage prepaid:
(a) If to the Purchaser, to:
Mr. Richard K. Magel
Senior Vice President
Temple Inland Mortgage Corporation
301 Congress Avenue, Suite #304
Austin, TX 78701
CC: Mr. Joe Farr
Executive Vice President and CFO
Temple Inland Mortgage Corporation
901 South MoPac Expressway, Ste. 300
Austin, TX 78746
(b) If to the Seller, to:
Mr. Pat Hartman
CFO
16030 Ventura Blvd.
Encino, CA 91436-4487
CC: Ms. Anita Wohlman
General Counsel
16030 Ventura Blvd.
Encino, CA 91436-4487
or to such other address as Purchaser or Seller shall have
specified in writing to the other.
10.12 Waivers. Either Purchaser or Seller may, by written
notice to the other:
(a) Extend the time for the performance of any of the
obligations or other transactions of the other; and
(b) Waive compliance with any of the terms, conditions or
covenants required to be complied with by the other
hereunder.
The waiver by any party hereto of a breach of any provision of
this Sale Agreement shall not operate or be construed as a waiver of
any other subsequent breach.
10.13 Entire Agreement: Amendment. This Sale Agreement
constitutes the entire agreement between the parties with respect to
the sale of the Servicing and supersedes all prior agreements with
respect thereto. This Sale Agreement may be amended and any
provision hereof waived, but only in writing signed by the party
against whom such amendment or waiver is sought to be enforced.
10.14 Binding Effect. This Sale Agreement shall inure to
the benefit of and be binding upon the parties hereto and their
successors and assigns. Seller agrees that Purchaser may assign
this Agreement to a successor or affiliate so long as such
assignment cannot reasonably be deemed to have an adverse affect on
Seller and that such assignment does not occur prior to the Transfer
Date. Nothing in this Sale Agreement, express or implied, is
intended to confer on any person, other than the parties hereto, and
their successors and assigns, any rights, obligations, remedies or
liabilities.
10.15 Headings. Headings on the Articles and Paragraphs in
this Sale Agreement are for reference purposes only and shall not be
deemed to have any substantive effect.
10.16 Applicable Laws. This Sale Agreement shall be
construed in accordance with the laws of the State of Texas without
reference to its principles of conflict of laws.
10.17 Incorporation of Exhibits. Exhibits A through H
attached hereto shall be incorporated herein and shall be
understood to be a part hereof as though included in the body of
this Sale Agreement.
10.18 Counterparts. This Sale Agreement may be executed in
counterparts, each of which, when so executed and delivered, shall
be deemed to be an original and all of which, taken together, shall
constitute one and the same agreement.
IN WITNESS WHEREOF, each of the undersigned parties to this
Sale Agreement has caused this Sale Agreement to be duly executed in
its corporate name by one of its duly authorized officers, all as of
the date first above written.
"PURCHASER"
_Joe Farr___________________________
Joe Farr
Chief Financial Officer
Temple-Inland Mortgage Corporation
"SELLER"
_Pat Hartman__________________________
Pat Hartman
Chief Financial Officer
California United Bank
EXHIBIT A
Description of Mortgage Loans
Date of Information August 31, 1994
Principal Balance $231,566,758.80
Number of Loans 1675
Weighted Average Note Rate 7.468%
Weighted Average Net Servicing Fee .2995%
Weighted Average Original Term 228
Weighted Average Time to Maturity 209
Monthly T&I Escrow Constant $38,740.14
P&I Constant $1,831,226.34
Total Delinquency 1.73% = 29 Loans
(13 Loans=30 Days Delinq.
4 Loans=60 Days Delinq.
3 Loans=90 Days Delinq.
9 Loans=120 Days Delinq.)
List of Loan Numbers with Name and Address
SEE ATTACHMENT
EXHIBIT B
Schedule of Prior Servicers
(To be supplied by Seller)
None
EXHIBIT C
Schedule of Servicing Information
The following information with respect to each Mortgage in a
paper/report format and in a format sufficient to enable its
tape-to-tape transmission to Purchaser:
1. Mortgaged Property Address
2. Mortgagor's Name and any Co-Mortgagor's Name
3. Mailing Address
4. Mortgage Loan Number
5. Current Mortgage Interest Rate
6. Current Principal Balance
7. Original Principal Balance
8. First Payment Due Date
9. Total Interest Due
10. Next Due Date
11. Loan Type
12. Original Term of Loan
13. Maturity Date of Loan
14. Delinquency Pattern
15. Late Charges Due
16. Current Monthly Payment
17. Current Monthly Escrow Deposit
18. Current Escrow Balance
19. Social Security Number of Mortgagor and Co-Mortgagor(s)
20. Most recent twelve (12) month history
21. First or Next Interest Adjustment Date
22. Loan-to-Value Ratio at Origination or Appraised Value at
Origination
23. Payment Adjustment Date
24. Current Index
25. Lifetime Rate Cap
26. Gross Margin
27. Periodic Rate Cap
28. Payment Cap
29. Code Identifying any Conversion Option
30. Code Identifying whether Mortgaged Property is Owner-Occupied
31. Code Identifying Type of Residential Dwelling
32. Investor, Pool Data and Certificateholders
33. Investor Loan Number
34. Tax Servicer
35. Tax Data, including legal, parcel, due date, payee and last
disbursement date and amount
36. Hazard Insurance Data, including insurance company, policy
number, due date, premium amount, coverage amount, and last
disbursement date and amount
37. Private Mortgage Insurance Policy and Mortgage Insurance Data,
including case number, anniversary month, annual or monthly
premium, company, certificate number, monthly deposit, and
last disbursement date and amount.
38. Identifier to distinguish between one time and monthly FHA
premium.
EXHIBIT D
Additional Information/Documentation to be Delivered
A. The following information and documents with respect to each
Mortgage:
1. Two (2) year transaction history file (available in hard copy,
fiche or film) as available.
2. Collection records and Mortgaged Property address listing
3. All tax records including prior year receipts or deliver these
individually as Purchaser reasonably requests as needed after the
Transfer Date.
4. Optional Insurance Certificates
5. All title policies and title opinions
6. Microfilm, fiche or hard copy of loan files
7. Copy of form of letter sent to appropriate insurance companies/agents
requesting endorsements to reflect transfer to Purchaser and new
address with a listing of addresses
8. Other documents or information that Purchaser may reasonably
request which are reasonably available to Seller
9. Copy of Mortgage Note and recorded Mortgage or certified copy of
recorded Mortgage
10. Copy of letter to the appropriate taxing service notifying them of
the transfer of Servicing to Purchaser
11. Copy of original credit package
12. Available information concerning all pending items, including
but not limited to partial releases, mortgage life or mortgage
disability claims, litigation, assumptions, and loss drafts.
13. Detail foreclosure information on loans in foreclosure and loans
foreclosed.
14. Detail bankruptcy information on loans in bankruptcy.
On an aggregate basis, a schedule enumerating each Mortgage which
requires special handling with a statement of the reasons therefor
and all relevant documentation attached.
EXHIBIT E
Schedule of Pending Litigation
EXHIBIT F
Schedule of Delinquent Mortgages
Indicating Number of Payments Due
and including Loan No. and UPB
SEE ATTACHMENT
EXHIBIT G
SCHEDULE OF MORTGAGES FOR WHICH
A PAYOFF QUOTE WAS ISSUED PRIOR
TO SALE DATE
EXHIBIT H
MORTGAGES LOANS WITH PHYSICAL DAMAGE
DUE TO AN EARTHQUAKE
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<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 43228
<INT-BEARING-DEPOSITS> 397
<FED-FUNDS-SOLD> 12000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 64451
<INVESTMENTS-MARKET> 62787
<LOANS> 152340
<ALLOWANCE> 7470
<TOTAL-ASSETS> 280436
<DEPOSITS> 242532
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8878
<LONG-TERM> 0
<COMMON> 26429
0
0
<OTHER-SE> 2597
<TOTAL-LIABILITIES-AND-EQUITY> 280436
<INTEREST-LOAN> 9660
<INTEREST-INVEST> 2715
<INTEREST-OTHER> 46
<INTEREST-TOTAL> 12421
<INTEREST-DEPOSIT> 2393
<INTEREST-EXPENSE> 2647
<INTEREST-INCOME-NET> 9774
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11221
<INCOME-PRETAX> 3272
<INCOME-PRE-EXTRAORDINARY> 1857
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1857
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
<YIELD-ACTUAL> 5.81
<LOANS-NON> 113
<LOANS-PAST> 0
<LOANS-TROUBLED> 1757
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6513
<CHARGE-OFFS> 1159
<RECOVERIES> 2116
<ALLOWANCE-CLOSE> 7470
<ALLOWANCE-DOMESTIC> 7470
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
