<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1995
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- ---------
Commission file number 0-13082
-------
COMMERCIAL FEDERAL CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
NEBRASKA 47-0658852
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2120 SOUTH 72ND STREET, OMAHA, NEBRASKA 68124
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(402) 554-9200
---------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 5, 1995
- ----------------------------- --------------------------
Common Stock, $0.01 Par Value 12,877,754 Shares
The exhibit index is located on page 33.
This document is comprised of 36 pages.
1
<PAGE>
COMMERCIAL FEDERAL CORPORATION
------------------------------
FORM 10-Q
---------
INDEX
-----
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Part I. Financial Information Page No.
--------------------- --------
<S> <C>
Item 1. Financial Statements:
Consolidated Statement of Financial Condition as of
March 31, 1995, and June 30, 1994 3
Consolidated Statement of Operations for the Three
and Nine Months Ended March 31, 1995 and 1994 4 - 5
Consolidated Statement of Cash Flows for the Three
and Nine Months Ended March 31, 1995 and 1994 6 - 7
Notes to Consolidated Financial Statements 8 - 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16 - 30
Part II. Other Information
-----------------
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 31
Signature Page 32
- ----------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
-----------------------------
COMMERCIAL FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(Dollars in Thousands) March 31, June 30,
1995 1994
ASSETS
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash (including short-term investments of $3,500 and $500) $ 30,285 $ 21,208
Mortgage-backed securities available for sale, at fair value 10,555 12,171
Loans held for sale (market value of $32,570 and $74,321) 32,570 74,321
Investment securities held to maturity (fair value of $277,823
and $273,601) 284,923 280,600
Mortgage-backed securities held to maturity (fair value of
$1,299,977 and $1,240,299) 1,348,083 1,293,263
Loans receivable, net of allowances of $45,471 and $42,720 3,808,079 3,518,617
Federal Home Loan Bank stock 95,184 90,913
Interest receivable, net of reserves of $391 and $406 34,463 34,621
Real estate 15,689 16,011
Premises and equipment 59,108 54,534
Prepaid expenses and other assets 62,194 57,896
Goodwill and core value of deposits, net of accumulated
amortization of $133,441 and $104,115 32,442 67,185
- -----------------------------------------------------------------------------------------------------------
Total Assets $5,813,575 $5,521,340
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------
Liabilities:
Deposits $3,522,546 $3,355,597
Advances from Federal Home Loan Bank 1,691,215 1,524,516
Securities sold under agreements to repurchase 120,000 157,432
Other borrowings 56,223 59,740
Interest payable 22,579 26,076
Other liabilities 104,335 118,528
- -----------------------------------------------------------------------------------------------------------
Total Liabilities 5,516,898 5,241,889
- -----------------------------------------------------------------------------------------------------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value; 25,000,000 shares authorized;
12,875,094 and 12,783,684 shares issued and outstanding 129 128
Additional paid-in capital 139,231 137,293
Unrealized holding gain on securities available for sale, net 3 --
Retained earnings, substantially restricted 157,314 142,030
- -----------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 296,677 279,451
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $5,813,575 $5,521,340
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
COMMERCIAL FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data) Three Months Ended Nine Months Ended
March 31, March 31,
----------------- -----------------
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans receivable $ 76,911 $ 70,947 $225,286 $211,631
Mortgage-backed securities 21,029 14,533 60,471 41,524
Investment securities 6,055 6,205 18,014 18,893
- -------------------------------------------------------------------------------------------------------
Total interest income 103,995 91,685 303,771 272,048
Interest Expense:
Deposits 41,172 33,063 119,387 94,339
Advances from Federal Home Loan Bank 25,079 22,016 73,714 71,872
Securities sold under agreements to repurchase 2,217 2,374 5,009 7,171
Other borrowings 1,578 1,699 4,871 5,302
- -------------------------------------------------------------------------------------------------------
Total interest expense 70,046 59,152 202,981 178,684
Net Interest Income 33,949 32,533 100,790 93,364
Provision for Loan Losses (1,509) (1,509) (4,525) (4,525)
- -------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 32,440 31,024 96,265 88,839
Other Income (Loss):
Loan servicing fees 5,796 5,010 16,554 15,268
Retail fees and charges 2,107 1,953 6,517 5,966
Real estate operations (7) (347) (573) (1,746)
Loss on sales of loans (189) (510) (549) (609)
Other operating income 1,959 1,408 5,454 4,519
- -------------------------------------------------------------------------------------------------------
Total other income 9,666 7,514 27,403 23,398
Other Expense:
General and administrative expenses:
Compensation and benefits 8,765 7,367 25,971 20,183
Occupancy and equipment 4,829 4,360 13,757 13,118
Regulatory insurance and assessments 2,177 1,987 6,350 5,480
Advertising 995 912 3,037 2,402
Other operating expenses 5,097 4,636 14,691 15,541
- -------------------------------------------------------------------------------------------------------
Total general and administrative expenses 21,863 19,262 63,806 56,724
Amortization of goodwill and core value of deposits 2,199 3,924 7,969 10,088
Accelerated amortization of goodwill -- -- 21,357 --
- -------------------------------------------------------------------------------------------------------
Total other expense 24,062 23,186 93,132 66,812
Income Before Provision for Income Taxes and Cumulative
Effects of Changes in Accounting Principles 18,044 15,352 30,536 45,425
Provision for Income Taxes 4,517 5,655 15,252 18,259
- -------------------------------------------------------------------------------------------------------
Income Before Cumulative Effects of Changes
in Accounting Principles 13,527 9,697 15,284 27,166
- -------------------------------------------------------------------------------------------------------
Cumulative Effects of Changes in Accounting Principles:
Change in method of accounting for income taxes -- -- -- 6,139
Postretirement benefits, net of income tax benefit of $183 -- -- -- (336)
- -------------------------------------------------------------------------------------------------------
Total cumulative effects of changes
in accounting principles -- -- -- 5,803
- -------------------------------------------------------------------------------------------------------
Net Income $ 13,527 $ 9,697 $ 15,284 $ 32,969
- -------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
COMMERCIAL FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Data) Three Months Ended Nine Months Ended
March 31, March 31,
----------------- ----------------
1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings Per Common Share:
- ------------------------------------------------------------------------------------------------------
Income before cumulative effects of changes in
accounting principles $ 1.04 $ .75 $ 1.17 $ 2.10
------- ------- ------- -------
Cumulative effects of changes in accounting principles:
Changes in method of accounting for income taxes -- -- -- .48
Postretirement benefits, net of income tax benefit -- -- -- (.03)
------- ------- ------- -------
Total -- -- -- .45
- ------------------------------------------------------------------------------------------------------
Net Income $ 1.04 $ .75 $ 1.17 $ 2.55
- ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
COMMERCIAL FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) Nine Months Ended
March 31,
--------------------------
1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,284 $ 32,969
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effects of changes in accounting principles -- (6,139)
Accelerated amortization of goodwill 21,357 --
Provisions for loss on loans and real estate 4,882 5,495
Depreciation and amortization 3,933 3,346
Accretion of deferred discounts and fees (2,441) (9,569)
Amortization of goodwill and core value of deposits 7,969 10,088
Amortization of premiums 7,172 6,327
Loss on sales of loans, net 549 609
Gain on sale of real estate, net (772) (847)
Proceeds from the sale of loans 331,833 519,361
Origination of loans for resale (28,846) (139,579)
Purchase of loans for resale (317,240) (374,783)
Decrease in interest receivable 967 1,107
Decrease in interest payable (3,660) (6,767)
(Decrease) increase in other liabilities (8,645) 8,926
Other items, net (6,044) (25,414)
---------- ----------
Total adjustments 11,014 (7,839)
---------- ----------
Net cash provided by operating activities $ 26,298 $ 25,130
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of loans $ (531,915) $ (888,572)
Principal repayments of loans and mortgage-backed securities 527,250 959,386
Origination of loans (224,334) (456,542)
Proceeds from sale of mortgage-backed securities available for sale 22,645 --
Proceeds from sale of investment securities available for sale 14,797 --
Purchases of mortgage-backed securities (13,411) (96,233)
Maturities and repayments of investment securities 11,434 89,421
Purchases of investment securities (10,000) (130,408)
Purchases of premises and equipment, net (7,563) (2,567)
Proceeds from sale of real estate 6,609 11,105
Acquisition of deposits and related assets, net (6,338) 532,335
Purchases of mortgage servicing rights (5,439) (4,297)
Purchases of Federal Home Loan Bank stock (2,600) --
Payments to acquire real estate (756) (1,185)
Proceeds from sale of Federal Home Loan Bank stock -- 10,000
---------- ----------
Net cash (used) provided by investing activities $ (219,621) $ 22,443
- ------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
COMMERCIAL FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(Dollars in Thousands) Nine Months Ended
March 31,
-------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits $ 79,463 $ 175,222
Proceeds from Federal Home Loan Bank advances 519,220 654,350
Repayment of Federal Home Loan Bank advances (356,097) (865,558)
Proceeds from securities sold under agreements to repurchase 120,000 2,570
Repayment of securities sold under agreements to repurchase (157,432) --
Repayment of other borrowings (3,808) (8,776)
Other items, net 1,054 524
----------- -----------
Net cash provided (used) by financing activities 202,400 (41,668)
- ----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Increase in net cash position 9,077 5,905
Balance, beginning of year 21,208 33,504
----------- -----------
Balance, end of period $ 30,285 $ 39,409
=========== ===========
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $ 206,486 $ 181,173
Income taxes, net 7,993 9,233
Non-cash investing and financing activities:
Loans exchanged for mortgage-backed securities 130,639 303,455
Loans transferred to real estate 3,408 5,722
Loans to facilitate the sale of real estate 569 2,974
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
7
<PAGE>
COMMERCIAL FEDERAL CORPORATION
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AS OF AND FOR THE NINE MONTHS ENDED MARCH 31, 1995
--------------------------------------------------
(UNAUDITED)
A. BASIS OF CONSOLIDATION AND PRESENTATION:
----------------------------------------
The unaudited consolidated financial statements are prepared on an accrual basis
and include the accounts of Commercial Federal Corporation (the Corporation) and
its wholly-owned subsidiary, Commercial Federal Bank, a Federal Savings Bank
(the Bank), and all majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
The accompanying interim consolidated financial statements have not been audited
by independent auditors. However, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments except for the accelerated
amortization of goodwill recorded during the first six months of fiscal year
1995 and the cumulative effects of changes in accounting principles for fiscal
year 1994) considered necessary to fairly present the financial statements have
been included. The consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Corporation's June 30, 1994, audited Annual Report to Stockholders. The results
of operations for the nine month period ended March 31, 1995, are not
necessarily indicative of the results which may be expected for the entire
fiscal year 1995. Certain amounts in the prior fiscal year periods have been
reclassified for comparative purposes.
B. NEW ACCOUNTING PRONOUNCEMENTS:
------------------------------
Accounting for Certain Investments in Debt and Equity Securities:
As of July 1, 1994, the Corporation implemented the provisions of Statement of
Financial Accounting Standards No. 115 (SFAS No. 115) entitled "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No. 115 addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. Those
investments are to be classified in three categories and accounted for as
follows: (i) debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as "held-to-maturity securities" and
reported at amortized cost; (ii) debt and equity securities that are bought and
held principally for the purpose of selling them in the near term are classified
as "trading securities" and reported at fair value, with unrealized gains and
losses included in earnings; and (iii) debt and equity securities not classified
as either held-to-maturity securities or trading securities are classified as
"available-for-sale securities" and reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate component of
stockholders' equity.
As of March 31, 1995, the Bank had mortgage-backed securities totaling
$10,555,000 classified as "available for sale" with a corresponding addition to
stockholders' equity totaling $5,000 (net of a deferred income tax benefit of
approximately $2,000).
8
<PAGE>
B. NEW ACCOUNTING PRONOUNCEMENTS (continued):
------------------------------------------
Accounting by Creditors for Impairment of a Loan:
As of July 1, 1994, the Corporation effectively implemented the provisions of
Statement of Financial Accounting Standards No. 114 (SFAS No. 114) entitled
"Accounting by Creditors for Impairment of a Loan," which has been amended by
SFAS No. 118 "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." SFAS No. 114 addresses the accounting by creditors
for impairment of certain loans and applies to all loans, whether or not
collateralized, and to all loans that are restructured in a troubled debt
restructuring involving a modification of terms. SFAS No. 114 requires that
impaired loans within its scope be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate, or
as a practical expedient, at the observable market price of the loan or the fair
value of the underlying collateral. SFAS No. 114 also amends SFAS No. 5 on
contingencies to clarify that a creditor should evaluate the collectibility of
both contractual interest and principal of all receivables when assessing the
need to accrue a loss; and amends SFAS No. 15 on troubled debt restructurings
involving a modification of loan terms.
The implementation of the provisions of these statements had no material effect
on the Corporation's financial position or results of operations.
Disclosures on Derivative Financial Instruments and Fair Value of Financial
Instruments:
In October 1994, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 119 (SFAS No. 119) entitled
"Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments." SFAS No. 119 requires disclosures about amounts, nature and terms
of derivative financial instruments (such as futures; forward, swap and option
contracts; and other financial instruments with similar characteristics). This
statement also amends the existing requirements of SFAS No. 105 and No. 107
primarily to require disaggregation of information about derivative financial
instruments from nonderivative financial instruments regarding concentrations of
credit risk and fair value disclosure.
The provisions of SFAS No. 119 are effective as of June 30, 1995, for the
Corporation. Because this statement requires only disclosures about derivative
financial instruments and does not require adjustments to any such instruments,
the provisions of SFAS No. 119 will not have either a positive or negative
effect on the Corporation's financial position and no effect on results of
operations.
9
<PAGE>
B. NEW ACCOUNTING PRONOUNCEMENTS (continued):
-----------------------------------------
Accounting for the Impairment of Long-Lived Assets:
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121 (SFAS No. 121) entitled "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of." SFAS No. 121 establishes
accounting standards for the recognition and measurement of the impairment of
long-lived assets, certain identifiable intangibles and goodwill. This statement
does not apply to core deposit intangibles or mortgage and other servicing
rights. The provisions of this statement require that long-lived assets and
certain identifiable intangibles to be held and used be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In performing the review of recoverability, the
provisions of SFAS No. 121 require the estimation of the expected future cash
flows (undiscounted and without interest charges) to result from the use of the
asset and its eventual disposition with an impairment loss recognized if the sum
of such cash flows is less than the carrying amount of the asset.
SFAS No. 121 is effective for fiscal years beginning after December 15, 1995,
with earlier application encouraged and retroactive restatement not permitted.
Management of the Corporation has not determined the time period in which to
implement the provisions of this statement and does not believe such
implementation will have a material effect on the Corporation's financial
position or results of operations.
10
<PAGE>
C. REGULATORY CAPITAL:
-------------------
At March 31, 1995, the Bank's estimates of its capital amounts and the capital
levels required under Office of Thrift Supervision (OTS) capital regulations are
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(Dollars in Thousands) Actual Requirement Excess
----------- ----------- ----------
<S> <C> <C> <C>
Bank's Stockholder's Equity $ 325,444
Less unrealized holding gain on debt
securities available for sale, net (3)
Less intangible assets (29,682)
Less phase-out of investment
in non-includable subsidiaries (1,635)
----------- ----------- -----------
Tangible Capital $ 294,124 $ 86,728 $ 207,396
=========== =========== ===========
Tangible Capital to Adjusted Assets (1) 5.09% 1.50% 3.59%
=========== =========== ===========
- -------------------------------------------------------------------------------------------
Tangible Capital $ 294,124
Plus certain restricted amounts
of other intangible assets 22,642
----------- ----------- -----------
Core Capital (Tier 1 Capital) $ 316,766 $ 174,134 $ 142,632
=========== =========== ===========
Core Capital to Adjusted Assets (2) 5.46% 3.00% 2.46%
=========== =========== ===========
- -------------------------------------------------------------------------------------------
Core Capital $ 316,766
Plus general loan loss allowances 29,583
Less that portion of land loans and
non-residential construction loans in
excess of an 80.0% loan-to-value ratio (729)
----------- ----------- -----------
Risk-Based Capital (Total Capital) $ 345,620 $ 204,497 $ 141,123
=========== =========== ===========
Risk-Based Capital to
Risk Weighted Assets (3) 13.52% 8.00% 5.52%
=========== =========== ===========
- -------------------------------------------------------------------------------------------
(1) Based on adjusted total assets totaling $5,781,836,000.
(2) Based on adjusted total assets totaling $5,804,478,000.
(3) Based on risk-weighted assets totaling $2,556,210,000.
- -------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
C. REGULATORY CAPITAL (Continued):
-------------------------------
In April 1991, the OTS proposed to amend its core capital requirement to
establish a minimum 3.0% core capital ratio for savings institutions in the
strongest financial and managerial condition. For all other savings
institutions, the minimum core capital ratio would be 3.0% plus at least an
additional 1.0% to 2.0%, determined on a case-by-case basis by the OTS after
assessing both the quality of risk management systems and the level of overall
risk in each individual savings institution. The Bank does not anticipate that
it will be materially affected by this regulation if adopted in its current
form.
The OTS issued an amendment effective July 1, 1994, to the risk-based capital
standards that includes an interest rate risk component. The amendment generally
requires thrifts with interest rate risk in excess of certain levels to maintain
additional capital. Under this amendment, thrifts are divided into two groups,
those with "normal" levels of interest rate risk and those with "greater than
normal" levels of interest rate risk. Thrifts with greater than normal levels
are subject to a deduction from total capital for purposes of calculating risk-
based capital. The interest rate risk component is computed quarterly and the
resulting capital requirement has an effective time lag of two quarters (e.g.,
the March 31, 1995, calculation would use September 30, 1994, data). However, in
a letter dated October 13, 1994, this interest rate risk deduction has been
temporarily waived by the OTS to avoid uncertainty and confusion while OTS
standards for a regulatory appeals process relating to the OTS-calculated
interest rate risk deduction are finalized. Based on the Bank's interest rate
risk profile and the level of interest rates at March 31, 1995, as well as the
Bank's level of risk-based capital at March 31, 1995, it appears that this
amendment will not have a material adverse effect on the Bank's level of excess
risk-based capital.
The Federal Deposit Insurance Corporation Improvement Act of 1991 established
five regulatory capital categories: well-capitalized, adequately-capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized; and authorized banking regulatory agencies to take prompt
corrective action with respect to institutions in the three undercapitalized
categories. These corrective actions become increasingly more stringent as the
institution's regulatory capital declines. At March 31, 1995, the Bank exceeded
the minimum requirements for the well-capitalized category as shown in the
following table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Tier 1 Capital Tier 1 Capital Total Capital
to Adjusted to Risk - to Risk -
(Dollars in Thousands) Total Assets Weighted Assets Weighted Assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actual capital $ 316,766 $ 316,766 $ 345,620
Percentage of adjusted assets 5.46% 12.39% 13.52%
Minimum requirements to be
classified well-capitalized 5.00% 6.00% 10.00%
- ------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
D. CONTINGENCIES:
--------------
Loans sold subject to recourse provisions totaled approximately $49,687,000 at
March 31, 1995, which represents the total potential credit risk associated with
these particular loans. Such credit risk would, however, be offset by the value
of the single-family residential properties which collateralize these loans. In
addition, during fiscal year 1992, the Bank exchanged residential first mortgage
loans for mortgage-backed securities of which certain loans may not conform to
all securitization underwriting guideline requirements and, as such, are subject
to a loss obligation and therefore would be repurchased by the Bank. At March
31, 1995, such residential loans subject to possible repurchase by the Bank
totaled $2,700,000.
The Bank, through a real estate development subsidiary, is contingently liable
as a corporate general partner in real estate limited partnerships for
obligations totaling approximately $1,123,000 at March 31, 1995. These
obligations were guaranteed by the Bank to finalize the syndication of certain
real estate limited partnerships. The credit risk involved for the amounts
relating to these contingent liabilities is essentially the same as that
involved in extending commercial loans to customers and would be collateralized
by commercial real estate.
The Corporation is subject to a number of lawsuits and claims for various
amounts which arise out of the normal course of its business. In the opinion of
management, the disposition of claims currently pending will not have a material
adverse effect on the Corporation's financial position or results of operations.
E. ACCELERATED AMORTIZATION OF GOODWILL:
-------------------------------------
Effective June 30, 1994, the Corporation changed its method of valuation of
intangible assets incorporating a fair value concept using a lower of cost or
market methodology. An appraisal performed by an independent third party of the
existing intangible assets relating to acquisitions during 1986 through 1988 of
five troubled savings institutions located in Colorado, Kansas and Oklahoma
resulted in a fair value estimate of $41,000,000. This appraisal of $41,000,000
as of June 30, 1994, was classified by management as core value of deposits
totaling $19,643,000 and goodwill totaling $21,357,000.
The goodwill totaling $21,357,000 has been completely amortized to expense over
the six months ended December 31, 1994.
13
<PAGE>
F. ACQUISITION OF HOME FEDERAL SAVINGS AND LOAN:
---------------------------------------------
On July 15, 1994, the Bank consummated the acquisition of Home Federal Savings
and Loan (Home Federal) which has two branches in Ada, Oklahoma for
approximately $9,016,000 in cash. At July 15, 1994, Home Federal had total
assets approximating $100,200,000, total deposits approximating $87,300,000 and
stockholders' equity approximating $8,700,000. This acquisition is being
accounted for as a purchase with the fair value of the assets and liabilities
being determined including an independent core value study, branch appraisals
and a valuation of the loan servicing portfolio, to be completed on or before
June 30, 1995. In addition, costs and expenses associated with this acquisition
are estimated to approximate $500,000. Core value of deposits resulting from
this transaction will be amortized on an accelerated basis over a period not to
exceed 10 years and goodwill, if any, will be amortized over a period not to
exceed 20 years. Amortization expense for the three and nine months ended March
31, 1995, totaled $40,000 and $114,000, respectively.
G. SUBSEQUENT EVENT - AGREEMENT WITH PROVIDENT FEDERAL SAVINGS BANK:
-----------------------------------------------------------------
On April 3, 1995, the Bank consummated the purchase of Provident Federal Savings
Bank of Lincoln, Nebraska (Provident) for $7,525,000 in cash. Provident operates
a traditional thrift operation with five branches located in the Lincoln
metropolitan area with one branch scheduled to be closed by the Bank in May
1995.
At April 3, 1995, Provident had assets totaling approximately $96,700,000,
deposits totaling approximately $58,100,000 and stockholders' equity
approximating $4,600,000. This acquisition will be accounted for as a purchase
with the fair value of the assets and liabilities to be determined including an
independent core value study, branch appraisals and a valuation of the loan
servicing portfolio. Core value of deposits resulting from this transaction will
be amortized using an accelerated method over a period not to exceed 10 years
and goodwill, if any, will be amortized over a period not to exceed 20 years.
H. SUBSEQUENT EVENT - PROPOSED ACQUISITION:
----------------------------------------
On April 18, 1995, the Corporation entered into a Reorganization and Merger
Agreement (the Agreement) by and among the Corporation, the Bank, Railroad
Financial Corporation (Railroad) and Railroad Savings Bank, a wholly-owned
subsidiary of Railroad.
Under the terms of the Agreement, the Corporation will acquire all of the
outstanding shares of Railroad and Railroad's shareholders will receive shares
of the Corporation's common stock. The number of shares to be received by
Railroad's shareholders will be determined based upon the average closing price
of the Corporation's common stock for the twenty-fifth through the sixth trading
days preceding the effective date of the proposed merger (the Average Closing
Price). If such Average Closing Price is equal to or greater than $24.00 per
share, but equal to or less than $27.00 per share, Railroad's shareholders will
receive $17.25 in value of the Corporation's common stock for each share of
Railroad common stock. If such Average Closing Price is greater than $27.00 per
share, each of Railroad's shareholders will receive .6389 shares of the
Corporation's common stock for each share of Railroad common stock; and if the
Average Closing Price is less than $24.00 per share, each of Railroad's
shareholders will receive .7188 shares of the Corporation's common stock for
each share of Railroad common stock.
14
<PAGE>
H. SUBSEQUENT EVENT - PROPOSED ACQUISITION (Continued):
----------------------------------------------------
Railroad may terminate the Agreement if the Average Closing Price is less than
$20.00 per share and certain other conditions are satisfied; subject, however,
to the right of the Corporation to increase the consideration to be received by
Railroad's shareholders so that such shareholders would receive for each share
of Railroad common stock shares of the Corporation's common stock equal to the
number obtained by dividing $14.38 by the Corporation's Average Closing Price.
In such event, Railroad loses the right to terminate the Agreement. Based on the
Corporation's closing stock price on April 18, 1995, this proposed transaction
has an aggregate value approximating $36,502,000 and would result in the
exchange of 1,377,427 shares of the Corporation's common stock for 100% of the
common stock of Railroad.
The Corporation also announced that it had entered into a stock option agreement
with Railroad under which the Corporation has been granted an option to purchase
13%, or 316,190 shares at April 18, 1995, of Railroad's outstanding shares of
common stock for $11.875 per share under certain circumstances provided in such
agreement.
At March 31, 1995, Railroad had assets totaling approximately $571,547,000,
deposits totaling approximately $329,510,000 and stockholders' equity totaling
approximately $27,174,000. Railroad operates 10 branches in Kansas and has the
rights to purchase from First Bank System, Inc. seven branches also located in
Kansas with deposits totaling approximately $95,500,000.
The proposed acquisition is subject to the Corporation's completion of a due
diligence examination of Railroad and Railroad Savings Bank, regulatory
approvals, the approval of Railroad's stockholders and other conditions. All
conditions are expected to be completed by December 31, 1995, however, under
terms of the Agreement this transaction must be completed by March 31, 1996,
unless extended by mutual agreement of both parties. It is anticipated that this
acquisition will be accounted for as a pooling of interests.
15
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
The Corporation's principal asset is its investment in the capital stock of the
Bank, and because it does not generate any significant revenues independent of
the Bank, the Corporation's liquidity is dependent on the extent to which it
receives dividends from the Bank. The Bank's ability to pay dividends to the
Corporation is dependent on its ability to generate earnings and is subject to a
number of regulatory restrictions and tax considerations. Under capital
distribution regulations of the OTS, a savings institution that, immediately
prior to, and on a pro forma basis after giving effect to, a proposed dividend,
has total capital that is at least equal to the amount of its fully phased-in
capital requirements (a "Tier 1 Association") is permitted, after notice to the
OTS, to pay dividends during a calendar year in an amount equal to the greater
of (i) 75.0% of its net income for the recent four quarters, or (ii) 100.0% of
its net income to date during the calendar year plus an amount that would reduce
by one-half the amount by which its ratio of total capital to assets exceeded
its fully phased-in risk-based capital ratio requirement at the beginning of the
calendar year. At March 31, 1995, the Bank qualified as a Tier 1 Association,
and would be permitted, after notice to the OTS, to pay an aggregate amount
approximating $78.2 million in dividends under these regulations. Should the
Bank's regulatory capital fall below certain levels, applicable law would
require prior approval by the OTS of such proposed dividends and, in some cases,
would prohibit the payment of dividends.
At March 31, 1995, the Corporation's cash totaled $10.1 million of which $3.5
million is required to be retained under the terms of the Subordinated Note
Indenture governing the subordinated notes due 1999. Due to the Corporation's
limited independent operations, management believes that the cash balance at
March 31, 1995, is currently sufficient to meet operational needs. However, the
Corporation's ability to make future interest and principal payments on the
subordinated notes is dependent upon its receipt of dividends from the Bank.
Accordingly, a dividend totaling $2.2 million was paid on December 13, 1994, to
the Corporation from the Bank primarily to cover the semi-annual interest
payments on the Corporation's subordinated debt. On April 26, 1995, another
dividend totaling $2.2 million was declared by the Bank to be paid on or after
June 1, 1995, to the Corporation. A dividend also totaling $2.2 million was paid
by the Bank to the Corporation during the nine months ended December 31, 1994.
The Corporation also receives a small amount of cash from the exercise of stock
options and the sale of stock under its employee benefit plans.
The Bank's primary sources of funds are (i) deposits, (ii) principal repayments
on loans, mortgage-backed and investment securities, (iii) advances from the
Federal Home Loan Bank (FHLB) of Topeka and (iv) cash generated from operations.
As reflected in the Corporation's Consolidated Statement of Cash Flows, net cash
flows provided by operating activities totaled $26.3 million and $25.1 million,
respectively, for the nine months ended March 31, 1995 and 1994. Amounts
fluctuate from period to period primarily as a result of mortgage banking
activity relating to the purchase and origination of loans for resale and the
subsequent sale of such loans. The origination of loans for resale totaling
$28.8 million for the nine months ended March 31, 1995, is lower than the $139.6
million for the nine months ended March 31, 1994, primarily due to the lower
volume of loan refinancing activity attributable to the rise in interest rates
over the past 12 months.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (Continued):
- --------------------------------------------
Net cash flows used by investing activities for the nine months ended March 31,
1995, totaled $219.6 million and net cash flows provided by investing activities
for the nine months ended March 31, 1994, totaled $22.4 million. Amounts
fluctuate from period to period primarily as a result of (i) principal
repayments on loans and mortgage-backed securities and (ii) the purchase and
origination of loans and mortgage-backed securities. During the first quarter of
fiscal year 1995 the Bank acquired all the assets and liabilities of Home
Federal for which it paid cash totaling $9.0 million. In addition, the large
amount of cash flows provided by investing activities for the nine months ended
March 31, 1994, is primarily from the acquisition of the deposits of Heartland
Federal Savings and Loan Association (Heartland) in October 1993. The proposed
acquisition of Railroad Financial Corporation will have no material effect on
liquidity since such transaction will be consummated in an exchange of common
stock between companies.
Net cash flows provided by financing activities for the nine months ended March
31, 1995, totaled $202.4 million and net cash flows used by financing activities
totaled $41.7 million for the nine months ended March 31, 1994. Advances from
the FHLB and retail deposits have been the primary sources to balance the Bank's
funding needs during each of the periods presented. In addition, during the nine
months ended March 31, 1995, the Bank has utilized securities sold under
agreements to repurchase primarily for liquidity and asset liability management
purposes with the amount outstanding subject to fluctuation from period to
period based on the aforementioned reasons. A net increase of $79.5 million in
deposits for the nine months ended March 31, 1995, was lower compared to a net
increase of $175.2 million for the nine months ended March 31, 1994, primarily
due to the change in the interest rate environment which has increased
competition for retail deposits.
The Corporation has considered, and anticipates that it will in the future
continue to consider, possible mergers with and acquisitions of other selected
financial institutions. During fiscal year 1995 to date, the Bank consummated
the acquisitions of Home Federal and Provident, and entered into an agreement
with Railroad Financial Corporation headquartered in Wichita, Kansas. See Notes
F, G and H for additional information on these completed and pending
acquisitions. Such completed and proposed acquisitions present the Bank with the
opportunity to expand its retail network in the Oklahoma, Kansas and greater
metropolitan Lincoln, Nebraska markets and to increase its earnings potential by
increasing its mortgage and consumer loan volumes funded by deposits which
generally bear lower rates of interest than alternative sources of funds.
The Corporation will seek to continue its growth through expansion of the Bank's
operations in its market areas, consisting of Nebraska, Colorado, Oklahoma and
Kansas, and may seek to enter markets in other adjoining states. The Bank will
also seek to expand its operations both through competition for market share
within its market areas and through mergers with and acquisitions of other
selected financial institutions. Management of the Corporation believes that its
emphasis on operating acquired entities as consumer-oriented financial
institutions is attractive to potential acquisition candidates and may be
advantageous in competing with larger banks for selected acquisitions.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (Continued):
- --------------------------------------------
At March 31, 1995, the Bank had issued commitments totaling $82.6 million to
fund and purchase loans and investment securities as follows: $39.3 million of
single-family adjustable-rate mortgage loans, $16.4 million of single-family
fixed-rate mortgage loans, $15.9 million of consumer loan lines of credit, $1.0
million of commercial real estate loans and $10.0 million of investment
securities. These outstanding commitments to extend credit in order to originate
loans or fund consumer loan lines of credit do not necessarily represent future
cash requirements since many of the commitments may expire without being drawn.
The Bank expects to fund these commitments, as necessary, from the sources of
funds previously described.
The maintenance of an appropriate level of liquid resources to meet not only
regulatory requirements but also to provide funding necessary to meet the Bank's
current business activities and obligations is an integral element in the
management of the Bank's assets. The Bank is required by federal regulation to
maintain a minimum average daily balance of cash and certain qualifying liquid
investments equal to 5.0% of the aggregate of the prior month's daily average
savings deposits and short-term borrowings. The Bank's liquidity position was
7.90% at March 31, 1995. Liquidity levels will vary depending upon savings
flows, future loan fundings, cash operating needs, collateral requirements and
general prevailing economic conditions. The Bank does not currently foresee any
difficulty in meeting its liquidity requirements.
RECENT DEVELOPMENT:
- -------------------
The Federal Deposit Insurance Corporation (FDIC) has proposed an amendment to
the Bank Insurance Fund (BIF) risk-based assessment schedule which, if adopted
as proposed, could lower the deposit insurance assessment rate for most
commercial banks and other depository institutions with deposits insured by the
BIF to a minimum of 0.04% of insured deposits. At the same time, the FDIC has
indicated it anticipates that the assessment rate for Savings Association
Insurance Fund (SAIF)-insured institutions in even the lowest risk-based premium
category will not fall below the current 0.23% of insured deposits before the
year 2002. If adopted, the FDIC proposal could not become effective until the
semi-annual period after the BIF achieves its designated reserve ratio which the
FDIC estimates may occur as early as June 1995. The proposed FDIC amendment,
which is subject to approval by the FDIC Board of Directors and may or may not
be adopted in its current form, would result in a substantial disparity in the
deposit insurance premiums paid by BIF and SAIF members and could place SAIF-
insured savings associations, which the Bank is a member, at a significant
competitive disadvantage to BIF-insured institutions. Management of the Bank is
exploring various alternatives to lessen the anticipated BIF-SAIF premium
disparity resulting from this proposed amendment.
18
<PAGE>
NONPERFORMING ASSETS:
- ---------------------
Nonperforming assets are monitored closely on a regular basis by the Bank's
internal credit review and asset workout groups with the Bank continuing to
place a high priority on the conversion of nonperforming assets into earning
assets. The Bank's nonperforming assets decreased by $3.4 million, or 5.3%, at
March 31, 1995, compared to June 30, 1994. Nonperforming assets as of the dates
indicated are summarized below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
March 31, June 30,
(Dollars in Thousands) 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Nonperforming loans:
Residential real estate $ 26,582 $ 25,516
Commercial real estate 931 5,228
Consumer 294 192
--------- ---------
Total 27,807 30,936
--------- ---------
Real estate:
Commercial 8,075 9,808
Residential 3,362 3,264
--------- ---------
Total 11,437 13,072
--------- ---------
Troubled debt restructurings:
Commercial 20,091 18,445
Residential 1,314 1,580
--------- ---------
Total 21,405 20,025
--------- ---------
Total nonperforming assets $ 60,649 $ 64,033
========= =========
Nonperforming loans to total loans .72% .85%
Nonperforming assets to total assets 1.04% 1.16%
Allowance for loan losses:
Other loans (1) $ 29,807 $ 25,605
Bulk purchased loans (2) 15,747 17,321
--------- ---------
$ 45,554 $ 42,926
========= =========
Allowance for loan losses to total loans 1.17% 1.18%
Allowance for loan losses to total
nonperforming assets 75.11% 67.04%
- ------------------------------------------------------------------------------------
</TABLE>
(1) Includes $83,000 and $206,000, respectively, at March 31, 1995, and June 30,
1994, in general allowance for losses established primarily to cover risks
associated with borrowers' delinquencies and defaults on loans held for
sale.
(2) Represents the allowance for loan losses for single-family residential whole
loans purchased between January 1991 and June 30, 1992 (bulk purchased
loans), which had been allocated from the amount of net discounts associated
with the Bank's purchase of these loans to provide for the credit risk
associated with such bulk purchased loans. These bulk purchased loans had
principal balances of $730.5 million and $868.0 million, respectively, at
March 31, 1995, and June 30, 1994. These allowances are available only to
absorb losses associated with respective bulk purchased loans, and are not
available to absorb losses from other loans.
19
<PAGE>
NONPERFORMING ASSETS (Continued):
- ---------------------------------
The total allowance for loan losses increased by $2.6 million but the percentage
of allowance for loan losses to total loans decreased one basis point at March
31, 1995, compared to June 30, 1994, due to the net increase of $247.7 million
in total loans over the respective periods. The other three asset quality ratios
improved at March 31, 1995, compared to June 30, 1994, due to net decreases in
such nonperforming loans and nonperforming assets, primarily from the sale of
properties and loan principal payments, combined with increases in both total
loans ($247.7 million) and total assets ($292.2 million) over the same nine
month period. The ratios of nonperforming loans and nonperforming assets of .72%
and 1.04%, respectively, are indicators of the continued improvement in the
reduction of these nonperforming loans and nonperforming assets compared to the
respective ratios of .85% and 1.16% at June 30, 1994. The total allowance for
loan losses to total nonperforming assets of 75.11% also indicates improved
coverage for potential losses as compared to the ratio of 67.04% at June 30,
1994.
The allowance for loan losses is based upon management's continuous evaluation
of the collectibility of outstanding loans, which takes into consideration such
factors as changes in the composition of the loan portfolio and current economic
conditions that may affect the borrower's ability to pay, regular examinations
by the Bank's credit review group of the overall portfolio quality, real estate
market conditions in the Bank's lending areas and regular review of specific
problem loans.
Nonperforming loans at March 31, 1995, decreased by $3.1 million compared to
June 30, 1994, primarily due to net decreases in the movement of delinquent
loans within the 90-day delinquency category, loans transferred to real estate
and from loan principal repayments. The net decrease of $1.6 million in real
estate at March 31, 1995, compared to June 30, 1994, is substantially
attributable to the sale of properties. The net increase of $1.4 million in
troubled debt restructurings at March 31, 1995, compared to June 30, 1994, is
primarily attributable to the addition of commercial loans totaling $3.2 million
partially offset by loan principal repayments.
20
<PAGE>
RESULTS OF OPERATIONS:
- ----------------------
Net income for the three months ended March 31, 1995, was $13.5 million, or
$1.04 per share, compared to $9.7 million of net income for the three months
ended March 31, 1994, or $.75 per share. The increase in net income for the
three months ended March 31, 1995, compared to the three months ended March 31,
1994, is primarily due to the following: a decline of $1.7 million in
amortization expense of intangible assets, an increase of $1.4 million in net
interest income, an improvement of $1.1 million in the provision for income
taxes, an increase of $786,000 in loan servicing fees, an increase of $551,000
in other operating income, an improvement of $340,000 in real estate operations,
an improvement of $321,000 in loss on sales of loans and an increase of $154,000
in retail fees and charges. These increases to net income were partially offset
by an increase of $2.6 million in general and administrative expenses.
Net income for the nine months ended March 31, 1995, was $15.3 million, or $1.17
per share, compared to $33.0 million of net income for the nine months ended
March 31, 1994, or $2.55 per share, which includes the cumulative effects of
changes in accounting principles of $5.8 million, or $.45 per share. The
decrease in net income for the nine months ended March 31, 1995, compared to the
nine months ended March 31, 1994, is primarily due to the following: an increase
of $19.2 million in amortization expense of intangible assets, an increase of
$7.1 million in general and administrative expenses and a decrease of $5.8
million from the cumulative effects of changes in accounting principles. These
decreases to net income were partially offset by an increase of $7.4 million in
net interest income, an improvement of $3.0 million in the provision for income
taxes, an increase of $1.3 million in loan servicing fees, an improvement of
$1.2 million in real estate operations, an increase of $935,000 in other
operating income and an increase of $551,000 in retail fees and charges.
Net Interest Income:
- --------------------
Net interest income was $100.8 million for the nine months ended March 31, 1995,
compared to $93.4 million for the nine months ended March 31, 1994, an increase
of $7.4 million, or 8.0%. Net interest income was $33.9 million for the three
months ended March 31, 1995, compared to $32.5 million for the three months
ended March 31, 1994, an increase of $1.4 million, or 4.4%. Included in net
interest income for all periods is the recognition of net discounts associated
with bulk purchase residential mortgage loan prepayments totaling $1.3 million
and $3.7 million, respectively, for the nine months ended March 31, 1995 and
1994, and $292,000 and $825,000, respectively, for the comparable three month
periods ended March 31, 1995 and 1994. The interest rate spread was 2.14% at
March 31, 1995, compared to 2.42% at March 31, 1994, a decrease of 28 basis
points. During the nine months ended March 31, 1995 and 1994, interest rate
spreads were 2.26% and 2.43%, respectively, representing a decrease of 17 basis
points while the net yield on interest-earning assets decreased 14 basis points
over these same periods of time. In addition, during the three months ended
March 31, 1995 and 1994, interest rate spreads were 2.18% and 2.37%,
respectively, a decrease of 19 basis points. The continuing trend of increasing
interest rates, which began in the first quarter of calendar year 1994, has put
pressure on the Bank's interest rate spreads and yields and the resulting net
interest income. Net interest income may continue to be adversely affected to
the extent interest rates continue to increase. The future trend in interest
rate spreads and net interest income will be dependent upon such factors as the
Bank's balance sheet composition and asset size, the interest rate risk of the
Bank, and the maturity and repricing activity of interest-sensitive assets and
liabilities, as influenced by changes in and levels of interest rates.
21
<PAGE>
Net Interest Income (Continued):
- --------------------------------
Net interest income increased during the nine months ended March 31, 1995,
compared to March 31, 1994, notwithstanding a decline in the net yield on
interest-earning assets of 14 basis points due to the fact that average
interest-earning assets increased $694.0 million to $5.518 billion for the nine
months ended March 31, 1995, compared to $4.824 billion for the nine months
ended March 31, 1994. For the three months ended March 31, 1995, compared to the
three months ended March 31, 1994, average interest-earning assets increased
$519.0 million accounting for the increase in net interest income of $1.4
million even though the interest rate spread and the net yield on interest-
earning assets decreased 19 and 14 basis points, respectively, over the same
periods of time. Such substantial increases in average interest-earning assets
for both three and nine month periods are primarily due to the Bank's
acquisitions of Heartland, Franklin Federal Savings Association (Franklin) and
Home Federal.
The Bank has historically invested in interest-earning assets that have a longer
duration than its interest-bearing liabilities. The shorter duration of the
interest-sensitive liabilities indicates that the Bank is exposed to interest
rate risk. In a rising rate environment, such as that prevailing in recent
periods, liabilities typically will reprice faster than assets, thereby reducing
the market value of long-term interest-earning assets and net interest income.
To mitigate this risk, the Bank has utilized certain financial instruments to
hedge the interest rate exposure on certain interest-sensitive liabilities.
However, since fiscal year 1991, it has been the general direction of the Bank
to move toward a natural rather than a synthetic, management of its interest
rate risk. Therefore, the Bank has allowed these financial instruments to expire
upon maturity while extending the maturities and locking in fixed interest rates
on certain borrowings, predominantly advances from the FHLB, which has helped to
reduce the Bank's one-year cumulative gap mismatch.
In connection with its asset/liability management program, the Bank has interest
rate swap agreements with other counterparties under terms that provide an
exchange of interest payments on the outstanding notional amount of the swap.
Such agreements have been used to artificially lengthen the maturity of various
interest-bearing liabilities and has subjected the Bank to interest rate risk
since these swaps were entered into during a much higher interest rate
environment and their cost is high relative to the protection afforded. In
accordance with these arrangements, the Bank pays fixed rates and receives
variable rates of interest according to a specified index. The Bank has reduced
its level of such swap agreements to a notional principal amount of $83.5
million at March 31, 1995, from a balance of $109.5 million at June 30, 1994,
and March 31, 1994. For the nine months ended March 31, 1995 and 1994, the Bank
recorded $3.4 million and $7.1 million, respectively, in interest expense from
its interest rate swap agreements. In the 12 months ending March 31, 1996, an
additional $53.5 million of swap agreements will mature.
22
<PAGE>
Net Interest Income (Continued):
- --------------------------------
The following table illustrates other information concerning yields earned on
interest-earning assets and rates paid on interest-bearing liabilities during
and at the end of each of the periods presented.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
For the Three For the Nine
Months Ended Months Ended At
March 31, March 31, March 31,
--------------- -------------- --------------
1995 1994 1995 1994 1995 1994
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted average yield on:
Loans 8.09% 7.81% 7.98% 8.13% 8.14% 7.84%
Mortgage-backed securities 6.13 5.57 5.92 5.69 6.17 5.59
Other investments 6.26 6.81 6.12 6.62 6.15 6.56
----- ----- ----- ----- ----- -----
Interest-earning assets 7.48 7.27 7.34 7.52 7.52 7.27
----- ----- ----- ----- ----- -----
Weighted average rate paid on:
Savings deposits 3.53 2.05 3.26 1.99 3.25 2.11
Other time deposits 5.40 5.10 5.19 5.25 5.67 5.05
Advances from FHLB 5.84 5.61 5.64 5.92 5.88 5.56
Securities sold under
agreements to repurchase 7.72 6.07 7.57 6.06 7.70 6.08
Other borrowings 11.09 10.75 11.19 10.64 10.85 10.73
----- ----- ----- ----- ----- -----
Interest-bearing liabilities 5.30 4.90 5.08 5.09 5.38 4.85
----- ----- ----- ----- ----- -----
Interest rate spread 2.18% 2.37% 2.26% 2.43% 2.14% 2.42%
===== ===== ===== ===== ===== =====
Net annualized yield on
interest-earning assets 2.44% 2.58% 2.44% 2.58% 2.33% 2.56%
===== ===== ===== ===== ===== =====
- ---------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Net Interest Income (Continued):
- --------------------------------
The following table presents average interest-earning assets and average
interest-bearing liabilities, interest income or interest expense and average
yields and rates during the three and nine months ended March 31, 1995. The
table below includes nonaccruing loans averaging $27.9 million and $28.6
million, respectively, for the three and nine months ended March 31, 1995, as
interest-earning assets at a yield of zero percent.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, 1995 March 31, 1995
-------------------------------- -------------------------------
Annualized Annualized
Average Yield/ Average Yield/
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate
- ---------------------- ---------- --------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $3,802,687 $ 76,911 8.09% $3,763,164 $ 225,286 7.98%
Mortgage-backed securities 1,372,212 21,029 6.13 1,362,777 60,471 5.92
Other investments 392,616 6,055 6.25 392,091 18,014 6.12
---------- -------- ----- ---------- -------- -----
Interest-earning assets 5,567,515 103,995 7.48 5,518,032 303,771 7.34
---------- -------- ----- ---------- -------- -----
Interest-bearing liabilities:
Savings deposits 1,004,684 8,741 3.53 996,877 24,412 3.26
Other time deposits 2,436,181 32,431 5.40 2,437,435 94,975 5.19
Advances from FHLB 1,740,829 25,079 5.84 1,740,545 73,714 5.64
Securities sold under
agreements to repurchase 115,000 2,217 7.72 86,967 5,009 7.57
Other borrowings 56,895 1,578 11.09 58,046 4,871 11.19
---------- -------- ----- ---------- -------- -----
Interest-bearing
liabilities 5,353,589 70,046 5.30 5,319,870 202,981 5.08
---------- -------- ----- ---------- -------- -----
Net earnings balance $ 213,926 $ 198,162
========== ==========
Net interest income $ 33,949 $ 100,790
========= =========
Interest rate spread 2.18% 2.26%
========== ==========
Net annualized yield on
interest-earning assets 2.44% 2.44%
========== ==========
- -----------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Net Interest Income (Continued):
- --------------------------------
The following table presents the dollar amount of changes in interest income and
expense for each major component of interest-earning assets and interest-bearing
liabilities, respectively, and the amount of change in each attributable to: (1)
changes in volume (change in volume multiplied by prior year rate), and (2)
changes in rate (change in rate multiplied by prior year volume). The net change
attributable to change in both volume and rate, which cannot be segregated, has
been allocated proportionately to the change due to volume and the change due to
rate. This table demonstrates the effect of the increased volume of interest-
earning assets and interest-bearing liabilities, the declining interest rates
and the decline in interest rate spreads previously discussed.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, 1995 Compared March 31, 1995 Compared
to March 31, 1994 to March 31, 1994
--------------------------- ----------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
--------------------------- ----------------------------
(In Thousands) Volume Rate Net Volume Rate Net
- -------------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $ 3,328 $ 2,636 $ 5,964 $17,588 $ (3,933) $13,655
Mortgage-backed
securities 4,933 1,563 6,496 17,222 1,725 18,947
Other investments 369 (519) (150) 566 (1,445) (879)
------- ------- ------- ------- -------- -------
Interest income 8,630 3,680 12,310 35,376 (3,653) 31,723
------- ------- ------- ------- -------- -------
Interest expense:
Savings deposits 1,499 3,384 4,883 5,166 8,544 13,710
Other time deposits 1,492 1,734 3,226 12,279 (941) 11,338
Advances from FHLB 2,136 927 3,063 5,368 (3,526) 1,842
Securities sold under
agreements to repurchase (713) 556 (157) (3,659) 1,497 (2,162)
Other borrowings (174) 53 (121) (695) 264 (431)
------- ------- ------- ------- -------- -------
Interest expense 4,240 6,654 10,894 18,459 5,838 24,297
------- ------- ------- ------- -------- -------
Net effect on net
interest income $ 4,390 $(2,974) $ 1,416 $16,917 $ (9,491) $ 7,426
======= ======= ======= ======== ========= =======
- --------------------------------------------------------------------------------------
</TABLE>
The decrease due to changes in rates between the nine months ended March 31,
1995 and 1994, reflects the decrease in interest rate spreads. The improvement
due to changes in volume is primarily the result of the acquisitions of
Heartland, Franklin and Home Federal and the continued reduction of
nonperforming assets.
25
<PAGE>
Provision for Loan Losses:
- --------------------------
The Bank recorded loan loss provisions approximating $1.5 million for both three
month periods ended March 31, 1995 and 1994, and $4.5 million for both nine
month periods ended March 31, 1995 and 1994. The loan loss provisions remained
stable even though the Bank's total loan portfolio increased approximately
$187.9 million at March 31, 1995, compared to March 31, 1994, indicating the
improved credit quality of the loan portfolio and the stability in the level of
nonperforming loans over the respective periods of time. The allowance for loan
losses is based upon management's continuous evaluation of the collectibility of
outstanding loans, which takes into consideration such factors as changes in the
composition of the loan portfolio, current economic conditions that may affect
the borrower's ability to pay, regular examinations by the Bank's internal
credit review group of the overall portfolio quality, and regular review of
specific problem loans by the Bank's internal workout group.
Although the Bank believes that present levels of allowances for loan losses are
adequate to reflect the risks inherent in its portfolios, there can be no
assurance that the Bank will not experience increases in its nonperforming
assets, that it will not increase the level of its allowances in the future or
that significant provisions for losses will not be required based on factors
such as deterioration in market conditions, changes in borrowers' financial
conditions, delinquencies and defaults. In addition, regulatory agencies review
the adequacy of allowances for losses on loans on a regular basis as an integral
part of their examination process. Such agencies may require additions to the
allowances based on their judgments of information available to them at the time
of their examinations.
Loan Servicing Fees:
- --------------------
Fees from loans serviced for other institutions totaled $5.8 million and $16.6
million, respectively, for the three and nine months ended March 31, 1995,
compared to $5.0 million and $15.3 million, respectively, for the three and nine
months ended March 31, 1994. These increases comparing the respective periods
are attributable to increases in the size of the loan servicing portfolio and
increases in other ancillary loan fees. At March 31, 1995 and 1994, the mortgage
servicing portfolio approximated $4.3 billion and $3.8 billion, respectively.
The value of the Bank's loan servicing portfolio increases as mortgage interest
rates rise and loan prepayments decrease. It is expected that income generated
from the Bank's loan servicing portfolio will increase in such an environment.
However, this positive effect on the Bank's income is offset, in part, by a
decrease in servicing fee income attributable to new loan originations, which
historically decrease in periods of higher, or increasing, mortgage interest
rates.
Retail Fees and Charges:
- ------------------------
Retail fees and charges totaled $2.1 million and $6.5 million, respectively, for
the three and nine months ended March 31, 1995, compared to $2.0 million and
$6.0 million, respectively, for the three and nine months ended March 31, 1994.
The net increases of $154,000 and $551,000, respectively, in retail fees and
charges primarily result from the Bank's expanding retail customer deposit base
from the Heartland, Franklin and Home Federal acquisitions.
26
<PAGE>
Real Estate Operations:
- -----------------------
The Corporation recorded net losses on real estate operations of $7,000 and
$573,000, respectively, for the three and nine months ended March 31, 1995,
compared to losses of $347,000 and $1.7 million for the respective three and
nine months ended March 31, 1994. These charges to operations reflect provisions
for real estate losses, net real estate operations, and gains and losses on
dispositions of real estate. The improvements in real estate operations of
$340,000 and $1.2 million in the current fiscal year compared to the respective
three and nine months ended March 31, 1994, are primarily due to the realization
of gains on sales of certain commercial properties, lower operating expenses and
lower loss provisions. Management believes that such improvements in real estate
operations, mainly attributable to the disposition of certain properties at net
gains or without incurring further losses, in lower provisions for real estate
losses, and lower operating expenses for real estate operations, are indicative
of the improvements management has made in the reduction of the Bank's real
estate portfolio and to the improvement in the real estate markets in general.
Loss on Sales of Loans:
- -----------------------
During the three and nine months ended March 31, 1995, the Bank sold to third
parties through its mortgage banking operations loans totaling $83.2 million and
$332.4 million, respectively, which resulted in net pre-tax losses of $189,000
and $549,000, respectively. This activity compares to sales of $194.2 million
and $520.0 million, respectively, during the three and nine months ended March
31, 1994, which resulted in net pre-tax losses of $510,000 and $609,000,
respectively. The lower sales activity comparing the nine months ended March 31,
1995, to the same period ended March 31, 1994, primarily is a result of lower
loan originations in the current fiscal year period due to the higher interest
rate environment.
Other Operating Income:
- -----------------------
Other operating income totaled $2.0 million and $5.5 million, respectively, for
the three and nine months ended March 31, 1995, compared to $1.4 million and
$4.5 million, respectively, for the three and nine months ended March 31, 1994.
The increase of $551,000 comparing the current third quarter results to the
prior quarter is primarily due to increases in insurance commission income of
$212,000, certain loan fees of $56,000 and credit life and disability of
$64,000. The increase of $935,000 comparing the nine months ended March 31,
1995, to the nine months ended March 31, 1994, is primarily due to increases in
insurance commission income of $535,000, credit life and disability of $426,000
and certain loan fees of $187,000 partially offset by a decrease of $179,000 in
brokerage commission income.
27
<PAGE>
General and Administrative Expenses:
- ------------------------------------
General and administrative expenses totaled $21.9 million and $63.8 million,
respectively, for the three and nine months ended March 31, 1995, compared to
$19.3 million and $56.7 million, respectively, for the three and nine months
ended March 31, 1994. The increase of $2.6 million for the three months ended
March 31, 1995, compared to the three months ended March 31, 1994, was primarily
due to increases in compensation and benefits of $1.4 million, occupancy and
equipment of $469,000, other operating expenses of $461,000, regulatory
insurance and assessments of $190,000 and advertising of $83,000.
The increase of $7.1 million for the nine months ended March 31, 1995, compared
to the nine months ended March 31, 1994, was primarily due to increases in
compensation and benefits of $5.8 million, regulatory insurance and assessments
of $870,000, occupancy and equipment of $639,000 and advertising of $635,000
partially offset by a decrease of $850,000 in other operating expenses.
The increases of $2.6 million and $7.1 million for the three and nine months
ended March 31, 1995, respectively, compared to the respective prior year
periods are primarily attributable to the acquisitions of Heartland, Franklin
and Home Federal, as well as larger amounts of loan production costs being
expensed in the current periods as greater amounts of loan production costs
(primarily compensation and benefits) were deferred in prior periods when loan
production volume was significantly higher than in the current fiscal year
periods. Such increases in loan production costs charged to expense for the
three and nine months ended March 31, 1995, compared to the respective prior
year periods totaled approximately $800,000 and $4.0 million, respectively.
Increases in general and administrative expenses directly resulting from the
acquisitions totaled $569,000 and $2.7 million, respectively, comparing the
three and nine months ended March 31, 1995, to the respective prior year
periods. Such increases in general and administrative expenses results from
increased personnel, costs of operating 18 additional branches and higher
regulatory insurance costs as a result of deposits acquired. Other expenses were
also incurred on an indirect basis attributable to such acquisitions.
Amortization of Goodwill and Core Value of Deposits:
- ----------------------------------------------------
Amortization of goodwill and core value of deposits totaled $2.2 million and
$8.0 million, respectively, for the three and nine months ended March 31, 1995,
compared to $3.9 million and $10.1 million, respectively, for the three and nine
months ended March 31, 1994.
28
<PAGE>
Amortization of Goodwill and Core Value of Deposits (Continued):
- ---------------------------------------------------------------
The following summary sets forth the components of such amortization expense
comparing the nine months ended March 31, 1995, to the nine months ended March
31, 1994.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Amortization Expense for
the Nine Months Ended
March 31,
------------------------
Increase
(In Thousands) 1995 1994 (Decrease)
- ---------------- --------- --------- ---------
<S> <C> <C> <C>
Core Value of Deposits:
Acquired before July 1, 1993 $ 4,424 $ 4,036 $ 388
Acquired after July 1, 1993 3,545 1,313 2,232
Goodwill (before the June 30, 1994,
valuation adjustment) -- 4,739 (4,739)
--------- --------- ----------
Total Amortization Expense $ 7,969 $ 10,088 $ (2,119)
========= ========= ==========
- -----------------------------------------------------------------------------------
</TABLE>
As reflected in the above table, the net decrease of $2.1 million is primarily
due to the $4.7 million decrease in goodwill amortization since the amortization
of goodwill was accelerated and has been completely amortized to expense over
the first six months of fiscal year 1995 (see "Accelerated Amortization of
Goodwill"). Such decrease was partially offset by the net increase of $2.2
million in amortization of core value of deposits resulting from the Heartland,
Franklin and Home Federal acquisitions.
In addition, the amortization expense on core value of deposits from
acquisitions before July 1, 1993, was lower by $730,000 for the three months
ended March 31, 1995, resulting from an adjustment effective January 1, 1995,
totaling $6.8 million to core value of deposits from the Empire Savings,
Building and Loan Association (Empire) acquisition. Such adjustment was the
result of the recognition by the Corporation of pre-acquisition tax credits and
net operating losses (see "Provision for Income Taxes"). Accordingly,
amortization expense of this intangible asset approximated $946,000 for the
three months ended March 31, 1995, compared to $1.7 million for each of the
prior two quarters. The remaining balance of core value of deposits from the
Empire acquisition totaled $7.9 million at March 31, 1995, and will be amortized
on a straight line basis over the remaining 25 months (or $946,000 per quarter
for amortization expense).
Accelerated Amortization of Goodwill:
- -------------------------------------
Effective June 30, 1994, the Corporation changed its method of valuation of
intangible assets incorporating a fair value concept using a lower of cost or
market methodology. An appraisal performed by an independent third party of the
existing intangible assets relating to acquisitions during 1986 through 1988 of
five troubled savings institutions located in Colorado, Kansas and Oklahoma
resulted in a fair value estimate of $41.0 million. This appraisal of $41.0
million as of June 30, 1994, was classified by management as core value of
deposits totaling $19.6 million and goodwill totaling $21.4 million.
The $21.4 million of goodwill has been completely amortized to expense over the
six months ended December 31, 1994 ($10.7 million for each of the two quarters
ended December 31, 1994); and for reporting purposes separately disclosed in the
Consolidated Statement of Operations.
29
<PAGE>
Provision for Income Taxes:
- ---------------------------
For the three and nine months ended March 31, 1995, the provision for income
taxes totaled $4.5 million and $15.3 million, respectively, compared to $5.7
million and $18.3 million for the respective three and nine months ended March
31, 1994. The provision for income taxes is lower for the three months ended
March 31, 1995, due to the recognition of pre-acquisition tax credits and net
operating losses not previously considered available to the Corporation. The
recognition of such pre-acquisition tax credits and net operating losses had two
effects upon the Corporation's financial condition and results of operations.
First, the use of these carryforwards from the Empire acquisition resulted in a
reduction of Empire core value of deposits totaling $6.8 million as of January
1, 1995 (the only remaining intangible asset resulting from the Empire
acquisition -- see "Amortization of Goodwill and Core Value of Deposits").
Second, the use of certain other pre-acquisition tax credits and net operating
losses resulted in a reduction in the third quarter provision for income taxes
of $1.5 million.
The provision for income taxes is computed on an interim basis based on an
estimated effective tax rate expected to be applicable for the entire fiscal
year. In arriving at such an effective tax rate, no effect is included for the
income tax related to unusual items which are separately reported. For the nine
months ended March 31, 1995, the Corporation recorded and separately reported
accelerated amortization of goodwill totaling $21.4 million. The effect of the
accelerated amortization of this nondeductible goodwill has been excluded from
the determination of the annualized effective tax rate. As a result, the
effective tax rate for the nine months ended March 31, 1995, is higher compared
to the other periods presented (even exclusive of the $1.5 million reduction in
the provision for income taxes for the three months ended March 31, 1995, from
the recognition of pre-acquisition tax credits and net operating losses). See
"Amortization of Goodwill and Core Value of Deposits" for additional information
on the amortization of this goodwill.
Accordingly, the effective income tax rate for the three and nine months ended
March 31, 1995, was 25.0% and 49.9%, respectively, compared to 36.8% and 40.2%,
respectively, for the comparable periods ended March 31, 1994. The effective tax
rates for all periods vary from the federal statutory rate primarily due to the
nondeductibility of amortization of goodwill in relation to the level of taxable
income for the respective periods as well as the recognition of pre-acquisition
tax credits and net operating losses for the three and nine months ended March
31, 1995.
The effective tax rate for the nine months ended March 31, 1994, includes a
change in the federal tax law enacted in August 1993 that increased the federal
corporate marginal tax rate from 34.0% to 35.0%. The effect of this tax rate
change on the net deferred income tax liability resulted in the recording of
additional income tax expense of $1.2 million for the first quarter of fiscal
year 1994.
Cumulative Effects of Changes in Accounting Principles:
- -------------------------------------------------------
Included in the fiscal year 1994 first quarter results was the adoption of the
provisions of two accounting statements resulting in the Corporation recording
$5.8 million in net income, or $.45 per share, from the cumulative effects of
these changes in accounting principles.
The adoption of the provisions of SFAS No. 109, "Accounting for Income Taxes,"
resulted in recording $6.1 million in net income, or $.48 per share, while the
adoption of the provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," resulted in recording a charge to
income of $519,000 (net of a tax benefit of $183,000), or $.03 loss per share
after tax.
30
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 5. Other Items
-----------
On April 13, 1995, Standard and Poors announced that it had raised its
rating on the Corporation's $40.25 million of subordinated notes due 1999 to
"B+" from "B" and revised its outlook on such debt to "positive" from
"stable."
On May 10, 1995, the Board of Directors of the Corporation adopted an
amendment to the Corporation's Bylaws that amended Article 1, Section 13 of
such Bylaws to conform to Section 14 thereof. Section 13 "Nominations" and
Section 14 "Notice for Nominations and Proposals" provide an advance notice
requirement applicable to stockholder new business proposals and nominations
for directors of 60 days prior to the date of the meeting for which the
proposal or nomination is submitted, and impose certain procedural
requirements on the submission of such proposals and nominations. For
further information, reference is made to the amendment, attached hereto as
Exhibit 3.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a). Exhibits:
Exhibit 3. Bylaw Amendment of Commercial Federal Corporation.
Exhibit 11. Computation of Earnings Per Share
Exhibit 27. Financial Data Schedule
(b). Reports on Form 8-K
No Current Reports on Form 8-K were filed during the quarter ended March 31,
1995.
31
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCIAL FEDERAL CORPORATION
------------------------------
(Registrant)
Date: May 15, 1995 /s/ James A. Laphen
------------ ---------------------------------
James A. Laphen, President, Chief
Operating Officer and Chief
Financial Officer (Duly Authorized
and Principal Financial Officer)
Date: May 15, 1995 /s/ Gary L. Matter
------------ --------------------------------------
Gary L. Matter, Senior Vice President,
Controller and Secretary
(Principal Accounting Officer)
32
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Exhibit 3. Bylaw Amendment of Commercial Federal
Corporation. 34
Exhibit 11. Computation of Earnings Per Share 35
Exhibit 27. Financial Data Schedule 36
</TABLE>
33
<PAGE>
COMMERCIAL FEDERAL CORPORATION EXHIBIT 3
BOARD OF DIRECTORS MEETING
MAY 10, 1995
BYLAW AMENDMENT
WHEREAS, the Board believes that it is in the best interests of
the Company and its stockholders to provide the Board with a reasonable amount
of time in which to assess the merits of stockholders' proposals for nominations
for the election of directors, and to ensure that each such proposal is
accompanied by information concerning the proposal and the proponent sufficient
to allow the Board to properly analyze such proposal; and
WHEREAS, to this end, Section 14 of the Company's Bylaws sets forth the timing
and informational requirements relating to shareholder nominations; and
WHEREAS, the Board wishes to clarify what may be perceived as a technical
inconsistency between the timing requirements of Section 14 governing
shareholder nominations and the provisions of Section 13.
NOW, THEREFORE BE IT RESOLVED, that the Board, pursuant to Article XV of the
Company's Articles of Incorporation and Article VII of the Company's Bylaws,
hereby amends Article I, Section 13 of the Bylaws to read as follows:
Section 13. Nominations. The Board of Directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the Secretary at least fifteen (15) days prior to
the date of the annual meeting. Provided such committee makes such nominations,
no nominations for directors except those made by the nominating committees
shall be voted upon at the annual meeting except those made in accordance with
the provision of Section 14 of these Bylaws as amended.
FURTHER RESOLVED, that the Board hereby authorizes inclusion of the above
information in Item 5 to the March 31, 1995 Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission in order to publicize the adoption
of the foregoing amendment.
FURTHER RESOLVED, that the officers of the Company are hereby authorized and
directed to take such action as may be necessary or appropriate to carry into
effect the foregoing resolutions.
34
<PAGE>
Exhibit 11
COMMERCIAL FEDERAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
-----------
COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARES:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- -------------------------
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before cumulative effects of changes in
accounting principles $13,526,749 $ 9,696,638 $15,283,642 $27,165,867
Cumulative effects of changes in accounting principles:
Change in method of accounting for income taxes -- -- -- 6,139,271
Postretirement benefits, net of income tax benefit -- -- -- (336,176)
----------- ----------- ----------- ------------
Total cumulative effects of changes in
accounting principles -- -- -- 5,803,095
----------- ----------- ----------- ------------
Net income $13,526,749 $ 9,696,638 $15,283,642 $32,968,962
=========== =========== =========== ============
- --------------------------------------------------------------------------------------------------------------
PRIMARY:
- --------
Weighted average common shares outstanding 12,845,468 12,695,759 12,813,629 12,679,233
Add shares applicable to stock options
using average market price 175,862 215,206 199,181 234,829
----------- ----------- ----------- ------------
Total average common and common equivalent
shares outstanding 13,021,330 12,910,965 13,012,810 12,914,062
=========== =========== =========== ============
Income before cumulative effects of changes
in accounting principles $ 1.04 $ .75 $ 1.17 $ 2.10
Cumulative effects of changes in accounting principles:
Change in method of accounting for income taxes -- -- -- .48
Postretirement benefits, net of income tax benefit -- -- -- (.03)
----------- ----------- ----------- ------------
Total cumulative effects of changes
in accounting principles -- -- -- .45
----------- ----------- ----------- ------------
Net income per common and common equivalent share $ 1.04 $ .75 $ 1.17 $ 2.55
=========== =========== =========== ============
- --------------------------------------------------------------------------------------------------------------
FULLY DILUTED (1):
- ------------------
Weighted average common shares outstanding 12,845,468 12,695,759 12,813,629 12,679,233
Add shares applicable to stock options
using the period-end market price
if higher than average market price
and other dilutive factors 182,323 215,206 201,335 234,829
----------- ----------- ----------- ------------
Total average common and common equivalent
shares outstanding assuming full dilution 13,027,791 12,910,965 13,014,964 12,914,062
=========== =========== =========== ============
Income before cumulative effects of changes
in accounting principles $ 1.04 $ .75 $ 1.17 $ 2.10
Cumulative effects of changes in accounting principles:
Change in method of accounting for income taxes -- -- -- .48
Postretirement benefits, net of income tax benefit -- -- -- (.03)
----------- ----------- ----------- ------------
Total cumulative effects of changes
in accounting principles -- -- -- .45
----------- ----------- ----------- ------------
Net income per common share assuming full dilution $ 1.04 $ .75 $ 1.17 $ 2.55
=========== =========== =========== ============
(1) This calculation is submitted in accordance with Regulation S-K Item 601(b)(11) although not required by
footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
35
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
INTERIM FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED MARCH 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 26,785
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,555
<INVESTMENTS-CARRYING> 1,633,006
<INVESTMENTS-MARKET> 1,577,800
<LOANS> 3,840,649
<ALLOWANCE> 45,554
<TOTAL-ASSETS> 5,813,575
<DEPOSITS> 3,522,546
<SHORT-TERM> 738,752
<LIABILITIES-OTHER> 126,914
<LONG-TERM> 1,128,686
<COMMON> 129
0
0
<OTHER-SE> 296,548
<TOTAL-LIABILITIES-AND-EQUITY> 5,813,575
<INTEREST-LOAN> 225,286
<INTEREST-INVEST> 78,485
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 303,771
<INTEREST-DEPOSIT> 119,387
<INTEREST-EXPENSE> 202,981
<INTEREST-INCOME-NET> 100,790
<LOAN-LOSSES> 4,525
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 93,132
<INCOME-PRETAX> 30,536
<INCOME-PRE-EXTRAORDINARY> 15,284
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,284
<EPS-PRIMARY> 1.17
<EPS-DILUTED> 1.17
<YIELD-ACTUAL> 2.44
<LOANS-NON> 27,807
<LOANS-PAST> 0
<LOANS-TROUBLED> 21,405
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 42,926
<CHARGE-OFFS> 2,482
<RECOVERIES> 1,154
<ALLOWANCE-CLOSE> 45,554
<ALLOWANCE-DOMESTIC> 15,747
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 29,807
</TABLE>
