UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-9594
UnionFed Financial Corporation
(Exact name of registrant as specified in its charter)
Delaware 95-4074126
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 East Lambert Road
Brea, California 92621
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 255-8100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of May 13, 1994, 27,201,993 shares of the Registrant's $.01 par value common
stock were outstanding. <PAGE>
UnionFed Financial Corporation
Index
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Statements of Financial 3
Condition (unaudited) as of March 31,
1994 and June 30, 1993
Consolidated Statements of Operations 4
(unaudited) for the three months and nine
months ended March 31, 1994 and 1993
Consolidated Statements of Cash Flows 5
(unaudited) for the nine months ended
March 31, 1994 and 1993
Notes to Consolidated Financial 7
Statements (unaudited)
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of
Operations
Part II.Other Information (omitted items are inapplicable) 26
Item 6. Exhibits and Reports on Form 8-K 26
a) Exhibits 27
Signatures 25
<PAGE>
UnionFed Financial Corporation and Subsidiaries
Consolidated Statements of Financial Condition - Unaudited
(In thousands except share and per share amounts)
March 31, June 30,
1994 1993
Assets
Cash and cash equivalents $31,359 $35,798
Investment securities and mortgage-backed securities
held for sale at 06/93 (estimated market value of
128,019 at 06/93) sale at 06/93 (estimated market value
of $128,019 at 06/93) - 127,084
Investment securities,net 141,276 8,184
Mortgage-backed securities, net 57,808 18,176
Loans held for sale (estimated market value of $63,024
at 03/94 and $173,626 at 06/93) 63,024 173,305
Loans receivable, net of allowance for losses of $26,136
at 03/94 and $20,573 at 06/93 555,941 690,877
Interest receivable 6,260 6,889
Real estate, net 28,068 56,887
Investment in Federal Home Loan Bank stock, at cost 5,356 6,643
Premises and equipment, net 18,421 21,542
Other assets 11,436 16,560
$918,949 $1,161,945
Liabilities and Stockholders' Equity
Liabilities
Savings deposits $841,878 $845,882
Savings deposits at retail banking offices held for sale - 176,164
FHLB advances and other borrowings 23,514 104,823
Accounts payable and accrued liabilities 6,309 15,276
Deferred income taxes 2,752 2,758
Total liabilities 874,453 1,144,903
<PAGE>
Commitments and contingencies - -
Stockholders' equity
Preferred stock-par value $.01 per share; authorized,
1,000,000 shares, issued and outstanding, none - -
Common stock-par value $.01 per share; authorized
60,000,000 shares, issued and outstanding,
27,201,993 shares at 03/94 and 755,950 at 06/93 51 51
Additional paid-in capital 108,164 65,490
Accumulated deficit (63,719) (47,073)
Less:
Treasury stock--at cost, 11,100 shares at 06/93 - (1,426)
Total stockholders' equity 44,496 17,042
$918,949 $1,161,945
<PAGE>
UnionFed Financial Corporation and Subsidiaries
Consolidated Statements of Operations - Unaudited
(In thousands except per share amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
1994 1993 1994 1993
Interest on loans $12,855 $17,661 $42,577 $58,418
Interest on mortgage-backed securities 1,566 1,551 4,468 4,029
Interest and dividends on investments 1,118 2,165 3,546 8,937
Total interest income 15,539 21,377 50,591 71,384
Interest on savings deposits 7,498 11,387 24,992 39,559
Interest on borrowings 437 3,227 3,373 13,357
Total interest expense 7,935 14,614 28,365 52,916
Net interest income before provision
for estimated loan losses 7,604 6,763 22,226 18,468
Provision for estimated loan losses 1,986 7,938 11,850 15,898
Net interest income after provision
for estimated loan losses 5,618 (1,175) 10,376 2,570
Non-interest income:
(Loss)/gain on sale of loans and loan
servicing (23) 1,150 2,084 3,374
(Loss)/gain on sale and write-down
of mortgage-backed securities and
investment securities (2,307) 1,700 (1,138) 3,665
Loan servicing fees, net of amortization 78 149 774 1
Loan service charges 129 500 613 975
Gain on sale of branches - 598 1,496 1,315
Other, net 511 574 1,956 2,339
Total non-interest income (loss) (1,612) 4,671 5,785 11,669
<PAGE>
Non-interest expense:
Compensation and related expenses 3,067 3,434 9,082 9,998
Premises and occupancy 992 1,247 3,124 3,998
SAIF insurance premium 654 705 2,263 2,130
Other general and administrative 2,089 2,512 6,972 7,093
Total general and administrative
expense 6,802 7,898 21,441 23,219
Real estate operations, net 2,357 4,310 10,862 16,982
Core deposit intangible amortization 165 203 501 670
Total non-interest expense 9,324 12,411 32,804 40,871
Loss before income taxes (5,318) (8,915) (16,643) (26,632)
Income tax expense (benefit) 2 3 3 (5,996)
NET LOSS ($5,320) ($8,918)($16,646)($20,636)
Net loss per common share ($0.20) ($11.97) ($0.90) ($27.70)
<PAGE>
UnionFed Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows - Unaudited
(Dollars in Thousands)
Nine Months Ended
March 31, March 31,
1994 1993
Cash Flows From Operating Activities:
Net loss ($16,646) ($20,636)
Adjustments to reconcile net loss to cash provided by
operating activities:
Accretion of fees and discounts (783) (1,974)
Depreciation and amortization 1,744 3,243
Provisions for loan and real estate losses 20,266 29,052
(Gain)/loss on sale and write-down of investment
securities and mortgage-backed securities, net 1,138 (3,665)
Gain on sales of loans (1,180) (1,529)
Gain on sales of loan servicing (904) (1,845)
Loss on sale of real estate 1,194 -
Gain on sales of branches (1,496) (1,315)
Federal Home Loan Bank stock dividends (203) (191)
Proceeds from sales of investment securities, held for
sale 12,275 165,053
Purchases of investment securities, held for sale - (106,335)
Mortgage-backed securities purchased, held for sale (75,314) (59,643)
Loans originated and purchased, held for sale (189,189) (243,226)
Proceeds from sales of mortgage-backed securities,
held for sale 138,569 94,253
Proceeds from sales of loans, held for sale 117,645 119,900
Proceeds from sale of loan servicing 4,400 1,917
Decrease in interest and dividends receivable 629 2,859
Decrease in income tax refund receivable - 15,726
(Increase) decrease in prepaid expenses and other assets 1,308 (1,108)
Decrease in interest payable (332) (1,701)
Decrease in accounts payable and accrued liabilities (8,043) (8,303)
Increase (decrease) in deferred income taxes (6) 2,307
Net cash used in operating activities 5,072 (17,161)
<PAGE>
Cash Flows From Investing Activities:
Proceeds from maturities of investment securities 16,851 205,877
Proceeds from sale of investment securities, held for
investment 12,009 -
Purchases of investment securities, held for investment (119,878) -
Principal reductions on mortgage-backed securities 18,235 140,391
Principal reductions on loans 91,919 9,742
Loans originated, held for investment (11,097) (30,628)
Net change in undisbursed loan funds (2,280) (4,272)
Acquisitions of real estate (5,733) (3,194)
Proceeds from disposition of real estate 39,723 38,088
Redemption of Federal Home Loan Bank stock 1,491 17,816
Sale of branches, net (122) (84,339)
Other, net 530 5,166
Net cash provided by investing activities 41,648 294,647
<PAGE>
UnionFed Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows - Unaudited (continued)
(Dollars in Thousands)
Nine Months Ended
March 31, March 31,
1994 1993
Cash Flows From Financing Activities:
Net decrease in deposits ($13,950) ($100,582)
Proceeds from short-term borrowings 14,525 -
Repayment of short-term borrowings (14,858) -
Repayment of medium-term note - (7,000)
Repayment of long-term borrowings (976) (4,929)
Additional FHLB advances 545,000 50,000
Repayments of FHLB advances (625,000) (150,000)
Proceeds from issuance of common stock 44,100 -
Net cash used in financing activities (51,159) (212,511)
Net increase in cash and cash equivalents (4,439) 64,975
Cash and cash equivalents at beginning of period 35,798 44,881
Cash and cash equivalents at end of period $31,359 $109,856
Sale of Branches, net:
Loans and mortgage-backed securities $163,719 $55,253
Premises and equipment 1,471 1,353
Excess of cost over net assets acquired 38 986
Other assets (36) 117
Deposits (166,218) (142,948)
Other liabilities (592) (415)
Gain on sale 1,496 1,315
Net cash used by sale of branches, net ($122) ($84,339)
Supplemental disclosures of cash flow information:
Cash paid for:
Interest (net of amount capitalized) $28,998 $54,971
Delaware franchise tax 40 45
Non-cash Investing and Financing activities:
Additions to real estate acquired in settlement
of loans 15,088 31,248
Loans exchanged for mortgage-backed securities 126,464 123,203
Loans to facilitate the sale of real estate 8,196 2,436<PAGE>
UnionFed Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
1- In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting of only
normal recurring accruals) that are necessary to present fairly
the financial position as of March 31, 1994, the results of
operations for the three and nine month periods ended March 31,
1994 and 1993, and the cash flows for the nine month periods
ended March 31, 1994 and 1993. The results of operations for
the three and nine month periods ended March 31, 1994, are not
necessarily indicative of operations to be expected for the
entire year.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form
10-Q and, therefore,do not include all information and footnotes
necessary for a fair presentation of financial position, results
of operations and statements of cash flows in conformity with
generally accepted accounting principles. Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations", is written with the presumption that the users of
the interim financial statements have read or have access to the
most recent 10-K report that contains the latest audited
financial statements and notes thereto, together with the
Management's Discussion and Analysis of Financial Condition and
Results of Operations as of June 30, 1993, and for the year then
ended.
2- Securities to be held for indefinite periods of time and not
necessarily intended to be held to maturity or on a long-term
basis are classified as held for sale and carried at the lower
of amortized cost or market value. Securities held for
indefinite periods of time include securities that management
intends to use as part of its asset/liability management
strategy and that may be sold in response to changes in interest
rates and resultant prepayment risk, capital maintenance
requirements and other factors. Certain loans and mortgage-
backed securities purchased or originated with the purpose of
holding for possible sale are also classified as held for sale,
and carried at the lower of amortized cost or market value.<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
RESULTS OF OPERATIONS
UnionFed Financial Corporation (the "Company"), whose principal subsidiary is
Union Federal Bank, a federal savings bank (the "Bank"), reported a net loss of
$5.3 million and $16.6 million for the three and nine month periods ended March
31, 1994, or $0.20 and $0.90 per share, compared to a net loss of $8.9 million
and $20.6 million, or $11.97 and $27.70 per share, for the same periods in
fiscal 1993.
In May 1993, as a result of its failure to meet minimum capital levels at March
31, 1993, the Bank was required by the Office of Thrift Supervision ("OTS") to
file a Capital Restoration Plan under the Prompt Corrective Action Provisions of
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA").
In July 1993, the OTS approved the Capital Restoration Plan, imposed a Prompt
Corrective Action Directive (the "Directive") and lifted the Cease and Desist
Order imposed on the Bank since April, 1991.
On September 28, 1993, the Company successfully completed a recapitalization
through the sale of common stock to investors, management and stockholders (the
"Offerings") and received net proceeds of $44.1 million. As a result of the
recapitalization, the Company has approximately 27.2 million shares outstanding
and has issued warrants entitling certain investors to purchase an additional
6.9 million shares at $2.33 per share up to five years after the closing.
Contribution to the Bank of the capital raised by the Company enabled the Bank
to achieve capital levels in excess of the 4% leverage (core), 4% tier one risk-
based and 8% total risk-based capital ratios required by the OTS. The OTS
subsequently terminated the Bank's Prompt Corrective Action Directive in light
of the improvement in the Bank's capital ratios to levels in excess of
requirements for an "adequately capitalized" savings bank.
At March 31, 1994, the Bank's regulatory capital ratios reflect operating losses
since the recapitalization date aggregating $12.6 million. As further described
under "Regulatory Capital Compliance", at March 31, 1994 the Bank's leverage
(core) capital ratio was 4.80%, the tier one risk-based capital ratio was 6.77%,
and the total risk-based capital ratio was 8.03% compared to requirements of 4%,
4% and 8% respectively. Any failure to meet OTS capital requirements in the
future would require the Bank to submit a capital plan to the OTS and would
subject the Bank to certain operating restrictions.
As further described under "Allowance for Loan and Real Estate Losses", the Bank
maintains valuation allowances for estimated losses on loans and real estate.
Provisions for loan and real estate for the quarter ended March 31, 1994 include
the results of the Bank's review of current loss exposure and also reflect the
recommendations for asset valuation resulting from the recently completed annual
regulatory examination performed by the OTS. However, as requested by the OTS,
the Bank is obtaining current appraisals for certain commercial real estate
loans and properties having an aggregate carrying value of $44 million at March
31, 1994. These appraisals will be reviewed by the Bank for potential loss
exposure when they are received.
At March 31, 1994, the Company has unused net operating losses for federal
income tax and California franchise tax purposes of approximately $49 million
and $33 million, respectively. Stockholders and prospective investors should be
aware that if any person (including any existing stockholder) acquires stock
that would cause such person to own 5% or more of the Company's common stock,
the Company's ability to use its net operating losses likely will be
significantly limited. Such limitation could result in increased tax
liabilities for the Company with a corresponding decrease in the Company's net
income and stockholders' equity. Stockholders and prospective investors
requiring further information on the Company's ability to use its net operating
losses should contact the Company.
Financial High(Dollars in thousands except per share)
For the three months ended March 31, 1994 1993
Net interest income $7,604 $6,763
Provision for losses on loans 1,986 7,938
Non-interest income (1,612) 4,671
Non-interest expense 9,324 12,411
Loss before income taxes (5,318) (8,915)
Income tax expense (benefit) 2 3
Net Loss (5,320) (8,918)
Loss per share (0.20) (11.97)
Loans originated and purchased 46,600 79,186
Mortgage-backed securites purchased 22,288 104,303
Loans sold 35,734 65,751
Mortgage-backed securities sold 99,285 93,009
Interest rate spread during period 3.84% 2.61%
For the nine months ended March 31, 1994 1993
Net interest income $22,226 $18,468
Provision for losses on loans 11,850 15,898
Non-interest income 5,785 11,669
Non-interest expense 32,804 40,871
Loss before income taxes (16,643) (26,632)
Income tax expense (benefit) 3 (5,996)
Net Loss (16,646) (20,636)
Loss per share (0.90) (27.70)
Loans originated and purchased 200,286 209,927
Mortgage-backed securites purchased 75,314 123,570
Loans sold 203,243 75,407
Mortgage-backed securities sold 216,446 190,916
Interest rate spread during period 3.54% 2.32%
Other information 03/31/94 06/30/93
Total Assets $918,949 $1,161,945
Loan and morgage-backed security portfoli 676,773 954,890
Deposits 841,878 1,022,046
Loans serviced for others 153,167 545,787
Stockholders' equity 44,496 17,042
Nonperforming assets, net 54,821 73,941
Nonperforming assets, net
to total assets 5.97% 6.36%
Nonperforming assets and
restructured loans, net 167,952 236,473
Nonperforming assets and restructured
loans, net to total assets 18.28% 20.35%
Classified assets to total assets 25.45% 22.21%
End of period interest spread 3.26% 3.55%
<PAGE>
Financial Condition
The Company's consolidated assets totaled $919 million at March 31, 1994, a
reduction of $242.9 million or 20.9% compared to June 30, 1993. This decrease
is primarily due to the sale of four branches during the quarter ended September
30, 1993 and the Company's efforts to reduce total assets to facilitate
compliance with OTS capital requirements. See "Regulatory Capital Compliance."
Stockholders' equity totaled $44.5 million at March 31, 1994, compared to $17.0
million at June 30, 1993. The increase is attributable to the net proceeds of
$44.1 million raised from the Company's successful recapitalization partially
offset by the net loss of $16.6 million for the nine months ended March 31,
1994.
Capital Resources and Liquidity
The Bank's sources of funds include deposits, advances from the FHLB and reverse
repurchase agreements, proceeds from sales of investment securities, mortgage-
backed securities ("MBS") and loans held for sale, repayments of MBS and loans,
and sales of real estate. Prepayments on MBS and loans and deposit inflows and
outflows are affected significantly by interest rates, real estate sales
activity and general economic conditions.
With the approval of the OTS, the Bank further reduced its current branch
system. Four branches were sold in the quarter ended September 30, 1993,
representing $166 million in deposits. The sale was funded by sales of a like
amount of loans and MBS, previously classified as held for sale.
Sales of MBS and loans held for sale and loan repayments represented the
principal sources of funds during the three and nine month periods ended March
31, 1994. Sales of MBS held for sale totalled $99.3 million and $216.4 million,
respectively, compared to $93.0 million and $190.9 million in the comparable
1993 periods. Sales of loans held for sale amounted to $35.7 million and $203.2
million in the three month and nine month periods ended March 31, 1994, compared
to $65.8 million and $75.4 million in the comparable 1993 periods. Loan
repayments totaled approximately $26.0 million and $100.8 million during the
three and nine month periods ended March 31, 1994, compared to $44.0 million and
$146.4 million during the comparable 1993 periods.
During the quarter ended March 31, 1994, $5 million of short term FHLB advances
matured and were paid off with excess funds received from loan sales and loan
repayments. At March 31, 1994, the Bank did not have any borrowings from
reverse repurchase agreements.
At March 31, 1994, cash, investments and cash equivalents totaled $172.6
million. The principal measure of liquidity for a savings institution is the
regulatory ratio of cash and eligible investments to the sum of withdrawable
savings and borrowings due within one year. The minimum set by federal
regulators is 5%. At March 31, 1994, the Company's ratio was 6.7% compared to
6.5% at June 30, 1993.
Historically, the primary source of cash for the Company has been dividends from
the Bank. The Bank does not expect to distribute dividends in the foreseeable
future.
Regulatory Capital Compliance
FDICIA established new capital standards for savings institutions, including
three capital requirements: a "leverage (core) limit," a "tier 1 risk-based
limit" and a "total risk-based capital" requirement. Under the OTS regulations
implementing FDICIA, an institution is treated as "well capitalized" if its
ratio of core capital to total assets is at least 5.0%, its ratio of core
capital to risk weighted assets is at least 6.0%, its ratio of total capital to
risk weighted assets is at least 10.0%, and it is not subject to any order or
directive of the OTS to meet a specific capital level. An institution will be
"adequately capitalized" if its ratio of core capital to total assets is at
least 4.0%, its ratio of core capital to-risk-weighted assets is at least 4.0%,
and its ratio of total capital to risk weighted assets is at least 8.0%. An
institution whose capital does not meet the amounts required to be "adequately
capitalized" will be treated as "undercapitalized." In late September, 1993 the
Company completed an equity offering and contributed net proceeds of $44.1
million to the Bank. Since the recapitalization of the Bank in September, 1993,
the Bank has been classified as "adequately capitalized" for purposes of the
prompt corrective action system.
Following is a reconciliation of the Bank's stockholder's equity to federal
regulatory capital, and a comparison of such regulatory capital to the
requirements of the OTS for an "adequately capitalized" institution, as of March
31, 1994 (in thousands):
Leverage Tier 1 Total
(Core) % Risk Base % Risk Base %
GAAP Equity $44,195 $44,195 $44,195
Non-allowable assets:
Investment in Uni-Cal Financial (92) (92) (92)
Additional capital items:
Assets required to be deducted (66)
General loan loss reserves - - 8,232
Bank Regulatory Capital 44,103 4.80% 44,103 6.77% 52,269 8.03%
Minimum capital requirement 36,754 4.00% 26,047 4.00% 52,094 8.00%
Capital excess (deficiency) $7,349 0.80% $18,056 2.77% $175 0.03%
A primary objective of the Bank is to remain in compliance with OTS capital
requirements. Key components of the Bank's strategic plan are to (i) continue
to reduce non-performing assets and real estate investments and (ii) increase
profitability of the core bank by reducing general and administrative expenses
and increasing mortgage banking revenues and fee income. Any failure to meet
OTS capital requirements in the future would require the Bank to submit a
capital plan to the OTS and would subject the Bank to certain operating
restrictions.
Mandatory Sanctions Tied to Prompt Corrective Action Capital Categories:
Capital Restoration Plan. An institution that is undercapitalized must submit a
capital restoration plan to the OTS within 45 days after becoming
undercapitalized. The capital restoration plan must specify the steps the
institution will take to become adequately capitalized, the levels of capital
the institution will attain while the plan is in effect, the types and levels of
activities the institution will conduct, and such other information as the OTS
may require. The OTS must act on the capital restoration plan expeditiously,
and generally not later than 60 days after the plan is submitted. The OTS may
approve a capital restoration plan only if the OTS determines that the plan is
likely to succeed in restoring the institution's capital and will not
appreciably increase the risks to which the institution is exposed.
Limits on Expansion. An institution that is undercapitalized, even if its
capital restoration plan has been approved, may not acquire an interest in any
company, open a new branch office, or engage in a new line of business unless
the OTS determines that such action would further the implementation of the
institution's capital plan or the FDIC approves the action. An undercapitalized
institution also may not increase its average total assets during any quarter
except in accordance with an approved capital restoration plan.
Capital Distributions. An undercapitalized savings institution may not pay
dividends or other capital distributions, with the exception of repurchases or
redemptions of the institution's shares that are made in connection with the
issuance of additional shares to improve the institution's financial condition
and that are approved by the FDIC. Undercapitalized institutions also may not
pay management fees to any company or person that controls the institution.
Brokered Deposits and Benefit Plan Deposits. An undercapitalized savings
institution cannot accept, renew, or rollover deposits obtained through a
deposit broker, and may not solicit deposits by offering interest rates that are
more than 75 basis points higher than market rates. Savings institutions that
are adequately capitalized but not well capitalized must obtain a waiver from
the FDIC in order to accept, renew, or rollover brokered deposits, and even if a
waiver is granted may not solicit deposits, through a broker or otherwise, by
offering interest rates that exceed market rates by more than 75 basis points.
Institutions that are ineligible to accept brokered deposits can only offer FDIC
insurance coverage for employee benefit plan deposits up to $100,000 per plan,
rather than $100,000 per plan participant, unless, at the time such deposits are
accepted, the institution meets all applicable capital standards and certifies
to the benefit plan depositor that its deposits are eligible for coverage on a
per-participant basis.
Discretionary Sanctions Tied to Prompt Corrective Action Capital Categories.
Operating Restrictions. With respect to an undercapitalized institution, the
OTS will, if it deems such actions necessary to resolve the institution's
problems at the least possible loss to the insurance fund, have the explicit
authority to:
(a) order the institution to recapitalize by selling shares of capital
stock or other securities,
(b) order the institution to agree to be acquired by another depository
institution holding company or combine with another depository
institution,
(c) restrict transactions with affiliates,
(d) restrict the interest rates paid by the institution on new deposits
the prevailing rates of interest in the region where the institution is
located,
(e) require reduction of the institution's assets,
(f) restrict any activities that the OTS determines pose excessive risk
to the institution,
(g) order a new election of directors,
(h) order the institution to dismiss any director or senior executive
officer who held office for more than 180 days before the institution
became undercapitalized, subject to the director's or officer's right to
obtain administrative review of the dismissal,
(i) order the institution to employ qualified senior executive officers
subject to the OTS's approval,
(j) prohibit the acceptance of deposits from correspondent depository
institutions,
(k) require the institution to divest any subsidiary or the institution's
holding company to divest the institution or any other subsidiary, or
(l) take any other action that the OTS determines will better resolve the
institution's problems at the least possible loss to the deposit
insurance fund.
If an institution is significantly undercapitalized, or if it is
undercapitalized and its capital restoration plan is not approved or implemented
within the required time periods, the OTS shall take one or more of the above
actions, and must take the actions described in clauses (a) or (b), (c) and (d)
above unless it finds that such actions would not resolve the institution's
problems at the least possible loss to the deposit insurance fund. The OTS may
also prohibit the institution from making payments on any outstanding
subordinated debt or entering into material transactions outside the ordinary
course of business without the OTS's prior approval.
The OTS's determination to order one or more of the above discretionary actions
will be evidenced by a written directive to the institution, and the OTS will
generally issue a directive only after giving the institution prior notice and
an opportunity to respond. The period for response shall be at least 14 days
unless the OTS determines that a shorter period is appropriate based on the
circumstances. The OTS, however, may issue a directive without providing any
prior notice if the OTS determines that such action is necessary to resolve the
institution's problems at the least possible loss to the deposit insurance fund.
In such a case, the directive will be effective immediately, but the institution
may appeal the directive to the OTS within 14 days.
Receivership or Conservatorship. In addition to the mandatory appointment of a
conservator or receiver for critically undercapitalized institutions, the OTS or
FDIC may appoint a receiver or conservator for an institution if the institution
is undercapitalized and (i) has no reasonable prospect of becoming adequately
capitalized, (ii) fails to submit a capital restoration plan within the required
time period, or (iii) materially fails to implement its capital restoration
plan.
Asset Liability Management
Savings institutions are subject to interest rate risk to the degree that
interest bearing liabilities reprice or mature more rapidly or on a different
basis than interest earning assets. A principal objective of the Company is to
manage the effects of adverse changes in interest rates on the Company's net
interest income, while maintaining asset quality. To reduce its total risk-
weighted assets and comply with the OTS capital requirements at March 31, 1994,
the Bank purchased $115 million of short term Treasury notes with the proceeds
received from the sales of investment securities and MBS held for sale, which
caused an increase in total assets repricing in less than one year. However,
liabilities repricing within one year have been declining in the past nine
months primarily due to the pay-off of FHLB advances and decrease in deposits.
As a result, the Bank reported a one year static gap of positive 15% at March
31, 1994, compared to positive 1% at June 30, 1993.
During the second fiscal quarter ended December 31, 1993 the Bank purchased
approximately $50 million of GNMA and FNMA mortgage-backed securities designated
as held for sale. These securities were purchased to enhance net interest
income, and the net spread approximated 2.5%. In the following quarter ended
March 31, 1994, approximately $40 million of these securities were sold when
interest rates rose as a result of the Federal Reserve Bank's actions to tighten
credit. At approximately the same time, the Bank also sold $42 million of fixed
rate investment securities which had previously been acquired and held for sale.
The combined realized loss on sales of mortgage-backed securities and investment
securities during the quarter ended March 31,1994 totalled $2.1 million. At
March 31, 1994 mortgage-backed securities and investment securities held for
sale having a market value of $42.5 million were redesignated as held for
investment, concurrent with the recognition of the write-down of $426 thousand
to adjust the carrying value of these securities to the lower of cost or market
value.
The Bank continually monitors the composition and amount of its loan origination
activity to determine the amount of loans originated for sale. In recent years,
the Bank's originations of fixed-rate and adjustable rate ("ARMS") one-to-four
unit residential mortgage loans have been held for sale. The Company's
strategic plan calls for the reinvestment of proceeds from MBS and one-to-four
unit residential mortgage loan repayments and liquidation of real estate
investments into ARMS and adjustable rate MBS. In the event one-to-four unit
residential loan originations are insufficient, and it is economical to do so,
the Bank may purchase ARM loans.
During the three and nine month periods ended March 31, 1993, the Company
originated loans totalling $40.2 million and $193.9 million, a decrease of
20.7%, and an increase of 10.4%, over the comparable periods in the prior year.
Substantially all of the Company's fixed rate loan originations and purchases
are expected to be sold into the secondary markets on a servicing released
basis. The Bank sold approximately $37 million and $502 million of servicing
rights, resulting in net gains (after reflecting adjustments for prepayments) of
$229 thousand and $905 thousand, respectively, in the three and nine month
periods ended March 31, 1994.
At March 31, 1994, loans and MBS with adjustable rates represented 69.2% of the
Bank's loan and mortgage-backed securities portfolio. Adjustable rate loans
comprised 44.6% and 26.2% of loan originations and purchases for the three and
nine month periods ended March 31, 1994, an increase from 19.7% and 21.4% for
the similar periods one year ago.
Net Interest Income
Net interest income, before provisions for loan losses, increased to $7.6
million and $22.2 million for the three and nine month periods ended March 31,
1994, from $6.8 million and $18.5 million for the same periods ended March 31,
1993. The increase is primarily attributable to the improved interest rate
spreads and a substantial reduction in non-performing assets.
The during period spread rose in the three and nine month periods ended March
31, 1994, to 3.84% and 3.54% compared to 2.61% and 2.32% in the same periods
ended December 31, 1993. The increase is largely due to significant decreases
in the Bank's cost of funds in excess of decline in yields on loans and
investments. The difference between average interest-earning assets and
interest-bearing liabilities ("net average earning balance") improved by
approximately $47 million for the three and nine month periods ended March 31,
1994 as compared to the same periods a year ago, principally due to dispositions
of non-earning assets.
Notwithstanding a declining interest rate environment, the weighted average
yield on interest-earning assets remained at approximately 7.5% in the past
year. This is primarily due to a change in mix of the Bank's earning assets to
a lesser percentage of investment securities during the three month and nine
month periods ended March 31, 1994. The weighted average cost of interest
bearing liabilities declined to 3.63% and 3.96%, respectively, in the three and
nine month periods ended March 31, 1994 compared to 4.57% and 5.06% in the same
periods ended March 31, 1993. The Bank was able to lower its rates paid on
certificates of deposit due to significant decreases in market interest rates.
The payoff of high rate long term FHLB advances, commercial deposits and
brokered deposits that matured in the quarter ended September 30, 1993, and a
lower rate on FHLB advances extended during the past year also contributed to
the decline.
The end of period spread decreased to 3.26% at March 31, 1994 from 3.55% at June
30, 1993. The decrease reflected changes in mix of investment securities and
MBS. The impact of the decreased yield on the securities exceeded the reduction
in borrowing costs between periods.
Nonperforming Assets
Nonperforming assets consist of nonaccrual loans and real estate acquired in
settlement of loans and in substance foreclosures (collectively, "REO").
The following table sets forth the amounts of nonperforming assets held by the
Bank at the dates indicated (in thousands):
At At At
March 31, June 30, March 31,
1994 1993 1993
Nonaccrual loans (1) $27,995 $18,979 $17,966
Real estate owned (2) 16,921 43,621 54,560
In-substance foreclosures,
net of undisbursed funds (2) 9,905 11,341 16,184
Total nonperforming assets $54,821 $73,941 $88,710
Total assets $918,949 $1,161,945 $1,258,577
Nonperforming assets, net as
a percentage of total assets 5.97% 6.36% 7.05%
(1) Net of specific reserves.
(2) Net of specific reserves and pro-rata allocated REO general rese
Nonaccrual Loans
Nonaccrual loans generally represent loans for which interest accruals have been
suspended. The Bank's nonaccrual policy provides that interest accruals
generally cease once a loan is past due as to interest or principal for a period
of 90 days or more. Loans may also be placed on nonaccrual status even though
they are less then 90 days past due if management concludes that there is little
likelihood that the borrower will be able to comply with the repayment terms of
the loan. At March 31, 1994, nonaccrual loans of $28.0 million had increased by
$9.0 million from $19.0 million at June 30, 1993.
The increase reflected the recognition of a major retail center real estate loan
as non-performing in March, 1994.
Nonaccrual loans at March 31, 1994 were composed of primarily commercial loans
(68%) and single-family loans (29%). At June 30, 1993, nonaccrual loans
consisted largely of single-family loans (68%), multi-family loans (25%) and
commercial loans (7%). The change in mix is primarily attributable to the
increase of commercial nonaccrual loans from $2.7 million at June 30, 1993 to
$21.5 million at March 31, 1994.
The following table summarizes the distribution of the Bank's
nonaccrual loans by collateral type (in thousands) (1):
March 31, June 30, March 31,
1994 1993 1993
1-4 Unit residential and
mortgage-backed sec $8,034 $12,875 $11,979
Multifamily 679 4,332 4,942
Commercial:
Land 1,328 - -
Hotel/Motel 1,154 1,154 650
Retail 16,248 - -
Other 328 328 119
Total commercial 19,058 1,482 769
Total real estate loans 27,771 18,689 17,690
Consumer loans (2) 224 289 276
Total nonaccrual loans $27,995 $18,978 $17,966
(1) Balances are net of contra deductions, loans in process and
specific valuation allowances.
(2) Consumer loans include mobile home loans.
REO
REO consists of real estate acquired in settlement of loans and loans accounted
for as in-substance foreclosures. When there is indication that a borrower will
not make all the required payments on a loan; the borrower no longer has equity
in the property collateralizing a loan; it appears doubtful that equity will be
rebuilt in the foreseeable future; or the borrower has (effectively or actually)
abandoned control of the collateral, the property is considered repossessed in-
substance (in-substance foreclosure). Real estate acquired in settlement of
loans is initially recorded at fair value of the collateral, less estimated
selling cost. Subsequently, valuation allowances for estimated losses are
charged to real estate operations expense if the carrying value of real estate
exceeds estimated fair value. The Bank does not accrue interest income on loans
classified as-in-substance foreclosures and reported as REO. However, if a
borrower continues to pay interest on an in-substance foreclosed loan, it is
recognized when received as income from real estate operations.
Real estate acquired in settlement of loans decreased to $16.9 million at March
31, 1994, from $43.6 million at June 30, 1993. In-substance foreclosures
decreased to $9.9 million at March 31, 1993 from $11.3 million at June 30, 1993.
The decrease is attributable primarily to the sales of real estate properties
totalling $40.9 million and charge-offs or write-downs of $8.4 million,
partially offset by additional foreclosures of approximately $19.8 million
during the nine months ended March 31, 1994.
The following table summarizes the distribution of the Bank's REO by collateral
type (1):
March 31, June 30, March
1994 1993 1993
1-4 Residential $2,762 $3,433 $4,872
Multifamily 5,487 5,451 7,677
Commercial: - -
Retail - 2,445 4,369
Land 11,759 22,654 31,945
Hotel/Motel - - -
Manufacturing/Warehouse - 1,377 1,369
Office 6,115 9,384 8,980
Other - 1,239 -
Total Commercial 17,874 37,099 46,663
Construction:
Residential - 8,979 5,234
Commercial 684 - 6,225
Total construction 684 8,979 11,459
Total real estate 26,807 54,962 70,671
Consumer (2) 19 - 73
Total REO $26,826 $54,962 $70,744
(1) Balances are net of contra deductions, loans in process, and real estate
general and specific valuation allowances.
(2) Consumer REO's include mobile home REO's.
Restructured Loans
The Bank has restructured certain loans in instances where a determination was
made that greater economic value will be realized under new terms than through
foreclosure, liquidation or other disposition. Candidates for restructure are
reviewed based on the quality of the borrower and the borrower's ability to
enhance the value of the property, the collateral and the economic value of the
restructured loan relative to foreclosure and other options. Restructure allows
the borrower more time to regain equity in the property. Generally the Bank
obtains an appraisal at the time of restructure and updates the valuation
quarterly through internally prepared discounted cash flow analyses. The terms
of the restructure generally involve some or all of the following
characteristics: a reduction in the interest rate to reflect a positive debt
coverage ratio, modifying the payments for a period of time to interest only, an
extension of the loan maturity date to allow time for stabilization of the
property income, and partial forgiveness of principal and interest. In certain
circumstances, the Bank also obtains the right to share in future benefits
arising from the upside potential of the collateral. In addition to the
modifications to terms, the Bank generally requires the borrower to invest new
cash equity in the property through principal reduction or correction of
deferred maintenance as part of the restructure agreement. Once a restructure
takes place, the loan is subject to the accounting and disclosure rules
prescribed in the SFAS No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructurings".
Restructured loans which are performing in accordance with their new terms and,
therefore, are not included in nonaccrual loans, amounted to $113.1 million at
March 31, 1994. This is a decrease from $162.5 million at June 30, 1993. The
reduction is due to approximately $29 million of restructured loans no longer
designated as restructured loans due to the resumption of principal payments and
the loan reaching an effective market rate of interest, recognition of $16
million as non-performing loan and $3 million
as in-substance foreclosures.
The following table summarizes the distribution of the Bank's restructured
loans by collateral type (1):
March 31, June 30, March 31,
1994 1993 1993
(In thousands)
Multifamily $85,929 $90,627 $92,494
Commercial:
Retail 4,724 44,630 34,807
Land - 3,325 3,325
Hotel/motel 8,083 8,930 11,575
Storage facilities - 6,733 6,733
Office 5,552 6,587 7,657
Other 8,844 1,700 8,954
Total commercial 27,203 71,905 73,051
Construction - residential - - 5,460
Total restructured loans $113,132 $162,532 $171,005
(1) Balances are net of contra, loans in process and specific valuation
allowances.
Potential Problem Loans
The Bank has established a monitoring system for its loan and real estate
portfolios to identify potential problem assets and to assess the adequacy of
allowances for losses in a timely manner. The loan portfolio consists mainly of
the following categories: 1-4 unit residential and mortgage-backed securities,
construction loans, multifamily loans, and commercial real estate loans secured
by land or income producing property. The Bank's 1-4 unit residential loans are
considered a homogeneous population. These loans are reviewed by analyzing the
portfolio's performance and composition of the underlying collateral as a whole.
Specifically, the Bank analyzes delinquency trends, foreclosure losses,
borrower's ability to repay and geographic composition of the portfolio.
Multifamily, commercial real estate and construction loans are evaluated on an
individual basis by the Bank's Internal Asset Review Department ("IARD"). The
IARD conducts independent reviews of the risk and quality of all credit
exposures of the Bank in excess of $500 thousand in an effort to identify and
monitor problem loans and comply with the OTS regulatory classification
requirements.
The table below presents the Bank's total classified loan portfolio, including
classified restructured loans described on page 20, at the dates indicated:
March 31, June 30, March 31,
Substandard 1994 1993 1993
Residential 1-4 $8,034 $14,268 $13,108
Multifamily 132,663 119,468 123,164
Commercial 56,764 56,947 65,896
Construction 5,391 8,074 17,659
Consumer 2,132 954 1,660
204,984 199,711 221,487
Doubtful
Multifamily 261 3,428 2,842
Commercial - 1,272 827
Consumer - 598 823
261 5,298 4,492
TOTAL $205,245 $205,009 $225,979
The table below summarizes the Bank's classified loans by performance status at
March 31, 1994:
Performance Status Classified Loans
Nonaccrual (page 18) $27,995
Restructured - performing (classified portion) 110,732
Other classified loans currently performing 66,518
Total classified loans $205,245
Real Estate Held for Investment, Development or Sale
Real estate held for investment, development or sale at March 31, 1994 is
comprised of the real estate remaining from the Bank's branches that have been
sold and Uni-Cal's wholly owned investments. At March 31, 1994, real estate
held for investment, development or sale totaled $1.2 million compared to $1.9
million at June 30, 1993. The decrease during the nine months is principally
due to $807 thousand of additional real estate loss provision recorded against
Uni-Cal's REI properties during the quarter ended March 31, 1994.
Allowance for Loan and Real Estate Losses
Valuation allowances for estimated losses on loans and real estate are
established on a specific and general basis. Specific reserves are determined
based on a difference between the carrying value of the asset and the fair value
or cost, as appropriate. General valuation allowances are determined based on
historical loss experience, current and anticipated levels and trends of
delinquent and nonperforming loans and the mix of classified assets, which is
used to measure the risk in the loan portfolio.
The provision for estimated losses on loans totalled $2.0 million and $11.9
million for the three and nine months ended March 31, 1994 compared to $7.9
million and $15.9 million in the three and nine months ended March 31, 1993.
The provisions to the allowance for loan losses in the three and nine month
periods ended March 31, 1993 reflects further market deterioration of certain
multi-family real estate loans. The provision for estimated losses on real
estate for the three month and nine month periods ended March 31, 1994 totaled
$1.4 million and $8.4 million compared to $3.3 and $13.2 million in the year
earlier comparable periods. The provisions were largely due to the write down
of REO to reflect current fair values based on sales offers and/or recent
appraisals.
The following table sets forth the Bank's general and specific valuation
allowances for loan and real estate losses at the dates indicated:
At At At
March 31, June 30, March 31,
1994 1993 1993
Loan general $15,617 $17,951 $18,228
Loan specific 10,519 2,622 2,885
Total loan allowance $26,136 $20,573 $21,113
Real estate general $1,431 $2,774 $4,006
Real estate specific 16,297 22,604 23,661
Total real estate allowance $17,728 $25,378 $27,667
Total valuation allowances $43,864 $45,951 $48,780
Non-interest Income and Expense
For the three month and nine month periods ended March 31, 1994, non-interest
income was a net loss of $1.6 million and net income of $5.8 million,
respectively, compared to net income of $4.7 million and $11.7 million for the
comparable periods of the prior year.
Realized losses on sale of investment securities and MBS available for sale were
$1.9 million and $560 thousand for the three and nine month periods ended March
31, 1994 compared to net gains of $1.7 million and $3.7 million for the
corresponding periods of the prior year. Additional write-downs of $426
thousand and $586 thousand were recognized during the three and nine month
periods ended March 31, 1994. These-write-downs were to adjust the securities
to the lower of cost or market at the respective quarterly valuation dates.
Sales of loans, MBS and investment securities are part of the Bank's overall
strategy of reducing asset size to facilitate capital compliance.
Gains / loss on sales of loans available for sale and loan servicing totalled a
net loss of $23 thousand and a net gain of $2.1 million, respectively, for the
three month and nine month periods ended March 31, 1994 compared to $1.2 million
and $3.4 million for the corresponding periods of the prior year. Loan servicing
sales consisted of sale of retained loan servicing, generated primarily from
loan production. Such sales permit the Company to realize the full economic
value for loan origination activity at the time of sale rather than over the
life of the servicing assets.
The Company sold four branches in the quarter ended September 30, 1993,
resulting in a gain of $1.5 million. The branch sale was contemplated in the
Company's strategic plan and the Capital Restoration Plan.
Loan servicing fees, net of amortization of servicing assets, totalled $78
thousand and $774 thousand for the three and nine month periods ended March 31,
1994, compared to $149 thousand and $1 thousand for the corresponding periods of
the prior year. The overall increase from prior year is principally
attributable to a lower level of prepayments.
General and administrative expenses decreased to $7.0 million and $21.9 million
for the three and nine month periods ended March 31, 1994 from $8.1 million and
$23.9 million for the corresponding periods of the prior year, a reduction of
approximately 14% and 8%, respectively. This decrease reflects the Company's
successful ongoing cost cutting efforts. However, the annualized ratio of
general, administrative and other expenses to average assets increased to 2.85%
in the nine month period ended March 31, 1994 from 2.16% in the corresponding
nine month period one year ago, reflecting the lower level of average total
assets. Management continues to search for methods of reducing general and
administrative expenses. However, operating expenses continue to be burdened by
the cost of resolution of problem assets as well as regulatory procedural
compliance.
Real estate operations resulted in a loss of $2.4 million and $10.9 million for
the three month and nine month periods ended March 31, 1994, compared to $4.3
million and $17.0 million for the three month and nine month periods ended March
31, 1993, due largely to the loss provisions discussed above. Real estate
operations include the operations of Uni-Cal and the results of operations of
the Bank's REO. The Company is continuing to experience real estate losses as a
result of disposition of properties in the current distressed market for
residential and commercial real estate and the high costs of management of
foreclosed properties pending sale.
Income Taxes
At March 31, 1994, the company had unused net operating losses for federal
income tax and California franchise tax purposes of approximately $49 million
and $33 million, respectively. The Company raised additional capital of $44.1
million through the sale of common stock.
Section 382 generally provides that if a corporation undergoes an "ownership
change", the amount of taxable income that the corporation may offset after the
date of the ownership change (the "Change Date") with net operating loss carry
forwards and certain built-in losses existing on the Change Date will be subject
to an annual limitation. The Company does not anticipate the recognition of
significant taxable income in the current fiscal year ending June 30, 1994. The
ability to offset taxable income in future years against net operating loss
carry forwards will depend in part on whether an ownership change should occur
up to three years following the September, 1993 recapitalization.
Based on current ownership information available to the Company, the Company
believes that the sale of common stock in September, 1993 did not cause an
ownership change under Section 382 of the Internal Revenue Code.
Stockholders and prospective investors should be aware that the Company likely
will undergo an ownership change if any person (including any existing
stockholder) acquires stock that would cause such person to own 5% or more of
the Company's common stock. Because of the limitations on the Company's ability
to use its net operating losses to offset taxable income after such an ownership
change, such acquisitions of stock could result in increased tax liabilities for
the Company with a corresponding decrease in the Company's net income and
stockholders' equity. Stockholders and prospective investors requiring further
information on the Company's ability to use its net operating losses should
contact the Company.
The following table summarizes the Company's real estate loan portfolio by
property type, geographic location and risk concentration at March 31,
1994 (1).
California Florida Maine Arizona All Othe Total
(In thousands)
1-4 unit residential and
mortgage-backed securities $231,150 $0 $0 $4,020 $1,212 $236,382
Multifamily 198,918 0 0 0 0 198,918
Commercial:
Retail 104,150 0 16,334 0 0 120,484
Land 10,097 8,412 0 0 22 18,531
Hotel/motel 29,949 2,153 3,060 2,273 6,300 43,735
Mobile home parks 798 0 0 940 13,498 15,236
Storage facilities 32,460 0 0 0 0 32,460
Office 13,037 0 0 0 0 13,037
Med/hosp 1,559 0 0 0 0 1,559
Total commercial 192,050 10,565 19,394 3,213 19,820 245,042
Construction:
Residential 11,453 0 0 0 0 11,453
Commercial 0 0 0 0 0 0
Residential lots 0 0 0 0 0 0
Total construction 11,453 0 0 0 0 11,453
Totals March 31, 1994 $633,571 $10,565 $19,394 $7,233 $21,032 $691,795
% of real estate loans 91.58% 1.53% 2.80% 1.05% 3.04% 100.00%
Totals June 30, 1993 $884,596 $12,521 $19,460 $5,631 $39,119 $961,327
% of real estate loans 92.02% 1.30% 2.02% 0.59% 4.07% 100.00%
(1) Principal balances before deduction of loan-in-process, deferred
income, discounts premiums and allowance for losses.
<PAGE>
UNIONFED FINANCIAL CORPORATION
Part II Other Information
Item 1. None
Item 2. None
Item 3. None
Item 4. None
Item 5. None
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
Amendment to Employment Agreement by and among
UnionFed Financial Corporation, Union Federal
Bank and David S. Engelman.
B) There were no reports on Form 8-K filed for
the three month period ended March 31, 1994.
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is
entered into as of December 1, 1993, by and among UNIONFED
FINANCIAL CORPORATION, a Delaware corporation ("UnionFed"), UNION
FEDERAL BANK, a federal savings bank ("Union Federal") and DAVID S.
ENGELMAN ("Executive").
WHEREAS, UnionFed and Union Federal desire to continue to
have the benefits of Executive's knowledge and experience as a
full-time employee and consider such employment a vital element to
protecting and enhancing the best interests of UnionFed, Union
Federal and their shareholders, and Executive desires to continue
to be employed full-time with UnionFed and Union Federal; and
WHEREAS, UnionFed, Union Federal and Executive are
parties to an Employment Agreement entered into as of April 1, 1991
(the "Agreement") which provides for the employment of Executive on
the terms provided for therein; and
WHEREAS, UnionFed, Union Federal and Executive desire to
amend the Agreement to extend the term thereof and amend the
provisions of the Agreement in certain respects as provided for
herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants set forth herein, the parties hereto agree as
follows:
1. Term. The "Employment Period" provided for in
section 1 of the Agreement shall be and hereby is extended until
June 30, 1997. On or before July 1, 1995, and annual thereafter on
or before each July 1, the Boards of Directors of UnionFed and
Union Federal shall review whether the employment period shall be
extended and the terms of any extension.
2. Duties. The last sentence in section 2 in the
Agreement is hereby deleted as inapplicable following Executive's
departure from the Board of Directors of Commercial Federal Bank.
3. Compensation.
(a) Executive's base salary under Section 3(a) of the
Agreement shall be $300,000 for the fiscal year ending June 30,
1994.
(b) Executive's bonus shall be determined on a fiscal
year basis commencing with the fiscal year ending June 30, 1994 and
shall be determined in accordance with section 3(c) of the
Agreement. The last sentence of section 3(c) is amended to read in
full as follows:
"The level of Executive's annual bonus in excess of the
minimum guaranteed annual bonus, if any, shall be determined
by the Executive Compensation and Stock Option Committee of
UnionFed based upon the achievement of objective targets and
goals to be established by such committee in consultation with
Executive."
(c) In order to permit a review of Executive'
compensation, including bonus, on a fiscal year basis, the last
paragraph of section 3 of the Agreement is hereby amended to read
in full as follows:
"The Boards of Directors of UnionFed and Union Federal
shall review the compensation of Executive annually during
June to determine whether an increase is indicated in
Executive's compensation for the upcoming fiscal year.
Bonuses for each fiscal year shall be determined and paid
prior to September 1 following the end of the fiscal year
(provided that if audited financial statements are not yet
available such date may be extended to not later than October
1). At no time during the term of this Agreement shall
Executive's annual compensation be less than the amounts and
amounts specified in this Section 3."
4. Employee Benefits.
(a) Section 4(b) of the Agreement shall be amended to
insert the following sentence as the second sentence thereof:
"In addition to the term life insurance provided to
Executive in accordance with such plans, Executive shall be
provided with $500,000 of whole life insurance on a split
dollar premium payment arrangement with an insurance company
acceptable to Executive, with the terms thereof approved by
the Executive Compensation and Stock Option Committee."
(b) Section 4(c) of the Agreement is amended to add the
following language:
"UnionFed and Union Federal acknowledge that Union
Federal has established its 1991 Supplemental Retirement
Income Plan (the "1991 Plan"), guaranteed by UnionFed, and
that UnionFed, Union Federal and Executive have entered into
a Participation Agreement with respect to Executive's
participation in the Plan. UnionFed and Union Federal
acknowledge that Executive has exceeded the number of Minimum
Service Months required by the 1991 Plan and the Participation
Agreement and that Executive currently is vested for certain
benefits as provided in the 1991 Plan and the Participation
Agreement."
(c) Section 4(d) of the Agreement is hereby amended to
provide that Executive's automobile allowance shall be $1,000 per
month, plus reasonable reimbursement for mileage driven by
Executive in the performance of his duties hereunder (excluding
commuting miles). Such allowance shall be reviewed annually to
determine if any increase is appropriate.
(d) The following new section 4(g) is hereby added to
the Agreement:
"(g) UnionFed and Union Federal shall cause Executive to
be provided legal and/or accounting advice, by professional
firms selected by Executive (or reimburse Executive for
expenses incurred), in connection with Executive's tax
planning (including without limitation income tax, estate and
gift tax matters) and preparation of Executive's tax returns,
including federal, state and local returns, if any, provided,
however, that the obligation of UnionFed and Union Federal
hereunder shall not exceed $15,000 in any fiscal year
commencing with the fiscal year ending June 30, 1994 and
provided, further, that any amount unused in any fiscal year
shall accrue and be available for the benefit of Executive in
subsequent fiscal years during the term of this Agreement and
during the 18 months following the termination of this
Agreement or the termination of Executive's employment,
whichever is later."
5. Disability. All references to ninety (90) day
disability periods in section 5(b) of the Agreement are hereby
amended to be one hundred eighty (180) days.
6. Stock Options. Section 8(a) is hereby amended to
read in full as follows:
"(a) Grant of Stock Options. Executive acknowledges that
he has been granted stock options for 255,000 shares of
UnionFed common stock, with an exercise price of $1.75 per
share, and for 34,800 shares at an exercise price of $1.875
per share, in each case subject to vesting schedule wherein
25% of such options vest on each September 28 in the years
1995 and 1998. All options granted to Executive shall have a
ten year term and all shares delivered under the option grants
shall be registered with the Securities and Exchange
Commission."
7. Required Provisions. The following sentence is
added to the end of section 9 of the Agreement:
"Any payments made to Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon
their compliance with 12 U.S.C. 1828(d), a copy of which is
attached as Exhibit C, and any regulations promulgated
thereunder."
8. Effect on Agreement. Except as modified by this
Amendment, the terms and provisions of the Agreement shall remain
in full force and effect throughout the term of the Agreement.
9. Counterparts. This Amendment may be executed in one
or more counterparts, each of which shall be deemed to be an
original, but all of which together will constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first above written.
UNIONFED FINANCIAL CORPORATION EXECUTIVE
By:/s/Ronald M. Griffith /s/David S. Engelman
Senior Vice President David S. Engelman
General Counsel
UNION FEDERAL BANK,
a federal savings bank
By:/s/Ronald M. Griffith
Senior Vice President
General Counsel<PAGE>
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.
UnionFed Financial Corporation
Date May 13, 1994 By /s/ Ronald M. Griffith
Ronald M. Griffith
Senior Vice President
General Counsel, Secretary
Date May 13, 1994 By /s/ Stephen J. Austin
Stephen J. Austin
Senior Vice President
Chief Financial Officer
