<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended December 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 February 14, 1995, 27,201,993 shares of the Registrant's $.01 par value
common stock were outstanding.
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<PAGE>
UNIONFED FINANCIAL CORPORATION
INDEX
PAGE
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
(unaudited) as of December 31, 1994 and
June 30 1994
Consolidated Statements of Operations (unaudited) 4
for the three month and six month periods ended
December 31,1994 and 1993
Consolidated Statements of Cash Flows (unaudited) 5
for the three month and six month periods ended
December 31,1994 and 1993
Notes to Consolidated Financial Statements 7
(unaudited)
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II. Other Information (omitted items are inapplicable) 25
Item 4. Submission of Matters to a Vote of Stockholders
SIGNATURES 26
2
<PAGE>
UNIONFED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - UNAUDITED
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31, June 30,
1994 1994
------------ --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $29,504 $38,091
Investment securities, net 55,684 62,119
Mortgage-backed securities, net 181,841 157,783
Loans held for sale (estimated market value of $45,526
at 12/94 and $45,320 at 06/94) 45,526 45,320
Loans receivable, net of allowance for losses of $25,256
at 12/94 and $24,963 at 06/94 504,278 521,635
Interest receivable 6,357 6,524
Real estate, net 32,522 39,947
Investment in Federal Home Loan Bank stock, at cost 5,566 5,419
Premises and equipment, net 17,085 18,051
Other assets 6,571 9,087
---------- --------
$884,934 $903,976
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Savings deposits $845,044 $847,957
FHLB advances and other borrowings 6,710 15,464
Accounts payable and accrued liabilities 2,756 3,180
Deferred income taxes 2,691 2,690
--------- -------
Total liabilities 857,201 869,291
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 (1994) 272 272
Additional paid-in capital 107,943 107,943
Accumulated deficit (80,482) (73,530)
--------- --------
Total stockholder's equity 27,733 34,685
--------- --------
$884,934 $903,976
--------- ---------
--------- ---------
</TABLE>
3
<PAGE>
UNIONFED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest on loans $10,772 $13,665 $21,480 $29,415
Interest on mortgage-backed securities 3,118 1,786 6,018 3,209
Interest and dividends on investments 1,179 1,056 2,521 2,428
-------- -------- -------- --------
Total interest income 15,069 16,507 30,019 35,052
-------- -------- -------- --------
Interest on savings deposits 8,602 8,082 16,653 17,494
Interest on borrowings 343 1,211 636 2,936
-------- -------- -------- --------
Total interest expense 8,945 9,293 17,289 20,430
-------- -------- -------- --------
Net interest income before provision
for estimated loan losses 6,124 7,214 12,730 14,622
Provision for estimated loan losses 2,420 4,825 6,279 9,864
-------- -------- -------- --------
Net interest income after provision
for estimated loan losses 3,704 2,389 6,451 4,758
-------- -------- -------- --------
Non-interest income:
Gain on sales of loans and loan servicing 664 353 799 2,107
Gain/(loss) on sales of mortgage-backed
securities and investment securities (32) 453 (24) 1,329
Loan servicing fees, net 252 223 491 696
Loan fees 68 280 174 484
Gain on sale of branches -- -- -- 1,496
Other, net 440 401 984 1,285
-------- -------- -------- --------
Total non-interest income 1,392 1,710 2,424 7,397
-------- -------- -------- --------
Non-interest expense:
Compensation and related expenses 2,431 3,065 5,289 6,015
Premises and occupancy 1,086 1,000 2,197 2,132
SAIF insurance premium 627 805 1,254 1,609
Other general and administrative 2,133 2,346 4,332 4,883
-------- -------- -------- --------
Total general and administrative expense 6,277 7,216 13,072 14,639
Real estate operations, net 1,878 3,956 2,316 8,505
Core deposit intangible amortization 213 165 435 336
-------- -------- -------- --------
Total non-interest expense 8,368 11,337 15,823 23,480
-------- -------- -------- --------
Loss before income taxes (3,272) (7,238) (6,948) (11,325)
Income tax expense (benefit) 4 1 4 1
-------- -------- -------- --------
NET LOSS ($3,276) ($7,239) (6,952) ($11,326)
-------- -------- -------- --------
-------- -------- -------- --------
Net loss per common share ($0.12) ($0.28) ($0.26) ($0.79)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
4
<PAGE>
UNIONFED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1994 1993
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($6,952) ($11,326)
Adjustments to reconcile net loss to cash provided by
operating activities:
Net decrease in loan fees and discounts (343) (725)
Depreciation and amortization 1,266 1,151
Provisions for loan and real estate losses 7,268 16,858
(Gain)/loss on sale of investment securities and
mortgage-backed securities, net 24 (1,329)
(Gain)/loss on sales of loans and loan servicing (799) (2,107)
(Gain)/Loss on sale of real estate (157) 802
Gain on sales of branches -- (1,496)
Federal Home Loan Bank stock dividends (147) (141)
Loans originated and purchased, held for sale (80,632) (142,589)
Proceeds from sales of loans, held for sale 55,426 82,053
Proceeds from sale of loan servicing 794 4,216
Decrease in interest and dividends receivable 167 1,063
Decrease/(increase) in prepaid expenses and other assets 2,071 4,267
Increase/(decrease) in interest payable (181) (417)
Increase/(decrease) in accounts payable and accrued liabilities (243) (6,197)
Increase/(decrease) in deferred income taxes 1 (6)
--------- ---------
Net cash used in operating activities (22,437) (55,923)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 3,187 1,422
Proceeds from sale of investment securities held for investment 3,247 12,009
Principal reductions on mortgage-backed securities 6,471 11,093
Principal reductions on loans 35,028 65,892
Purchases of mortgage-backed securities (30,519) (53,026)
Purchases of mortgage-backed securities, available for sale (7,000) --
Proceeds from sale of mortgage-backed securities,
available for sale 16,488 --
Proceeds from sales of mortgage-backed securities,
held for sale -- 40,972
Loans originated, held for investment (14,629) (11,097)
Net change in undisbursed loan funds (166) (1,567)
Acquisitions of real estate (605) (2,778)
Proceeds from disposition of real estate 14,015 25,202
Branch (sales) -- (122)
Other, net -- 689
--------- ---------
Net cash (used in) provided by investing activities 25,517 88,689
--------- ---------
</TABLE>
5
<PAGE>
UNIONFED FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1994 1993
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in deposits $(2,913) ($18,059)
Proceeds from short-term borrowings -- 14,525
Repayment of short-term borrowings (754) --
Repayment of long-term borrowings -- (976)
Additional FHLB advances -- 420,000
Repayments of FHLB advances (8,000) (495,000)
Proceeds from issuance of common stock -- 44,100
--------- ---------
Net cash provided by (used in) financing activities (11,667) (35,410)
--------- ---------
Net (decrease) increase in cash and cash equivalents (8,587) (2,644)
Cash and cash equivalents at beginning of period 38,091 35,798
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $29,504 $ 33,154
--------- ---------
--------- ---------
SALE OF BRANCHES:
Loans and mortgage-backed securities $ -- $ 163,719
Premises and equipment -- 1,471
Excess of cost over net assets acquired -- 38
Other assets -- (36)
Deposits -- (166,218)
Other liabilities -- (592)
Gain on sale -- 1,496
--------- ---------
Net cash used by sale of branches, net $ -- ($122)
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest (net of amount capitalized) $17,515 $ 21,079
Delaware franchise tax -- 40
Non-cash Investing and Financing activities:
Additions to real estate acquired in settlement of loans 6,816 8,313
Loans exchanged for mortgage-backed securities 9,522 96,932
Loans to facilitate the sale of real estate 1,061 8,196
</TABLE>
6
<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 necessary to present fairly the
financial condition as of December 31, 1994 and June 30, 1994, the results
of operations for the three month and six month periods ended December 31,
1994 and 1993, and the cash flows for the six month periods ended December
31, 1994 and 1993. The results of operations for the three month and six
month periods ended December 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 condition, results of operations and statement 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 Management's Discussion and Analysis of Financial
Condition and Results of Operations as of June 30, 1994, and for the year
then ended.
2- The Company has adopted FASB Statement of Financial Standards N0. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115") effective for the fiscal year ending June 30, 1995. Accordingly,
securities classified as "held to maturity" are carried at amortized cost.
Mortgage-backed securities originated or purchased with the purpose of
holding for possible sale are classified "available for sale" and carried
at fair value. The adoption of SFAS 115, applied prospectively as of July
1, 1994, has not had a material effect on the Company's financial
statements.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
UNIONFED Financial Corporation, (the "Company") parent of Union Federal Bank, a
federal savings bank (the "Bank") reported a net loss of $3.3 million or $0.12
per share for the second quarter ended December 31, 1994. This compares to a
loss of $7.2 million or $.28 per share in the corresponding quarter during
fiscal year 1994. For the six months period ended December 31, 1994 the Company
reported a loss of $7.0 million, compared to a loss of $11.3 million for the
equivalent six month period in 1993.
As a result of operating losses, the Bank since June 30, 1994 has not met two of
three regulatory capital requirements. The leverage (core) capital ratio of the
Bank at December 31, 1994 was 3.12%, which was less than the 4% ratio required
of federally chartered thrift institutions. However, the Bank's tier-one risk
based capital ratio of 4.88% at December 31, 1994 exceeded the 4% minimum
requirement. The total risk based capital ratio of the Bank at December 31, 1994
was 6.14%, which was below the minimum 8% required. As a result, the Bank is
deemed "undercapitalized" under the "prompt corrective action" provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991 and implementing
regulations of the Office of Thrift Supervision (the OTS) and is subject to
certain operating restrictions. If additional losses cause the Bank's leverage
(core) ratio or tier-one risk based capital to become less than 3%, or its
risk-based capital to be less than 6%, the Bank would become "significantly
undercapitalized" under OTS rules and subject to additional operating
restrictions. See "FDICIA Prompt Corrective Action Requirements," below.
The Bank currently is operating under a Capital Restoration Plan and Capital
Directive approved by the OTS in late November, 1994, which require the Bank to
become an "adequately capitalized" institution by March 31, 1995. At December
31, 1994, the Bank's capital was $10.5 million below its required level. The
Capital Restoration Plan contemplates additional losses during the third quarter
of fiscal 1995, principally due to additional potential loan losses and losses
from real estate operations.
Pursuant to the Capital Restoration Plan, the Bank is working with its financial
advisor, Friedman, Billings, Ramsey & Co., Inc. to explore all capital
restoration alternatives for the Bank, including a sale or merger of the Bank or
a recapitalization transaction. The Bank currently is soliciting indications of
interest from potential acquirers of the entire Bank or the operations of the
Bank excluding some or all of three pools of classified assets having unpaid
principal balances of $207 million, which would need to be separately resolved
by the Company.
The Bank will seek to extend the March 31, 1995 date in the Capital Directive to
permit additional time to complete a sale, merger or recapitalization
transaction. There can be no assurance that the OTS will grant such an
extension. The Company believes that an extension of the Capital Directive
beyond June 30, 1995 is unlikely since the Resolution Trust Corporation ("RTC")
authority to resolve thrift failures ceases on that date and shifts to the
Federal Deposit Insurance Corporation.
There can be no assurance that the Bank will be able to comply with the Capital
Restoration Plan or Capital Directive as may be extended from time to time. A
failure to comply with the Capital Directive could result in the imposition of
additional operating restrictions or other regulatory actions by the OTS,
including the appointment of a conservator or receiver for the Bank. The
appointment of a conservator or receiver for the Bank effectively would
eliminate the interests of the Company's stockholders since the Bank is the
Company's only significant asset.
8
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
For the three months ended December 31, 1994 1993
--------- ---------
<S> <C> <C>
Net interest income $ 6,124 $ 7,214
Provision for losses on loans 2,420 4,825
Non-interest income 1,392 1,710
Non-interest expense 8,368 11,337
Loss before income taxes (3,272) (7,238)
Income tax expense (benefit) 4 1
Net Loss (3,276) (7,239)
Loss per share (0.12) (0.28)
Loans originated and purchased 45,783 79,882
Mortgage-backed securities purchased 5,000 53,026
Loans sold 29,756 25,271
Mortgage-backed securities sold 9,787 41,096
Interest rate spread during period 3.16% 3.42%
For the six months ended December 31, 1994 1993
-------- --------
Net interest income $ 12,730 $ 14,622
Provision for losses on loans 6,279 9,864
Non-interest income 2,424 7,397
Non-interest expense 15,823 23,480
Loss before income taxes (6,948) (11,325)
Income tax expense (benefit) 4 1
Net Loss (6,952) (11,326)
Loss per share (0.26) (0.79)
Loans originated and purchased 95,261 153,686
Mortgage-backed securities purchased 37,519 53,026
Loans sold 55,275 167,510
Mortgage-backed securities sold 16,512 117,161
Interest rate spread during period 3.26% 3.38%
OTHER INFORMATION 12/31/94 6/30/94
-------- -------
Total Assets $884,934 $903,976
Loan and mortgage-backed security portfolio 731,645 724,738
Deposits 845,044 847,957
Loans serviced for others 42,272 164,994
Stockholders' equity 27,733 34,685
Nonperforming assets, net 50,020 61,359
Nonperforming assets, net to total assets 5.65% 6.79%
Nonperforming assets and restructured loans, net 145,623 175,035
Nonperforming assets and restructured loans, net
to total assets 16.46% 19.36%
Classified assets to total assets 18.60% 22.24%
End of period interest spread 2.85% 3.50%
</TABLE>
9
<PAGE>
FINANCIAL CONDITION
The Company's consolidated assets totaled $885 million at December 31, 1994
compared to $904 million at June 30, 1994. Stockholders' equity totaled $27.7
million at December 31, 1994, a reduction of $7.0 million from $34.7 at June
30, 1994. The decrease in stockholders' equity is directly attributable to the
net loss for the six month period ended December 31, 1994.
CAPITAL RESOURCES AND LIQUIDITY
The Bank's sources of funds include deposits, advances from the FHLB and other
borrowings, proceeds from the sale of real estate, sales of loans and MBS, sales
of loan servicing and repayments of loans and MBS. Prepayments on loans and MBS
and deposit inflows and outflows are affected significantly by interest rates,
real estate sales activity and general economic conditions.
Proceeds from the sale of loans and MBS available for sale, proceeds from the
disposition of real estate and principal repayments on loans and MBS provided
the principal sources of funds for the six month period ended December 31, 1994.
The sale of loans and MBS available for sale provided $71.9 million in funds.
Real estate sales, and principal repayments on loans and MBS provided $14.0
million and $41.5 million respectively.
The principal measure of liquidity in the savings and loan industry 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 December 31, 1994 the Bank's ratio was 7.76% compared to
8.15% at September 30, 1994 and 11.47% at June 30, 1994. The quarterly decrease
in liquidity is due to loan originations in excess of loan sales during the
quarter and the application of principal repayments of qualifying securities to
the reduction of short term borrowings.
The primary source of cash for the Company is dividends from the Bank. As long
as the Bank remains "undercapitalized" for regulatory purposes, the OTS cannot
approve any capital distributions (including dividends) except in connection
with a capital-raising transaction by the Bank.
REGULATORY CAPITAL COMPLIANCE
FDICIA established three capital standards for savings institutions: a "leverage
(core) limit," a "tier 1 risk-based limit" and a "total risk-based capital
requirement. Certain assets or portions thereof are required to be deducted
immediately from capital, while the inclusion of others in capital under one or
all of the capital standards is subject to various transitional rules or other
limitations. As of December 31, 1994 the Bank did not meet two of the components
of the regulatory capital requirements.
10
<PAGE>
The following is a reconciliation of the Bank's stockholders' equity to federal
regulatory capital, and a comparison of such regulatory capital to the industry
minimum requirements of the OTS, as of December 31, 1994:
<TABLE>
<CAPTION>
Leverage Tier 1 Total
(Core) % Risk Based % Risk Based %
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
GAAP Equity $27,625 $27,625 $27,625
Non-allowable assets:
Investment in Uni-Cal Financial (26) (26) (26)
Additional capital items:
General loan loss reserves -- -- 7,142
------- ----- ------- ----- -------- -----
Bank Regulatory Capital 27,599 3.12 27,599 4.88 34,741 6.14
Minimum capital requirement 35,396 4.00 22,615 4.00 45,230 8.00
------- ----- ------- ----- -------- -----
Capital excess (deficiency) ($7,797) (0.88) $ 4,984 0.88 ($10,489) (1.86)
------- ----- ------- ----- -------- -----
------- ----- ------- ----- -------- -----
</TABLE>
FDICIA PROMPT CORRECTIVE ACTION REQUIREMENTS
FDICIA requires the OTS to implement a system requiring regulatory sanctions
against institutions that are not adequately capitalized, with the sanctions
growing more severe the lower the institution's capital. The OTS must establish
specific capital ratios for five separate capital categories: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized."
Under the OTS regulations implementing FDICIA, an institution is treated as well
capitalized if its risk-based capital ratio is at least 10.0%, its ratio of core
capital to risk - weighted assets (the "Tier 1 risk-based capital ratio") is at
least 6.0%, its leverage (core) capital ratio is at least 5.O%, and it is not
subject to any order or directive by OTS to meet a specific capital level. An
institution will be "adequately capitalized" if its risk-based capital ratio is
at least 8.0%, its tier 1 risk-based capital ratio is at least 4.0%, and its
leverage (core) capital ratio is at least 4.0% (3.0% if the institution receives
the highest rating on the CAMEL financial institutions rating system). An
institution whose capital does not meet the amounts required in order to be
adequately capitalized will be treated as "undercapitalized." Additionally, an
institution will be treated as "significantly undercapitalized" if the above
capital ratios are less than 6.0%, 3.0%, or 3.0% respectively. An institution
will be treated as "critically undercapitalized" if its ratio of "tangible
equity" (core capital plus cumulative preferred stock minus intangible assets
other than supervisory goodwill and purchased mortgage servicing rights) to
total assets is equal to or less than 2.0%. At December 31, 1994, the Bank's
ratio of tangible equity to total assets was 2.89%.
As a result of the Bank's Thrift Financial Report for the quarter ended June 30,
1994, which was filed
11
<PAGE>
with the OTS on August 1, 1994, as well as subsequent losses, and which
reported the Bank's leverage (core) capital ratio at 3.80% and its risk-based
capital ratio at 6.99%, the Bank is considered to be "undercapitalized," and is
subject to the sanctions applicable to undercapitalized institutions (described
below).
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.
RESTRICTIONS ON SIGNIFICANTLY AND CRITICALLY UNDERCAPITALIZED INSTITUTIONS. In
addition to the above mandatory restrictions which apply to all undercapitalized
savings institutions, institutions that are significantly undercapitalized may
not without the OTS's prior approval (a) pay a bonus to any senior executive, or
(b) increase any senior executive officer's compensation over the average rate
of compensation (excluding bonuses, options and profit-sharing) during the 12
months preceding the
12
<PAGE>
month in which the institution became undercapitalized. The same restriction
applies to undercapitalized institutions that fail to submit or implement an
acceptable capital restoration plan.
If a savings institution is critically undercapitalized, the institution is also
prohibited from making payments of principal or interest on subordinated debt
beginning sixty days after the institution becomes critically undercapitalized,
unless the FDIC permits such payments or the subordinated debt was outstanding
on July 15, 1991 and has not subsequently been extended or renegotiated. In
addition, the institution cannot without the prior FDIC approval (a) enter into
any material transaction outside the ordinary course of business, (b) extend
credit for any highly leveraged transaction, (c) amend its charter or bylaws,
(d) make any material change in accounting methods, (e) make any loan to an
affiliate, purchase the assets of an affiliate, or issue a guarantee or letter
of credit for the benefit of an affiliate, (f) pay excessive compensation or
bonuses, or (g) pay interest on its liabilities (including deposits) at a rate
that would increase the institution's average cost of funds to a rate
significantly exceeding prevailing rates of interest.
Critically undercapitalized savings institutions must be placed in receivership
or conservatorship within 90 days of becoming critically undercapitalized
unless the OTS, with the concurrence of the FDIC, determines that some other
action would better resolve the problems of the institution at the least
possible long term loss to the insurance fund, and documents the reasons for its
determination. A determination by the OTS not to place a critically
undercapitalized institution in conservatorship or receivership must be reviewed
every 90 days and the OTS must either make a new determination or appoint a
conservator or receiver. If the institution remains critically undercapitalized
on average during the calendar quarter beginning 270 days after it became
critically undercapitalized, the OTS must appoint a receiver unless (a) the OTS
determines, with the concurrence of the FDIC, that the institution (i) has
positive net worth, (ii) has been in substantial compliance with an approved
capital restoration plan requiring consistent improvement in the institution's
capital, (iii) the institution is profitable or has an upward trend in earnings
which the OTS determines is sustainable, and (iv) the institution is reducing
its ratio of nonperforming loans to total loans, and (b) the Director of the OTS
and the Chairperson of the FDIC both certify that the institution is viable and
not expected to fail.
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
to the prevailing rates of interest in the region where the
institution is located,
(e) require reduction of the institution's assets,
13
<PAGE>
(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.
14
<PAGE>
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 Bank is to
manage the effects of adverse changes in interest rates on the Bank's interest
income, while maintaining asset quality. The Bank monitors asset and liability
maturities on a regular basis, and performs various simulations and other
analysis as a means of quantifying and controlling interest rate risk.
The Bank's one-year gap, a measure of exposure to interest rate risk, was 16.97%
at December 31, 1994 compared to 12.47% at September 30, 1994 and 6.52% at June
30, 1994. The Bank's policy is to maintain its balance sheet gaps for annual
periods close to a tolerance range of zero. The change in the one year gap
between June 30, 1994 and December 31, 1994 is primarily attributable to the
increase in the proportionate share of deposits represented by certificates of
deposits with terms of 2 years or more and the repayment of short term
borrowings (FHLB Advances and reverse repos).
To improve rate sensitivity and maturity balance of its interest-earning assets
and its liabilities, the Bank has over the past few years emphasized
originations of loans with adjustable rates or relatively short maturities.
Loans with adjustable rates have the beneficial effect of allowing the yield on
the Bank's assets to increase during periods of rising interest rates, although
such loans have contractual limitations on the frequency and extent of interest
rate adjustments. In recent years, the Bank has sold the majority of its
production of one-to-four unit residential loans, including ARM loans, in the
course of reducing assets to improve its regulatory capital ratios.
At December 31, 1994, loans and MBS with adjustable interest rates represented
73% of the Bank's loan and MBS portfolio, compared to 67% at September 30, 1994
and 63% at June 30, 1994. The Bank's largely adjustable rate loan and Mortgage-
backed securities portfolio is funded principally by short term deposits and
borrowings with original maturities of less than three years. Adjustable rate
loans comprised 88% of loan originations for the six month period ended December
31, 1994.
NET INTEREST INCOME
Net interest income, before provisions for loan losses, was $6.1 million for the
three month period ended December 31, 1994 compared to $7.2 million for the same
period in 1993. For the six month period ended December 31, 1994, net interest
income decreased to $12.7 million from $14.6 million in the comparable period of
1993. The decrease is primarily attributable to the strategic reduction in
earning assets and interest bearing liabilities to reduce regulatory capital
requirements, and the compression of the Bank's net interest spread due to a
rapid increase in rates paid on deposits in the highly competitive California
marketplace.
The during-period spread decreased in the three month period ended December
31,1994 to 3.16% compared to 3.46% at September 30, 1994 and 3.42% at December
31, 1993. The decrease is primarily attributable to the increased rates paid on
time deposits as a result of increases in prevailing interest rates and the lag
in timing of increases in adjustable-rate loan yields.
15
<PAGE>
NONPERFORMING ASSETS
Nonperforming assets consist of real estate acquired in settlement of loans and
in-substance foreclosures (collectively, "REO") and nonaccrual loans.
The following table sets forth the amounts of non-performing assets of the Bank
at the dates indicated:
<TABLE>
<CAPTION>
December 31, June 30, December 31,
1994 1994 1993
---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans (1) $ 18,035 $ 22,125 $ 15,067
Real estate owned (2) 31,985 23,557 28,485
In-substance foreclosures,
net of undisbursed funds (2) -- 15,677 4,543
---------- --------- ---------
Total nonperforming assets $50,020 $61,359 $48,095
--------- --------- ---------
--------- --------- ---------
Total assets $884,934 $903,976 $942,184
Nonperforming assets, net as
a percentage of total assets 5.65% 6.79% 5.10%
<FN>
(1) Net of specific reserves.
(2) Net of specific reserves and pro-rata allocated REO general reserves.
</TABLE>
16
<PAGE>
NONACCRUAL LOANS
Nonaccrual loans generally represent loans for which interest accruals have been
suspended. At December 31, 1994, nonaccrual loans were $18.0 million, a decrease
from the $22.1 million at June 30, 1994.
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
than 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.
The following table summarizes the distribution of the Bank's nonaccrual loans
by collateral type(1):
<TABLE>
<CAPTION>
December 31, June 30, December 31,
1994 1994 1993
------------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1-4 Unit residential and
mortgage-backed securities $8,388 $8,650 $7,545
Multifamily 434 689 5,580
Commercial:
Hotel/Motel 6,205 5,592 1,155
Retail -- 2,449 --
Other 3,008 3,163 328
---------- --------- ---------
Total commercial 9,213 11,204 1,483
---------- --------- ---------
Total real estate loans 18,035 20,543 14,608
Consumer loans (2) -- 1,582 459
---------- --------- ---------
Total nonaccrual loans $18,035 $22,125 $15,067
---------- --------- ---------
---------- --------- ---------
<FN>
(1) Balances are net of contra deductions, loans in process and specific
valuation allowances.
(2) Consumer loans include mobile home loans.
</TABLE>
17
<PAGE>
REAL ESTATE OWNED (REO)
REO consists of real estate acquired in settlement of loans and loans accounted
for as in-substance foreclosures. When there is an indication that a borrower
will not make all the required payments on a loan; the borrower no longer has
equity in the property collaterizing 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 recorded at the fair value of the collateral, less
estimated selling cost. Subsequently, valuation allowances for estimated losses
are charged to real estate operations expenses if the carrying value of real
estate exceeds estimated fair value. The bank does not accrue interest income on
loans classified as in-substance foreclosure and reported as real estate
acquired in settlement of loans.
REO decreased to $32.0 at December 31, 1994, from $39.2 million at June 30, 1994
and $33.0 million at December 31, 1993. The decrease from June 30, 1994 is
primarily attributable to the disposition of REO properties totaling
approximately $14.0 million, partially offset by additional foreclosures of
approximately $6.8 million.
The following table summarizes the distribution of the Bank's REO by collateral
type(1):
<TABLE>
<CAPTION>
December 31, June 30, December 31,
1994 1994 1993
------------ --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1-4 Residential $ 2,131 $ 1,334 $ 3,945
Multifamily -- 6,889 2,304
Commercial:
Retail 14,624 14,725 564
Land 10,636 10,333 18,497
Office 3,520 5,137 6,897
Other 1,034 82 --
------- ------- -------
Total commercial 29,814 30,277 25,958
Construction:
Commercial -- 681 693
------- ------- -------
Total construction -- 681 693
------- ------- -------
Total real estate 31,945 39,181 32,900
Consumer (2) 40 53 128
------- ------- -------
Total REO $31,985 $39,234 $33,028
------- ------- -------
------- ------- -------
<FN>
(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.
</TABLE>
18
<PAGE>
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 $95.6 million at
December 31, 1994. This is a decrease from $113.7 million at June 30, 1994 and
$132.9 million at December 31, 1993. The decrease from June 30, 1994, is
primarily attributable to the discounted payoff of one major loan.
The following table summarizes the distribution of the Bank's restructured loans
by collateral type(1):
<TABLE>
<CAPTION>
December 31, June 30, December 31,
1994 1994 1993
------------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Multifamily $77,966 $92,057 $89,443
Commercial:
Retail 2,059 4,733 21,045
Hotel/motel 2,770 2,783 7,966
Office 5,518 5,541 5,564
Other 1,987 2,270 8,961
-------- -------- --------
Total commercial 12,334 15,327 43,536
Construction:
Residential 5,303 6,292 --
-------- -------- --------
Total restructured loans $95,603 $113,676 $132,979
-------- -------- --------
-------- -------- --------
<FN>
(1) Balances are net of contra, loans in process and specific valuation
allowances.
</TABLE>
19
<PAGE>
TROUBLED, COLLATERAL-DEPENDENT LOANS
Effective September 30, 1993, the OTS issued Regulatory Bulletin 31, which
addresses troubled, collateral-dependent loans. A troubled, collateral-dependent
loan is defined as a loan in which proceeds for repayment can be expected to
come from the operation and sale of the collateral.
For a troubled collateral-dependent loan where, based on current information and
events, it is probable that the lender will be unable to collect all amounts due
(both principal and interest), any excess of the recorded investment in the loan
over its "value" should be classified as Loss, and the remainder should
generally be classified as Substandard.
For a troubled collateral-dependent loan, the "value" is one of the following:
1) the present value of the expected future cash flows, discounted at the loan's
effective interest rate, based on original contractual terms ("loan-rate present
value"); 2) the loan's observable market price; or 3) the fair value of the
collateral. All loans over $500,000 which are not secured by single family
residences are reviewed for the possibility that they may be troubled
collateral-dependent loans. In December, 1994, the OTS issued Regulatory
Bulletin No. 32 which is effective from March 31, 1995 and requires the "value"
of impaired troubled collateral-dependent loans to be based on the fair value of
the underlying collateral.
At December 31, 1994, troubled, collateral-dependent loans totalled $48.9
million. Of these loans which are considered troubled, collateral-dependent
loans, $39.9 million are performing loans and $9.0 million are non-performing
loans.
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.
20
<PAGE>
The table below presents the Bank's total classified loan portfolio, including
classified restructured loans described on page 19, at the dates indicated:
<TABLE>
<CAPTION>
December 31, June 30, December 31,
1994 1994 1993
------------ --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SUBSTANDARD
Residential 1-4 $8,388 $8,650 $8,334
Multifamily 76,771 109,289 123,985
Commercial 39,759 33,030 53,709
Construction 5,303 5,817 6,656
Consumer 538 2,082 2,541
-------- -------- --------
130,759 158,868 195,225
DOUBTFUL
Multifamily -- 261 --
Consumer -- -- 701
-------- -------- --------
-- 261 701
-------- -------- --------
TOTAL $130,759 $159,129 $195,926
-------- -------- --------
-------- -------- --------
</TABLE>
The table below summarizes the Bank's classified loans by performance status at
December 31, 1994:
<TABLE>
<CAPTION>
PERFORMANCE STATUS CLASSIFIED LOANS
- ------------------------------------------------ ---------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Nonaccrual (page 17) $18,035
Restructured - performing (classified portion) 76,606
Other classified loans currently performing 36,118
----------
Total classified loans $130,759
----------
----------
</TABLE>
In addition to classified assets, the Bank monitors Special Mention assets which
have been identified to include potential weaknesses that deserve management's
close attention. According to OTS guidelines, Special Mention assets are not
adversely classified and do not expose an institution to sufficient risk to
warrant adverse classification. At December 31, 1994, $120 million of assets
were categorized as Special Mention.
21
<PAGE>
REAL ESTATE HELD FOR INVESTMENT, DEVELOPMENT OR SALE
Real estate held for investment, development or sale at December 31, 1994 is
comprised of the real estate from the Bank's branches that have been sold and
Uni-Cal's wholly owned investments. At December 31, 1994, real estate held for
investment, development or sale totaled $0.5 million compared to $0.7 million at
June 30, 1994.
ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES
It is the Company's policy to provide an allowance for estimated losses on loans
and real estate when it is probable that the value of the asset has been
impaired and the loss can be reasonably estimated. Loans are generally required
to be carried at the lower of amortized cost or net realizable value. Net
realizable value is the present value of the future cash flows, including the
costs of holding, refurbishment and selling, discounted at the combined cost of
debt and equity for the Bank. REO is carried at the lower of cost or fair value,
less selling costs. To comply with this policy the Company has established a
monitoring system that requires at least an annual review of all loans in excess
of $500 thousand, and a quarterly review of all loans considered adversely
classified or criticized. The monitoring system requires a review of operating
statements, evaluation of the properties' current and past performance, and
evaluation of the borrower's ability to repay. When deterioration is anticipated
or certain other risk are identified, the completion of a discounted cash flow
analysis is also required. Based on the results of the review, a new appraisal
may be required.
The provision for estimated losses on loans totalled $2.4 million for the three
month period ended December 31, 1994 compared to $4.8 million for the three
month period ended September 30, 1993. The provision for the six month period
ended December 31, 1994 was $6.3 million compared to $9.9 million for the
comparable period in 1993. The provision for loan losses of $2.4 million in the
current quarter includes $1.5 million incurred to resolve three commercial real
estate loans which reduced the loan portfolio principal balance by $19.5
million. The provision for estimated losses on real estate for the three months
ended December 31, 1994 was $.9 million. The provision for estimated losses on
real estate included a $0.7 million reserve related to the Bank's largest
remaining foreclosed commercial property.
The following table sets forth the Bank's general and specific valuation
allowances for loan and real estate losses at the dates indicated:
<TABLE>
<CAPTION>
December 31, June 30, December 31,
1994 1994 1993
---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loan general $13,100 $14,429 $18,516
Loan specific 12,156 10,534 9,226
---------- ----------- ----------
Total loan allowance $25,256 $24,963 $27,742
---------- ----------- ----------
---------- ----------- ----------
Real estate general $1,751 $2,221 $1,653
Real estate specific 10,472 17,811 21,434
---------- ----------- ----------
Total real estate allowance $12,223 $20,032 $23,087
---------- ----------- ----------
---------- ----------- ----------
Total valuation allowances $37,479 $44,995 $50,829
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
22
<PAGE>
NON-INTEREST INCOME AND EXPENSE
Non-interest income for the quarter ended December 31, 1994 was $1.4 million
compared to $1.7 million for the same period in 1993. For the six month period
ended December 31, 1994 non-interest income decreased to $2.4 million from
$7.4 million for the comparable period in 1993. The quarterly decrease is
attributable to a decrease in sales of loans and loan servicing by the Bank's
Mortgage Banking Division. The change from the six months ended December 31,
1993 is related to the prior year gain on the sale of four branches of
$1.5 million, and the higher levels of sales of loans and loan servicing in
1993.
General and administrative expenses decreased to $6.3 million for the quarter
ended December 31, 1994 from $7.2 million for the same period in 1993. The
fiscal year-to-date change reflects a decrease in general and administrative
expenses of $1.6 million. This decrease reflects the Company's successful
ongoing cost cutting efforts and the effect of selling four branches in
September of 1993. 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.
INCOME TAXES
At June 30, 1994, the Company had unused net operating losses for federal income
tax and California franchise tax purposes of $50 million and $49 million,
respectively. On August 5, 1994, the Company incurred an "ownership change"
within the meaning of Section 382 of the Internal Revenue Code ("Section 382").
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
carryforwards and certain built-in losses existing on the change date will be
subject to an annual limitation. In general, the annual limitation equals the
product of (i) the fair market value of the corporation's equity on the change
date (with certain adjustments) and (ii) a long term tax exempt bond rate of
return published by the Internal Revenue Service.
The Section 382 limitation will not have a material impact on the financial
statements of the Company as the Company has not utilized any net operating
losses to offset the reversal of taxable temporary differences. Although the
Section 382 limitation will affect the Company's ability to utilize its net
operating loss carryovers and certain recognized built-in losses, any income tax
benefits attributable to those net operating loss carryovers and recognized
built-in losses will not be available until operations of the Company result in
additional taxable income. The amount of Section 382 limitation for the Company
has not yet been determined.
23
<PAGE>
The following table summarizes the Company's real estate loan portfolio and
mortgage-backed securities by property type, geographic location and risk
concentration at December 31, 1994 (1).
<TABLE>
<CAPTION>
(IN THOUSANDS) CALIFORNIA FLORIDA MAINE ARIZONA ALL OTHER TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1-4 unit residential and
mortgage-backed securities $379,930 - $4,246 $8,078 $392,254
Multifamily 158,031 - - - - 158,031
Commercial:
Retail 69,670 - 16,245 - - 85,915
Land 10,168 6,065 - - - 16,233
Hotel/motel 19,914 3,836 3,060 2,388 6,233 35,431
Mobile home parks - - - - 8,374 8,374
Storage facilities 30,755 - - - - 30,755
Office 12,879 - - - - 12,879
Med/hosp 1,499 - - - - 1,499
---------- ---------- ---------- ---------- ---------- ----------
Total commercial 144,885 9,901 19,305 2,388 14,607 191,086
Construction:
Residential 5,777 - - - - 5,777
---------- ---------- ---------- ---------- ---------- ----------
Total construction 5,777 - - - - 5,777
---------- ---------- ---------- ---------- ---------- ----------
Totals December 31, 1994 $688,623 $9,901 $19,305 $6,634 $22,685 $747,148
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
% of real estate loans 92.17% 1.32% 2.58% 0.89% 3.04% 100.00%
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Totals June 30, 1994 $686,844 $19,365 $10,547 $6,657 $14,937 $738,350
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
% of real estate loans 93.02% 2.63% 1.43% 0.90% 2.02% 100.00%
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
(1) Principal balances before deduction of loan-in-process, deferred income,
discounts, premiums and allowance for losses.
24
<PAGE>
UNIONFED FINANCIAL CORPORATION
PART II OTHER INFORMATION
Item 1. None
Item 2. None
Item 3. None
Item 4. Submission of Matters to a Vote of Stockholders
At the 1994 Annual Meeting held on November 16, 1994, the
following was approved:
The election of Donald Criswell, William T. Donovan and J.
David Kall to the Board of Directors for terms of three
years each.
Item 5. None
Item 6. Exhibits and Reports on Form 8-K
Current Report on Form 8-K filed December 19, 1994 relating to
approval by the Office of Thrift Supervision of the Bank's
Capital Restoration Plan, and the execution of severance
agreements with members of senior management of the Bank.
25
<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 February 14, 1994 By /S/ RONALD M. GRIFFITH
----------------------- --------------------------------
Ronald M. Griffith
Senior Vice President
General Counsel, Secretary
Date February 14, 1994 By /S/ STEPHEN J. AUSTIN
----------------------- --------------------------------
Stephen J. Austin
Senior Vice President
Chief Financial Officer
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 29,504
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 237,525
<INVESTMENTS-MARKET> 225,907
<LOANS> 549,804
<ALLOWANCE> 25,256
<TOTAL-ASSETS> 884,934
<DEPOSITS> 845,044
<SHORT-TERM> 6,710
<LIABILITIES-OTHER> 5,447
<LONG-TERM> 0
<COMMON> 0
0
272
<OTHER-SE> 27,461
<TOTAL-LIABILITIES-AND-EQUITY> 884,934
<INTEREST-LOAN> 21,480
<INTEREST-INVEST> 8,539
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 30,019
<INTEREST-DEPOSIT> 16,653
<INTEREST-EXPENSE> 17,289
<INTEREST-INCOME-NET> 12,730
<LOAN-LOSSES> 6,279
<SECURITIES-GAINS> (24)
<EXPENSE-OTHER> 15,823
<INCOME-PRETAX> (6,948)
<INCOME-PRE-EXTRAORDINARY> (6,952)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,952)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
<YIELD-ACTUAL> 7.21
<LOANS-NON> 18,035
<LOANS-PAST> 0
<LOANS-TROUBLED> 95,603
<LOANS-PROBLEM> 130,759
<ALLOWANCE-OPEN> 24,963
<CHARGE-OFFS> 5,998
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 25,256
<ALLOWANCE-DOMESTIC> 25,256
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,100
</TABLE>
