<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File No. 0-16970
CALIFORNIA FINANCIAL HOLDING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 68-0150457
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 W. WEBER AVENUE, STOCKTON, CALIFORNIA 95203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (209) 948-6870
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 ___
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT SEPTEMBER 30, 1995
Common Stock, $.01 par value 4,659,031 shares
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<TABLE>
<CAPTION>
Part 1. FINANCIAL INFORMATION
CALIFORNIA FINANCIAL HOLDING COMPANY
AND SUBSIDIARIES
Consolidated Statements of Condition
(Unaudited)
Dec. 31, 1994 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Cash, including noninterest-bearing deposits $ 15,523,626 $ 9,540,517 $ 12,685,842
Interest-bearing deposits 3,313,882 11,071,947 2,515,428
Other short-term investments - - 5,225,357
Investment securities:
Securities available for sale 50,438,489 120,160,755 52,225,324
Securities held to maturity 52,759,609 - 52,841,096
Mortgage-backed securities:
Securities available for sale 7,154,572 138,510,291 7,323,726
Securities held for investment, net of loss
reserves of $250,000, $497,832 and $250,000
respectively 159,436,288 - 154,935,070
Loans held for sale, at lower of cost or market 2,655,408 6,412,805 2,484,038
Loans receivable, net of loss reserves of
$7,725,500, $8,952,000 and $10,095,500
respectively 948,202,864 954,906,524 941,766,828
Less: loans in process 34,101,646 38,363,676 36,842,816
-------------- -------------- --------------
Net loans receivable $ 914,101,218 $ 916,542,848 $ 904,924,012
-------------- -------------- --------------
Investments in real estate held for development,
net of loss reserves of $6,850,636, $6,393,418 and
$5,967,098 $ 25,233,861 $ 15,457,511 $ 21,339,579
Net office property and equipment 21,111,844 20,613,135 21,814,472
Federal Home Loan Bank stock 8,736,900 10,258,800 8,624,600
Accrued interest and dividends receivable 5,308,083 6,044,213 4,790,723
Deposit base premium 2,219,999 1,348,833 2,510,388
Other assets, net 7,133,371 7,390,111 5,496,144
-------------- -------------- --------------
TOTAL ASSETS $1,275,127,150 $1,263,351,766 $1,259,735,799
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Savings and checking accounts $1,001,070,420 $ 983,717,108 $ 973,904,435
Advances from FHLB 110,000,000 121,000,000 115,800,000
Collateralized mortgage obligation, net of
discount of $85,456, $0 and $139,043 7,897,795 6,966,252 8,077,422
Reverse repurchase agreements 64,978,000 59,807,000 70,712,900
Accrued interest payable 1,610,640 1,772,127 1,380,900
Other liabilities, net 6,352,805 6,006,658 7,030,210
-------------- -------------- --------------
TOTAL LIABILITIES $1,191,909,660 $1,179,269,145 $1,176,905,867
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Part 1. FINANCIAL INFORMATION
CALIFORNIA FINANCIAL HOLDING COMPANY
AND SUBSIDIARIES
Consolidated Statements of Condition
(Unaudited)
Dec. 31, 1994 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- --------------
Stockholders' Equity
Serial preferred stock, 4,000,000 shares
authorized, no shares outstanding - - -
Capital stock, 12,000,000 shares authorized
4,626,063, 4,659,031 and 4,620,723 shares
outstanding $ 46,261 $ 46,590 $ 46,207
Paid in capital in excess of par 26,207,166 26,499,563 26,144,695
Unrealized loss on securities available for sale,
net of tax effect (1,186,069) (646,177) (855,947)
Retained earnings, substantially restricted 58,150,132 58,182,645 57,494,977
-------------- -------------- --------------
TOTAL STOCKHOLDERS' EQUITY $ 83,217,490 $ 84,082,621 $ 82,829,932
-------------- -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,275,127,150 $1,263,351,766 $1,259,735,799
============== ============== ==============
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CALIFORNIA FINANCIAL HOLDING COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
For the three months ended: For the nine months ended:
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 18,548,677 $ 16,337,328 $ 53,663,189 $ 49,137,380
Interest and dividends on 4,842,069 4,531,180 14,100,247 10,774,712
investments ------------- ------------- ------------- -------------
TOTAL INTEREST INCOME $ 23,390,746 $ 20,868,508 $ 67,763,436 $ 59,912,092
------------- ------------- ------------- -------------
INTEREST EXPENSE
Interest on savings $ 12,283,277 $ 9,780,059 $ 35,980,585 $ 27,537,536
Interest on short-term borrowings 1,217,613 805,798 3,261,288 1,047,988
Interest on long-term borrowings 1,925,780 1,892,762 5,496,326 5,513,674
------------- ------------- ------------- -------------
TOTAL INTEREST EXPENSE $ 15,426,670 $ 12,478,619 $ 44,738,199 $ 34,099,198
Less: Interest capitalized (26,296) (106,929) (146,149) (447,573)
------------- ------------- ------------- -------------
NET INTEREST EXPENSE $ 15,400,374 $ 12,371,690 $ 44,592,050 $ 33,651,625
------------- ------------- ------------- -------------
NET INTEREST INCOME $ 7,990,372 $ 8,496,818 $ 23,171,386 $ 26,260,467
------------- ------------- ------------- -------------
Provision for loan losses 67,300 740,000 1,633,500 781,000
------------- ------------- ------------- -------------
NET INTEREST INCOME LESS PROVISION $ 7,923,072 $ 7,756,818 $ 21,537,886 $ 25,479,467
FOR LOAN LOSSES ------------- ------------- ------------- -------------
OTHER INCOME
Gain (loss) on sale of:
Loans $ (3,154) $ 23,819 $ 65,706 $ 51,746
Real estate held for investment
or sale 32,289 3,681 (38,960) 541,501
Trading and available for sale
securities, net 136,351 186,720 115,435 (251,525)
Provision for losses on real
estate (180,000) (2,550,000) (3,725,324) (4,035,000)
Operating losses on foreclosed
real estate (125,477) (362,108) (491,397) (728,681)
Loan servicing fee income 376,690 339,608 1,122,413 917,630
Fee income from operations 971,391 904,533 2,832,075 2,715,885
Writedown of other assets (260,924) (410,000) (816,413) (470,000)
Other loss, net (29,559) (334,505) (77,121) (300,896)
------------- ------------- ------------- -----------
TOTAL OTHER INCOME (LOSS) $ 917,607 $ (2,198,252) $ (1,013,586) $ (1,559,340)
------------- ------------- ------------- -------------
NONINTEREST EXPENSE
Compensation and related benefits $ 2,692,429 $ 2,908,988 $ 7,291,195 $ 8,742,646
Occupancy 815,375 787,591 2,330,366 2,249,559
Advertising and promotion 272,309 285,462 812,740 721,167
Data processing 506,415 482,653 1,576,053 1,435,121
Insurance 702,066 627,255 2,044,183 1,997,429
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CALIFORNIA FINANCIAL HOLDING COMPANY
AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
For the three months ended: For the nine months ended:
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- -------------- --------------
Other general & administrative
expense 936,476 913,198 2,789,109 3,057,499
------------- ------------- ------------- -------------
TOTAL GENERAL & ADMINISTRATIVE
EXPENSE $ 5,925,070 $ 6,005,147 $ 16,843,646 $ 18,203,421
Amortization of deposit base
premium 290,389 191,552 871,166 871,166
------------- ------------- ------------- -------------
TOTAL NONINTEREST EXPENSE $ 6,215,459 $ 6,196,699 $ 17,714,812 $ 19,074,587
------------- ------------- ------------- -------------
Income (loss) before taxes $ 2,625,220 $ (638,133) $ 2,809,488 $ 4,845,540
Income tax expense (benefit) 1,100,670 (758,299) 1,245,472 1,507,200
------------- ------------- ------------- -------------
NET INCOME $ 1,524,550 $ 120,166 $ 1,564,016 $ 3,338,340
============= ============= ============= =============
EARNINGS PER SHARE $ 0.32 $ 0.02 $ 0.33 $ 0.71
============= ============= ============= =============
CASH DIVIDENDS PER SHARE $ 0.11 $ 0.11 $ 0.33 $ 0.33
============= ============= ============= =============
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<PAGE>
CALIFORNIA FINANCIAL HOLDING COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Sept. 30, 1995 Sept. 30, 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,564,016 $ 3,338,340
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of:
Loan premium -- 227,329
Deferred loan fees (2,152,692) (3,248,439)
Discount amortization on mortgage-backed bonds 85,456 434,757
Deposit base premium 871,166 871,166
Net (gain) loss on sale of:
Loans (65,706) (51,746)
Real estate held for development or sale 38,960 (541,501)
Securities (115,435) 251,525
Provision for losses on:
Loans 1,633,500 781,000
Real estate held for development or sale 3,725,324 4,035,000
Depreciation and amortization 1,941,964 1,703,908
Decrease in income taxes payable (279,453) (3,014,390)
Net increase in accrued interest payable 161,487 621,157
Net increase in accrued interest receivable (736,130) (306,687)
Mortgage loans originated as held for sale (66,385,020) (38,776,037)
Proceeds from loans sold 62,693,329 60,038,650
Purchase of trading account securities -- (38,468,442)
Sale of trading account securities -- 41,186,243
Other, net (1,095,298) (2,138,438)
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,885,468 $ 26,943,395
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments on loans $ 139,725,900 $ 185,701,902
Mortgage loans originated as held for investment (145,320,834) (254,354,184)
Purchase of loan participations (559,629) (15,587,894)
Purchase of securities held for investment or sale (38,710,969) (144,048,609)
Maturity and payments of securities held for investment or sale 18,555,547 13,741,103
Sale of securities available for sale 31,388,769 9,090,889
Purchase of office property and equipment, net (1,443,255) (3,606,729)
Purchase of FHLB stock and FHLMC preferred stock (1,521,900) (511,717)
Investment in real estate held for development or sale (5,936,086) (5,881,534)
Proceeds from sales of real estate held for development or sale 8,639,825 10,365,291
Proceeds from sale of foreclosed property 7,540,452 4,292,081
Other, net 1,311,757 (1,807,770)
------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES $ 13,669,577 $(202,607,171)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposit accounts $ (12,699,107) $ 87,429,099
Net (decrease) increase in checking accounts (4,654,205) 1,417,452
Proceeds from FHLB advances 84,300,000 183,000,000
Repayments of FHLB advances (73,300,000) (178,000,000)
Securities sold under agreement to repurchase, net (5,171,000) 70,712,900
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<PAGE>
CALIFORNIA FINANCIAL HOLDING COMPANY
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Sept. 30, 1995 Sept. 30, 1994
-------------- --------------
Payments on mortgage-backed bonds (1,016,999) (6,504,438)
Bank and other borrowings, net -- (396,236)
Proceeds from stock options exercised and dividends reinvested 292,726 342,364
Dividends paid to shareholders (1,531,504) (1,520,054)
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ (13,780,089) $ 156,481,087
Cash and cash equivalents at the beginning of the year 18,837,508 39,609,316
------------- -------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 20,612,464 $ 20,426,627
============= =============
Supplemental disclosures of cash flow information:
Interest paid $ 44,576,712 $ 30,854,010
Cash payments of income taxes 1,835,852 3,372,090
Supplemental disclosures of noncash investing and financing activities:
Additions to real estate acquired through foreclosure 4,232,125 4,578,015
Transfer of securities from trading to held to maturity portfolio -- 4,875,000
Transfer of securities from trading to available for sale portfolio -- 10,014,089
Transfer of securities from held to maturity to available for sale 223,766,211 --
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
California Financial Holding Company ("Company") was incorporated in
1988 in the State of Delaware. Its principal asset is Stockton Savings
Bank ("Stockton Savings" or "Bank") a wholly-owned subsidiary which has
been in existence since 1887. The investment in Stockton Savings is the
Company's primary asset with the only other asset consisting of $2.2
million in cash, the result of dividends paid by the Bank to the Company.
Because the Bank represents the Company's major asset, discussion in this
text will focus primarily on the activities of Stockton Savings.
Total assets decreased by $12 million this year as a result of declines
in the balance of securities and real estate. In an effort to restructure
the balance sheet, the Bank sold $31 million in fixed-rate mortgage-backed
securities held as available for sale. A $10 million reduction in the
balance of real estate held was also responsible for the decline in
assets.
Loan origination volume for the first nine months of 1995 totalled
$211.7 million compared to volume of $293.1 million for the first nine
months of 1994. The decrease in refinance activity was the largest single
factor affecting volume this year as it only represented $49 million of
total originations this year compared to $109 million for the first nine
months of 1994. The increase in interest rates, beginning in the second
quarter of 1994, was primarily responsible for the decline in originations
due to refinancings. Construction loan originations declined by $8
million for the first nine months of this year compared to the previous
year, also contributing to the decline in lending volume. The continued
weakness in the housing market is the primary cause of the reduced
construction lending activity. Loan volume is expected to remain fairly
flat for the remainder of the year.
A breakout of lending volume by type is shown below for the periods
indicated:
Originations through
September 30
(in millions)
1995 1994
Short-term construction loans $ 100.8 $ 109.0
Permanent fixed-rate loans 41.9 69.8
Permanent adjustable-rate loans 69.0 114.3
-------- -------
TOTAL ORIGINATIONS $ 211.7 $ 293.1
======== =======
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<PAGE>
In addition to the reduced permanent lending volume caused by a
reduction in refinance activity, the declining rate environment in the
current year led to increases in the origination of fixed-rate mortgage
lending relative to adjustable. Historically, adjustable-rate mortgages
have been more popular in periods of rising interest rates, due
particularly to attractive start rates offered on this product.
Alternatively, fixed-rate mortgages have been more popular in low rate
environments as the borrower seeks to lock in a low fixed rate. The Bank
has traditionally retained most adjustable-rate product in portfolio and
sold most permanent fixed-rate mortgages in an effort to limit exposure to
the interest rate risk inherent in the balance sheet. Loan sale activity
of $63 million was roughly equivalent to the prior year volume of $60
million. Lower prepayment and refinance activity on loans in the current
year have led to an increase in the balance of loans serviced for others
to $538.9 million from $506.9 million a year ago.
The balance of real estate held for development or sale has declined by
$6.7 million from a year ago and by $6.2 million in the current year.
Real estate held by the Bank at quarter-end consisted of $6.9 million in
real estate owned through foreclosure and $8.5 million in real estate held
for investment purposes. The Bank is currently in the process of
disposing of its real estate investments due to regulatory constraints.
As a result, the balance has declined steadily over the past several
years. Although real estate investment sales have totalled $8.6 million
this year, the continued build-out of projects requiring the disbursement
of additional funds has somewhat reduced the benefit of these sales.
Some of the decline in the balance of real estate investments this year
has come about through the establishment of $2.9 million in additional
loss reserves. The balance of real estate investments should continue to
decline through the end of 1995 as current sales contracts exist that
anticipate the bulk sale of additional lots by year end. The Bank will
provide the financing on these sales at market terms. It is anticipated
that the Bank will be out of its real estate investments by mid-1996.
Although the balance of real estate owned through the foreclosure
process has remained fairly flat from a year ago, it has dropped by
$3.6 million from year-end 1994. Additions to real estate owned have
totalled $4.2 million this year while sales have been roughly $7.5
million. The balance of real estate owned through the foreclosure process
is anticipated to decline further as the level of troubled assets appears
to have leveled out and is beginning to decline. (See "Asset Quality" for
further discussion.)
A breakdown of the Bank's portfolio of real estate held is shown below
as of the dates indicated:
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Real Estate Held for Development
or Sale, net
(in thousands)
12/31/94 9/30/95 9/30/94
Real estate owned through foreclosure $ 10,543 $ 6,931 $ 6,156
Real estate held for development 14,691 8,527 15,184
--------- --------- ---------
TOTAL $ 25,234 $ 15,458 $ 21,340
========= ========= =========
Effective January 1, 1994, the Bank implemented FAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". FAS 115 requires
that debt and equity securities be classified as either held to maturity,
available for sale or held for trading. The new pronouncement severely
restricts the transfer of assets between classifications. At September
30, 1995, the Bank held $120.2 million in investment securities designated
as available for sale and $138.5 million in mortgage-backed securities
with a similar designation. During the third quarter, the Bank made a
decision to restructure its balance sheet by selling $31 million in fixed-
rate mortgage-backed securities. As a result, the Bank's entire
investment portfolio, originally classified as held for investment, was
redesignated as available for sale as of quarter-end. At quarter-end,
the investment portfolio was adjusted to market value with the after-tax
net loss of $646,000 shown as a deduction from stockholders' equity. In
the past, the Bank designated certain investments under active management
as held for trading purposes. The Bank discontinued the active management
of these funds in the second quarter of 1994, eliminating the designation
of assets as held for trading purposes.
The $11.8 million decline in assets that occurred this year
corresponded with a $49.1 million decline in the balance of brokered
deposits outstanding offset by $31.7 million of growth in retail deposits.
In addition, the level of borrowings outstanding decreased by $4.9
million.
RESULTS OF OPERATIONS
The Company earned $1.6 million or $.33 per share for the first nine
months of 1995 compared to earnings of $3.3 million or $.71 per share for
the first nine months of 1994. The Company earned $1.5 million in the
current quarter or $.32 per share. Earnings for the third quarter of 1994
totalled $120,000 or $.02 per share.
Improved earnings in the current quarter over the second quarter can be
attributed to increased margins, reduced losses taken on assets and steady
noninterest expense. Year to date earnings consist almost entirely of
profits generated in the third quarter as earnings in the first quarter
were eliminated by writedowns taken on real estate in the second quarter.
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The table below breaks out the components of the Bank's margin and
spread for the periods indicated:
<TABLE>
<CAPTION>
Average for the quarter Average for the Nine *Weighted average as of
ended Sept. 30 Months ended Sept. 30 Sept. 30
----------------------- --------------------- ----------------------
Basis- Basis- Basis-
point point point
1995 1994 change 1995 1994 change 1995 1994 change
---- ---- ------ ---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Yield on interest-
earning assets:
Loan portfolio yield 8.00% 7.31% 0.69% 7.70% 7.55% 0.15% 7.72% 6.98% 0.74%
Yield on marketable
investments 6.67 6.32 0.35 6.58 6.02 0.56 6.70 6.29 0.41
Weighted yield on
assets 7.68 7.07 0.61 7.44 7.22 0.22 7.48 6.80 0.68
Cost of funds:
Cost of deposits 4.99% 4.10% 0.89% 4.82% 4.00% 0.82% 4.98% 4.16% 0.82%
FHLB advances &
other borrowings 6.29 5.49 0.80 6.13 5.50 0.63 6.13 5.47 0.66
Weighted cost of
funds 5.20 4.30 0.90 5.02 4.17 0.85 5.17 4.38 0.79
Interest rate spread 2.48% 2.77% (0.29)% 2.42% 3.05% (0.63)% 2.32% 2.47% (0.15)%
Net yield on interest-
earning assets 2.62% 2.88% (0.26)% 2.54% 3.17% (0.63)% 2.45% 2.55% (0.10)%
</TABLE>
* Does not consider the effect of amortization of loan fees.
Reduced net interest income caused by declining spreads in the current
year and quarter was partially offset by increases in the average balance
of interest earning assets over the same time frames as well as by an
improvement in the level of interest-earning assets relative to interest-
bearing liabilities.
Due to the nature and composition of the Bank's balance sheet, yields on
assets tend to lag the general market, while the cost of interest-bearing
liabilities are somewhat more responsive to current market interest rates.
As a result, spreads are positively impacted in periods of falling
interest rates and negatively impacted in rising rate environments. For
the first half of 1995, asset yields remained fairly flat as the Bank
continued to add lower-yielding adjustable mortgages to the earning asset
portfolio. At the same time, interest-bearing liabilities continued to
steadily increase. During the third quarter, spreads began to improve as
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<PAGE>
a result of the declining rate environment. Asset yields increased as
adjustable mortgages repriced upwards while funding costs remained flat.
Loan interest income increased by roughly $4.5 million for the first
nine months of 1995 compared to 1994 and increased by $2.2 million for the
quarter relative to 1994's third quarter. A 15-basis point increase in
the average yield on the loan portfolio in the current year, having a
$949,000 positive impact on loan interest income, as well as a $61.3
million increase in the average balance of loans outstanding, benefiting
interest income by $3.6 million, led to the increase in income reported.
The average yield on the loan portfolio increased by 69-basis points this
quarter compared to the third quarter of last year, benefiting interest
income by $1.5 million. In addition, the average balance of loans
outstanding increased by $34.2 million for the quarter, adding $641,000 to
interest income. The upward repricing on 6-month adjustable rate
mortgages indexed to COFI was primarily responsible for the improved yield
this year compared to the previous year.
The steady increase in COFI this year, combined with the increase in
starting rates on new adjustable product added to the portfolio, added 8-
10 basis points to the Bank's loan portfolio on a monthly basis this
quarter. The benefits from the continued upward repricing of this
portfolio should continue throughout 1995 regardless of the direction of
rates. The increase in the average balance of loans outstanding this year
as well as this quarter relative to the third quarter of last year was the
result of a conscious effort by the Bank to leverage equity in mid-1994.
Investment interest has increased by $3.3 million during the current
year relative to the first nine months of 1994. A 56-basis point increase
in portfolio yields led to increased earnings of $1.1 million and an
increase in the average balance of investments outstanding of $47.5
million benefited earnings by an additional $2.3 million. Investment
interest increased by $311,000 this quarter compared to the third quarter
of 1994, again due primarily to the 35-basis point increase in the average
yield on the portfolio. The Bank held a significantly larger portfolio of
overnight funds during the first half of 1994 which were replaced with
higher-yielding investments during the latter half of last year,
accounting for much of the increase in yields.
The Bank's cost of funds has continued to increase in 1995 in response
to the increase in rates that began in March of 1994. The interest costs
associated with deposits are up this year by $8.4 million from 1994
levels, due primarily to an 82-basis point increase in average deposit
costs, increasing expense by $6.0 million, as well as to a $77.3 million
increase in the average balance of deposits, increasing expense by $2.4
million. Deposit costs are also up by $2.5 million this quarter compared
to the third quarter of 1994, $2.2 million due to an 89-basis point
increase in average deposit costs and $325,000 due to a $29.9 million
increase in the average balance of deposits outstanding. Roughly 30% or
$22 million of the increase in the average balance of deposits outstanding
relates to brokered funds. During the second half of 1994, the Bank
undertook a growth strategy which was partially funded through the use of
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<PAGE>
brokered deposits. The remaining growth in deposits occurred through
retail operations. Deposit costs flattened out considerably in the third
quarter and are expected to decline in the fourth quarter, corresponding
to the roll of a considerable balance of high-costing accounts.
The Bank's deposit costs include the negative impact of interest rate
swaps. The swaps are structured for the Bank to pay a fixed amount of
interest on a notional principal amount and to receive a variable amount
of interest indexed to COFI on the same notional amount. This structure
is designed to act as a hedge in periods of rising interest rates. As a
result, as the general interest rate environment increases, the Bank
receives a benefit from the swaps while the reverse holds true in periods
of falling rates. It should be noted that since the swaps are tied to
COFI, which is a lagging index, the impact of any changes in the index
will lag the general interest rate market, thereby providing a lagging
benefit in periods of rising interest rates with the reverse holding true
in falling rate environments. The swaps added $1.1 million to interest
expense in 1995 compared to $2.5 million for the first nine months of
1994. Swap costs of $279,000 were incurred for the third quarter of this
year compared to $813,000 for the third quarter of 1994. The decline in
the impact of interest rate swaps on deposit expense this year is due to
the steady increase in COFI this year as well as to the maturity in
February of a $25 million high-costing swap. It is anticipated that,
although the swaps will continue to have a negative impact on deposit
costs in the future (as COFI appears to have peaked), the impact will be
reduced due to the scheduled maturity of an additional $25 million in
swaps later this year.
Interest costs on borrowings increased by $2.2 million this year
compared to the first nine months of 1994 and increased by $445,000 this
quarter relative to the third quarter of 1994. An increase in the average
cost of borrowings of 63-basis points was responsible for $556,000 of the
increase on a year to date basis and an 80-basis point increase in the
cost of borrowings in the third quarter relative to the third quarter last
year added $291,000 to borrowing costs this quarter. Additionally, a
$31.6 million increase in the average balance of borrowings outstanding on
a year to date basis added $1.6 million to interest expense in the current
year compared to the first nine months of 1994. Average borrowings
increased by $3.3 million this quarter compared to the third quarter of
1994, adding just $56,000 to borrowing costs in the current quarterly
period. The average borrowing balances increased on a year to date basis
due to the growth strategy discussed above and consisted primarily of
reverse repurchase agreements. The increase in the average cost of
borrowings this year related primarily to the increase in the rates on the
Bank's COFI-based advances as well as to the addition in the current year
of higher-costing fixed-rate advances.
Spreads began to increase in the third quarter and are predicted to
continue to widen as the current declining rate environment has stabilized
funding costs while asset yields continue to reprice upwards in relation
to COFI.
- 13 -
<PAGE>
The Bank's average margin relative to spread began increasing in the
current quarter. The Bank's success in reducing its level of
nonperforming assets over the past six months as well as the increased
sell-off of real estate held for development purposes has provided the
improvement. The continued sell-off of real estate investments in the
fourth quarter should lead to further improvement.
Loan loss provisions established during the year totaled $1.6 million.
Roughly $260,000 of the total reserves established were general in nature
with the remainder specific, relating primarily to a construction loan
made to facilitate the sale of real estate investments in a market area
that is currently suffering from a rapid decline in value. Minimal
reserves were established in the current quarter.
Noninterest income of $918,000 was reported for the quarter compared to
noninterest losses of $2.2 million reported in the third quarter of 1994.
On a current year to date basis, noninterest losses totalled $1.0 million
with noninterest losses of $1.6 million recorded in 1994. Losses of $3.5
million taken in the second quarter of 1995 on real estate held for
development or sale purposes were responsible for most of the noninterest
losses taken during the current year. Writedowns of $476,000 taken in the
first quarter on FHA Title I securities added to the level of losses
incurred on a year to date basis. Fee income, consisting primarily of
servicing spreads on sold loans as well as fees earned on deposit and loan
products, increased by 8.9% this year due to increased efforts by the Bank
to market fee-generating products.
Noninterest income, with the exception of fee and servicing income,
which have proven to be steady, consistent sources of revenue for the
Bank, is expected to remain minimal for the remainder of the year due to
the lack of margins on the sale of real estate and loans.
Noninterest expense has decreased by $1.4 million this year compared to
the first nine months of 1994. On a quarterly basis, expenses are down
$80,000 from the third quarter of 1994. The decline in expenses on a year
to date basis is primarily due to a $1.5 million reversal of pension
expense in the second quarter of 1995 to reflect the Bank's change from a
defined benefit pension plan to a 401(k) profit sharing plan for its
employees. The change has resulted in somewhat reduced benefit expenses
in the third quarter of 1995. Excluding the one time benefit received on
pension expense, noninterest expense on a year to date basis increased by
only a minimal amount. Although deferred salary expense (a reduction from
compensation expense) has declined this year due to reduced loan
origination volume, it has been more than offset by declines in other
compensation expenses.
The effective tax rate for the first nine months of 1995 was 44.3%
compared to a rate of 31.1% for the first nine months of 1994. The high
rate this year is due to the low level of income in the current year
combined with a flat tax paid to the state of Delaware. The effective
rate for 1994 included a $500,000 one-time tax benefit taken in the third
- 14 -
<PAGE>
quarter which was the result of a settlement with the IRS regarding the
tax treatment for the amortization of core deposit intangibles.
ASSET QUALITY
The Bank continued to improve its level of nonperforming assets in the
current quarter, due largely to a decline in 90 day delinquent loans.
Sales of foreclosed property in the current year totalled $7.5 million
compared to sales of $4.3 million through the first nine months of 1994.
Detail on nonperforming assets is shown in the table below for the dates
indicated:
Nonperforming Assets
September 30
(in thousands)
1995 1994
Loans 90 days or more delinquent $ 4,994 $ 9,560
Troubled debt restructurings 7,551 17,957
Real estate owned through foreclosure 6,931 7,273
--------- --------
Net nonperforming assets $ 19,476 $ 34,790
========= ========
Nonperforming assets/Total assets 1.54% 2.76%
As indicated above, the level of nonperforming assets has decreased by
roughly $15.3 million from the prior year. Non-performing assets as a
percentage of total assets was 1.54% at quarter end compared to 2.76% a
year ago.
Nonperforming assets as of September 30, 1995 consisted of the following
asset types:
Nonperforming Assets by Type
(in thousands)
Sept. 30, 1995
Commercial and multi-family real estate $ 3,588
Construction 3,890
1-4 family homes 7,609
Land 4,389
-------
$19,476
=======
By policy, the Bank does not accrue interest on loans that are 90 days
or more delinquent. Interest on troubled debt restructurings is recorded
on a cash basis only. Foregone interest on nonperforming loans through
the first nine months of 1995 totaled $575,000. Life-to-date unrecorded
interest on these same loans totaled $2.5 million through quarter-end. A
total of $394,000 in interest income has been recorded on these loans so
far this year.
- 15 -
<PAGE>
Troubled debt restructurings represent loans that have been modified,
usually as a result of financial difficulties experienced by the borrower,
to terms that are more favorable than what would normally be offered.
These modifications usually involve either a reduction in rates to below
market, capitalization of interest due or the requirement that monthly
payments equate to the level of cashflow on the underlying property. The
Bank's largest restructured assets are $4.7 million on two construction
projects where loans were made to facilitate the sale of real estate
investments. The underlying properties have experienced a significant
decline in value and the borrowers have limited financial resources.
Specific loan loss reserves on these two assets total $1.0 million. A
majority of the restructured speculative development loans are in some
stage of delinquency. At quarter-end, $3.6 million in restructured debt
was more than 90 days delinquent. The restructured debt total includes
$1.1 million in interest that has been capitalized but has not been
recognized in income. An additional $362,000 in interest has been accrued
at quarter-end but not included in income.
As of quarter end, the Bank had roughly $2.2 million in potential
problem loans which are currently in a performing status. There is some
doubt as to whether these loans will continue in performing status,
however. All potential problem loans have been classified for regulatory
purposes.
The Bank's level of general loan loss reserves has declined since a year
ago. The level of general loss reserves outstanding at any point in time
is largely dependent on the amount and type of loans outstanding, level of
classified and nonperforming loans and historical loss experience. An
excess of general loss reserves on loans was identified last year which
was transferred to general reserves on real estate. The general reserves
on real estate have been utilized as specific reserves on certain
properties or have been taken as writedowns.
The following table identifies the Bank's general loan loss reserve at
September 30, 1995 by loan type:
Reserves Percent of loans
(in thousands) in each category
at 9/30/95 to total loans
1-4 family permanent loans $ 1,888 76.5
Multi-family loans 1,011 3.9
Commercial real estate loans 1,265 5.9
Land, construction and 3,108 13.7
development loans -------- ------
TOTAL $ 7,272 100.0%
======== ======
Although total general loan loss reserves have declined by $878,000 from
a year ago, the level of general loss reserves to nonperforming assets has
increased from 26.64% to 37.34%.
- 16 -
<PAGE>
There were no general loss reserves on real estate owned through
foreclosure or for investment purposes at September 30, 1995. General
loss reserves on real estate owned totalled $1.1 million at September 30,
1994 and general reserves on real estate held for investment purposes
totalled $700,000.
Activity in the allowances for both loans and real estate for the first
nine months of 1995 is summarized below:
Loss Reserves
(in thousands)
Loans Real Estate
Balance, December 31, 1994 $ 7,726 $ 6,851
Provision for losses 1,634 3,725
Charge-offs (407) (4,183)
Recoveries -- --
--------- ---------
Balance, September 30, 1995 $ 8,952 $ 6,393
========= ==========
The Bank is required by regulation to classify and monitor all assets
exhibiting a defined weakness. The Bank's level of classified assets is
summarized in the following table for the dates indicated:
Classified Assets
(in thousands)
as of
12/31/94 9/30/95 9/30/94
Substandard $ 56,844 $ 43,987 $ 55,900
Doubtful -- -- 150
Loss 6,237 11,159 6,140
-------- -------- --------
TOTAL $ 63,081 $ 55,146 $ 62,190
======== ======== ========
The level of total classified assets declined by $7.0 million from the
previous year due primarily to the improved performance of a $5 million
troubled debt restructuring and the successful sale of foreclosed real
estate. The level of assets classified as "loss" increased by $5.0
million as a result of the significant reserves established on real estate
investments in the second quarter of this year. Alternatively, the level
of "substandard" assets declined by $11.9 million due to the above-
mentioned reasons.
It is anticipated that the level of classified assets will continue to
decline due to the projected liquidation of the Bank's portfolio of real
estate held for investment purposes.
- 17 -
<PAGE>
INTEREST RATE SENSITIVITY
The Bank's balance sheet has historically been exposed to some level of
interest rate risk in a rising rate environment as most of its assets were
in the form of long-term, fixed-rate mortgages which were funded with
short-term, frequently repricing deposits. During the past several years,
a concerted effort has been made to portfolio more adjustable-rate loans,
selling off fixed-rate product. This effort has helped in reducing
interest rate exposure in rising rate environments although the benefits
are somewhat mitigated by the lagging effects of the index used on the
adjustable product as well as by the six month average repricing period
and periodic rate caps inherent in these loans. The negative impact of
the lagging characteristics of these assets on net interest income in a
rising rate environment is not as significant in a gradually rising rate
environment as it is in a period when rates accelerated as rapidly as they
did in 1994.
The Bank made a conscious decision to grow assets during 1994,
purchasing roughly $84.5 million in 15-year, fixed-rate, mortgage-backed
securities and $15.9 million in 15-year, fixed-rate mortgages in the first
and second quarters of the year. The growth was taken on as a result of a
desire by Bank management to leverage excess regulatory capital, after
experiencing virtually no growth over the prior four years due to capital
constraints related to investments in real estate. The growth was funded
with a combination of long-term, fixed-rate borrowings and short-term
reverse repurchase agreements. The growth strategy has increased the
interest rate risk inherent in the balance sheet. Management felt that
the assumption of additional risk was warranted given the Bank's balance
sheet structure prior to the decision to grow assets and management's
long-term view regarding the future direction of interest rates.
The decline in net interest income over the past year, in spite of
strong asset growth, is indicative of the Bank's continued exposure to
rising interest rates. As a result, additional balance sheet
restructuring occurred in the third quarter. More specifically, the Bank
sold $31 million of the fixed-rate mortgage-backed securities during the
quarter, using the cash to repay short-term borrowings. The securities
were originally designated as held for investment purposes and the sale
"tainted" the Bank's remaining investment portfolio, requiring the
reclassification of the portfolio to available for sale. At September 30,
1995, $258.7 million in investments were designated as available for sale,
requiring a $646,000 deduction from capital to reflect the after-tax
unrealized loss on the mark-to-market of the available for sale investment
portfolio.
It is anticipated that further restructuring will occur in the fourth
quarter through the sale of additional fixed-rate mortgage-backed
securities, replacement of short-term borrowings with long-term fixed-rate
advances and the replacement of fixed- rate assets sold with more rate-
sensitive products.
- 18 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required by regulation to maintain cash and certain short-
term eligible investments equal to 5% of the average daily balance of net
withdrawable accounts and certain short-term borrowings during the
preceding calendar month. At September 30, 1995, this liquidity ratio was
5.60%.
The Bank generally has the ability to originate more loans than it can
portfolio and has relied heavily on loan prepayment and sale activity to
maintain desired growth levels. Asset growth is generally funded through
the Bank's internal retail branch system and, on occasion, through the
acquisition of branches from other depository institutions within the
Bank's market area. Growth is also funded to a lesser degree with
advances from the Federal Home Loan Bank and through the use of short-term
reverse repurchase agreements and brokered deposits.
As of September 30, 1995, the Bank had approximately $155.3 million in
collateral still available for short-term reverse repurchase agreements.
These agreements are generally utilized on a short-term basis to meet
daily operating needs. However, beginning in the second quarter of last
year, Bank management initiated a balance sheet growth strategy
incorporating the use of these short-term borrowings on a longer-term
basis. For a further discussion of this strategy, see "Interest Rate
Sensitivity". Additional short-term cash needs can also be met through
the use of a line of credit with the FHLB. At quarter-end, approximately
$196.8 million was still available through this borrowing source.
REGULATION
Under the Financial Institutions Reform, Recovery and Enforcement Act
signed into law on August 9, 1989, financial institutions were required to
meet three regulatory capital requirements: a tangible capital
requirement, a core capital requirement and a risk-based capital
requirement.
Tangible capital is defined as common stock, retained earnings,
noncumulative preferred stock less intangibles and a specified phase-out
of certain real estate and equity investments and must equal 1.5% of
tangible assets. Core capital is defined as tangible capital plus certain
intangibles and must equal 3% of tangible assets. Risk-based capital is
core capital plus general loan loss reserves and must equal 8% of risk-
weighted assets.
The Bank's regulatory capital position at September 30, 1995 is
identified in the following schedule:
- 19 -
<PAGE>
Regulatory capital position
(in thousands)
Tangible Core Risk-based
Book capital $ 81,814 $ 81,814 $ 81,814
Real estate investment deduction (5,234) (5,234) (5,234)
Intangible deduction (1,349) (1,349) (1,349)
General loan loss reserves -- -- 7,272
Miscellaneous 636 636 294
-------- -------- --------
Net regulatory capital $ 75,867 $ 75,867 $ 82,797
Minimum required 18,965 37,931 55,189
-------- -------- --------
Excess over minimum $ 56,902 $ 37,936 $ 27,608
======== ======== ========
Excess over "well capitalized" $ 12,649 N/A $ 13,811
======== ========
Capital Ratio 6.00% 6.00% 12.00%
The Bank is currently considered "well capitalized" by regulatory
definition which has a positive impact on the level of deposit insurance
premiums assessed and provides the Bank additional operating flexibility.
There are several adjustments made to the level of capital reported on a
financial basis as compared to capital reported on a regulatory basis.
Certain intangible assets such as core deposit premiums are excluded from
regulatory capital. In addition, any investments in nonincludable
subsidiaries are also deducted from capital, subject to a phase-out rule.
Any adjustments made to capital due to the mark to market of the available
for sale portfolio are also excluded from capital. Regulation also limits
the amount of general loan loss reserves includable in risk-based capital
to 1.25% of risk-weighted assets. At September 30, 1995, the Bank had not
hit this maximum and as a result, the full amount of general loan loss
reserves was included in risk-based capital.
The well capitalized designation requires that an institution's risk-
based capital to risk-weighted assets exceeds 10%, its Tier 1 risk-based
capital ratio (which is similar to the risk-based ratio but excludes the
inclusion of general loan loss reserves) must exceed 6% of risk-weighted
assets and its core capital ratio must exceed 5% of total adjusted assets.
At September 30, 1995, the Bank's risk-based capital, Tier 1 risk-based
and core ratios were 12.00%, 11.00% and 6.00%, respectively.
Currently, as part of a phase-out schedule, 60% of loans to and
investments in subsidiaries invested in real estate development is
deducted from regulatory capital. At September 30, 1995, the Bank's fully
phased-in, risk-based capital ratio (deducting all $8.7 million in
subsidiary investments) was 11.57%, $24.1 million above the 8% minimum
requirement and $10.3 million above the 10% requirement to be considered
"well capitalized". Based on the above and the Bank's current strategy to
accelerate the sale of real estate held for investment purposes, it is not
anticipated that the Bank will have any problems in meeting future
scheduled phase-out requirements, the next one to take effect on July 1,
- 20 -
<PAGE>
1996, increasing the phase-out percentage from the current 60% to 100% of
loans to and investments in subsidiaries.
The Office of Thrift Supervision ("OTS") has issued a rulemaking that
was initially to take effect on September 30, 1994 which was designed to
ensure that a savings association's risk-based capital requirement is
based, in part, on the level of its exposure to interest rate risk. This
has been accomplished by adding an interest rate risk component to the
risk-based capital requirement. However, implementation of the rule has
been delayed several times by the OTS and it is uncertain when the rule
will become effective. The rule would require that a savings institution
must deduct from its risk-based capital an amount equal to 50% of the
decline in the market value of its portfolio equity in excess of 2% of the
current market value of its assets that would result from either a 200-
basis point instantaneous increase or decrease in rates, whichever is
greater. Based on the most recent calculation performed by OTS on the
Bank's interest rate risk position, there is no excess change in the
market value of portfolio equity over 2% of the market value of assets.
The Treasury Department, the OTS, and the Federal Deposit Insurance
Corporation have all recommended to Congress that institutions with SAIF-
assessable deposits pay a special assessment in an amount sufficient to
increase the SAIF reserve ratio to 1.25 percent. It is anticipated that
the issues raised by this recommendation will be addressed in certain
legislation, known as the Budget Reconciliation Bill, now being considered
in the Congress and that such legislation will be enacted before the end
of this calendar year. Representatives from the Senate and House Banking
Committees have agreed on a proposal under which it is anticipated that,
in order to recapitalize SAIF, SAIF-insured institutions such as the Bank,
will pay, on January 2, 1996 or on another date prescribed by the FDIC, a
one-time special assessment of approximately 80-basis points on all SAIF
insured deposits held by them as of March 31, 1995. It is anticipated
that this proposal will be added to the Budget Reconciliation Bill. This
assessment would approximate $8.1 million for the Bank, assuming the
foregoing assessment rate and measurement date. SAIF-insured institutions
would have the option of paying the assessment on or prior to December 31,
1995. Until the legislative consideration of this proposal is more
advanced, the Bank will not determine definitely whether to treat any such
one-time assessment as a 1995 or a 1996 expense. Under a bill reported by
the House Ways and Means Committee, the amount of such special assessment
would be fully deductible for federal corporate income tax purposes by
SAIF-insured institutions as an ordinary and necessary business expense.
If the above-described legislation is enacted, it is anticipated to have a
significant negative impact on the Bank's earnings.
If the proposal agreed upon between the representatives from the Senate
and House Banking Committees becomes law, and depending on subsequent FDIC
decisions, the average SAIF insurance premium rate for 1996 is anticipated
to be approximately 5-basis points and the average BIF insurance premium
rate for 1996 is anticipated to be lower and may even be zero. If such a
lower premium rate were payable by the Bank, this would have a positive
effect on the Bank's net income in 1996.
- 21 -
<PAGE>
If the proposal agreed upon between the representatives from the Senate
and House Banking Committees becomes law, BIF and SAIF would be merged on
January 1, 1998, but only if, at that time, no depository institution that
is insured by the FDIC is a savings institution. In addition, pursuant to
a bill reported by the House Ways and Means Committee that may be added to
the Budget Reconciliation Bill, savings institutions such as the Bank
would receive, subject to a number of conditions, a "fresh start" with
respect to the potential recapture of certain tax bad debt reserves. This
may affect the Bank's competitive environment by facilitating
consolidation between the banking and thrift sectors.
No assurance can be given as to the ultimate resolution of the matters
described in the previous four paragraphs. However, even after the
payment of a special assessment of the magnitude described above, the Bank
would still be classifed as well capitalized under the relevant total
risk-based capital, Tier 1 capital and core capital tests based on its
regulatory capital position at quarter-end.
- 22 -
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index on Page 25 of the Form 10-Q.
(b) There were no reports filed on Form 8-K during the quarter ended
September 30, 1995.
- 23 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CALIFORNIA FINANCIAL HOLDING COMPANY
____________________________________
Registrant
DATE: November 10, 1995 BY: /s/ ROBERT V. KAVANAUGH
________________________________
ROBERT V. KAVANAUGH
President, Chief Operating Officer
DATE: November 10, 1995 BY: /s/ JANE R. BUTTERFIELD
________________________________
JANE R. BUTTERFIELD
Senior Vice President, Treasurer,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
- 24 -
<PAGE>
ITEM 6(a) List of Exhibits
__________________________
EXHIBIT INDEX
Location of
Exhibit Exhibit in Sequential
Number Description of Document Numbering System
_______ _______________________ _____________________
27 Financial Data Schedule
- 25 -
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
company's quarterly report on Form 10-Q for the three months ended September 30,
1995 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 9,541
<INT-BEARING-DEPOSITS> 10,772
<FED-FUNDS-SOLD> 300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 258,671
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 922,956
<ALLOWANCE> 8,952
<TOTAL-ASSETS> 1,263,352
<DEPOSITS> 983,717
<SHORT-TERM> 75,807
<LIABILITIES-OTHER> 7,779
<LONG-TERM> 111,966
<COMMON> 26,546
0
0
<OTHER-SE> 57,536
<TOTAL-LIABILITIES-AND-EQUITY> 1,263,352
<INTEREST-LOAN> 18,549
<INTEREST-INVEST> 4,842
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 23,390
<INTEREST-DEPOSIT> 12,283
<INTEREST-EXPENSE> 15,400
<INTEREST-INCOME-NET> 7,990
<LOAN-LOSSES> 67
<SECURITIES-GAINS> 136
<EXPENSE-OTHER> 6,215
<INCOME-PRETAX> 2,625
<INCOME-PRE-EXTRAORDINARY> 2,625
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,525
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 2.62
<LOANS-NON> 4,994
<LOANS-PAST> 0
<LOANS-TROUBLED> 7,551
<LOANS-PROBLEM> 2,209
<ALLOWANCE-OPEN> 8,987
<CHARGE-OFFS> 102
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 8,952
<ALLOWANCE-DOMESTIC> 1,680
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,272
<PAGE>
</TABLE>
