<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
__________________________________
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ------ ACT OF 1934
For the quarterly period ended September 30, 1996
OR
______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number 0-19491
CENFED FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4314853
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
199 North Lake Avenue, Pasadena, California 91101
- ------------------------------------------- -----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (818) 585-2400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 requirement for the past 90 days. Yes X No
----- -----
Number of shares outstanding of the registrant's sole class of common stock at
October 18, 1996: 5,121,232
<PAGE> 2
CENFED FINANCIAL CORPORATION
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of September 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three Months and Nine Months
Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three Months and Nine Months
Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits
a. Exhibits
b. Reports on Form 8-K
</TABLE>
<PAGE> 3
CENFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT SHARE AMOUNTS SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -----------
<S> <C> <C>
Assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,728 $ 21,928
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 7,288
---------- ----------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 19,728 29,216
---------- ----------
Investment securities available for sale, at fair value . . . . . . . . 151,490 133,778
Mortgage-backed securities ("MBS") available for sale, at fair value . 410,781 341,288
Loans held for investment, net . . . . . . . . . . . . . . . . . . . . 1,407,267 1,492,094
Loans held for sale, at lower of cost or fair value . . . . . . . . . . 114,435 100,183
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . 15,091 14,894
Real estate acquired in settlement of loans ("REO") . . . . . . . . . . 7,867 6,236
Real estate held for development and sale, net . . . . . . . . . . . . 413 5,410
Premises and equipment, net . . . . . . . . . . . . . . . . . . . . . 10,261 13,300
Intangible assets, net of accumulated amortization . . . . . . . . . . 215 248
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 7,174 3,818
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,251 14,774
---------- ----------
$2,160,973 $2,155,239
========== ==========
Liabilities and Stockholders' Equity:
Customer deposit accounts . . . . . . . . . . . . . . . . . . . . . . . $1,528,786 $1,551,329
Securities sold under agreements to repurchase . . . . . . . . . . . . 128,767 150,052
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,650 22,800
FHLB advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352,400 300,500
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,440 26,006
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 2,052,043 2,050,687
---------- ----------
Commitments and contingent liabilities
Common stock. $.01 par value
Authorized shares: 14,000,000 at September 30, 1996 and December 31,
1995
Outstanding shares: 5,101,260 at September 30, 1996 and 5,013,000 at 51 50
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . 30,873 30,122
Retained earnings - substantially restricted . . . . . . . . . . . . . 81,010 73,721
Unrealized gain (loss) on securities available for sale, net of tax . . (1,760) 2,179
Deferred compensation - retirement plans . . . . . . . . . . . . . . . (1,244) (1,520)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . 108,930 104,552
---------- ----------
$2,160,973 $2,155,239
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
CENFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -----------------------
In Thousands, Except Share Amounts 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans . . . . . . . . . . . . . . . . . . . . . . . . $30,045 $27,724 $91,098 $74,962
Investment securities and short-term investments . . . 2,012 2,032 5,791 5,723
Mortgage-backed securities . . . . . . . . . . . . . . 7,559 5,911 20,577 17,473
--------- --------- --------- ---------
Total interest and dividend income . . . . . 39,616 35,667 117,466 98,158
--------- --------- --------- ---------
INTEREST EXPENSE:
Customer deposit accounts . . . . . . . . . . . . . . 19,647 18,865 59,471 50,979
Securities sold under agreements to repurchase . . . . 1,511 2,929 4,521 8,085
FHLB advances . . . . . . . . . . . . . . . . . . . . 4,727 3,596 12,940 9,714
Other borrowings . . . . . . . . . . . . . . . . . . . 544 639 1,772 1,858
--------- --------- --------- ---------
Total interest expense . . . . . . . . . . . 26,429 26,029 78,704 70,636
--------- --------- --------- ---------
Net interest income . . . . . . . . . . . . . . . . . 13,187 9,638 38,762 27,522
PROVISIONS FOR LOAN LOSSES . . . . . . . . . . . . . . . 1,500 1,000 6,549 1,900
--------- --------- --------- ---------
Net interest income after provisions for loan
losses . . . . . . . . . . . . . . . . . 11,687 8,638 32,213 25,622
--------- --------- --------- ---------
NON-INTEREST INCOME:
Loan servicing fees . . . . . . . . . . . . . . . . . 931 1,275 2,960 2,632
Customer deposit account fees . . . . . . . . . . . . 491 477 1,465 1,382
Gain (Loss) on sale of investments and MBS . . . . . . (112) 14 880 76
Gain (Loss) on sale of loans . . . . . . . . . . . . 10 (19) 57 77
Income (Loss) from real estate operations . . . . . . (426) (159) 3,379 (506)
Commissions from sales of investment products . . . . 472 228 1,390 942
Other . . . . . . . . . . . . . . . . . . . . . . . . 81 173 256 347
--------- --------- --------- ---------
Total non-interest income . . . . . . . . . . . 1,447 1,989 10,387 4,950
--------- --------- --------- ---------
OPERATING EXPENSES:
Compensation . . . . . . . . . . . . . . . . . . . . . 3,767 3,888 12,052 12,296
Net occupancy . . . . . . . . . . . . . . . . . . . . 1,570 1,271 4,631 3,814
Deposit insurance premiums . . . . . . . . . . . . . . 904 789 2,651 2,287
Data and check processing . . . . . . . . . . . . . . 383 425 1,179 1,295
Advertising and marketing . . . . . . . . . . . . . . 318 168 650 643
Intangible amortization . . . . . . . . . . . . . . . 17 (12) 53 (64)
SAIF recapitalization assessment . . . . . . . . . . . 9,106 - 9,106 -
Other . . . . . . . . . . . . . . . . . . . . . . . . 1,607 1,375 4,667 3,914
--------- --------- --------- ---------
Total operating expenses . . . . . . . . . . . 17,672 7,904 34,989 24,185
--------- --------- --------- ---------
Earnings before income taxes and extraordinary
item . . . . . . . . . . . . . . . . . . . (4,538) 2,723 7,611 6,387
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . (5,816) 758 (1,363) 1,489
--------- --------- --------- ---------
Earnings before extraordinary item . . . . . . 1,278 1,965 8,974 4,898
EXTRAORDINARY ITEM:
Early extinguishment of debt (net of income taxes of - - (364) -
$267) . . . . . . . . . . . . . . . . . . . . . . .
NET EARNINGS . . . . . . . . . . . . . . . $1,278 $1,965 $8,610 $4,898
========= ========= ========= =========
PRIMARY EARNINGS PER SHARE:
Before extraordinary item . . . . . . . . $0.24 $0.39 $1.73 $0.98
Extraordinary item . . . . . . . . . . . - - ($0.07) -
After extraordinary item . . . . . . . . $0.24 $0.39 $1.66 $0.98
--------- --------- --------- ---------
AVERAGE PRIMARY SHARES OUTSTANDING . . . . . . . . . . . 5,233,200 5,075,937 5,191,003 5,007,512
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CENFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
In Thousands 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $1,278 $1,965 $8,610 $4,898
Adjustments to reconcile net earnings to net cash provided:
Net amortization (accretion) of fees, discounts and 260 350 880 (534)
premiums
Depreciation and amortization . . . . . . . . . . . . . 558 604 1,863 1,768
Gain on sales of loans . . . . . . . . . . . . . . . . . (10) 19 (57) (77)
Gain on sales of investments and MBS . . . . . . . . . . 112 (14) (880) (76)
Lower of cost or fair value adjustment to loans held for (9) -- 91 --
sale . . . . . . . . . . . . . . . . . . . . . . . .
Provisions for loan and real estate losses . . . . . . . 1,817 1,000 6,908 1,964
Originations and purchases of loans held for sale . . . (8,105) (18,838) (29,951) (38,765)
Proceeds from sales of loans held for sale . . . . . . . 219 9,327 4,507 21,476
(Increase) decrease in interest receivable . . . . . . . 49 (3,588) (197) (3,494)
Increase in interest payable . . . . . . . . . . . . . 168 2,812 992 4,251
Change in deferred income taxes, net . . . . . . . . . . (3,356) -- (3,356) --
Change in other assets and other liabilities . . . . . . (874) 9,114 (2,531) 10,816
FHLB stock dividends . . . . . . . . . . . . . . . . . . (231) (159) (645) (572)
Other, net . . . . . . . . . . . . . . . . . . . . . . . (24) (3) 18 (6)
------- -------- -------- --------
Net cash provided by (used in) operating activities . . (8,148) 2,589 (13,748) 1,649
------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale . (73,834) (2,321) (108,059) (22,906)
Proceeds from sales of investment securities available
for sale . . . . . . . . . . . . . . . . . . . . . . 49,638 -- 84,199 2,803
Maturities of investment securities available for sale . -- -- 5,000 --
Purchases of MBS held to maturity . . . . . . . . . . . -- (7,684) -- (38,897)
Purchases of MBS available for sale . . . . . . . . . . (72,022) (19,507) (260,613) (54,576)
Proceeds from sales of MBS available for sale . . . . . 50,659 3,011 138,348 45,390
Principal repayments on MBS . . . . . . . . . . . . . . 16,606 9,401 49,822 35,388
Originations and purchases of loans held for investment (18,923) (144,076) (79,613) (355,501)
Proceeds from sale of loans held for investment . . . . -- -- -- 1,452
Loan repayments . . . . . . . . . . . . . . . . . . . . 45,704 42,264 156,032 99,746
Purchases of premises and equipment . . . . . . . . . . (358) (927) (740) (1,850)
Sales of premises and equipment . . . . . . . . . . . . 22 8 2,115 48
Investment in REO and real estate held for development
and sale . . . . . . . . . . . . . . . . . . . . . . (255) (173) (743) (945)
Sales of REO and real estate held for development and
sale . . . . . . . . . . . . . . . . . . . . . . . . 4,338 2,758 14,314 10,927
------- -------- -------- --------
Net cash provided by (used in) investing activities . 1,575 (117,246) 62 (278,921)
------- -------- -------- --------
</TABLE>
5
<PAGE> 6
CENFED FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
In Thousands 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in customer deposit accounts . . (31,863) 48,683 (21,698) 181,553
Net decrease in notes payable . . . . . . . . . . . . . (50) (50) (4,150) (150)
Net increase (decrease) in short-term financing:
FHLB advances . . . . . . . . . . . . . . . . . . . . 28,500 20,300 31,100 (24,900)
Securities sold under agreements to repurchase . . . (7,900) 11,632 (21,285) 54,035
Repayment of long-term FHLB advances . . . . . . . . . . -- -- (9,200) --
Proceeds from long-term FHLB advances . . . . . . . . . 20,000 27,500 30,000 62,500
Dividends paid . . . . . . . . . . . . . . . . . . . . . (458) (404) (1,321) (1,142)
Proceeds from issuance of common stock . . . . . . . . . 517 566 752 723
------- ------- ------- -------
Net cash provided by financing activities . . . . . . 8,746 108,227 4,198 272,619
------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents . . 2,173 (6,430) (9,488) (4,653)
Cash and cash equivalents, beginning of period . . . . . 17,555 25,731 29,216 23,954
------- ------- ------- -------
Cash and cash equivalents, end of period . . . . . . . . $19,728 $19,301 $19,728 $19,301
======= ======= ======= =======
SUPPLEMENTARY INFORMATION
CASH PAID FOR:
Interest on customer deposit accounts . . . . . . . . . . $26,262 $23,248 $77,713 $66,428
Income tax (refunds)/payments . . . . . . . . . . . . . . $3,720 ($1,721) $6,195 ($4,958)
NON-CASH ITEMS:
Additions to REO . . . . . . . . . . . . . . . . . . . . $941 $2,320 $10,336 $8,553
Net change in unrealized gain (loss) on
securities available for sale, net of taxes . . . . . $322 $362 ($3,939) $4,108
Loans to facilitate sales of REO and
real estate held for development and sale . . . . . . $584 $781 $10,843 $3,388
Transfer to real estate held for development and sale from
premises and equipment . . . . . . . . . . . . . . . . -- -- -- $5,164
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
CENFED FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, DECEMBER 31, 1995 AND
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(1) BASIS OF PRESENTATION
The consolidated statement of financial condition as of September 30,
1996, and the related consolidated statements of operations and cash flows for
the three months and nine months ended September 30, 1996 and 1995, are
unaudited. These statements reflect, in the opinion of management, all
material adjustments, consisting solely of normal recurring accruals, necessary
for a fair presentation of the financial condition of CENFED Financial
Corporation (the "Company") as of September 30, 1996, and its results of
operations and cash flows for the three months and nine months ended September
30, 1996 and 1995. The results of operations for the unaudited periods are not
necessarily indicative of the results of operations to be expected for the
entire year of 1996.
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 normally included in financial
statements prepared in conformity with generally accepted accounting
principles. Accordingly, these consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
(2) SUBSEQUENT EVENT
On October 2, 1996, the Company declared its quarterly cash dividend
of $.09 per share to shareholders of record as of October 18, 1996. The
dividend was paid on November 1, 1996.
(3) EARNINGS PER SHARE
The Company has a long term incentive plan that includes incentive
stock options. For purposes of determining primary earnings per share and
fully diluted earnings per share, stock options granted to officers and
directors of the Company are considered common stock equivalents and are added
to common shares outstanding, using the treasury stock method. At September
30, 1996, fully diluted earnings per share were the same as primary earnings
per share as the dilution under the fully diluted earnings per share
calculation was not material.
Earnings per share for all periods presented have been calculated
based upon the increased number of shares of common stock and common stock
equivalents after giving effect to the stock dividend distributed on May 10,
1996.
(4) DEPOSIT INSURANCE
On September 30, 1996, federal legislation which will recapitalize the
Savings Association Insurance Fund ("SAIF") through a one-time special
assessment was enacted. The special assessment is basd on the Company's
deposits as of March 31, 1995, at an assessment rate of approximately 65.7
basis points. The Federal Deposit Insurance Corporation will issue final
regulations concerning the assessment rate in November 1996. For the quarter
ended September 30, 1996, the Company estimated and accrued $9.1 million in
expense for this special assessment. Subsequent to the payment of the special
assessment, the annual amount the Company pays toward the deposit insurance
fund will be substantially reduced. Starting in January 1997, the amount paid
by the insurance fund is expected to be 6.44 basis points, as compared to the
23 basis points that the Company is currently paying.
7
<PAGE> 8
ITEM 2.
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
OPERATING STRATEGY
The operating strategy of CENFED Financial Corporation (the "Company")
consists of three primary elements: (i) acquiring assets providing returns that
satisfy the Company's rate of return expectations; (ii) focusing on retail
deposit gathering as the principal source of funding; and (iii) focusing on the
efficiency of Company operations.
Acquiring assets providing returns that satisfy the Company's rate of
return expectations. The Company seeks assets that provide returns, on a
credit risk-adjusted basis, that meet or exceed its rate of return
requirements. In pursuit of this strategy, the Company identifies lines of
business in which it believes it can successfully serve customer niches and
achieve satisfactory returns. Management has pursued this strategy by
offering business loans under lending programs sponsored by the United States
Small Business Administration ("SBA") and multifamily residential and
commercial real estate loans (collectively referred to as "income property
loans"). The Company offers single family real estate loans through retail
loan officers and it purchases packages of single family loans from other
institutions from time to time.
The Company's volume of originated loans has decreased in 1996,
primarily due to its discontinuation of wholesale-sourced single family
lending. The mix of loan originations in 1996 reflects the Company's emphasis
on higher risk assets with expected higher rates of return. The following
table sets forth loan origination activity:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30: September 30:
--------------------- ---------------------
(In Thousands) 1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Single family . . . . . . . . . . $3,259 $39,862 $22,852 $138,087
Income property . . . . . . . . . 14,129 12,136 56,246 30,885
Small business . . . . . . . . . 7,273 13,623 27,246 19,687
------- ------- -------- --------
$24,661 $65,621 $106,344 $188,659
======= ======= ======== ========
</TABLE>
The Company purchases loans when loan origination volumes are
insufficient to meet growth requirements and suitable loan purchase
opportunities are available. The Company did not purchase loans during the
third quarter of 1996. In the third quarter of the prior year, the Company
purchased $93.0 million of single family loans, mostly in a single transaction.
For the nine months ended September 30, 1996 and 1995, the Company purchased
$635,000 and $184.6 million of loans, respectively. The Company is unable to
predict whether it will succeed in identifying packages of suitable loans for
purchase, or the magnitude of such packages, in the future.
Focusing on retail deposit gathering as the principal source of
funding. The Company believes that deposits gathered through its retail
delivery system are the most stable and economical source of funding for its
operations. Gaining substantial market share and name recognition in the
Southern California marketplace is particularly challenging due to the number
of competitors and the presence of several large financial institutions in most
of the same communities in which the Company has branch offices. In light of
this challenge, the Company looks for opportunities to increase its market
share in those communities where institutional name recognition is possible and
franchise value is greatest. The Company uses consolidations, acquisitions,
sales and exchanges of deposits to increase its average branch size and improve
market share in selected communities.
Retail deposits at September 30, 1996 represented 66% of total
interest-bearing liabilities, compared to 63% one year earlier. The Company's
average retail deposits per branch totaled $74.6 million, compared to $63.9
million one year earlier. The increase in average deposits per branch reflects
the cumulative beneficial impact of the deposit and branching transactions in
recent periods.
Focusing on the efficiency of Company operations. The Company has
achieved economies of scale through asset growth and increasing the average
size of its retail branches. One measure of operational efficiency is the
ratio of general and administrative expenses (excluding goodwill amortization)
to average assets. In the third quarter of 1996,
8
<PAGE> 9
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
the annualized general and administrative expense ratio was 1.60% (excluding
the accrual of the Savings Association Insurance Fund ("SAIF") recapitalization
charge that is to be paid in November 1996), compared to 1.54% in the
corresponding period in the previous year. For the first nine months of 1996,
the annualized general and administrative expense ratio was 1.62% (excluding
the SAIF recapitalization charge), compared to 1.64% during the same period in
1995. Even though the Company seeks ways to decrease its costs to deliver its
products, future improvements in operating efficiency are largely contingent
upon growth in the asset base. Management believes that growing the asset base
in the immediate future may be difficult.
ANALYSIS OF STATEMENT OF FINANCIAL CONDITION
The Company's total assets grew by $12.6 million, or 0.59%, during
the third quarter of 1996, following a $6.9 million decrease in the first six
months of the year. The following table sets forth significant changes in the
Company's statement of financial condition:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
(In Thousands) SEPTEMBER 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Assets:
Loans held for investment, net . . . . . . . . $(28,937) $(84,827)
MBS and investment securities . . . . . . . . . 30,107 87,205
All other, net . . . . . . . . . . . . . . . . 11,459 3,356
-------- --------
Change in total assets . . . . . . . . . . $12,629 $5,734
======== ========
Liabilities and Stockholders' Equity:
Customer deposit accounts . . . . . . . . . . . $(32,076) $(22,543)
Borrowings . . . . . . . . . . . . . . . . . . 40,550 26,465
Stockholders' equity . . . . . . . . . . . . . 1,709 4,378
All other, net . . . . . . . . . . . . . . . . 2,446 (2,566)
-------- --------
Change in total liabilities and equity . . $12,629 $5,734
======== ========
</TABLE>
Loans Held for Investment. Loans held for investment decreased by
$28.9 million during the quarter because loan repayments exceeded new loan
originations, continuing a trend that started at the beginning of the year.
During the first nine months of 1996, the Company has not been able to purchase
loans at satisfactory prices to supplement its loan originations.
MBS and Investment Securities. The Company has historically purchased
MBS and investment securities when it could not meet its growth objectives
through loan originations and purchases. For the three- and nine-month periods
ended September 30, 1996, net growth in MBS was $4.9 million and $69.5 million,
respectively, and net growth in the investment securities portfolio was $25.2
million and $17.7 million, respectively. In the future, the Company will
continue to focus on identifying securities for purchase with suitable yield
and interest rate risk characteristics.
Customer Deposit Accounts. With limited asset growth in 1996, the
Company has not needed to increase its customer deposit account balances. The
net flows of customer deposit accounts for the three- and nine month periods
ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
Net Inflows (Outflows)
-------------------------------------
(In Thousands) Three Months Nine Months
------------ -----------
<S> <C> <C>
Retail:
Transaction . . . . . . . . . . . . . . . . . . . . . . . . ($2,688) $22,992
Time deposits . . . . . . . . . . . . . . . . . . . . . . . (4,843) (23,576)
Wholesale time deposits . . . . . . . . . . . . . . . . . . . (24,545) (21,959)
-------- --------
($32,076) ($22,543)
======== ========
</TABLE>
9
<PAGE> 10
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
The majority of the decrease in customer deposits has been due to a
decline in the wholesale deposit portfolio. Wholesale deposits have been
replaced with borrowings. The Company's retail deposit base has declined
modestly during 1996 during a time of intense market competition for core
retail deposit products. To stem the decline in its transaction deposit base,
the Company introduced its Millennium checking account late in the third
quarter of 1996. The rates, terms and conditions of the account are similar to
checking products being offered by the Company's competitors at the present
time. In the long term, management believes that this account, if successful,
will lead to improvements in fee income, a reduction in the Company's cost of
deposits and new customer relationships.
Borrowings. Total borrowings were increased by $40.5 million during
the third quarter of 1996 to replace wholesale term deposits and provide funds
for nominal asset growth. Most of the increase is in the form of short-term
borrowings.
Stockholders' Equity. The change in stockholders' equity for the
three- and nine-month periods ended September 30, 1996, was as follows:
<TABLE>
<CAPTION>
Increase (Decrease):
-------------------------------------------
(In Thousands) Three Months Nine Months
------------ -----------
<S> <C> <C>
Net earnings . . . . . . . . . . . . . . . . . . $1,278 $8,610
Dividends paid to shareholders . . . . . . . . . (458) (1,321)
(Increase) decrease in unrealized loss on
securities available for sale . . . . . . . . 322 (3,939)
Other . . . . . . . . . . . . . . . . . . . . . . 587 1,028
------ ------
$1,729 $4,378
====== ======
</TABLE>
All of the Company's investment securities and MBS are classified as
available for sale. Generally accepted accounting principles
require that debt and equity securities so designated be reported at fair value
through an unrealized gain or loss component of stockholders' equity.
Securities classified as available for sale provide maximum flexibility with
respect to disposition but subject the Company's equity to more volatility from
changes in market interest rates.
10
<PAGE> 11
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
ASSET QUALITY
Delinquent Loans. Despite improvement in many of the economic
indicators for Southern California during the first nine months of 1996, the
Company continued to experience rising loan delinquencies. Delinquent loans
increased by $2.0 million during the third quarter of 1996 and represented
2.19% of total loans held for investment at September 30, 1996. The major
components of the 69 basis point increase in delinquent loans as a percentage
of total loans at September 30, 1996, compared to one year earlier, consisted
of increases of 24 basis points, 29 basis points, and 16 basis points that were
attributable to single family, income property and small business loans,
respectively. Loan delinquency information by aging category and by type of
loan is set forth in the following table:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
(In Thousands) 1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
31 - 60 days delinquent:
Single family . . . . . . . . . . . . . . . . . $4,136 $3,485 $7,810
Income property . . . . . . . . . . . . . . . . 2,213 424 214
Small business . . . . . . . . . . . . . . . . 712 483 971
Consumer . . . . . . . . . . . . . . . . . . . 22 16 32
-- -- --
7,083 4,408 9,027
----- ----- -----
61 - 90 days delinquent:
Single family . . . . . . . . . . . . . . . . . 3,604 1,417 775
Income property . . . . . . . . . . . . . . . . 543 - 126
Small business . . . . . . . . . . . . . . . . 1,505 371 386
Consumer . . . . . . . . . . . . . . . . . . . 51 2 38
-- - --
5,703 1,790 1,325
----- ----- -----
Over 90 days delinquent:
Single family . . . . . . . . . . . . . . . . . 11,054 10,502 7,743
Income property . . . . . . . . . . . . . . . . 4,965 2,798 3,407
Small business . . . . . . . . . . . . . . . . 1,953 1,833 776
Consumer . . . . . . . . . . . . . . . . . . . 7 40 -
- -- ---
17,979 15,173 11,926
------ ------ ------
GRAND TOTAL:
Single family . . . . . . . . . . . . . . . . . 18,794 15,404 16,328
Income property . . . . . . . . . . . . . . . . 7,721 3,222 3,747
Small business . . . . . . . . . . . . . . . . 4,170 2,687 2,133
Consumer . . . . . . . . . . . . . . . . . . . 80 58 70
-- -- --
$30,765 $21,371 $22,278
======= ======= =======
Delinquent loans by type, as a percentage of total loans:
Single family . . . . . . . . . . . . . . . . . 1.34% 1.03% 1.10%
Income property . . . . . . . . . . . . . . . . 0.55% 0.22% 0.26%
Small business . . . . . . . . . . . . . . . . 0.30% 0.18% 0.14%
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . 2.19% 1.43% 1.50%
===== ===== =====
</TABLE>
At September 30, 1996, delinquent single family loans represented 1.80%
of total single family loans, which is the highest percentage of portfolio
delinquency since December 1993. Management believes that the long-term,
corrosive effects of the California recession, in combination with higher
levels of consumer debt, continue to be reflected in delinquent single family
loan balances. The Company is working with greater numbers of borrowers,
whose tenuous financial circumstances are finally coming to light. Management
does not foresee immediate improvement in the fundamental problems that have
caused higher rates of single family loan delinquencies. Therefore, the
Company may be required to record higher provisions for loan losses in the
future than it recorded in corresponding prior year quarters.
11
<PAGE> 12
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
The vast majority of delinquent small business loans at September 30,
1996 were guaranteed directly by the SBA or by a collateralized credit
agreement given by the corporation from whom the Company purchased the loans.
Nonperforming assets. Nonperforming assets at September 30, 1996
decreased by $862,000 from the second quarter of 1996, and represented 1.34% of
total assets at that date. The following table sets forth the composition of
nonperforming assets at the dates indicated:
<TABLE>
<CAPTION>
SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30,
(Dollars in Thousands) 1996 1996 1996 1995 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . $21,028 $22,623 $18,698 $14,841 $15,047
Real estate acquired in settlement of loans ("REO"). . . . . . 7,867 7,134 7,107 6,236 5.551
------- ------- ------- ------- -------
Nonperforming assets. . . . . . . . . . . . . . . . . . . $28,895 $29,757 $25,805 $21,077 $20,598
======= ======= ======= ======= =======
Total nonperforming assets as a % of total assets. . . . . . . 1.34% 1.39% 1.22% 0.98% 0.97%
Nonaccrual loans as a % of total loans held for investment . . 1.49% 1.57% 1.25% 0.99% 0.99%
</TABLE>
Loans are placed on nonaccrual status when, in the opinion of management,
the full and timely collection of principal or interest is in doubt. As a
general rule, the accrual of interest is discontinued when principal or
interest payments become 90 days past due. However, in certain instances, the
Company may place a particular loan on nonaccrual status earlier than the 90
days past due standard, depending upon the individual circumstances surrounding
the loan's delinquency. In recent quarters, the Company has initiated
foreclosure proceedings on commercial real estate and multifamily residential
loans relatively early--before such loans become 60 days past due and--has
placed such loans on nonaccrual status at that time. By accelerating the
foreclosure process, the Company hopes to stimulate those borrowers who have
the capability to keep their loans current to do so immediately. In addition,
if a borrower is unable to make timely payments, beginning foreclosure
proceedings at an earlier date reduces the amount of time before the Company
can acquire title to the property.
12
<PAGE> 13
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
The following table sets forth the Company's nonperforming asset activity
for the three- and nine-month periods ended September 30, 1996:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
----------------------- --------------------------
(In Thousands) NONACCRUAL NONACCRUAL
LOANS REO LOANS REO
----- --- ----- ---
<S> <C> <C> <C> <C>
Balance, beginning of period . . . . $22,623 $7,134 $14,841 $6,236
New Nonaccruing Loans:
Single family (1) . . . . . . . . 4,964 -- 12,000 --
Income property . . . . . . . . . 1,367 -- 10,920 --
Small business . . . . . . . . . 1,342 -- 3,787 --
Consumer . . . . . . . . . . . . (3) -- (3) --
Foreclosures:
Single family . . . . . . . . . . (4,954) 3,813 (10,517) 8,177
Income property . . . . . . . . . (2,363) 1,589 (5,314) 3,395
Small business . . . . . . . . . (367) -- (1,030) 52
Loans Brought Current:
Income property . . . . . . . . . (1,275) -- (3,321) --
Small business . . . . . . . . . (306) -- (306) --
Consumer . . . . . . . . . . . . -- -- (29) --
Sales of REO:
Single family . . . . . . . . . . -- (2,138) -- (6,497)
Income property . . . . . . . . . -- (2,147) -- (3,060)
Small business . . . . . . . . . -- -- -- (52)
Other:
Single family . . . . . . . . . . -- (377) -- (377)
Income property . . . . . . . . . -- (7) -- (7)
------- ------ ------- ------
Net change during the
period. . . . . . . . . . (1,595) 733 6,187 1,631
------- ------ ------- ------
BALANCE, AT SEPTEMBER 30, 1996 . . . $21,028 $7,867 $21,028 $7,867
======= ====== ======= ======
</TABLE>
____________________
(1) New nonaccruing single family loans have been reduced by single family
loans that were brought current during the quarter.
The Company experienced an $862,000 decrease in nonperforming assets
during the third quarter of 1996, consisting primarily of a decrease of $2.3
million in nonaccrual income property and a $1.3 million increase in single
family REO. At September 30, 1996, the nonperforming asset ratio decreased by
5 basis points from the beginning of the quarter, of which 4 basis points was
due to lesser amounts of nonperforming assets and 1 basis point was due to the
growth in total assets.
Impaired Loans. A loan is impaired, under the provisions of Statement of
Financial Accounting Standards Number 114, "Accounting by Creditors for
Impairment of a Loan" ("SFAS No. 114"), when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement. SFAS No. 114
requires that an impaired loan be measured based on the present value of the
expected future cash flows, discounted at the loan's effective interest rate,
or the loan's observable market value or the fair value of the collateral (if
the loan is collateral dependent). The Company measures impairment based on
the fair value of the collateral if the Company determines that foreclosure is
probable. If the measure of the impaired loan is less than the Company's
recorded investment in the loan, the impairment is recognized by creating a
specific valuation allowance. After the initial measurement of impairment, if
there is a significant increase or decrease in the amount or timing of an
impaired loan's expected future cash flows, or if actual cash flows are
significantly different from the cash flows previously projected, or if the
fair value of the collateral fluctuates materially, the Company recalculates
the impairment and adjusts the specific valuation allowance.
13
<PAGE> 14
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
The following table sets forth information with respect to impaired loans
at the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
-------------------------------- ---------------------------------
SPECIFIC NET SPECIFIC NET
LOAN LOSS RECORDED LOAN LOSS RECORDED
(In Thousands) BALANCES ALLOWANCES INVESTMENT BALANCES ALLOWANCES INVESTMENT
-------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans:
Requiring specific loss allowances . $6,014 $1,851 $4,163 $3,152 $801 $2,351
Not requiring specific loss
allowances . . . . . . . . . . . . 1,917 - 1,917 162 - 162
Restructured loans:
Requiring specific loss allowances . 5,102 930 4,172 6,981 1,753 5,228
Other loans:
Requiring specific loss allowances 3,971 952 3,019 2,298 794 1,504
Not requiring specific loss
allowances . . . . . . . . . . . 984 - 984 872 - 872
------- ------ ------- ------- ------ -------
Total . . . . . . . . . . . . . $17,988 $3,733 $14,255 $13,465 $3,348 $10,117
======= ====== ======= ======= ====== =======
</TABLE>
For the three months ended September 30, 1996, the average net
recorded investment in impaired loans was $14.6 million and the interest income
recognized totaled $399,000. In the corresponding period in the previous
year, the average net recorded investment in impaired loans was $6.4 million
and the interest income recognized totaled $116,000.
Allowance for Loan Losses. The Company maintains specific valuation allowances
related to individually significant loans as well as a general valuation
allowance. The general valuation allowance for loan losses is an amount that
management believes will be adequate to absorb losses on existing loans that
may become uncollectible in the future, based upon information currently
available to management, management's judgements as to the collectibility of
loans and prior loan loss experience. The determination of the appropriate
amount and allocation of the general allowance for loan losses is based upon an
analysis of the loan portfolio. The analysis is based upon such factors as
prior loan loss experience, economic conditions affecting the real estate
market, regulatory considerations, and other factors which management believes
deserve consideration. While management believes that it uses the best
information available to determine the appropriate amount of loan loss
provisions, including loss migration analysis, future adjustments to the
allowance for loan losses may be necessary and net earnings could be
significantly affected if circumstances differ substantially from the
assumptions used in making the determinations. An analysis of the activity in
the allowance for loan losses follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
(Dollars in Thousands) 1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, beginning of period . . . . . $ 14,944 $ 13,101 $ 12,789 $ 12,529
Provision for loan losses . . . . . . . 1,500 1,000 6,549 1,900
Acquisition . . . . . . . . . . . . . . - - - 500
Recoveries . . . . . . . . . . . . . . 560 304 1,066 1,178
Charge-offs . . . . . . . . . . . . . . (2,614) (1,001) (6,014) (2,703)
-------- -------- -------- --------
Balance, end of period . . . . . . . . $ 14,390 $ 13,404 $ 14,390 $ 13,404
======== ======== ======== ========
Ratio of allowance for loan losses to total loans
held for investment at end of period . . . . . 1.01% 0.89%
Ratio of allowance for loan losses to nonaccrual
loans at end of period . . . . . . . . . . . . 68.4% 89.1%
</TABLE>
14
<PAGE> 15
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
The following table sets forth the Company's net charge-offs by loan types for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
(In Thousands) 1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Single family . . . . . . . . . . . $1,243 $426 $3,031 $1,395
Income property . . . . . . . . . . 740 274 1,729 93
Small business . . . . . . . . . . 67 - 187 -
Other . . . . . . . . . . . . . . . 4 (3) 1 37
------ ---- ------ ------
Total . . . . . . . . . . . . $2,054 $697 $4,948 $1,525
====== ==== ====== ======
</TABLE>
CAPITAL RESOURCES AND LIQUIDITY
The primary sources of liquidity for the Company include:
o scheduled principal payments and unscheduled prepayments of loans and MBS;
o proceeds from sales of investments, MBS and loans held for sale;
o cash flows generated from operations; and
o proceeds from increases in customer deposits, FHLB advances and short-term
borrowings.
Principal payments on loans and MBS were $62.3 million and $51.7
million for the three months ended September 30, 1996 and 1995, respectively,
and $205.8 million and $135.1 million for the nine months ended September 30,
1996 and 1995, respectively. Proceeds from the sales of loans were $219,000
and $9.3 million for the third quarters of 1996 and 1995, respectively, and
$4.5 million and $22.9 million for the nine months ended September 30, 1996 and
1995, respectively.
Sales of investments and MBS totaled $100.3 million and $3.0 million
for the third quarters of 1996 and 1995, respectively, and $222.5 million and
$48.2 million for the nine months ended September 30, 1996 and 1995,
respectively. Generally, the proceeds from the sale of investments and MBS
were reinvested in loans or MBS.
Customer deposits decreased by $31.9 million in the three months ended
September 30, 1996, compared to a net increase of $48.7 million in the third
quarter of 1995. For the nine months ended September 30, 1996 and 1995,
customer deposits decreased by $21.7 million and by $181.5 million,
respectively.
Savings banks must, by regulation, maintain liquidity of 5% of
deposits and short-term borrowings. Liquidity is measured by cash and certain
investments which are not committed, pledged, or required to liquidate specific
liabilities. The Company's average liquidity ratios for September 30, 1996 and
1995 were 5.2% and 5.9%, respectively.
RESULTS OF OPERATIONS
Comparisons of the Three Months and Nine Months Ended September 30, 1996 and
1995
The Company's net earnings for the three months ended September 30,
1996 and 1995 were $1.3 million and $2.0 million, respectively. Earnings per
share on a primary earnings per share basis were $.24 and $.39 for the same
periods, respectively. For the nine months ended September 30, 1996 and 1995,
the Company recorded net earnings of $8.6 million and $4.9 million,
respectively, for primary earnings per share of $1.66 and $.98. Net earnings
in the three- and nine-month periods ended September 30, 1996 included a $9.1
million charge ($5.25 million, net of taxes) for the recapitalization of the
SAIF and a $3.4 million reduction in the deferred tax asset valuation allowance
and income tax liability of the Company, representing a charge of $1.01 per
share and a benefit of $.64 per share, respectively. In addition, a
non-recurring $2.6 million after-tax gain from the sale of an office building
was recorded in the first quarter of 1996.
In the third quarter of 1996, compared to 1995, the Company's core
earnings (which excludes gains and losses on securities sales, real estate
operations and non-recurring adjustments but includes the aforementioned
additional provision for loan losses) increased by 71.5% due to an increase in
net interest income that exceeded increases in operating expenses and
provisions for loan losses.
15
<PAGE> 16
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
Net Interest Margin. The following table sets forth average interest
rates on the Company's interest earning assets and interest bearing
liabilities, on a fully tax equivalent basis, at the end of and for the
following periods:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------------- ------------------------------
NINE NINE
QUARTER MONTH END OF QUARTER MONTH END OF
AVERAGE AVERAGE QUARTER AVERAGE AVERAGE QUARTER
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
YIELD ON INTEREST EARNING ASSETS:
Loans . . . . . . . . . . . . . 7.83% 7.81% 7.83% 7.46% 7.08% 7.62%
Mortgage-backed securities . . . 7.27% 7.28% 7.13% 7.08% 7.00% 7.05%
Other . . . . . . . . . . . . . . 7.22% 7.00% 6.44% 6.99% 7.01% 6.99%
----- ----- ----- ----- ----- -----
Yield on interest earning assets 7.68% 7.66% 7.59% 7.36% 7.06% 7.49%
----- ----- ----- ----- ----- -----
COST OF INTEREST BEARING
LIABILITIES:
Customer Deposits . . . . . . . . 5.06% 5.09% 5.02% 5.14% 4.85% 5.26%
Borrowings . . . . . . . . . . . 5.77% 5.84% 5.68% 6.01% 5.91% 5.96%
----- ----- ----- ----- ----- -----
Cost of interest bearing
liabilities . . . . . . . . . 5.22% 5.26% 5.18% 5.35% 5.10% 5.44%
----- ----- ----- ----- ----- -----
Interest rate spread . . . . . 2.46% 2.40% 2.41% 2.01% 1.96% 2.05%
===== ===== ===== ===== ===== =====
Net interest margin . . . . . . 2.64% 2.58% 2.55% 2.11% 2.05% 2.14%
===== ===== ===== ===== ===== =====
</TABLE>
The five basis point decline in the net interest margin for the third
quarter of 1996, compared to the prior quarter, was primarily due to the cost
of interest rate caps that the Company purchased in June 1996, pursuant to its
interest rate risk management.
Rate/Volume. Net interest income before loss provisions in the third quarter
of 1996 totaled $13.2 million, compared to $9.6 million in the corresponding
period in 1995. The rate- and volume-related increases in net interest income
in the third quarter of 1996, compared to the corresponding period in 1995,
totaled $2.2 million and $1.3 million, respectively, and were comprised of the
following:
<TABLE>
<CAPTION>
(In Thousands) Increase (Decrease) Attributable To:
------------------------------------
INTEREST INCOME ON INTEREST EARNING ASSETS: Rate Volume Net
---- ------ ---
<S> <C> <C> <C>
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,405 $916 $2,321
MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 1,485 1,648
Investment securities . . . . . . . . . . . . . . . . . . . 142 (162) (20)
------ ------ ------
Total interest income on interest earning assets . . . . 1,710 2,239 3,949
------ ------ ------
INTEREST EXPENSE ON INTEREST BEARING LIABILITIES:
Customer deposit accounts . . . . . . . . . . . . . . . . . (309) 1,091 782
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . (198) (184) (382)
------ ------ ------
Total interest expense on interest bearing liabilities . (507) 907 400
------ ------ ------
Net interest income . . . . . . . . . . . . . . . . . . . . $2,217 $1,332 $3,549
====== ====== ======
</TABLE>
16
<PAGE> 17
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
Net interest income before loss provisions for the first nine months
of 1996 totaled $38.8 million, compared to $27.5 million in the corresponding
period in 1995. The rate- and volume-related increases in net interest income
in the first nine months of 1996, compared to the corresponding period in 1995,
totaled $6.5 million and $4.8 million, respectively, and were comprised of the
following:
<TABLE>
<CAPTION>
(In Thousands) Increase (Decrease) Attributable To:
------------------------------------
INTEREST INCOME ON INTEREST EARNING ASSETS: Rate Volume Net
---- ------ ---
<S> <C> <C> <C>
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,117 $8,019 $16,136
MBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723 2,381 3,104
Investment securities . . . . . . . . . . . . . . . . . . . 241 (173) 68
----- ------ ------
Total interest income on interest earning assets . . . . 9,081 10,227 19,308
----- ------ ------
INTEREST EXPENSE ON INTEREST BEARING LIABILITIES:
Customer deposit accounts . . . . . . . . . . . . . . . . . 2,648 5,844 8,492
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . (45) (379) (424)
----- ----- -----
Total interest expense on interest bearing liabilities . 2,603 5,465 8,068
----- ----- -----
Net interest income . . . . . . . . . . . . . . . . . . . . $6,478 $4,762 $11,240
====== ====== =======
</TABLE>
Interest and Dividend Income. Interest and dividend income in the
third quarter of 1996 totaled $39.6 million, representing a 11% increase from
the corresponding period in 1995. For the nine months ended September 30,
1996, interest and dividend income totaled $117.5 million, which was 20%
greater than in the corresponding period in 1995. For both the three- and
nine- month periods ended September 30, 1996, the Company's average interest
earning assets were greater than in the comparative periods in 1995, such that
interest and dividend income was higher in 1996 than in the corresponding
periods in 1995 by $2.2 million and $10.2 million, respectively. Average
yields on interest earning assets were higher in 1996, compared to 1995,
resulting in $1.7 million and $9.1 million increases in interest and dividend
income in the three- and nine-month periods ended September 30, 1996,
respectively.
While greater interest earning balances led to increases in interest
income in both the three- and nine-month periods ended September 30, 1996,
compared to the corresponding periods in 1995, asset growth during 1996 has
been limited. In the absence of an acquisition or loan purchase that would
materially increase interest earning assets, management does not expect future
periods to generate volume-related increases of the same magnitude that it has
in recent quarters. In addition, management believes the vast majority of
adjustable-rate mortgage loans are fully-indexed at the present time. If
market interest rates remain stable, the principal influence on the yield on
interest earning assets is expected to be the mix of interest earning assets.
Barring an acquisition or loan purchase that would materially alter the mix,
management does not expect future periods to reflect rate-related increases in
interest income to the same extent as past periods.
Interest Expense. Total interest expense increased by $400,000 in the
third quarter of 1996, compared to the third quarter of 1995. For the quarter,
the average cost of interest bearing liabilities decreased 13 basis points to
5.22%, compared to the corresponding quarter in 1995, resulting in a
rate-related decrease in interest expense of $507,000. During the third
quarter of 1996, the Company's average interest bearing liabilities were
approximately 4.3% greater than in the same period in 1995, resulting in
increased interest expense of $906,000. For the nine months ended September
30, 1996, interest expense totaled $78.7 million, compared to $70.6 million for
the corresponding period in 1995. During the comparative nine-month periods,
the average cost of interest bearing liabilities was higher in 1996 than in
1995, resulting in a rate-related increase to interest expense of $2.6 million.
Average interest bearing liabilities were greater in the first nine months of
1996 than in 1995, increasing interest expense by $5.5 million.
Provisions for Loan Losses. In the third quarter of 1996, the Company
recorded $1.5 million of provisions for loan losses, compared to $1.0 million
in the third quarter of 1995. For the nine months ended September 30, 1996,
the Company recorded $6.5 million of provisions for loan losses, compared to
$1.9 million in 1995. Aside from a $1.8 million provision for loan losses
recorded in the first quarter of 1996 at the recommendation of the Company's
regulators (in connection with the purchase of SBA loans for which the Company
had secured credit- enhancements), quarterly loan loss provisions in 1996 have
been greater than in 1995 due to increases in delinquent and nonaccrual loans
and higher levels of net charge-offs. Management cannot forecast or predict
the amounts of loan loss provisions it may record in future periods.
17
<PAGE> 18
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
Non-Interest Income. Total non-interest income in the third quarter
of 1996 decreased by $542,000 from the comparative period in 1995. For the
nine months ended September 30, 1996, total non-interest income increased by
$5.4 million over 1995, principally due to a $4.5 million nonrecurring gain
from the sale of an office building in the first quarter of 1996. The gain is
reflected in income from real estate operations.
One of the Company's objectives has been to enhance its fee-based
activities. The following table indicates the fee income derived from the
Company's principal fee-based activities for the periods presented:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- -------------------
(In Thousands) 1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Loan servicing activities . . . . . . . . . . . . $931 $1,275 $2,960 $2,632
Customer deposit fees . . . . . . . . . . . . . . 491 477 1,465 1,382
Commissions from sales of uninsured investments . 472 228 1,390 942
------ ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . $1,894 $1,980 $5,815 $4,956
====== ====== ====== ======
</TABLE>
During the third quarter of 1996, total earnings from fee-based
activities decreased slightly from the corresponding quarter in 1995. Loan
servicing fees decreased by $344,000 primarily due to shrinkage in the
portfolio of loans serviced for other investors and an adjustment to servicing
premium amortization. The Company has not been selling loans in recent
periods, resulting in the servicing portfolio decline. For the third quarter
of 1996, commission income increased by $244,000, or by 107%, compared to the
corresponding quarter in 1995, due to higher sales volume. For the first nine
months of 1996, commission income increased by 48% compared to the first nine
months of 1995.
In the first nine months of 1996, the Company recorded net gains from
sales of investment securities and MBS totaling $880,000, compared to $76,000
for the corresponding period in 1995. For the three month periods ended
September 30, 1996 and 1995, the Company recorded net losses of $112,000 and
net gains of $14,000, respectively. The increase in gains from sales of
securities in 1996, on a year-to-date basis, was largely due to execution of
the Company's interest rate risk reduction strategy during the first half of
1996 which, among other actions, led to sales of securities with longer
maturities and reinvestment in securities with shorter maturities.
At the present time, the Company's real estate operations consist
primarily of the management and disposition of REO. In past periods, real
estate operations included the net operating income from real estate
investments (including a large commercial office building that once served as a
corporate headquarters). In recent years, the Company has largely disposed of
its real estate investments. The following table sets forth the significant
components of income or loss from real estate operations for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30: September 30:
------------------ -----------------
(In Thousands) 1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
REO:
Losses on sale of REO . . . . . . . . . . ($16) ($47) ($67) ($7)
Holding period costs . . . . . . . . . . . (121) (94) (513) (458)
Holding period writedowns . . . . . . . . (317) 0 (358) (64)
Real Estate Held for Sale:
Gain (Loss) on sale of real estate . . . . (7) - 4,505 -
Net operating income (loss) . . . . . . . . (41) 21 (77) 121
All other, net . . . . . . . . . . . . . . 76 (39) (111) (98)
----- ----- ------ -----
Income (Loss) from real estate operations ($426) ($159) $3,379 ($506)
===== ===== ====== =====
</TABLE>
18
<PAGE> 19
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
Operating Expenses. The Company's operating expenses for the three-
and nine-month periods ended September 30, 1996 were $17.7 million and $35.0
million, respectively. Both periods included a $9.1 million accrual for the
SAIF recapitalization assessment to be paid during the fourth quarter of 1996.
Excluding this non-recurring item, the Company's operating expenses for the
third quarter of 1996 were $8.6 million, representing an 8.4% increase from the
corresponding period in 1995, primarily due to changes in the Company's
operating structure as a result of acquisition and sales activities in 1995.
As a percentage of average assets, annualized operating expenses in the third
quarters of 1996 and 1995 were 1.60% (excluding the SAIF assessment) and 1.54%,
respectively. For the first nine months of 1996, total operating expenses were
$25.9 million (excluding the SAIF assessment), representing a 7.0% increase
from the corresponding period in 1995. The operating expense ratios for the
nine-month periods ended September 30, 1996 and 1995 were 1.62% (excluding the
SAIF assessment) and 1.64%, respectively.
The following tables set forth the increases and decreases in the
components of operating expenses in the third quarter and first nine months of
1996, compared to the corresponding periods in 1995:
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN QUARTER DUE TO:
-----------------------------------------------------------------------------
THIRD RETAIL GOVT. THIRD
(In Thousands) QUARTER OFFICE FUNDING NET QUARTER
1995 RESTRUCTURINGS(1) DIVISION(2) LENDING(3) OTHER CHANGE 1996
------- ----------------- ----------- ---------- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Compensation . . . . . . $3,888 $ 2 $(66) $(289) $ 232 $ (121) $ 3,767
Net occupancy . . . . . . 1,271 97 77 (34) 159 299 1,570
Deposit insurance . . . . 789 30 - - 85 115 904
Data and check processing 425 20 5 (15) (52) (42) 383
Advertising . . . . . . . 168 - - - 150 150 318
Intangible amortization . (12) - - - 29 29 17
SAIF Assessment(4) . . . - - - - 9,106 9,106 9,106
Other operating . . . . . 1,375 70 70 (81) 173 232 1,607
------ ---- ---- ----- ------ ------ -------
Total . . . . . . . . . $7,904 $219 $ 86 $(419) $9,882 $9,768 $17,672
====== ==== ==== ===== ====== ====== =======
</TABLE>
19
<PAGE> 20
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN THE FIRST NINE MONTHS OF YEAR DUE TO:
------------------------------------------------------------------------------
FIRST NINE RETAIL GOVT. FIRST NINE
(In Thousands) MONTHS OF OFFICE FUNDING NET MONTHS OF
1995 RESTRUCTURINGS(1) DIVISION(2) LENDING(3) OTHER CHANGE 1996
---------- ----------------- ----------- ---------- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Compensation . . . . . . $12,296 $(11) $ 407 $(1,441) $ 801 $ (244) $12,052
Net occupancy . . . . . . 3,814 300 220 (58) 355 817 4,631
Deposit insurance . . . . 2,287 101 - - 263 364 2,651
Data and check processing 1,295 70 15 (47) (154) (116) 1,179
Advertising . . . . . . . 643 - - - 7 7 650
Intangible amortization . (64) - - - 117 117 53
SAIF Assessment(4) . . . - - - - 9,106 9,106 9,106
Other operating . . . . . 3,914 154 406 (263) 456 753 4,667
------- ---- ------ ------- ------- ------- -------
Total . . . . . . . . . $24,185 $614 $1,048 $(1,809) $10,951 $10,804 $34,989
======= ==== ====== ======= ======= ======= =======
</TABLE>
- -------------------------------
(1) Retail Office Restructurings - in November 1995, the Company completed
a deposit and branch swap with another financial institution. The
result of the transaction was a net increase in deposits of $60.1
million and two fewer branches.
(2) The Company established the Government Funding Division of the Bank
following the purchase of assets and operations of GFC in late June
1995. As a result, the first nine months of 1995 includes only
limited operating expenses for the division.
(3) Lending - During the second half of 1995, the Company downsized its
single family, wholesale-based lending operations to reflect
unfavorable market conditions.
(4) SAIF Assessment - During the third quarter of 1996, the Company
accrued its expected contribution to the SAIF, as part of a
governmental plan to recapitalize the fund. This is a one time only
assessment.
Compensation and employee benefits expense decreased by $121,000 and
$244,000 for the three- and nine-months ended September 30, 1996, respectively,
compared to the corresponding periods in 1995. Included in the reductions for
the comparative three- and nine-month periods were $289,000 and $1.4 million of
decreases in compensation in the Company's mortgage lending division as a result
of the discontinuation of single family, wholesale-based lending. Partially
offsetting the benefit of lower single family lending division compensation was
a $407,000 increase in compensation expense in the Government Funding division
for the first nine months of 1996, which expanded the Company's Small business
lending operations materially following the June 1995 acquisition of GFC.
Occupancy expense increased by $299,000 and $817,000 in the three- and
nine-month periods ended September 30, 1996, compared to the same periods in
1995, respectively. In 1996, the Company began to depreciate a new teller
platform system installed in the latter part of 1995. Depreciation on the
platform system accounted for the majority of the $166,000 and $521,000
increases in computer depreciation expense in the three-month and nine-month
periods ended September 30, 1996, compared to the corresponding periods in
1995.
CenFed Bank is a "well capitalized" financial institution, as defined
by federal regulations, and, accordingly, is assessed the lowest deposit
insurance rate available for institutions insured by the SAIF. Deposit
insurance expense (excluding the SAIF recapitalization assessment) in the third
quarter of 1996 increased by $115,000 from the third quarter of 1995 and by
$364,000 in the first nine months of 1996, compared to the same period in 1995,
due to the growth in savings deposits. The Company's cost of deposit insurance
will decrease from its current level of 23 cents per $100 of insured deposits
to approximately 6.4 cents per $100 of insured deposits beginning in 1997.
Other operating expenses in the three- and nine-month periods ended
September 30, 1996 increased by $232,000 and $753,000, respectively, over the
corresponding periods in 1995. Most of the change can be attributed to
incremental operating expenses associated with the Government Funding Division
and to cost savings stemming from the downsizing of single family lending
operations, as noted in the above tables.
Income Taxes. For the three- and nine-month periods ended September
30, 1996, the Company recorded income tax benefits of $5.8 million and $1.4
million, respectively. As part of its ongoing analysis of its deferred taxes
and after the finalization of its 1995 tax returns, the Company determined that
a $1.9 million valuation allowance on its deferred tax asset and $1.5 million
of taxes on certain deferred items were no longer needed. After excluding the
20
<PAGE> 21
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
effect of the $3.4 million adjustment to deferred taxes, the Company's
effective tax rates were 54.2% and 27.8% for the third quarters of 1996 and
1995, respectively, and 26.2% and 23.3% for the nine months ended September 30,
1996 and 1995, respectively.
Extraordinary Item. During the first quarter of 1996, the Company
repaid an $8.2 million, 8.9% fixed rate borrowing before its scheduled
maturity. As a result, the Company incurred a prepayment penalty of $364,000,
net of taxes of $267,000.
RECENT DEVELOPMENTS
Both houses of Congress recently passed legislation, which the
President signed into law, that repeals the tax rules formerly applicable to
bad debt reserves of thrift institutions for taxable years beginning after
December 31, 1995. Pursuant to the legislation, the Bank is required to change
its tax method of accounting for bad debts from the reserve method formerly
permitted under section 593 of the Internal Revenue Code (the "Code") to the
"specific charge-off" method. Under the specific charge-off method, tax
deductions may be taken for bad debts only as and to the extent that the loans
become wholly or partially worthless. The Bank has a $23 million tax bad debt
reserve that was accumulated under the 593 provisions that, under the new law,
is subject to recapture in whole or in part in future years upon the occurrence
of certain events such as a distribution to shareholders in excess of the
Bank's current and accumulated earnings and profits, a redemption of shares, or
upon a partial or complete liquidation of the Bank. The Bank does not intend
to make distributions to its shareholders that would result in recapture of any
portion of its bad debt reserves.
REGULATORY CAPITAL
Capital regulations of the Office of Thrift Supervision ("OTS")
establish three capital requirements: a "leverage limit" (also referred to as
the "core capital requirement"), a "tangible capital requirement" and a
"risk-based capital requirement." The capital standards contained in the
capital regulations are required by statute to be no less stringent than the
capital standards applicable to national banks. In addition to the general
standards, the OTS may establish, on a case-by-case basis, individual minimum
capital requirements for a savings institution which vary from the requirements
that would otherwise apply under the capital regulations.
A savings institution that fails to meet one or more of the
applicable capital requirements is subject to various regulatory limitations
and sanctions, including a prohibition on growth and the issuance of a capital
directive by the OTS Director requiring one or more of the following: an
increase in capital; a reduction of rates paid on savings accounts; cessation
of or limitations on operational expenditures; an increase in liquidity; and
such other actions as may be deemed necessary or appropriate by the OTS
Director. In addition, a conservator or receiver may be appointed under
appropriate circumstances.
The core capital requirement currently requires a savings institution
to maintain "core capital" of not less than 3% of adjusted total assets.
"Core capital" includes common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and any related surplus and
minority interests in the equity accounts of fully consolidated subsidiaries.
The amount of an institution's core capital is, in general, calculated in
accordance with generally accepted accounting principles ("GAAP"), but with
certain exceptions. Among other exceptions, adjustments to an institution's
GAAP equity accounts that are required pursuant to FASB 115 to reflect changes
in the market value of certain securities held by the institution that are
categorized as "available-for-sale" are not included in the calculation of core
capital for regulatory capital purposes. Intangible assets (with certain
exceptions and limitations, including mortgage servicing rights, qualifying
supervisory goodwill and certain grand fathered core deposit premiums, all of
which may be included on a limited basis) must be deducted from core capital.
A core deposit premium is a type of intangible asset relating to purchased
deposit operations. At September 30, 1996, the Bank's core capital included
$2.0 million of core deposit premiums.
A savings institution is required to maintain "tangible capital" in an
amount not less than 1.5 % of adjusted total assets, which is the minimum limit
permitted by FIRREA. "Tangible capital" is defined for this purpose to mean
core capital less any intangible assets (including supervisory goodwill), plus
purchased mortgage servicing rights, subject to certain limitations.
The risk-based capital requirements, among other things, provide that
the capital ratio applicable to various classes of assets are to be adjusted to
reflect the degree of risk associated with such classes of assets. In
addition, the asset base for computing a savings institution's capital
requirement includes off-balance sheet items, such as assets sold with
recourse. Generally, the Capital Regulations require savings institutions to
maintain "total capital" equal to 8.00%
21
<PAGE> 22
CENFED FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT.
of risk-weighted assets. "Total capital" for these purposes consists of core
capital and supplementary capital. Supplementary capital includes, among other
things, certain types of preferred stock and subordinated debt and, subject to
certain limitations, loan and lease general valuation allowances. Such general
valuation allowances can generally be included up to 1.25% of risk-weighted
assets. At September 30, 1996, $10.1 million of the Bank's general valuation
allowance was included in supplementary capital. A savings institution's
supplementary capital may be used to satisfy the risk-based capital requirement
only to the extent of that institution's core capital.
Under the risk-based capital requirements, equity investments
(including certain direct investments in real estate) and that portion of land
loans and nonresidential construction loans in excess of an 80% loan-to-value
ratio and certain other items are excluded from capital.
The Bank was in compliance with all regulatory capital requirements in
effect at September 30, 1996. The following table reflects the required
capital ratios and the actual capital ratios of the Bank at September 30, 1996
(on a fully phased-in basis):
<TABLE>
<CAPTION>
Actual Required Excess
------ -------- ------
<S> <C> <C> <C>
At September 30, 1996:
Tangible capital to adjusted total assets . . . . 5.55% 1.50% 4.05%
Core capital to adjusted total assets . . . . . . 5.64% 3.00% 2.64%
Total capital to risk-weighted assets . . . . . . 11.35% 8.00% 3.35%
</TABLE>
22
<PAGE> 23
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
11.1 Computation of Per Share Earnings
(b) No reports were filed on Form 8-K during the quarter for which
this report is filed.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirement 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.
CENFED FINANCIAL CORPORATION
Date: November 14, 1996 By: /s/ Steven P. Neiffer
--------------------------------------
Steven P. Neiffer
Vice President & Controller
(Principal Accounting Officer)
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
- ------- ----------- ------------
<S> <C>
11.1 Computation of Earnings Per Share
</TABLE>
<PAGE> 1
EXHIBIT 11.1
CENFED FINANCIAL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------
PRIMARY FULLY DILUTED
BASIS BASIS
------- -------------
<S> <C> <C> <C>
A Average Common Shares Outstanding 5,086,426 5,086,426
---------- ----------
Common Stock Equivalents:
B Average Stock Options Outstanding 613,238 613,655
C Average Option Exercise Price $12.683 $12.691
---------- ----------
D Exercise Proceeds (B x C) $7,777,517 $7,787,629
---------- ----------
E Average Market Price in Period $23.09 $24.75
F Shares Repurchased at Market Price (D / E) 336,819 314,652
---------- ----------
G Increase in Common Shares (B - F) 276,419 299,003
H Unallocated Shares in Employee Stock
Ownership Plan Trust 129,645 129,645
---------- ----------
I Shares Outstanding and Equivalents
(A + G - H) 5,233,200 5,255,784
========== ==========
J Net Income for Period $1,278,000 $1,278,000
========== ==========
EARNINGS PER SHARE (J / I) $0.24 $0.24
===== =====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------------
PRIMARY FULLY DILUTED
BASIS BASIS
------- -------------
<S> <C> <C> <C>
A Average Common Shares Outstanding 5,045,447 5,045,447
---------- ----------
Common Stock Equivalents:
B Average Stock Options Outstanding 633,468 633,853
C Average Option Exercise Price $12.235 $12.241
---------- ----------
D Exercise Proceeds (B x C) $7,750,321 $7,759,303
---------- ----------
E Average Market Price in Period $22.27 $24.75
F Shares Repurchased at Market Price (D / E) 347,969 313,507
---------- ----------
G Increase in Common Shares (B - F) 285,499 320,346
H Unallocated Shares in Employee Stock
Ownership Plan Trust 137,943 137,943
---------- ----------
I Shares Outstanding and Equivalents
(A + G - H) 5,193,003 5,227,850
========== ==========
J Net Income for Period $8,610,000 $8,610,000
========== ==========
EARNINGS PER SHARE (J / I) $1.66 $1.65
===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 17,728
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 562,271
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,536,092
<ALLOWANCE> 14,390
<TOTAL-ASSETS> 2,160,973
<DEPOSITS> 1,528,786
<SHORT-TERM> 386,167
<LIABILITIES-OTHER> 23,440
<LONG-TERM> 113,650
0
0
<COMMON> 30,924
<OTHER-SE> 78,006
<TOTAL-LIABILITIES-AND-EQUITY> 2,160,973
<INTEREST-LOAN> 91,098
<INTEREST-INVEST> 26,368
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 117,466
<INTEREST-DEPOSIT> 59,471
<INTEREST-EXPENSE> 78,704
<INTEREST-INCOME-NET> 38,762
<LOAN-LOSSES> 6,549
<SECURITIES-GAINS> 880
<EXPENSE-OTHER> 34,989
<INCOME-PRETAX> 7,611
<INCOME-PRE-EXTRAORDINARY> 8,974
<EXTRAORDINARY> (364)
<CHANGES> 0
<NET-INCOME> 8,610
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 7.66
<LOANS-NON> 21,028
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,789
<CHARGE-OFFS> 6,014
<RECOVERIES> 1,066
<ALLOWANCE-CLOSE> 14,390
<ALLOWANCE-DOMESTIC> 14,390
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
