<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
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: 0-23146
RedFed Bancorp Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0588105
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
300 East State Street, Redlands, California 92373
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (909) 335-3551
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 filing requirements
for the past 90 days.
[X]Yes [ ]No
The Registrant had 7,319,867 shares of common stock outstanding at March 31,
1997.
<PAGE>
RedFed Bancorp Inc. and Subsidiaries
Index
<TABLE>
<CAPTION>
Part I Financial Information Page
----
<S> <C> <C>
Item 1. Consolidated Financial Statements (unaudited)
RedFed Bancorp Inc.
Consolidated Statements of Financial Condition as of
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Earnings for the Three
Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities
Item 3. Default upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Exhibit 11 Computation of Earnings per Share
(Filed herewith on page 20) 20
Signatures 21
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
---------------------------------
RedFed Bancorp Inc. and Subsidiaries
Consolidated Statements of Financial Condition
(Dollars in thousands)
<TABLE>
<CAPTION> March 31, December 31,
1997 1996
--------- ----------
Assets (Unaudited)
------ ---------
<S> <C> <C>
Cash and cash equivalents $ 20,234 $ 33,746
Loans held for sale at lower of cost or market value 4,717 4,843
Mortgage-backed securities available-for-sale 17,584 18,220
Investment securities held-to-maturity 37,671 34,695
Mortgage-backed securities held-to-maturity 5,414 25,327
Loans receivable, net 764,089 725,019
Accrued interest receivable 5,297 4,953
Federal Home Loan Bank stock, at cost 6,840 6,486
Real estate acquired through foreclosure, net 5,403 5,800
Real estate held for sale or investment, net 1,372 1,372
Premises and equipment, net 17,402 17,656
Prepaid expenses and other assets 22,637 4,387
-------- --------
Total assets $908,660 $882,504
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits $798,635 $790,803
FHLB advances 15,000 --
Other borrowed money 4,418 4,418
Accrued expenses and other liabilities 16,311 15,165
-------- --------
Total liabilities 834,364 810,386
-------- --------
Stockholders' equity:
Common stock 74 74
Additional paid-in capital 57,093 56,981
Retained earnings --- substantially restricted 20,571 18,213
Deferred compensation (1,731) (1,870)
Treasury stock (802) (802)
Unrealized gains (losses) on securities available-for-sale (909) (478)
-------- --------
Total stockholders' equity 74,296 72,118
-------- --------
Total liabilities and stockholders' equity $908,660 $882,504
=========== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
RedFed Bancorp Inc. and Subsidiaries
Consolidated Statements of Earnings
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
---------- -----------
<S> <C> <C>
Interest income: (Unaudited)
Loans receivable and mortage-backed securities $ 14,897 $ 14,402
Investment securities and deposits 942 1,044
---------- ----------
Total interest income 15,839 15,446
---------- ----------
Interest expense:
Deposits 8,339 8,088
Other borrowed money 92 375
---------- ----------
Total interest expense 8,431 8,463
---------- ----------
Net interest income 7,408 6,983
Provision for losses on loans 459 1,400
---------- ----------
Net interest income after provision 6,949 5,583
for losses on loans ---------- ----------
Non-interest income:
Letter of credit and other fee income 1,543 1,528
Loss on sale of loans (1) (4)
Other income 185 65
---------- ----------
Total non-interest income 1,727 1,589
---------- ----------
Non-interest expense:
Compensation and benefits 2,966 2,758
Occupancy and equipment 1,758 1,676
Federal deposit insurance premiums 480 605
Other expense, net 632 662
---------- ----------
Total general and administrative expense 5,836 5,701
Real estate operations, net 494 528
---------- ----------
Total non-interest expense 6,330 6,229
---------- ----------
Earnings before income taxes 2,346 943
Income taxes (benefit) (12) 2
---------- ----------
Net earnings $ 2,358 $ 941
========== ==========
Earnings per share $0.32 $0.23
========== ==========
Weighted average shares outstanding 7,350,369 4,126,438
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE>
RedFed Bancorp Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1997 1996
---------- --------
<S> <C> <C>
Cash flows from operating activities: (Unaudited)
Net earnings $ 2,358 $ 941
Adjustments to net earnings
Loan fees collected 172 44
Depreciation and amortization 484 336
Provision for losses on loans 459 1,400
Net loss on sales of loans, investments and mortgage-backed
securities 8 4
Net gain (loss) on sales of real estate, and premises and equipment 24 (168)
Federal Home Loan Bank stock dividends received (105) (89)
Loans originated for sale (2,042) ---
Proceeds from sale of loans held for sale 2,043 216
Increase (decrease) in:
Accrued expenses and other liabilities 1,364 (710)
Deferred income (218) (56)
Accrued interest receivable (344) 105
Prepaid expenses and other assets (18,250) (4,272)
----------- ----------
Net cash used in operating activities (14,047) (2,249)
----------- ----------
Cash flows from investing activities:
Proceeds from maturities of
investment securities held-to-maturity 7,500 10,500
Purchases of investments securities held-to-maturity (10,471) (7,618)
Proceeds from maturities of mortgage-backed secuities
available-for-sale 204 618
Principal repayments of mortgage-backed securities 19,912 71
held-to-maturity
Loans originated for investment (26,467) (18,186)
Purchase of loans (54,659) ---
Purchase of Federal Home Loan Bank stock (249) ---
Principal payments and reductions of loan, net 39,568 23,525
Proceeds from sale of real estate 2,471 3,839
Proceeds from sale of premises and equipment 2 1
Purchases of premises and equipment (157) (134)
-------- --------
Net cash (used in) provided by investing activities (22,346) 12,616
-------- --------
(Continued)
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION> Three Months Ended
March 31,
-----------------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flow from financing activitites: (Unaudited)
Deposits, net of withdrawals and interest credited $ 7,832 $ (6,849)
Proceeds from Federal Home Loan Bank advances 15,000 ---
Repayment of other borrowed money --- (3,250)
Proceeds from stock options exercised 49 ---
-------- --------
Net cash provided by (used in) financing activities
22,881 (10,099)
-------- --------
Increase (decrease) in cash and cash equivalents (13,512) 268
Cash and cash equivalents, beginning of period 33,746 30,985
-------- --------
Cash and cash equivalents, end of period $ 20,234 $ 31,253
========= ========
Supplemental information:
Interest paid (including interest credited) $ 7,326 $ 6,756
Transfers from loans receivable to real estate 2,094 3,988
Loans to facilitate the sale of real estate --- 6,030
Real estate sold subject to bond financing --- 3,349
Bond financing subject to real estate sales --- (3,349)
Transfer from loans to mortage-backed securities held-to-maturity $ --- $ (5,950)
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
RedFed Bancorp Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. The consolidated statements of financial condition of RedFed Bancorp Inc.
and subsidiaries (the "Company") as of March 31, 1997, the related
consolidated statements of earnings for the three months ended March 31,
1997 and 1996 and the related consolidated statements of cash flows for the
three months ended March 31, 1997 and 1996 are unaudited. These statements
reflect, in the opinion of management, all material adjustments, consisting
only of normal recurring acruals, necessary for a fair presentation of the
consolidated financial condition of the Company as of March 31, 1997, and
results of consolidated operations for the three months ended March 31,
1997 and 1996 and consolidated cash flows for the three months ended March
31, 1997 and 1996. The results of consolidated operations for the unaudited
periods are not necessarily indicative of the results of consolidated
operations to be expected for the entire year of 1997.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Securities and Exchange
Commission ("SEC") Form 10-Q and, therefore, do not include all information
and footnotes normally included in consolidated financial statements
prepared in conformity with generally accepted accounting principles.
Accordingly, these unaudited 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 SEC Form 10-K for
the year ended December 31, 1996.
2. Primary and fully diluted earnings per share for the three months ended
March 31, 1997 of $0.32 were based on net earnings of $2.4 million, with
weighted-average common shares and equivalent shares outstanding during
that period of 7,350,369 shares (net of unearned Employee Stock Ownership
Plan ("ESOP") and Recognition and Retention Plan ("RRP") shares, and
treasury stock and including outstanding stock options as to which the
current market price exceeds the exercise price and that are not anti-
dilutive to market price). This compares with net earnings per share for
the three months ended March 31, 1996 of $0.23, based on net earnings of
$941,000 with weighted-average common shares outstanding during that period
of 4,126,438 (net of unearned ESOP and RRP shares and treasury stock and
including outstanding stock options as to which the current market price
exceeds the exercise price and that are not anti-dilutive to market price).
3. In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125 ("SFAS 125"),
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are
secured borrowings. Under the financial-components approach, after a
transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and
derecognizes all financial and servicing assets it no longer controls and
liabilities that have been extinguished. The financial-component approach
focuses on the assets and liabilities that exist after the transfer. Many
of these assets and liabilities are components of financial assets that
existed prior to the transfer. If a transfer does not meet the criteria for
a sale, the transfer is accounted for as a secured borrowing with pledge of
collateral. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after
December 31, 1996 and should be applied prospectively. The adoption of SFAS
No. 125 on January 1, 1997 did not have a material impact on the Company's
financial position or results of earnings.
In February 1997, the FASB issued SFAS No. 128 "Earnings per Share". SFAS
128 supersedes APB Opinion No. 15, "Earnings per Share" ("APB 15") and
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities which publicly held common stock or
potential common stock. SFAS will replace the presentation of primary EPS
with a presentation of basic EPS, and fully diluted EPS with diluted EPS.
SFAS 128 will also require dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures and requires
7
<PAGE>
a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator of the diluted EPS computation. This statement
shall be effective for financial statements for both interim and annual
periods ending after December 31, 1997. Earlier application is not
permitted. The Company has determined that this statement will have no
significant impact on the financial position or results of earnings.
8
<PAGE>
RedFed Bancorp Inc. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations
---------------------
GENERAL
RedFed Bancorp Inc. was organized by Redlands Federal Bank ( the "Bank") for
the purpose of acquiring all of the capital stock of the Bank issued in the
conversion of the Bank from a federally chartered mutual savings association to
a federally chartered stock savings bank. The Company's common stock is traded
on NASDAQ under the symbol "REDF".
The Company is primarily engaged in attracting deposits from the general public
in the areas in which its branches are located and investing such deposits and
other available funds primarily in loans secured by one- to four-family
residential mortgages, including spot (non-tract) construction loans, which are
combination construction and permanent loans made to borrowers who will occupy
the completed home as their primary residence. At March 31, 1997 the Bank
operated fourteen retail banking offices located in San Bernardino and Riverside
counties, and two loan production offices.
The Company is subject to significant competition from other financial
institutions in its market area. The Bank is regulated by certain federal
agencies and undergoes periodic examinations by those regulatory authorities.
FINANCIAL CONDITION
The Company's consolidated assets were $908.7 million at March 31, 1997 compared
to $882.5 million at December 31, 1996. The increase of $26.2 million was
primarily the result of a net increase in loans receivable of $39.1 million
partially offset by a decrease in cash and cash equivalents. A decrease in
mortgage-backed securities held-to-maturity of $19.9 million was offset by an
increase in prepaid expenses and other assets of $18.3 million. The increase
in consolidated liabilities consisted primarily of an increase in the deposit
base of $7.8 million, and an increase in FHLB advances of $15.0 million.
Loans receivable, net increased to $764.1 million at March 31, 1997, from $725.0
million at December 31, 1996. The increase of $39.1 million for the three
months ended March 31, 1997 consisted primarily of loan purchases of $54.7
million and loan originations of $26.5 million offset by loan principal
payments of $39.6 million and the transfer of $2.1 million of loans to real
estate owned or acquired through foreclosure ("REO") before initial write-down
to fair value. Mortgage-backed securities held-to-maturity decreased $19.9
million as the result of the refinancing of a $3.7 million loan to an off-
balance sheet letter of credit ("LOC") and the repayment of four loans in the
amount of $16.2 million of the San Bernardino County Bond owned by the Company.
Savings deposits at March 31, 1997 totaled $798.6 million compared to $790.8
million at December 31, 1996. The increase of $7.8 million in savings deposits
is due primarily to an increase in certificates of deposit. The Company
increased net borrowings by $15.0 million during the three months ended March
31, 1997 to facilitate with the loan purchases. Stockholders' equity increased
to $74.3 million at March 31, 1997 from $72.1 million at December 31, 1996 as
a result of earnings for the three months ended March 31, 1997 of $2.4 million,
partially offset by a $431,000 change in the unrealized loss on securities
available for sale.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of funds are deposits, principal and interest
repayments on loans and investments, retained earnings, and, to a lesser extent,
FHLB advances and other short-term borrowings. While maturities and scheduled
amortization of loans are predictable sources of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition.
9
<PAGE>
The Bank is required to maintain minimum levels of liquid assets as defined by
Office of Thrift Supervision ("OTS") regulations. This requirement, which may
be varied by the OTS depending upon economic conditions and deposit flows, is
based upon a percentage of deposits and short-term borrowings. The required
ratio is currently 5%. The Bank's average liquidity ratios for the three
months ended March 31, 1997 and December 31, 1996 were 7.81% and 7.43%,
respectively. The Bank currently attempts to maintain a liquidity ratio as
close to the minimum requirements as possible, since loan originations provide
higher interest rates, in addition to loan fees, than are available from liquid
investments.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996.
General. The Company recorded net earnings of $2.4 million for the three
- -------
months ended March 31, 1997, or $0.32 per share, as compared to net earnings of
$941,000, or $0.23 per share, for the three months ended March 31, 1996. Net
operating results for the three months ended March 31, 1997 were favorably
impacted by increases in interest income of $393,000 and non-interest income
of $138,000, and by a decrease in provisions for losses on loans of $941,000.
Non-interest expense increased $101,000.
Interest income. Interest income for the three months ended March 31, 1997 was
- ----------------
$15.8 million compared to $15.4 million for the same period in the previous
year. The increase in interest income for the three months ended March 31, 1997
is due in part to an increase in average interest-earning assets of
approximately $47.1 million, partially offset by a decrease of 24 basis points
in the average yield for interest-earning assets from 7.76% for the three
months ended March 31, 1996 to 7.52% for the three months ended March 31, 1997.
Interest expense. Interest expense for the three months ended March 31, 1997
- -----------------
was $8.4 million compared to $8.5 million for the same three months in the
previous year. This decrease in interest expense for the three months ended
March 31, 1997 was the result of a decrease in average interest-bearing
liabilities of $11.1 million, partially offset by an increase of eight basis
points in the average cost for interest-bearing liabilities from 4.30% for the
three months ended March 31, 1996 to 4.38% for the three months ended March 31,
1997.
Net interest income. The net interest income for the three months ended March
- --------------------
31, 1997 was $7.4 million, which represents an interest rate spread of 3.14%.
This compares to net interest income of $7.0 million, which represents an
interest rate spread of 3.46%, for the same period in 1996. The increase in
net interest income of $425,000 is the result of a net improvement of $58.2
million in the average dollar amounts for interest-earning assets and interest-
bearing liabilities for the three months ended March 31, 1997 when compared to
the same period in the previous year. The 32 basis point decrease in the
interest rate spread for the three months ended March 31, 1997 compared to the
three months ended March 31, 1996 was a result of a decrease in the average
yield for interest-earning assets and an increase in the average cost for
interest-bearing liabilities.
10
<PAGE>
The following table displays average dollar amounts and interest rates on the
Company's interest-earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------
1997 1996
----------------------- ------------------------------
(Dollars in thousands)
Average dollar amount of and average yield earned on assets:
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE YIELD/COST BALANCE YIELD/COST
------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Loans and mortgage-backed securities $775,892 7.69% $731,103 7.92%
Investment securities 67,692 5.64 65,386 5.95
-------- --------
Interest-earning assets $843,584 7.52 796,489 7.76
======== --------
Average dollar amount of and average rate paid on liabilities:
Deposits $775,029 4.36 $763,713 4.25
Borrowings 5,585 6.68 28,038 5.37
-------- --------
Interest-bearing liabilities $780,614 4.38 $791,751 4.30
======== ========
Interest rate spread 3.14% 3.46 %
Net interest margin 3.47% 3.48 %
Ratio of interest-earning assets to
interest-bearing liabilities 108.07% 100.60%
</TABLE>
Provision for losses on Loans, LOCs and real estate. The provision for losses
- -----------------------------------------------------
on loans was $459,000 for the three months ended March 31, 1997 compared to $1.4
million for the same period last year. The loss provision reflects management's
assessment of the loan, LOC and real estate portfolios in light of the Southern
California real estate market, borrowers' ability to perform and certain other
factors.
The allowances for losses on loans, LOCs and real estate are established through
provisions based on management's evaluation of the risks inherent in its
portfolios and the local real estate economy. The allowances are maintained at
amounts management considers adequate to cover losses which are deemed probable
and estimable. The allowances are based upon a number of factors, including
asset grading and classification, collateral values, management's assessment of
the credit risk inherent in the portfolio, historical loan loss experience, a
loss migration analysis, and the Company's underwriting policies.
11
<PAGE>
The following is a summary of the activity in the loan, LOC and real estate
valuation allowances for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------------
March 31, December 31,
1997 1996
--------- -----------
(Dollars in thousands)
<S> <C> <C>
ALLOWANCE FOR LOSSES ON LOANS:
Balance at beginning of period $10,134 $10,149
Provisions charged to income 459 389
Charge-offs, net of recoveries (265) (404)
------- ------
Balance at end of period 10,328 10,134
------- -------
ALLOWANCE FOR lOSSES ON LOCs:
Balance at beginning of period 7,624 7,224
Provisions charged to income --- 400
------ ------
Balance at end of period 7,624 7,624
------- -------
ALLOWANCE FOR LOSSES ON REAL ESTATE:
Balance at beginning of period $ 1,640 $ 2,240
Charge-offs, net of recoveries (195) (600)
------- -------
Balance at end of period $ 1,445 $ 1,640
------- -------
TOTAL ALLOWANCE FOR LOSSES ON LOANS, LOCs
AND REAL ESTATE: $19,397 $19,398
======= =======
General valuation allowance ("GVA") $17,494 $17,826
Specific (1) 1,903 1,572
------- -------
TOTAL $19,397 $19,398
======= =======
</TABLE>
(1) Includes specific valuation allowance for real estate held for sale of
$254,000 at March 31, 1997 and December 31, 1996.
The allowance for losses on loans, LOCs and real estate was $19.4 million at
March 31, 1997 and at December 31, 1996. The ratio of GVA for losses on loans,
LOCs and real estate to nonperforming assets and LOCs increased to 98.94% at
March 31, 1997 from 89.18% at December 31, 1996 as a result of a decrease in
nonperforming assets. Included in the allowance for losses on loans, LOCs and
real estate were specific allowances against individual loans, LOCs and real
estate of $1.9 million at March 31, 1997 and $1.6 million at December 31, 1996.
Management continues to address the levels of allowance for losses in relation
to the local real estate economy. As a result of changes in certain real estate
markets, adjustments in the valuation allowances may be required in future
periods. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's valuation allowances.
These agencies may require additional valuation allowances, based on their
judgments of the information available to them at the time of the examination.
Non-Interest Income. Non-interest income for the three months ended March 31,
- --------------------
1997 was $1.7 million compared to $1.6 million for the same period last year.
12
<PAGE>
Non-interest expense. Non-interest expense was $6.3 million for the three months
- --------------------
ended March 31, 1997 an increase from $6.2 million for the same period last
year. Included in non-interest expense was general and administrative expense
("G&A") for the three months ended March 31, 1997 of $5.8 million, an increase
from $5.7 million for the same period last year. The net increase of $135,000
was primarily from the accrual for retirement benefits and the amortization of
ESOP and RRP amounts at fair market value. The Company's efficiency ratio
improved from 66.51% for the three months ended March 31, 1996 to 63.89% for the
three months ended March 31, 1997.
NONPERFORMING ASSETS
The following table sets forth information regarding nonaccrual loans,
nonperforming LOCs and REO, net of specific valuation allowances:
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER
NONPERFORMING ASSETS : 1997 31, 1996
------------ -----------
NONACCRUAL LOANS: (Dollars in thousands)
<S> <C> <C> <C>
One- to four-family $ 7,887 $10,739
Multi-family 1,458 764
Commercial real estate 363 --
Developed lots 1,420 1,009
Tract construction and land 407 586
Consumer 190 200
------ ------
Total nonaccrual loans 11,725 13,298
------- -------
REO (1):
One- to four-family 2,938 3,169
Multi-family 639 422
Commercial real estate 252 461
Spot construction 372 372
Developed lots 1,332 1,757
Tract construction and land 407 458
Consumer 16 51
------- -------
Total REO 5,956 6,690
------- -------
Total nonperforming assets $17,681 $19,988
======= =======
</TABLE>
___________
(1) Does not include effect of GVAs of $553,000 and $890,000 at March 31, 1997
and December 31, 1996, respectively.
Nonaccrual loans net of specific valuation allowances at March 31, 1997 were
$11.7 million, which represents a decrease of $1.6 million from the December 31,
1996 balance of $13.3 million. This decrease since December 31, 1996 resulted
primarily from a decrease in nonaccrual single family loans of $2.9 million,
partially offset by an increase in multi-family loans of $694,000, an increase
of $363,000 in nonaccrual commercial real estate and an increase of $411,000 in
nonaccrual developed lots.
13
<PAGE>
The Company's general nonaccrual policy provides that interest accruals cease
once a loan is past due for a period of 90 days or more, or the notice of
default is filed, whichever is earlier. Loans may also be placed on nonaccrual
status even though they are less than 90 days past due if management concludes
that it is probable that the borrower will not be able to comply with the
repayment terms of the loan. The Company defines nonperforming loans as
nonaccrual loans and nonperforming LOCs.
REO decreased to $5.4 million at March 31, 1997 from $5.8 million at December
31, 1996. REO is initially recorded at the fair value of the related assets at
the date of foreclosure, less costs to sell. Subsequent write-downs for losses
are recognized if the carrying value of real estate exceeds fair value, less
costs to sell.
Nonperforming assets are defined as nonperforming loans (as defined above) and
REO. Nonperforming assets were $17.7 million, or 1.74% of total assets and LOCs,
at March 31, 1997, compared to $20.0 million, or 2.02% of total assets and LOCs,
at December 31, 1996. The Company does not include troubled debt restructured
loans ("TDRs") that are performing in accordance with their restructured terms
as nonperforming assets. The balance of restructured loans was $11.9 million and
$12.0 million at March 31, 1997 and December 31, 1996, respectively.
Management continues to reduce the amount of nonperforming assets by
concentrating efforts on early detection through the asset classification
process and by taking an aggressive stance to quickly resolve nonperforming
assets by working with borrowers to restore nonaccrual loans to performing
status where possible, by foreclosing upon security property where workouts are
determined to be impracticable and by selling existing REO.
14
<PAGE>
CLASSIFIED ASSETS
Federal regulations and the Company's Classification of Assets Policy provide
for the classification of loans and other assets. "Substandard" assets are those
that are characterized by the "distinct possibility" that the institution will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
"Doubtful" have all of the weaknesses inherent in those classified "Substandard"
with the added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions, and
values, "highly questionable and improbable." Assets classified as "Loss" are
those considered "uncollectible" and of such little value that their continuance
as assets without the establishment of a specific loss allowance is not
warranted.
The following table sets forth the classified assets, which include substandard
and doubtful categories, net of specific valuation allowance. The increase in
LOCs classified as substandard was the result of a reevaluation of one LOC in
the amount of $6.7 million. The amount of specific valuation allowances at March
31, 1997 and December 31, 1996 was $1.6 million and $1.3 million, respectively.
<TABLE>
<CAPTION>
At March 31, At December 31,
1997 1996
------------ ---------------
(Dollars in thousands)
<S> <C> <C>
SUBSTANDARD
LOANS:
One- to four-family $ 9,665 $11,934
Multi-family 5,636 5,619
Commercial real estate 1,015 653
Spot construction 252 --
Developed lots 1,529 1,220
Tract construction and land 407 591
Consumer 319 358
------- -------
Total 18,823 20,375
------- -------
REO:
One- to four-family 2,938 3,169
Multi-family 639 422
Commercial real estate 252 461
Spot construction 372 372
Developed lots 1,332 1,757
Tract construction and land 407 458
Consumer 16 51
------- -------
Total 5,956 6,690
LOCs: 11,084 4,375
------- -------
Total substandard 35,863 31,440
------- -------
DOUBTFUL
Multi-family -- 153
------- -------
TOTAL CLASSIFIED ASSETS $35,863 $31,593
======= =======
</TABLE>
15
<PAGE>
IMPAIRED LOANS
A loan is considered impaired 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. The Company measures impairment
based on (1) the present value of expected future cash flows discounted at the
loan's effective interest rate, (2) the observable market price of the impaired
loan or (3) the fair value of the collateral of a collateral-dependent loan. If
the value of the impaired loan is less than the recorded investment in the loan,
the Company recognizes an impairment by recording a valuation allowance with a
corresponding charge to the provision for losses on loans. The Company will
chargeoff a portion of an impaired loan against the valuation allowance when it
is probable that there is no possibility of recovering the full amount of the
impaired loan. Loans are included in REO only when the Company has physical
possession of the underlying collateral but not legal title. The following table
identifies the Company's total recorded investment in impaired loans by type at
the dates indicated, net of specific valuation allowances:
<TABLE>
<CAPTION>
At March 31, At December 31,
1997 1996
------------ --------------
(Dollars in thousands)
<S> <C> <C>
Nonaccrual loans:
Multi-family $ 1,458 $ 764
Commercial 363 --
Tract construction and land 407 586
TDR loans 11,946 12,001
Other impaired loans:
Multi-family 741 3,386
------- -------
$14,915 $16,737
======= =======
</TABLE>
REGULATORY CAPITAL
Under OTS capital regulations, the Bank must meet three capital tests. First,
the tangible capital requirement mandates that the Bank's equity less intangible
assets be at least 1.50% of adjusted total assets as defined in the capital
regulations. Second, the core capital requirement currently mandates that core
capital (tangible capital plus qualifying supervisory goodwill) be at least
3.00% of adjusted total assets as defined in the capital regulations.
Third, the risk-based capital requirement presently mandates that core capital
plus supplemental capital as defined by the OTS be at least 8.00% of risk-
weighted assets as prescribed in the capital regulations. The capital
regulations assign specific risk weightings to all assets and off-balance sheet
items.
The Bank was in compliance with all current capital requirements in effect at
March 31, 1997, and had sufficient capital to be considered a "well capitalized"
institution under the OTS regulations.
16
<PAGE>
The following table presents information regarding the Bank's capital at March
31, 1997:
<TABLE>
<CAPTION>
REGULATORY CAPITAL (FDICIA)
CAPITAL
-------------------------
ACTUAL REQUIRED EXCESS ACTUAL REQUIRED
CAPITAL CAPITAL AMOUNT PERCENT PERCENT
----------- ------------ ---------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $78,378 $54,114 $24,264 11.59% 8.00%
Core (Tier 1) capital (to total assets) 70,090 35,922 34,168 7.80 4.00
Tier 1 leverage (to average assets) 70,090 35,719 34,371 7.85 4.00
Tier 1 capital (to risk-weighted assets) 70,090 27,057 43,033 10.36 4.00
Tangible capital (to total assets) 70,090 35,922 34,168 7.80 4.00
</TABLE>
The table below presents the Bank's capital ratios as compared to regulatory
requirements under the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 ("FIRREA") at March 31, 1997.
<TABLE>
<CAPTION>
REGULATORY CAPITAL (FIRREA)
CAPITAL (1)
-------------------------
ACTUAL REQUIRED EXCESS ACTUAL REQUIRED
CAPITAL CAPITAL AMOUNT PERCENT PERCENT
----------- ------------ ---------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible $70,090 $13,471 $56,619 7.80% 1.50%
Core 70,090 26,941 43,149 7.80 3.00
Risk-based 78,378 54,114 24,264 11.59 8.00
</TABLE>
_________
(1) Although the OTC capital regulations require savings institutions to meet a
1.5% tangible capital ratio, a 3% leverage (core) capital ratio and an 8% risk-
based capital ratio, the prompt corrective action standards also establish, in
effect a minimum 2% tangible capital standard, a 4% leverage (core) capital
ratio (3% for institutions receiving the highest rating on the Capital, Assets,
Management, Earnings, and Liquidity ("CAMEL") financial institution rating
system) and, together with the risk-based capital standard itself, a 4% risk-
based capital standard.
17
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED RATIOS OF THE COMPANY
AT OR FOR THE
THREE MONTHS ENDED MARCH 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
PERFORMANCE RATIOS: (1)
Return on average assets 1.06% 0.44%
Return on average equity 12.85 7.76
Equity to total assets 8.18 5.63
Interest rate spread during the period 3.14 3.46
Net interest margin 3.47 3.48
Average interest-earning assets to average interest-bearing liabilities 108.07 100.60
G&A expense to average assets 2.61 2.64
Efficiency ratio (2) 63.89 66.51
</TABLE>
<TABLE>
<CAPTION>
AT AT
MARCH 31,1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
REGULATORY CAPITAL RATIOS:
Tangible and core capital 7.80% 7.73%
Risk-based capital 11.59 11.52
ASSET QUALITY RATIOS:
Nonaccrual loans to total loans 1.48 1.76
Nonperforming assets to total assets and LOCs (3) (4) 1.74 2.02
Allowance for losses on loans and LOCs to total loans and 1.99 2.06
LOCs
Allowance for losses on loans, LOCs and real estate to total
assets and LOCs 1.90 1.96
GVAs for losses on loans to nonaccrual loans 80.01 70.03
GVAs for losses on loans, LOCs and real estate to total
nonperforming assets (3) (4) 98.94 89.18
Classified assets to total assets and LOCs 3.52 3.20
GVAs to net classified assets 48.78 56.42
</TABLE>
___________________
(1) Ratios for the three-month periods have been annualized.
(2) G&A expense to net interest income plus total non-interest income. Excludes
provisions for losses on loans and other non-interest expense.
(3) Excludes troubled debt restructures which are currently performing under
their restructured terms.
(4) Nonperforming assets include nonperforming loans, LOCs and REO.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is named as a defendant in two wrongful termination
lawsuits. One of the lawsuits was filed on March 25, 1996 in the San
Bernardino County Superior Court by a former officer whose position
was eliminated in a May, 1995 reduction in force. The plaintiff in
that lawsuit alleges that the plaintiff had an oral employment
agreement with the Company which was breached by the plaintiff's
termination, and that such termination was a result of age
discrimination. The plaintiff seeks unspecified amounts of damages.
The Company has denied any liability, and has engaged outside counsel
to defend it against the action.
The second wrongful termination lawsuit was filed on August 14, 1996
in the San Bernardino County Superior Court by a former senior officer
who elected to take early retirement in August of 1995. By motion of
the Company, the lawsuit was removed to the United States District
Court for the Central District of California. The plaintiff alleges
that the plaintiff was constructively discharged in violation of an
alleged oral agreement and as the result of age discrimination. The
lawsuit seeks compensatory and punitive damages in an aggregate of
$3.2 million. The Company has denied any liability, and has engaged
outside counsel to defend against the action.
The Company is also named a defendant in a lawsuit filed on January 9,
1996 in the San Bernardino County Superior Court by a bonding company,
which alleges that the Company is bound to reimburse it for certain
sums paid by the bonding company to complete a construction project
formerly financed by the Company. The lawsuit seeks an unspecified
amount of damages. The Company has denied any liability and has
engaged outside counsel to defend it.
The Company is not involved in any other pending legal proceedings
other than routine legal proceedings occurring in the ordinary course
of business. All of such legal proceedings in the aggregate are
believed by management to be immaterial to the Company.
Items 2, 3, 4 and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - 11 - Computations of Earnings Per Share (Filed
herewith on page 20)
Exhibits - 27.1 - Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed by the
registrant during the three months ended March 31, 1997
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. 11 COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED THREE MONTHS
MARCH 31, 1997 MARCH 31, 1996
------------------ --------------
<S> <C> <C>
Net earnings $ 2,358 $ 941
========== ==========
PRIMARY:
Weighted average shares outstanding 7,161,090 4,058,843
Common stock equivalents due to
dilutive effect of stock options 189,279 67,595
---------- ----------
Total weighted average common shares
and equivalents outstanding 7,350,369 4,126,438
========== ==========
Earnings per share $ 0.32 $ 0.23
========== ==========
FULLY DILUTED:
Total weighted average common shares
and equivalents outstanding 7,350,369 4,126,438
Total weighted average common shares
and equivalents outstanding for fully
diluted computation 7,350,369 4,126,438
========== ==========
Earnings per share $ 0.32 $ 0.23
========== ==========
</TABLE>
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: March 13, 1997 REDFED BANCORP INC.
By: /s/ Anne Bacon
---------------------------
Anne Bacon
President and
Chief Executive Officer
By: /s/ David C. Gray
-------------------------------
David C. Gray, CPA
Treasurer and
Chief Financial Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 20,234
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,584
<INVESTMENTS-CARRYING> 43,085
<INVESTMENTS-MARKET> 0<F1>
<LOANS> 768,806
<ALLOWANCE> 10,328
<TOTAL-ASSETS> 908,660
<DEPOSITS> 798,635
<SHORT-TERM> 15,000
<LIABILITIES-OTHER> 16,311
<LONG-TERM> 4,418
0
0
<COMMON> 74
<OTHER-SE> 74,222
<TOTAL-LIABILITIES-AND-EQUITY> 908,660
<INTEREST-LOAN> 14,101
<INTEREST-INVEST> 1,738
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 15,839
<INTEREST-DEPOSIT> 8,339
<INTEREST-EXPENSE> 8,431
<INTEREST-INCOME-NET> 7,408
<LOAN-LOSSES> 459
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,330
<INCOME-PRETAX> 2,346
<INCOME-PRE-EXTRAORDINARY> 2,346
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,358
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 7.59
<LOANS-NON> 11,725
<LOANS-PAST> 0
<LOANS-TROUBLED> 11,946
<LOANS-PROBLEM> 14,915
<ALLOWANCE-OPEN> 10,134
<CHARGE-OFFS> 392
<RECOVERIES> 127
<ALLOWANCE-CLOSE> 10,328
<ALLOWANCE-DOMESTIC> 10,328
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>THIS INFORMATION IS NOT DISCLOSED IN THE FORM 10-Q
</FN>
</TABLE>
