<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 000-24549
TELEBANC FINANCIAL CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3759196
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
</TABLE>
1111 N. HIGHLAND STREET, ARLINGTON, VIRGINIA 22201
---------------------------------------------------
(Address of principal executive office) (Zip code)
(703) 247-3700
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding for the issuer's classes of common
stock, as of August 13, 1998.
<TABLE>
<S> <C>
common stock, $0.01 par value 12,363,848
----------------------------- ----------
(class) (outstanding)
</TABLE>
<PAGE> 2
TELEBANC FINANCIAL CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1.
Consolidated Statements of Financial Condition -June 30, 1998 and
December 31, 1997 3
Consolidated Statements of Operations - Three and six months
ended June 30, 1998 and 1997 4
Consolidated Statements of Changes in Stockholders' Equity - Six
months ended June 30, 1998 and 1997 6
Consolidated Statements of Cash Flows - Six months ended June
30, 1998 and 1997 7
Notes to Consolidated Financial Statements 8
Items 2 and 3.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Part II -- Other Information
- ----------------------------
Item 4.
Submission of Matters to a Vote of Security Holders 20
Item 6.
Exhibits and Reports on Form 8-K 22
Signatures 25
</TABLE>
2
<PAGE> 3
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
Assets: 1998 1997
---- ----
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 13,239 $ 92,156
Loans receivable, net 457,256 391,618
Loans receivable held for sale 128,661 149,086
Mortgage-backed securities available for sale 391,151 319,203
Investment securities available for sale 139,703 91,237
Trading securities 43,150 21,110
Other assets 36,306 35,942
------ ------
Total assets $ 1,209,466 $ 1,100,352
========= =========
Liabilities and Stockholders' Equity:
Liabilities:
Retail deposits $ 603,594 $ 522,221
Brokered callable certificates of deposit 66,953 -
Advances from the Federal Home Loan Bank of Atlanta 208,500 200,000
Securities sold under agreements to repurchase 232,411 279,909
Subordinated debt 29,732 29,614
Other liabilities 13,334 13,212
------ ------
Total liabilities 1,154,524 1,044,956
--------- ---------
Corporation-Obligated Mandatory Redeemable Capital Securities of Subsidiary
Trust Holding Solely Junior Subordinated Debentures of the Corporation 9,494 9,572
Stockholders' equity:
4% Cumulative Preferred Stock, $0.01 par value,
500,000 shares authorized
Series A, 18,850 issued and outstanding 9,634 9,634
Series B, 4,050 issued and outstanding 2,070 2,070
Series C, 7,000 issued and outstanding 3,577 3,577
Common stock, $0.01 par value, 29,500,000 shares authorized; 4,494,988 and
4,458,322 issued and outstanding at June 30, 1998 and December 31, 1997 44 44
Additional paid-in capital 16,385 16,205
Retained earnings 11,847 11,556
Accumulated other comprehensive income, net of tax 1,891 2,738
----- -----
Total stockholders' equity 45,448 45,824
------ ------
Total liabilities & stockholders' equity $ 1,209,466 $ 1,100,352
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 10,467 $ 8,315 $ 20,832 $ 15,872
Mortgage-backed and related securities 5,209 5,126 10,283 8,931
Investment securities 1,986 1,538 3,772 2,982
Trading securities 708 271 1,345 271
Other 211 25 421 56
--- -- --- --
Total interest income 18,581 15,275 36,653 28,112
------ ------ ------ ------
Interest expense:
Retail deposits 8,757 6,332 16,811 12,037
Brokered callable certificates of deposit 1,020 - 1,394 -
Advances from the Federal Home Loan Bank of Atlanta 2,813 2,183 5,531 4,256
Repurchase agreements 1,803 2,472 4,255 3,929
Subordinated debt 881 878 1,761 1,521
Other 2 - 2 -
- - - -
Total interest expense 15,276 11,865 29,754 21,743
------ ------ ------ ------
Net interest income 3,305 3,410 6,899 6,369
Provision for loan losses 75 308 325 551
-- --- --- ---
Net interest income after provision for loan losses 3,230 3,102 6,574 5,818
----- ----- ----- -----
Non-interest income:
Gain on sale of securities 749 452 1,641 690
Fees, service charges and other 365 400 712 741
Gain on sale of loans 73 283 194 410
(Loss) gain on trading securities (6) 706 55 728
(Loss) gain on equity investment (77) (598) 449 (718)
---- ----- --- -----
Total non-interest income 1,104 1,243 3,051 1,851
----- ----- ----- -----
</TABLE>
(continued)
4
<PAGE> 5
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(Dollars in Thousands, Except Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Non-interest expenses:
Selling, general and administrative expenses:
Advertising and marketing 576 102 1,206 120
Compensation and employee benefits 1,670 1,200 3,620 2,378
Other 1,195 948 2,504 1,650
----- --- ----- -----
Total selling, general and administrative expenses 3,441 2,250 7,330 4,148
----- ----- ----- -----
Other non-interest expenses:
Net operating costs of real estate acquired through
foreclosure 101 56 182 131
Amortization of goodwill and other intangibles 386 146 620 279
--- --- --- ---
Total other non-interest expenses 487 202 802 410
--- --- --- ---
Total non-interest expenses 3,928 2,452 8,132 4,558
----- ----- ----- -----
Income before income tax expense 406 1,893 1,493 3,111
Income tax expense 51 617 526 973
Minority interest in subsidiary 176 67 352 67
--- -- --- --
Net income 179 1,209 615 2,071
Preferred stock dividends 162 162 324 222
--- --- --- ---
Net income available to common stockholders $ 17 $ 1,047 $ 291 $ 1,849
== ===== === =====
Other comprehensive income, before tax:
Unrealized holding gain (loss) on securities arising
during the period $ (644) $ 2,723 $ 170 $ 1,706
Less: reclassification adjustment for gains included in
net income (750) (452) (1,641) (690)
----- ----- ------- -----
Other comprehensive income, before tax (1,394) 2,271 (1,471) 1,016
Income tax expense related to reclassification adjustment for
gains on sale of securities 285 172 624 262
--- --- --- ---
Other comprehensive income (1,109) 2,443 (847) 1,278
------- ----- ----- -----
Comprehensive income $ (1,092) $ 3,490 $ (556) $ 3,127
======= ===== ===== =====
Earnings per share:
Basic $ 0.00 $ 0.24 $ 0.06 $ 0.43
Diluted $ 0.00 $ 0.16 $ 0.05 $ 0.31
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollars in Thousands)
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Additional on Available
Preferred Common Paid-in Retained for Sale
Stock Stock Capital Earnings Securities Total
----- ----- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ -- $ 40 $ 14,637 $ 7,885 $ 2,096 $ 24,658
Net income for the six months ended June 30,
1997 -- -- -- 2,071 -- 2,071
Stock issued -- 4 1,270 -- -- 1,274
Issuance of 4% Cumulative Preferred Stock,
Series A 9,634 -- -- -- -- 9,634
Issuance of 4% Cumulative Preferred Stock,
Series B 2,070 -- -- -- -- 2,070
Issuance of 4% Cumulative Preferred Stock,
Series C 3,577 -- -- -- -- 3,577
Dividends on 4% Cumulative Preferred Stock -- -- -- (222) -- (222)
Unrealized gain on available for sale
securities, net of tax effect -- -- -- -- 1,278 1,278
-- -- -- -- ----- -----
Balances at June 30, 1997 $ 15,281 $ 44 $ 15,907 $ 9,734 $ 3,374 $ 44,340
====== == ====== ===== ===== ======
Balances at December 31, 1997 $ 15,281 $ 44 $ 16,205 $ 11,556 $ 2,738 $ 45,824
Net income for the six months ended June 30,
1998 -- -- -- 615 -- 615
Stock issued -- -- 180 -- -- 180
Dividends on 4% Cumulative Preferred Stock -- -- -- (324) -- (324)
Unrealized loss on available for sale
securities, net of tax effect -- -- -- -- (847) (847)
-- -- -- -- ----- -----
Balances at June 30, 1998 $ 15,281 $ 44 $ 16,385 $ 11,847 $ 1,891 $ 45,448
====== == ====== ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30,
--------
1998 1997
---- -----
<S> <C> <C>
Net cash (used in) provided by operating activities $ (751) $(24,430)
----- --------
Cash flows from investing activities:
Net increase in loans (65,963) (105,691)
Purchases of available-for-sale securities (380,353) (202,950)
Proceeds from sale of available-for-sale securities 193,668 82,361
Proceeds from maturities of and principal payment on
available-for-sale securities 67,118 121,306
Proceeds from sale of foreclosed real estate 782 924
Equity investment in subsidiaries (1,720) (1,183)
Net purchases of premises and equipment (609) (149)
----- -----
Net cash used in investing activities (187,077) (105,382)
--------- ---------
Cash flows from financing activities:
Net increase in deposits 148,326 35,288
Net increase in subordinated debt 119 --
Increase in advances from Federal Home Loan Bank of Atlanta 219,200 181,000
Payments on advances from Federal Home Loan Bank of Atlanta (210,700) (180,800)
Net increase in borrowed funds (40) 12,904
Net (increase) decrease in securities sold under agreements to (47,498) 65,080
repurchase
Issuance of trust preferred stock -- 10,000
Increase in common stock, preferred stock, and additional paid-in capital 180 16,555
Interest paid to minority interest in subsidiary (352) --
Dividends paid on common and preferred stock (324) (222)
----- -----
Net cash (used in) by financing activities 108,911 139,805
------- -------
Net (decrease) increase in cash and cash equivalents (78,917) 9,993
Cash and cash equivalents at beginning of period 92,156 3,259
------ -----
Cash and cash equivalents at end of period $ 13,239 $ 13,252
====== ======
Supplemental information:
Interest paid on deposits and borrowed funds $ 28,474 $ 15,214
Income taxes paid 999 853
Gross unrealized gain on securities available for sale 1,308 2,111
Tax effect of gain on available for sale securities $ 461 $ 833
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
TELEBANC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NOTE 1. BASIS OF PRESENTATION
TeleBanc Financial Corporation (the "Company") operates its business
principally through two wholly owned subsidiaries, TeleBank, a federally
chartered savings bank ("TeleBank"), and TeleBanc Capital Markets, Inc.
("TCM"). TeleBank offers savings and investment products insured up to
applicable limits by the Federal Deposit Insurance Corporation (the "FDIC"),
and TCM is a registered broker-dealer and investment advisor specializing in
one-to-four family mortgage loans and mortgage-backed securities. TCM manages
the portfolios of TeleBanc Financial and TeleBank. The Company also owns all
of the beneficial interests represented by common securities in two Delaware
trusts, TeleBanc Capital Trust I ("TCT I") and TeleBanc Capital Trust II ("TCT
II"), which were formed solely for the purpose of issuing capital securities.
In 1997, TCT I issued $10.0 million 11.0% Capital Securities, Series A and
invested the net proceeds in the Company's 11.0% Junior Subordinated Deferrable
Interest Debentures, Series A (the "TCT I Junior Subordinated Debentures"). In
July 1998, TCT II issued $27.5 million 9.0% Beneficial Unsecured Securities,
Series A and invested the net proceeds in the Company's 9.0% Junior
Subordinated Deferrable Interest Debentures, Series A (the "TCT II Junior
Subordinated Debentures"). TeleBank, through its wholly owned subsidiary
TeleBanc Servicing Corporation ("TSC"), owns 50% of AGT PRA, LLC ("AGT PRA").
The primary business of AGT PRA is its investment in Portfolio Recovery
Associates, LLC ("PRA"). PRA acquires and collects delinquent consumer debt
obligations for its own portfolio. The accompanying consolidated financial
statements include the accounts of TeleBank, TCM, TCT I, TCT II and TSC, a
wholly owned subsidiary of TeleBank. All significant intercompany transactions
and balances are eliminated in consolidation. The investment in AGT PRA is
accounted for under the equity method.
The financial statements as of June 30, 1998 and for the three and six
months ended June 30, 1998 and 1997 are unaudited, but in the opinion of
management, contain all adjustments, consisting solely of normal recurring
entries, necessary to present fairly the consolidated financial condition as of
June 30, 1998 and the results of consolidated operations for the three and six
months ended June 30, 1998 and 1997. The results of consolidated operations
for the three and six months ended June 30, 1998 are not necessarily indicative
of the results that may be expected for the entire year. The Notes to
Consolidated Financial Statements for the year ended December 31, 1997,
included in the Company's Annual Report on Form 10-K for 1997, should be read
in conjunction with these statements.
On June 22, 1998, the Company's shareholders approved the distribution
of a 100% stock dividend on its outstanding common stock, par value $0.01 (the
"Common Stock"). The effect of the stock dividend has been retroactively
applied in the consolidated financial statements for all periods presented.
Certain prior year's amounts have been reclassified to conform to the
current year's presentation.
8
<PAGE> 9
TELEBANC FINANCIAL CORPORATION
NOTE 2. NET INCOME PER COMMON SHARE
Basic earnings per common share, as required by Statement of Financial
Accounting Standards No. 128, is computed by dividing adjusted net income by
the total of the weighted average number of common shares outstanding during
the respective periods. Diluted earnings per common share for the quarters and
six months ended June 30, 1998 and 1997 were determined on the assumptions that
the dilutive options and warrants were exercised upon issuance. The options
and warrants are deemed to be dilutive if (a) the average market price of the
related Common Stock for a period exceeds the exercise price or (b) the
security to be tendered is selling at a price below that at which it may be
tendered under the option or warrant agreement and the resulting discount is
sufficient to establish an effective exercise price below the market price of
the Common Stock obtainable upon exercise. The Company's year to date weighted
average number of common shares outstanding was 4,480,016 at June 30, 1998 and
4,319,224 at June 30, 1997. For diluted earnings per share computation,
weighted average shares outstanding also include potentially dilutive
securities.
<TABLE>
<CAPTION>
EPS Calculation
Income Shares Per Share Amount
----------------------------------------------------------------
For the Quarter Ended June 30, 1998
----------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 179,000
Less: preferred stock dividends (162,000)
Basic earnings per share --------------------
Income available to common shareholders $ 17,000 4,491,801 $ 0.00
===================
Options issued to management -- 645,242
Warrants -- 647,102
Convertible preferred stock -- --
---------------------------------------------
Diluted earnings per share $ 17,000 5,784,145 $ 0.00 (a)
=================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Quarter Ended June 30, 1997
-----------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 1,209,000
Less: preferred stock dividends (162,000)
---------------------
Basic earnings per share
Income available to common shareholders $ 1,047,000 4,423,922 $ 0.24
=================
Options issued to management -- 418,244
Warrants -- 446,936
Convertible preferred stock 162,000 2,399,486
---------------------------------------------
Diluted earnings per share $ 1,209,000 7,688,588 $ 0.16
==============================================================
</TABLE>
9
<PAGE> 10
TELEBANC FINANCIAL CORPORATION
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1998
----------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 615,000
Less: preferred stock dividends (324,000)
----------------------
Basic earnings per share
Income available to common shareholders $ 291,000 4,480,016 $ 0.06
===================
Options issued to management -- 630,992
Warrants -- 635,490
Convertible preferred stock -- --
---------------------------------------------
Diluted earnings per share $ 291,000 5,746,498 $ 0.05 (a)
=================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1997
-----------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 2,071,000
Less: preferred stock dividends (222,000)
-----------------------
Basic earnings per share
Income available to common shareholders $ 1,849,000 4,319,224 $ 0.43
====================
Options issued to management -- 409,574
Warrants -- 412,758
Convertible preferred stock 222,000 1,626,318
----------------------------------------------
Diluted earnings per share $ 2,071,000 6,767,874 $ 0.31
=================================================================
</TABLE>
(a) The impact of the convertible preferred stock is antidilutive for the
three and six months ended June 30, 1998.
NOTE 3. RECENT EVENTS
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"), effective for fiscal years beginning after December 15,
1997. This statement requires that certain financial activity typically
disclosed in stockholders' equity be reported in the financial statements as an
adjustment to net income in determining comprehensive income. The Company
adopted SFAS 130 effective January 1, 1998. As a result, comprehensive income
for the periods ending June 30, 1998 and 1997 are reported in the Consolidated
Statement of Operations.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). The statement establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at fair
value. SFAS 133 requires that changes in the derivative instrument's fair
value be recognized currently
10
<PAGE> 11
TELEBANC FINANCIAL CORPORATION
in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative instrument's gains and
losses to offset related results on the hedged item in the income statement,
and requires that a company formally document, designate and assess the
effectiveness of transactions that receive hedge accounting treatment.
SFAS 133 is effective for fiscal years beginning after June 15, 1999,
although a company may implement the statement as of the beginning of any
fiscal quarter after issuance, that is, fiscal quarters beginning June 16, 1998
and thereafter. SFAS 133 cannot be applied retroactively. SFAS 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 and, at the Company's election, before January
1, 1998.
We have not yet quantified the impacts of adopting SFAS 133 on our
financial statements and have not determined the timing or method of our
adoption of SFAS 133. However, the statement could increase volatility in
earnings and other comprehensive income.
In April 1998, the Company acquired and dissolved MET Holdings
Corporation ("MET") in accordance with the Amended and Restated Acquisition
Agreement between MET Holdings and the Company (the "Amended and Restated
Acquisition Agreement"), dated as of March 17, 1998. Pursuant to the
Agreement, MET sold substantially all of its assets, including 2,866,162 shares
of Common Stock owned by MET and assigned substantially all of its liabilities
to the Company in exchange for 2,876,162 shares of Common Stock, which shares
were distributed to the shareholders of MET upon MET's dissolution.
In July and August 1998, the Company sold 5,175,000 shares of its
Common Stock to the public at an offering price of $14.50 (the "Equity
Offering"). Simultaneously, TCT II sold 1.1 million 9.0% Beneficial Unsecured
Securities, Series A, having a liquidation amount of $25.00, for a total of
$27.5 million. The securities mature in 2028 and have an annual dividend rate
of 9.0%, payable quarterly, beginning in September 1998. The net proceeds of
both offerings will be used for general corporate purposes, which include
funding the Company's continued growth and augmenting working capital.
Pursuant to a conversion agreement dated May 15, 1998, the Company's
29,900 outstanding shares of 4% Cumulative Preferred Stock, par value $0.01,
converted to 2,399,479 shares of Common Stock, upon consummation of the Equity
Offering on July 28, 1998. In addition, upon the conversion, the Company
issued a special dividend in the amount of 119,975 shares of Common Stock to
the holders of the Preferred Stock.
In August 1998, the Company consummated its agreement to acquire
Direct Financial Corporation ("DFC"), a thrift holding company and its
federally chartered savings bank subsidiary, Premium Bank, F.S.B. ("Premium
Bank"). At June 30, 1998, DFC reported total assets of $332.8 million, loans
receivable, net, of $166.3 million, total deposits of $301.0 million and total
stockholders' equity of $12.3 million. The Company paid approximately $21.4
million in the transaction, and assumed approximately $6.0 million in
liabilities, which the Company repaid at the time the transaction was
consummated.
11
<PAGE> 12
TELEBANC FINANCIAL CORPORATION
NOTE 4. COMMITMENTS AND CONTINGENT LIABILITIES
In managing the Company's interest rate risk, the Company utilizes
financial derivatives in the normal course of business. These products consist
primarily of interest rate cap and swap agreements. Financial derivatives are
employed to assist in the management and/or reduction of interest rate risk for
the Company and can effectively alter the interest rate sensitivity of segments
of the balance sheet for specified periods of time.
The Company accounts for interest rate swap agreements and cap
agreements as hedges of debt issuances, deposit balances and investments in
loan portfolios to which such agreements have been specifically designated.
Cash remittances due or received pursuant to these agreements are reported as
adjustments to interest expense on an accrual basis. Any premiums paid in
conjunction with these interest rate swap and interest rate cap agreements are
amortized as reductions in interest income on a straight-line basis over the
term of these agreements. Any gain or loss upon early termination of these
instruments would be deferred and amortized as an adjustment to interest
expense over the term of the applicable interest rate agreement.
12
<PAGE> 13
TELEBANC FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information contained in this document contains forward-looking
statements that are subject to risks and uncertainties. When used anywhere in
this document, the words "anticipate," "believe," "could," "estimate,"
"expect," "may," "will," "should" or the negative thereof and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results could
differ materially from those discussed in this document. Factors that could
contribute to such differences include, but are not limited to, those discussed
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as those discussed elsewhere in this report.
This discussion and analysis includes descriptions of material changes
which have affected the Company's consolidated financial condition and
consolidated results of operations during the periods included in the Company's
financial statements.
FINANCIAL CONDITION (JUNE 30, 1998 COMPARED TO DECEMBER 31, 1997)
The Company's total assets increased by $109.1 million or 9.9% from
$1.1 billion at December 31, 1997 to $1.2 billion at June 30, 1998. The
increase in total assets primarily reflects increases in loans receivable, net,
of $65.6 million or 16.8%, mortgage-backed securities available for sale of
$71.9 million or 22.5%, and investment securities available for sale of $48.5
or 53.1%. The Company funded this asset growth through an increase in retail
deposits of $81.4 million or 15.6%, $67.0 million of callable brokered deposits
and $78.9 million in cash and cash equivalents. Short-term borrowings, such as
repurchase agreements and Federal Home Loan Bank ("FHLB") advances, declined
$39.0 million or 8.1%. The Company sold callable certificates of deposit
during the first six months of 1998 as relatively cost-efficient borrowings
with hedging properties that improve the Company's overall interest rate risk
position.
Stockholders' equity decreased $376,000 from $45.8 million at December
31, 1997 to $45.4 million at June 30, 1998. The decrease reflects unrealized
losses on securities of $847,000, as well as $324,000 in preferred dividends,
offset by proceeds of $180,000 from the exercise of stock options and net
income of $615,000.
13
<PAGE> 14
TELEBANC FINANCIAL CORPORATION
The consolidated average balance sheets, along with income and expense
and related interest yields and rates for the quarters ended June 30, 1998 and
1997 are shown below. The table also presents information for the periods
indicated with respect to the difference between the weighted average yield
earned on interest-earning assets and weighted average rate paid on
interest-bearing liabilities, or "interest rate spread," which saving
institutions have traditionally used as an indicator of profitability. Another
indicator of an institution's net interest income is its "net yield on
interest-earning assets," which is its net interest income divided by the
average balance of interest-earning assets. When interest-earning assets
approximate or exceed interest-bearing liabilities, any positive interest rate
spread will generate interest income.
<TABLE>
<CAPTION>
Quarter ended June 30, 1998 Quarter ended June 30, 1997
---------------------------------- -----------------------------------
Interest Average Interest Average
(Dollars in thousands) Average Income/ Annualized Average Income/ Annualized
unaudited Balance Expense Yield/Cost Balance Expense Yield/Cost
------- ------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $ 557,801 $ 10,458 7.50% $ 421,820 $ 8,322 7.89%
Interest-bearing deposits 6,749 106 6.21 6,360 114 7.22
Mortgage-backed and related
securities available for sale 280,962 5,209 7.42 264,732 5,126 7.74
Investment securities available
for sale (a) 119,293 1,911 6.41 80,836 1,286 6.37
Federal funds sold 180 2 5.22 1,874 25 5.36
Investment in FHLB 9,713 182 7.50 8,160 148 7.25
Trading account 31,740 589 7.34 6,672 271 16.30
------ --- ------ --------- --------- -------
Total interest-earning assets 1,006,438 18,457 7.33% 790,454 15,292 7.74%
Non-interest-earning assets 32,792 34,977
------ ------
Total assets $ 1,039,230 $ 825,431
========= =======
Interest-bearing liabilities:
Retail deposits 581,583 8,757 6.04% 440,700 6,575 5.98%
Brokered callable CDs 61,237 1,020 6.68 - - -
FHLB advances 183,445 2,813 6.07 154,863 2,379 6.08
Other borrowings 117,602 1,707 5.74 155,181 2,276 5.80
Subordinated debt, net 30,010 881 11.75 29,463 879 11.92
------ --- --------- ------ ---------- -------
Total interest-bearing liabilities 973,877 15,179 6.22% 780,207 12,109 6.19%
Non-interest-bearing liabilities 23,072 3,786
------ -----
Total liabilities 996,949 783,993
Stockholders' equity 42,281 41,438
------ ------
Total liabilities and stockholders'
equity $ 1,039,230 $ 825,431
========= =======
Excess of interest-earning assets
over interest-bearing
liabilities/net interest
income/interest rate spread $ 32,561 $ 3,278 1.11% $ 10,247 $ 3,183 1.55%
====== ===== ===== ====== ===== =====
Net interest yield 1.30% 1.61%
===== =====
Ratio of interest-earning
assets to interest-bearing
liabilities 103.34% 101.31%
======= =======
</TABLE>
(a) Interest income and average yields on municipal bonds are presented on a
tax equivalent basis.
14
<PAGE> 15
TELEBANC FINANCIAL CORPORATION
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Net Income. Net income for the three- and six-month periods ended
June 30, 1998 totaled $179,000 and $615,000, respectively, compared to $1.2
million and $2.1 million for the three- and six-month periods ended June 30,
1997, respectively. Net income for the three months ended June 30, 1998
consisted primarily of $3.3 million of net interest income and $1.1 million of
non-interest income, offset by a $75,000 loan loss provision, $3.9 million of
non-interest expenses and income tax expense of $51,000. Net income for the
three months ended June 30, 1997 consisted primarily of $3.4 million in net
interest income and $1.2 million of non-interest income, reduced by a $308,000
loan loss provision, $2.5 million in non-interest expenses, and $617,000 of
income tax expense. Net income for the six months ended June 30, 1998
consisted of $6.9 million of net interest income and $3.0 million of
non-interest income, offset by $325,000 of provision for loan losses, as well
as $8.1 million of non-interest expenses and $526,000 of income tax expense.
Net income for the six months ended June 30, 1997 consisted of $6.4 million of
net interest income and $1.9 million of non-interest income offset by $551,000
of provision for loan losses, $4.6 million of non-interest expenses and
$973,000 in income tax expense.
Net Interest Income. Net interest income was $3.3 million and $3.4
million for the quarters ended June 30, 1998 and 1997, respectively, reflecting
an annualized interest rate spread of 1.11% and 1.55%, respectively. The
decrease in net interest income is primarily volume-related, as the Company did
not leverage fully in anticipation of its acquisition of DFC and Premium Bank.
The Company made a strategic decision not to leverage and incur market risk
during this period. Ending assets increased 50.3% from $804.7 million at June
30, 1997 to $1.2 billion at June 30, 1998, while average assets increased only
25.9% from $825.4 million for the second quarter of 1997 to $1.0 billion for
the second quarter of 1998. Additionally, the Company experienced increased
prepayments of loans and mortgage-backed securities, while intentionally
increasing purchases of liquid securities with lower yields. During the second
quarter of 1998, average interest-earning assets, consisting primarily of loans
receivable, net, and mortgage-backed and related securities, totaled $1.0
billion and yielded 7.33%, as compared to $790.5 million, reflecting a yield of
7.74%, for the same period in 1997. Average interest-bearing liabilities were
$973.9 million and $780.2 million for the quarters ended June 30, 1998 and
1997, respectively, and cost 6.22% in the second quarter of 1998 as compared
with 6.19% in the same period in 1997.
Net interest income was $6.9 million and $6.4 million for the six
months ended June 30, 1998 and 1997, respectively. Total interest-earning
assets, consisting primarily of loans receivable, net, and mortgage-backed and
related securities, totaled $989.0 and $731.1 million for the six months ended
June 30, 1998 and 1997, respectively, yielding 7.37% and 7.70%, respectively.
Average interest-bearing liabilities were $953.4 and $719.2 for the six months
ended June 30, 1998 and 1997, respectively, costing 6.23% in the first six
months of 1998, as compared to 6.19% in the same period in 1997.
15
<PAGE> 16
TELEBANC FINANCIAL CORPORATION
Provision for Loan Losses. The provision for loan losses reflects
management's intent to provide prudent reserves for potential losses on loans
held or acquired during the quarter. The Company recorded a loan loss
provision of $75,000 for the second quarter of 1998, reflecting approximately
25 basis points of new loan acquisitions during the quarter. Net charge-offs
during the quarter totaled $240,000, or 4 basis points of average loan balances
for the quarter, while net charge-offs for the first six months of 1998 were
$322,000, or 6 basis points of average loan balances for the period. As of
June 30, 1998, the Company's total loan loss allowance was $3.6 million, or
0.6% of total loans outstanding. The total loan loss allowance at June 30,
1997 was $3.2 million, which was 0.7% of total loans outstanding. Total loss
allowance as a percentage of total non-performing assets was 34.5% and 29.7% as
of June 30, 1998 and 1997, respectively.
Non-Interest Income. The Company reported a decrease of $139,000 in
non-interest income from $1.2 million for the three months ended June 30, 1997
to $1.1 million for the three months ended June 30, 1998, largely as a result
of decreased income from the sale of loans and trading securities. For the
three months ended June 30, 1998, the Company reported gains of $749,000 from
the sale of mortgage-backed and investment securities, $73,000 from the
recognition of discount on loans held for sale due to prepayments and $365,000
in loan servicing charges and other fees, offset by losses of $6,000 from
trading activity and $77,000 from equity-method investments. Non-interest
income for the second quarter of 1997 consisted of gains of $452,000 from the
sale of securities, $283,000 on loan prepayments, $706,000 from trading
activity and $400,000 in fees and service charges, offset by $598,000 in losses
from equity investments. During the six-month period ending June 30, 1998, the
Company experienced an increase in non-interest income of $1.2 million, or
64.8%, over the same period in 1997. This increase is largely due to greater
gains on the sale of mortgage-backed and investment securities, which increased
$951,000, or 137.8%, over the first half of 1997. Gains from equity
investments were also higher during the first six months of 1998, increasing
$1.2 million, or 162.5%, over 1997.
Non-Interest Expenses. Non-interest expenses for the three- and
six-month periods ended June 30, 1998 were $3.9 million and $8.1 million,
respectively, compared to $2.5 million and $4.6 million for the same periods in
1997. Overall increases are attributed to the Company's increased marketing
expenses associated with brand building that seeks to establish the TeleBank
name as synonymous with the premier national provider of high-value banking
products, as well as increased asset and deposit growth. In the second quarter
of 1998, the Company launched its first regional marketing campaign, focusing
on California and the western United States. Total non-interest expenses
increased by $1.5 million for the three months ended June 30, 1998 as compared
to the same quarter in 1997. This increase is largely due to a $470,000
increase in compensation costs related to increased personnel, as well as
higher advertising and marketing costs, which increased $474,000, or 464.7%,
from $102,000 for the quarter ended June 30, 1997, to $576,000 for the quarter
ended June 30, 1998. Total non-interest expenses increased $3.5 million from
$4.6 million for the six months ended June 30, 1997 to $8.1 million for the
same period in 1998. The increase is primarily due to a $3.2 million increase
in general and administrative expenses, which is almost entirely the result of
increases in compensation,
16
<PAGE> 17
TELEBANC FINANCIAL CORPORATION
increases in personnel, and a higher level of advertising and marketing
activity brought about by the Company's growth strategy. Annualized selling,
general and administrative expenses as a percentage of total ending assets were
1.14% and 1.21%, respectively, for the quarter and six months ended June 30,
1998.
Income Tax Expense. Income tax expense for the quarters ended June
30, 1998 and 1997 totaled $51,000 and $617,000, respectively, producing an
effective tax rate of 12.6% for the second quarter of 1998 compared to 32.6%
for the quarter ended June 30, 1997. The effective tax rate declined
significantly in the second quarter of 1998, reflecting benefits received from
the Company's portfolio of municipal securities as well as net charge-offs
during the quarter. The effective tax rate for the six months ended June 30,
1998 was 35.2% compared to 31.3% for the six months ended June 30, 1997.
LIQUIDITY
Liquidity represents the Company's ability to raise funds to support
asset growth, fund operations and meet obligations, including deposit
withdrawals, maturing liabilities, and other payment obligations, to maintain
reserve requirements and to otherwise meet its ongoing obligations. The
Company has historically met its liquidity needs primarily through financing
activities, consisting principally of increases in core deposit accounts,
maturing short-term investments, loans and repayments of investment securities
and, to a lesser extent, sales of loans or securities.
The Company continued to experience growth in overall retail deposit
balances. Retail deposits increased $81.4 million to $603.6 million at June
30, 1998 from $522.2 million at December 31, 1997, an increase of 15.6%. In
the first six months of 1998, the Company also sold brokered callable
certificates of deposit, which totaled $67.0 million at June 30, 1998. FHLB
advances and other borrowings declined by $38.8 million to $484.0 million at
June 30, 1998 from $522.7 at December 31, 1997.
TeleBank is required to maintain minimum levels of liquid assets as
defined by the regulations of the Office of Thrift Supervision ("OTS"). This
requirement, which may vary at the discretion of the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The minimum required ratio is 4.0%. At June 30,
1998, TeleBank's liquidity ratio was 9.81%.
As of June 30, 1998, the Company had commitments to purchase $119.3
million in loans. Also, certificates of deposit that are scheduled to mature
in less than one year as of June 30, 1998 totaled $111.0 million. In the
normal course of business, the Company makes various commitments to extend
credit and incurs contingent liabilities that are not reflected in the balance
sheets.
17
<PAGE> 18
TELEBANC FINANCIAL CORPORATION
YEAR 2000 ISSUES
In 1997, the Company began its Year 2000 remediation plan designed to
confirm Year 2000 compliance and remedy any problems identified. While the
Company has not experienced any material changes in its remediation plan during
the first six months of 1998, it has completed the acquisition of Premium Bank
in August 1998. The Company has assessed Premium Bank's Year 2000 status and
has determined that it is not materially different from the Company's status.
Both the Company and Premium have received "satisfactory" ratings from the OTS
regarding their Year 2000 remediation plans. Although the Company may incur
additional expenses during 1998 and 1999 related to its Year 2000 compliance
efforts, the Company does not anticipate that such expenditures will be
material or that Year 2000 compliance will otherwise have a material effect on
the Company's financial condition or results of operations.
MARKET RISK
The Company manages interest rate risk through the use of financial
derivatives such as interest rate cap and swap agreements. These instruments
are used to ensure that the market value of equity and net interest income are
protected from the impact of changes in interest rates. The Company's
investment policy prohibits the use of such financial instruments for
speculative purposes. The Company has experienced no material changes in
market risk during the first six months of 1998.
18
<PAGE> 19
TELEBANC FINANCIAL CORPORATION
CAPITAL RESOURCES
At June 30, 1998, TeleBank was in compliance with all of its
regulatory capital requirements and its capital ratios exceeded the ratios for
"well-capitalized" institutions under OTS regulations.
The following table sets forth TeleBank's regulatory capital levels at
June 30, 1998 in relation to the regulatory requirements in effect at that
date. The information below is based upon the Company's understanding of the
regulations and interpretations currently in effect and may be subject to
change.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk
weighted assets) $63,121 10.9% >$46,434 >8.0% >$58,043 >10.0%
Core Capital (to adjusted
tangible assets) $59,727 5.2% >$46,084 >4.0% >$57,605 >5.0%
Tangible Capital (to
tangible assets) $59,721 5.2% >$17,281 >1.5% N/A N/A
Tier I Capital (to
risk weighted assets) $59,727 10.3% N/A N/A >$34,826 >6.0%
</TABLE>
19
<PAGE> 20
TELEBANC FINANCIAL CORPORATION
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to Security Holders
On April 13, 1998, the Company held a Special Meeting of the
Shareholders to vote on the approval and adoption of the Amended and Restated
Acquisition Agreement, pursuant to which MET would sell substantially all of
its assets, including 2,866,162 shares of the Company's Common Stock owned by
MET and assign substantially all of its liabilities to the Company.
The votes cast at the Special Meeting were as follows:
Approval and adoption of the Amended
and Restated Acquisition Agreement FOR - 2,379,932
AGAINST - 0
WITHHELD - 1,000
On June 22, 1998, the Company held its 1998 Annual Meeting of
Shareholders (the "Annual Meeting"). At the Annual Meeting, Mitchell H. Caplan
and David A. Smilow were elected to the Board of Directors of the Company (the
"Board") for three-year terms ending in 2001. The Directors continuing in
office were Dean C. Kehler and Steven F. Piaker, whose terms expire in 1999,
and David R. DeCamp, Mark Rollinson and Marcia Myerberg, whose terms expire in
2000. The shareholders also voted at the Annual Meeting to amend the
certificate of incorporation to increase the number of authorized shares of
Common Stock and total capital stock, to adopt the 1998 Stock Incentive Plan
and to ratify the Board's appointment of Arthur Andersen LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1998.
The votes cast at the Annual Meeting were as follows:
Election of David A. Smilow FOR - 1,993,870
AGAINST - 0
WITHHELD - 0
Election of Mitchell H. Caplan FOR - 1,993,870
AGAINST - 0
WITHHELD - 0
20
<PAGE> 21
TELEBANC FINANCIAL CORPORATION
Amend Article 4 of the Certificate of Incorporation
to increase the authorized number of shares of
Common Stock from 8,500,000 to 29,500,000 and
to increase the total authorized number of shares of
capital stock to 30,000,000 FOR - 1,993,670
AGAINST - 0
WITHHELD - 200
Adopt the 1998 Stock Incentive Plan FOR - 1,991,370
AGAINST - 0
WITHHELD - 2,500
Ratification of Appointment
of Arthur Andersen LLP FOR - 1,993,370
AGAINST - 0
WITHHELD - 500
21
<PAGE> 22
TELEBANC FINANCIAL CORPORATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1(a) Amended and Restated Certificate of Incorporation of
the Company (incorporated by reference herein to
Exhibit 3.1(a) of the Company's Registration
Statement on Form S-2, File No. 333-52871)
3.1(b) Certificate of Designations (incorporated by
reference herein to Exhibit 3 to the Company's
Current Report on Form 8-K, dated March 17, 1997)
3.2 Bylaws of the Company (incorporated by reference
herein to Exhibit 3.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996,
dated March 31, 1997)
4.1 Specimen certificate evidencing shares of Common
Stock of the Company (incorporated by reference
herein to Exhibit 4.1 to the Company's Registration
Statement on Form S-1, dated March 25, 1994, File
No. 33-76930)
4.2 Form of warrant for the purchase of shares of Common
Stock, issued in connection with the Unit Purchase
Agreement, dated February 19, 1997, among the
Company and the Purchasers identified herein
(incorporated by reference herein to Exhibit 10.1 to
the Company's Current Report on Form 8-K, dated
March 17, 1997)
4.3 Form of warrant for the purchase of shares of Common
Stock, issued in connection with the units of
warrants and subordinated debt sold in the Company's
initial public offering (incorporated by reference
herein to Exhibit 4.5 to the Company's Registration
Statement on Form S-1, dated March 25, 1994, File
No. 33-76930)
4.4 Declaration of Trust of TeleBanc Capital Trust II,
dated May 22, 1998 (incorporated by reference herein
to the Company's Registration Statement on Form S-2,
File No. 333-52871)
4.5 Form of Certificate of Exchange Junior Subordinated
Debentures (incorporated by reference herein to
Exhibit 4.3 to the Company's Form 10-K/A for the
year ended December 31, 1997, dated April 2, 1998)
4.6 Amended and Restated Declaration of Trust of
TeleBanc Capital Trust I, dated June 9, 1997
(incorporated by reference herein to Exhibit 3.4 to
the Company's Registration Statement on Form S-4,
dated December 8, 1997, File No. 333-40399)
4.7 Certificate of Trust of TeleBanc Capital Trust II,
dated May 22, 1998 (incorporated by reference herein
to the Company's Registration Statement on Form S-2,
File No. 333-52871)
22
<PAGE> 23
TELEBANC FINANCIAL CORPORATION
4.8 Form of Exchange Capital Security Certificate
(incorporated by reference herein to Exhibit 4.6 to
the Company's Registration Statement on Form S-4,
dated December 8, 1997, File No. 333-40399)
4.9 Exchange Guarantee Agreement by the Company for the
benefit of the holders of Exchange Capital
Securities (incorporated herein by reference to
Exhibit 4.7 to the Company's Registration Statement
on Form S-4, dated December 8, 1997, File No.
333-40399)
10.1 1994 Stock Option Plan (incorporated by reference
herein to Exhibit 10.1 to the Company's Registration
Statement on Form S-1, dated March 25, 1994, File
No. 33-76930)
10.2 1997 Stock Option Plan (incorporated by reference
herein to Exhibit D to the Company's definitive
proxy materials which were filed as Exhibit 99.3 to
the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996, dated March 31, 1997)
10.3 1998 Stock Incentive Plan (incorporated by reference
herein to the Company's Registration Statement on
Form S-2, File No. 333-52871)
10.4 Employee Stock Ownership Plan of the Company
(incorporated by reference herein to the Company's
Registration Statement on Form S-2, File No.
333-52871)
10.5 Agreement and Plan of Merger by and between the
Company and Direct Financial Corporation, dated
January 14, 1998 (amended pursuant to the First
Amendment to Agreement and Plan of Merger dated May
29, 1998 and filed as Exhibit 10.14 incorporated by
reference hereto)
10.6 Registration Rights Agreement, dated June 5, 1997,
among the Company, TeleBanc Capital Trust I and the
Initial Purchaser (incorporated by reference herein
to Exhibit 4.8 to the Company's Registration
Statement on Form S-4, dated December 8, 1997, File
No. 333-40399)
10.7 Unit Purchase Agreement, dated February 19, 1997,
among the Company and the Purchasers identified
therein (incorporated by reference herein to Exhibit
10.1 to the Company's Current Report on 8-K, dated
March 17, 1997)
10.8 Amended and Restated Acquisition Agreement, dated
February 19, 1997, among the Company, Arbor Capital
Partners, Inc., MET Holdings, Inc., and William M.
Daugherty (incorporated by reference herein to
Exhibit 10.2 to the Company Current Report on 8-K,
dated March 17, 1997)
10.9 Liquidated Damages Agreement, dated June 9, 1997, by
and among the Company, TeleBanc Capital Trust I, and
the Initial Purchaser (incorporated by reference
herein to Exhibit 4.9 to the Company's Registration
Statement on Form S-4, dated December 8, 1997, File
No. 333-40399)
23
<PAGE> 24
TELEBANC FINANCIAL CORPORATION
10.10 Tax Allocation Agreement, dated April 7, 1994,
between TeleBank and the Company (incorporated by
reference herein to Exhibit 10.3 to Amendment No. 1
to the Company's Registration Statement on Form S-1,
dated May 3, 1994, File No. 33-76930)
10.11 Indenture dated June 9, 1997, between the Company
and Wilmington Trust Company, as debenture trustee
(incorporated by reference herein to the Company's
Registration Statement on Form S-4, dated December
8, 1997, File No. 333-40399)
10.12 Form of Indenture between the Company and Wilmington
Trust Company as Trustee (incorporated by reference
herein to Exhibit 4.3 to the Company's Registration
Statement on Form S-1, dated March 25, 1994, File
No. 33-76930)
10.13 Conversion Agreement dated May 15, 1998 by and among
the Company and certain investors named therein
(incorporated by reference herein to the Company's
Registration Statement on Form S-2, File No.
333-52871)
10.14 First Amendment to Agreement and Plan of Merger
(filed as Exhibit 10.5 hereto) by and among the
Company, Direct Financial Corporation and TBK
Acquisition Corp., dated May 29, 1998 (incorporated
by reference herein to the Company's Registration
Statement on Form S-2, File No. 333-52871)
27. Financial Data Schedule
(b) Reports on Form 8-K
No information to report.
24
<PAGE> 25
TELEBANC FINANCIAL CORPORATION
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.
TeleBanc Financial Corporation
------------------------------
(Registrant)
<TABLE>
<S> <C> <C>
Date: August 14, 1998 By: /s/ Mitchell H. Caplan
------------------------- ---------------------------------------------------
Mitchell H. Caplan
Chief Executive Officer and President
Date: August 14, 1998 By: /s/ Aileen Lopez Pugh
------------------------- ----------------------------------------------------
Aileen Lopez Pugh
Executive Vice President and Chief Financial Officer
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,052
<INT-BEARING-DEPOSITS> 10,187
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 43,150
<INVESTMENTS-HELD-FOR-SALE> 530,854
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 589,529
<ALLOWANCE> 3,612
<TOTAL-ASSETS> 1,209,466
<DEPOSITS> 670,547
<SHORT-TERM> 440,911
<LIABILITIES-OTHER> 13,334
<LONG-TERM> 29,732
9,494
15,281
<COMMON> 44
<OTHER-SE> 30,123
<TOTAL-LIABILITIES-AND-EQUITY> 1,209,466
<INTEREST-LOAN> 20,832
<INTEREST-INVEST> 4,175
<INTEREST-OTHER> 11,646
<INTEREST-TOTAL> 36,653
<INTEREST-DEPOSIT> 18,205
<INTEREST-EXPENSE> 29,754
<INTEREST-INCOME-NET> 6,899
<LOAN-LOSSES> 325
<SECURITIES-GAINS> 1,641
<EXPENSE-OTHER> 8,132
<INCOME-PRETAX> 1,493
<INCOME-PRE-EXTRAORDINARY> 1,493
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 291
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.05
<YIELD-ACTUAL> 1.38
<LOANS-NON> 5,866
<LOANS-PAST> 4,668
<LOANS-TROUBLED> 422
<LOANS-PROBLEM> 6,921
<ALLOWANCE-OPEN> 3,602
<CHARGE-OFFS> 322
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 3,612
<ALLOWANCE-DOMESTIC> 3,612
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,612
</TABLE>
