<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, 1999
[ ] 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>
<CAPTION>
DELAWARE 13-3759196
-------- ----------
<S> <C>
(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, 1999.
<TABLE>
<CAPTION>
common stock, $0.01 par value 33,608,164
----------------------------- ----------
<S> <C>
(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, 1999 and December 31, 1998 3
Consolidated Statements of Operations and Comprehensive Income - Three and six
months ended June 30, 1999 and 1998 4
Consolidated Statements of Changes in Stockholders' Equity - Six months ended June
30, 1999 and 1998 6
Consolidated Statements of Cash Flows - Six months ended June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations 14
Item 3.
Quantitative and Qualitative Disclosures about Market Risk 20
Part II -- Other Information
- ----------------------------
Item 4.
Submission of Matters to Security Holders 21
Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibits 22
(b) Reports on Form 8-K 22
Signatures 23
</TABLE>
2
<PAGE> 3
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 109,580 $ 25,941
Trading securities 32,337 29,584
Investment securities available for sale 200,896 220,699
Mortgage-backed securities available for sale 1,302,242 1,012,163
Loans receivable held for sale 102,697 117,928
Loans receivable, net 1,378,589 786,926
Other assets 116,823 90,100
----------- -----------
Total assets $ 3,243,164 $ 2,283,341
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Retail deposits $ 1,619,075 $ 1,142,385
Brokered callable certificates of deposit 67,057 67,085
Advances from the Federal Home Loan Bank of Atlanta 420,000 472,500
Securities sold under agreements to repurchase and other borrowings 585,510 404,435
Subordinated debt, net -- 29,855
Other liabilities 10,333 18,261
----------- -----------
Total liabilities 2,701,975 2,134,521
----------- -----------
Company-Obligated Mandatorily Redeemable Preferred Capital Securities of
Subsidiary Trust Holding Soley Junior Subordinated
Debentures of the Company 31,050 35,385
Stockholders' equity:
Common stock, $0.01 par value, 135,000,000 shares authorized; 33,598,164 and
24,384,154 issued and outstanding at June 30, 1999 and December 31, 1998 339 246
Additional paid-in capital 504,678 103,071
Unearned ESOP shares (2,274) (2,578)
Retained earnings 11,771 10,819
Unrealized (loss) gain on securities available for sale, net of tax (4,375) 1,877
----------- -----------
Total stockholders' equity 510,139 113,435
----------- -----------
Total liabilities and stockholders' equity $ 3,243,164 $ 2,283,341
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 24,755 $ 10,790 $ 43,866 $ 21,464
Mortgage-backed securities 20,578 5,209 38,883 10,283
Investment securities 3,285 1,986 6,676 3,772
Trading securities 388 708 595 1,344
Other 826 211 1,504 421
------------- --------- ----------- ----------
Total interest income 49,832 18,904 91,524 37,284
Interest expense:
Retail deposits 19,909 8,757 37,067 16,812
Brokered callable certificates of deposit 1,110 1,020 2,208 1,394
Advances from the Federal Home Loan Bank of Atlanta 6,351 2,813 12,096 5,531
Repurchase agreements and other borrowings 6,668 1,805 14,145 4,256
Subordinated debt 591 881 1,475 1,760
------------- --------- ----------- ----------
Total interest expense 34,629 15,276 66,991 29,753
------------- --------- ----------- ----------
Net interest income 15,203 3,628 24,533 7,531
Provision for loan losses 665 75 1,155 325
------------- --------- ----------- ----------
Net interest income after provision for loan losses 14,538 3,553 23,378 7,206
Non-interest income:
(Loss) gain on sale of available-for-sale securities (383) 749 638 1,640
(Loss) gain on sale of loans (220) 73 1,613 194
(Loss) gain on trading securities (596) (6) (446) 56
Gain (loss) on equity investment 4,136 (77) 4,284 449
Fees, service charges and other 631 365 1,161 712
------------- --------- ----------- ----------
Total non-interest income 3,568 1,104 7,250 3,051
------------- --------- ----------- ----------
Non-interest expenses:
Selling, general and administrative expenses:
Compensation and employee benefits 5,031 1,670 7,568 3,620
Advertising and marketing 3,403 576 5,862 1,205
Loan servicing 1,251 323 2,290 632
Other 3,073 1,195 5,430 2,505
------------- --------- ----------- ----------
Total selling, general and administrative expenses 12,758 3,764 21,150 7,962
Other non-interest expenses:
Net operating costs of real estate acquired through
foreclosure 25 101 (15) 183
Amortization of goodwill and other intangibles 565 386 1,174 619
------------- --------- ----------- ----------
Total other non-interest expenses 590 487 1,159 802
------------- --------- ----------- ----------
Total non-interest expenses 13,348 4,251 22,309 8,764
------------- --------- ----------- ----------
</TABLE>
(continued)
4
<PAGE> 5
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (CONTINUED)
(In Thousands, Except Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before income tax expense 4,758 406 8,319 1,493
Income tax expense 2,528 51 3,811 526
Minority interest in subsidiary, net of tax 539 176 1,100 352
------- ------- ------- -------
Income before extraordinary loss and cumulative effect
of accounting change 1,691 179 3,408 615
Extraordinary loss on early extinguishment of debt, net of tax 1,987 -- 1,987 --
------- ------- ------- -------
Income before cumulative effect of accounting change (296) 179 1,421 615
Cumulative effect of accounting change, net of tax -- -- 469 --
------- ------- ------- -------
Net (loss) income (296) 179 952 615
Preferred stock dividends -- 162 -- 324
------- ------- ------- -------
Net (loss) income available to common shareholders $ (296) $ 17 $ 952 $ 291
======= ======= ======= =======
Other comprehensive income, net of tax:
Unrealized holding (loss) gain on securities arising during
the period $(8,071) $ (644) $(5,856) $ 170
Less: reclassification adjustment for losses (gains)
included in net income 237 (465) (396) (1,017)
------- ------- ------- -------
Other comprehensive income, net of tax (7,834) (1,109) (6,252) (847)
------- ------- ------- -------
Comprehensive income $(8,130) $(1,092) $(5,300) $ (556)
======= ======= ======= =======
Earnings per share:
Basic:
Income before extraordinary loss and cumulative effect
of accounting change $ 0.04 $ 0.00 $ 0.11 $ 0.06
Extraordinary loss on early extinguishment of debt, net
of tax (0.06) -- (0.07) --
------- ------- ------- -------
Income before cumulative effect of accounting change (0.02) 0.00 0.04 0.06
Cumulative effect of accounting change, net of tax -- -- (0.02) --
------- ------- ------- -------
Net income $ (0.02) $ 0.00 $ 0.02 0.06
======= ======= ======= =======
Diluted:
Income before extraordinary loss and cumulative effect
of accounting change $ 0.04 $ 0.00 $ 0.09 $ 0.05
Extraordinary loss on early extinguishment of debt, net
of tax (0.06) -- (0.06) --
------- ------- ------- -------
Income before cumulative effect of accounting change (0.02) 0.00 0.03 0.05
Cumulative effect of accounting change, net of tax -- -- (0.01) --
------- ------- ------- -------
Net income $ (0.02) $ 0.00 $ 0.02 $ 0.05
======= ======= ======= =======
</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, 1999 AND 1998
(In Thousands)
(unaudited)
<TABLE>
<CAPTION>
Unrealized
Loss on
Additional Unearned Available-
Preferred Common Paid-in ESOP Retained for-Sale
Stock Stock Capital Shares Earnings Securities Total
---------- ------- --------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 $ 15,281 $ 88 $ 16,161 $ -- $11,556 $ 2,738 $ 45,824
Net income for the six months ended
June 30, 1998 -- -- -- -- 615 -- 615
Exercise of stock options -- -- 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 $ 88 $ 16,341 $ -- $11,847 $ 1,891 $ 45,448
========== ======= ======== ======== ======= ======== ========
Balances at December 31, 1998 $ -- $ 246 $103,071 $(2,578) $10,819 $ 1,877 $113,435
Net income for the six months ended
June 30, 1999 -- -- -- -- 952 -- 952
Stock issued in equity offering -- 79 395,956 -- -- -- 396,035
Exercise of warrants and stock
options, including related tax
benefit -- 14 4,338 -- -- -- 4,352
Buy-back of trust preferred
securities -- -- (381) -- -- -- (381)
Release of unearned ESOP shares -- -- 1,694 304 -- -- 1,998
Unrealized loss on
available-for-sale securities,
net of tax effect -- -- -- -- -- (6,252) (6,252)
---------- ------- -------- -------- ------- -------- --------
Balances at June 30, 1999 $ -- $ 339 $504,678 $(2,274) $11,771 $(4,375) $510,139
========== ======= ======== ======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 30,
--------
1999 1998
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities $ 3,820 $ (751)
Cash flows from investing activities:
Net increase in loans held to maturity (591,284) (65,963)
Release of unearned shares held by Employee Stock Ownership Plan 304 --
Equity investment in subsidiary 8,335 (1,720)
Purchases of available-for-sale securities (577,607) (380,353)
Proceeds from sales of available-for-sale securities 99,453 193,668
Proceeds from maturities of and principal payments on available-for-sale
securities 179,717 67,118
Net purchases of premises and equipment (12,283) (609)
Proceeds from sale of foreclosed real estate 1,536 782
----------- -----------
Net cash used in investing activities (891,829) (187,077)
Cash flows from financing activities:
Net increase in deposits 476,662 148,326
Advances from the Federal Home Loan Bank of Atlanta 1,460,010 219,200
Payments on advances from the Federal Home Loan Bank of Atlanta (1,512,510) (210,700)
Net increase (decrease) in securities sold under agreements to repurchase 181,075 (47,498)
Net increase in other borrowed funds -- (40)
Net (decrease) increase in subordinated debt (29,855) 119
Proceeds from the issuance of common stock 401,701 180
Repurchase of trust preferred securities (4,335) --
Dividends paid on trust preferred securities (1,100) (352)
Dividends paid on common and preferred stock -- (324)
----------- -----------
Net cash provided by financing activities 971,648 108,911
----------- -----------
Net increase (decrease) in cash and cash equivalents 83,639 (78,917)
Cash and cash equivalents at beginning of period 25,941 92,156
----------- -----------
Cash and cash equivalents at end of period $ 109,580 $ 13,239
=========== ===========
Supplemental information:
Interest paid on deposits and borrowed funds $ 66,961 $ 28,474
Income taxes paid 285 999
Gross unrealized (loss) gain on available-for-sale securities (11,205) 1,308
Tax effect of (loss) gain on available-for-sale securities $ 4,953 $ (461)
</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, 1999 AND 1998
NOTE 1. BASIS OF PRESENTATION
Telebanc Financial Corporation (the "Company" or "Telebanc") is a savings
and loan holding company organized under the laws of Delaware in 1994. The
primary business of the Company is the activities conducted by TeleBank (the
"Bank" or "Telebank") and TeleBanc Capital Markets, Inc. ("TCM"). The Bank is a
federally chartered savings bank that provides deposit accounts insured by the
Federal Deposit Insurance Corporation to customers nationwide. TCM is a funds
manager and registered broker-dealer. TeleBanc Capital Trust I ("TCT I") and
TeleBanc Capital Trust II ("TCT II") are business trusts formed for the purpose
of issuing capital securities and investing the proceeds in junior subordinated
debentures issued by the Company. The Bank, through its wholly owned subsidiary
TeleBanc Servicing Corporation ("TSC"), owns 100% of TeleBanc Insurance
Services, Inc. ("TBIS"), which was formed in May 1998 to offer co-branded
insurance products. Until April 1999, TSC also owned 50% of AGT PRA, LLC ("AGT
PRA"). The primary business of AGT PRA is its two-thirds investment in Portfolio
Recovery Associates, LLC ("PRA"), which acquires and collects delinquent
consumer debt obligations for its own portfolio.
The financial statements as of June 30, 1999 and for the three and six
months ended June 30, 1999 and 1998 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, 1999 and the results of consolidated operations for the three and six
months ended June 30, 1999 and 1998. The results of consolidated operations for
the three and six months ended June 30, 1999 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, 1998, included in the
Company's Annual Report to Stockholders for 1998, should be read in conjunction
with these statements.
Effective June 8, 1999 and June 22, 1998, the Board of Directors of the
Company approved the distribution of two-for-one stock splits of its outstanding
common stock, par value $0.01 (the "Common Stock"). The effects of these stock
splits have 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.
Effective January 1, 1999, the Company changed its method of accounting
for start-up costs to comply with Statement of Position 98-5, Reporting on the
Cost of Start-up Activities ("SOP 98-5"), issued by the American Institute of
Certified Public Accountants in 1998. SOP 98-5 requires that start-up activities
be expensed as incurred rather than capitalized. Therefore, as of January 1,
1999, the Company expensed all previously capitalized start-up costs, reporting
the expense as a cumulative effect of accounting change in the Consolidated
Statement of Operations and Comprehensive Income.
8
<PAGE> 9
TELEBANC FINANCIAL CORPORATION
NOTE 2. EARNINGS PER 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. Options and warrants are deemed to be dilutive if the
average market price of the related Common Stock for the period exceeds the
exercise price.
In February 1997, the Company issued 29,900 shares of 4% Cumulative
Preferred Stock (the "Preferred Stock"), par value $0.01, which was convertible
to 4,798,958 shares of the Company's Common Stock. For purposes of the diluted
earnings per share calculation, the Company assumed that all outstanding shares
of Preferred Stock had converted to Common Stock as of the beginning of the
respective periods. In July 1998, the Preferred Stock converted to Common Stock
and, therefore, was no longer outstanding as of June 30, 1999.
The Company's year-to-date weighted average number of common shares
outstanding was 28,361,324 at June 30, 1999 and 8,960,032 at June 30, 1998. For
the diluted earnings per share computation, weighted average shares outstanding
also includes potentially dilutive securities.
EPS CALCULATION
<TABLE>
<CAPTION>
Income Shares Per Share Amount
------ ------ ----------------
--------------------------------------------------
For the Quarter Ended June 30, 1999
--------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share
Income before extraordinary loss $ 1,691,000
Premium on redemption of trust preferred securities (a) (381,000)
-----------
Adjusted income before extraordinary loss 1,310,000 32,031,870 $ 0.04
Extraordinary loss on early extinguishment of debt, net of tax (1,987,000) (0.06)
=========== ------
Adjusted net income $ (677,000) $(0.02)
=========== ======
Options issued to management 3,383,182
Warrants 1,075,485
---------
Diluted earnings per share
Income before extraordinary loss $ 1,691,000
Premium on redemption of trust preferred securities (a) (381,000)
-----------
Adjusted income before extraordinary loss 1,310,000 36,490,537 $ 0.04
==========
Extraordinary loss on early extinguishment of debt, net of tax (1,987,000) (0.06)
----------- ------
Adjusted net income $ (677,000) $(0.02)
=========== ======
</TABLE>
9
<PAGE> 10
TELEBANC FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Income Shares Per Share Amount
------ ------ ----------------
--------------------------------------------------
For the Quarter Ended June 30, 1998
--------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share
Net income $ 179,000
Less: preferred stock dividends (162,000)
---------
Income available to common shareholders $ 17,000 8,983,602 $0.00
=====
Options issued to management -- 1,290,484
Warrants -- 1,294,204
Convertible preferred stock -- --
----------------------------
Diluted earnings per share $ 17,000 11,568,290 $0.00(b)
=============================================
<CAPTION>
--------------------------------------------------
For the Six Months Ended June 30, 1999
--------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share
Income before extraordinary loss and cumulative effect of
accounting change $ 3,408,000
Premium on redemption of trust preferred securities (a) (381,000)
-----------
Adjusted income before extraordinary loss and cumulative
effect of accounting change 3,027,000 28,361,324 $ 0.11
Extraordinary loss on early extinguishment of debt, net of tax (1,987,000) (0.07)
----------- ------
Adjusted income before cumulative effect of accounting change 1,040,000 0.04
Cumulative effect of accounting change, net of tax (469,000) (0.02)
----------- ------
Adjusted net income $ 571,000 $ 0.02
=========== ======
Options issued to management 3,257,014
Warrants 1,217,252
----------
Diluted earnings per share
Income before extraordinary loss and cumulative effect of
accounting change $ 3,408,000
Premium on redemption of trust preferred securities (a) (381,000)
-----------
Adjusted income before extraordinary loss and cumulative
effect of accounting change 3,027,000 32,835,590 $ 0.09
==========
Extraordinary loss on early extinguishment of debt, net of tax (1,987,000) (0.06)
----------- ------
Adjusted income before cumulative effect of accounting change 1,040,000 0.03
Cumulative effect of accounting change, net of tax (469,000) (0.01)
----------- ------
Adjusted net income $ 571,000 $ 0.02
=========== ======
</TABLE>
10
<PAGE> 11
TELEBANC FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Income Shares Per Share Amount
------ ------ ----------------
--------------------------------------------------
For the Six Months Ended June 30, 1998
--------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share
Net income $ 615,000
Less: preferred stock dividends (324,000)
-------------------
Income available to common shareholders $ 291,000 8,960,032 $ 0.03
==============
Options issued to management -- 1,261,984
Warrants -- 1,270,980
Convertible preferred stock -- --
-----------------------------------
Diluted earnings per share $ 291,000 11,492,996 $ 0.03(b)
=================================== ==============
</TABLE>
(a) This charge represents costs incurred to purchase certain of the
Company's trust preferred securities on the open market. The charge was
made against additional paid-in capital but is assumed to reduce income
for earnings per share purposes. Refer to Note 3 for further discussion.
(b) The impact of the convertible preferred stock is antidilutive for the
three and six months ended June 30, 1998.
NOTE 3. TRUST PREFERRED SECURITIES
In June 1997, the Company formed TCT I, which in turn sold, at par,
10,000 shares of trust preferred securities, Series A, liquidation amount of
$1,000, for a total of $10.0 million in a private placement. TCT I is a business
trust formed for the purpose of issuing capital securities and investing the
proceeds in junior subordinated debentures issued by the Company. These junior
subordinated debentures, which are the sole assets of TCT I, have a principal
amount of $10.0 million and bear interest at an annual rate of 11.0%. The junior
subordinated debentures mature in 2027.
In May 1999, the Company purchased $1.0 million face amount of TCT I
trust preferred securities on the open market at a price of 112.5%. The Company
deemed these repurchased securities to be retired and, therefore, wrote off the
resulting premium and a proportionate share of the discount on TCT I securities
against additional paid-in capital. For the three- and six-month periods ended
June 30, 1999, the Company has assumed that this amount, which totals $174,000,
decreases net income for earnings per share purposes.
In July 1998, the Company formed TCT II, a business trust formed solely
for the purpose of issuing capital securities. TCT II sold, at par, 1,100,000
shares of Beneficial Unsecured Securities, Series A, with a liquidation amount
of $25 per share, for a total of $27.5 million and invested the net proceeds in
the Company's 9.0% Junior Subordinated Deferrable Interest Debentures, Series A.
These Junior Subordinated Deferrable Interest Debentures, Series A, which are
the sole assets of TCT II, have a principal amount of $27.5 million and mature
in 2028.
11
<PAGE> 12
TELEBANC FINANCIAL CORPORATION
In June 1999, the Company purchased $3.6 million face amount of TCT II
trust preferred securities on the open market at par. The Company deemed these
repurchased securities to be retired and, therefore, wrote off $207,000 of the
discount on TCT II securities against additional paid-in capital. For the three-
and six-month periods ended June 30, 1999, the Company has assumed that this
amount decreases net income for earnings per share purposes.
NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS
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 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, 2000, although a company
may implement the statement as of the beginning of any fiscal quarter after
issuance, that is, fiscal quarters beginning June 16, 1999 and after. 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. The Company plans to
adopt SFAS 133 as of January 1, 2001 but has not yet quantified the impact of
adopting SFAS 133 on its financial statements. However, the statement could
increase volatility in earnings and other comprehensive income.
NOTE 5. RECENT EVENTS
In April 1999, the Company sold 7,940,000 shares of its Common Stock to
the public on a post-split basis, raising aggregate net proceeds of $396.0
million. The Company is using the majority of the proceeds to invest as
additional capital of Telebank and for general corporate purposes, which include
funding the Company's continued growth and augmenting working capital.
In June 1999, the Company used $18.3 million of proceeds from the equity
offering to redeem $17.3 million face amount of subordinated debt, including a
5.75% premium. This debt bore interest at 11.5% and had an original maturity
date of May 1, 2004. Additionally, the Company used $13.7 million of proceeds to
redeem $13.7 million face amount of subordinated debt, which bore interest at
9.5% and had an original maturity date of March 31, 2004. The Company recorded
an extraordinary loss of approximately $2.0 million, net of tax, on the early
extinguishment of debt.
In April 1999, TSC sold its equity investment in AGT PRA for a total of
$9.3 million, which resulted in a $4.1 million gain. In anticipation of the
Company's rapid growth, it made a 50% investment in AGT PRA, which was in a
start-up phase, with the expectation that its two-thirds-owned subsidiary, PRA,
would manage the Company's non-performing assets. Over time, however,
12
<PAGE> 13
TELEBANC FINANCIAL CORPORATION
PRA began to focus only on consumer credit. Therefore, the Company determined
that its investment in AGT PRA would not be a part of its core business and,
accordingly, sold its interest in the second quarter of 1999.
In May 1999, the Company completed the purchase of the building that
houses its current main headquarters in Arlington, Virginia, for $10.2 million.
In June 1999, the Company announced an agreement to be acquired by
E*TRADE Group, Inc. ("E*TRADE"), in a stock-for-stock exchange. The acquisition
is subject to approval by Telebanc's stockholders as well as required regulatory
approvals. In connection with the agreement, Telebanc and E*TRADE entered into a
Stock Option Agreement pursuant to which Telebanc granted E*TRADE an option,
exercisable under certain conditions, to purchase a certain number of
newly issued shares of Telebanc's Common Stock. Such option will expire upon
consummation of the merger.
NOTE 6. COMMITMENTS AND CONTINGENT LIABILITIES
As of June 30, 1999, we had commitments to purchase $366.4 million in
loans. Also, certificates of deposit that are scheduled to mature in less than
one year as of June 30, 1999 totaled $861.4 million. In the normal course of
business, we make various commitments to extend credit and incur contingent
liabilities that are not reflected in the balance sheets.
13
<PAGE> 14
TELEBANC FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, AS OF AND FOR
THE SIX MONTHS ENDED JUNE 30, 1999
This Quarterly Report on Form 10-Q contains forward-looking statements
and information relating to Telebanc and its subsidiaries. The words "believe",
"expect", "may", "will", "should", "project", "contemplate", "anticipate",
"forecast", "intend" or similar terminology are intended to identify
forward-looking statements. These statements are based on the beliefs of
management as well as assumptions made using information currently available to
management. Because these statements reflect the current views of management
concerning future events, they involve risks, uncertainties and assumptions.
Therefore, actual results may differ significantly from the results discussed in
the forward-looking statements. Certain factors that may cause such a difference
include interest rate fluctuations, our ability to create brand awareness, our
ability to grow through the introduction of new products and services and our
ability to attain year 2000 compliance and to ensure year 2000 compliance from
the third parties with whom we do business.
This discussion and analysis includes descriptions of material changes
that have affected our consolidated financial condition and consolidated results
of operations during the periods included in our financial statements.
FINANCIAL CONDITION (JUNE 30, 1999 COMPARED TO DECEMBER 31, 1998)
During the first six months of 1999, we experienced a $959.8 million, or
42.0%, increase in total assets from $2.3 billion at December 31, 1998 to $3.2
billion at June 30, 1999. Loans receivable, net accounted for the majority of
this rise, increasing $576.4 million from $904.9 million at December 31, 1998 to
$1.5 billion at June 30, 1999, an increase of 63.7%, as we began to leverage the
proceeds from our April 1999 equity offering to build our core assets during the
second quarter. Available-for-sale mortgage-backed securities also increased,
rising $290.1 million, or 28.7%, from $1.0 billion at December 31, 1998 to $1.3
billion at June 30, 1999. At the same time, our portfolio of trading
mortgage-backed and investment securities increased $2.8 million, or 9.3%, to
$32.3 million at June 30, 1999 from $29.6 million at December 31, 1998.
We funded this overall asset growth through additional retail deposits
and other borrowings, as well as $396.0 million of net proceeds from our April
1999 equity offering. Retail deposits grew $476.7 million, or 41.7%, to $1.6
billion at June 30, 1999 from $1.1 billion at December 31, 1998. This rise
corresponds to net retail customer account growth of 18,497, bringing the number
of retail deposit accounts to 69,332 at June 30, 1999, up from 50,835 at the end
of 1998. Federal Home Loan Bank advances and other borrowings increased $128.6
million, or 14.7%, from $876.9 million at December 31, 1998 to $1.0 billion at
June 30, 1999.
Stockholders' equity increased $396.7 million from $113.4 million at
December 31, 1998 to $510.1 million at June 30, 1999. This increase reflects net
income of $952,000, proceeds of $400.3 million from our recent equity offering
as well as the exercise of options and warrants, and $2.0 million of non-cash
increases due to the release of unearned shares belonging to the Employee Stock
Ownership Plan, offset by a decrease of $381,000 related to the buy-back of
trust preferred securities and unrealized losses on available-for-sale
securities of $6.3 million.
14
<PAGE> 15
TELEBANC FINANCIAL CORPORATION
The following table presents consolidated average balance sheet data,
income and expenses and related interest yields and rates for the quarters ended
June 30, 1999 and 1998. The table also presents information for the periods
indicated with respect to net interest margin, an indicator of an institution's
profitability. Net interest margin is annualized net interest income as a
percentage of average interest-earning assets. Another indicator of
profitability is net interest spread, which is the difference between the
weighted average yield earned on interest-earning assets and weighted average
rate paid on interest-bearing liabilities. Average annualized yield includes the
incremental tax benefit of tax exempt income.
<TABLE>
<CAPTION>
Quarter Ended June 30, 1999 Quarter Ended June 30, 1998
--------------------------------------------------------------------------------------------
Interest Average Interest Average
(In thousands) Average Income/ Annualized Average Income/ Annualized
(unaudited) Balance Expense Yield/Cost Balance Expense Yield/Cost
------- ------- ---------- ------- ------- ----------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable, net $1,306,819 $24,755 7.58% $ 557,801 $10,781 7.73%
Interest-bearing deposits 31,339 370 4.73 6,749 106 6.21
Mortgage-backed securities
available for sale 1,277,246 20,578 6.44 280,962 5,209 7.42
Investment securities
available for sale 213,934 3,285 6.35 119,293 1,911 6.41
Investment in FHLB stock 24,403 456 7.50 9,713 182 7.50
Trading securities 21,257 388 7.31 31,740 589 7.34
---------- ------- ---------- -------
Total interest-earning assets 2,874,998 49,832 6.93% 1,006,438 18,778 7.46%
Non-interest-earning assets 109,208 32,792
---------- ----------
Total assets $2,984,206 $1,039,230
========== ==========
Interest-bearing liabilities:
Retail deposits $1,416,953 $19,909 5.64% $ 581,583 $ 8,757 6.04%
Brokered callable certificates
of deposit 67,093 1,110 6.63 61,237 1,020 6.68
FHLB advances 467,434 6,351 5.38 183,445 2,813 6.07
Other borrowings 499,026 6,668 5.29 117,602 1,707 5.74
Subordinated debt, net 20,062 591 11.77 30,010 881 11.75
---------- ------- ---------- -------
Total interest-bearing
liabilities 2,470,568 34,629 5.62% 973,877 15,179 6.22%
Non-interest-bearing liabilities 61,426 23,072
---------- ----------
Total liabilities 2,531,994 996,949
Stockholders' equity 452,212 42,281
---------- ----------
Total liabilities and
stockholders' equity $2,984,206 $1,039,230
========== ==========
Excess of interest-earning
assets over interest-bearing
liabilities/net interest
income $ 404,430 $15,203 $ 32,561 $ 3,599
========== ======= ========== =======
Net interest spread 1.31% 1.24%
====== ======
Net interest margin (net yield
on interest-earning assets) 2.12% 1.43%
====== ======
Ratio of interest-earning
assets to interest-bearing
liabilities 116.37% 103.34%
====== ======
</TABLE>
15
<PAGE> 16
TELEBANC FINANCIAL CORPORATION
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net Income. Net income for the three and six months ended June 30, 1999
totaled $(296,000) and $952,000, decreasing $475,000 from $179,000 for the three
months ended June 30, 1998, but increasing $337,000 from $615,000 for the six
months ended June 30, 1998. Net income for the three months ended June 30, 1999,
which is net of an extraordinary loss on early extinguishment of debt of $2.0
million as well as a $1.8 million non-cash charge incurred upon the release of
unearned shares held by the Employee Stock Ownership Plan, or ESOP, consisted
primarily of $15.2 million of net interest income and $3.6 million of
non-interest income reduced by $665,000 in provision for loan losses, $13.3
million in non-interest expenses and $2.5 million of income tax expense. 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 six months ended June 30 1999,
which is net of the $2.0 million extraordinary loss as well as a $469,000
cumulative effect of accounting change, consisted primarily of $24.5 million of
net interest income and $7.3 million of non-interest income reduced by $1.2
million in provision for loan losses, $22.3 million in non-interest expenses and
$3.8 million in income tax expense. Net income for the six months ended June 30,
1998 consisted primarily 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. Our
return on average assets and return on average equity for the quarter ended June
30, 1999 were (0.04)% and (0.26)%.
Net Interest Income. Net interest income for the three-month periods
ended June 30, 1999 and 1998 totaled $15.2 million and $3.3 million, reflecting
an annualized net interest margin of 2.12% and 1.30%. This increase in net
interest income is related to the increase in net interest margin as well as
higher volume, as we increased our interest-earning assets significantly during
1998 and the first half of 1999. During the second quarter of 1999, average
interest-earning assets, consisting primarily of loans receivable, net, and
mortgage-backed securities, totaled $2.9 billion and yielded 6.93%. In contrast,
average interest-earning assets during the same quarter in 1998 totaled $1.0
billion and reflected a yield of 7.46%. Average interest-bearing liabilities for
the quarters ended June 30, 1999 and 1998 were $2.5 billion and $973.9 million,
costing 5.62% in the second quarter of 1999 as compared to 6.22% during the same
period in 1998. The decline in the yield on interest-earning assets and the
decline in the cost of interest-bearing liabilities resulted from changes in
overall market conditions during the latter part of 1998 and the first half of
1999.
We earned net interest income of $24.5 million and $6.9 million during
the six months ended June 30, 1999 and 1998. Average interest-earning assets,
consisting primarily of loans receivable, net, and mortgage-backed securities,
totaled $2.6 billion and $989.0 million for the six months ended June 30, 1999
and 1998, yielding 6.95% and 7.37%, respectively. Average interest-bearing
liabilities were $2.4 billion and $953.4 million for the six months ended June
30, 1999 and 1998, costing 5.65% in the first six months of 1999, as compared to
6.23% in the same period in 1998.
16
<PAGE> 17
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
acquired during the quarter. We recorded a loan loss provision of $665,000 for
the second quarter of 1999, in accordance with our policy of providing adequate
reserves for losses in the portfolio. Net charge-offs during the quarter totaled
$44,000, which represents an annualized level of 1 basis point of average loan
balances for the quarter. As of June 30, 1999, our total loan loss allowance was
$5.8 million, or 0.4% of total loans outstanding. The total loan loss allowance
at June 30, 1998 was $3.6 million, which was 0.6% of total loans outstanding.
The general loan loss allowance totaled 84.2% of total non-performing assets as
of June 30, 1999 and 34.5% as of June 30, 1998.
Non-interest Income. Non-interest income totaled $3.6 million during the
second quarter of 1999, increasing $2.5 million or 223.2%, from $1.1 million for
the same period in 1998. Similarly, non-interest income for the first six months
of 1999 increased $4.2 million, or 137.6%, over the same period in 1998. These
increases are due primarily to a $4.1 million gain on equity investment that was
generated by the sale of our investment in AGT PRA. In anticipation of rapid
growth, we made a 50% investment in AGT PRA, which was in a start-up phase, with
the expectation that its two-thirds-owned subsidiary, PRA, would manage our
non-performing assets. Over time, however, PRA began to focus only on consumer
credit, and we determined that our investment in AGT PRA would not be a part of
our core business. Accordingly, we sold our interest in the second quarter of
1999. For the three months ended June 30, 1999, we also reported losses of
$383,000 from the sale of mortgage-backed and investment securities, $220,000
from sales and prepayments of loans held for sale, $596,000 from net realized
and unrealized gains on our trading portfolio and $631,000 of income from loan
servicing charges and other fees. Non-interest income for the second quarter of
1998 consisted of gains of $749,000 from the sale of mortgage-backed and
investment securities, gains of $73,000 on sales and prepayments of loans held
for sale and $365,000 in loan servicing charges and other fees, offset by losses
of $6,000 from trading activity and $77,000 from equity investment.
Non-interest Expenses. We increased our non-interest expenses
substantially during 1999, recording $13.3 million for the three months ended
June 30, 1999, or an increase of 239.8% from $3.9 million for the same period in
1998. The majority of this increase resulted from higher marketing costs, as we
continued our strategy of increasing marketing expenses to grow our deposit base
and expand the reach of our high value banking products. Specifically,
advertising and marketing costs rose $2.8 million, or 490.8%, from $576,000 for
the quarter ended June 30, 1998 to $3.4 million for the second quarter of 1999.
Additionally, compensation costs increased $3.4 million, or 201.3%, from $1.7
million for the second quarter of 1998 to $5.0 million for the same quarter in
1999 due to additional personnel as well as a $1.8 million non-cash charge
incurred upon the release of unearned shares held by the ESOP. Loan servicing
expense totaled $1.3 million in the second quarter of 1999, increasing $928,000,
or 287.3%, from $323,000 for the same quarter in 1998, due to the significant
increase in the size of our loan portfolio as well as our decision to outsource
our loan servicing function in third quarter 1998. Other selling, general and
administrative expenses increased $2.2 million, or 252.4%, from $872,000 for the
quarter ended June 30, 1998 to $3.1 million for the same quarter in 1999. This
increase is due primarily to higher recruiting costs and increased consulting
fees, which were driven by our overall growth over the past year. Non-interest
expenses for the six months ended June 30, 1999 totaled $22.3 million,
increasing $14.2
17
<PAGE> 18
TELEBANC FINANCIAL CORPORATION
million, or 174.3%, from $8.1 million for the same period in 1998. This rise was
driven by substantial increases in compensation costs and marketing expenses.
Annualized general and administrative expenses, excluding marketing costs, for
the three and six months ended June 30, 1999 totaled 1.15% and 0.94% of total
ending assets. Excluding the effect of the non-cash compensation charge incurred
upon the release of unearned shares held by the ESOP, these ratios, excluding
marketing costs, totaled 0.93% and 0.82% for the three and six months ended June
30, 1999.
Income Tax Expense. Income tax expense for the quarter ended June 30,
1999 totaled $2.5 million, yielding an effective tax rate of 53.1%, compared to
$51,000 and an effective tax rate of 12.6% for the three months ended June 30,
1998. This increase in the effective tax rate is due primarily to the
non-deductibility of the $1.8 million non-cash compensation charge incurred upon
the release of unearned shares held by the ESOP. The effective tax rate for the
six months ended June 30, 1999 was 45.8%, as compared to 35.2% for the six
months ended June 30, 1998.
LIQUIDITY
Liquidity represents our 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 our ongoing obligations. We meet our liquidity needs primarily
through financing activities, such as 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.
Telebank is required to maintain minimum levels of liquid assets as
defined by the regulations of the Office of Thrift Supervision, or 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, 1999, the
Bank's liquidity ratio was 5.35%.
In April 1999, we raised capital through an equity offering, in which we
sold 7,940,000 post-split shares of common stock to the public, raising
aggregate net proceeds of $396.0 million. We used a portion of the net proceeds
of this offering to redeem $31.0 million face amount of subordinated debt in
June 1999.
CAPITAL RESOURCES
At June 30, 1999, 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, 1999 in relation to the regulatory requirements in effect at that date.
The information below is based upon our understanding of the regulations and
interpretations currently in effect and may be subject to change.
18
<PAGE> 19
TELEBANC FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Required to be Well
Required for Capital Capitalized under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Core Capital (to
adjusted tangible greater than greater than
assets) $ 432,881 13.65% $ 126,866 4.0% $ 158,582 5.0%
Tangible Capital (to
adjusted tangible greater than
assets) $ 432,881 13.65% $ 47,575 1.5% N/A N/A
Tier I Capital (to
risk-weighted greater than
assets) $ 432,881 31.99% N/A N/A $ 81,196 6.0%
Total Capital (to
risk-weighted greater than greater than
assets) $ 438,276 32.39% $ 108,261 8.0% $ 135,326 10.0%
</TABLE>
YEAR 2000 ISSUES
In 1997, we began year 2000 planning, following the five steps
recommended by the Federal Financial Institutions Examination Council. We have
completed phases focused on awareness and assessment and continue to update the
results of these phases for new information received. Currently, the renovation
phase, which consists of implementing changes and monitoring vendor renovation,
and the validation phase, which consists of testing renovated systems, are
underway. We are monitoring vendors for software updates and final compliance
certification statements and have received certifications from all of our
vendors. Some vendors, however, have continued to update their products to
correct year 2000 issues even after certifying that they are year 2000
compliant, indicating that these certifications may not be final. As a result,
following the receipt of the final certification statements relating to those
systems identified as mission critical in the assessment phase, we internally
validate such certifications through testing. To date, we have identified no
significant year 2000 issues through our testing of mission critical systems.
Our mission critical systems include the deposit processing system, general
ledger system and internet banking applications. As of June 30, 1999, we are
substantially complete with all five phases of our year 2000 plan for mission
critical systems, including awareness, assessment, renovation, validation and
implementation. During the remainder of the year, we will focus on testing and
validating our plans to maintain business continuity in the event of an
unexpected failure. We will also continue our testing efforts for non-mission
critical systems, which we anticipate completing during the third quarter of
1999. Additionally, we will continue developing our customer awareness program
designed to alleviate concerns or questions that may arise.
Our steady growth over the past several years has required that we
continually upgrade our systems; we do not anticipate that we will incur
material costs related to our year 2000 remediation efforts. We have analyzed
the impact of year 2000 issues on our non-information technology systems such
as embedded chips necessary for proper operation of mechanical systems and have
concluded that these issues do not present a significant risk to our
operations.
19
<PAGE> 20
TELEBANC FINANCIAL CORPORATION
Few upgrades have been accelerated due to the year 2000 issue. To date,
we have spent approximately $25,000 on upgrades related to our year 2000
remediation efforts, with an additional $75,000 expected to be spent on
compliance efforts before the year 2000. In May 1999, we hired an outside
consulting firm to provide an additional hardware test environment that will aid
us in the testing of mission critical systems. As of June 30, 1999, this process
is substantially complete, and we expect to be billed for these services in the
third quarter of 1999.
The majority of our loans are serviced by a large company that uses the
same system as several of the largest loan servicers in the United States and
that is expected to be year 2000 compliant. We are currently monitoring the
servicer's year 2000 plan and testing. However, approximately 38% of our loans
are serviced by smaller loan servicers whose systems may not be year 2000
compliant. If these systems were to fail, principal and interest payments on the
loans serviced by these servicers could be delayed, and we would lose interest
income that we would normally earn on these funds. We have developed a
contingency plan to address this loan servicing issue specifically. Under the
contingency plan, we notified these servicers that if we did not receive
confirmation of compliance by March 31, 1999, we would begin transferring
servicing of these loans to servicers who are known to be year 2000 complaint.
While most of these small servicers appear to be year 2000 compliant, we are
currently contacting a small number of these servicers to discuss transferring
their loan portfolios to larger servicers.
Based upon current information, we do not anticipate costs associated
with the year 2000 issue to have a material financial impact. There may,
however, be interruptions or other limitations of financial and operating
systems' functionality and we may incur additional costs to avoid such
interruptions or limitations. Our expectations about future costs associated
with the year 2000 issue are subject to uncertainties that could cause actual
results to have a greater financial impact than currently anticipated. Factors
that could influence the amount and timing of future costs include:
- our success in identifying systems and programs that contain
two-digit year codes;
- the nature and amount of programming required to upgrade or
replace each of the affected programs;
- the rate and magnitude of related labor and consulting costs; and
- our success in addressing the year 2000 issues with third-parties
with which we do business.
MARKET RISK
We manage interest rate risk through the use of financial derivatives
such as interest rate cap, swap and floor agreements. We use these instruments
to ensure that the market value of equity and net interest income are protected
from the impact of changes in interest rates. We have experienced no material
changes in market risk during the first six months of 1999.
20
<PAGE> 21
TELEBANC FINANCIAL CORPORATION
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to Security Holders
On May 27, 1999, Telebanc held its 1999 Annual Meeting of Stockholders
(the "Annual Meeting"). At the Annual Meeting, Dean C. Kehler, Michael M. Lynton
and Steven F. Piaker were elected to the Board of Directors for three-year terms
ending in 2002. The Directors continuing in office were David R. DeCamp, Mark
Rollinson and Marcia Myerberg, whose terms expire in 2000, and Mitchell H.
Caplan and David A. Smilow, whose terms expire in 2001. The stockholders also
voted to amend the Certificate of Incorporation to increase the number of
authorized shares of Common Stock and change the corporate name, to amend the
1998 Stock Incentive Plan to increase the maximum number of shares of Common
Stock reserved for issuance 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, 1999.
The votes cast at the annual meeting were as follows (share numbers are
pre-split):
<TABLE>
<S> <C>
Election of Dean C. Kehler FOR - 9,915,161
AGAINST - 0
WITHHELD - 20,230
Election of Michael M. Lynton FOR - 9,914,961
AGAINST - 0
WITHHELD - 20,430
Election of Steven F. Piaker FOR - 9,915,161
AGAINST - 0
WITHHELD - 20,230
Amend the Certificate of Incorporation to increase the
authorized number of shares of Common Stock from
29,500,000 to 135,000,000 FOR - 8,276,346
AGAINST - 1,650,775
ABSTAIN - 8,270
BROKER NON-VOTES - 0
Amend the Certificate of Incorporation to change the
corporate name from TeleBanc Financial Corporation to
Telebanc Financial Corporation FOR - 9,926,357
AGAINST - 5,244
ABSTAIN - 3,790
BROKER NON-VOTES - 0
</TABLE>
21
<PAGE> 22
TELEBANC FINANCIAL CORPORATION
<TABLE>
<S> <C>
Amend the 1998 Stock Incentive Plan (the "Plan") to
increase the maximum number of shares of Common Stock
reserved for issuance under the Plan by 2,000,000. FOR - 6,383,803
AGAINST - 1,928,752
ABSTAIN - 4,940
BROKER NON-VOTES - 1,617,896
Ratification of appointment of Arthur Andersen LLP as
independent auditors for fiscal year 1999 FOR - 9,934,151
AGAINST - 420
ABSTAIN - 820
BROKER NON-VOTES - 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.0 Real Estate Purchase Contract for 1111 North Highland
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On April 2, 1999, the Company reported to the Securities and
Exchange Commission on Form 8-K under Item 5, Other Events, that
on March 31, 1999, the Company announced the signing of an
agreement with First USA to offer an internet-enabled credit card.
On April 8, 1999, the Company reported to the Securities and
Exchange Commission on Form 8-K under Item 5, Other Events, that
on April 7, 1999, the Company signed an agreement to purchase the
building located at 1111 North Highland Street, Arlington,
Virginia, the site of its current main headquarters, for $10.2
million.
On June 8, 1999, the Company reported to the Securities and
Exchange Commission on Form 8-K under Item 1, Changes in Control
of Registrant, that on May 31, 1999, the Company entered into an
agreement to be acquired by E*TRADE Group, Inc. in a
stock-for-stock exchange.
22
<PAGE> 23
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.
<TABLE>
<CAPTION>
Telebanc Financial Corporation
------------------------------
(Registrant)
<S> <C> <C>
Date: August 13, 1999 By: /s/ Mitchell H. Caplan
----------------------------------- ----------------------------------------------------
Mitchell H. Caplan
President and Chief Executive Officer
Date: August 13, 1999 By: /s/ Aileen Lopez Pugh
----------------------------------- ----------------------------------------------------
Aileen Lopez Pugh
Executive Vice President and Chief Financial Officer
</TABLE>
23
<PAGE> 24
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.
<TABLE>
<CAPTION>
Telebanc Financial Corporation
------------------------------
(Registrant)
<S> <C> <C>
Date: By:
----------------------------------- ----------------------------------------------------
Mitchell H. Caplan
President and Chief Executive Officer
Date: By:
----------------------------------- ----------------------------------------------------
Aileen Lopez Pugh
Executive Vice President and Chief Financial Officer
</TABLE>
<PAGE> 1
EXHIBIT 10.0
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Assignment") is made and
entered into as of May 4, 1999, by and between Telebank, a federal savings bank
("Assignor"), and Highland Holdings Corporation, a Virginia corporation
("Assignee").
RECITALS
WHEREAS, Assignor and Preston Caruthers and Jonathan C. Kinney, as
Trustees for Virginia LC, are parties to that certain Agreement of Purchase and
Sale, dated as of April 5, 1999 (the "Agreement"), providing for the
acquisition by Assignor of certain real property as described therein (the
"Property"); and
WHEREAS, Assignee desires to succeed to Assignor's rights under the
Agreement and to assume Assignor's obligations thereunder;
NOW, THEREFORE, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
1. Assignor hereby assigns to all of its rights, interests and
obligations under the Agreement, including all of its interest in the $100,000
Contract Deposit. Assignor agrees to take such actions and to execute and
deliver such instruments and agreements as may be necessary to complete,
confirm, record or perfect the assignment made hereby.
2. Assignee hereby assumes all of Assignor's rights, interests and
obligations under the Agreement. Assignee agrees to take such actions and to
execute and deliver such instruments and agreements as may be necessary to
complete, confirm, record or perfect the assumption made hereby.
3. This Assignment shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Virginia applicable to contracts made and
to be performed entirely within the Commonwealth of Virginia, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have duly executed this Assignment
as of the date first above written.
TELEBANK
By: /s/ ARLEN W. GELBARD
----------------------------------------
Name: Arlen W. Gelbard
Title: Executive Vice President
HIGHLAND HOLDINGS CORPORATION
By: /s/ SANG-HEE YI
----------------------------------------
Name: Sang-Hee Yi
Title: Secretary
2
<PAGE> 3
ORIGINAL
TELEBANK CONTRACT
<PAGE> 4
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT OF PURCHASE AND SALE (the "Agreement"), dated as of the
5th day of April, 1999 by and between PRESTON CARUTHERS and JONATHAN C. KINNEY,
Trustees for Virginia, L.C., ("Seller"), and TELEBANK, a federally chartered
savings bank, having an address at 1111 North Highland Street, Arlington,
Virginia 22201 (the "Purchaser").
W I T N E S S E T H:
WHEREAS Seller desires to sell, and Purchaser desires to acquire from
Seller all that certain plot, piece and parcel of land together with certain
structures and other improvements, appurtenances and fixtures of land
containing approximately 55,116 square feet of commercial, retail and
multifamily zoned property with an existing office building (together with
existing leases and contracts with respect thereto) located in the block
between North Highland Street and North Garfield, between Clarendon Boulevard
and North 11th Street in Arlington, Virginia and more particularly described in
Exhibit A annexed hereto and made a part hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. DEFINITIONS OF CERTAIN TERMS.
For purposes of this Agreement, unless the context otherwise
requires:
(a) "Appurtenances" shall mean
(i) all right, title and interest of Seller, if any,
in and to strips, gores, easements, rights of way, privileges, appurtenances,
and rights to the same belonging to and inuring to the benefit of the Property
(as hereinafter defined); and
(ii) all right, title and interest of Seller, if any,
in and to
(a) any land lying in the bed of any street,
road, avenue, alley or other public right-of-ways
in front of or adjoining the Property, to the
center line thereof, and
(b) all licenses, franchises, certificates,
authorizations, approvals and permits with
respect to the ownership of the Property.
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(b) "Closing" and "Closing Date" shall have the meanings set
forth in Section 15 hereof.
(c) "Condemnation" shall mean any taking of the Property by
any Governmental Authority (as hereinafter defined) or other entity having the
power of eminent domain, or any voluntary conveyance in lieu of any such
taking.
(d) "Encumbrance" shall mean any mortgage, deed of trust,
restrictive covenant, statutory lien, security interest, lease, written license
or easement, or any other right to possession or control of the Property.
(e) "Equipment" shall mean, in connection with the Property,
the machinery, equipment, fixtures, systems, tools, signs, replacements,
inventories, supplies and other tangible and intangible personal property of
Seller which are located at and used in connection with the operation,
management or maintenance of the Land or the Improvements (as hereinafter
defined), including, without limitation, the items described on Exhibit B
annexed hereto and made a part hereof.
(f) "Execution" shall mean the first date that the Agreement
has been signed by both Purchaser and Seller.
(g) "Governmental Authority" shall mean any commission,
department or body of any municipal, county, state or federal governmental
unit, or any subdivision thereof, having, asserting or acquiring jurisdiction
over all or any part of the Property or the management, operation, use or
improvement thereof.
(h) "Hazardous Waste" shall mean "hazardous waste," "toxic
substances" or other similar or related terms as defined or used in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Sections 9601, et seq.), the Superfund Amendments and
Reauthorization Act of 1986 (SARA) (42 U.S.C. Section 9601(20)(D)), the Resource
Conservation and Recovery Act (42 U.S.C. Sections 6901 et seq.), the Safe Water
Drinking Act (42 U.S.C. Sections 3000(f) et seq.) the Federal Water Pollution
Control Act, as amended by the Clean Water Act of 1977 (CWA) (33 U.S.C. Sections
1251 et seq.), the Clean Air Act of 1966, as amended (42 U.S.C. Sections 7401 et
seq.), the Toxic Substances Control Act (TSCA) (15 U.S.C. Sections 2601, et
seq.), and the regulations adopted pursuant thereto, and any other applicable
federal, state or local law, rule, regulation or ordinance directly relating to
contamination, pollution or the environment (collectively, "Environmental
Laws").
(i) "Improvements" shall mean the buildings and all other
structures, facilities or improvements now or hereinafter existing on the Land
and all Appurtenances thereto.
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(j) "Land" shall mean that parcel of real property described
on Exhibit A annexed hereto and made a part hereof.
(k) "Leases" shall mean any leases or occupancy agreements
with respect to any portion of the Land or any Improvements.
(1) "Legal Requirement" shall mean each applicable law,
statute, code, act, ordinance, order, judgment, decree, injunction, rule or
regulation of any Governmental Authority having jurisdiction over the Property.
(m) "Permitted Encumbrances" shall mean those matters
described in Schedule B, Section 2 of the Title Report dated March 8, 1999 and
revised March 15, 1999 issued by First American Title Insurance Company/Walker
Title & Escrow Company (case number W9900894) and/or described in Exhibit C
annexed hereto.
(n) "Permitted Leases" shall mean those leases executed by the
Seller after the Execution in accordance with Section 9(a)(ii).
(o) "Private Covenant" shall mean any unrecorded instrument,
agreement, covenant, restriction, indenture, loan agreement, promissory note,
or Encumbrance that creates any private legal right or duty, including without
limitation, any right of first refusal or right of first offer to purchase the
Property (but specifically not including leasehold option renewal rights).
(p) "Property" shall mean the Land, the Improvements, the
Equipment, and the Appurtenances being acquired pursuant to the terms of this
Agreement, and as described in Exhibit A.
(q) "Service Contracts" shall mean each and every maintenance,
construction, advertising, management, leasing, franchising, employment or
utility agreement or other agreement relating to the Property or otherwise
affecting the Property or arising out of the operation of any of the Property,
a schedule of such contracts is attached hereto as Exhibit D and made part
hereof.
2. PURCHASE PRICE AND TERMS OF PAYMENT.
(a) Purchaser agrees to pay the Seller the sum of Ten Million
Two Hundred Thousand Dollars ($10,200,000) at Closing which payment is payable
as follows:
(i) One Hundred Thousand Dollars ($100,000) (the
"Deposit") posted simultaneous with the execution of this agreement by
check, payable to the order of Walker Title & Escrow Company located at
11781 Lee Jackson Memorial Highway,
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Suite 300, Fairfax, Virginia 22033 ("Escrow Agent"). TIME BEING OF THE
ESSENCE AS TO THE POSTING OF THE DEPOSIT;
(ii) The additional sum of Ten Million One Hundred
Thousand Dollars ($10,100,000.00) payable by certified check or wire
transfer at Closing; and
(iii) Once paid to the Escrow Agent, the Deposit shall
be non-refundable to Purchaser, in whole or in part, except as
specifically provided for under the terms of this Agreement.
(b) The Deposit shall be held pursuant to the terms and
provisions of a certain Escrow Agreement executed simultaneously herewith among
the parties hereto and Escrow Agent. The Escrow Agreement shall provide that
the Deposit be held in an interest bearing account with the interest to be paid
to the party entitled to payment of the Deposit and that such interest shall be
paid at the time the Deposit is paid out.
3. MATTERS TO WHICH THIS SALE IS SUBJECT
(a) The Property is sold and is to be conveyed subject only to
the Permitted Encumbrances i.e., those encumbrances shown in the title report
completed by and Escrow on March 8, 1999 and revised March 15, 1999 (case
number W9900894) (Exhibit C). Subject to the terms of this Agreement, Seller
agrees to cure any and all other liens and Encumbrances (including all Private
Covenants) prior to or at the Closing of the Property.
(b) If Seller shall so request, Purchaser agrees to permit
Seller to pay from the balance of the Purchase Price as much thereof as may be
necessary to satisfy any lien or encumbrance which Seller is obligated to cure
hereunder.
(c) In the event that an updated title report done by First
American Title Insurance Company, discloses the existence of any liens or
monetary Encumbrances created by Seller, other than the Permitted Encumbrances,
Seller shall be obligated to remove such liens or monetary Encumbrances on or
before the Closing Date. Subject to the foregoing, in the event that the
updated title report and/or an updated ALTA survey of the Property, discloses
the existence of any new Encumbrances on the Property, other than the Permitted
Encumbrances, materially affecting Purchaser's intended use and operation of
the Property as an office building ("Additional Encumbrances"), Seller shall
use its commercial reasonable best efforts to remove such Additional
Encumbrances on or before the Closing Date (including specifically removal of
such Additional Encumbrances which can be eliminated by the payment of up to
Fifty Thousand Dollars). If such Additional Encumbrances which are required to
be removed by Seller under the terms of this Agreement cannot be removed by use
of such commercial reasonable best efforts, Seller shall give Purchaser written
notice to that effect whereupon Purchaser has the right to terminate this
Agreement in its entirety and receive the refund of its Deposit or (ii) accept
title to
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the Property subject to the uncured Additional Encumbrances which shall be
Purchaser's sole remedy hereunder. Notwithstanding the above, Seller shall not
be required to remove any Additional Encumbrance agreed to by Purchaser after
the date of this Agreement.
(d) Any violation of law and municipal ordinances, orders,
regulations, noted in or issued by state, county, municipal or other government
departments having jurisdiction affecting the Property occurring before the
Closing Date shall be remedied by Seller at Seller's sole cost and expense
prior to the Closing Date. Notwithstanding the foregoing, Seller shall have no
obligation to cure any violation if Arlington County or other applicable
governmental authorities agree that said violation can remain uncured until
demolition and/or construction on the Property under commercially reasonable
terms and conditions.
(e) Purchaser (or its affiliates) has previously completed
examination of title, zoning, environmental matters, economic feasibility and
such other matters with respect to the use, enjoyment and operation of the
Property as Purchaser has previously determined necessary. No additional Study
Period is envisioned or provided in this Agreement.
4. ADJUSTMENTS
(a) The following items are to be adjusted as of the Closing
Date:
(i) real property taxes;
(ii) all utilities which are supplied to the Property
that are the responsibility of the Seller;
(iii) all charges and payments due under the Service
Contracts;
(iv) all other income from, and expenses relating to,
the Property of every type and nature; and
(v) any and all items which are customarily pro rated
in Northern Virginia in transactions of this nature.
In the event that information on the foregoing items to be
apportioned as of midnight on the date preceding the Closing Date is
unavailable on such Closing Date, the parties hereto agree to make any such
apportionments within 45 days following the Closing Date. The obligations set
forth in the immediately preceding sentence shall survive the applicable
Closing Date for a period of 45 days.
(b) At Closing, Purchaser shall receive a credit for all
advance rentals and other amounts received by Seller and covering any period
after the Closing Date, and Purchaser's pro-rata share of all rentals and other
amounts received by Seller for the month in which the
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Closing occurs. After Closing, all payments received by Purchaser and Seller
from or on behalf of a Tenant shall be applied to the current month's payment
then due and secondly to the previous month's payment then due, thirdly to
future monthly payments then due and fourthly, in the inverse order of their
respective due dates, to payments then past due. Seller shall promptly remit to
Purchaser Purchaser's appropriate pro-rata share of any rentals and other
amounts received by Seller after the Closing Date. Purchaser shall promptly
remit to Seller, Seller's appropriate pro-rata share of rentals and other
amounts received by Purchaser after the Closing Date. Purchaser shall have no
obligation to collect past due rentals and other amounts from Tenants after the
Closing Date. Seller retains its rights in and to such past due rentals, but
shall not disturb any Tenant in its occupancy and use and enjoyment of its
demised premises.
(c) The amount of any unpaid real property taxes and
assessments, and utilities which Seller is obligated to pay and discharge may,
at the election of Seller, be credited to Purchaser at the Closing against sums
payable by Purchaser hereunder, provided that official bills therefor or other
reasonably satisfactory evidence thereof is furnished by Seller to Purchaser at
the Closing.
(d) If on the Closing Date the Property shall be affected by
an Arlington County special assessment that is due and payable at Closing or
will be due and payable within sixty (60) days after Closing, Seller shall pay
or cause to be paid at or prior to Closing any sums due in respect thereof. In
the event that the amount of any such assessment referenced in the preceding
sentence has not been established by Arlington County prior to the Closing,
Seller agrees to place an amount equal to one hundred ten percent (110%) of the
reasonably estimated amount of any such assessment in escrow at the Closing
with Escrow Agent in accordance with the terms of an escrow agreement
acceptable to Seller and Purchaser which amount shall be disbursed as and when
a final assessment for any such improvement is determined. Purchaser and Seller
agree that the terms of any escrow agreement executed pursuant to the
immediately preceding sentence shall provide that any sums in excess of the
sums disbursed to pay such assessment shall be promptly refunded to Seller. In
the event the sums placed in escrow with Escrow Agent pursuant to the terms of
this Section 6(d) are insufficient to pay any such assessment, Seller agrees to
pay any such increased amount to Escrow Agent, or the Governmental Authority
promptly following demand therefor.
(e) Any refund of real property taxes, assessments, and/or
utilities shall be made after the Closing, shall be paid to Seller for the
period prior to and including the Closing Date and to Purchaser for the period
following the Closing Date. Any sums paid to either Purchase or Seller in
respect to real property tax refunds shall be net of the cost of the attaining
such refunds incurred.
(f) In the event the apportionments hereinabove provided which
are to be made at the Closing result in a credit balance (i) to Purchaser, such
sum shall be paid at the Closing, at the option of Seller, by either (A)
payment to Purchaser by certified check of an amount equal to such credit
balance or (B) giving Purchaser a credit against the balance of the
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Purchase Price in the amount of such credit balance, or (ii) to Seller,
Purchaser shall pay the amount thereof to Seller at the Closing by certified
check or by wire transfer of immediately available funds.
5. FORM OF DEED
The Property will be transferred to Purchaser by Seller
executing, acknowledging and delivering to Purchaser on the Closing Date a
Special Warranty Deed, in recordable form, to the Property, free and clear of
all liens and encumbrances, except the Permitted Encumbrances (the "Deed").
Seller is to pay Virginia State Grantor taxes which tax is currently $1.00/
$1,000. All other transfer/recordation taxes (which tax is currently $2.00/
$1,000) and charges imposed by or payable to any Governmental Authority in
connection with the sale of the Property, if any, shall be paid by Purchaser at
the Closing.
6. ITEMS TO BE DELIVERED BY SELLER AND PURCHASER AT CLOSING
(a) At the Closing Date, Seller shall execute and/or deliver
or cause to be delivered to Purchaser the following documents in connection
with the Property:
(i) the Special Warranty Deed;
(ii) An opinion of counsel for Seller to the effect
that (a) Trustees are authorized to hold the Property under
Virginia law; (b) the execution, delivery and performance of this
Agreement by Seller and the documents executed and delivered by
Seller hereunder are within Seller's power, authority and legal
right, and have been duly authorized by all necessary action of
the beneficiary, Virginia, L.C.; and (c) this Agreement and the
documents executed and delivered by Seller constitute legal,
valid and binding obligations of Seller enforceable against
Seller in accordance with their respective terms, subject, as to
enforceability, to applicable bankruptcy laws and other laws
relating to creditors generally and to limitations on equitable
remedies that may be imposed by a court in the exercise of its
discretion;
(iii) A certificate duly executed and delivered by the
Trustees with respect to the fact that they have been authorized
by the beneficiary of the Trust, Virginia, L.C., a Virginia
limited liability company, to execute the Special Warranty Deed
and other settlement documents and that Virginia, L.C. has
consented to this transaction;
(iv) A duly executed assignment and assumption of
service contracts which Purchaser has elected to assume in
substantially the form of Exhibit F annexed hereto and made a
part hereof and a duly executed assignment and assumption of
licenses and permits in substantially the form of Exhibit G
annexed hereto and made a part hereof;
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(v) A duly executed bill of sale in substantially the
form of Exhibit E annexed hereto and made a part hereof,
(vi) Such documents as may be reasonably required by
the Title Company certifying any work done or supplies delivered
to the Property which may form the basis of a materialman's or
mechanic's lien under or pursuant to the laws of the Commonwealth
of Virginia, in form sufficient to enable the Title Company
affirmatively to insure Purchaser against any such lien;
(vii) Permits and licenses required by the Governmental
Authorities for the construction, occupancy, use and operation of
the Property (to the extent said permits and licenses can be
transferred);
(viii) To the extent the same are in Seller's
possession, complete sets of keys for the Property;
(ix) The FIRPTA Affidavit;
(x) A certificate duly executed by Trustees
confirming their authority to execute the Deed and other closing
documents on behalf of Seller;
(xi) Original, executed counterparts of the Leases;
(xii) Copies of all guaranties or warranties then in
effect with respect to the Equipment and Improvements;
(xiii) Estoppel letters from all tenants leasing in
excess of 2,000 square feet and eighty percent (80%) of all other
tenants dated within twenty-five (25) days prior to the Closing
Date in substantially the same form as set out herein in Exhibit
J. Notwithstanding the foregoing, if Seller and its agents have
used their best and diligent efforts to obtain the estoppel
certificates from such other Tenants, then Seller need not
provide such estoppel certificate for any Tenant who fails to
provide such certificate provided that Seller, itself, shall
execute and provide its own certificate, a so-called "Landlord
Estoppel Certificate", in substantially the same form as set out
in Exhibit J, at Closing in respect of any such Tenant required
to provide an estoppel letter and that does not provide such a
certificate;
(xiv) All tenant security deposits together with any
interest thereon, and any prepaid rents and other sums held by
Seller as landlord under the Leases;
(xv) A letter to each of the tenants under the Leases
informing them of the change in ownership of the Property;
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(xvi) A letter to each party to any contract with
respect to the use or operation of the Property informing such
party of the change in ownership of the Property;
(xvii) Assignments of the landlord's interest in all of
the Leases to Purchaser;
(xviii) A certified rent roll in the form of Exhibit H
hereto, updated to within three (3) days of the Closing Date and
certified by Seller to be true, complete and correct;
(xix) The standard form of title affidavit customarily
delivered by sellers of similar types of property; and
(xx) Such additional documentation specifically
required by the Title Company or reasonably requested by
Purchaser in connection with the transaction contemplated by
this Agreement.
(b) At the Closing of the Property, Purchaser shall execute
and/or deliver or cause to be delivered to Seller the following documents in
connection with the Property being acquired:
(i) counterparts of the documents described in Section
6(a)(iv) and (xx) hereof;
(ii) a certified copy of the Charter and the Bylaws of
Purchaser certified to be true and complete by the Secretary of
Purchaser;
(iii) a certificate of a duly authorized officer and the
secretary of Purchaser with respect to:
(a) the approval by Purchaser of the
transactions contemplated hereby; and
(b) the authority of the person(s) executing
this Agreement and the other documents to be
delivered on behalf of Purchaser at Closing.
(iv) all transfer taxes except the Virginia State
Grantor tax in respect to that portion of the Purchase Price payable
in respect of the Property being so acquired; and
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(v) a certified check or wire transfer of immediately
available funds to Walker Title & Escrow Company in payment of all
amounts payable by Purchaser under this Agreement with respect to the
Property.
7. SELLER'S REPRESENTATIONS AND WARRANTIES
Seller hereby warrants, represents and agrees that the
provisions set out in this Section 7 are materially true and correct as of the
date hereof and will be materially true and correct on the Closing
(a) (i) Seller holds the Property under an unrecorded
Virginia Land Trust, a true and correct copy of which has been provided to
Purchaser and such Trust has not been modified or amended since the date
provided to Purchaser; (ii) Seller has all requisite power and authority to
enter into this Agreement and to complete the transactions provided for herein;
(iii) the execution, delivery and performance of this Agreement will not
constitute or result in a violation or breach by Seller of any judgment, order,
writ, injunction, or decree issued against or imposed on Seller or will result
in a violation of any Legal Requirement to which Seller is a party or by which
it is bound; and (iv) Preston Caruthers and Jonathan C. Kinney are the sole
trustees of Viginia, L.C. as to the Property sold herein.
(b) Seller owns fee simple title to the Property and
such ownership is free and clear of all Encumbrances other than the Permitted
Encumbrances. There are no Private Covenants affecting the Property or Seller's
obligations hereunder that will (i) affect the use and operation of the
Property after Closing except private covenants which can be terminated with
thirty (30) days notice without penalty to Purchaser, or (ii) affect Seller's
obligations hereunder. Seller is the sole owner of the Property, and no consent
is required from any third party other than the beneficiary of the Trust,
Virginia, L.C., for the sale of the Property under this Agreement. By signing
below, Seller represents and warrants that Virginia, L.C. has consented to the
execution and delivery of this Agreement and has agreed to sell the Property to
Purchaser upon the terms and conditions contained in this Agreement.
(c) No claim or demand has been made and there is no
litigation, condemnation, zoning, or administrative proceeding or real estate
tax protest or proceeding pending against or affecting Seller or all or any
portion of the Property that, if decided or determined adversely to Seller or
the Property, would impair Seller's ability to consummate the transactions
provided for in this Agreement. Between the effective date of this Agreement
and the Closing Date, Seller will not request or give its consent to any
pending zoning variance with respect to the Property except as requested or
agreed to by Purchaser.
(d) Seller has not received any written notice of (nor
is there to the best of Jonathan C. Kinney and Preston Caruthers' knowledge):
(i) any alleged violation of any Private Covenant or Legal Requirement,
including, without limitation, applicable zoning laws, building
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codes, environmental laws or regulations, (except as may be shown in the Apex
Environment reports obtained by Purchaser
(e) All utilities, to the best of Seller's knowledge,
including, but not limited to, water, sanitary sewer, storm sewer, electricity,
gas, telephone and trash removal are available at the boundary of the Property
in capacities adequate for the operation of the Improvements presently located
on the Property, and the cost of installation and connection of such utilities
has been fully paid.
(f) Seller has not received any notice from any
federal, state, county, municipal or other governmental department or agency
concerning the need for immediate action to clean up any petroleum product or
other Hazardous Waste discharge or seepage.
(g) Access to the Property is available by public
streets, and Seller has no knowledge of any plans to change the highway or road
system adjacent to the Property, except as may be shown in the Clarendon Sector
Plan (prepared by the Arlington County Planning staff).
(h) To the best of Seller's knowledge the Property
has all appurtenant easements that are necessary for the installation,
maintenance and use of facilities for water, sanitary sewer, storm sewer,
electricity, gas, and telephone services.
(i) Neither Seller nor the Property or any portion
thereof is in the hands of a receiver nor is an application for a receiver
pending or to Seller's knowledge, threatened. Seller has not made an assignment
for the benefit of creditors, nor has Seller filed, or had filed against it,
any petition in bankruptcy.
(j) There is no pending or, to the best of Seller's
knowledge, threatened litigation, proceeding or investigation which might
materially adversely affect the ownership, use, value, operation or title of
the Property.
(k) There are no occupancy rights (written or oral),
leases or tenancies affecting the Property, other than the Leases.
(l) All materials and work supplied to the Property
have been paid or will be paid by Seller 30 days of the Closing Date.
(m) Exhibit D sets forth a list of all of the
equipment leases, waste disposal, snow removal, landscaping, maintenance or
building service, management or other agreements relating to the ownership or
operation of the Property that are not subject to cancellation on thirty (30)
days notice.
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(n) Seller has not entered into any collective
bargaining agreement or other contract or agreement with any labor organization
or other representative or any of Seller's employees, nor is any such contract
or agreement presently being negotiated.
(o) Seller has no employees working at the Property
and Purchaser will have no obligations to any of the Seller's employees.
8. PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser hereby warrants, represents and agrees that the
following are materially true and correct as of the date hereof and will be
materially true and correct at the Closing:
(a) Purchaser is a duly organized and validly existing
federal savings bank in good standing under the laws of the United States of
America, and has all requisite power and authority to enter into this Agreement
and to complete the transactions provided for herein.
(b) This Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of Purchaser and constitutes a legal, valid and binding
obligation of Purchaser enforceable in accordance with its terms.
(c) The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby does not and will not
(i) violate or conflict with the or articles of formation of Purchaser, (ii)
violate or conflict with any judgment, decree or order of any court applicable
to or affecting Purchaser, breach the provisions of, or constitute a default
under, any Legal Requirement or Private Covenant to which Purchaser is a party
or by which Purchaser is bound, (iii) violate or conflict with any law,
governmental regulation or permit applicable to Purchaser; or (iv) violate any
federal banking statutes or rules and regulations of the Federal Reserve or any
state or federal agency having authority over Purchaser's business.
(d) Purchaser's decision to purchase the Property is
based solely upon Purchaser's or Purchaser's agent's and affiliates' own
examination and inspection and analysis of the Property. Purchaser relied on
Seller's representations and warranties only to the extent that its own
examination and inspection and analysis of the Property is fully consistent
with said representations and warranties.
(e) Purchaser is proceeding to purchase the Property
in its current "AS IS" "WHERE IS" condition with any existing defects (either
latent or patent) and in its current condition (environmental or otherwise).
Purchaser relied on Seller's representations only to the extent that its own
examination, inspection and analysis of the Property (including the Apex
environmental reports, First American Title Insurance Company reports and title
commitments, property condition investigations completed by Bryne Associates,
and survey and surveyors
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reports completed by William H. Gordon Associates, Inc. are fully consistent
with said representations and warranties.
(f) Purchaser has not been induced by, and has not
relied upon, any representations, warranties or statements, either express or
implied, made by Seller or any agent, employee or other representative of the
Seller, or by any broker or any other person representing or purporting to
represent the Seller, which are not expressly set forth herein.
9. OPERATION OF PROPERTY UNTIL CLOSING/SELLER COVENANTS
(a) Seller agrees that between the Executionof this
Agreement and the Closing Date, as follows:
(i) Seller shall maintain the Property,
Improvements and Equipment thereon in good repair and in substantially
the same manner as it has heretofore operated and maintained the same
(normal wear and tear excluded);
(ii) Seller shall not, without the consent
of Purchaser, enter into any new leases or modifications of existing
leases for any portion of the Property. Purchaser shall have the
option to either (i) request that Seller not rent same and keep such
premises vacant until the Closing, or (ii) request that Seller rent
same at a rental rate and for a terms determined by Purchaser. In the
event that the Purchaser shall request that the Seller keep any such
premises vacant until the Closing or if the rent determined by
Purchaser exceeds the fair market rent for similar space in the area,
then Purchaser agrees that from and after the date each such premises
become vacant, Purchaser shall pay to Seller an amount at Closing
equal to the rent being paid by the current tenant(s) of said premises
(iii) Seller will not, without the consent
of Purchaser, (a) transfer, assign, convey or sell any portion of the
Property; (b) enter into any option or sales contract with respect to
all or any portion of the Property; (c) create or voluntarily permit
the creation of any lien or Encumbrance on the Property; or (d) take
any voluntary action which would adversely affect in any material
manner any of the representations or warranties given by Seller at
Closing.
(iv) Seller agrees to maintain and keep its
existing insurance policies in full force and effect. To the extent
any existing party is policy is canceled, Seller shall replace it with
a substantially similar policy of insurance.
(v) Seller shall promptly deliver to
Purchaser copies of all notices of violations of laws, ordinances,
orders, regulations or requirements including but not limited to,
zoning, building, health, safety, pollution control, environmental,
fire or
13
<PAGE> 17
similar laws, ordinances, orders and regulations issued by, filed by
or served by, any Governmental Authority having jurisdiction over the
Property, against or affecting the Property.
(b) Notwithstanding anything to the contrary set
forth in this Agreement, Seller agrees that in the event that it places or
voluntarily causes to be placed of record, or takes any action which causes or
permits any other party to place of record, any easement, covenant, lien, or
other agreement which shall render title to the Property uninsurable by
Purchaser's Title Company, Seller shall cause the same to be removed of record
at or prior to Closing at its sole cost and expense, whether by payment,
bonding or otherwise. This Section shall not be deemed to apply to any
easement, restriction or covenant, etc. imposed by a Governmental Authority nor
to any easement, restriction, covenant, lien or other agreement agreed to by
Purchaser.
(c) Seller agrees to indemnify, defend and hold
Purchaser harmless from its actual direct out-of-pocket loss, cost, or expense
(including, without limitation, reasonable attorneys' fees and expenses)
resulting from the material breach of any of the covenants of Seller set forth
in this Section 9. Seller's obligation pursuant to the preceding sentence shall
be deemed to survive the Closing for a period of one day. Purchaser's failure
to bring suit hereunder to enforce Seller's obligations within one year and one
day after Closing shall forever bar any claim against Seller under this
Agreement, the common law, federal law or Virginia law.
10. CLOSING CONDITIONS AND DELIVERIES
(a) The obligation of Seller shall be subject to the
satisfaction of the following conditions precedent on and as of the Closing
Date:
(i) the representations and warranties of
Purchaser contained in this Agreement shall be true and correct in all
material respects at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing
Date. The representations and warranties not shall be misleading in
any material respect, and Purchaser in all material aspects shall have
performed and complied with all covenants, agreements and conditions
required by this Agreement to be performed or complied with by
Purchaser in all material aspects prior to or at the Closing;
(ii) Seller shall have received Purchaser's
closing documents pursuant to Section 6(b) hereof and
(iii) Seller and Clarendon Center, L.L.C., a
Virginia limited liability company, shall have completed Option
Closing as defined in their Agreement of Option, Purchase and Exchange
on land to the east of the Property, across from North Garfield Street
containing approximately 95,124 square feet of land area. For the
purposes of this Section, a simultaneous Option Closing with Clarendon
Center L.L.C. shall be permitted.
14
<PAGE> 18
Purchaser acknowledges that Seller is specifically relying on this
condition precedent to its obligation to Close.
(b) Purchaser's obligation to pay the remaining
portion of the Purchase Price shall be subject to the satisfaction of the
following conditions precedent on the Closing Date:
(i) the representations and warranties of
Seller contained in this Agreement shall be true and correct in all
material respects at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing
Date, such representations and warranties shall not be misleading in
any material respect, and Seller shall have performed and complied in
all respects with all covenants, agreements and conditions required by
this Agreement to be performed or complied with by Seller in all
material aspects prior to or at the Closing Date;
(ii) Purchaser shall have received Seller's
closing documents pursuant to Section 6(a) hereof; and
(iii) The Property shall be delivered to
Purchaser free and clear of all tenancies and occupancy except for the
leases set forth in Exhibit H hereto and the Permitted Leases.
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND SELLER'S
COVENANTS.
(a) All representations and warranties of Seller
given at the Closing shall survive the Closing Date for a period of one day.
Purchaser's failure to bring suit hereunder within one year and one day after
the Closing shall forever bar any claim against Seller based on the
representations and warranties given at the Closing.
(b) All representations and warranties of Purchaser
given at the Closing shall survive the Closing for a period of one day.
Seller's failure to bring suit hereunder within one year and one day after the
Closing shall forever bar any claim against Purchaser based on the
representations and warranties given at the Closing.
(c) All covenants and conditions required by this
Agreement of Seller shall survive the Closing Date for one day. Purchaser's
failure to bring suit hereunder within one year and one day after the Closing
shall forever bar any claim against Seller relating to any covenants or
conditions required by this Agreement of Seller.
15
<PAGE> 19
12. BROKERAGE
Purchaser and Seller represent that they have dealt with no
brokers, finders or salesmen in connection with this transaction other than
Grubb & Ellis Company (the "Broker"), and agree to indemnify, defend and hold
each other harmless from and against any and all loss, cost, damage, liability
or expense, including reasonable attorneys' fees and expenses, which each such
party may sustain, incur or be exposed to by reason of any claim for fees or
commissions resulting from any breach of the foregoing representation. Seller
shall pay the Broker a Two Hundred Thousand Dollars ($200,000.00) commission
which will be due the Broker upon Closing of this Property. The provisions of
this Section 12 shall survive the Closing.
13. CASUALTY LOSS AND CONDEMNATION
If any portion of the Property is damaged by fire or other
casualty, or if the Property shall be taken by condemnation or eminent domain,
or proceedings therefor shall be instituted, in each instance prior to Closing,
Seller shall give immediate notice thereof to Purchaser and Purchaser shall be
entitled to cancel this Agreement by giving written notice to Seller within
twenty (20) days. If this Agreement is terminated by Purchaser, Purchaser shall
be entitled to receive promptly the Deposit, together with any interest thereon
as herein provided, and this Agreement shall be deemed null and void and of no
force and effect. If Purchaser elects to proceed with the transaction
contemplated herein (which election shall be deemed made if Purchaser does not
cancel this Agreement by giving notice as provided in this paragraph), Seller
agrees to assign, transfer and set over to Purchaser, at Closing, (a) any and
all rights Seller may have under any policy or policies of casualty insurance
maintained by Seller insuring against loss, damage or destruction to the
Property, and any improvements located thereon, or (b) any proceeds of such
condemnation action which shall inure to the benefit of Purchaser and be paid
to Purchaser at Closing.
14. LIQUIDATED DAMAGES
(a) In the event of Purchaser's failure to pay the
Purchase Price at Closing in violation of the terms and conditions of this
Agreement, the parties agree the damages sustained by Seller's resurt thereof
would be substantial but difficult to specifically ascertain. The parties
therefore agree, in the event of any such default by Purchaser, the Deposit in
the sum of One Hundred Thousand Dollars ($100,000.) plus accrued interest,
shall be payable to Seller as liquidated damages, which is agreed to be
Seller's sole remedy. Purchaser and Seller agree to promptly direct the Escrow
Agent to pay such sums to Seller in the event of default. In the event Seller
has to institute litigation to collect the Deposit, then, in that event, Seller
shall be entitled to reimbursement of its reasonable attorneys' fees incurred
in prosecuting said suit, if Seller is the prevailing party in said suit.
16
<PAGE> 20
(b) In the event that on the Closing Date, Seller
shall be unable to perform its obligations or to satisfy any material condition
applicable to Seller hereunder in accordance with the provisions of this
Agreement for reasons beyond Seller's control then this Agreement shall be
terminated and Escrow Agent shall return the Deposit to Purchaser together with
any interest eamed thereon, which shall be Purchaser's sole remedy.
Notwithstanding, Purchaser shall have the right to waive any such obligations
or conditions, in which event Seller shall proceed to Closing.
(c) In the event that at the Closing Date Seller
shall be unwilling to perform its obligations in accordance with the provisions
of this Agreement, then in that event Purchaser shall be entitled to either
specific performance of this Agreement or its damages incurred. Purchaser must
elect which remedy it decides to pursue within forty-five (45) days after the
Closing Date which election shall then be final and binding on Purchaser. In
the event that suit is brought for specific performance and Purchaser is the
prevailing party in said litigation, then in that event Purchaser shall be
entitled to reimbursement of its reasonable attorneys' fees incurred in
prosecuting said suit. In the event that Seller is the prevailing party in said
litigation, Seller shall be entitled to reimbursement of its reasonable
attorneys' fees incurred in prosecuting said suit.
15. CLOSING
The consummation of the transaction contemplated hereunder
(the "Closing") shall take place at the office of Walker Title and Escrow
Company located at 11781 Lee Jackson Memorial Highway, Fairfax, Virginia 22030
or at 2009 North 14th Street, Arlington, Virginia 22201 no later than thirty
(30) days after the Execution of this Agreement by Purchaser and Seller (the
"Closing Date"). TIME IS OF THE ESSENCE AS OF THE CLOSING DATE.
16. NOTICES
Any notice, request, demand, instruction or other
communication (a "Notice") to be given to any party with respect to this
Agreement may be given either by the party or its counsel and shall be deemed
to have been properly sent and given when delivered by hand or when sent by
telecopier (provided a copy is simultaneously sent by reputable overnight
courier), certified mail (return receipt requested), or by reputable overnight
courier service, receipt provided or evidence of refusal obtained. The
addresses to which Notices shall be sent are:
17
<PAGE> 21
If to Purchaser:
Telebank
1111 N. Highland Street
Arlington, Virginia 22201
Attention: Mitchell H. Caplan, President
Fax: (703) 524-0556
with a copy to:
Telebank
1111 North Highland Street
Attn: Arlen W. Gelbard, General Counsel
Arlington, Virginia 22201-2807
Fax: (703) 524-0556
If to Seller:
Preston Caruthers, Trustee
Virginia Management, Inc.
4600 North Fairfax Drive
Suite 1000
Arlington, Virginia 22204
Fax: (703) 524-3308
and
Jonathan C. Kinney, Trustee
Bean, Kinney & Korman, P.C.
2000 N. l4th Street, Suite 100
Arlington, Virginia 22201
Fax: (703) 525-2207
The parties hereto may at any time change the addresses or the attorneys to whom
the copies of a Notice should be mailed by sending written notice to the other
party of such change in the manner hereinabove provided.
17. COMPLIANCE WITH INTERNAL REVENUE CODE
Seller represents and warrants to Purchaser that Seller is
not a foreign person and is a "United States Person" as such term is defined in
Section 7701(a)(30) of the Internal
18
<PAGE> 22
Revenue Code of 1986, as amended (the "Code"). Seller agrees to deliver to
Purchaser on the Closing Date (or such earlier date as may be required pursuant
to regulations promulgated by the Secretary of the Treasury under Code Section
1445) an affidavit of a Manager of Virginia, L.C. setting forth Virginia,
L.C.'s United States tax identification number, and stating that Seller and
Virginia, L.C. is not a foreign person and is a United States Person as defined
in the Code (the "FIRPTA Affidavit"). Purchaser agrees that, upon the execution
and delivery of the FIRPTA Affidavit to Purchaser, no deduction shall be made
or claimed against the Purchase Price by reason of the requirements of Sections
897 and 1445 of the Code.
18. MISCELLANEOUS
(a) This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and incorporates
and supersedes all prior negotiations and discussions between the parties.
(b) This Agreement may not be amended, waived or
terminated orally, but only by an agreement in writing signed by the parties
hereto.
(c) This Agreement shall be governed by the internal laws
of the Commonwealth of Virginia and shall be binding upon the parties hereto
and their respective successors and permitted assigns.
(d) The caption headings in this Agreement are for
convenience only and are not intended to be part of this Agreement and shall
not be construed to modify, explain or alter any of the terms, covenants or
conditions herein contained.
(e) If all or any portion of any provision of this
Agreement shall be declared invalid or unenforceable under applicable law, then
the performance of such portion shall be excused to the extent of such
invalidity or unenforceability, but the remainder of this Agreement shall
remain in full force and effect.
(f) Each exhibit referred to in this Agreement is hereby
incorporated herein by reference and made a part of this Agreement in the same
manner as if it were restated verbatim herein.
(g) If so requested, each party hereto agrees to cooperate
with the other party in good faith in said other party's efforts to cause each
of the conditions to Closing to be satisfied.
(h) This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which together
shall constitute one and the same Agreement.
19
<PAGE> 23
(i) This Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
the Agreement to be drafted, it being understood that this Agreement was
drafted through the combined efforts of Purchaser and Seller.
(j) If any provision of this Agreement requires that
action be taken on or before a particular date that falls on a day that is not
a business day, the time for the taking of such action shall automatically be
postponed until the next following business day.
(k) All words and phrases used in this Agreement,
including, without limitation, all defined words and phrases, regardless of the
number or gender in which used, shall be deemed to include any other number or
gender as may be reasonably required by the context.
(1) All of the provisions hereof shall inure to the
benefit of and be binding upon the heirs, executors, personal representatives,
successors and permitted assigns of the parties hereto.
(m) Either of the parties shall have the right to waive
performance by the other party of any obligation under this Agreement, but no
such waiver shall be valid unless in a writing signed by the party so waiving.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SELLER:
/s/ PRESTON CARUTHERS, TRUSTEE
---------------------------------------
PRESTON CARUTHERS, TRUSTEE
/s/ JONATHAN C. KINNEY, TRUSTEE
---------------------------------------
Jonathan C. Kinney, Trustee
20
<PAGE> 24
PURCHASER:
TELEBANK
By: /s/ SANG-HEE YI
-----------------------------------
Name: Sang-Hee Yi
Title: Executive Vice President
STATE OF VIRGINIA )
----------------------
) to-wit:
COUNTY OF ARLINGTON )
---------------------
I, a Notary Public for the State and City aforesaid, hereby swear and
affirm that PRESTON CARUTHERS, Trustee, appeared before me and executed this
Agreement of Purchase and Sale on this 7th day of ARLINGTON, 1999 on behalf of
Virginia, L.C.
Donna Snarr Ingram [SEAL]
------------------------------
Notary Public
My commission expires: 05-31-02
COMMONWEALTH OF VIRGINIA )
) to-wit:
COUNTY OF ARLINGTON )
I, a Notary Public for the State and County aforesaid, hereby swear
and affirm that JONATHAN C. KINNEY, Trustee, appeared before me and executed
this Agreement of Purchase and Sale on this 7th day of APRIL, 1999 on behalf of
Virginia, L.C.
Donna Snarr Ingram [SEAL]
-----------------------------
Notary Public
My commission expires: 05-31-02
21
<PAGE> 25
STATE OF VIRGINIA )
---------------------------
) to-wit:
COUNTY/CITY OF Arlington )
---------------------
I, a Notary Public for the State and City aforesaid, hereby swear and
affirm that SANG-HEE YI, EVP of TELEBANK appeared before me and executed this
Agreement of Purchase and Sale on this 7th day of APRIL, 1999 on behalf of
Telebank.
MARIE E. RODRIQUEZ [SEAL]
-----------------------------
Notary Public
My commission expires: 11-30-2002
22
<PAGE> 26
SCHEDULE OF EXHIBITS
Exhibit A Description of Land
Exhibit B Schedule of Equipment
Exhibit C Permitted Encumbrances
Exhibit D Schedule of Service Contracts
Exhibit E Bill of Sale
Exhibit F Assignment and Assumption of Service Contracts
Exhibit G Assignment and Assumption of Licenses and Permits
Exhibit H List of Leases, Rent Rolls and Deposits under the Leases
Exhibit I Assignment and Assumption of Leases
Exhibit J Estoppel Letter
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 18,758
<INT-BEARING-DEPOSITS> 90,733
<FED-FUNDS-SOLD> 89
<TRADING-ASSETS> 32,337
<INVESTMENTS-HELD-FOR-SALE> 1,503,138
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,481,286
<ALLOWANCE> 5,847
<TOTAL-ASSETS> 3,243,164
<DEPOSITS> 1,686,132
<SHORT-TERM> 1,005,510
<LIABILITIES-OTHER> 10,333
<LONG-TERM> 0
31,050
0
<COMMON> 339
<OTHER-SE> 509,800
<TOTAL-LIABILITIES-AND-EQUITY> 3,243,164
<INTEREST-LOAN> 43,866
<INTEREST-INVEST> 45,559
<INTEREST-OTHER> 2,099
<INTEREST-TOTAL> 91,524
<INTEREST-DEPOSIT> 39,275
<INTEREST-EXPENSE> 66,991
<INTEREST-INCOME-NET> 24,533
<LOAN-LOSSES> 1,155
<SECURITIES-GAINS> 192
<EXPENSE-OTHER> 22,309
<INCOME-PRETAX> 8,319
<INCOME-PRE-EXTRAORDINARY> 3,408
<EXTRAORDINARY> 1,987
<CHANGES> 469
<NET-INCOME> 952
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
<YIELD-ACTUAL> 2.12
<LOANS-NON> 5,760
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 368
<ALLOWANCE-OPEN> 4,766
<CHARGE-OFFS> 105
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<ALLOWANCE-CLOSE> 5,847
<ALLOWANCE-DOMESTIC> 5,847
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,394
</TABLE>
