<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
0R
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
COMMISSION FILE NUMBER 33-93312
BEAL FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2583551
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
SUITE 300, LB66, 15770 NORTH DALLAS PARKWAY, DALLAS, TEXAS 75248
(Address of principal executive offices) (ZIP code)
Registrant's telephone number, including area code: (214) 404-4000
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 [ ]
As of March 31, 1996, there were 300,000 shares of the Registrant's
common stock issued and outstanding.
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BEAL FINANCIAL CORPORATION
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. - Financial Statements . . . . . . . . . . . . . . . . 1
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . 2
PART II. OTHER INFORMATION
SIGNATURES
<PAGE>
BEAL FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
1996 JUNE 30,
(UNAUDITED) 1995
----------- ----------
<S> <C> <C>
ASSETS
Cash $ 253 $ 463
Interest bearing deposits 28,886 31,044
---------- ----------
Cash and cash equivalents 29,139 31,507
Accrued interest receivable 13,608 6,306
Securities available for sale 194,169 40,714
Net loans receivable 929,818 498,439
Less allowance for losses (10,101) (6,137)
---------- ----------
919,717 492,302
Loans held for sale - 866
Federal Home Loan Bank stock 6,152 7,475
Real estate held for investment or sale 66,989 41,212
Premises and equipment 6,811 7,324
Prepaid expenses and other assets 12,970 5,160
---------- ----------
$1,249,555 $ 632,866
---------- ----------
---------- ----------
LIABILITIES
Deposit accounts $1,003,999 $ 458,165
Federal Home Loan Bank advances 70,000 111,000
Senior notes, net 57,031 -
Other borrowings 21,521 4,898
Other liabilities 18,593 6,403
---------- ----------
Total Liabilities 1,171,144 580,466
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share
authorized 375,000
issued and outstanding 300,000 300 2,400
Paid-In capital 2,740 640
Unrealized loss on available for
securities, net of tax benefit (335) -
Retained earnings 75,706 49,360
---------- ----------
Total Stockholders' Equity 78,411 52,400
---------- ----------
$1,249,555 $ 632,866
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements
<PAGE>
BEAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------- ------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $31,216 $11,738 $63,830 $29,458
Purchased discount accretion 11,147 3,829 27,579 12,407
Investment securities 3,085 1,088 5,700 1,769
Total interest income 45,448 16,655 97,109 43,634
Interest expense:
Deposits 14,363 3,598 32,608 8,396
Federal Home Loan Bank
advances and other borrowing 669 2,417 2,528 5,064
Senior notes, net 1,982 - 4,929 -
------- ------- ------- -------
Total interest expense 17,014 6,015 40,065 13,460
Net interest income before
provision for loan losses 28,434 10,640 57,044 30,174
Provision for loan losses 927 1,797 6,862 4,072
Net interest income after
provision for loan losses 27,507 8,843 50,182 26,102
Non interest income
Gain on sale of loans 1,385 2,725 5,398 6,570
Gain on sale of real estate 254 324 2,980 3,753
Gain on foreclosed assets 780 - 780 -
Other real estate operations, net 264 (245) 694 (238)
Other operating income 136 80 217 242
------- ------- ------- -------
Total non interest Income 2,819 2,884 10,069 10,327
Non interest expense
Salaries and employee benefits 1,910 1,216 6,223 3,584
Occupancy and equipment 564 209 1,480 566
SAIF deposit insurance premium 330 134 771 337
Loss on sales of mortgage backed - - - 10
Other operating expenses 1,828 1,604 6,677 3,990
------- ------- ------- -------
Total non interest expenses 4,632 3,163 15,151 8,487
------- ------- ------- -------
Income before income taxes 25,694 8,564 45,100 27,942
Income Taxes 9,205 3,380 16,229 10,387
------- ------- ------- -------
Net Income $16,489 $ 5,184 $28,871 $17,555
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to consolidated financial statements
<PAGE>
BEAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED MARCH 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Operating activities
Net income $ 28,871 $ 17,553
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,187 383
Accretion of purchased discount (27,579) (12,407)
Capitalized interest on real estate investments (482) -
Amortization of bond premium and underwriting costs 336 -
Provision for loan losses 6,862 4,072
Gain on sales of real estate (3,760) (3,820)
Gain on sales of loans (5,398) (5,793)
Gain on sales of investment securities-available 0 (788)
Changes in operating assets and liabilities
Accrued interest receivable (7,593) (2,554)
Prepaid expenses and other assets (4,502) (5,563)
Accrued interest payable-bonds 916 -
Other liabilities and accrued expenses 11,922 (2,114)
---------- ----------
Net cash provided by (used in)
operating activities 780 (11,031)
Investing activities
Proceeds from sales and principal collections of
investment securities-available for sale 6,910 41,373
Proceeds from sale of Federal Home Loan Bank stock 4,500 1,750
Proceeds from sales of loans 9,992 49,218
Proceeds from sales of real estate 8,229 7,638
Purchase of investment securities-available for sale (154,630) (40,585)
Purchase of Federal Home Loan Bank stock (3,177) (8,615)
Purchase of other investments (6,300) 0
Purchases of loans and bid deposits on loan purchases (516,024) (280,162)
Purchases of real estate held for investment or sale (17,118) (18,949)
Loan originations and advances, less loan collections 92,088 40,948
Purchases of property and equipment (1,070) (1,303)
---------- ----------
Net cash used in
investing activities (576,600) (208,687)
Financing activities
Net increase in deposit accounts 545,863 122,835
Net increase (decrease) in long-term debt 14,123 (330)
Net change in advances from the Federal Home Loan (41,000) 103,000
Proceeds from bond issue, net 54,491 0
Cash dividends paid (25) 0
---------- ----------
Net cash provided by
financing activities 573,452 225,505
---------- ----------
Increase (decrease) in cash and
cash equivalents (2,368) 5,787
Cash and cash equivalents at beginning of period 31,507 5,040
---------- ----------
Cash and cash equivalents at end of period $ 29,139 $ 10,827
---------- ----------
---------- ----------
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest $ 35,254 $ 13,319
Income taxes 11,659 11,640
Supplemental disclosure of noncash investing and financing activities
Real estate acquired in foreclosure or in settlement of loans $ 13,147 $ 4,125
Assumption of majority stockholder's debt related to initial public offering 2,500 0
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and with instructions to Form 10-Q and Rule 10-1
of Regulation S-X. The financial statements for the three months ended March
31, 1996 and 1995, and the nine months ended March 31, 1996 and 1995 are
unaudited and, in the opinion of management, include all adjustments
necessary (which consist of only normal recurring adjustments) for a fair
presentation of the financial position and results of operations for the
interim periods. The results of operations for the three and nine month
periods are not necessarily indicative of the results to be expected for the
full year. For further information, refer to the consolidated financial
statements as of and for the year ended June 30, 1995 and footnotes thereto
included in the Beal Financial Corporation's ("BFC" or "Corporation")
registration statement filed with the Securities and Exchange Commission on
October 6, 1995.
NOTE B--INITIAL PUBLIC SENIOR NOTE OFFERING
On April 5, 1995, the Corporation filed an application with the Office of
Thrift Supervision for approval to acquire, indirectly, 100% of the
outstanding common stock of Beal Bank, SSB ("Bank") issued to the Bank's
current shareholders. The application was approved on June 29, 1995. In
connection with the acquisition of the Bank's common stock, the Corporation
assumed related indebtedness of $2.5 million from the majority stockholder.
This amount has been reflected in stockholder's equity as a charge to
retained earnings.
In July, 1995, the Corporation filed a registration statement with the
Securities and Exchange Commission relating to its initial public senior note
offering, pursuant to which, in August 1995, Senior Notes ("Senior Notes"
or "Notes") with an interest rate of 12.75%, payable semi-annually, due
August 15, 2000, were issued in the amount of $57.5 million. At the option
of the Corporation, the Notes may be redeemed, at any time on or after
August 15, 1996, in whole or in part, at redemption prices starting at 115%
of principal on August 15, 1996 thereafter declining until maturity of the
Notes. The Senior Notes were issued at a discount of $.5 million. The
discount is being accreted over the life of the Notes.
NOTE C--IMPAIRED LOANS
The Bank adopted SFAS 114 "Accounting by Creditors for Impairment of a Loan,"
and SFAS No. 118 Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosure, as of July 1, 1995. SFAS No. 114 requires that
certain impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate. As a
practical expedient, impairment may be measured based on the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loans is less than
the recorded investment in the loan, the impairment is recorded through a
valuation allowance. On collateral dependent loans, the Bank has adopted a
policy which requires measurement of an impaired loan based on the fair value
of the collateral. Other loan impairments will be measured on the present
value of expected future cash flows or the loan's observable market price.
-CONTINUED-
<PAGE>
NOTE C--IMPAIRED LOANS CONTINUED
The Bank had previously measured the allowance for credit losses using
methods similar to those prescribed in SFAS No. 114. As a result of adopting
these statements, no additional allowance for loan losses was required as of
July 1, 1995. At March 31, 1996, all significant impaired loans have been
determined to be collateral dependent and have been measured utilizing the
fair value of the collateral.
As of March 31, 1996, the Bank's recorded investment in impaired loans and
the related valuation allowance calculated under SFAS No. 114 are as follows:
RECORDED VALUATION
INVESTMENT ALLOWANCE
---------- ---------
Impaired loans-valuation allowance required $25,124 $1,913
No valuation allowance required 80,973 -
---------- ---------
Total impaired loans 106,097 $1,913
---------- ---------
---------- ---------
This valuation allowance is included in the allowance for loan losses on the
balance
The average recorded investment in impaired loans for the nine month period
ended March 31, 1996 was $93,587. The Bank had $151,899 in non performing
assets at March 31, 1996, of which $106,097 represented recorded investments
in impaired loans.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES", "ANTICIPATES",
"EXPECTS", AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS WHICH SPEAK ONLY
AS OF THE DATE HEREOF. THE CORPORATION UNDERTAKES NO OBLIGATION TO PUBLICLY
RELEASE THE RESULTS OF ANY REVISIONS TO FORWARD LOOKING STATEMENTS WHICH MAY BE
MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.
FINANCIAL CONDITION
Total assets increased $616.7 million or 97.4%, from $632.9 million at June
30, 1995 to $1.2 billion at March 31, 1996. The increase resulted primarily
from an increase in net loans receivable of $431.4 million and an increase in
securities available for sale of $153.5 million. The increase in net loans
receivable was due primarily to the Corporation being the successful bidder on
loan pools sold by various U.S. governmental agencies. The increase in
securities available for sale resulted from the purchase of mortgage backed
securities. In addition, real estate held for investment or sale increased
$25.8 million or 62.6%, from $41.2 million at June 30, 1995 to $67.0 million at
March 31, 1996. The increase was primarily due to the increased investment to
complete construction on three multi-family apartment projects which were
allocated low-income housing tax credits by the State of Texas.
Prepaid expenses and other assets increased $7.8 million. This increase
was primarily due to an increase of $2.8 million in underwriting and other
capitalized expenses related to the Senior Notes; a receivable of $2.0 million
due from the Department of Housing and Urban Development ("HUD") relating to a
recent loan purchase transaction with HUD and a receivable of $1.7 million from
the FDIC and others relating to loan purchases outstanding at March 31, 1996.
Cash and cash equivalents also decreased $2.4 million from $31.5 million at June
30, 1995 to $ 29.1 million at March 31, 1996.
Total liabilities increased $590.7 million, or 101.8% from $580.5 million
at June 30, 1995 to $1.2 billion at March 31, 1996, primarily due to the
issuance of the Senior Notes and increases in deposits, partially offset by a
decline in Federal Home Loan Bank ("FHLB") advances. Savings deposits increased
$545.8 million, or 119.1%, from $458.2 million at June 30, 1995 to $1.0 billion
at March 31, 1996. Of the $545.8 million net increase in savings deposits,
$215.7 million were generated by the sale of certificates of deposits through
various brokers and $190.8 million was due to deposits generated at the Bank's
branch located in Houston, Texas, which opened in April 1995. Advances from the
FHLB decreased by $41.0 million due to the increase in deposits and the proceeds
of the Corporation's Senior Notes offering.
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
NET INCOME. For the nine months ended March 31, 1996, net income increased
$11.3 million, or 64.5% from the nine months ended March 31, 1995. As discussed
in more detail below, the $26.9 million increase in net interest income was
offset by a decrease in non-interest income of $258,000, an increase in the
provision for loan losses of $2.8 million, an increase in non-interest expense
of $6.7 million and an increase in income taxes of $5.8 million.
INTEREST INCOME. Interest income increased $53.5 million, or 122.6%, from
$43.6 million at March 31, 1995 to $97.1 million at March 31, 1996. Of the
total increase in interest income, $34.4 million was due to an increase in
interest income on loans receivable, $15.2 million was due to an increase in the
discount accretion and $3.9 million was due to an increase in interest on
investment securities. The increases in both the interest income on loans
receivable and discount accretion were primarily due to the increase in
discounted loans purchased and to a lesser extent, increased loan originations.
INTEREST EXPENSE. Interest expense increased $26.6 million, or 197.7%,
from $13.5 million at March 31, 1995 to $40.1 million at March 31, 1996. Of the
total increase in interest expense, $21.7 million was due to an increase in the
average balance of interest-bearing liabilities, and $4.9 million was due to
interest expense on the Senior Notes. The increase in average interest-bearing
liabilities was due to an increase in the average balance of deposits of $504
million which was partially offset by the decline in the average balance of FHLB
advances of $81.7 million.
PROVISION FOR LOAN LOSSES. The provision for loan losses is determined by
management as an amount sufficient to maintain the allowance for loan losses at
a level considered adequate to absorb future losses inherent in the loan
portfolio in accordance with generally accepted accounting principles. The
provision for loan losses increased $2.8 million, or 68.5% for the nine months
ended March 31, 1996 as compared to the same period last year. The majority of
this increase was the result of an increase in the outstanding balance of loans
receivable, however, $1.1 million was the result of an increase in a specific
reserve for an impaired loan.
The Corporation establishes an allowance for loan losses based upon a
systematic analysis of risk factors in the loan portfolio as well as a specific
analysis of certain impaired loans. This analysis includes an evaluation of the
corporation's loan portfolio, past loan loss experience, current economic
conditions, loan volume and growth, composition of the loan portfolio and other
relevant factors. Management's analysis results in the establishment of
<PAGE>
allowance amounts by loan type based on allocations by asset classification.
The allowance for loan losses as a percentage of net non-performing loans was
7.51 % at March 31, 1996 as compared to 17.1 % at June 30, 1995. The primary
reason for the decline in this ratio was due to the purchase of $132.6
million, (net) of multi-family non-performing loans. Management believes
that the underlying collateral value is sufficient to cover the Bank's basis
in these loans.
Although management believes that it uses the best information available
to determine the allowance, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination. Future additions to the Corporation's allowance will be the
result of periodic loan, property and collateral reviews and thus cannot be
predicted with absolute certainty in advance. In addition, regulatory
agencies, as an integral part of the examination process, periodically review
the Corporation's allowance for loan losses. Such agencies may require the
Corporation to recognize additions to the allowance level based upon their
judgment of the information available to them at the time of their
examination.
NON-INTEREST INCOME. Total non-interest income decreased $258,000, or
2.5% to $10.1 million at March 31, 1996 from $10.3 million at March 31, 1995.
This decrease was primarily due to a decrease in the income attributable to
the sale of loans of $1.2 million and a decrease in the gain on the sale of
real estate of $773,000, offset by an increase in gain on foreclosed assets
of $780,000 and an increase of $932,000 in other real estate operations, net.
Other real estate operations income, net, increased primarily due to an
increase of $683,000 in real estate investment income. During the nine month
period ending March 31, 1996, the Corporation increased its earnings on real
estate investments primarily due to the operations of two office buildings
and three low income multi-family housing developments. The increase of
$780,000 in gain on foreclosed assets was primarily due to an increase in
foreclosures which are recorded at their fair value at the date of
repossession.
During the three month period ended March 31, 1996, the Corporation
discontinued the home improvement loan origination operations of Beal
Acceptance Corporation, a wholly owned subsidiary of the Bank. The
Corporation does not anticipate a material effect on operations as a result
of this action.
NON-INTEREST EXPENSE. Non-interest expense increased $6.7 million, or
78.5%, from $8.5 million at March 31, 1995 to $15.2 million for the same
period in fiscal 1996 primarily due to an increase in salaries and employee
benefits of $2.6 million and an increase in other operating expenses of $2.7
million. The increases in other operating expenses, primarily due to the
Corporation's purchasing activities and resultant increase in asset size were
principally legal expenses, $1.1 million; loan acquisition and origination
expenses, $649,000; loan servicing expenses, $524,000; audit expenses,
$152,000; and marketing expenses, $110,000. The increase of $2.6 million in
salaries and employee benefits was due to the addition of 60 full-time
equivalent employees, reflecting the Corporation's increased asset size, and
an increase in annual bonuses of $438,300. Total full-time equivalent
employees at March 31, 1996 were 125
<PAGE>
compared to 65 at March 31, 1995. In addition, occupancy expense increased
$914,000. Lastly, deposit insurance premiums increased $434,000 due to the
Corporation's deposit growth.
The deposits of some financial institutions, such as the Bank are
presently insured by the Savings Association Insurance Fund ("SAIF"), which,
along with the Bank Insurance Fund ("BIF"), is one of the two insurance funds
administered by the Federal Deposit Insurance Corporation ("FDIC"). A
recapitalization plan for the SAIF under consideration by Congress provides
for a special assessment of 0.80% to 0.90% of deposits as of March 31, 1995
which would be imposed on insured deposits of all SAIF insured institutions.
The effect of this assessment as proposed would amount to approximately $2.5
million to $2.8 million, before taxes. This special assessment would
significantly increase non-interest expense and adversely effect the
Corporation's results of operation. The Corporation has not recorded any
effect to date due to the uncertainty of pending legislation. Further,
depending upon the Bank's capital level and supervisory rating, and assuming
the insurance premium levels for BIF and SAIF members are again equalized,
future deposit insurance premiums are expected to decrease significantly from
the current level of .23% to as low as $2,000 per year, which would reduce
non-interest expense for future periods.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
NET INCOME. For the three months ended March 31, 1996, net income
increased $11.3 million, or 218.1%, from $5.2 million at March 31, 1995 to
$16.5 million at March 31, 1996. As discussed in more detail below, the
$17.8 million increase in net interest income and the $870,000 decrease in
the provision for loan losses were partially offset by an increase of $1.5
million in non-interest expense, a decrease in non-interest income of
$65,000, and an increase of $5.8 million in income taxes.
INTEREST INCOME. Interest income increased $28.8 million or 172.9%,
from $16.7 million at March 31, 1995, to $45.5 million at March 31, 1996.
Of the total increase in interest income, $19.5 million was due to an
increase in interest income on loans receivable, $7.3 million was due to the
increase in the discount accretion and $2.0 million was due to an increase in
interest on investment securities.
INTEREST EXPENSE. Interest expense increased $11.0 million, or 182.9%,
from $6.0 million at March 31, 1995 to $17.0 million at March 31, 1996. Of
the total increase in interest
<PAGE>
expense, $9.0 million was due to an increase in the average balance of
interest-bearing liabilities and $2.0 million was due to interest expense on
the Senior Notes.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased
$870,000 or 48.4%, from $1.8 million at March 31, 1995 to $927,000 at March
31, 1996. This decrease was primarily the result of a relative decrease in
the volume of new loan acquisitions and originations between the two
quarters.
NON-INTEREST INCOME. Total non-interest income decreased $65,000 or
2.3%, to $2.8 million at March 31, 1996 from $2.9 million at March 31, 1995.
This decrease was due primarily to a decrease in the gain on sale of loans of
$1.3 million, offset by an increase of $780,000 in the gain on foreclosed
assets and an increase of $509,000 in other real estate operations, net.
NON-INTEREST EXPENSE. Non-interest expense increased $1.5 million or
46.4%, from $3.2 million at March 31, 1995 to $4.6 million at March 31, 1996,
primarily due to an increase of $694,000 in salaries and employee benefits
and an increase of $224,000 in other operating expenses. The primary
increases in other operating expenses were $261,000 increase in legal
expenses, $170,000 increase in loan servicing expenses, offset by a $128,000
decrease in loan acquisition expense and a $99,000 decrease in marketing
expense. Other increases in non-interest expense, such as an increase in
occupancy and equipment of $355,000 and a SAIF insurance increase of $196,000
during the period were related to the Corporation's asset and deposit growth.
REGULATORY APPROVAL
On January 18, 1996, the Board of Directors of Beal Bank was notified by
the FDIC that the Board of Directors of the FDIC had approved the application
of the Bank to indirectly continue real estate investment activities through
Beal Mortgage, Inc. ("BMI"). The approval was subject to certain conditions
including that real estate investments may not represent more than 10% of
Tier 1 capital in any one real estate subsidiary or exceed 20 percent of Tier
1 capital to all real estate subsidiaries and the Bank may not reduce Tier 1
capital below 6 percent after deducting the real estate investment. As of
March 31, 1996, the Bank was in compliance with all conditions of the
approval. Total real estate investment through BMI and Beal Properties, Inc.,
real estate subsidiaries, represented 11.7% of Tier 1 capital and Tier 1
capital, after deducting total real estate investment, was 8.82 % of total
assets.
<PAGE>
NON-ACCRUING LOANS: MARCH 31 JUNE 30
1996 1995
----- ------
Real Estate
One-to-four family 0 11,093
Commercial 28,678 16,816
Construction 0 93
Multifamily 8,142 9,507
Land 5,864 8,056
Consumer:
One-to-four family-junior liens 9,780 2,850
Timeshares 1,683 1,673
Other consumer 836 545
Commercial business 6,600 7,357
Purchase discounts (24,213) (22,011)
------- -------
Total (net) 37,370 35,979
------- -------
ACCRUING LOANS DELINQUENT MORE THAN 90 DAYS
Real estate
One-to-four family 23,456 -
Commercial 33,101 -
Multifamily 125,651 -
Land 13,150 -
Purchase discounts (98,265) -
------- -------
Total (net) 97,093 -
------- -------
FORECLOSED ASSETS
Real estate
One-to-four family 3,438 1,525
Commercial 4,393 3,026
Multi-family 8,588 3,633
Construction 300 0
Land 682 570
Consumer:
Timeshares 35 36
------- -------
Total (net) 17,436 8,790
------- -------
Total non-performing assets 151,899 44,769
------- -------
------- -------
Total as a percentage of total assets 13.55% 7.07%
------- -------
------- -------
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Corporation's primary sources of funds for operations are deposits
obtained from its market area, principal and interest payments on loans,
brokered deposits, and advances from the FHLB of Dallas and to a lesser
extent, from the sale of assets. While maturities and scheduled amortization
of loans are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions, and competition.
Historically, the primary investing activity of the Corporation has been
the purchase of discounted loans from various U.S. government agencies
through the sealed bid process or auctions and other private sector sellers.
During the three and nine month periods ended March 31, 1996, the Corporation
purchased $8.9 and $516.0 million of net loans, respectively. Loan
originations for the three and nine months ended March 31, 1996, totaled
$27.4 million and $86.2 million, respectively. In addition, the Corporation
purchased $154.6 million of investment securities during the three month
period ending March 31, 1996.
The Corporation's primary financing activity is the attraction of
deposits. During the three and nine months ended March 31, 1996, the
Corporation experienced a net increase in deposits of $40.0 million and
$545.9 million respectively, of which $215.7 million were generated by
deposit brokers during the nine months ended March 31, 1996. In addition,
the Corporation increased advances from the FHLB by $70 million for the
quarter ended March 31, 1996. The increase in deposits for the nine months
ended March 31, 1996 were used to fund the increase in loans and to decrease
FHLB borrowings by $41.0 million. The increases in deposits and FHLB advances
for the three months ended March 31, 1996, were used to fund the increase in
loans and investment securities-available for sale. The Corporation had
Senior Notes, net of $57.0 million and other borrowings of $21.5 million at
March 31, 1996.
The Corporation has the ability to borrow additional funds from the FHLB
of Dallas by pledging assets as collateral, subject to certain restrictions.
At March 31, 1996, the Corporation had an undrawn advance arrangement with
the FHLB for $130 million.
The Bank is required to maintain minimum levels of liquid assets as
defined by the Texas Savings and Loan Department ("Texas Department").
Unless approved in advance by the Texas Department, a Texas savings bank is
required to maintain a minimum of 10% of the previous quarters average
deposits in liquid assets. At March 31, 1996, the Bank's liquidity ratio was
21.9%.
The Corporation's most liquid asset is cash and cash equivalents. The
level of cash equivalents is dependent on the Corporation's operating,
financing, and investing activities during any given period. At March 31,
1996, the Corporation had cash and cash equivalents of $29.1 million.
The Corporation anticipates that it will have sufficient funds available to
meet its current foreseeable commitments. At March 31, 1996 the Corporation had
commitments to originate loans of $5.3 million. Certificates of deposits which
are scheduled to mature in one year or less
<PAGE>
at March 31, 1996 totaled $675.1 million. Due to the Corporation's high
interest rate spread, management has typically relied upon interest rate
sensitive short-term deposits to fund its loan purchases. The Corporation
believes the potential interest rate risk is acceptable in view of the
Corporation's belief that it can maintain an acceptable net interest spread.
At March 31, 1996, the Bank exceeded each of its three capital
requirements. The following is a summary of the Bank's regulatory capital
position at March 31, 1996.
AT MARCH 31, 1996
-----------------------------------
REQUIRED(1) ACTUAL
---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLARS IN THOUSANDS)
Leverage capital ...........................$112,273 9.00% $124,532 9.98%
Tier 1 capital ............................. 37,381 4.00 124,532 13.33
Total risk-based capital.................... 102,797 11.00 134,632 14.41
_______________
(1) Required leverage and total risk-based capital requirements represent
higher capital requirements imposed by the Texas Department as a condition to
the Bank's continued asset growth.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Corporation's operations.
Nearly all the assets and liabilities of the corporation are financial,
unlike most industrial companies. As a result, the Corporation's performance
is directly impacted by changes in interest rates, which are indirectly
influenced by inflationary expectations. Since the Corporation has
historically placed more emphasis on increasing net interest margin rather
than on matching the maturities of interest rate sensitive assets and
liabilities, changes in interest rates may have a greater impact on the
Corporation's financial condition and results of operations. Changes in
investment rates do not necessarily move to the same extent as changes in the
price of goods and services.
RATIOS OF EARNING TO FIXED CHARGES
The Corporation's consolidated ratios of earnings to fixed charges for
the nine months ended March 31, 1996 are set forth below. Earnings used in
computing the ratios shown consist of earnings from continuing operations
before taxes and interest expense. Fixed charges, excluding interest on
deposits, represent interest expense on borrowings. Fixed charges, including
interest on deposits, represent all of the foregoing items plus interest on
deposits.
<PAGE>
Interest expense (other than on deposits) includes interest on FHLB of Dallas
borrowings, the Senior Notes and other borrowed funds.
FOR THE NINE MONTHS ENDED
MARCH 31, 1996
Excluding interest on deposits . . . . . . . 11.4:1
Including interest on deposits . . . . . . . 2.1:1
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Corporation is not currently involved in any legal proceedings. The
Bank is involved in various legal proceedings occurring in the ordinary
course of business. Management of the Bank, based on discussions with
litigation counsel, believes that such proceedings will not have a material
adverse effect on the financial condition or operations of the Bank. There
can be no assurance that any of the outstanding legal proceedings to which
the Bank is a party will not be decided adversely to the Corporation's
interests and have a material adverse effect on the financial position or
results of operations of the Corporation.
There have been no material developments to the Kenneth L. Musgrave vs.
Beal Banc, S.A. lawsuit described in the Form 10-Q submission for the period
ending September 30, 1995.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following Current Reports on Form 8-K were filed during the quarter
ended March 31, 1996:
On January 25, 1996 to announce the appointment of David C. Meek as
President and Chief Executive Officer of Beal Bank.
On February 14, 1996, to report earnings for the quarter ended December 31,
1995.
On February 29, 1996, to announce to election of David C. Meek to the Board
of Directors of Beal Financial Corporation as a Director, replacing
David R. Farmer.
<PAGE>
The following Exhibit is attached to this Form 10Q
Exhibit 10.3 - Form of Employment Contract with David C. Meek
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEAL FINANCIAL CORPORATION
Registrant
Date: May 14, 1996 /s/ David C. Meek
------------------------------------------
David C. Meek, President
Date: May 14, 1996 /s/ David R. Farmer
------------------------------------------
David R. Farmer, Senior Vice President and
Treasurer (Chief Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit 10.3 - Form of Employment Contract with David C. Meek
Exhibit 27 - Financial Data Schedule
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Employment Agreement") is made and entered
into, subject to the provisions of Paragraph 36, as of this 24th day of January,
1996, by and between BEAL BANK, SSB, a Texas corporation (hereafter the "Bank")
and DAVID C. MEEK, a resident of Texas (hereafter the "Executive").
WHEREAS, the Executive has considerable experience, expertise, and training
in management related to lending and services offered by the Bank; and
WHEREAS, the Bank desires and intends to employ the Executive as President
and Chief Executive Officer of the Bank pursuant to the terms and conditions set
forth in this Employment Agreement, and the Executive desires to accept such
employment pursuant to the terms and conditions set forth in this Employment
Agreement; and
WHEREAS, both the Bank and the Executive have read and understood the terms
and provisions set forth in this Employment Agreement, and have been afforded a
reasonable opportunity to review this Employment Agreement with their respective
legal counsel.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth in this Employment Agreement, the Executive and the Bank agree as follows:
DURATION
1. This Employment Agreement shall continue in full force and effect for
three (3) years, commencing on January 24, 1996 ("Hire Date"), and will expire
and terminate by its own terms on December 31, 1998, unless either party elects
to terminate this Employment Agreement prior to December 31, 1998, in accordance
with the TERMINATION provisions set forth below at Paragraphs 15-21.
2. Both the Bank and the Executive acknowledge and agree that, subsequent
to the expiration date, the parties may agree to continue the employment
relationship under such terms as they may mutually agree upon. However, both
parties acknowledge and agree that, in the event they fail to agree upon terms
for the continuation of the Executive's employment subsequent to the expiration
date, the employment of the Executive shall automatically terminate on the
expiration date without any additional liability or obligation on the part of
either party except as otherwise specified in Paragraph 21.
COMPENSATION
3. During the first year of this Employment Agreement, the Bank shall
compensate the Executive on a salary basis at the bi-weekly rate of $7,692.30
($200,000 annually), payable in accordance with the Bank's ordinary payroll
policies and procedures. During the
<PAGE>
second year of this Employment Agreement, the Executive will receive a five
percent (5%) increase in salary, effective as of January 1, 1997. During the
third and final year of the term of this Employment Agreement, the Executive
will receive another five percent (5%) increase over his salary for the
preceding year, such increase to be effective as of January 1, 1998.
Both the Bank and the Executive acknowledge that such compensation and the
other covenants and agreements of the Bank contained herein are fair and
adequate compensation for the Executive's services, and for the mutual promises
described below.
4. The Bank and the Executive acknowledge and agree that the Bank shall
reimburse the Executive for all reasonable expenses, including, but not limited
to travel expenses, lodging expenses, meals and entertainment expenses, that the
Executive may incur in the performance of his duties and obligations under this
Employment Agreement. PROVIDED, HOWEVER, that the Executive shall be required
to submit receipts of other acceptable documentation to verify such expenses
prior to any reimbursements.
5. The Bank and the Executive acknowledge and agree that at the end of
each complete calendar quarter (first quarter to be pro-rated), of the
Executive's service pursuant to the terms of this Executive Agreement, the
Executive shall receive bonus compensation, payable 30 days after conclusion of
such quarter ("Bonus"). The Bonus shall be equal to two percent (2%) of the
amount by which the Bank's consolidated quarterly net after tax income, as
reflected on the Bank's Consolidated Report of Condition and Report of Income
("Call Report") filed with the Bank's regulatory authorities ("Quarter's
Income"), exceeds a twenty percent (20%) annualized return on the Bank's
consolidated equity at the end of the preceding quarter ("20% ROE"). The term
"Equity", for purposes of the Bonus calculation shall consist of the Bank's
common stock (and includes any amounts eligible for capital purposes), surplus
and undivided profits accounts, plus any dividends or distributions paid during
such quarter, without giving effect to adjustments required under F.A.S.B. 115,
as reflected on such Call Report. PROVIDED, HOWEVER, that if a consolidated net
loss, or if less that 20% ROE, has been reported on the Call Report by the Bank
in any prior quarter of the Executive's employment, no Bonus shall be payable
until and unless any loss is made up and a Quarter's Income, plus the Quarter's
Income from any prior quarter in which no Bonus was earned exceeds 20% ROE.
6. The Executive acknowledges and agrees that, at the discretion of the
Bank, certain employee benefits may be provided to the Executive incident to the
Executive's employment with the Bank. The Executive acknowledges and agrees
that any employee benefits provided to the Executive by the Bank incident to the
Executive's employment are governed by the applicable plan documents, summary
plan descriptions or employment policies, and may be modified, suspended or
revoked at any time, in accordance with the terms and provisions of the
applicable documents. In addition to the salary specified above, the Bank shall
also provide, as partial consideration for this employment agreement, the
<PAGE>
standard benefits given to all senior level Bank employees plus four (4) weeks
of vacation per year, which vacation shall accrue at the rate of one week
vacation per three months of employment, or portion thereof upon Termination,
and the Executive may carry forward up to two weeks of unused vacation per year.
7. The Executive acknowledges and agrees that he shall be employed as
President and Chief Executive Officer of the Bank. The Executive covenants and
agrees that he will devote his best efforts and substantially all his working
time to this position with the Bank and its subsidiaries.
8. The Executive acknowledges and agrees that the duties and
responsibilities of the Executive required by his position as President and
Chief Executive Officer of the Bank are wholly within the discretion of the
Board of Directors of the Bank, and may be modified, or new duties and
responsibilities imposed by the Board of Directors of the Bank, at any time,
without the approval or consent of the Executive. However, these duties and
responsibilities may not constitute immoral or unlawful acts or require that the
Executive violate any regulation or directive of a governmental body. In
addition, all duties and responsibilities must be consistent with the
Executive's role as President and Chief Executive Officer.
9. The Executive acknowledges and agrees that, during the term of this
Agreement, he has a fiduciary duty of loyalty to the Bank, and that he will not
engage in any activity during the term of this Agreement, which will or could,
in any significant way, harm the business, business interests, or reputation of
the Bank.
10. The Executive acknowledges and agrees that he will not directly or
indirectly engage in competition with the Bank at any time during the existence
of the employment relationship between the Bank and the Executive, and the
Executive will not on his own behalf, or as another's agent, employee, partner,
shareholder or otherwise, engage in any of the same or similar duties and/or
responsibilities required by the Executive's position with the Bank, other than
as an employee of the Bank pursuant to this Employment Agreement.
NON-DISCLOSURE
11. The Executive acknowledges and agrees that certain information
concerning the Bank's services, techniques, pricing, business projections,
business plans and strategies, marketing plans, techniques, assets, customer
contracts, customer needs, and prospective customers is highly sensitive and
confidential, and has been obtained only through the significant effort and
expense to the Bank; and that, as a result, the Executive must agree to treat
this information as highly confidential trade secret information at all times
during the existence of the employment relationship between the Bank and the
Executive, and after the termination of the employment relationship. The Bank
acknowledges and agrees that the Executive brings to the Bank over twenty years
of experience in services, pricing techniques, business projections, business
plans and strategies, marketing plans, techniques, assets, and customer contacts
previously obtained by the Executive.
<PAGE>
12. The Executive acknowledges and agrees that, subsequent to the
execution of this Employment Agreement, the Executive will have access to
certain confidential and highly sensitive information relating to the Bank
incident to his employment by the Bank, including, but not limited to,
information pertaining to: (i) the identity of the Bank's customers and customer
prospects; (ii) the special needs of the Bank's customers; (iii) confidential
market studies, information, and analyses; (iv) current and prospective
services; (v) business projections; (vi) business plans and strategies; (vii)
financial statements and information; and (viii) special services of the Bank.
The Executive acknowledges and agrees that this information, if disclosed, could
place the Bank at a competitive disadvantage. Consequently, the Executive
acknowledges and agrees not to disclose such information to any person who is
not then a current employee of the Bank at any time prior to, or subsequent to,
the termination of his employment without the express, written consent of the
Bank. Notwithstanding anything in this Agreement to the contrary or seemingly
inconsistent herewith, the parties agree that all information referred to in
Paragraphs 11 and 12 shall not be deemed trade secrets or confidential
information of the Bank if such information is already available to the
competitors of the Bank.
NON-INTERFERENCE
13. The Executive covenants and agrees that, for a period of thirty-six
(36) months subsequent to the termination of his employment, whether such
termination occurs at the insistence of the Bank or the Executive, the Executive
shall not recruit, hire, or attempt to recruit or hire, directly or by assisting
others, any other employees of the Bank, nor shall the Executive contact or
communicate with any other employees of the Bank for the purpose of inducing
other employees to terminate their employment with the Bank. For purposes of
this covenant, "other employees" shall refer to employees who are still actively
employed by, or doing business with, the Bank at the time of the attempted
recruiting or hiring.
REMEDIES
14. In the event that the Executive violates any of the provisions set
forth in this Employment Agreement relating to NON-DISCLOSURE or NON-
INTERFERENCE, the Executive acknowledges and agrees that the Bank may suffer
immediate and irreparable harm. Consequently, the Executive and the Bank
acknowledge and agree that the Bank shall be entitled to immediate injunctive
relief, either by temporary or permanent injunction, to prevent or cure such a
violation.
TERMINATION
15. The Executive acknowledges and agrees that the Board of Directors of
the Bank reserves the right to terminate his EMPLOYMENT, without cause, for any
reason, by providing the Executive written notice of the termination, delivered
in person, or by certified U.S. mail to the Executive's last known address
reflected in the Bank's personnel records. Such notice shall be effective upon
personal delivery or three days after mailing by certified
<PAGE>
mail. However, if the Executive's employment is terminated at the Bank's
insistence without "good cause" as defined below in Paragraph 17, the Bank
covenants and agrees to provide the Executive with the SEVERANCE set forth
below at Paragraph 22.
16. The Executive acknowledges and agrees that the Bank may terminate this
Employment Agreement at any time, without notice, for any "good cause" defined
as the following:
a. In the event the Executive violates any material provision of
this Employment Agreement or is grossly negligent, and fails to
cure such violation or the effects of such gross negligence
within thirty (30) days after written notice to the Executive by
the Board specifying in reasonable detail the alleged violation
or gross negligence;
b. In the event the Executive is convicted of a felony, or a
misdemeanor involving moral turpitude; or
c. In the event the Executive engages in gross misconduct in the
course and scope of his employment with the Bank, including
indecency, immorality, material insubordination, dishonesty,
unlawful harassment, use of illegal drugs, or fighting.
The Executive acknowledges and agrees that in the event of the
Executive's termination for cause, he shall be entitled to salary and earned
benefits in accordance with Paragraphs 3 and 6 through the date of termination.
17. The Bank acknowledges and agrees that the Executive reserves the right
to terminate this Employment Agreement at any time, for any reason, with or
without cause, by providing thirty (30) days written notice, by personal
delivery or certified United States mail, to the Bank at its principal business
address of the Executive's intention to terminate this Employment Agreement.
Such notice shall be effective upon personal delivery or three (3) days after
mailing by certified mail.
18. The Executive acknowledges and agrees that in the event of the
Executive's death, this Employment Agreement will terminate immediately, without
notice, on the date of the Executive's death. The Bank acknowledges and agrees
that, in the event of the Executive's
death, the Bank will pay to the Executive's estate all salary, additional bonus
compensation, unused or accrued vacation pay, and other earned benefits in
accordance with Paragraphs 3, 5 and 7 through the date of termination.
19. The Executive acknowledges and agrees that his employment may be
terminated with thirty (30) days prior written notice in the event the Executive
becomes physically or mentally disabled and cannot perform the essential
functions of his position for sixty (60) consecutive days, with or without
reasonable accommodations. The Bank agrees to pay the Executive all salary,
additional bonuses compensation, unused or accrued vacation pay and all
<PAGE>
other earned benefits in accordance with Paragraphs 3, 5 and 6 through the
date of termination.
20. The Executive acknowledges and agrees that in the event of termination
of his employment, for whatever reason, whether at the insistence of the
Executive or at the insistence of the Bank, the Executive will return to the
Bank within seventy-two (72) hours of the time when notice of termination is
communicated by either party, any and all equipment, literature, documents,
data, information, order forms, memoranda, correspondence, customer and
prospective customer lists, customer's orders, records, cards or notes acquired,
compiled or coming into the Executive's knowledge, possession or control in
connection with his activities as an employee of the Bank, as well as all
machines, parts, equipment, or other materials received from the Bank or from
any of its customers, agents, or suppliers, in connection with such activities.
21. All accrued amounts that are due and payable pursuant to the terms of
this Employment Agreement shall continue to be due and owing until they are paid
in full and such obligation shall survive any termination of this Executive
Agreement.
SEVERANCE
22. The Executive and the Bank acknowledge and agree that, if the Bank
elects to terminate Executive's employment at any time prior to December 31,
1998, for any reason other than "good cause" as defined in Paragraph 16, the
Executive shall also be entitled to receive severance pay in addition to the
amounts of salary, earned bonus compensation, accrued vacation, and earned
benefits through the date of termination in accordance with Paragraph 3, 5 and
6. Such severance pay shall be as follows:
a. During the first two years of the agreement $150,000 less
statutory payroll deductions payable within thirty (30) days
following the date that the notice of termination becomes
effective.
b. During the third year of employment the lesser of $150,000 or the
remaining prorated salary benefits (including bonus) and prorated
accrued vacation for the third year, less statutory payroll
deductions, payable within thirty (30) days following the date
that the notice of termination becomes effective or thirty (30)
days after any bonus is calculated with respect to bonus
payments.
SEVERABILITY
23. The Executive and the Bank acknowledges and agree that each covenant
and/or provision of this Employment Agreement shall be enforceable independently
of every other covenant and/or provision. Furthermore, the Executive and the
Bank acknowledge and agree
<PAGE>
that, in the event any covenant and/or provision of this Employment Agreement is
determined to be unenforceable for any reason, the remaining covenants and/or
provisions will remain effective, binding, and enforceable.
WAIVER
24. The parties acknowledge and agree that the failure of either to
enforce any provision of this Employment Agreement shall not constitute a waiver
of that particular provision, or of any other provisions of this Employment
Agreement.
25. The Executive acknowledges and agrees that this Employment Agreement
may be assigned by the Bank to any successor-in-interest and shall inure to the
benefit of, and be fully enforceable by, any successor and/or assignee; and this
Employment Agreement will be fully binding upon, and may be enforced by the
Executive against, any successor and/or assignee of the Bank.
26. The Executive acknowledges and agrees that his obligations, duties and
responsibilities under this Employment Agreement are personal and shall not be
assignable, and that this Employment Agreement shall be enforceable by only the
Executive or his estate. In the event of the Executive's death, this Employment
Agreement shall be enforceable by the Executive's estate, executors, and/or
legal representatives.
CHOICE OF LAW
27. Both parties acknowledge and agree that the law of Texas will govern
the validity, interpretation, and effect of this Employment Agreement, and any
other dispute relating to, or arising out of, the employment relationship
between the Bank and the Executive.
ARBITRATION
28. The Executive and the Bank acknowledge and agree that any claim or
controversy arising out of or relating to this Employment Agreement, or the
breach of this Employment Agreement, or any other dispute arising out of or
relating to the employment of the Executive by the Bank, shall be settled by
final and binding arbitration in the city of Dallas, Texas in accordance with
the Employment Arbitration Rules of the American Arbitration Association in
effect on the date the claim or controversy arises. The Executive and the Bank
further acknowledge and agree that either party must request arbitration of any
claims controversy within sixty (60) days of the date the claim or controversy
arises by giving written notice of the party's request for arbitration by
certified U.S. mail or personal delivery addressed to the Bank's principal
business address or to the Executive's last known address reflected in the
Bank's personnel records. Notice shall be effective upon delivery or mailing.
Failure to give notice of any claim or controversy within sixty (60) days shall
constitute a waiver of the claim or controversy.
<PAGE>
29. All claims or controversies subject to arbitration shall be submitted
to arbitration within three (3) months from the date the written notice of a
request for arbitration is effective. All claims or controversies shall be
resolved by a panel of three (3) arbitrators who are licensed to practice law in
the State of Texas and who are experienced in the arbitration of labor and
employment disputes. These arbitrators shall be selected in accordance with the
Rules of the American Arbitration Association in effect at the time the claim or
controversy arises. Either party may request the arbitration proceeding be
stenographically recorded by a Certified Shorthand Reporter. The arbitrators
shall issue a written decision with respect to all claims or controversies
within thirty (30) days from the date the claims or controversies are submitted
to arbitration. The Executive and the Bank acknowledge and agree that each
party will bear fifty percent (50%) of the actual cost of the arbitration
proceeding (exclusive of each party's own legal fees).
30. The Bank and the Executive acknowledge and agree that the arbitration
provisions in Paragraphs 28 and 29 may be specifically enforced by either party,
and submission to arbitration proceedings compelled, by any court or competent
jurisdiction. The Bank and the Executive further acknowledge and agree that the
decision of arbitrators may be specifically enforced by either party in any
court of competent jurisdiction.
31. Notwithstanding the arbitration provisions set forth at Paragraphs 28-
30, the Executive and the Bank acknowledge and agree that nothing in this
Employment Agreement shall be construed to require the arbitration of any claim
or controversy arising under the NON-DISCLOSURE, and NON-INTERFERENCE provisions
set forth at Paragraphs 11-14 of this Agreement. These provisions shall be
enforceable by any court of competent jurisdiction and shall not be subject to
ARBITRATION pursuant to Paragraphs 28-30. The Executive and the Bank further
acknowledge and agree that nothing in this Employment Agreement shall be
construed to require arbitration of any claim for worker's compensation or
unemployment compensation.
MODIFICATION
32. Both parties acknowledge and agree that this Employment Agreement
constitutes the complete and entire agreement between the parties; that the
parties have executed this Employment Agreement based upon the express terms and
provisions set forth herein; that the parties have not relied on any
representatives, oral or written, which are not set forth in this Employment
Agreement; that no previous agreement, either oral or written, shall have any
effect on the terms or provisions of this Employment Agreement; and that all
previous agreements, either oral or written, are expressly superseded and
revoked by this Employment Agreement.
33. Both parties acknowledge and agree that the covenants and/or
provisions of this Employment Agreement may not be modified by any subsequent
agreement unless the modifying agreement: (i) is in writing; (ii) contains an
express provision referencing this Employment Agreement; (iii) is signed by the
Executive; and (iv) is approved by the Board of Directors of the Bank.
<PAGE>
INDEMNIFICATION
34. During the term of this Employment Agreement, the Bank shall indemnify
and agree to hold the Executive harmless from and against any and all
liabilities, losses, costs, damages, obligations, and expenses (including
attorney's fees) resulting from the fact that the Executive was an officer,
director, or employee of the Bank in accordance with and to the fullest extent
permissible under the law, including, without limitation, the Texas Savings Bank
Act and Article 2.02-1 of the Texas Business Corporation Act, and may purchase
such indemnification insurance as the Board of Directors may from time to time
determine.
LEGAL CONSULTATION
35. The Executive and the Bank acknowledge and agree that both parties
have been accorded a reasonable opportunity to review this Employment Agreement
with legal counsel prior to executing the agreement.
EFFECTIVE DATE
36. Subject to the approval and ratification by the Bank's Board of
Directors, this Agreement shall be effective January 24, 1996 (the "Effective
Date").
NOTICES
37. Any and all notices of documents or other notices required to be
delivered under the terms of this Employment Agreement shall be addressed to
each party as follows:
BANK:
15770 N. Dallas Parkway
Suite 300, LB #66
Dallas, Texas 75248-6617
Fax: (214) 866-8420
EXECUTIVE:
15725 Havenrock Circle
Dallas, Texas 75248
Fax: (214) 788-2337
<PAGE>
EXECUTED ON THIS 24TH DAY OF JANUARY, 1996, AT DALLAS, TEXAS, but to be
effective as of January 24, 1996, but only after approval of the Board of
Directors of the Bank.
BEAL BANK, SSB
By: /s/ D. Andrew Beal
----------------------------------
D. Andrew Beal
Chairman of the Board
EXECUTIVE:
By: /s/ David C. Meek
----------------------------------
David C. Meek
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
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<INT-BEARING-DEPOSITS> 28886
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