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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended December 31, 1994 Commission File Number 1-9909
COMFED BANCORP, INC.
----------------------------------------------------
Exact name of registrant as specified in its charter
Delaware 04-2985738
- - ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
124 Mt. Auburn Street, Suite 200N, Cambridge, Massachusetts 02138
- - ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 576-5704
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date is:
Class: Common stock, par value $.01 per share.
Outstanding at January 31, 1995: 8,358,024 shares.
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INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Statements of Financial Condition
at December 31, 1994 and March 31, 1994 3
Statements of Operations, Nine Months and
Three Months Ended December 31, 1994
and 1993 4
Statements of Cash Flow, Nine Months
Ended December 31, 1994 and 1993 5
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis 7-9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 9-12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
EXHIBITS Computation of Primary and Fully
Diluted Earnings Per Share 15
Financial Data Schedule (Article 9) 16
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PART I.
ITEM 1.
COMFED BANCORP, INC.
Statements of Financial Condition
(Unaudited)
December 31, March 31,
(In Thousands) 1994 1994
____________________________________________________________________
ASSETS
Cash in banks, interest bearing $ 106 99
U.S. Treasury securities -- 100
_______ _______
Total assets $ 106 199
_______ _______
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 10 44
Accrued expenses 4 11
_______ _______
Total liabilities 14 55
_______ _______
Stockholders' equity:
Serial preferred stock; authorized
1,500,000 shares, none issued -- --
Common stock, par value $.01 per share;
authorized 20,000,000 shares; issued 84 84
8,397,258 shares
Treasury stock, at cost; 39,234 shares (216) (216)
Additional paid in capital 16,691 16,691
Accumulated deficit (16,467) (16,415)
_______ _______
Total stockholders' equity 92 144
_______ _______
Total liabilities and stockholders'
equity $ 106 199
_______ _______
See accompanying notes to financial statements.
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COMFED BANCORP, INC.
Statements of Operations
(Unaudited)
Nine Months Three Months
(In Thousands, Except) Ended Ended
Per Share Amounts) December 31, December 31,
1994 1993 1994 1993
______________________________________________________________________
Income:
Interest income $ 2 $ 8 $ 1 $ 2
Other 48 -- 48 --
______ ______ ______ ______
Total income 50 8 49 2
------ ------ ------ ------
Expenses:
Legal 27 184 12 90
Other professional services 54 55 18 18
Other 21 25 8 8
______ ______ ______ ______
Total expenses 102 264 38 116
______ ______ ______ ______
Income (loss) before
income taxes (52) (256) 11 (114)
Income taxes -- -- -- --
______ ______ ______ ______
Net loss $ (52) $ (256) $ 11 $ (114)
______ ______ ______ ______
Net income (loss) per share: $ (.01) $ (.03) $ -- $ (.01)
______ ______ ______ ______
See accompanying notes to financial statements.
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COMFED BANCORP, INC.
Statements of Cash Flow
(Unaudited)
Nine Months Ended
December 31,
(In Thousands) 1994 1993
___________________________________________________________________
Cash flows from operating activities:
Net loss $ (52) (256)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Amortization of discounts on
investment securities -- (7)
Decrease in accounts payable (34) --
Increase (decrease) in
accrued expenses (7) 12
______ ______
Net cash used in operating (93) (251)
activities ______ ______
Cash flows from investing activities:
Purchase of investment securities -- (894)
Maturities of investment securities 100 1,100
______ ______
Net cash provided by investing 100 206
activities ______ ______
Net increase (decrease) in cash 7 (45)
Cash at beginning of period 99 53
______ ______
Cash at end of period $ 106 8
______ ______
See accompanying notes to financial statements.
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COMFED BANCORP, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
(1) Corporate Status
(a) Continuing Operations
COMFED BANCORP, INC. ("COMFED" or the "Company") is a former savings
and loan holding company which until July 13, 1993 was registered with the
Office of Thrift Supervision ("OTS"). COMFED conducts no material operations
of its own. Up to December 14, 1990 it was the parent company of ComFed
Savings Bank (the "Bank") and its subsidiaries. At December 31, 1994, COMFED
had no operating subsidiaries.
(b) Discontinued Operations
On December 14, 1990, the Office of Thrift Supervision ("OTS") placed the
Bank into conservatorship and appointed the Resolution Trust Corporation
("RTC") as conservator of the Bank. On February 1, 1991, the OTS appointed the
RTC as receiver of ComFed Savings Bank. On September 13, 1991, the Bank ceased
functioning as a financial institution. The RTC sold most major components of
the Bank to third parties.
Since December 14, 1990, the Company has not had control or authority
over the disposition of the Bank's remaining assets or the resolution of claims
against the Bank.
Accordingly, the financial statements of COMFED have reflected the Bank
as a discontinued operation since December 1990.
The Company will not realize any value from its investment in the Bank as
a result of the RTC's dispositions. It is not known whether the liquidation of
the Bank by the RTC will result in any claims by the RTC against COMFED.
(2) Accounting Principles
The financial statements included herein reflect the accounts of COMFED
BANCORP, INC. The financial statements are not presented on a consolidated
basis because of the discontinued operations of its former subsidiaries.
The unaudited interim financial statements of COMFED BANCORP, INC.
presented herein should be read in conjunction with the unaudited financial
statements of COMFED BANCORP, INC. for the fiscal year ended March 31, 1994.
The financial information at December 31, 1994 and the results of
operations and changes in cash flow for the periods presented herein are
unaudited, and in the opinion of management reflect all the adjustments
(which consist solely of normal recurring accruals) necessary for a fair
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representation of such information. Interim results are not necessarily
indicative of the results to be expected for the entire year.
The accompanying financial statements of the Company have been prepared
on the basis of accounting principles applicable to a going concern, which
contemplate continuity of operations and realization of assets and liquidation
of liabilities in the ordinary course of business. Accordingly, they do not
give effect to adjustments that would be necessary should the Company be unable
to continue as a going concern and thereby be required to realize its assets
and discharge its liabilities and commitments at amounts different from those
in the financial statements. As the Company does not expect to generate
profits from its current activities and has no plans to engage in any new
business activities, the ability of the Company to continue as a going concern
is subject to significant uncertainty and substantial doubt.
(3) Commitments and Contingencies
See Part II, Item 1, "Legal Proceedings", for a discussion of certain
claims that ComFed is or may be subject to.
PART I.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
On December 14, 1990, the OTS placed the Company's only direct operating
subsidiary, ComFed Savings Bank, into conservatorship and appointed the RTC as
conservator. The effect of this action was to remove management control of the
Bank and the Bank's operating activities from the Company. On February 1,
1991, the OTS appointed the RTC as receiver of the Bank. On September 13,
1991, the Bank ceased functioning as a financial institution.
The financial statements of COMFED have reflected the Bank as a
discontinued operation since December 1990.
The Company does not have sufficient remaining capital to engage in
significant income producing activities nor does the Board of Directors believe
that additional capital could now be raised to support such activities. An
investment in the Company at this time would be inhibited by the possibility
that the RTC, as receiver of the Bank, or some other person, might make a claim
against the Company. The receivers of other insolvent institutions have made
claims against the holding companies of such institutions on a variety of
grounds. While the Company is not aware of any material pending or threatened
claims, other than as described in Part II, Item 1, "Legal Proceedings", no
assurance can be given that such a claim will not be made.
In view of the foregoing, and the general risks associated with
generating or acquiring an income-producing business, the Company's Board of
Directors does not believe that it is currently possible to attract additional
investment capital for such purposes.
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The remaining assets of the Company at December 31, 1994 consist
of cash aggregating approximately $106,000. It is expected that the Company's
remaining assets will be utilized to satisfy creditor claims, defend
litigation, and meet the Company's tax, regulatory, and financial reporting
obligations. Accordingly, the likelihood of any remaining assets or the
proceeds thereof being available for distribution to stockholders is remote.
The most likely outcome is a complete loss of stockholders' equity in the
Company.
COMFED does not have any recoverable income taxes paid in prior years,
to which its current loss may be carried back. As a result, COMFED will not
be able to provide any tax benefit on its currently incurred losses unless it
generates taxable income in future periods. If COMFED has taxable income in
future periods, it would have to provide for taxes at the applicable Federal
and State tax rates, subject to any loss carryforward which may be available.
It is not expected that COMFED will have taxable income, prospectively,
since it does not have any significant income producing activities.
The operating losses of ComFed Savings Bank are not available to COMFED
for tax purposes due to restrictions outlined in the Internal Revenue Code
regarding a change in ownership control such as the receivership proceedings
of the Bank.
Results of Operations:
The financial activity of the Company has been minimal since the date of
the Bank's conservatorship in December 1990.
During the quarter ended December 31, 1994, the Company received interest
income from an interest-bearing cash account. During the corresponding quarter
of the previous fiscal year, the Company also received interest from a short-
term U.S. Treasury investment. Interest income is expected to decline as
invested assets are reduced to fund Company expenses and other obligations.
Operating expenses have consisted primarily of legal fees incurred in
conjunction with litigation and other corporate matters, and consulting and
other fees paid for the management of the Company's affairs.
During the quarter ended December 31, 1994, the Company received
reimbursement of approximately $48,000 from its director and officer liability
insurance carrier for certain defense costs previously incurred in connection
with the Wechsler claim against the Company and certain of its former directors
and officers. During the current fiscal year, all of the Company's legal
expenses related to the Wechsler claim have been paid by the carrier. During
the previous fiscal year, a portion of the Wechsler defense costs
was subject to advancement by the Company. (See Part II, Item 1, "Legal
Proceedings"). The Company intends to continue to seek reimbursement of
certain Wechsler defense costs advanced by the Company during the fiscal year
ended March 31, 1994.
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In light of the substantial uncertainties associated with the RTC taking
possession of the Bank, the Company cannot predict the amount of liabilities,
if any, which may have to be discharged by COMFED.
The Company does not expect to generate profits from its current
activities and has no plans to engage in any new business activities. In light
of the Company's circumstances, Management has presented a plan to the Board of
Directors for the orderly winding up of the Company. At this time the Board
intends to continue to fund both (i) the legal defenses described in Part II,
Item 1, "Legal Proceedings", and (ii) the Company's remaining regulatory
reporting, tax and other obligations, until such time as the legal proceedings
are resolved or the Company's assets are depleted. The Board of Directors
believes that there is a substantial likelihood that the Company will not
continue as a going concern and that no assets of the Company will be available
for distribution to shareholders. If, as appears likely, there are no
assets remaining for distribution to shareholders, the Board does not
anticipate seeking shareholder approval for formal dissolution of the Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As discussed in Note 1 to the financial statements, on December 14, 1990,
the Company's wholly-owned subsidiary, ComFed Savings Bank, was placed into
conservatorship by the OTS, with the RTC appointed as conservator. On February
1, 1991, the OTS appointed the RTC as receiver for the Bank. On September 13,
1991, the Bank ceased functioning as a financial institution. Accordingly,
there are uncertainties associated with matters involving the Company and the
RTC. The Company is unable to predict the ultimate outcome of these matters.
The Company and certain current or former officers and directors of the
Company and its subsidiaries are defendants in an action captioned "S.D.
Wechsler, et al v. COMFED Bancorp, Inc., et al" that was commenced on October
4, 1989, in the United States District Court for the District of Massachusetts.
The plaintiffs' complaint alleges that the Company made certain false and
misleading statements and omitted to disclose certain material information that
allegedly had the effect of artificially inflating the market price of the
Company's common stock. The action, as amended, purports to be brought on
behalf of a class of purchasers of common stock during the period July 30, 1986
through June 29, 1989. Damages in an unspecified amount are sought for the
class of purchasers of common stock during the class period.
After commencement of the Wechsler action, the parties engaged in
preliminary motion practice, none of which was ruled on prior to the
conservatorship of the Bank. Subsequently, after a conference held on April
25, 1991, the Court ordered that the parties submit a joint statement of the
insurance coverage issues material to a resolution of the suit and that there
be a further conference at which the directors and officers liability insurance
policy carrier and the RTC would be invited to participate. The Court further
ordered that the plaintiffs could proceed with discovery by way of certain
document production from the Company's independent accountants, but that no
discovery shall be noticed or taken from the defendants prior to further order
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of the Court or agreement of the parties. The RTC thereafter indicated in a
submission that it intended to make a claim against the directors and officers
liability insurance policy for the period December 20, 1989 through December
20, 1990. The directors and officers liability insurance carrier has taken the
position in its written submissions that the RTC has no claim to any insurance
proceeds under the policy due to various exclusions stated in the policy.
At a conference held on September 26, 1991, the Court requested that the
parties in the Wechsler action, the RTC and the insurance carrier engage in
discussions to explore a global settlement of the Wechsler claims and
prospective RTC claims. The insurance carrier elected not to participate in
such discussions based on various coverage issues it raised. As a result, the
requested settlement discussions did not occur and the plaintiffs moved to
terminate the existing stay of discovery. By order dated April 21, 1993, the
Court granted the Wechsler plaintiffs' motion to terminate the stay.
On June 4, 1993, plaintiffs filed their newly amended complaint. Among
other things, the new complaint adds certain plaintiffs and defendants, drops
certain other defendants and adds certain claims relating to alleged false and
misleading statements concerning the Bank's construction lending practices and
the alleged failure of the Company to disclose alleged misconduct on the part
of certain officers and loan originators of ComFed Mortgage Co., Inc. The
Company and the individual defendants filed motions to dismiss the amended
complaint on July 16, 1993. The Magistrate to whom the motions were delegated
by the Court issued a recommended decision on February 28, 1994, concluding
that the Amended Complaint should be dismissed in its entirety with prejudice.
The Magistrate held that the Amended Complaint failed to plead fraud with
particularity as to any defendant. On March 11, 1994, the plaintiffs filed
objections to the recommended decision, and the Company and the individual
defendants filed a response to those objections.
In November 1993, the plaintiffs filed a motion to certify the action as a
class action. Defendants have filed a partial opposition to the motion. The
Company does not anticipate a ruling on that motion or further significant
activity in the case until the Court has ruled on plaintiff's objections to the
recommended decision. However, since the issuance of the recommended decision,
plaintiffs have given notice as to certain proposed depositions and have filed,
in September 1994, a motion for leave to file a second Amended Complaint,
notwithstanding the Magistrate's recommendation that plaintiffs be denied leave
to amend their complaint again. Defendants have opposed both the motion to
amend and plaintiffs' efforts to take any discovery (which efforts the
plaintiffs have not pressed further) until the Court rules on plaintiffs'
objections to the recommended decision.
On or about March 5, 1992, the insurance carrier commenced a declaratory
judgment action in the United States District Court for the District of
Massachusetts entitled "American Casualty Company of Reading, PA. v. Resolution
Trust Corporation, et al" (the "Insurance Coverage Litigation"). The complaint
names as defendants the RTC and all of those individuals who had been named in
November 1990 as defendants in a proposed amended complaint in the Wechsler
action. The carrier alleges that various policy exclusions and conditions bar
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policy coverage (i) for any claim that may be asserted by the RTC against
ComFed's officers or directors and (ii) for the claims asserted in the Wechsler
action. The complaint seeks a declaratory judgment to that effect.
On June 16, 1992, the Company, with the assent of the carrier, moved to
intervene as a defendant in the Insurance Coverage Litigation. The Court
allowed the Company's Motion to Intervene. The Company filed an answer denying
the material allegations of the complaint and requesting a judicial declaration
that the Company is entitled to reimbursement under the pertinent insurance
policy for losses incurred in connection with the claims that have been or may
be asserted by the RTC or the Wechsler plaintiffs. The individual defendants
have filed similar answers. The Wechsler plaintiffs also filed a motion to
intervene as defendants, which motion has been allowed. The RTC has also filed
an answer and counterclaims seeking to establish coverage for any claims that
it may assert against ComFed officers or directors of the Company.
On January 22, 1993, the Wechsler plaintiffs moved for judgment on the
pleadings determining that the claims asserted in the Wechsler action are
covered by the pertinent policy. The Company filed a memorandum in support of
the Wechsler plaintiffs' motion. On February 19, 1993, the RTC filed a motion
for partial summary judgment seeking similar relief. The Company joined in
that motion. Both motions have been opposed by the carrier. In addition, on
March 19, 1993, the carrier filed a cross-motion seeking summary judgment
declaring that there is no coverage with respect to either the Wechsler claims
or any claims that may be brought by the RTC. The Company and the RTC have
opposed the carrier's cross-motion.
On October 19, 1993, the Magistrate to whom the motions were delegated by
the Court issued a recommended decision (i) granting the carrier's cross-motion
only to the extent that it seeks a declaration that there is no coverage with
respect to claims that may be brought by the RTC; (ii) granting the RTC's
motion for partial summary judgment and the motion for judgment on the
pleadings, joined in by the Company, to the extent that he held that none of
the arguments advanced by the carrier to date forms a basis for denying
coverage with respect to the Wechsler claims; and (iii) denying the carrier's
motion for summary judgment to the extent that it sought a declaration that the
carrier has no obligations to provide coverage with respect to the Wechsler
claims. On November 3, 1993, the carrier filed objections to the recommended
decision, and the Company filed a response to those objections.
The Company and the insurance carrier executed an agreement in April 1993
whereby, pending resolution of the Insurance Coverage Litigation, the carrier
began to advance a substantial percentage of the defense costs of the
individual defendants in the Wechsler action that were previously being
advanced by the Company. Subsequently, in July 1994, the carrier began to
advance 100% of the allowable defense costs in the Wechsler action.
Unless a settlement of the Wechsler action is successfully negotiated, the
Company intends to vigorously defend the case.
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The RTC, receiver of the Bank, provided written notification in 1991 to
certain current and former directors and officers of the Company, the Bank and
the Bank's subsidiaries that it may initiate a claim against them for financial
losses incurred by the Bank as a result of their alleged actions. In 1992 the
RTC issued administrative subpoenas seeking personal financial information from
certain of these directors and officers. During March 1993 the RTC made a
formal, written demand on certain of these directors and officers. In December
1993, the RTC and these certain former directors and officers entered into a
tolling agreement extending the period during which the RTC may file any
claims. The tolling agreement has since been extended and currently expires on
March 15, 1995. The RTC has informed these certain former directors and
officers that it intends to commence an action without any further extensions
of the tolling agreement unless a settlement can be achieved. The Company is
not aware of any claims asserted against it by the RTC.
In 1988, in order for the Company to obtain approval from the Federal
Savings and Loan Insurance Corporation ("FSLIC") to function as the holding
company of the Bank, the Company was required to enter into a Regulatory
Capital Maintenance/Dividend Agreement (the "Agreement") with the FSLIC dated
April 1, 1988. The Agreement provided, among other things, that the Company
would be required to advance sufficient additional capital into the Bank to
effect compliance with regulatory capital requirements, if necessary. When the
Bank was placed into conservatorship by the OTS in December, 1990, the Bank did
not meet regulatory capital requirements and the Company did not have
sufficient financial resources to advance additional capital into the Bank and
thereby meet those capital requirements. As a result, either federal
regulators or the Bank's receiver could seek to initiate administrative or
judicial proceedings against the Company for non-compliance with the Agreement.
If taken, such action could possibly include specific performance. To date,
the Company is not aware that any such action is contemplated. In December
1992, the Company requested that it be de-registered as a thrift holding
company subject to regulation by the OTS. The OTS approved the Company's
de-registration request, effective July 13, 1993.
In February 1992, the Company received preliminary notice from the
regional staff of the Securities and Exchange Commission (the "SEC") that a
formal investigation was being undertaken. Subsequently, the Company learned
that the SEC entered a formal order of investigation of potential securities
law violations relating to the Company. Pursuant to that order, the SEC
initiated depositions of the former chief executive and chief financial
officers of the Company. The Company does not yet know whether this
investigation may result in any claims against the Company or any of its
current or former officers or directors.
The Company's Board of Directors has established an Indemnification
Committee of disinterested directors, chaired by Mr. Hartnett and also
consisting of Messrs. Maher and Schwarz, to consider requests for
indemnification and advancement of legal expenses on behalf of current and
former directors and officers of the Company arising from various legal
proceedings which they or the Company may be subject to. The Company is
presently advancing certain legal expenses on behalf of certain current and
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former directors and officers arising from the legal proceedings discussed in
this Item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) Exhibit 11.1 - Computation of Primary and Fully
Diluted Earnings Per Share (page 14).
(2) Exhibit 27 - Financial Data Schedule (Article 9) (page 16).
(b) No reports on Form 8-K were filed during the three
month period ended December 31, 1994.
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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 and this report has been signed by the
undersigned on behalf of the registrant and in the capacity indicated.
COMFED BANCORP, INC.
February 14, 1995 /s/Jack C. Zoeller
____________________________________
Jack C. Zoeller, President and Chief
Executive Officer (Principal Financial
and Accounting Officer)
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Exhibit 11.1
COMFED BANCORP, INC.
Computation of Primary and Fully Diluted Earnings Per Share (1)
Nine Months Three Months
(In Thousands, Except) Ended Ended
Per Share Amounts) December 31, December 31,
1994 1993 1994 1993
_________________________________________________________________________
Net loss $ (52) (256) 11 (114)
_________ _________ _________ _________
Primary:
Shares:
Weighted-average
number of common
shares
outstanding 8,358,024 8,358,024 8,358,024 8,358,024
Dilutive effect of
outstanding stock
options -- -- -- --
_________ _________ _________ _________
Weighted-average
number of common
and common
equivalent shares
outstanding 8,358,024 8,358,024 8,358,024 8,358,024
_________ _________ _________ _________
Net income (loss)
per share $ (0.01) (0.03) -- (0.01)
_________ _________ _________ _________
(1) This calculation is submitted in accordance with Item 601(b)(11) of
Regulation S-K
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