SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______to ______ Commission file number 0-26384 CENTER FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Connecticut 06-1260924 (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 60 North Main Street, Waterbury, Connecticut 06702 (Address of principal executive offices) (Zip Code) (203) 578-7000 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report.) 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 ___or No _X_. 14,929,594 shares of the registrant's common stock, par value $1.00, were outstanding as of May 2, 1996. Total number of pages: 35 The Exhibits Index, filed as a part of this report, appears on page 23. TABLE OF CONTENTS AND FORM 10-Q CROSS-REFERENCE INDEX Part I - Financial Information Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 2) 3 Financial Statements (Item 1): Consolidated Balance Sheet (unaudited) 16 Consolidated Statement of Operations (unaudited) 17 Consolidated Statement of Changes in Shareholders' Equity (unaudited) 18 Consolidated Statement of Cash Flows (unaudited) 19 Notes to Consolidated Financial Statements 20 Selected Statistical Information: Consolidated Average Balance Sheet, Net Interest Income and Interest Rates 21 Part II - Other Information Legal Proceedings (Item 1) 23 Exhibits and Reports on Form 8-K (Item 6) 23 Signatures 25 FINANCIAL HIGHLIGHTS March 31, March 31, (in thousands) 1996 1995 --------------- --------------- Three Months Ended Net income $ 5,479 $ 4,600 Return on average assets 0.61 % 0.54 % Return on average equity 9.87 9.15 Net interest margin 3.39 3.71 Efficiency ratio 75.77 77.13 Per Common Share Net income $ 0.38 $ 0.32 Dividends declared 0.07 0.05 Book value 15.46 13.85 End of Period Balances Loans and leases $ 2,910,836 $ 2,669,982 Allowance for loan and lease losses 42,470 46,580 Total assets 3,669,518 3,433,829 Deposits 2,525,237 2,424,701 Shareholders' equity 223,930 201,367 Capital Ratios Shareholders' equity to total assets 6.10 % 5.86 % Tier 1 capital 9.09 8.58 Total capital 11.44 9.84 Leverage 5.79 5.50 - 2 - CENTER FINANCIAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OVERVIEW Center Financial Corporation (the "Corporation") reported net income of $5.5 million, or $0.38 per share, for the quarter ended March 31, 1996, an increase of 19 percent over net income of $4.6 million, or $0.32 per share, for the first quarter of 1995 Net interest income for the first quarters of 1996 and 1995 was $28.2 million and $29.1 million, respectively. Net interest margin declined to 3.39 percent from 3.71 percent for the same periods. The Corporation's cost of funds on interest-bearing liabilities continued to increase at a faster pace than the rates earned on interest-earning assets. This trend reflects the shift from lower cost or no cost funds such as savings, money market and demand deposits into higher costing funds such as time deposits and borrowings. These higher borrowing costs caused a contraction in the net interest margin. The provision for loan and lease losses increased $0.4 million to $1.6 million for the first quarter of 1996 from $1.2 million during the 1995 first quarter. The allowance for loan and lease losses was $42.5 million at March 31, 1996, compared with $43.0 million at December 31, 1995. The ratio of the allowance for loan and lease losses to nonaccruing loans and leases decreased from 67.2 percent at December 31, 1995 to 59.5 percent at March 31, 1996. Nonaccruing loans plus real estate owned ("nonperforming assets") at March 31, 1996 totaled $100.0 million, up $5.8 million, or 6 percent, from $94.3 million at December 31, 1995. The ratio of nonperforming assets to related asset categories (total loans and leases plus real estate owned) increased 20 basis points to 3.40 percent at March 31, 1996 from 3.20 percent at December 31, 1995. Noninterest income, excluding securities gains and losses, was $7.5 million for the first quarter of 1996, compared with $6.3 million for the prior year period, an increase of $1.2 million, or 20 percent. The increase in the 1996 period is attributable to a higher level of gains on the sale of loans and servicing rights. Noninterest expenses were $27.9 million for the quarter ended March 31, 1996, compared with $28.1 million for the first quarter of 1995. The efficiency ratio, a measure of operating expenses to net revenue--before special charges and gains--was 75.77 percent for the first quarter of 1996, down from 77.13 percent for the comparable 1995 period. Return on average shareholders' equity increased from 9.15 percent for the March 31, 1995 quarter to 9.87 percent for the first quarter of 1996. Return on average assets increased from 0.54 percent to 0.61 percent for the first quarters of 1995 and 1996, respectively. The Corporation's Tier 1 capital ratio was 9.09 percent, its Total capital ratio was 11.44 percent and its Leverage ratio was 5.79 percent. These ratios are as of March 31, 1996. Subsequent Events The Corporation announced on April 12, 1996, it had completed the merger with Heritage Bank of Watertown, Connecticut, with assets of $56.8 million at March 31, 1996. The transaction will be accounted for as a pooling of interests. The merger resulted in the issuance of a total of 438,151 shares of the Corporation's common stock, representing an exchange of 0.6938 shares for each share of Heritage Bank common stock. - 3 - TABLE 1 - SUMMARY OF RESULTS OF OPERATIONS Three months ended (in thousands, except March 31, per share data) 1996 1995 --------------- --------------- Statement of Operations Interest and dividend income $ 65,339 $ 60,946 Interest expense 37,116 31,801 --------------- --------------- Net interest income 28,223 29,145 Provision for loan and lease losses 1,587 1,248 Noninterest income 9,442 6,706 Noninterest expenses 27,887 28,130 --------------- --------------- Income (loss) before income taxes 8,191 6,473 Income tax expense 2,712 1,873 --------------- --------------- Net income $ 5,479 $ 4,600 --------------- --------------- Net income per common share $ 0.38 $ 0.32 --------------- --------------- Selected Ratios and Other Data Per common share at March 31: Book value $ 15.46 $ 13.85 Market value 18.13 12.75 Return on average assets 0.61 % 0.54 % Return on shareholders' equity 9.87 9.15 Dividend payout ratio 18.42 15.63 Average shareholders' equity to average assets 6.14 5.88 Total shareholders' equity to total assets 6.10 5.86 Yield on interest-earning assets 7.85 7.76 Cost of interest-bearing liabilities 4.70 4.29 Net interest spread 3.15 3.47 Net interest margin 3.39 3.71 Regulatory Ratios Center Financial Corporation: Leverage ratio 5.79 5.50 Tier 1 capital ratio 9.09 8.58 Total capital ratio 11.44 9.84 Centerbank: Leverage ratio 5.77 5.50 Tier 1 capital ratio 9.07 8.58 Total capital ratio 11.42 9.84 - 4 - Net Interest Income The Corporation's net interest income was $28.2 million and $29.1 million for the first quarters of 1996 and 1995, respectively. Average loans and leases increased to $2.9 billion during the 1996 first quarter from $2.5 billion during the first quarter of 1995, an increase of $313.3 million, or 12 percent. The increase reflects the $207.3 million growth in the residential mortgage portfolio held for investment and the $96.1 million increase in the residential mortgage portfolio available for sale. Average investment securities and other interest-earning assets decreased $133.9 million, or 24 percent, to $428.4 million during the first quarter of 1996 from $562.2 million for the comparable 1995 period. Average interest-bearing liabilities were $3.2 billion for the three months ended March 31, 1996, compared with $3.0 billion during the comparable 1995 period, an increase of $147.1 million, or 5 percent. The Corporation's mortgage-banking operations continued to experience substantial closing volume during the first quarter of 1996, reflecting reduced mortgage interest rates following the lowering of the prime interest rate at the end of 1995. Its national scope provides the opportunity to originate mortgage loans outside the Northeast, where competition is fierce and margins are thin, in other more profitable markets. Loan applications closed more than tripled the volume of one year ago ($670.7 million during the 1996 quarter, compared with $212.8 million during the first quarter of 1995). Of the loans closed, the Corporation retained the adjustable rate residential mortgage loans while selling the fixed rate residential mortgage loans. The increase in the residential mortgage portfolio contributed approximately $5.5 million of additional interest income during the first quarter of 1996 compared with the same period a year ago. In addition to the growth in the total average residential mortgage portfolio, the weighted average yield on residential mortgages increased from 7.19 percent during the first quarter of 1995 to 7.62 percent during the 1996 period. This increased yield contributed approximately $1.7 million in additional interest income during the 1996 first quarter compared with the first quarter of 1995. The Corporation also experienced increases in its cost of funds. The growth in average interest-earning assets has been funded primarily through increased utilization of borrowings. Interest on borrowings increased approximately $1.2 million in the first quarter of 1996 from $11.3 million during the comparable 1995 period. The Corporation's deposit base increased $48.3 million in average balances during the first quarter of 1996 from the first quarter of 1995. The Corporation began increasing the rates paid on its time deposits during the third quarter of 1995 in an effort to reduce or reverse the flow of deposits out of the bank. The rates stabilized during the first quarter of 1996 after deposits began to increase. As a result of this initiative, interest expense on deposits increased approximately $4.1 million from $20.3 million during the 1995 first quarter to $24.4 million in the comparable 1996 period. An analysis of net interest income is presented in Table 2 below. - 5 - TABLE 2 - ANALYSIS OF NET INTEREST INCOME Three months ended March 31, (in thousands) 1996 1995 --------------- --------------- Interest and Dividend Income Residential first mortgage loans $ 36,718 $ 29,165 Other loans and leases 21,815 22,943 Mortgage-backed securities 6,044 8,162 Other earning assets 762 676 --------------- --------------- Total interest income 65,339 60,946 --------------- --------------- Interest Expense Deposits 24,352 20,278 Borrowings 12,577 11,342 Mortgage escrow deposits 187 181 --------------- --------------- Total interest expense 37,116 31,801 --------------- --------------- Net Interest Income $ 28,223 $ 29,145 --------------- --------------- Net Interest Spread 3.15 % 3.53 % --------------- --------------- Net Interest Margin 3.39 % 3.71 % --------------- --------------- Net Interest Margin The net interest margin for the March 31, 1996 quarter was 3.39 percent, a decline of 32 basis points, compared with 3.71 percent for the comparable prior year quarter. Net interest margin for the fourth quarter of 1995 was 3.24 percent. The decline in net interest margin from the first quarter of 1996 reflects the liability sensitive nature of the Corporation's balance sheet. Interest-bearing liabilities are repricing faster than interest-earning assets. The Corporation utilizes borrowings, including advances from the Federal Home Loan Bank and securities sold under agreements to repurchase, as a source of funding a portion of its interest-earning assets. The average interest rate paid on total borrowings decreased from 6.19 percent for the first quarter of 1995 to 6.06 percent for the same quarter of 1996. The Corporation took advantage of the reduction in the Federal Funds rate initiated by the Federal Reserve Board early in 1995 to restructure borrowings maturing during the first quarter of 1996. This initiative enabled the Corporation to lengthen the weighted average maturity of its FHLB fixed rate term borrowings from 10 months at December 31, 1995 to 13 months at March 31, 1996. The Corporation had $538.7 million of FHLB fixed rate term borrowings outstanding at December 31, 1995 with a weighted average rate of interest of 6.28 percent, compared with $623.4 million at March 31, 1996 with a weighted average rate of interest of 5.94 percent. As previously stated, the Corporation embarked on a program to increase the rates paid on certain time deposits in an effort to retain and attract new deposits into the bank. Average deposits increased during the first quarter of 1996, compared with the first and fourth quarters of 1995. The weighted average rate paid on deposits increased 62 basis points from 3.60 percent during the first quarter of 1995 to 4.22 percent for the comparable 1996 period. If interest rates continue to increase, the resultant contraction of the spread between the Corporation's interest-earning assets and interest-bearing liabilities would continue to reduce net interest margin. - 6 - The Corporation also increased its utilization of noninterest-bearing sources of funds from $131.0 million to $173.1 million during the first quarters of 1995 and 1996, respectively. Noninterest-bearing sources of funds include demand deposits and shareholders' equity. A discussion of interest rate risk appears on page 10. An analysis of net interest margin is presented in Table 3 below. TABLE 3 - ANALYSIS OF NET INTEREST MARGIN Three months ended March 31, (in millions) 1996 1995 --------------- --------------- Net Interest Income $ 28.2 $ 29.1 --------------- --------------- Average interest-earning assets supported by: Interest-bearing liabilities $ 3,158.4 $ 3,009.0 Noninterest-bearing liabilities 173.1 131.0 --------------- --------------- Total average interest- earning assets $ 3,331.5 $ 3,140.0 --------------- --------------- Average yields and average rates: Yield on interest-earning assets 7.85 % 7.76 % Rate paid on interest-bearing liabilities 4.70 4.23 --------------- --------------- Net Interest Spread 3.15 % 3.53 % --------------- --------------- Net Interest Margin 3.39 % 3.71 % --------------- --------------- Provision for Loan and Lease Losses The provision for loan and lease losses was $1.6 million for the first quarter of 1996, up $0.4 million, or 27 percent, from $1.2 million for the first quarter of 1995. Management believes the provision for loan and lease losses is adequate to maintain the allowance for loan and lease losses at a level sufficient to absorb credit losses inherent in the loan and lease portfolio. Future levels of the allowance and provisions for loan and lease losses may be affected by changes in economic conditions, loan quality and the regulatory environment. - 7 - TABLE 4 - NONINTEREST INCOME Three months ended March 31, (in thousands) 1996 1995 --------------- --------------- Customer service fees $ 1,661 $ 574 Mortgage servicing income, net 2,280 990 Gain on sale of loans and servicing rights, net 2,588 1,222 Gain on sale of securities, net 1,897 441 Other income: Loan and lease fees 611 652 Miscellaneous 405 ( 614 ) --------------- --------------- Total noninterest income $ 9,442 $ 6,265 --------------- --------------- Noninterest income, excluding gains on sales of securities, was $7.5 million for the three-month period ended March 31, 1996, up $1.7 million, or 30 percent, from $5.8 million for the comparable 1995 period. Gains on sales of loans and servicing rights increased $1.4 million to $2.6 million during the 1996 first quarter from $1.2 million for the first quarter of 1995. In addition, miscellaneous income increased $1.0 million for the 1996 first quarter to $0.4 million from a loss of $0.6 million for the quarter ended March 31, 1995. The Corporation closed five branches during the 1995 first quarter and incurred losses associated with write-offs of fixed assets of the closed branches. TABLE 5 - NONINTEREST EXPENSES Three months ended March 31, (in thousands) 1996 1995 --------------- --------------- Salaries and employee benefits $ 13,093 $ 13,200 Occupancy and equipment 4,411 4,600 Professional and other services 3,489 3,503 Net cost of real estate owned 1,429 1,452 FDIC and state assessment 169 1,773 Advertising and public relations 1,200 980 Other expenses: Stationery, supplies and printing 849 426 Postage, express and freight 587 488 Telephone 911 681 Miscellaneous 1,749 1,027 --------------- --------------- Total noninterest expenses $ 27,887 $ 28,130 --------------- --------------- Noninterest expenses were $27.9 million and $28.1 million for the first quarters of 1996 and 1995, respectively. Salaries and employee benefits and occupancy and equipment expenses decreased 1 percent and 2 percent, respectively, during the first quarter of 1996, compared with the same period of 1995. The decreases reflect the Corporation's continuing efforts to achieve the objectives of High Performance 97 and to effectively manage expenses. The FDIC and state assessment expense declined $1.6 million to $0.2 million for the first quarter of 1996 from $1.8 million for the comparable 1995 period. The decrease reflects Centerbank's achievement of regulatory capital ratios in excess of ratios required to be classified as a "well capitalized" financial institution. Institutions which - 8 - have achieved such capital strength are afforded reduced FDIC insurance premium rates. The rates charged are reflective of the perceived risk. Advertising and public relations expense was $1.2 million for the quarter ended March 31, 1996, compared with $1.0 million for the first quarter of 1995. The increase is attributable to increased advertising following the merger with Great Country Bank, as well as advertising related to Centerbank's new credit card. Stationery, supplies and printing; postage, express and freight and telephone expenses were $0.8 million, $0.6 million and $0.9 million for the quarter ended March 31, 1996, respectively, up 99 percent, 20 percent and 34 percent, respectively, from the comparable 1995 period. These increases are attributable to the merger of Great Country Bank and the subsequent changeover to the Centerbank name and method of operation. Other miscellaneous expenses for the 1996 first quarter totaled $1.7 million, compared with $1.0 million for the quarter ended March 31, 1995. The $0.7 million increase is attributable to the release of reserves during the 1995 period. The reserves are related to the Corporation's FDIC-assisted acquisition of Connecticut Savings Bank and Central Bank during 1991. The table below provides an analysis of the Corporation's restructuring reserve established during the second quarter of 1995 related to its High Performance '97 initiative to streamline operations and reduce operating expenses. TABLE 6 - ANALYSIS OF RESTRUCTURING RESERVE Three months ended March 31, (in thousands) 1996 ------------------ Beginning balance $ 6,250 Transfers to pension and post retirement accrual accounts ( 4,738 ) Expenses charged to the reserve ( 1,256 ) ------------------ Ending balance $ 256 ------------------ The Corporation elected to transfer the portion of the restructuring charge related to retirement and other postemployment benefits to existing accrual accounts which are periodically evaluated in conjunction with its consulting actuaries. The accruals will be reduced in line with actuarial projections. The remaining $0.3 million balance in the restructuring reserve is expected to be utilized by the end of the second quarter of 1996. CONSOLIDATED BALANCE SHEET ANALYSIS Total assets were $3.7 billion at March 31, 1996 and $3.6 billion at December 31, 1995. Total loans were $2.9 billion at March 31, 1996 and December 31, 1995. The Corporation's loan to deposit ratio as of March 31, 1996 was 114 percent, compared with 116 percent at December 31, 1995. Total securities increased $68.3 million, or 14 percent, from $408.9 million at December 31, 1995 to $477.3 million at March 31, 1996. Securities classified as held to maturity and reported at amortized cost decreased $10.8 million to $151.2 million at March 31, 1996 from $162.0 million at December 31, 1995. Securities classified as available for sale and reported at fair value totaled $291.6 million at March 31, 1996, compared with $214.6 million at December 31, 1995. Total deposits at March 31, 1996 were $2.5 billion, up from $2.4 billion at year-end 1995. Savings, demand and money market deposits totaled $1.1 billion at March 31, 1996 and December 31, 1995. Time deposits increased $52.0 million, or 4 percent, reflecting a shifting of balances from savings into higher yielding, longer-term deposits. Time deposits totaled $1.4 billion at March 31, 1996 and $1.3 billion at December 31, 1995. - 9 - Total borrowings, primarily securities sold under agreements to repurchase and advances from the Federal Home Loan Bank, increased $41.6 million, or 5 percent, to $829.0 million at March 31, 1996 from $787.4 million at year-end 1995. The increase in borrowings was primarily due to funding the growth in interest-earning assets. Interest Rate Risk As indicated in the interest rate sensitivity table on page 12, the twelve-month cumulative gap, representing the total net assets and liabilities that are projected to reprice over the next twelve months, was liability sensitive in the amount of $527.2 million at March 31, 1996. A liability sensitive interest rate gap would tend to reduce earnings over a period of rising interest rates, while declining rates would tend to enhance earnings. The Corporation utilizes modeling and other analytical techniques to measure the effect on net interest income under different interest rate scenarios. Given an immediate and sustained 100 basis point increase in interest rates, the effect on net interest income would be a reduction of approximately $2.9 million when compared with the amount of net interest income assumed to be earned absent an interest rate increase for the twelve-month period following March 31, 1996. The Corporation manages the net interest rate sensitivity position, expressed as a percentage of total assets to total liabilities repricing over a one year period, between plus or minus 25 percent based on management's assessment of the balance sheet composition and macroeconomic conditions. The ratio of total assets to total liabilities repricing within one year was 79.28 percent at March 31, 1996, compared with 77.16 percent at December 31, 1995. The slight increase in the ratio reflects the lengthening of the weighted average maturity of a portion of short-term borrowings following the reduction of the Federal Funds rate by the Board of Governors of the Federal Reserve in early 1996. As a financial intermediary, the Corporation is subject to the term and pricing preferences of its customers, which may result in an interest rate sensitivity position that does not meet corporate policy or is otherwise undesirable. In this case, the Corporation may choose to utilize off-balance sheet financial instruments to manage the interest rate risk associated with the mismatched position. There were no such financial instruments outstanding at March 31, 1996. LIQUIDITY Liquidity is the ability to meet cash needs arising from fluctuations in loans, securities, deposits and other borrowings. Management routinely monitors liquidity. The primary sources of funds include deposits, cash flows from operations and cash flows from principal prepayments and repayments of loans and securities. The Corporation also has off-balance sheet sources of liquidity in the form of a credit facility with the Federal Home Loan Bank of Boston. The Corporation had borrowings of $666.6 million at March 31, 1996 from the Federal Home Loan Bank of Boston and additional borrowing capacity of $698.1 million, consisting of $54.5 million through the Ideal Way Program and $643.6 million through advances. The Corporation also has a $25.0 million unused facility for the purchase of federal funds from a commercial bank. Centerbank is required to monitor its liquidity level utilizing criteria established by the FDIC. The liquidity ratio is defined as the total of net cash, short-term investments and other marketable assets divided by total net deposits and short-term liabilities. Management has established a policy requiring a liquidity ratio of 10.00 percent or greater at each quarter end. The liquidity ratio was 14.29 percent at March 31, 1996, compared with 14.93 percent at December 31, 1995. - 10 - CAPITAL The Corporation's total shareholders' equity at March 31, 1996 was $223.9 million, or 6.10 percent of total assets, compared with $221.4 million at December 31, 1995. Volatility in shareholders' equity may occur in future periods as the fair value of the available for sale securities portfolio changes with market conditions. The Corporation must now file regulatory reports with the Federal Reserve Board (the "FRB") which are similar in nature to the reports currently filed by Centerbank with the FDIC. One component of the FRB reports is information necessary to compute the holding company's risk-based capital ratios. The Corporation's Tier 1 capital ratio was 9.09 percent, its Total capital ratio was 11.44 percent and its Leverage ratio was 5.79 percent. These ratios are as of March 31, 1996. Centerbank must also calculate separate risk-based capital ratios. Centerbank's Tier 1 and Total capital ratios were 9.07 percent and 11.42 percent, respectively, at March 31, 1996, compared with 8.82 percent and 11.17 percent, respectively, at December 31, 1995. Centerbank's Leverage ratio was 5.77 percent at March 31, 1996 and 5.74 percent at December 31, 1995. Under Federal banking regulations, an institution is deemed to be wellcapitalized if it has a Risk-based Tier 1 capital ratio of 6.00 percent or greater, a Risk-based Total capital ratio of 10.00 percent or greater and a Leverage ratio of 5.00 percent or greater. The Corporation and Centerbank both exceeded the requirements for a well-capitalized financial institution at March 31, 1996. The Corporation's ability to pay dividends is governed by Connecticut banking law. Accordingly, the Corporation may not declare a dividend unless it has sufficient net profits from which to do so. The Corporation had sufficient net profits to declare a cash dividend of $.07 per common share, payable May 13, 1996, to shareholders of record on May 2, 1996. TABLE 7 - INTEREST RATE SENSITIVITY GAP ANALYSIS The table below depicts the Corporation's interest rate sensitivity as of March 31, 1996. Allocations of assets and liabilities, including noninterest-bearing sources of funds, to specific periods are based upon management's assessment of contractual or anticipated repricing characteristics and amortization, adjusted periodically to reflect actual experience. Management considers all demand deposits to be stable sources of funds and, therefore, includes these deposits in the over one year category. Prepayment characteristics are spread throughout the categories below based upon management's expectations of changes in interest rates as well as industry statistics regarding prepayment rates. Nonaccruing loans are included in the respective loan categories. Available for sale securities are included in the 1 to 30 day category and are so included at market value. Mortgage servicing rights and other assets are included based upon anticipated cash flows and scheduled amortization, adjusted for actual and anticipated experience regarding prepayment and valuation impairment. - 11 - Period to repricing 1-30 31-90 91-180 181-365 Total Over (in thousands, except ratios) days days days days one year one year Total Assets: Residential first mortgage $ 30,080 $ 156,888 $ 203,294 $ 386,803 $ 777,065 $ 925,170 $ 1,702,235 Residential first mortgage loans held for sale 195,322 - - - 195,322 10,946 206,268 Other consumer loans 11,949 237,856 20,029 24,043 293,877 80,210 374,087 Commercial first mortgag 56,112 15,791 21,318 40,769 133,990 200,932 334,922 Other commercial loans 76,030 7,001 2,280 5,627 90,938 19,461 110,399 Leases 3,921 12,708 21,887 40,905 79,421 103,504 182,925 Mortgage-backed securities and other investments 332,615 14,944 25,189 32,501 405,249 72,011 477,260 Mortgage servicing rights and excess servicing fees receivable 1,427 2,845 4,271 8,542 17,085 68,337 85,422 Other assets 523 3,301 5,189 15,127 24,140 171,860 196,000 ----------- ---------- ---------- ---------- ----------- ----------- ----------- Total assets $ 707,979 $ 451,334 $ 303,457 $ 554,317 $ 2,017,087 $ 1,652,431 $ 3,669,518 ----------- ---------- ---------- ---------- ----------- ----------- ------------ Liabilities and shareholders' equity: Transaction accounts * $ 914,773 $ - $ - $ - $ 914,773 $ 213,165 $ 1,127,938 Time deposits 186,173 192,450 292,102 411,793 1,082,518 374,782 1,457,300 FHLB borrowings 102,755 126,870 44,304 135,997 409,926 256,695 666,621 Other borrowings 74,518 62,513 20 41 137,092 25,249 162,341 Other liabilities and shareholders' equity - - - - - 255,318 255,318 ----------- ---------- ---------- ---------- ----------- ----------- ----------- Total liabilities and shareholders' equity $ 1,278,219 $ 381,833 $ 336,426 $ 547,831 $ 2,544,309 $ 1,125,209 $ 3,669,518 ----------- ---------- ----------- ---------- ----------- ----------- ----------- Asset (liability) sensitivity: For the period $ (570,240) $ 69,501 $ (32,969) $ 6,486 $ (527,222) $ 527,222 - On a cumulative basis (570,240) (500,739) (533,708) (527,222) (527,222) - - Ratio of assets to liabilities available for repricing- on a cumulative basis 55.39 % 69.84 % 73.27 % 79.28 % 79.28 % 100.00 % - Net liability sensitivity as a percentage of interest-earning assets - on a cumulative basis (15.54)% (13.65)% (14.54)% (14.37)% (14.37)% - - <FN> * Transaction accounts include savings, NOW, MMG, escrow and demand deposits. </FN> - 12 - CREDIT QUALITY TABLE 8 - ALLOWANCE FOR LOAN AND LEASE LOSSES Three months ended March 31, (in thousands) 1996 1995 --------------- --------------- Allowance for loan and lease losses at beginning of period $ 43,025 $ 45,706 Provision charged to operations 1,587 1,248 Loans charged off Gross ( 3,103 ) ( 1,069 ) Recoveries 961 549 --------------- --------------- Net ( 2,142 ) ( 520 ) --------------- --------------- Allowance for loan and lease losses at end of period $ 42,470 $ 46,434 --------------- --------------- Net loan and lease charge-offs to average loans and leases 0.07 % 0.02 % Allowance for loan and lease losses to average loans and leases 1.46 1.80 The allowance for loan and lease losses was $42.5 million at March 31, 1996, compared with $43.0 million at December 31, 1995. The ratio of the allowance for loan and lease losses to average loans and leases was 1.46 percent at March 31, 1996, compared with 1.53 percent at December 31, 1995. Net charge-offs were $2.1 million for the first quarter of 1996, compared with $0.5 million for the same period a year ago. The Corporation had $34.0 million of impaired loans at March 31, 1996, consisting of $24.24 million of commercial mortgage loans and $9.8 million of other commercial loans. Impairment reserves at March 31, 1996, determined in accordance with SFAS 114 and included as part of the Corporation's allowance for loan and lease losses, were approximately $1.5 million. Approximately $15.4 million of impaired loans, which had been subjected to a specific review, did not require an impairment reserve due primarily to charge-offs. The Corporation's impaired loans averaged $31.2 million during the quarter ended March 31, 1996, compared with $27.7 million for the quarter ended December 31, 1995.The amount of interest income recognized on impaired loans was immaterial for the quarter ended March 31, 1996. - 13 - TABLE 9 - NONACCRUING LOANS AND LEASES AND REAL ESTATE OWNED Three months ended March 31, (in thousands) 1996 1995 --------------- --------------- Nonaccruing loans and leases: Residential first mortgage loans: 1 to 4 family $ 26,827 $ 23,275 Other 3,151 1,380 Home equity and other consumer loans 3,909 2,599 Commercial first mortgage loans 24,228 21,856 Other commercial loans 9,769 9,579 Leases 3,452 3,112 --------------- --------------- Total nonaccruing loans and leases 71,336 61,801 --------------- --------------- Real estate owned: Commercial 23,526 32,929 Residential 5,187 7,522 --------------- --------------- Total real estate owned 28,713 40,451 --------------- --------------- Total nonperforming assets $ 100,049 $ 102,252 --------------- --------------- Nonaccruing loans and leases to total loans and leases 2.45 % 2.31 % Allowance for loan and lease losses to nonaccruing loans and leases 59.54 75.13 Allowance for real estate owned losses: Balance at beginning of period $ 4,540 $ 6,289 Provision for losses on real estate owned 784 840 (Charge-offs) recoveries ( 855 ) 40 (Loss) gain on sales and other ( 223 ) ( 260 ) --------------- --------------- Balance at end of period $ 4,246 $ 6,738 --------------- --------------- Allowances for loan, lease and real estate owned losses to nonperforming assets 46.69 % 52.00 % Nonperforming assets to total loans and leases plus real estate owned 3.40 3.77 Nonperforming assets to total assets 2.73 2.98 Nonaccruing loans and leases were $71.3 million at March 31, 1996, compared with $64.0 million at December 31, 1995. Nonaccruing loans and leases increased by $7.3 million since year-end 1995 due primarily to increases in nonaccruing residential and commercial first mortgage loans. The increase in the nonaccruing residential mortgage portfolio reflects the Corporation's policy to transfer all residential mortgage loans to nonaccruing loans once the principal or interest is past due greater than 90 days, as well as the continuing weak Connecticut economy resulting from corporate restructurings, downsizings and mergers which have occurred in the state over the last several years. The increase in the nonaccruing commercial first mortgage portfolio is attributable to a single credit. The ratio of nonaccruing loans and leases to total loans and leases was 2.45 percent and 2.20 percent at March 31, 1996 and December 31, 1995, respectively. The allowance for loan and lease losses to nonaccruing loans and leases decreased to 59.54 percent at March 31, 1996, from 67.23 percent at December 31, 1995. - 14 - Approximately 70 percent of the increase in nonaccruing loans is concentrated within the consumer loan portfolio, primarily residential first mortgage loans, which are not as risky as commercial loans. Management believes the allowance for loan and lease losses is adequate to absorb losses inherent within the loan and lease portfolio at March 31, 1996, even though nonaccruing loans have increased and the coverage ratios have declined. Real estate owned decreased from $30.2 million at December 31, 1995, to $28.7 million at March 31, 1996, a decrease of $1.5 million, or 5 percent. The reduction in real estate owned reflects the Corporation's aggressive sales efforts to reduce its real estate owned portfolio, thereby reducing the earnings drain. Real estate owned was also reduced due to writedowns based on recent appraised values. Nonperforming assets totaled $100.0 million at March 31, 1996, an increase of $5.9 million, or 6 percent, from $94.1 million at December 31, 1995. The ratio of nonperforming assets to total loans and leases plus real estate owned increased 20 basis points from 3.20 percent at December 31, 1995, to 3.40 percent at March 31, 1996. Restructured loans, which are loans with original terms that have been modified as a result of a change in the borrower's financial condition, totaled $1.0 million at March 31, 1996 and December 31, 1995. Restructured loans are included in Table 9 in nonaccruing loans and leases. - 15 - CENTER FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET (Unaudited) March 31, December 31, March 31, (In thousands, except share amounts) 1996 1995 1995 Assets Cash and due from banks $ 93,844 $ 77,069 $ 64,563 Securities: Federal Home Loan Bank stock, at cost 34,506 32,321 28,248 Available for sale (amortized cost: $324,532, $241,032 and $84,104) 291,562 214,625 61,324 Held to maturity (fair value: $149,327, $160,438 and $430,139) 151,192 161,988 439,783 ----------- ----------- ----------- Total securities 477,260 408,934 529,355 ----------- ----------- ----------- Loans and leases: Residential first mortgage loans available for sale 206,268 153,173 119,752 Residential first mortgage loans held for investment 1,702,235 1,732,253 1,542,290 Consumer home equity loans 237,136 247,127 268,739 Other consumer loans 136,951 131,293 110,857 Commercial first mortgage loans: Permanent 305,263 295,202 290,895 Construction 29,659 33,896 12,260 Other commercial loans 110,399 123,026 122,988 Leases 182,925 193,762 202,201 Allowance for loan and lease losses ( 42,470 ) ( 43,025 ) ( 46,580 ) ----------- ----------- ----------- Total loans and leases, net 2,868,366 2,866,707 2,623,402 ----------- ----------- ----------- Real estate owned, net 24,467 25,659 32,534 Premises and equipment, net 47,108 46,617 48,011 Accrued interest receivable 20,580 21,816 18,883 Mortgage servicing rights 69,586 65,461 53,394 Excess servicing fees receivable 15,836 15,264 12,170 Deferred tax assets, net 15,835 15,399 16,909 Acquisition related intangibles 14,762 15,277 12,337 Other assets 21,874 22,216 22,271 ----------- ----------- ----------- Total assets $ 3,669,518 $ 3,580,419 $ 3,433,829 ----------- ----------- ----------- Liabilities and Shareholders' Equity Liabilities: Deposits: Demand $ 213,167 $ 216,163 $ 185,179 Savings 644,073 643,816 835,905 Money market 270,700 271,347 128,566 Time 1,397,297 1,345,298 1,275,051 ----------- ----------- ----------- Total deposits 2,525,237 2,476,624 2,424,701 ----------- ----------- ----------- Escrow on first mortgage loans 60,001 63,546 50,578 Borrowings 828,962 787,385 723,108 Other liabilities 31,388 31,438 34,075 ----------- ----------- ----------- Total liabilities 3,445,588 3,358,993 3,232,462 ----------- ----------- ----------- Shareholders' equity: Preferred stock - voting; no par value; 1,000,000 authorized shares; issued and outstanding - none - - - Preferred stock - nonvoting; no par value; 10,000,000 authorized shares; issued and outstanding - none - - - Common stock; par value $1; 75,000,000 authorized shares; 14,487,375, 14,445,649 and 14,535,253 shares issued and outstanding at March 31,1996, December 31, 1995 and March 31, 1995, respectively 14,487 14,446 14,535 Paid-in capital 176,480 176,050 174,724 Retained earnings 32,060 27,592 11,457 Net unrealized gain (loss) on securities available for sale, net of tax effect 903 3,338 651 ----------- ----------- ----------- Total shareholders' equity 223,930 221,426 201,367 ----------- ----------- ----------- Total liabilities and shareholders' equity $ 3,669,518 $ 3,580 419 $ 3,433,829 ----------- ----------- ----------- <FN> The accompanying notes are an integral part of this Consolidated Financial Statement. </FN> - 16 - CENTER FINANCIAL CORPORATION CONSOLIDATED STATEMENT of OPERATIONS (Unaudited) (In thousands, except per share amounts) Three months ended March 31, 1996 1995 Interest and Dividend Income Interest and fees on loans $ 54,672 $ 47,764 Leases 3,861 4,344 ----------- ----------- Total interest and fees on loans and leases 58,533 52,108 ----------- ----------- Interest on mortgage-backed securities 6,044 8,162 Interest and dividends on other earning assets 762 676 ----------- ----------- Total interest income 65,339 60,946 ----------- ----------- Interest Expense Interest on deposits 24,351 20,279 Escrow on first mortgage loans 188 180 Interest on borrowings 12,577 11,342 ----------- ----------- Total interest expense 37,116 31,801 ----------- ----------- Net interest income 28,223 29,145 ----------- ----------- Provision for loan and lease losses 1,587 1,248 ----------- ----------- Net interest income after provision for loan and lease losses 26,636 27,897 ----------- ----------- Noninterest Income Customer service fees 1,661 1,574 Mortgage servicing income, net 2,280 2,990 Gain on sale of loans and servicing rights, net 2,588 1,222 Gain on sale of securities, net 1,897 441 Other income 1,016 479 Total noninterest income 9,442 6,706 Noninterest Expenses Salaries and employee benefits 13,093 13,200 Occupancy and equipment 4,411 4,600 Professional and other services 3,489 3,505 Net cost of real estate owned 1,429 1,452 FDIC and state assessment 169 1,773 Advertising and public relations 1,200 980 Other expenses 4,096 2,620 Total noninterest expenses 27,887 28,130 Income before income taxes 8,191 6,473 Income tax expense 2,712 1,873 Net income $ 5,479 $ 4,600 Net income per common share $ 0.38 $ 0.32 Average common shares outstanding 14,462,674 14,253,174 <FN> The accompanying notes are an integral part of this Consolidated Financial Statement. </FN> - 17 - CENTER FINANCIAL CORPORATION CONSOLIDATED STATEMENT of CHANGES in SHAREHOLDERS' EQUITY (Unaudited) (In thousands) Three months ended March 31, 1996 ---------------------------------------------------------------------------- Net unrealized Common Paid-in Retained gain on stock capital earnings securities Total ----------- ----------- ---------- ----------- ----------- Balance at December 31, 1995 $ 14,446 $ 176,048 $ 27,594 $ 3,338 $ 221,426 Net income - - 5,479 - 5,479 Dividends - - (1,013) - (1,013) Issuance of common stock 41 432 - - 473 Net unrealized gain on securities available for sale, net of tax effect - - - (2,435) (2,435) ----------- ----------- ----------- ----------- ----------- Balance at March 31, 1996 $ 14,487 $ 176,480 $ 32,060 $ 903 $ 223,930 ----------- ----------- ----------- ----------- ----------- Three months ended March 31, 1996 ---------------------------------------------------------------------------- Net unrealized Common Paid-in Retained gain on stock capital earnings securities Total ----------- ----------- ---------- ----------- ----------- Balance at December 31, 1994 $ 14,229 $ 174,893 $ 7,493 $ (669) $ 195,946 Net loss - - 4,598 - 4,598 Dividends - - (634) - (634) Issuance of common stock 34 103 - - 137 Net unrealized gain on securities available for sale, net of tax effect As of January 1, 1994 - - - 2,932 2,932 Net change during the - - - (1,612) (1,612) ----------- ----------- ---------- ----------- ----------- Balance at March 31, 19 $ 14,263 $ 174,996 $ 11,457 $ 651 $ 201,367 ----------- ----------- ---------- ----------- ----------- <FN> The accompanying notes are an integral part of this Consolidated Financial Statement. </FN> - 18 - CENTER FINANCIAL CORPORATION CONSOLIDATED STATEMENT of CASH FLOWS (Unaudited) (In thousand) Three months ended March 31, -------------------------- 1996 1995 ----------- ----------- Cash flows from operating activities: Net income (loss) $ 5,479 $ 4,472 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Provision for loan and lease losses 1,587 20,103 Provision for losses on real estate owned 784 9,813 Amortization of mortgage and excess servicing rights 4,092 13,867 Depreciation 1,458 5,594 Gain on sale of loans, servicing rights, securities and other assets (4,485) (10,107) Gain on sale of premises and equipment 23 - Deferred income tax expense (benefit) 1,396 (5,264) (Increase) decrease in first mortgage loans available for sale (53,507) 459,093 (Increase) decrease in other assets 2,050 36,934 Increase (decrease) in other liabilities (50) 272 Other adjustments, net 2,334 1,495 ----------- ----------- Net cash provided by operating activities (38,839) 536,272 ----------- ----------- Cash flows from investing activities: Purchases of securities available for sale (146,077) (26,110) Purchases of securities held to maturity (18,051) (411,644) Purchases of securities held for investment - (11,209) Proceeds from sales of securities available for sale 54,479 24,819 Principal payments and maturities of securities available for sale 10,109 24,633 Principal payments and maturities of securities held to maturity 28,695 71,927 Principal payments and maturities of securities held for investment - 9,863 Proceeds from bulk sales of loans and real estate owned - 105,799 Originations and principal payments on loan and lease portfolio, net 46,417 (574,266) Proceeds from other sales of real estate owned 3,408 20,832 Additions to mortgage servicing rights (11,869) (7,628) Other, net 2,399 (2,585) ----------- ----------- Net cash used by investing activities (30,490) (775,569) ----------- ----------- Cash flows from financing activities: Increase (decrease) in deposits 48,613 (115,668) Increase (decrease) in escrow on first mortgage loans (3,545) (18,745) Increase (decrease) in borrowings, net 41,577 326,119 Issuance of common stock 471 2,663 Cash dividends (1,012) - ----------- ----------- Net cash provided (used) by financing activities 86,104 194,369 ----------- ----------- Increase (decrease) in cash and cash equivalents 16,775 (44,928) Decrease in cash and cash equivalents attributable to Great Country Bank for the period from June 1, 1993 through December 31, 1993 - (11,843) Cash and cash equivalents at beginning of period 77,069 127,128 ----------- ----------- Cash and cash equivalents at end of period $ 93,844 $ 70,357 ----------- ----------- Supplemental information: Interest paid on deposits and borrowings $ 37,450 $ 30,711 Income taxes paid (refunded), net 147 1,021 Loans transferred to real estate owned 3,406 3,328 Loans made to facilitate the sale of real estate owned - 75 Securitization of mortgage loans 32,836 - <FN> The accompanying notes are an integral part of this Consolidated Financial Statement. </FN> - 19 - CENTER FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Center Financial Corporation and its subsidiary (the "Corporation"). These financial statements reflect, in management's opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Corporation's financial position, results of operations and cash flows for the periods presented. Certain amounts for prior periods have been reclassified to conform to current period presentation. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Corporation's 1996 Annual Report. The accompanying consolidated financial statements have been retroactively restated to reflect the combination of the Corporation with Great Country Bank, which was acquired on December 15, 1995, as if the acquisition had occurred at the beginning of the earliest period presented. Earnings per share is computed based on weighted average shares outstanding. Stock options outstanding did not materially dilute earnings per share and, as such were not included in the earnings per share computations. Weighted average shares outstanding for the three-month periods ended March 31, 1996 and 1996 were 12,753,416 and 12,637,398, respectively. NOTE 2 - SUBSEQUENT EVENTS The Corporation announced on April 12, 1996, it had completed the merger with Heritage Bank of Watertown, Connecticut, with assets of $56.8 million at March 31, 1996. The transaction will be accounted for as a pooling of interests. The merger resulted in the issuance of a total of 438,151 shares of the Corporation's common stock, representing an exchange of 0.6938 shares for each share of Heritage Bank common stock. - 20 - CONSOLIDATED AVERAGE BALANCE SHEET, NET INTEREST INCOME AND INTEREST RATES The following are the Corporation's average balance sheet, net interest income and interest rates: Three months ended March 31, 1996 Average Average (in thousands) Balance Interest Rate ----------- ----------- ------- ASSETS Interest-earning assets: Residential first mortgage loans $ 1,907,837 $ 36,718 7.70 % Other loans and leases 985,836 21,815 8.85 ----------- ----------- Total loans and leases 2,893,673 58,533 8.09 ----------- ----------- Mortgage-backed securities 377,504 6,044 6.40 Other interest-earning assets 60,291 631 4.19 ----------- ----------- Total securities and other interest-earning assets 437,795 6,675 6.10 ----------- ----------- Total interest-earning assets 3,331,468 65,739 7.85 ----------- Noninterest-earning assets: Cash and due from banks 59,257 Premises and equipment 47,089 Other 176,077 ----------- Total assets $ 3,613,891 ----------- LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing liabilities: Savings, NOW and money market deposits $ 904,010 $ 5,466 2.42 % Time deposits 1,054,235 14,311 5.43 Other 369,624 4,762 5.15 ----------- ----------- Total interest-bearing deposits 2,327,869 24,539 4.22 ----------- ----------- Short-term borrowings 435,954 6,128 5.62 Long-term borrowings 394,629 6,449 6.54 ----------- ----------- Total borrowings 830,583 12,577 6.06 ----------- ----------- Total interest-bearings liabilities 3,158,452 37,116 4.70 ----------- ----------- Noninterest-bearing liabilities: Demand deposits 206,850 Other liabilities 26,604 Shareholders' equity 221,985 ----------- Total liabilities and shareholders' equity $ 3,613,891 ----------- Net interest income $ 28,223 ----------- Net interest spread 3.15 Net interest margin 3.39 - 21 - CONSOLIDATED AVERAGE BALANCE SHEET, NET INTEREST INCOME AND INTEREST RATES (continued) Three months ended March 31, 1995 Average Average (in thousands) Balance Interest Rate ----------- ----------- ------- ASSETS Interest-earning assets: Residential first mortgage loans $ 1,604,352 $ 29,164 7.27 % Other loans and leases 973,390 22,944 9.43 ----------- ----------- Total loans and leases 2,577,742 52,108 8.09 ----------- ----------- Mortgage-backed securities 519,862 8,162 6.28 Other interest-earning assets 42,376 676 6.38 ----------- ----------- Total securities and other interest-earning assets 562,238 8,838 6.29 ----------- ----------- Total interest-earning assets 3,139,980 60,946 7.76 ----------- Noninterest-earning assets: Cash and due from banks 54,959 Premises and equipment 41,290 Other 166,673 ----------- Total assets $ 3,417,779 ----------- LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing liabilities: Savings, NOW and money market deposits $ 987,678 $ 5,664 2.29 % Time deposits 964,014 11,053 4.59 Other 323,982 3,742 4.62 ----------- ----------- Total interest-bearing deposits 2,275,674 20,459 3.60 ----------- ----------- Short-term borrowings 371,704 5,793 6.23 Long-term borrowings 361,660 5,549 6.14 ----------- ----------- Total borrowings 733,364 11,342 6.19 ----------- ----------- Total interest-bearings liabilities 3,009,038 31,801 4.23 ----------- ----------- Noninterest-bearing liabilities: Demand deposits 178,194 Other liabilities 29,440 Shareholders' equity 201,107 ----------- Total liabilities and shareholders' equity $ 3,417,779 ----------- Net interest income $ 29,145 ----------- Net interest spread 3.53 Net interest margin 3.71 - 22 - PART II - OTHER INFORMATION Item 1. Legal Proceedings The Corporation is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising out of such other pending and threatened lawsuits will have a material effect on the Corporation's results ofoperations or financial position. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-K are listed on the Exhibits Index on page 2 of this report and are filed herewith or are incorporated herein by reference. 3(i) Certificate of Incorporation of Center Financial Corporation, incorporated herein by reference to the Corporation's registration statement of Form 8-A dated July 6, 1995. 3(ii) By-Laws of Center Financial Corporation, incorporated herein by reference to the Corporation's 1995 Annual Report on Form 10-K filed March 30, 1996. 4(i) 1. Common Stock Rights, incorporated herein by reference to the Corporation's registration statement of Form 8-A dated July 6, 1995. 4(ii) 2. Preferred Stock Purchase Rights, incorporated herein by reference to the Corporation's registration statement of Form 8-A dated July 7, 1995. 10(ii)D Lease Agreement dated December 30, 1988 between Centerbank and Norman S. Drubner, Trustee, as amended, incorporated herein by reference to the Corporation's registration statement of Form 8-A dated July 6, 1995. 10(iii)A The following documents are incorporated herein by reference to the Corporation's registration statement of Form 8-A dated July 6, 1995. 1. Executive Stock Incentive Plan, as amended through Amendment No. 3. 2. 1992 Executive Stock Incentive Plan, as amended through Amendment No. 1. 3. Directors Deferred Compensation Plan, as amended. 4. 1991 Directors Stock Option Plan, as amended through Amendment No. 3. - 23 - 5. 1993 Directors Stock Option Plan, as amended through Amendment No. 1. 6. Executive Severance Plan, dated August 27, 1992. 7. Severance Pay Policy for employees other than executive officers, dated July 13, 1992. 8. Severance Pay Agreement with Joseph M. Murphy, dated October 26, 1992. 9. Severance Pay Agreement with Maureen A. Frank, dated May 17, 1993. 10. Senior Executive Officer Deferred Compensation Plan, dated December 20, 1993. 11. Directors Retirement Plan, as amended. 12. Employment Agreement with Robert J. Narkis, dated September 1, 1994. 13. Employment Agreement with Joseph Carlson II, dated September 1, 1994. 14. Employment Agreement with William H. Placke, dated September 1, 1994. 15. Employment Agreement with Thomas C. Brown, dated September 1, 1994. The Centerbank 1993 Employee Stock Purchase Plan, incorporated herein by reference to the Corporation's registration statement on Form S-8 dated July 28, 1995. The Centerbank Savings and Investment Plan, as amended and restated, incorporated herein by reference to the Corporation's registration statement on Form S-8 dated July 28, 1995 11 Computation re: Earnings per share 99.1 Press release of the Corporation, dated April 12, 1996, entitled "Center Financial Corporation completes sixth acquisition in four years with purchase of Heritage Bank." 99.2 Press release of the Corporation, dated April 23, 1996, entitled "Center Financial Corporation announces 19% increase in earnings for first quarter." (b) Reports on Form 8-K - The Corporation filed the following reports on Form 8-K during the quarter ended March 31, 1996. 1. The report dated October 10, 1995 (item 5) reported that the Corporation (i) had formed a national consumer finance subsidiary called Center Credit Corporation on October 10, 1995; (ii) announc- ed, on February 6, 1996, projected earnings per share, return on average assets and return on average shareholders' equity for 1996 and 1997; and (iii) announced earning of the Corporation, including the earnings of the merged operations of Great Country Bank ("Great Country"), following the merger with Great Country on December 15, 1995. This last filing was undertaken in accordance with the terms of the Agreement and Plan of Merger between the Corporation and Great Country. - 24 - 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. CENTER FINANCIAL CORPORATION (Registrant) Date: May 14, 1996 By JOSEPH CARLSON II Joseph Carlson II Chief Financial Officer Date: May 14, 1996 By EDWARD L. OLCESE Edward L. Olcese Controller (Principal Accounting Officer) - 25 -