1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTER ENDED JUNE 30, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 000-24549
TELEBANC FINANCIAL CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3759196
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1111 N. HIGHLAND STREET, ARLINGTON, VIRGINIA 22201
--------------------------------------------------
(Address of principal executive office) (Zip code)
(703) 247-3700
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding for the issuer's classes of common
stock, as of August 13, 1999.
common stock, $0.01 par value 33,608,164
----------------------------- ----------
(class) (outstanding)
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TELEBANC FINANCIAL CORPORATION
FORM 10-Q
INDEX
Part I - Financial Information Page
- ------------------------------ ----
Item 1.
Consolidated Statements of Financial Condition -June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations and Comprehensive Income - Three and six
months ended June 30, 1999 and 1998 4
Consolidated Statements of Changes in Stockholders' Equity - Six months ended June
30, 1999 and 1998 6
Consolidated Statements of Cash Flows - Six months ended June 30, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations 14
Item 3.
Quantitative and Qualitative Disclosures about Market Risk 20
Part II -- Other Information
- ----------------------------
Item 4.
Submission of Matters to Security Holders 21
Item 6.
Exhibits and Reports on Form 8-K
(a) Exhibits 22
(b) Reports on Form 8-K 22
Signatures 23
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TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Per Share Data)
June 30, December 31,
1999 1998
---- ----
(unaudited)
ASSETS:
Cash and cash equivalents $ 109,580 $ 25,941
Trading securities 32,337 29,584
Investment securities available for sale 200,896 220,699
Mortgage-backed securities available for sale 1,302,242 1,012,163
Loans receivable held for sale 102,697 117,928
Loans receivable, net 1,378,589 786,926
Other assets 116,823 90,100
----------- -----------
Total assets $ 3,243,164 $ 2,283,341
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Retail deposits $ 1,619,075 $ 1,142,385
Brokered callable certificates of deposit 67,057 67,085
Advances from the Federal Home Loan Bank of Atlanta 420,000 472,500
Securities sold under agreements to repurchase and other borrowings 585,510 404,435
Subordinated debt, net -- 29,855
Other liabilities 10,333 18,261
----------- -----------
Total liabilities 2,701,975 2,134,521
----------- -----------
Company-Obligated Mandatorily Redeemable Preferred Capital Securities of
Subsidiary Trust Holding Soley Junior Subordinated
Debentures of the Company 31,050 35,385
Stockholders' equity:
Common stock, $0.01 par value, 135,000,000 shares authorized; 33,598,164 and
24,384,154 issued and outstanding at June 30, 1999 and December 31, 1998 339 246
Additional paid-in capital 504,678 103,071
Unearned ESOP shares (2,274) (2,578)
Retained earnings 11,771 10,819
Unrealized (loss) gain on securities available for sale, net of tax (4,375) 1,877
----------- -----------
Total stockholders' equity 510,139 113,435
----------- -----------
Total liabilities and stockholders' equity $ 3,243,164 $ 2,283,341
=========== ===========
See accompanying notes to consolidated financial statements.
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TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
Loans $ 24,755 $ 10,790 $ 43,866 $ 21,464
Mortgage-backed securities 20,578 5,209 38,883 10,283
Investment securities 3,285 1,986 6,676 3,772
Trading securities 388 708 595 1,344
Other 826 211 1,504 421
------------- --------- ----------- ----------
Total interest income 49,832 18,904 91,524 37,284
Interest expense:
Retail deposits 19,909 8,757 37,067 16,812
Brokered callable certificates of deposit 1,110 1,020 2,208 1,394
Advances from the Federal Home Loan Bank of Atlanta 6,351 2,813 12,096 5,531
Repurchase agreements and other borrowings 6,668 1,805 14,145 4,256
Subordinated debt 591 881 1,475 1,760
------------- --------- ----------- ----------
Total interest expense 34,629 15,276 66,991 29,753
------------- --------- ----------- ----------
Net interest income 15,203 3,628 24,533 7,531
Provision for loan losses 665 75 1,155 325
------------- --------- ----------- ----------
Net interest income after provision for loan losses 14,538 3,553 23,378 7,206
Non-interest income:
(Loss) gain on sale of available-for-sale securities (383) 749 638 1,640
(Loss) gain on sale of loans (220) 73 1,613 194
(Loss) gain on trading securities (596) (6) (446) 56
Gain (loss) on equity investment 4,136 (77) 4,284 449
Fees, service charges and other 631 365 1,161 712
------------- --------- ----------- ----------
Total non-interest income 3,568 1,104 7,250 3,051
------------- --------- ----------- ----------
Non-interest expenses:
Selling, general and administrative expenses:
Compensation and employee benefits 5,031 1,670 7,568 3,620
Advertising and marketing 3,403 576 5,862 1,205
Loan servicing 1,251 323 2,290 632
Other 3,073 1,195 5,430 2,505
------------- --------- ----------- ----------
Total selling, general and administrative expenses 12,758 3,764 21,150 7,962
Other non-interest expenses:
Net operating costs of real estate acquired through
foreclosure 25 101 (15) 183
Amortization of goodwill and other intangibles 565 386 1,174 619
------------- --------- ----------- ----------
Total other non-interest expenses 590 487 1,159 802
------------- --------- ----------- ----------
Total non-interest expenses 13,348 4,251 22,309 8,764
------------- --------- ----------- ----------
(continued)
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TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (CONTINUED)
(In Thousands, Except Per Share Data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
Income before income tax expense 4,758 406 8,319 1,493
Income tax expense 2,528 51 3,811 526
Minority interest in subsidiary, net of tax 539 176 1,100 352
------- ------- ------- -------
Income before extraordinary loss and cumulative effect
of accounting change 1,691 179 3,408 615
Extraordinary loss on early extinguishment of debt, net of tax 1,987 -- 1,987 --
------- ------- ------- -------
Income before cumulative effect of accounting change (296) 179 1,421 615
Cumulative effect of accounting change, net of tax -- -- 469 --
------- ------- ------- -------
Net (loss) income (296) 179 952 615
Preferred stock dividends -- 162 -- 324
------- ------- ------- -------
Net (loss) income available to common shareholders $ (296) $ 17 $ 952 $ 291
======= ======= ======= =======
Other comprehensive income, net of tax:
Unrealized holding (loss) gain on securities arising during
the period $(8,071) $ (644) $(5,856) $ 170
Less: reclassification adjustment for losses (gains)
included in net income 237 (465) (396) (1,017)
------- ------- ------- -------
Other comprehensive income, net of tax (7,834) (1,109) (6,252) (847)
------- ------- ------- -------
Comprehensive income $(8,130) $(1,092) $(5,300) $ (556)
======= ======= ======= =======
Earnings per share:
Basic:
Income before extraordinary loss and cumulative effect
of accounting change $ 0.04 $ 0.00 $ 0.11 $ 0.06
Extraordinary loss on early extinguishment of debt, net
of tax (0.06) -- (0.07) --
------- ------- ------- -------
Income before cumulative effect of accounting change (0.02) 0.00 0.04 0.06
Cumulative effect of accounting change, net of tax -- -- (0.02) --
------- ------- ------- -------
Net income $ (0.02) $ 0.00 $ 0.02 0.06
======= ======= ======= =======
Diluted:
Income before extraordinary loss and cumulative effect
of accounting change $ 0.04 $ 0.00 $ 0.09 $ 0.05
Extraordinary loss on early extinguishment of debt, net
of tax (0.06) -- (0.06) --
------- ------- ------- -------
Income before cumulative effect of accounting change (0.02) 0.00 0.03 0.05
Cumulative effect of accounting change, net of tax -- -- (0.01) --
------- ------- ------- -------
Net income $ (0.02) $ 0.00 $ 0.02 $ 0.05
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
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TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(In Thousands)
(unaudited)
Unrealized
Loss on
Additional Unearned Available-
Preferred Common Paid-in ESOP Retained for-Sale
Stock Stock Capital Shares Earnings Securities Total
---------- ------- --------- -------- -------- ---------- --------
Balances at December 31, 1997 $ 15,281 $ 88 $ 16,161 $ -- $11,556 $ 2,738 $ 45,824
Net income for the six months ended
June 30, 1998 -- -- -- -- 615 -- 615
Exercise of stock options -- -- 180 -- -- -- 180
Dividends on 4% Cumulative
Preferred Stock -- -- -- -- (324) -- (324)
Unrealized loss on
available-for-sale securities,
net of tax effect -- -- -- -- -- (847) (847)
---------- ------- -------- -------- ------- -------- --------
Balances at June 30, 1998 $ 15,281 $ 88 $ 16,341 $ -- $11,847 $ 1,891 $ 45,448
========== ======= ======== ======== ======= ======== ========
Balances at December 31, 1998 $ -- $ 246 $103,071 $(2,578) $10,819 $ 1,877 $113,435
Net income for the six months ended
June 30, 1999 -- -- -- -- 952 -- 952
Stock issued in equity offering -- 79 395,956 -- -- -- 396,035
Exercise of warrants and stock
options, including related tax
benefit -- 14 4,338 -- -- -- 4,352
Buy-back of trust preferred
securities -- -- (381) -- -- -- (381)
Release of unearned ESOP shares -- -- 1,694 304 -- -- 1,998
Unrealized loss on
available-for-sale securities,
net of tax effect -- -- -- -- -- (6,252) (6,252)
---------- ------- -------- -------- ------- -------- --------
Balances at June 30, 1999 $ -- $ 339 $504,678 $(2,274) $11,771 $(4,375) $510,139
========== ======= ======== ======== ======= ======== ========
See accompanying notes to consolidated financial statements.
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TELEBANC FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six Months Ended
----------------
June 30,
--------
1999 1998
---- ----
Net cash provided by (used in) operating activities $ 3,820 $ (751)
Cash flows from investing activities:
Net increase in loans held to maturity (591,284) (65,963)
Release of unearned shares held by Employee Stock Ownership Plan 304 --
Equity investment in subsidiary 8,335 (1,720)
Purchases of available-for-sale securities (577,607) (380,353)
Proceeds from sales of available-for-sale securities 99,453 193,668
Proceeds from maturities of and principal payments on available-for-sale
securities 179,717 67,118
Net purchases of premises and equipment (12,283) (609)
Proceeds from sale of foreclosed real estate 1,536 782
----------- -----------
Net cash used in investing activities (891,829) (187,077)
Cash flows from financing activities:
Net increase in deposits 476,662 148,326
Advances from the Federal Home Loan Bank of Atlanta 1,460,010 219,200
Payments on advances from the Federal Home Loan Bank of Atlanta (1,512,510) (210,700)
Net increase (decrease) in securities sold under agreements to repurchase 181,075 (47,498)
Net increase in other borrowed funds -- (40)
Net (decrease) increase in subordinated debt (29,855) 119
Proceeds from the issuance of common stock 401,701 180
Repurchase of trust preferred securities (4,335) --
Dividends paid on trust preferred securities (1,100) (352)
Dividends paid on common and preferred stock -- (324)
----------- -----------
Net cash provided by financing activities 971,648 108,911
----------- -----------
Net increase (decrease) in cash and cash equivalents 83,639 (78,917)
Cash and cash equivalents at beginning of period 25,941 92,156
----------- -----------
Cash and cash equivalents at end of period $ 109,580 $ 13,239
=========== ===========
Supplemental information:
Interest paid on deposits and borrowed funds $ 66,961 $ 28,474
Income taxes paid 285 999
Gross unrealized (loss) gain on available-for-sale securities (11,205) 1,308
Tax effect of (loss) gain on available-for-sale securities $ 4,953 $ (461)
See accompanying notes to consolidated financial statements.
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TELEBANC FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
NOTE 1. BASIS OF PRESENTATION
Telebanc Financial Corporation (the "Company" or "Telebanc") is a savings
and loan holding company organized under the laws of Delaware in 1994. The
primary business of the Company is the activities conducted by TeleBank (the
"Bank" or "Telebank") and TeleBanc Capital Markets, Inc. ("TCM"). The Bank is a
federally chartered savings bank that provides deposit accounts insured by the
Federal Deposit Insurance Corporation to customers nationwide. TCM is a funds
manager and registered broker-dealer. TeleBanc Capital Trust I ("TCT I") and
TeleBanc Capital Trust II ("TCT II") are business trusts formed for the purpose
of issuing capital securities and investing the proceeds in junior subordinated
debentures issued by the Company. The Bank, through its wholly owned subsidiary
TeleBanc Servicing Corporation ("TSC"), owns 100% of TeleBanc Insurance
Services, Inc. ("TBIS"), which was formed in May 1998 to offer co-branded
insurance products. Until April 1999, TSC also owned 50% of AGT PRA, LLC ("AGT
PRA"). The primary business of AGT PRA is its two-thirds investment in Portfolio
Recovery Associates, LLC ("PRA"), which acquires and collects delinquent
consumer debt obligations for its own portfolio.
The financial statements as of June 30, 1999 and for the three and six
months ended June 30, 1999 and 1998 are unaudited but, in the opinion of
management, contain all adjustments, consisting solely of normal recurring
entries, necessary to present fairly the consolidated financial condition as of
June 30, 1999 and the results of consolidated operations for the three and six
months ended June 30, 1999 and 1998. The results of consolidated operations for
the three and six months ended June 30, 1999 are not necessarily indicative of
the results that may be expected for the entire year. The Notes to Consolidated
Financial Statements for the year ended December 31, 1998, included in the
Company's Annual Report to Stockholders for 1998, should be read in conjunction
with these statements.
Effective June 8, 1999 and June 22, 1998, the Board of Directors of the
Company approved the distribution of two-for-one stock splits of its outstanding
common stock, par value $0.01 (the "Common Stock"). The effects of these stock
splits have been retroactively applied in the consolidated financial statements
for all periods presented.
Certain prior year's amounts have been reclassified to conform to the
current year's presentation.
Effective January 1, 1999, the Company changed its method of accounting
for start-up costs to comply with Statement of Position 98-5, Reporting on the
Cost of Start-up Activities ("SOP 98-5"), issued by the American Institute of
Certified Public Accountants in 1998. SOP 98-5 requires that start-up activities
be expensed as incurred rather than capitalized. Therefore, as of January 1,
1999, the Company expensed all previously capitalized start-up costs, reporting
the expense as a cumulative effect of accounting change in the Consolidated
Statement of Operations and Comprehensive Income.
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TELEBANC FINANCIAL CORPORATION
NOTE 2. EARNINGS PER SHARE
Basic earnings per common share, as required by Statement of Financial
Accounting Standards No. 128, is computed by dividing adjusted net income by the
total of the weighted average number of common shares outstanding during the
respective periods. Options and warrants are deemed to be dilutive if the
average market price of the related Common Stock for the period exceeds the
exercise price.
In February 1997, the Company issued 29,900 shares of 4% Cumulative
Preferred Stock (the "Preferred Stock"), par value $0.01, which was convertible
to 4,798,958 shares of the Company's Common Stock. For purposes of the diluted
earnings per share calculation, the Company assumed that all outstanding shares
of Preferred Stock had converted to Common Stock as of the beginning of the
respective periods. In July 1998, the Preferred Stock converted to Common Stock
and, therefore, was no longer outstanding as of June 30, 1999.
The Company's year-to-date weighted average number of common shares
outstanding was 28,361,324 at June 30, 1999 and 8,960,032 at June 30, 1998. For
the diluted earnings per share computation, weighted average shares outstanding
also includes potentially dilutive securities.
EPS CALCULATION
Income Shares Per Share Amount
------ ------ ----------------
--------------------------------------------------
For the Quarter Ended June 30, 1999
--------------------------------------------------
Basic earnings per share
Income before extraordinary loss $ 1,691,000
Premium on redemption of trust preferred securities (a) (381,000)
-----------
Adjusted income before extraordinary loss 1,310,000 32,031,870 $ 0.04
Extraordinary loss on early extinguishment of debt, net of tax (1,987,000) (0.06)
=========== ------
Adjusted net income $ (677,000) $(0.02)
=========== ======
Options issued to management 3,383,182
Warrants 1,075,485
---------
Diluted earnings per share
Income before extraordinary loss $ 1,691,000
Premium on redemption of trust preferred securities (a) (381,000)
-----------
Adjusted income before extraordinary loss 1,310,000 36,490,537 $ 0.04
==========
Extraordinary loss on early extinguishment of debt, net of tax (1,987,000) (0.06)
----------- ------
Adjusted net income $ (677,000) $(0.02)
=========== ======
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TELEBANC FINANCIAL CORPORATION
Income Shares Per Share Amount
------ ------ ----------------
--------------------------------------------------
For the Quarter Ended June 30, 1998
--------------------------------------------------
Basic earnings per share
Net income $ 179,000
Less: preferred stock dividends (162,000)
---------
Income available to common shareholders $ 17,000 8,983,602 $0.00
=====
Options issued to management -- 1,290,484
Warrants -- 1,294,204
Convertible preferred stock -- --
----------------------------
Diluted earnings per share $ 17,000 11,568,290 $0.00(b)
=============================================
--------------------------------------------------
For the Six Months Ended June 30, 1999
--------------------------------------------------
Basic earnings per share
Income before extraordinary loss and cumulative effect of
accounting change $ 3,408,000
Premium on redemption of trust preferred securities (a) (381,000)
-----------
Adjusted income before extraordinary loss and cumulative
effect of accounting change 3,027,000 28,361,324 $ 0.11
Extraordinary loss on early extinguishment of debt, net of tax (1,987,000) (0.07)
----------- ------
Adjusted income before cumulative effect of accounting change 1,040,000 0.04
Cumulative effect of accounting change, net of tax (469,000) (0.02)
----------- ------
Adjusted net income $ 571,000 $ 0.02
=========== ======
Options issued to management 3,257,014
Warrants 1,217,252
----------
Diluted earnings per share
Income before extraordinary loss and cumulative effect of
accounting change $ 3,408,000
Premium on redemption of trust preferred securities (a) (381,000)
-----------
Adjusted income before extraordinary loss and cumulative
effect of accounting change 3,027,000 32,835,590 $ 0.09
==========
Extraordinary loss on early extinguishment of debt, net of tax (1,987,000) (0.06)
----------- ------
Adjusted income before cumulative effect of accounting change 1,040,000 0.03
Cumulative effect of accounting change, net of tax (469,000) (0.01)
----------- ------
Adjusted net income $ 571,000 $ 0.02
=========== ======
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TELEBANC FINANCIAL CORPORATION
Income Shares Per Share Amount
------ ------ ----------------
--------------------------------------------------
For the Six Months Ended June 30, 1998
--------------------------------------------------
Basic earnings per share
Net income $ 615,000
Less: preferred stock dividends (324,000)
-------------------
Income available to common shareholders $ 291,000 8,960,032 $ 0.03
==============
Options issued to management -- 1,261,984
Warrants -- 1,270,980
Convertible preferred stock -- --
-----------------------------------
Diluted earnings per share $ 291,000 11,492,996 $ 0.03(b)
=================================== ==============
(a) This charge represents costs incurred to purchase certain of the
Company's trust preferred securities on the open market. The charge was
made against additional paid-in capital but is assumed to reduce income
for earnings per share purposes. Refer to Note 3 for further discussion.
(b) The impact of the convertible preferred stock is antidilutive for the
three and six months ended June 30, 1998.
NOTE 3. TRUST PREFERRED SECURITIES
In June 1997, the Company formed TCT I, which in turn sold, at par,
10,000 shares of trust preferred securities, Series A, liquidation amount of
$1,000, for a total of $10.0 million in a private placement. TCT I is a business
trust formed for the purpose of issuing capital securities and investing the
proceeds in junior subordinated debentures issued by the Company. These junior
subordinated debentures, which are the sole assets of TCT I, have a principal
amount of $10.0 million and bear interest at an annual rate of 11.0%. The junior
subordinated debentures mature in 2027.
In May 1999, the Company purchased $1.0 million face amount of TCT I
trust preferred securities on the open market at a price of 112.5%. The Company
deemed these repurchased securities to be retired and, therefore, wrote off the
resulting premium and a proportionate share of the discount on TCT I securities
against additional paid-in capital. For the three- and six-month periods ended
June 30, 1999, the Company has assumed that this amount, which totals $174,000,
decreases net income for earnings per share purposes.
In July 1998, the Company formed TCT II, a business trust formed solely
for the purpose of issuing capital securities. TCT II sold, at par, 1,100,000
shares of Beneficial Unsecured Securities, Series A, with a liquidation amount
of $25 per share, for a total of $27.5 million and invested the net proceeds in
the Company's 9.0% Junior Subordinated Deferrable Interest Debentures, Series A.
These Junior Subordinated Deferrable Interest Debentures, Series A, which are
the sole assets of TCT II, have a principal amount of $27.5 million and mature
in 2028.
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TELEBANC FINANCIAL CORPORATION
In June 1999, the Company purchased $3.6 million face amount of TCT II
trust preferred securities on the open market at par. The Company deemed these
repurchased securities to be retired and, therefore, wrote off $207,000 of the
discount on TCT II securities against additional paid-in capital. For the three-
and six-month periods ended June 30, 1999, the Company has assumed that this
amount decreases net income for earnings per share purposes.
NOTE 4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). The statement establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at fair value. SFAS 133
requires that changes in the derivative instrument's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative instrument's gains and
losses to offset related results on the hedged item in the income statement and
requires that a company formally document, designate and assess the
effectiveness of transactions that receive hedge accounting treatment. SFAS 133
is effective for fiscal years beginning after June 15, 2000, although a company
may implement the statement as of the beginning of any fiscal quarter after
issuance, that is, fiscal quarters beginning June 16, 1999 and after. SFAS 133
cannot be applied retroactively. SFAS 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
and, at the Company's election, before January 1, 1998. The Company plans to
adopt SFAS 133 as of January 1, 2001 but has not yet quantified the impact of
adopting SFAS 133 on its financial statements. However, the statement could
increase volatility in earnings and other comprehensive income.
NOTE 5. RECENT EVENTS
In April 1999, the Company sold 7,940,000 shares of its Common Stock to
the public on a post-split basis, raising aggregate net proceeds of $396.0
million. The Company is using the majority of the proceeds to invest as
additional capital of Telebank and for general corporate purposes, which include
funding the Company's continued growth and augmenting working capital.
In June 1999, the Company used $18.3 million of proceeds from the equity
offering to redeem $17.3 million face amount of subordinated debt, including a
5.75% premium. This debt bore interest at 11.5% and had an original maturity
date of May 1, 2004. Additionally, the Company used $13.7 million of proceeds to
redeem $13.7 million face amount of subordinated debt, which bore interest at
9.5% and had an original maturity date of March 31, 2004. The Company recorded
an extraordinary loss of approximately $2.0 million, net of tax, on the early
extinguishment of debt.
In April 1999, TSC sold its equity investment in AGT PRA for a total of
$9.3 million, which resulted in a $4.1 million gain. In anticipation of the
Company's rapid growth, it made a 50% investment in AGT PRA, which was in a
start-up phase, with the expectation that its two-thirds-owned subsidiary, PRA,
would manage the Company's non-performing assets. Over time, however,
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TELEBANC FINANCIAL CORPORATION
PRA began to focus only on consumer credit. Therefore, the Company determined
that its investment in AGT PRA would not be a part of its core business and,
accordingly, sold its interest in the second quarter of 1999.
In May 1999, the Company completed the purchase of the building that
houses its current main headquarters in Arlington, Virginia, for $10.2 million.
In June 1999, the Company announced an agreement to be acquired by
E*TRADE Group, Inc. ("E*TRADE"), in a stock-for-stock exchange. The acquisition
is subject to approval by Telebanc's stockholders as well as required regulatory
approvals. In connection with the agreement, Telebanc and E*TRADE entered into a
Stock Option Agreement pursuant to which Telebanc granted E*TRADE an option,
exercisable under certain conditions, to purchase a certain number of
newly issued shares of Telebanc's Common Stock. Such option will expire upon
consummation of the merger.
NOTE 6. COMMITMENTS AND CONTINGENT LIABILITIES
As of June 30, 1999, we had commitments to purchase $366.4 million in
loans. Also, certificates of deposit that are scheduled to mature in less than
one year as of June 30, 1999 totaled $861.4 million. In the normal course of
business, we make various commitments to extend credit and incur contingent
liabilities that are not reflected in the balance sheets.
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TELEBANC FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, AS OF AND FOR
THE SIX MONTHS ENDED JUNE 30, 1999
This Quarterly Report on Form 10-Q contains forward-looking statements
and information relating to Telebanc and its subsidiaries. The words "believe",
"expect", "may", "will", "should", "project", "contemplate", "anticipate",
"forecast", "intend" or similar terminology are intended to identify
forward-looking statements. These statements are based on the beliefs of
management as well as assumptions made using information currently available to
management. Because these statements reflect the current views of management
concerning future events, they involve risks, uncertainties and assumptions.
Therefore, actual results may differ significantly from the results discussed in
the forward-looking statements. Certain factors that may cause such a difference
include interest rate fluctuations, our ability to create brand awareness, our
ability to grow through the introduction of new products and services and our
ability to attain year 2000 compliance and to ensure year 2000 compliance from
the third parties with whom we do business.
This discussion and analysis includes descriptions of material changes
that have affected our consolidated financial condition and consolidated results
of operations during the periods included in our financial statements.
FINANCIAL CONDITION (JUNE 30, 1999 COMPARED TO DECEMBER 31, 1998)
During the first six months of 1999, we experienced a $959.8 million, or
42.0%, increase in total assets from $2.3 billion at December 31, 1998 to $3.2
billion at June 30, 1999. Loans receivable, net accounted for the majority of
this rise, increasing $576.4 million from $904.9 million at December 31, 1998 to
$1.5 billion at June 30, 1999, an increase of 63.7%, as we began to leverage the
proceeds from our April 1999 equity offering to build our core assets during the
second quarter. Available-for-sale mortgage-backed securities also increased,
rising $290.1 million, or 28.7%, from $1.0 billion at December 31, 1998 to $1.3
billion at June 30, 1999. At the same time, our portfolio of trading
mortgage-backed and investment securities increased $2.8 million, or 9.3%, to
$32.3 million at June 30, 1999 from $29.6 million at December 31, 1998.
We funded this overall asset growth through additional retail deposits
and other borrowings, as well as $396.0 million of net proceeds from our April
1999 equity offering. Retail deposits grew $476.7 million, or 41.7%, to $1.6
billion at June 30, 1999 from $1.1 billion at December 31, 1998. This rise
corresponds to net retail customer account growth of 18,497, bringing the number
of retail deposit accounts to 69,332 at June 30, 1999, up from 50,835 at the end
of 1998. Federal Home Loan Bank advances and other borrowings increased $128.6
million, or 14.7%, from $876.9 million at December 31, 1998 to $1.0 billion at
June 30, 1999.
Stockholders' equity increased $396.7 million from $113.4 million at
December 31, 1998 to $510.1 million at June 30, 1999. This increase reflects net
income of $952,000, proceeds of $400.3 million from our recent equity offering
as well as the exercise of options and warrants, and $2.0 million of non-cash
increases due to the release of unearned shares belonging to the Employee Stock
Ownership Plan, offset by a decrease of $381,000 related to the buy-back of
trust preferred securities and unrealized losses on available-for-sale
securities of $6.3 million.
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TELEBANC FINANCIAL CORPORATION
The following table presents consolidated average balance sheet data,
income and expenses and related interest yields and rates for the quarters ended
June 30, 1999 and 1998. The table also presents information for the periods
indicated with respect to net interest margin, an indicator of an institution's
profitability. Net interest margin is annualized net interest income as a
percentage of average interest-earning assets. Another indicator of
profitability is net interest spread, which is the difference between the
weighted average yield earned on interest-earning assets and weighted average
rate paid on interest-bearing liabilities. Average annualized yield includes the
incremental tax benefit of tax exempt income.
Quarter Ended June 30, 1999 Quarter Ended June 30, 1998
--------------------------------------------------------------------------------------------
Interest Average Interest Average
(In thousands) Average Income/ Annualized Average Income/ Annualized
(unaudited) Balance Expense Yield/Cost Balance Expense Yield/Cost
------- ------- ---------- ------- ------- ----------
Interest-earning assets:
Loans receivable, net $1,306,819 $24,755 7.58% $ 557,801 $10,781 7.73%
Interest-bearing deposits 31,339 370 4.73 6,749 106 6.21
Mortgage-backed securities
available for sale 1,277,246 20,578 6.44 280,962 5,209 7.42
Investment securities
available for sale 213,934 3,285 6.35 119,293 1,911 6.41
Investment in FHLB stock 24,403 456 7.50 9,713 182 7.50
Trading securities 21,257 388 7.31 31,740 589 7.34
---------- ------- ---------- -------
Total interest-earning assets 2,874,998 49,832 6.93% 1,006,438 18,778 7.46%
Non-interest-earning assets 109,208 32,792
---------- ----------
Total assets $2,984,206 $1,039,230
========== ==========
Interest-bearing liabilities:
Retail deposits $1,416,953 $19,909 5.64% $ 581,583 $ 8,757 6.04%
Brokered callable certificates
of deposit 67,093 1,110 6.63 61,237 1,020 6.68
FHLB advances 467,434 6,351 5.38 183,445 2,813 6.07
Other borrowings 499,026 6,668 5.29 117,602 1,707 5.74
Subordinated debt, net 20,062 591 11.77 30,010 881 11.75
---------- ------- ---------- -------
Total interest-bearing
liabilities 2,470,568 34,629 5.62% 973,877 15,179 6.22%
Non-interest-bearing liabilities 61,426 23,072
---------- ----------
Total liabilities 2,531,994 996,949
Stockholders' equity 452,212 42,281
---------- ----------
Total liabilities and
stockholders' equity $2,984,206 $1,039,230
========== ==========
Excess of interest-earning
assets over interest-bearing
liabilities/net interest
income $ 404,430 $15,203 $ 32,561 $ 3,599
========== ======= ========== =======
Net interest spread 1.31% 1.24%
====== ======
Net interest margin (net yield
on interest-earning assets) 2.12% 1.43%
====== ======
Ratio of interest-earning
assets to interest-bearing
liabilities 116.37% 103.34%
====== ======
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TELEBANC FINANCIAL CORPORATION
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net Income. Net income for the three and six months ended June 30, 1999
totaled $(296,000) and $952,000, decreasing $475,000 from $179,000 for the three
months ended June 30, 1998, but increasing $337,000 from $615,000 for the six
months ended June 30, 1998. Net income for the three months ended June 30, 1999,
which is net of an extraordinary loss on early extinguishment of debt of $2.0
million as well as a $1.8 million non-cash charge incurred upon the release of
unearned shares held by the Employee Stock Ownership Plan, or ESOP, consisted
primarily of $15.2 million of net interest income and $3.6 million of
non-interest income reduced by $665,000 in provision for loan losses, $13.3
million in non-interest expenses and $2.5 million of income tax expense. Net
income for the three months ended June 30, 1998 consisted primarily of $3.3
million of net interest income and $1.1 million of non-interest income, offset
by a $75,000 loan loss provision, $3.9 million of non-interest expenses and
income tax expense of $51,000. Net income for the six months ended June 30 1999,
which is net of the $2.0 million extraordinary loss as well as a $469,000
cumulative effect of accounting change, consisted primarily of $24.5 million of
net interest income and $7.3 million of non-interest income reduced by $1.2
million in provision for loan losses, $22.3 million in non-interest expenses and
$3.8 million in income tax expense. Net income for the six months ended June 30,
1998 consisted primarily of $6.9 million of net interest income and $3.0 million
of non-interest income, offset by $325,000 of provision for loan losses, as well
as $8.1 million of non-interest expenses and $526,000 of income tax expense. Our
return on average assets and return on average equity for the quarter ended June
30, 1999 were (0.04)% and (0.26)%.
Net Interest Income. Net interest income for the three-month periods
ended June 30, 1999 and 1998 totaled $15.2 million and $3.3 million, reflecting
an annualized net interest margin of 2.12% and 1.30%. This increase in net
interest income is related to the increase in net interest margin as well as
higher volume, as we increased our interest-earning assets significantly during
1998 and the first half of 1999. During the second quarter of 1999, average
interest-earning assets, consisting primarily of loans receivable, net, and
mortgage-backed securities, totaled $2.9 billion and yielded 6.93%. In contrast,
average interest-earning assets during the same quarter in 1998 totaled $1.0
billion and reflected a yield of 7.46%. Average interest-bearing liabilities for
the quarters ended June 30, 1999 and 1998 were $2.5 billion and $973.9 million,
costing 5.62% in the second quarter of 1999 as compared to 6.22% during the same
period in 1998. The decline in the yield on interest-earning assets and the
decline in the cost of interest-bearing liabilities resulted from changes in
overall market conditions during the latter part of 1998 and the first half of
1999.
We earned net interest income of $24.5 million and $6.9 million during
the six months ended June 30, 1999 and 1998. Average interest-earning assets,
consisting primarily of loans receivable, net, and mortgage-backed securities,
totaled $2.6 billion and $989.0 million for the six months ended June 30, 1999
and 1998, yielding 6.95% and 7.37%, respectively. Average interest-bearing
liabilities were $2.4 billion and $953.4 million for the six months ended June
30, 1999 and 1998, costing 5.65% in the first six months of 1999, as compared to
6.23% in the same period in 1998.
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TELEBANC FINANCIAL CORPORATION
Provision for Loan Losses. The provision for loan losses reflects
management's intent to provide prudent reserves for potential losses on loans
acquired during the quarter. We recorded a loan loss provision of $665,000 for
the second quarter of 1999, in accordance with our policy of providing adequate
reserves for losses in the portfolio. Net charge-offs during the quarter totaled
$44,000, which represents an annualized level of 1 basis point of average loan
balances for the quarter. As of June 30, 1999, our total loan loss allowance was
$5.8 million, or 0.4% of total loans outstanding. The total loan loss allowance
at June 30, 1998 was $3.6 million, which was 0.6% of total loans outstanding.
The general loan loss allowance totaled 84.2% of total non-performing assets as
of June 30, 1999 and 34.5% as of June 30, 1998.
Non-interest Income. Non-interest income totaled $3.6 million during the
second quarter of 1999, increasing $2.5 million or 223.2%, from $1.1 million for
the same period in 1998. Similarly, non-interest income for the first six months
of 1999 increased $4.2 million, or 137.6%, over the same period in 1998. These
increases are due primarily to a $4.1 million gain on equity investment that was
generated by the sale of our investment in AGT PRA. In anticipation of rapid
growth, we made a 50% investment in AGT PRA, which was in a start-up phase, with
the expectation that its two-thirds-owned subsidiary, PRA, would manage our
non-performing assets. Over time, however, PRA began to focus only on consumer
credit, and we determined that our investment in AGT PRA would not be a part of
our core business. Accordingly, we sold our interest in the second quarter of
1999. For the three months ended June 30, 1999, we also reported losses of
$383,000 from the sale of mortgage-backed and investment securities, $220,000
from sales and prepayments of loans held for sale, $596,000 from net realized
and unrealized gains on our trading portfolio and $631,000 of income from loan
servicing charges and other fees. Non-interest income for the second quarter of
1998 consisted of gains of $749,000 from the sale of mortgage-backed and
investment securities, gains of $73,000 on sales and prepayments of loans held
for sale and $365,000 in loan servicing charges and other fees, offset by losses
of $6,000 from trading activity and $77,000 from equity investment.
Non-interest Expenses. We increased our non-interest expenses
substantially during 1999, recording $13.3 million for the three months ended
June 30, 1999, or an increase of 239.8% from $3.9 million for the same period in
1998. The majority of this increase resulted from higher marketing costs, as we
continued our strategy of increasing marketing expenses to grow our deposit base
and expand the reach of our high value banking products. Specifically,
advertising and marketing costs rose $2.8 million, or 490.8%, from $576,000 for
the quarter ended June 30, 1998 to $3.4 million for the second quarter of 1999.
Additionally, compensation costs increased $3.4 million, or 201.3%, from $1.7
million for the second quarter of 1998 to $5.0 million for the same quarter in
1999 due to additional personnel as well as a $1.8 million non-cash charge
incurred upon the release of unearned shares held by the ESOP. Loan servicing
expense totaled $1.3 million in the second quarter of 1999, increasing $928,000,
or 287.3%, from $323,000 for the same quarter in 1998, due to the significant
increase in the size of our loan portfolio as well as our decision to outsource
our loan servicing function in third quarter 1998. Other selling, general and
administrative expenses increased $2.2 million, or 252.4%, from $872,000 for the
quarter ended June 30, 1998 to $3.1 million for the same quarter in 1999. This
increase is due primarily to higher recruiting costs and increased consulting
fees, which were driven by our overall growth over the past year. Non-interest
expenses for the six months ended June 30, 1999 totaled $22.3 million,
increasing $14.2
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TELEBANC FINANCIAL CORPORATION
million, or 174.3%, from $8.1 million for the same period in 1998. This rise was
driven by substantial increases in compensation costs and marketing expenses.
Annualized general and administrative expenses, excluding marketing costs, for
the three and six months ended June 30, 1999 totaled 1.15% and 0.94% of total
ending assets. Excluding the effect of the non-cash compensation charge incurred
upon the release of unearned shares held by the ESOP, these ratios, excluding
marketing costs, totaled 0.93% and 0.82% for the three and six months ended June
30, 1999.
Income Tax Expense. Income tax expense for the quarter ended June 30,
1999 totaled $2.5 million, yielding an effective tax rate of 53.1%, compared to
$51,000 and an effective tax rate of 12.6% for the three months ended June 30,
1998. This increase in the effective tax rate is due primarily to the
non-deductibility of the $1.8 million non-cash compensation charge incurred upon
the release of unearned shares held by the ESOP. The effective tax rate for the
six months ended June 30, 1999 was 45.8%, as compared to 35.2% for the six
months ended June 30, 1998.
LIQUIDITY
Liquidity represents our ability to raise funds to support asset growth,
fund operations and meet obligations, including deposit withdrawals, maturing
liabilities, and other payment obligations, to maintain reserve requirements and
to otherwise meet our ongoing obligations. We meet our liquidity needs primarily
through financing activities, such as increases in core deposit accounts,
maturing short-term investments, loans and repayments of investment securities,
and, to a lesser extent, sales of loans or securities.
Telebank is required to maintain minimum levels of liquid assets as
defined by the regulations of the Office of Thrift Supervision, or OTS. This
requirement, which may vary at the discretion of the OTS depending upon economic
conditions and deposit flows, is based upon a percentage of deposits and
short-term borrowings. The minimum required ratio is 4.0%. At June 30, 1999, the
Bank's liquidity ratio was 5.35%.
In April 1999, we raised capital through an equity offering, in which we
sold 7,940,000 post-split shares of common stock to the public, raising
aggregate net proceeds of $396.0 million. We used a portion of the net proceeds
of this offering to redeem $31.0 million face amount of subordinated debt in
June 1999.
CAPITAL RESOURCES
At June 30, 1999, Telebank was in compliance with all of its regulatory
capital requirements, and its capital ratios exceeded the ratios for
"well-capitalized" institutions under OTS regulations.
The following table sets forth Telebank's regulatory capital levels at
June 30, 1999 in relation to the regulatory requirements in effect at that date.
The information below is based upon our understanding of the regulations and
interpretations currently in effect and may be subject to change.
18
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TELEBANC FINANCIAL CORPORATION
Required to be Well
Required for Capital Capitalized under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(In Thousands)
Core Capital (to
adjusted tangible greater than greater than
assets) $ 432,881 13.65% $ 126,866 4.0% $ 158,582 5.0%
Tangible Capital (to
adjusted tangible greater than
assets) $ 432,881 13.65% $ 47,575 1.5% N/A N/A
Tier I Capital (to
risk-weighted greater than
assets) $ 432,881 31.99% N/A N/A $ 81,196 6.0%
Total Capital (to
risk-weighted greater than greater than
assets) $ 438,276 32.39% $ 108,261 8.0% $ 135,326 10.0%
YEAR 2000 ISSUES
In 1997, we began year 2000 planning, following the five steps
recommended by the Federal Financial Institutions Examination Council. We have
completed phases focused on awareness and assessment and continue to update the
results of these phases for new information received. Currently, the renovation
phase, which consists of implementing changes and monitoring vendor renovation,
and the validation phase, which consists of testing renovated systems, are
underway. We are monitoring vendors for software updates and final compliance
certification statements and have received certifications from all of our
vendors. Some vendors, however, have continued to update their products to
correct year 2000 issues even after certifying that they are year 2000
compliant, indicating that these certifications may not be final. As a result,
following the receipt of the final certification statements relating to those
systems identified as mission critical in the assessment phase, we internally
validate such certifications through testing. To date, we have identified no
significant year 2000 issues through our testing of mission critical systems.
Our mission critical systems include the deposit processing system, general
ledger system and internet banking applications. As of June 30, 1999, we are
substantially complete with all five phases of our year 2000 plan for mission
critical systems, including awareness, assessment, renovation, validation and
implementation. During the remainder of the year, we will focus on testing and
validating our plans to maintain business continuity in the event of an
unexpected failure. We will also continue our testing efforts for non-mission
critical systems, which we anticipate completing during the third quarter of
1999. Additionally, we will continue developing our customer awareness program
designed to alleviate concerns or questions that may arise.
Our steady growth over the past several years has required that we
continually upgrade our systems; we do not anticipate that we will incur
material costs related to our year 2000 remediation efforts. We have analyzed
the impact of year 2000 issues on our non-information technology systems such
as embedded chips necessary for proper operation of mechanical systems and have
concluded that these issues do not present a significant risk to our
operations.
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TELEBANC FINANCIAL CORPORATION
Few upgrades have been accelerated due to the year 2000 issue. To date,
we have spent approximately $25,000 on upgrades related to our year 2000
remediation efforts, with an additional $75,000 expected to be spent on
compliance efforts before the year 2000. In May 1999, we hired an outside
consulting firm to provide an additional hardware test environment that will aid
us in the testing of mission critical systems. As of June 30, 1999, this process
is substantially complete, and we expect to be billed for these services in the
third quarter of 1999.
The majority of our loans are serviced by a large company that uses the
same system as several of the largest loan servicers in the United States and
that is expected to be year 2000 compliant. We are currently monitoring the
servicer's year 2000 plan and testing. However, approximately 38% of our loans
are serviced by smaller loan servicers whose systems may not be year 2000
compliant. If these systems were to fail, principal and interest payments on the
loans serviced by these servicers could be delayed, and we would lose interest
income that we would normally earn on these funds. We have developed a
contingency plan to address this loan servicing issue specifically. Under the
contingency plan, we notified these servicers that if we did not receive
confirmation of compliance by March 31, 1999, we would begin transferring
servicing of these loans to servicers who are known to be year 2000 complaint.
While most of these small servicers appear to be year 2000 compliant, we are
currently contacting a small number of these servicers to discuss transferring
their loan portfolios to larger servicers.
Based upon current information, we do not anticipate costs associated
with the year 2000 issue to have a material financial impact. There may,
however, be interruptions or other limitations of financial and operating
systems' functionality and we may incur additional costs to avoid such
interruptions or limitations. Our expectations about future costs associated
with the year 2000 issue are subject to uncertainties that could cause actual
results to have a greater financial impact than currently anticipated. Factors
that could influence the amount and timing of future costs include:
- our success in identifying systems and programs that contain
two-digit year codes;
- the nature and amount of programming required to upgrade or
replace each of the affected programs;
- the rate and magnitude of related labor and consulting costs; and
- our success in addressing the year 2000 issues with third-parties
with which we do business.
MARKET RISK
We manage interest rate risk through the use of financial derivatives
such as interest rate cap, swap and floor agreements. We use these instruments
to ensure that the market value of equity and net interest income are protected
from the impact of changes in interest rates. We have experienced no material
changes in market risk during the first six months of 1999.
20
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TELEBANC FINANCIAL CORPORATION
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to Security Holders
On May 27, 1999, Telebanc held its 1999 Annual Meeting of Stockholders
(the "Annual Meeting"). At the Annual Meeting, Dean C. Kehler, Michael M. Lynton
and Steven F. Piaker were elected to the Board of Directors for three-year terms
ending in 2002. The Directors continuing in office were David R. DeCamp, Mark
Rollinson and Marcia Myerberg, whose terms expire in 2000, and Mitchell H.
Caplan and David A. Smilow, whose terms expire in 2001. The stockholders also
voted to amend the Certificate of Incorporation to increase the number of
authorized shares of Common Stock and change the corporate name, to amend the
1998 Stock Incentive Plan to increase the maximum number of shares of Common
Stock reserved for issuance and to ratify the Board's appointment of Arthur
Andersen LLP as the independent auditors of the Company for the fiscal year
ending December 31, 1999.
The votes cast at the annual meeting were as follows (share numbers are
pre-split):
Election of Dean C. Kehler FOR - 9,915,161
AGAINST - 0
WITHHELD - 20,230
Election of Michael M. Lynton FOR - 9,914,961
AGAINST - 0
WITHHELD - 20,430
Election of Steven F. Piaker FOR - 9,915,161
AGAINST - 0
WITHHELD - 20,230
Amend the Certificate of Incorporation to increase the
authorized number of shares of Common Stock from
29,500,000 to 135,000,000 FOR - 8,276,346
AGAINST - 1,650,775
ABSTAIN - 8,270
BROKER NON-VOTES - 0
Amend the Certificate of Incorporation to change the
corporate name from TeleBanc Financial Corporation to
Telebanc Financial Corporation FOR - 9,926,357
AGAINST - 5,244
ABSTAIN - 3,790
BROKER NON-VOTES - 0
21
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TELEBANC FINANCIAL CORPORATION
Amend the 1998 Stock Incentive Plan (the "Plan") to
increase the maximum number of shares of Common Stock
reserved for issuance under the Plan by 2,000,000. FOR - 6,383,803
AGAINST - 1,928,752
ABSTAIN - 4,940
BROKER NON-VOTES - 1,617,896
Ratification of appointment of Arthur Andersen LLP as
independent auditors for fiscal year 1999 FOR - 9,934,151
AGAINST - 420
ABSTAIN - 820
BROKER NON-VOTES - 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.0 Real Estate Purchase Contract for 1111 North Highland
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On April 2, 1999, the Company reported to the Securities and
Exchange Commission on Form 8-K under Item 5, Other Events, that
on March 31, 1999, the Company announced the signing of an
agreement with First USA to offer an internet-enabled credit card.
On April 8, 1999, the Company reported to the Securities and
Exchange Commission on Form 8-K under Item 5, Other Events, that
on April 7, 1999, the Company signed an agreement to purchase the
building located at 1111 North Highland Street, Arlington,
Virginia, the site of its current main headquarters, for $10.2
million.
On June 8, 1999, the Company reported to the Securities and
Exchange Commission on Form 8-K under Item 1, Changes in Control
of Registrant, that on May 31, 1999, the Company entered into an
agreement to be acquired by E*TRADE Group, Inc. in a
stock-for-stock exchange.
22
23
TELEBANC FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Telebanc Financial Corporation
------------------------------
(Registrant)
Date: August 13, 1999 By: /s/ Mitchell H. Caplan
----------------------------------- ----------------------------------------------------
Mitchell H. Caplan
President and Chief Executive Officer
Date: August 13, 1999 By: /s/ Aileen Lopez Pugh
----------------------------------- ----------------------------------------------------
Aileen Lopez Pugh
Executive Vice President and Chief Financial Officer
23
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TELEBANC FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Telebanc Financial Corporation
------------------------------
(Registrant)
Date: By:
----------------------------------- ----------------------------------------------------
Mitchell H. Caplan
President and Chief Executive Officer
Date: By:
----------------------------------- ----------------------------------------------------
Aileen Lopez Pugh
Executive Vice President and Chief Financial Officer