-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K7snEoQGGvaiGJ00JPd+ZJ2WQuIL8qrRnJln4+X5duZpdiRk6X9YR7ZQg0jLQwpB g7zOrqsJ7ENinTMPloZx3w== 0000898430-96-003781.txt : 19960816 0000898430-96-003781.hdr.sgml : 19960816 ACCESSION NUMBER: 0000898430-96-003781 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAY VIEW CAPITAL CORP CENTRAL INDEX KEY: 0000840387 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 943078031 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17901 FILM NUMBER: 96611584 BUSINESS ADDRESS: STREET 1: 2121 S EL CAMINO REAL CITY: SAN MATEO STATE: CA ZIP: 94403 BUSINESS PHONE: 4155737300 MAIL ADDRESS: STREET 2: 2121 SOUTH EL CAMINO REAL CITY: SAN MATEO STATE: CA ZIP: 94403 10-Q 1 FORM 10-Q UNITED STATES 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 June 30, 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 0-17901 BAY VIEW CAPITAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-3078031 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2121 South El Camino Real, San Mateo, California 94403 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 573-7300 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 of each of the registrant's classes of common stock, as of the latest practicable date. Common Stock, Par Value $.01 Outstanding at July 31, 1996 (Title of Class) 6,885,242 shares INDEX BAY VIEW CAPITAL CORPORATION ----------------------------
Page(s) ------- PART I. FINANCIAL INFORMATION - ------- --------------------- Item 1. Financial Statements (Unaudited): Consolidated Statements of Financial Condition... 3 Consolidated Statements of Operations............ 4 Consolidated Statements of Cash Flows............ 5-6 Notes to Consolidated Financial Statements....... 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 10-26 PART II. OTHER INFORMATION - -------- ----------------- Other Information.................................. 27-28 Signatures......................................... 29
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ----------------------------- CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, DECEMBER 31, (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1995 - ---------------------------------------------- ------------ ------------ ASSETS Cash and cash equivalents: Cash and due from depository institutions $ 18,892 $ 24,144 Interest-bearing deposits and federal funds sold 17,098 18,616 ---------- ---------- 35,990 42,760 Securities available for sale: Mortgage-backed securities 115,935 149,778 Investment securities 1,220 8,035 Securities held to maturity: Mortgage-backed securities, net of allowance for losses: 1996, $165; 1995, $930 535,454 581,600 Investment securities 32,547 39,928 Loans receivable held for investment, net of allowance for losses: 1996, $36,821; 1995, $30,014 2,521,824 2,062,268 Investment in stock of the Federal Home Loan Bank of San Francisco 42,601 39,450 Real estate owned, net 18,290 24,476 Premises and equipment, net 19,153 16,184 Core deposit premiums 4,667 5,835 Goodwill 18,182 --- Other assets 42,984 34,182 ---------- ---------- Total assets $3,388,847 $3,004,496 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Customer deposits 2,201,604 1,819,840 Advances from the Federal Home Loan Bank of San Francisco 748,550 766,790 Securities sold under agreements to repurchase 137,640 166,738 Senior Debentures 50,000 --- Other borrowings 9,991 7,937 Other liabilities 34,885 35,214 ---------- ---------- Total liabilities 3,182,670 2,796,519 Stockholders' equity: Serial preferred stock: authorized, 7,000,000 shares; outstanding: none --- --- Common stock ($.01 par value); authorized, 20,000,000 shares; outstanding: 1996, 6,885,242 shares; 1995, 7,101,590 shares 69 71 Additional paid-in capital 98,896 97,646 Retained earnings (substantially restricted) 114,543 115,966 Unrealized loss on securities available for sale (net of tax) (2,693) (683) Debt of Employee Stock Ownership Plan (4,638) (5,023) ---------- ---------- Total stockholders' equity 206,177 207,977 ---------- ---------- Total liabilities and stockholders' equity $3,388,847 $3,004,496 ========== ==========
See accompanying Notes to Consolidated Financial Statements 3 CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1995 1996 1995 - ---------------------------------------------- --------- --------- --------- --------- Interest income: Interest on loans receivable $44,941 $38,605 $85,328 $74,806 Interest on mortgage-backed securities 10,593 14,041 21,963 29,608 Interest and dividends on investments 1,560 1,620 3,212 3,332 -------- -------- -------- ------- 57,094 54,266 110,503 107,746 -------- -------- -------- ------- Interest expense: Interest on customer deposits 24,453 23,581 47,711 44,366 Interest on borrowings 13,804 17,118 27,741 35,384 -------- -------- -------- ------- 38,257 40,699 75,452 79,750 -------- -------- -------- ------- Net interest income 18,837 13,567 35,051 27,996 Provision for losses on loans and securities 818 900 1,418 1,800 -------- -------- -------- ------- Net interest income after provision for losses 18,019 12,667 33,633 26,196 -------- -------- -------- ------- Noninterest income: Loan fees and charges 1,123 847 2,031 2,094 Loss on sale of securities --- (2,212) (262) (2,196) Rental income from premises 206 202 403 389 Other, net 1,180 1,129 2,160 2,106 -------- -------- -------- ------- 2,509 (34) 4,332 2,393 -------- -------- -------- ------- Noninterest expense: General and administrative expenses 12,306 13,213 23,043 25,199 Real estate owned operations, net (774) (260) (1,662) (610) Provision for (recovery of) losses on real estate (70) 335 (123) (236) Writedown of fixed assets 925 --- 925 --- Amortization and writedown of intangibles 678 605 1,404 1,210 -------- -------- -------- ------- 13,065 13,893 23,587 25,563 -------- -------- -------- ------- Income (loss) before income tax expense (benefit) 7,463 (1,260) 14,378 3,026 Income tax expense (benefit) 3,247 (511) 6,169 1,332 -------- -------- -------- ------- Net income (loss) $ 4,216 $ (749) $ 8,209 $ 1,694 ======= ======== ======= ======= Primary earnings (loss) per share $ 0.60 $ (0.10) $ 1.16 $ 0.23 ======= ======== ======= =======
See accompanying Notes to Consolidated Financial Statements 4 CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, (DOLLARS IN THOUSANDS) 1996 1995 - --------------------- ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 8,209 $ 1,694 Adjustments to reconcile net income to net cash provided by operating activities: Amortization and writedown of intangible assets 1,404 1,210 Writedown on disposal of fixed assets 925 --- Proceeds from loans sold --- 135 Provision for losses 1,543 1,564 Depreciation and amortization of premises and equipment 1,355 1,631 Amortization of deferred loan (fees) costs 677 (184) Decrease in capitalized excess servicing fees 230 410 Amortization of premiums and discounts 1,219 1,454 Loss on sale of securities 262 2,196 (Increase) decrease in other assets (1,996) 581 Decrease in other liabilities (7,689) (5,330) Other, net (138) (463) -------- -------- Net cash provided by operating activities 6,001 4,898 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of California Thrift and Loan, net of cash and cash equivalents received (60,918) --- Net (increase) decrease in loans resulting from originations, net of principal payments 44,051 (59,851) Purchases of loans (37,950) (1,649) Principal payments on mortgage-backed securities 48,204 42,912 Proceeds from sales of mortgage-backed securities 26,808 101,242 Proceeds from maturities of investment securities 32,000 --- Purchase of investment securities (200) (2,000) Proceeds from sale of real estate owned 13,367 7,007 Proceeds from loans sold 9,668 --- Net additions to premises and equipment (494) (2,097) (Increase) decrease in stock of FHLBSF (1,268) 4,217 Other, net (198) --- -------- -------- Net cash provided by investing activities 73,070 89,781 -------- --------
5 CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
SIX MONTHS ENDED JUNE 30, (DOLLARS IN THOUSANDS) 1996 1995 - ---------------------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Net deposit inflows (outflows) (75,131) 114,892 Proceeds from Federal Home Loan Bank of San Francisco advances 540,000 29,000 Repayment of Federal Home Loan Bank of San Francisco advances (560,740) (88,630) Issuance of Senior Debentures, net of issuance costs 49,300 --- Repurchase of common stock (7,562) --- Proceeds from reverse repurchase agreements --- 29,098 Repayment of reverse repurchase agreements (29,098) (166,712) Repayment of other borrowings (1,788) (487) Proceeds from issuance of common stock 1,248 3,381 Dividends paid to stockholders (2,070) (2,188) --------- --------- Net cash used in financing activities (85,841) (81,646) --------- --------- Net increase (decrease) in cash and cash equivalents (6,770) 13,033 Cash and cash equivalents at beginning of period 42,760 26,192 --------- --------- Cash and cash equivalents at end of period $ 35,990 $ 39,225 ========= ========= Cash paid during the period for: Interest $ 31,900 $ 39,060 Income Taxes $ 4,801 $ 3,240 ========= ========= Supplemental noncash investing activities: Loans transferred to real estate owned $ 4,470 $ 17,306 Loans originated to sell real estate owned $ 4,263 $ 746 The acquisition of California Thrift and Loan involved the following (see note 2): Push-down of the Company's acquisition cost 61,232 Preliminary estimate of liabilities assumed 469,971 Preliminary estimate of the fair value of assets acquired, other than cash and cash equivalents $(512,472) Goodwill (18,417) --------- Net cash and cash equivalents received $ 314 ---------
See accompanying Notes to Consolidated Financial Statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION In the opinion of Bay View Capital Corporation, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the Company's financial condition as of June 30, 1996 and December 31, 1995, the results of its operations for the three and six months ended June 30, 1996 and 1995 and cash flows for the six months ended June 30, 1996 and 1995. The accompanying unaudited consolidated financial statements include the accounts of Bay View Capital Corporation (the "Company" or "BVCC") and its principal subsidiaries, Bay View Federal Bank, A Federal Savings Bank ("BVFB"), and California Thrift and Loan, a California industrial loan company ("CTL"). All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial condition, results of operations and cash flows in conformity with generally accepted accounting principles. The following information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" is written with the presumption that the users of these interim financial statements have read or have access to the Company's 1995 Annual Report on Form 10-K (as amended), which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition as of December 31, 1995 and 1994 and Results of Operations for the years ended December 31, 1995, 1994 and 1993. Therefore, only certain changes in financial condition and results of operations are discussed in the remainder of Part I. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period. When necessary, reclassifications have been made to prior period amounts to conform to current period presentation. NOTE 2 - ACQUISITION OF CTL CREDIT, INC On June 14, 1996, the Company acquired CTL Credit, Inc. ("CTL Credit"), a Delaware corporation and the holding company for CTL. CTL Credit was then liquidated, with its assets transferred to and liabilities assumed by the Company. CTL became a stand-alone subsidiary of the Company and a sister bank to BVFB. The acquisition is being accounted for using the purchase accounting method and the consolidated net income of the Company for the six months ended June 30, 1996 includes an estimate of the impact of the acquisition for the entire month of June 1996. For further discussion on the impact of the acquisition of CTL Credit and on future earnings, please see "Management's Discussion and Analysis of the Financial Condition and Results of Operations" section. The acquisition of CTL Credit was financed with 7 existing cash and borrowings. The Company issued $50 million in Senior Debentures yielding 8.42% (all-in cost was 8.91% annualized) and $26 million of the proceeds was used to finance the acquisition of CTL. The remaining portion of the debt issuance will be redeployed through the repurchase of stock or acquisition of other entities. CTL had total assets of $512.2 million and total liabilities of $466.9 million at June 1, 1996. The acquisition cost of $61.2 million has been pushed down to CTL and the excess of the purchase price over the estimated fair value of net assets acquired at June 1, 1996 of $18.4 million was recognized as goodwill. Goodwill is being amortized on a straight-line basis over a period of approximately seven years. This amortization period will be subject to review following the completion of purchase accounting valuations. The Company has not finalized the purchase accounting valuations and expects to finalize the adjustments by the end of third quarter 1996. The following pro forma financial information combines the historical results of the Company as if the acquisition of CTL Credit had occurred as of the beginning of each period presented.
SIX MONTHS ENDED JUNE 30, 1996 1995 ---------------------- ---------------------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Net interest income $46,707 $41,660 Net income 8,445 1,646 Earnings per share 1.20 0.23
NOTE 3 - EARNINGS (LOSS) PER SHARE The earnings (loss) per share computation for the three and six months ended June 30, 1996 and 1995 was determined by dividing net income for each period by the average number of common shares outstanding. Outstanding shares also include common stock equivalents, which consist of certain outstanding stock options. The average number of shares outstanding (including common stock equivalents) for the three months ended June 30, 1996 and 1995 were 6,995,108 shares and 7,335,930 shares, respectively, and for the six months ended June 30, 1996 and 1995 were 7,049,499 shares and 7,279,837 shares, respectively. The Company has not separately reported its fully diluted earnings per share as it is not materially different than primary earnings per share. 8 NOTE 4 - STOCK OPTIONS The Company has adopted the Amended and Restated 1986 Stock Option and Incentive Plan and the 1995 Stock Option and Incentive Plan which authorize the issuance of up to 879,715 shares and 500,000 shares, respectively of common stock. The Company also has adopted the Non-Employee Director Stock Option Plan, which authorizes the issuance of up to 275,000 shares of common stock. The stock option plans were approved by the Company's shareholders. As of June 30, 1996, the number of stock options available for grant for each of the stock option plans was as follows:
1986 1995 DIRECTOR STOCK STOCK STOCK OPTION OPTION OPTION PLAN PLAN PLAN TOTAL ---------- -------- --------- ---------- Number of shares reserved for issuance 879,715 500,000 275,000 1,654,715 Granted (1,024,408) (295,500) (228,000) (1,547,908) Canceled 145,037 10,000 10,000 165,037 ---------- -------- -------- ---------- Total available for grant 344 214,500 57,000 271,844 ---------- -------- -------- ----------
At June 30, 1996, the Company had outstanding non-qualified options for all three plans with expiration dates from 1997 to 2006 as follows:
EXERCISE AVERAGE NUMBER OF PRICE PRICE OPTION SHARES RANGE PER SHARE -------------- -------------- --------- Outstanding at December 31, 1995 488,547 $13.94 - 26.63 $21.02 Granted 206,500 26.94 - 34.00 31.87 Exercised (66,709) 13.94 - 25.00 18.73 Canceled (22,000) 25.00 - 25.63 25.57 ------- -------------- ------ Outstanding at June 30, 1996 606,338 $14.56 - 34.00 $24.80 ======= ============== ======
NOTE 5 - DIVIDEND DECLARATION The Company declared a quarterly dividend on June 27, 1996 of $.15 per share, payable July 26, 1996 to shareholders of record as of July 12, 1996. The dividend, totalling approximately $1.0 million, was accrued as of June 30, 1996 and is reflected in "other liabilities" and as a reduction of retained earnings in the accompanying Consolidated Statement of Financial Condition. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- RESULTS OF OPERATIONS The Company's net income for the three months ended June 30, 1996 was $4.2 million, or $.60 per share. This compares with a net loss of $749,000, or $.10 per share, for the second quarter of 1995, which included pretax charges of $4.1 million, or $.32 per share, related to losses on the sale of mortgage-backed securities and downsizing of the Company's operations. Net income for the six months ended June 30, 1996 was $8.2 million, or $1.16 per share, compared with $1.7 million, or $.23 per share, for the same period in 1995. Net income for the first six months of 1996 included several items which deserve special mention: Gain from the sale of and income received from certain real estate owned properties $1,568,000 Additional writedown due to sale of corporate office complex (500,000) Writedown related to certain computer hardware and software (425,000) Write-off of core deposit intangibles and fixed assets in connection with a decision to close one of BVFB's branches (350,000) Loss from sale of mortgage-backed securities (262,000) ---------- Increase in income before tax $ 31,000 ----------
ACQUISITION OF CTL CREDIT, INC. On June 14, 1996, the Company acquired CTL Credit, the holding company for CTL. The acquisition is being accounted for using the purchase accounting method and the consolidated net income of the Company for the six months ended June 30, 1996 includes an estimate of the impact of the acquisition for the entire month of June 1996. The Company has not finalized the purchase accounting valuations and expects to finalize the adjustments by the end of third quarter 1996. As a result, the results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period. The Company does not anticipate a material contribution from CTL to the consolidated net income for 1996 because the expected cost savings or benefits from related synergies (including the evaluation of alternative sources of funding) will be realized starting in 1997. NET INTEREST INCOME Net interest income for the second quarter of 1996 was $18.8 million compared to $13.6 million for the same period in 1995. The net interest margin for the second quarter of 1996 increased to 2.53% from 1.81% in the prior year period. Net interest income for the six months ended June 30, 1996 was $35.1 million compared to $28.0 million for the same period in 1995. 10 The net interest margin increased to 2.37% from 1.80% for the first six months of 1996 and 1995, respectively. The following table is a summary of the net interest income, including CTL for June 1996 only.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1996 1995 1996 1995 -------- --------- --------- -------- (DOLLARS IN THOUSANDS) BVFB $16,444 $13,567 $32,658 $27,996 CTL (for June 1996 only) 2,681 --- 2,681 --- BVCC (Senior Debentures only) (288) --- (288) --- ------- ------- ------- ------- BVCC - Consolicated $18,837 $13,567 $35,051 $27,996 ------- ------- ------- -------
The following table is a summary of the net interest margin, including CTL for June 1996 only.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1996 1995 1996 1995 -------- --------- --------- -------- BVFB 2.32% 1.81% 2.28% 1.80% CTL (for June 1996 only) 6.36% ---% 6.36% ---% ------- ------- ------- ------- BVCC - Consolidated 2.53% 1.81% 2.37% 1.80% ------- ------- ------- -------
The consolidated net interest margin for the three and six months ended June 30, 1996 included the impact of Senior Debentures yielding 8.42% (all-in cost of 8.91% annualized) issued by BVCC to partially finance the acquisition of CTL Credit. The increase in net interest margin for BVFB was primarily due to lower cost of funds. The net interest margin at June 30, 1996 increased to 2.88% from 2.05% at December 31, 1995 primarily due to the impact of the acquisition of CTL. AVERAGE BALANCE SHEET. The following table sets forth certain information relating to the Company's consolidated statements of financial condition and reflects the average yields on interest-earning assets and average rates paid on interest-bearing liabilities for the periods indicated. Such yields and rates are derived by dividing interest income or expense by the average balances of interest-earning assets or interest-bearing liabilities, respectively, for the periods shown. Average balances of interest-earning assets and interest-bearing liabilities were derived from daily average balances for BVCC and BVFB. Average balances of interest-earning assets and interest-bearing liabilities for CTL were monthly averages. The yields for the periods indicated include the amortization of deferred loan origination fees, net of costs, which are considered adjustments to yield. Net interest spread and margin are calculated excluding nonperforming assets. 11
AVERAGE BALANCES, YIELDS AND RATES PAID THREE MONTHS ENDED THREE MONTHS ENDED JUNE 30, 1996 JUNE 30, 1995 -------------------------------------- ---------------------------------------- AVERAGE ACTUAL AVERAGE AVERAGE ACTUAL AVERAGE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE ---------- ----------- ----------- ---------- -------- ----------- (DOLLARS IN THOUSANDS) (ASSETS - ------- Interest-earning assets: Loans receivable $2,222,296 $44,941 8.10% $2,081,282 $38,605 7.43% Mortgage-backed securities 665,855 10,593 6.36 833,160 14,041 6.74 Investments 110,752 1,560 5.66 124,231 1,620 5.63 ---------- ------- ---- ---------- ------- ---- Total interest-earning assets 2,998,903 57,094 7.62 3,038,673 54,266 7.17 ------- ---- ------- ---- Nonperforming assets 30,312 55,370 Other assets 78,304 49,327 ---------- ---------- Total assets $3,107,519 $3,143,370 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Interest-bearing liabilities: Customer deposits 1,927,043 24,453 5.11 1,813,995 23,581 5.21 Borrowings/(1)/ 890,381 13,804 6.11 1,078,385 17,118 6.34 ---------- ------- ---- ---------- ------- ---- Total interest-bearing liabilities 2,817,424 38,257 5.42 2,892,380 40,699 5.63 ------- ---- ------- ---- Other liabilities 85,240 27,728 ---------- ---------- Total liabilities 2,902,664 2,920,108 Stockholders' equity 204,855 223,262 ---------- ---------- Total liabilities and stockholders' equity $3,107,519 $3,143,370 ========== ========== Net interest income/net interest spread $18,837 2.20% $13,567 1.54% ======= ==== ======= ==== Net earning assets/net interest margin $ 181,479 2.53% $ 146,293 1.81% ========== ==== ========== ====
(1) Interest expense on borrowings includes the impact of interest expense on interest rate swaps of $586,000 for the three months ended June 30, 1996. There were no interest rate swaps for the same period in 1995. 12
AVERAGE BALANCES, YIELDS AND RATES PAID SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1996 JUNE 30, 1995 -------------------------------------- ---------------------------------------- AVERAGE ACTUAL AVERAGE AVERAGE ACTUAL AVERAGE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE ---------- ----------- ----------- ---------- -------- ----------- (DOLLARS IN THOUSANDS) ASSETS - ------ Interest-earning assets: Loans receivable $2,143,689 $ 85,328 7.96% $2,067,445 $ 74,806 7.24% Mortgage-backed securities 685,473 21,963 6.41 873,400 29,608 6.78 Investments 112,012 3,212 5.76 120,591 3,332 5.53 ---------- -------- ---- ---------- -------- ---- Total interest-earning assets 2,941,174 110,503 7.52 3,061,436 107,746 7.04 -------- ---- -------- ---- Nonperforming assets 32,981 53,675 Other assets 83,546 40,329 ---------- ---------- Total assets $3,057,701 $3,155,440 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Interest-bearing liabilities: Customer deposits 1,863,036 47,711 5.15 1,777,280 44,366 5.03 Borrowings/(1)/ 910,937 27,741 6.09 1,138,693 35,384 6.23 ---------- -------- ---- ---------- -------- ---- Total interest-bearing liabilities 2,773,973 75,452 5.46 2,915,973 79,750 5.50 -------- ---- -------- ---- Other liabilities 78,007 17,928 ---------- ---------- Total liabilities 2,851,980 2,933,901 Stockholders' equity 205,721 221,539 ---------- ---------- Total liabilities and stockholders' equity $3,057,701 $3,155,440 ========== ========== Net interest income/net interest spread $35,051 2.06% $ 27,996 1.54% ======= ==== ======== ==== Net earning assets/net interest margin $ 167,201 2.37% $ 145,463 1.80% ========== ==== ========== ====
(1) Interest expense on borrowings includes the impact of interest expense on interest rate swaps of $975,000 for the six months ended June 30, 1996. There were no interest rate swaps for the same period in 1995. 13 INTEREST INCOME INTEREST INCOME ON LOANS RECEIVABLE Interest income on loans was $44.9 million as compared to $38.6 million for the second quarters of 1996 and 1995, respectively. Interest income on loans for the six months ended June 30, 1996 and 1995 was $85.3 million and $74.8 million, respectively. The following table is a summary of interest income on loans including CTL for June 1996 only.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 1996 1995 1996 1995 ------- -------- -------- ------- (DOLLARS IN THOUSANDS) BVFB $40,117 $38,605 $80,504 $74,806 CTL (for June 1996 only) 4,824 --- 4,824 --- ------- ------- ------- ------- BVCC - Consolidated $44,941 $38,605 $85,328 $74,806 ------- ------- ------- -------
The increase in loan interest income for BVFB was primarily due to an increase of 57 basis points in the average yield on loans from 7.24% to 7.81%. A significant portion of the Company's adjustable rate mortgage loans are indexed to the Federal Home Loan Bank of San Francisco ("FHLBSF") Eleventh District Cost of Funds Index ("COFI"). The average COFI for the six months ended June 30, 1996 and 1995, which impacted BVFB's adjustable rate mortgages, were 5.07% and 4.48%, respectively, an increase of 59 basis points. INTEREST INCOME ON MORTGAGE-BACKED SECURITIES Interest income on mortgage-backed securities ("MBS") was $10.6 million as compared to $14.0 million for the second quarters of 1996 and 1995, respectively. Interest income on MBS for the six months ended June 30, 1996 and 1995 was $22.0 million and $29.6 million, respectively. All the interest income on MBS was related to BVFB only. The decrease in interest income on MBS was primarily attributable to lower average balances, which decreased from $833.2 million in the second quarter of 1995 to $665.9 million for the same period in 1996. The decrease in average balances on mortgage-backed securities resulted from principal amortization and sale of mortgage-backed securities available for sale in 1995 and first quarter of 1996. INTEREST AND DIVIDENDS ON INVESTMENTS Interest and dividend income from the Company's investment portfolio was essentially the same at $1.6 million for the second quarters of 1996 and 1995, respectively. Interest income for six months ended June 30, 1996 and 1995 was $3.2 million and $3.3 million, respectively. The interest and dividend income from CTL was not significant for the month of June 1996. 14 INTEREST EXPENSE INTEREST EXPENSE ON CUSTOMER DEPOSITS Interest expense on customer deposits increased to $24.5 million in the second quarter of 1996 from $23.6 million in the second quarter of 1995. Interest income for the six months ended June 30, 1996 and 1995 was $47.7 million and $44.4 million, respectively. The following table is a summary of interest expense on deposits, including CTL for June 1996 only.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 1996 1995 1996 1995 ------- -------- -------- ------- (DOLLARS IN THOUSANDS) BVFB $22,247 $23,581 $45,505 $44,366 CTL (for June 1996 only) 2,206 --- 2,206 --- ------- ------- ------- ------- BVCC - Consolidated $24,453 $23,581 $47,711 $44,366 ------- ------- ------- -------
Interest expense on deposits for BVFB was essentially the same for the three and six months ended June 30, 1996 and 1995. The increase in interest expense on transaction accounts (primarily due to higher average balances) was offset by decrease in interest expense on certificates of deposit. INTEREST EXPENSE ON BORROWINGS Interest expense on borrowings decreased to $13.8 million in the second quarter of 1996 from $17.1 million in the second quarter of 1995. Interest expense for the first six months of 1996 and 1995 was $27.7 million and $35.4 million, respectively. The following table is a summary of interest expense on borrowings, including CTL for June 1996 only.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 1996 1995 1996 1995 ------- -------- -------- ------- (DOLLARS IN THOUSANDS) BVFB $13,502 $17,118 $27,439 $35,384 CTL (for June 1996 only) 14 --- 14 --- BVCC (Senior Debentures only) 288 --- 288 --- ------- ------- ------- ------- BVCC - Consolidated $13,804 $17,118 $27,741 $35,384 ------- ------- ------- -------
15 The decrease in interest expense on borrowings for BVFB was primarily due to lower average balances arising from lower borrowing requirements consistent with the level of interest-earning assets maintained. Also, in the fourth quarter of 1995 and first quarter of 1996, the Company prepaid $190 million of high cost borrowings and replaced them with short-term lower cost borrowings. In conjunction with the prepayment of these borrowings, the Company entered into interest rate swap agreements to provide interest rate risk protection for the short-term lower cost borrowings by matching the floating interest rate characteristics and lengthening their maturities. CHANGES IN RATE AND VOLUME The following table sets forth the changes in net interest income due to changes in the rate and volume of the Company's interest-earning assets and interest-bearing liabilities for the three and six months ended June 30, 1996 compared with the same periods in 1995. The rate and volume variances for the three and six months ended June 30, 1996 include the impact of CTL for June 1996 only. Rate and volume changes are calculated excluding nonperforming assets. Changes in rate and volume (changes in weighted average interest rate multiplied by average portfolio balance), which cannot be segregated, have been allocated proportionately between the change in rate and the change in volume.
THREE MONTH VARIANCE SIX MONTH VARIANCE ----------------------------- -------------------------------- RATE VOLUME TOTAL RATE VOLUME TOTAL ------- -------- -------- -------- -------- ---------- (DOLLARS IN THOUSANDS) Income from interest-earning assets: Loans receivable $3,619 $ 2,717 $ 6,336 $ 7,689 $ 2,833 $10,522 Mortgage-backed securities (752) (2,696) (3,448) (1,553) (6,092) (7,645) Investment securities and other 124 (184) (60) 123 (243) (120) ------ ------- ------- ------- ------- ------- 2,991 (163) 2,828 6,259 (3,502) 2,757 Expense on interest-bearing liabilities: Customer deposits (572) 1,444 872 1,168 2,177 3,345 Borrowings (391) (2,923) (3,314) (694) (6,949) (7,643) ------ ------- ------- ------- ------- ------- (963) (1,479) (2,442) 474 (4,772) (4,298) ------ ------- ------- ------- ------- ------- Net interest income $3,954 $ 1,316 $ 5,270 $ 5,785 $ 1,270 $ 7,055 ====== ======= ======= ======= ======= =======
PROVISION FOR LOSSES The provision for losses on loans and securities was $818,000 in the second quarter of 1996 and $900,000 for the same period in 1995. The provision for losses on loans and securities for the six months ended June 30, 1996 and 1995 was $1.4 million and $1.8 million, respectively. See the Allowance for Losses on Loans and Securities section below for a more detailed discussion of the provision for losses. NONINTEREST INCOME Noninterest income was $2.5 million for the second quarter of 1996 compared to ($34,000) for the second quarter of 1995. Noninterest income for the six months ended June 30, 1996 and 1995 was $4.3 million and $2.4 million, respectively, and included losses on sale of securities of 16 ($262,000) and ($2.2 million) for the respective periods. Excluding the loss on sale of securities, noninterest income for the first six months of 1996 and 1995 was essentially the same at $4.6 million, respectively. NONINTEREST EXPENSE GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses for the second quarters of 1996 and 1995 were $12.3 million and $13.2 million, respectively. General and administrative expenses for the six months ended June 30, 1996 and 1995 were $23.0 million and $25.2 million, respectively. The following table is a summary of general and administrative expenses, including CTL for June 1996 only.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 1996 1995 1996 1995 ------- -------- -------- ------- (DOLLARS IN THOUSANDS) BVCC and BVFB $10,678 $13,213 $21,415 $25,199 CTL (for June 1996 only) 1,628 --- 1,628 --- ------- ------- ------- ------- BVCC - Consolidated $12,306 $13,213 $23,043 $25,199 ------- ------- ------- -------
The reduction in general and administrative expenses was primarily due to a charge of $1.9 million in the second quarter of 1995 related to downsizing of the Company's operations. In addition, general and administrative expenses for the three and six months ended June 30, 1996 were also favorably impacted by lower compensation and benefits expense. Staffing levels for BVFB have been reduced by 20.2% from year-end 1994. INCOME AND EXPENSES FROM REAL ESTATE OWNED Income from real estate owned operations increased to $774,000 in the second quarter of 1996 from $260,000 in the same period in 1995. Income from real estate owned operations for the six months ended June 30, 1996 and 1995 was $1.7 million and $610,000, respectively. The increase was primarily due to gains from the sale of and higher income received from real estate owned properties. There were no significant changes in the provision for losses on real estate owned. WRITEDOWN OF FIXED ASSETS The writedown of fixed assets for the three and six months ended June 30, 1996 was $925,000 respectively, related to the following items: - - $500,000 additional writedown due to the sale of the corporate office complex, which is expected to close in the third quarter of 1996. The Company had previously provided a writedown of $7.1 million on this property during the fourth quarter of 1995. 17 - - $425,000 writedown related to certain computer hardware and software. The computer writedown was directly related to the Company's decision to enter into a long-term information services technology agreement with BISYS Group, Inc. AMORTIZATION AND WRITEDOWN OF INTANGIBLES The following table is a summary of the amortization and writedown of intangibles including CTL for June 1996 only.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 1996 1995 1996 1995 ------- -------- -------- ------- (DOLLARS IN THOUSANDS) BVFB $442 $605 $1,168 $1,210 CTL (for June 1996 only) 236 --- 236 --- ---- ---- ------ ------ BVCC - Consolidated $678 $605 $1,404 $1,210 ---- ---- ------ ------
The amortization of intangible assets for CTL was due to the inclusion of estimated amortization of goodwill arising from the excess of the purchase price over the fair value of net assets acquired discussed previously. The amortization and writedown of intangible assets during the first six months of 1996 included core deposit intangibles written-off of $270,000 due to a decision to close one of BVFB's branches. OTHER MATTERS Federal legislation has been proposed to recapitalize the Savings Association Insurance Fund ("SAIF") and would require BVFB to pay an estimated one-time special assessment of approximately $14.5 million to $16.0 million on a pretax basis. It is anticipated that this assessment would be accrued in the period in which the legislation is enacted. The pending legislation is intended to eliminate the disparity between the deposit insurance premiums paid by SAIF- insured institutions, which range from .23% to .31% of deposits, such as the Bank, and institutions insured by the Bank Insurance Fund ("BIF"), which range from 0% to .27% of deposits with a minimum annual assessment of $2,000. BVFB's deposit insurance premiums in 1996 is 26 cents per $100 of deposits. No assurance can be given as to whether or in what form the legislation will be enacted or its effect on the Company or the BVFB. 18 BALANCE SHEET ANALYSIS The consolidated assets of the Company were $3.39 billion and $3.00 billion at June 30, 1996 and December 31, 1995, respectively. The increase in total assets was primarily due to the acquisition of CTL Credit. CTL had total assets of $533.1 million at June 30, 1996 which consisted primarily of loan receivables of $481.2 million and customer deposits of $459.3 million. The total assets of BVFB declined to $2.85 billion at June 30, 1996 from $3.00 billion at December 31, 1995 primarily due to decreases in mortgage-backed securities resulting from sales of mortgage-backed securities available and principal paydowns and decrease in loans receivable resulting from lower levels of loan originations. SECURITIES The Company invests in high-quality MBS, primarily issued by Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA") and Government National Mortgage Association ("GNMA"). The securities portfolio at June 30, 1996 and December 31, 1995 was as follows:
JUNE 30, 1996 DECEMBER 31, 1995 ----------------------- --------------------- AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE --------- ------- --------- -------- (DOLLARS IN THOUSANDS) AVAILABLE FOR SALE Investment securities $ 1,200 $ 1,220 $ 8,000 $ 8,035 Mortgage-backed securities: FHLMC, FNMA and GNMA 120,626 115,935 151,000 149,778 -------- -------- -------- -------- $121,826 $117,155 $159,000 $157,813 ======== ======== ======== ======== JUNE 30, 1996 DECEMBER 31, 1995 ----------------------- --------------------- AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE --------- -------- --------- -------- (DOLLARS IN THOUSANDS) HELD TO MATURITY Investment securities $ 32,547 $ 32,470 $ 39,928 $ 39,969 Mortgage-backed securities: FHLMC, FNMA and GNMA and other 535,619 517,167 582,530 575,321 Allowance for losses (165) --- (930) --- -------- -------- -------- -------- 535,454 517,167 581,600 575,321 -------- -------- -------- -------- $568,001 $549,637 $621,528 $615,290 ======== ======== ======== ========
19 In December 1995, the Company reclassified $147.7 million of MBS from held to maturity to available for sale as a result of adopting the implementation guide to Statement of Financial Accounting Standards No. 115. During the first quarter of 1996, the Company sold $24.2 million of these securities for a loss of $262,000, which represented approximately 50% of the unrealized loss on securities available for sale at the time of sale. Also, during the first quarter of 1996, the Company sold a $3.5 million mortgage-backed security which was scheduled to mature in April 1996 from its held to maturity portfolio. An allowance for losses on securities was previously provided for this security due to deterioration in the issuer's creditworthiness. There were no securities sold during the second quarter of 1996. LOANS AND REAL ESTATE OWNED The loan portfolio of BVFB primarily consists of mortgage loans and the loan portfolio of CTL primarily consists of consumer loans. The following is a summary of the Company's loan portfolio (before deductions for deferred fees, discounts and allowance for losses) at June 30, 1996 and December 31, 1995.
JUNE 30, 1996 DECEMBER 31, 1995 --------------------- ---------------------- AMOUNT % AMOUNT % ---------- -------- ---------- -------- (DOLLARS IN THOUSANDS) Mortgage loans: Single family (1 to 4 units) $ 767,505 30.0 $ 731,310 34.9 Multifamily (5+ units) 1,014,189 39.6 995,038 47.5 Nonresidential 354,923 13.8 333,236 15.9 ---------- ----- ---------- ----- 2,136,617 83.4 2,059,584 98.3 ---------- ----- ---------- ----- Consumer loans: Auto and other 317,241 12.4 2,366 0.1 Home equity 42,661 1.7 32,483 1.6 Equipment leases 64,321 2.5 --- --- ---------- ----- ---------- ----- 424,223 16.6 34,849 1.7 ---------- ----- ---------- ----- $2,560,840 100.0 $2,094,433 100.0 ========== ===== ========== =====
The following is a summary of loan originations/purchases, including CTL for June 1996 only.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- ------------------------- 1996 1995 1996 1995 ---------- ------- ---------- -------- (DOLLARS IN THOUSANDS) BVFB $ 86,110 $83,608 $148,949 $156,493 CTL (for June 1996 only) 18,627 --- 18,627 --- --------- ------- -------- -------- BVCC - Consolidated $104,737 $83,608 $167,576 $156,493 --------- ------- -------- --------
20 CREDIT QUALITY Credit Quality has continued to improve as evidenced by the decline in nonperforming assets and delinquencies as shown in the tables below:
NONPERFORMING ASSETS AS A PERCENTAGE OF TOTAL ASSETS JUNE 30, 1996 DECEMBER 31, 1995 --------------- ---------------------- (DOLLARS IN THOUSANDS) BVFB $24,801 0.87% $38,811 1.29% CTL (for June 1996 only) 6,787 1.27% --- --- ------- ---- ------- ---- BVCC - Consolidated $31,588 0.93% $38,811 1.29% ------- ---- ------- ---- LOANS DELINQUENT 60 DAYS OR MORE AS PERCENTAGE OF GROSS LOANS JUNE 30, 1996 DECEMBER 31, 1995 --------------- ---------------------- (DOLLARS IN THOUSANDS) BVFB $15,566 0.75% $20,166 0.96% CTL (for June 1996 only) 4,803 0.98% --- --- ------- ---- ------- ---- BVCC - Consolidated $20,369 0.80% $20,166 0.96% ------- ---- ------- ----
The following table summarizes the Company's nonperforming assets and troubled debt restructurings:
JUNE 30, 1996 DECEMBER 31, 1995 -------------- ----------------- (DOLLARS IN THOUSANDS) Real estate loans $11,294 $10,675 Consumer loans 487 80 Equipment Leases 868 --- Mortgage-backed securities --- 3,580 Real estate owned 18,290 24,476 Other repossessed assets 649 --- ------- ------- Nonperforming assets 31,588 38,811 Troubled debt restructurings 650 15,641 ------- ------- Total $32,238 $54,452 ======= =======
21 ALLOWANCE FOR LOSSES ON LOANS AND SECURITIES The Company conducts an ongoing review of its asset categories to assess the adequacy of general valuation allowances ("GVA"), which are maintained at levels that the Company believes are sufficient to cover estimated possible losses in the portfolios. In determining the necessary level of GVA, the Company considers prevailing and anticipated economic conditions, historical loss experience, the levels of classified, nonperforming and delinquent assets, weighting by property type, loan portfolio trends and other factors. The adequacy of the allowance for losses has improved as shown in the tables below:
ALLOWANCE FOR LOSSES ON LOANS AND SECURITIES AS A PERCENTAGE OF NONPERFORMING ASSETS JUNE 30, 1996 DECEMBER 31, 1995 ------------------ ------------------- (DOLLARS IN THOUSANDS) BVFB $28,515 114.98% $30,944 79.73% CTL (for June 1996 only) 8,471 124.81% --- --- ------- ------- ------- ------- BVCC - Consolidated $36,986 117.09% $30,944 79.73% ------- ------- ------- ------- ALLOWANCE FOR LOSSES ON LOANS AS A PERCENTAGE OF NONPERFORMING LOANS JUNE 30, 1996 DECEMBER 31, 1995 ------------- ----------------- (DOLLARS IN THOUSANDS) BVFB $28,350 309.77% $30,014 279.07% CTL (for June 1996 only) 8,471 242.24% --- --- ------- ------- ------- ------- BVCC - Consolidated $36,821 291.10% $30,014 279.07% ------- ------- ------- -------
The following is a summary of provision for losses on loans and securities, including CTL for June 1996 only.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ---------------- 1996 1995 1996 1995 ------- ------- ------- ------- (DOLLARS IN THOUSANDS) BVFB $ 400 $ 900 $ 1,000 $ 1,800 CTL (for June 1996 only) 418 --- 418 --- ------- ------- ------- ------- BVCC - Consolidated $ 818 $ 900 $ 1,418 $ 1,800 ------- ------- ------- -------
The decrease in the provision for losses for BVFB was primarily due to the improvement in the credit quality and recoveries of prior loan charge-offs. Management believes that the GVA at June 30, 1996 was adequate to cover estimated losses in its asset portfolios. However, future adjustments may be necessary and earnings could be significantly affected, if circumstances differ substantially from the assumptions used in making such determinations. Management will continue to monitor the adequacy of the allowance for losses related to problem assets. 22 CUSTOMER DEPOSITS Customer deposits are generated for the purpose of funding loans. The customer deposits at June 30, 1996 and December 31, 1995 were as follows:
JUNE 30, 1996 DECEMBER 31, 1995 ----------------- ------------------- AMOUNT % AMOUNT % ---------- ---- --------- ---- (DOLLARS IN THOUSANDS) BVFB (SAIF-insured) Transaction accounts $ 449,694 25.8 $ 387,610 21.3 Certificates of deposit 1,292,558 74.2. 1,432,230 78.7 ---------- ----- ---------- ----- Total 1,742,252 100.0 1,819,840 100.0 CTL (BIF-insured) Investment certificates: Money Market Rate 16,284 3.5 --- --- Term 443,068 96.5 --- --- ---------- ----- ---------- ----- Total 459,352 100.0 --- --- BVCC Consolidated $2,201,604 $1,819,840 ========== ==========
The increase in transaction accounts and the decrease in certificates of deposits from December 31, 1995 to June 30, 1996 in BVFB was consistent with its asset/liability strategies and resulted in lower cost of funds. The investment certificates acquired in connection with the acquisition of CTL are similar to certificates of deposits with the exception that they are callable at par plus accrued interest. BORROWINGS The Company utilizes collateralized advances from the FHLBSF for purposes of funding loans and investments. In addition, the Company utilizes other borrowings, on a collateralized and noncollateralized basis, such as securities sold under agreements to repurchase.
JUNE 30, 1996 DECEMBER 31, 1995 ----------------- ------------------- AMOUNT % AMOUNT % ---------- ---- --------- ---- (DOLLARS IN THOUSANDS) Advances from FHLBSF $748,550 79.1 $766,790 81.5 Reverse repurchase agreements 137,640 14.5 166,738 17.7 Senior debentures 50,000 5.3 --- --- Other borrowings 9,991 1.1 7,937 0.8 -------- ----- -------- ----- $946,181 100.0 $941,465 100.0 ======== ===== ======== =====
During the first quarter of 1996, BVFB prepaid $145 million of its high cost borrowings and replaced them with short-term lower cost borrowings. The decrease in borrowings was primarily due to lower borrowing requirements consistent with the level of interest-earning assets maintained. 23 INTEREST RATE RISK The Company pursues balance sheet strategies that should, in the long run, mitigate the Bank's exposure to rising rates. The Company also considers other strategies to minimize the variability of the net interest margin including off- balance sheet activities. The Company uses interest rate swap agreements to reduce the interest rate fluctuation risk related to certain assets and liabilities. Interest rate swaps involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying notional amounts. During the fourth quarter of 1995, BVFB entered into forward starting swaps with notional principal amounts of $150.0 million as part of the prepayment of $145.0 million of advances from the FHLBSF and replaced them with short-term lower cost borrowings in February 1996. The interest rate swaps were used to provide interest rate risk protection for the lower cost borrowings by matching the floating interest rate risk characteristics and lengthening their maturities. As of June 30, 1996 and December 31, 1995, the total notional amount of interest rate swaps were $410 million and $150 million, respectively. The information presented below is based on interest rates at June 30, 1996. To the extent that interest rates change, variable interest rate information will change. The following schedule represents the maturities and weighted average rates of BVFB's interest rate swaps outstanding as of June 30, 1996. There were no interest rate swaps in CTL as of June 30, 1996.
MATURITIES OF DERIVATIVE INSTRUMENTS ------------------------------------ 2000 2001+ TOTAL -------- -------- -------- (DOLLARS IN THOUSANDS) Notional amount $132,500 $277,500 $410,000 Weighted average receive rate (3-month LIBOR) 5.56% 5.54% 5.55% Weighted average pay rate 6.26% 6.52% 6.44%
The objective of the Company's asset/liability management activities is to improve earnings by adjusting the type and mix of assets and liabilities to effectively address changing conditions and risks. Management believes that its asset/liability activities has improved earnings within safe and sound parameters. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY The Company's primary sources of funds include loan and MBS repayments, retail deposit generation, advances from the FHLBSF, collateralized short-term borrowings under reverse repurchase agreements and cash flows generated from operations. The Company uses its liquidity resources principally to fund loans, repay maturing borrowings, fund maturing time deposits and 24 savings withdrawals and provide for its foreseeable short and long-term cash needs. The Company expects to be able to fund or refinance, on a timely basis, its commitments and long-term liabilities. OTS regulations require savings institutions to maintain a specified liquidity ratio (presently 5.00%) of cash and specified securities to total customer deposits and borrowings due in one year or less. During the months ended June 30, 1996 and December 31, 1995, BVFB maintained liquidity ratios of 5.23% and 5.26%, respectively. CAPITAL RESOURCES REGULATORY CAPITAL The OTS has established minimum capital standards for all savings institutions, including a tangible capital requirement, a core capital requirement and a risk-based capital requirement. BVFB's regulatory capital at June 30, 1996 exceeded the minimum requirements of each regulatory capital standard as follows:
MINIMUM FULLY REQUIRED ACTUAL PHASED-IN --------- ------- ---------- Tangible 1.50% 5.75% 5.71% Core 3.00% 5.85% 5.82% Risk-based 8.00% 10.90% 10.84%
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") requires each Federal banking agency to implement prompt corrective actions for institutions that it regulates. Under capital guidelines enacted by FDICIA, both BVFB and CTL met the criteria for the "well capitalized" standard at June 30, 1996 as follows:
WELL CAPITALIZED REQUIREMENT BVFB CTL ------------ ------ ------ Tangible 4.00% 5.75% 8.20% Tier I Risk-based 6.00% 9.65% 8.73% Tier II Risk-based 10.00% 10.90% 10.03%
SHARES OUTSTANDING The Company's outstanding shares at June 30, 1996 and December 31, 1995 were 6,885,242 shares and 7,101,590 shares, respectively. The decrease of 216,348 shares was due to the Company's repurchase of 250,000 shares partially offset by stock options exercised during the first six months and second quarters of 1996. 25 ACCOUNTING PRONOUNCEMENTS ------------------------- On June 28, 1996, the Financial Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125 establishes standards for when transfers of financial assets including those with continuing involvement by the transferor, should be considered a sale. SFAS No. 125 also establishes standards for when a liability should be considered extinguished. This statement is effective for transfers of assets and extinguishment of liabilities after December 31, 1996, applied prospectively. Earlier adoption or retroactive application of this statement is not permitted. Management will be reviewing this statement during the remainder of 1996 to determine its effect on the Company's financial statements. 26 PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- None Item 2. Changes in Securities --------------------- None Item 3. Defaults Upon Senior Securities ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders. ---------------------------------------------------- (a) The 1996 Annual Meeting of Stockholders was held on May 23, 1996 (b) Directors elected: John R. McKean Roger K. Easley Directors continuing in office Paula R. Collins Thomas M. Foster Richard J. Quinlan Edward H. Sondker Robert L. Witt (c) At the 1996 Annual Meeting of Stockholders, the stockholders considered the following proposals: I. The election of two directors of the Company II. The approval and adoption of the Stock in Lieu of Cash Compensation Plan for Non-Employee Directors III. The approval and adoption of the Outside Directors' Retirement Plan IV. The approval and adoption of an amendment to the 1995 Stock Option and Incentive Plan 27 V. The approval and adoption of an amendment to the 1989 Non-Employee Director Stock Option Plan The vote on the election of the five proposals at the annual meeting was as follows:
PROPOSAL I FOR WITHHELD John R. McKean 6,497,295 32,953 Roger K. Easley 6,499,698 30,550 BROKER FOR AGAINST ABSTAIN NON-VOTE PROPOSAL II 5,263,857 100,326 27,513 1,138,552 PROPOSAL III 4,117,597 1,247,185 26,955 1,138,511 PROPOSAL IV 6,301,159 123,022 38,346 67,721 PROPOSAL V 4,808,612 533,113 29,973 1,138,550
Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- a. Financial Data Schedule (Exhibit 27) b. The Registrant filed the a report on Form 8-K, dated June 14, 1996 , during the three months ended June 30, 1996 related to the following matter: On June 14, 1996, the Registrant completed the acquisition of CTL Credit, Inc. ("CTLI"), the holding company for California Thrift and Loan. The acquisition was effected through the merger of BV Sub Corp., a Delaware corporation and non-operating wholly-owned subsidiary of the Registrant, with and into CTLI, with CTLI being the surviving corporation and becoming the wholly-owned subsidiary of the Registrant (the "Merger"). CTLI was then liquidated, with its assets transferred to and liabilities assumed by the Registrant. California Thrift and Loan became a stand-alone subsidiary of the Registrant and a sister bank to Bay View Federal Bank. The Merger was consummated pursuant to an Agreement and Plan of Merger, dated as of February 5, 1996. Each holder of the Common Stock of CTLI received $18.00 in cash for each share of CTLI Common Stock held. 28 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. BAY VIEW CAPITAL CORPORATION ---------------------------- Registrant DATE: August 9, 1996 BY: /s/ Edward H. Sondker ------------------------------------- Edward H. Sondker President and Chief Executive Officer DATE: August 9, 1996 BY: /s/ David A. Heaberlin --------------------------------- David A. Heaberlin Executive Vice President Chief Financial Officer 29 EX-27 2 FINANCIAL DATA SCHEDULE
9 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 18,892 1,528 15,570 0 117,155 568,001 549,637 2,521,824 36,821 3,388,847 2,201,604 663,750 34,885 282,431 0 0 69 206,108 3,388,847 85,328 25,175 0 110,503 47,711 75,452 35,051 1,418 (262) 23,587 14,378 8,209 0 0 8,209 1.16 1.16 2.37 12,649 762 650 0 30,014 3,194 529 36,821 36,821 0 0
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