<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
/ X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1994, or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the Transition Period From to
-------------------- ----------------------
Commission File Number: 0-15169
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LOYOLA CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
MARYLAND 52-1479656
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1300 NORTH CHARLES STREET, BALTIMORE MD 21201-5705
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410)787-3100
---------------
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $ .10 PER SHARE
-----------------------------------------
(Title of Class)
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 ninety days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based on the closing sales price of the registrant's Common Stock as
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation National Market System on March 15, 1995, was $183,437,843.
As of March 15, 1995, there were issued and outstanding 8,107,750 shares of the
registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the Fiscal Year Ended
December 31, 1994. (Part II)
2. Portions of Definitive Proxy Statement for the 1995 Annual Meeting of
Stockholders. (Part III)
1
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PART I
ITEM 1. BUSINESS
GENERAL
THE CORPORATION. Loyola Capital Corporation (the "Corporation") was
incorporated under the laws of the State of Maryland on May 8, 1989 and is the
successor to a Delaware corporation incorporated on August 8, 1986 for the
purpose of becoming a savings and loan holding company. On December 12, 1986,
the predecessor acquired all of the Common Stock of Loyola Federal Savings Bank
(the "Bank") following the Bank's conversion from a federally chartered mutual
to a federally chartered stock savings and loan association. The Corporation
is a unitary savings and loan holding company subject to regulation by the
Office of Thrift Supervision ("OTS").
Currently, the main asset of the Corporation is the Common Stock of the
Bank. A nonbanking subsidiary of the Corporation invests in real estate and
real estate joint ventures. In the future, the Corporation may seek to
further diversify its business activities through existing or newly formed
subsidiaries or through acquisition or merger. At the present time, there are
no specific plans, arrangements, agreements or understandings regarding any
such further diversification activities.
The Corporation is a financial intermediary which accepts deposits from the
general public and invests such deposits, together with other borrowings,
primarily in real estate loans secured by liens on residential and other real
property and in consumer and other loans. Primarily through its subsidiaries,
the Corporation engages in mortgage origination activities, real estate
development, and provides real estate appraisal and insurance brokerage
services.
The Corporation's executive offices are located at 1300 North Charles
Street, Baltimore, Maryland 21201-5705. Its telephone number is (410)787-
3100.
THE BANK. The Bank is a federally chartered stock savings bank conducting
business through a network of 35 offices in Maryland and one in Washington, D.C.
The Bank commenced operations in 1879. On the basis of consolidated total
assets of $2.5 billion at December 31, 1994, the bank was the second largest
thrift institution headquartered in Maryland.
COMPETITION
The Corporation and its subsidiaries are subject to substantial competition
in all aspects of the businesses which they conduct. Each of the other major
thrift institutions based in Maryland together with several Maryland and
multistate banking institutions conduct business in the Corporation's market
area. In addition, thrift and commercial banking institutions based in
Washington, D.C. and other locations outside of Maryland compete for loans and
other banking business in the Corporation's market area. The Corporation also
encounters competition from insurance companies, money market mutual funds,
small loan companies, credit unions, mortgage bankers and other financial
institutions.
LENDING ACTIVITIES
GENERAL. Lending activities of the Corporation are conducted through the
Bank and its affiliates, Loyola Consolidated, Inc., a wholly-owned subsidiary
("LCI"). Loyola Mortgage Corporation of South Florida, a wholly-owned
subsidiary of LCI, Southeastern Mortgage of Alabama, a partnership in which LCI
owns a 50% interest ("Southeastern Mortgage"), and Mid-Atlantic Financial Group,
Inc., a majority-owned subsidiary of LCI ("Mid-Atlantic"). These lending
activities are primarily concentrated on conventional and adjustable-rate first
mortgage loans secured by residential property and, to a lesser extent, on
commercial property. Loyola Mortgage Corporation of South Florida was
established in February, 1994 for the purpose of originating residential
construction loans and permanent mortgages in Southern Florida. The
Corporation's lending activities are conducted throughout two operational
groups, the Consumer Lending Group and the Real Estate Lending Group. The
Consumer Lending Group markets, solicits and originates consumer loans including
automobile, marine and home equity loans, secured and unsecured lines of credit
and second mortgages. The Real Estate
2
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Lending Group markets, solicits and originates first mortgage loans secured by
residential and commercial real estate. Residential mortgage loans, including
construction loans, are predominantly made on single family homes.
The Corporation seeks to originate primarily adjustable-rate estate
mortgage loans and short-term construction, consumer and commercial real
estate loans for its own portfolio and originates long-term, fixed-rate
mortgage loans primarily for sale in the secondary mortgage market.
Substantially all mortgage loans are underwritten to the standards of the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC") so that they may readily be sold in whole or
in part in the secondary mortgage market to government agencies or other
financial institutions and private investors. The Corporation has an
origination policy to shorten the average term of the Corporation's
investments and to make it less susceptible to interest rate volatility.
This long-term strategy is still in place; however, loan demand, as dictated
by interest rates, can temporarily override this strategy. As of December
31, 1994, approximately $845.1 million, (43.3%), of the Corporation's loan
portfolio consisted of long-term fixed-rate real estate loans which have not
been converted to government-backed mortgage securities as compared to $708.3
million, (44.5%), and $326.3 million, (25.4%), at December 31, 1993 and 1992,
respectively. The amount and percent of such loans increased in 1993 and
1994 due to a planned increase in the mortgage loan portfolio resulting from
the retention of approximately $340 million of fixed-rate mortgage loans.
This was primarily due to the declining interest rate environment which
existed throughout 1993 and in the first quarter of 1994. This severely
limited the Corporation's ability to originate and retain adjustable-rate
mortgage loans and to achieve management's intention to increase
interest-earning assets while maximizing the interest rate spread. The
increases in interest rates during 1994 reversed these trends as mortgage
prepayment levels declined and originations of adjustable-rate mortgage loans
increased. The Corporation has continued to increase interest-earning assets
while limiting its interest rate sensitivity through increases in
adjustable-rate mortgage, construction and consumer loans.
LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition of
the Corporation's loan portfolio by type of loan and by type of security as of
the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------------- --------------- -------------- ------------ ----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ ---- ------- ---- ------ --- ------ --- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TYPE OF LOAN
CONVENTIONAL REAL ESTATE
LOANS:
CONSTRUCTION LOANS:
Single-family residential $ 141,038 6.94 90,518 5.48 65,141 4.93 67,869 4.15 75,360 4.21
Multi-family residential 11,455 0.56 6,660 0.40 7,000 0.53 7,000 0.43 7,000 0.39
Commercial 730 0.04 7,703 0.47 1,599 0.12 780 0.05 5,980 0.33
PERMANENT LOANS
Single-family residential 1,365,597 67.18 1,091,106 66.08 739,120 55.98 951,222 58.21 978,831 54.64
Multi-family residential 31,739 1.56 39,864 2.41 39,927 3.03 46,987 2.87 48,275 54.64
Commercial 88,859 4.37 70,784 4.29 79,093 5.99 81,461 4.99 103,567 5.78
INSURED OR GUARANTEED REAL 17,030 0.84 19,806 1.20 24,036 1.82 21,225 1.30 25,591 1.43
ESTATE
</TABLE>
(Continued)
3
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<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------------- --------------- -------------- ------------ ----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ ---- ------- ---- ------ --- ------ --- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSUMER LOANS:
Loans on savings deposits 3,533 0.17 3,991 0.24 4,580 0.35 4,842 0.30 4,060 0.23
Automobiles 203,834 10.05 149,464 9.05 151,310 11.46 191,515 11.72 262,016 14.63
Home equity 96,676 4.76 88,004 5.33 102,872 7.79 130,748 8.00 131,006 7.31
Marine 47,587 2.32 55,946 3,39 76,444 5.79 96,989 5.94 112,441 6.28
Unsecured 14,707 0.72 16,487 1.00 18,060 1.37 21,939 1.34 24,716 1.38
Small business 7,941 0.39 361 0.02 -- -- -- -- -- --
Commercial loans 2,110 0.10 10,600 0.64 11,075 0.84 11,363 0.70 12,465 0.70
--------- ------ --------- ------ --------- ------ --------- ------ --------- -------
2,032,836 100.00 1,651,294 100.00 1,320,257 100.00 1,633,940 100.00 1,791,308 100.00
--------- ------ --------- ------ --------- ------ --------- ------ --------- -------
Accrued interest receivable 10,292 8,501 8,674 11,569 13,673
Less:
Undisbursed loan funds 70,484 48,526 25,556 25,677 25,257
Unearned loan fees 6,639 5,437 4,937 5,824 6,182
Allowance for losses 13,733 14,625 15,151 14,338 13,997
--------- --------- --------- --------- ---------
Total $ 1,952,272 1,591,207 1,283,287 1,599,670 1,759,545
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The following table sets forth certain information as of December 31,
1994 regarding the dollar amount of loans maturing in the Corporation's
portfolio based on their contractual terms to maturity. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
DUE IN YEAR DUE 1 TO 3 DUE 3 TO 5 DUE 5 YEARS
ENDING YEARS AFTER YEARS AFTER OR MORE AFTER
12/31/95 12/31/94 12/31/94 12/31/94 TOTAL
----------- ----------- ----------- ------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate mortgage $ 29,482 49,651 50,258 1,373,834 1,503,225
Real estate construction 153,223 --- --- --- 153,223
Consumer loans:
Loans on savings deposits --- --- --- 3,533 3,533
Auto loans 6,668 44,942 148,444 3,780 203,834
Home equity 10 265 1,312 95,089 96,676
Marine 2,229 442 4,440 40,476 47,587
Unsecured --- --- --- 14,707 14,707
Commercial loans 9,157 --- 625 269 10,051
---------- -------- -------- ---------- ---------
Total $ 200,769 95,300 205,079 1,531,688 2,032,836
---------- -------- -------- ---------- ---------
---------- -------- -------- ---------- ---------
</TABLE>
4
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The following table sets forth as of December 31, 1994 the dollar amount of
all loans due after one year from that date which have predetermined interest
rates and which have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Predetermined Adjustable
Rate Rate
-------------------------------
(In Thousands)
<S> <C> <C>
Real Estate Mortgage loans $ 819,980 653,763
Consumer loans:
Loans on savings deposits 3,533 ----
Auto loans 197,613 ----
Home equity 8,405 88,261
Marine 44,688 223
Unsecured --- 14,707
Commercial loans --- 894
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Total $ 1,074,219 757,848
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------------ ------------
</TABLE>
GEOGRAPHIC LENDING AREA. Federal regulations currently authorize the
making of real estate loans throughout the United States, providing the Bank
continues to meet the provisions of the Community Reinvestment Act to service
the credit needs of the communities in which it operates offices. The Bank's
primary lending area currently includes Maryland, Delaware, Virginia, South and
Central Pennsylvania, Washington, D.C., South Carolina, North Carolina, Southern
Florida and Alabama. A significant portion of the loans made in Delaware and
South Carolina are single family residential loans secured by second homes or
homes purchased by investors. Lending activity in Pennsylvania is largely
comprised of accrued automobile loans.
RESIDENTIAL REAL ESTATE LOANS. The primary lending activity of the
Corporation has been the granting of loans to enable borrowers to purchase
existing homes or construct new homes. While the great majority of loan
originations are conventional first mortgages secured by single-family
residences, the Corporation also originates loans that are either partially
guaranteed by the Veteran's Administration ("VA") or fully insured by the
Federal Housing Administration ("FHA"). The Corporation's real estate loan
portfolio also includes loans on two-to-four-family dwellings, multi-family
housing (over four units), both conventional and FHA-insured, loans secured
by commercial and industrial properties and loans made for the development of
unimproved real estate to be used for residential housing. At December 31,
1994, approximately $1.5 billion (74.9%) of the Corporation's total loan
portfolio consisted of loans secured by one-to-four-family dwellings.
While OTS regulations do not establish a loan-to-value limit on mortgage
loans secured by one-to-four family dwellings, an appropriate credit enhancement
in the form of either mortgage insurance or readily marketable collateral for
such loans equal to or greater than 90% is recommended. The Bank, however,
generally limits the maximum loan-to-value ratio on single-family conventional
loans to 95% with the condition that private mortgage insurance be required on
any home loans with loan-to-value ratios in excess of 80%. With respect to real
estate loans, the majority of appraisals are undertaken by Bay State Appraisal
Corporation, a wholly-owned subsidiary of the Bank. All real estate appraisals
for loans in excess of $1 million are subject to review and approval by an
internal Appraisal Review Committee.
Mortgage loans made by the Corporation are generally long-term loans,
amortized on a monthly basis, with principal and interest due each month. The
initial contractual loan payment period for residential loans typically ranges
form 15 to 30 years. The Corporation's experience indicates that real estate
loans remain outstanding for significantly shorter periods than their
contractual terms. Borrowers may refinance or prepay loans at their option,
subject to any contractual prepayment penalty provisions.
5
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In past years, the Corporation has, whenever possible, aggressively
originated adjustable-rate mortgage loans and short-term construction loans
on residential real estate as part of its program to match the maturity or
repricing of its assets and liabilities. Throughout 1994, the increasing
interest rate environment caused significant increases in originations of
adjustable-rate mortgage loans and decreases in the level of loan
prepayments. Due to an improving mid-Atlantic real estate market in 1994,
construction loan originations and outstandings increased as building
activity improved. While adjustable-rate mortgage loans continue to be a
central part of the Corporation's strategic plan, their volume levels will
continue to be dependent upon market conditions. At December 31, 1994,
$738.6 million (46.6%) of the Corporation's mortgage and constriction loan
portfolios consisted of adjustable-rate loans, compared to $567.2 million
(44.5%) at December 31, 1993 and $602.7 million (64.9%) at December 31, 1992.
The increase in 1994 was primarily due to an increase approximately $148.7
million and $22.7 million in adjustable-rate mortgage loans and construction
loans, respectively. Of the $738.6 million of adjustable-rate loans at
December 31, 1994, $91.7 million (12.4%) reprice every six months or less,
$532.6 million (72.1%) reprice every 12 months, $23.1 million (3.1%) reprice
every 36 months and $3.2 million (0.4%) reprice every 60 months. Balloon
mortgage loans totaling $88.0 million (11.9%) have maturities ranging from
three to ten years.
CONSTRUCTION AND REAL ESTATE DEVELOPMENT LOANS. The Corporation
historically has offered loans for the construction and development of
commercial or income producing real estate in addition to residential real
estate. Construction loans, net of loans in process, amounted to approximately
$82.7 million at December 31, 1994. The Corporation maintains a separate
department within it Real Estate Lending Group to originate and service the
Corporation's portfolio of construction and commercial real estate loans. The
Corporation provides funding for the construction and permanent financing of
apartment complexes and, to a more limited extent, office buildings, shopping
centers and other income producing property. The primary security on such loans
is the real property and those leases which produce income for the real
property. Substantially all of these loans are secured by properties located
within the Corporation's primary geographic lending areas. The Bank's lending
guidelines provide for a maximum exposure of 65% for loans on raw land, 75% on
loans for the purpose of land acquisition and site development, 80% for
construction of multi-family, commercial, and other non-residential property and
85% for construction of one-to-four family residential properties.
Construction and development financing involves a higher degree of risk
than long-term financing on improved, occupied real estate. The Corporation's
risk of loss on a construction loan is dependent primarily upon the accuracy of
the initial estimate of the property's value at completion of construction or
development and estimated cost, including interest, of completion. If the
estimate of completed cost proves to be inaccurate, the Corporation may be
confronted, at or prior to maturity of the loan, with a project having a value
which is insufficient to assure full repayment of the loan.
The Corporation issued standby letters of credit to secure payment of tax-
exempt bonds issued by various municipalities to finance acquisition,
construction or rehabilitation of two multi-family real estate projects and a
hotel/restaurant project in Maryland. Such outstanding letters of credit
amounted to $27.9 million at December 31, 1994. Those letters of credit are
collateralized by the Corporation's mortgage-backed securities and confirming
letters of credit issued by the Federal Home Loan Bank of Atlanta ("FHLB of
Atlanta"). The Corporation also had commitments under various unsecured letters
of credit related to construction projects of approximately $18.2 million at
December 31, 1994.
COMMERCIAL REAL ESTATE LOANS. These loans consist primarily of loans
secured by office buildings, shopping centers, warehouses and multi-family
apartments located on the east coast of the United States from Delaware
south, with the largest concentrations in Maryland and Virginia. Commercial
real estate and multi-family residential loans totalled $120.6 million at
December 31, 1994, a 9.0% increase over the prior year-end. This increase
was due to an improved mid-Atlantic commercial real estate market. Loans
secured by multi-family, commercial and other income producing real estate
are limited to 85% of appraised value under the OTS regulations, however, the
Bank generally limits such loans to 80% of appraised value. These loans have
an initial contractual loan payment period of 15 to 30 years with an early
call provision of five to ten years. These loans typically contain a rate
that is fixed for a term of years at the FHLB of Atlanta borrowing rate plus
a percentage for operating costs and profit. The Corporation also offers
variable rates for commercial real estate loans based on a markup over the
prime rate.
6
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The aggregate amount of loans which a federal savings bank may make on the
security of liens on nonresidential real property generally may not exceed 400%
of the institution's capital, although divestiture is not required for any loan
or investment that was lawful when made. The Bank does not anticipate that
these limits on nonresidential real property lending will materially affect its
lending activities.
CONSUMER AND COMMERICAL LOANS. Federal regulations permit federal
savings banks to make secured and unsecured consumer loans up to 35% of the
Bank's assets and commercial business loans up to 10% of assets. These loans
include lines of credit, loans on automobiles, boats and other consumer
goods, unsecured lines of credit and various types of commerical business
loans. In addition, a federal savings bank has lending authority above the
35% category for certain consumer loans such as home equity loans.
At December 31, 1994, the Corporation had approximately $376.4 million in
consumer and commercial loans, representing 15.2% of total assets, including
$10.1 million in commercial business loans. Home equity loans accounted for
approximately $96.7 million (25.7%) of the total consumer loan portfolio at
December 31, 1994. Also included in the consumer loan portfolio at December 31,
1994 were loans secured by vehicles ($203.8 million or 54.2%) and consumer loans
secured by boats ($47.6 million or 12.6%).
During 1994 consumer loans increased $52.4 million (16.7%) primarily due to
increased demand for automobile loans. Automobile loans outstanding increased
by $54.4 million (36.4%) at December 31, 1994 when compared to the prior year-
end. Approximately 53% of the Corporation's consumer loan portfolio consists of
automobile loans which are indirectly originated through a network of 403
dealers throughout our geographic lending area. The increase during 1994 was
due to higher demand for automobile loans resulting from substantially higher
automobile sales on both a regional and national basis.
In 1992 the Corporation began offering credit cards as an agent bank. In
this relationship, the Corporation earns a fee based on the number of cards
issued and receivables outstanding. The issuing bank retains all receivable
balances and the credit risk thereon.
The Corporation offers fixed-rate and adjustable-rate consumer loans. At
December 31, 1994 the consumer loan portfolio consisted of approximately $112.3
million in adjustable-rate loans primarily consisting of home equity lines of
credit. These loans are indexed to the prime rate or a FNMA index.
In 1993, the Corporation started a Small Business Lending Group to
originate commercial business loans to small businesses and professions with $5
million or less in revenues. At December 31, 1994 these loans totalled $7.0
million. It is not planned that such loans will comprise a significant portion
of the Corporation's lending activity.
LOAN ORIGINATION AND APPROVAL. Loan originations are primarily derived
from a staff of loan representatives through referrals, real estate brokers and
agents, developers and present customers. Through its wholesale mortgage
lending program begun in 1992, the Corporation also originates loans through a
network of correspondent institutions. These single-family residential mortgage
loans are acquired through outright purchases. Various levels of lending
authority are in effect based upon the type and size of the loan involved.
Residential real estate loans are typically submitted to a loan committee for
approval. Consumer loans are approved by certain employees with delegated loan
limits.
Real estate loans above $500,000 are submitted to a divisional loan
committee consisting of two executive vice presidents and one senior vice
president for approval. All construction and land acquisition and development
loans over $3.0 million, as well as all multi-family and commercial real estate
loans in excess of $500,000, are submitted to the Executive Loan Committee
comprised of the Chairman of the Board, President and the Executive Vice
President in charge of the Lending Division. All Loan Committee activity is
subject to ratification by the Board of Directors.
The Corporation negotiates take-out commitments for residential loans
emanating out of specific subdivisions or areas. These commitments are for a
period of up to 12 months with options for extensions and are primarily made at
the prevailing market rate at time of closing. Such commitments provide the
full menu of residential real estate loans offered by the Corporation. The
Corporation is also extensively involved in issuing 45-day commitments to
individuals for the
7
<PAGE>
purchase or refinance of one-to-four-family residences. The total amount of the
Corporation's outstanding commitments to originate and purchase real estate
loans at December 31, 1994 was approximately $68.9 million, excluding
undisbursed portions of construction loans in process.
LOAN ORIGINATION AND OTHER FEES. In addition to interest earned on loans,
the Corporation receives fees for originating conventional mortgages, FHA and VA
loans, and commercial real estate loans. These fees are based on current market
conditions. All such fees and the related direct origination costs have been
deferred and recognized as yield adjustments over the respective contractual
lives of the loans.
The Corporation also receives other fees and charges relating to existing
loans, which include late charges and fees collected in connection with a change
in borrower or other loan modifications.
LOAN PURCHASES AND SALES. The Corporation, in the current financial
environment, has positioned itself as a net seller of mortgage loans. The
Corporation originates and sells most of its conforming fixed-rate loans by
creating mortgage-backed certificates guaranteed by the Government National
Mortgage Association ("GNMA"), FHLMC and FNMA. GNMA certificates represent
interests in pools of mortgages which are fully insured by the FHA or partially
guaranteed by the VA. FHLMC and FNMA participation certificates represent
interests in pools of conventional mortgages.
The Corporation is actively engaged in the secondary mortgage market by
acquiring forward commitments and then delivering loans against these
obligations. These sales, a majority of which are without recourse to the
Corporation, have been made primarily to GNMA, FHLMC and FNMA. In addition,
the Corporation periodically sells participation interests in large
commercial real estate loans and adjustable-rate mortgages that it has
originated to other financial institutions. Through its wholesale lending
system, the Corporation works closely with correspondent lenders throughout
its primary lending area to purchase residential mortgage loans. Such loans
are then converted to mortgage-backed securities and sold in the secondary
mortgage market. The servicing on such loans is generally retained by the
Corporation.
The Corporation originates VA-guaranteed and FHA-insured mortgage loans
which are made on terms and conditions, including maximum interest rate levels,
established by the FHA and VA. These loans are generally pooled by the
Corporation as GNMA mortgage-backed securities for sale against acquired
commitments in the secondary mortgage market.
The sale of fixed-rate loans in the secondary mortgage market reduces
the Corporation's interest rate risk and allows the Corporation to continue
to make loans during a period when savings flows decline or funds are not
otherwise available for lending purposes. The Corporation generally retains
the servicing of the loans sold for which it receives a fee payable monthly
of .25% to .50% per annum of the unpaid balance of each loan. As of December
31, 1994, 1993 and 1992, the Corporation was servicing loans for others
aggregating $1.7 billion, $1.4 billion and $1.3 billion, respectively. The
Corporation intends to continue to be active in the secondary mortgage market
primarily as a seller against previously acquired commitments of either whole
loans or loan participations.
The declining interest rate environment from 1992 to the first quarter of
1994 created significant prepayments in mortgage loans and limited the
Corporation's ability to originate adjustable-rate mortgages for its own
portfolio. As previously discussed, due to its current low level of interest
rate sensitivity and in an effort to limit the shrinkage in interest-earning
assets, the Corporation elected to retain an increased amount of fixed-rate
mortgage loans in its own portfolio in 1993. The rising interest rate
environment during 1994 was the primary reason for a significant increase in
adjustable-rate mortgage loan originations. This enabled the Corporation to
return to its primary strategy of retaining such loans in its portfolio while
selling substantially all of its fixed-rate mortgage loan originations.
8
<PAGE>
The following table shows loan originations, purchases, and sales activity
of the Corporation during the years indicated. The significant increase in loan
originations during 1992 and 1993 was due primarily to the above-mentioned low
interest rate environment which made fixed-rate conventional mortgage loans more
attractive to borrowers.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1994 1993 1992
-------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
LOANS ORIGINATED:
Conventional real estate loans:
Construction loans $ 109,139 43,499 51,094
Loans on existing property 345,542 542,355 371,792
Loans refinanced 130,072 462,899 293,522
Insured and guaranteed loans 225,437 227,785 210,796
Consumer loans 194,097 114,786 93,631
Commercial loans 10,392 490 221
----------- --------- --------
Total loans originated $ 1,014,679 1,391,814 1,021,056
----------- --------- ---------
----------- --------- ---------
LOANS PURCHASED:
Construction loans $ 913 1,788 ---
Loans on existing property 444,897 242,676 51,298
----------- --------- ---------
Total loans purchased $ 445,810 244,464 51,298
----------- --------- ---------
----------- --------- ---------
LOANS SOLD:
Loans on existing property $ 834,211 894,183 859,046
----------- --------- ---------
Total loans sold $ 834,211 894,183 859,046
----------- --------- ---------
----------- --------- ---------
</TABLE>
ASSET QUALITY
NONPERFORMING ASSETS. Loans are reviewed periodically by senior managers
in each of the Corporation's lending areas. The Corporation's mortgage loan
collection procedures provide that when a loan is delinquent for 16 days or
more, the borrower will be contacted by mail and payment requested. If the
delinquency continues, subsequent efforts will be made to contact the delinquent
borrower. In certain instances, the Corporation may modify the loan or grant a
limited moratorium on loan payments to enable the borrower to reorganize his
financial affairs. If the loan continues to be delinquent for 90 days, the
Corporation will initiate foreclosure proceedings. Any property acquired as the
result of foreclosure or by deed in lieu of foreclosure is classified as "real
estate acquired through foreclosure" until such time as it is sold or otherwise
disposed of by the Corporation to recover its investment.
The Corporation's consumer loan collection department makes initial contact
with the customer when a loan becomes seven days past due. The customer is
notified of the Corporation's intent to begin repossession of collateral,
foreclosure or other legal proceedings at 45 days past due.
The Corporation's policy calls for all repossessed vehicles to be disposed
of within 45 days of repossession. The balances remaining on sold repossessions
are charged off within 60 days of the date of sale.
9
<PAGE>
OTS regulations require that each insured institution classify its own
assets on a regular basis. In addition, in connection with examinations of
insured institutions, OTS examiners have authority to identify problem assets
and, if appropriate, classify them. There are three classifications for
problem assets: (i) Substandard, (ii) Doubtful and (iii) Loss. Substandard
assets must have one or more well-defined weaknesses and be characterized by
the distinct possibility that the insured institution will sustain some loss
if the deficiencies are not corrected. Doubtful assets have the weaknesses
of Substandard assets with the additional characteristic that the weaknesses
make collection or liquidation in full on the basis of currently existing
facts, conditions and values questionable and there is a high possibility of
some loss. An asset classified as a Loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted.
The regulations have also provided for a Special Mention designation,
described as assets which do not currently expose an insured institution to a
sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving management's close attention.
Assets classified as Substandard or Doubtful require the institution to
establish general allowances for losses. If an asset or portion thereof is
classified as a Loss, the insured institution must either establish specific
allowances for losses in the amount of 100 percent of the portion of the asset
classified as a Loss, or charge off such amount. The institution's OTS District
Director has the authority to approve, disapprove or modify any asset
classification, or the amounts established as allowances for loan losses.
The Corporation regularly reviews its loans and other assets to
determine that each category is reasonably valued and adequately provided
for. This determination is based on management's judgment concerning the
amount of risk inherent in the portfolio. Such judgment considers a number
of factors including historical loss experience, the present and prospective
financial condition of borrowers, estimated value and cash flows of
underlying collateral, geographical and industry concentrations, current and
prospective economic conditions, delinquency experience and the status of
nonperforming assets.
The following table sets forth information with respect to the
Corporation's nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1994 1993 1992 1991 1990
---------- --------- ---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate foreclosure $ 20,601 27,370 32,619 34,533 16,078
Repossessed vehicles 581 1,650 3,068 4,541 4,111
-------- -------- -------- -------- --------
Total 21,182 29,020 35,687 39,074 20,189
-------- -------- -------- -------- --------
Nonaccruing loans: (1)
Residential mortgage 5,446 7,350 8,557 6,447 5,251
Consumer 1,136 1,699 2,547 3,166 4,297
Construction and commercial 1,100 1,100 1,100 3,172 6,747
-------- -------- -------- -------- --------
Total nonperforming loans 7,682 10,149 12,204 12,785 16,295
-------- -------- -------- -------- --------
Total nonperforming assets $ 28,864 39,169 47,891 51,859 36,484
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Nonperforming loans as a
percentage of total loans 0.39 0.64 0.95 0.80 0.93
Nonperforming assets as a
percentage of total assets 1.17 1.66 2.68 2.59 1.76
</TABLE>
(1) Nonaccrual status denotes loans on which, in the opinion of management, the
collection of additional interest is unlikely, which are delinquent for
more than 90 days, or loans that meet nonaccural criteria as established by
10
<PAGE>
regulatory authorities. Payments received on a non-accrual loan are either
applied to the outstanding principal balance or recorded as interest
income, depending on assessment of the collectibility of the loan.
Interest on loans is excluded from income when, in the opinion of
management, full collection of principal and interest is in doubt. A reserve
for uncollected interest on all loans over 90 days past due is maintained and
adjusted monthly. This method effectively charges off against interest income
all accrued interest and places the account in nonaccrual status when 90 days
delinquent. All significant delinquent residential and construction loans are
reviewed by management on a continuing basis to ascertain the adequacy of the
allowance for loan losses.
In addition to nonperforming loans, the Corporation also has an investment
in a loan modified under a troubled debt restructuring. The recorded investment
in this loan was approximately $1.5 million at December 31, 1994 and 1993.
The contractual amount of interest that would have been recorded on the
above nonaccrual loans and loan modified under a troubled debt restructuring
during 1994 and 1993 was approximately $824,000 and $1.0 million, respectively.
Actual interest income recorded on such loans totalled $201,000 in 1994 and
$257,000 in 1993.
The loans in the table above generally include all assets in the
Substandard, Doubtful and Loss categories. In addition to the loans included in
the table, the Corporation has identified potential problem loans totaling $7.4
million which have been designated as Substandard or Doubtful at December 31,
1994. These are loans that are current but have been classified by management
due to a specific identified weakness, such as cash flow or collateral. Loans
classified as Special Mention totaled $3.8 million. These are loans which,
while current in required payments, have exhibited some potential weaknesses
that, if not corrected, could weaken the asset and increase the level of risk in
the future.
ALLOWANCES FOR LOSSES ON LOANS AND INVESTMENTS IN REAL ESTATE. The
Corporation's management establishes allowances for possible losses. On a
continuing basis, management evaluates the loan and real estate portfolios and
determines the amount that must be added to the allowance accounts. This
evaluation includes a number of factors including historical loss experience,
the present and prospective financial condition of borrowers, estimated value
and cash flows of underlying collateral, geographical and industry
concentrations, current and prospective economic conditions, delinquency
experience and the status of nonperforming assets. Based on an evaluation of
those factors, management has made what it considers to be sufficient additions
to the allowances for losses on loans and investments in real estate. These
allowances are charged against income in the year they are established.
Additionally, accrual of interest on potential problem loans is excluded from
income by an offsetting increase to a specific allowance for loss when, in the
opinion of management, such exclusion is warranted. Such interest, if
ultimately collected, is credited to income in the period of recovery.
Management believes that all potential losses on loans and investments in
real estate have been adequately provided for in the allowances for losses on
loans and investments in real estate as of December 31, 1994.
The following table sets forth the activity in the allowance for loan
losses for the years indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1994 1993 1992 1991 1990
-------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 14,625 15,151 14,338 13,997 7,780
-------- ------- ------- ------ ------
Charge-offs:
Real estate-mortgage 438 225 354 2,656 --
Real estate-construction -- -- 306 1,852 --
Consumer loans 3,525 5,886 7,938 8,976 6,669
Commercial loans -- -- -- 382 --
-------- ------- ------- ------ ------
3,963 6,111 8,598 13,866 6,669
-------- ------- ------- ------- -------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Recoveries:
Consumer loans $ 2,411 2,500 2,346 2,808 1,432
-------- -------- ------- ------ --------
Net charge-offs 1,552 3,611 6,252 11,058 5,237
-------- -------- ------- ------ --------
Provision for losses:
Real estate - mortgage 300 600 675 2,036 2,020
Real estate -construction 300 -- (1,150) 2,883 ---
Consumer loans 5 2,419 4,062 6,480 8,624
Commercial loans 55 66 3,478 --- 810
------- ------- ------- ------ ------
660 3,085 7,065 11,399 11,454
-------- ------- ------- ------ ------
Balance at end of year $ 13,733 14,625 15,151 14,338 13,997
-------- ------- ------- ------ ------
-------- ------- ------- ------ ------
Ratio of net charge-offs during
the year to average loans
outstanding during the year 0.09% 0.25% 0.41% 0.64% 0.30%
Ratio of allowance for loan
losses to:
Nonperforming loans 166.2 124.0 99.2 82.8 68.6
Total loans .70 .91 1.17 .89 .79
Balance at end of period
applicable to:
Real estate - mortgage $ 2,333 2,471 2,096 1,775 2,395
Real estate - construction 840 540 540 1,996 965
Consumer loans 6,533 7,642 8,609 10,139 9,827
Commercial loans 4,027 3,972 3,906 428 810
Percentage of loans in each
category to total loans;
Real estate - mortgage 77.0% 76.7% 68.7% 68.8% 65.7%
Real estate - construction 4.2 3.5 3.7 3.0 3.5
Consumer loans 18.3 19.1 26.8 27.5 30.1
Commercial loans 0.5 0.7 0.8 0.7 0.7
</TABLE>
The overall loan portfolio decreased significantly through mid 1993. In
the second half of 1993 and throughout 1994 the loan portfolio grew in size,
but such growth was concentrated primarily in single-family residential
mortgages which involve the lowest level of risk among all of Loyola's loan
products. The provisions for loan losses declined in each year since 1990
due to the following factors: (a) for the period 1990 through 1994, to a
consistent decline in the level of nonperforming loans, (b) additionally, for
the period 1991 through 1994, to a consistent decline in the level of net
charge-offs and repossessed vehicles, and (c) additionally, for the period
1993 through 1994, to a lower risk in the composition of the loan portfolio.
The ratio of the allowance for loan losses to nonperforming loans has
increased since 1990 due to a decline in nonperforming loans, but the overall
decline in the allowance has been small due to management's intent to carefully
manage
12
<PAGE>
its risk of loss. The ratio of the allowance for loan losses to total loans has
declined since 1992 due to the growth in the loan portfolio which, however, was
concentrated in relatively low-risk loan products.
As a further result of the asset review mentioned previously, the
Corporation has established an allowance for losses on investments in real
estate of $11.3 million. This represents the excess of cost over fair value of
real estate acquired through foreclosure and the excess of cost over net
realizable value of joint ventures and wholly-owned real estate projects. Net
charge-offs of investments in real estate totaled $2.9 million in 1994, $2.4
million in 1993, $818,000 in 1992 and $642,000 in 1991. There were no charge-
offs in 1990.
INVESTMENT ACTIVITIES
The Corporation has invested a portion of its assets in securities
including overnight deposits with commercial banks and repurchase agreements,
and in other securities which have been approved as investments under
applicable federal law or regulations. These investments totaled $121.2
million or 4.9% of total assets as of December 31, 1994. Within the overall
asset/liability management strategy of the Corporation, investments are
primarily maintained to meet the Corporation's operating and regulatory
liquidity requirements. See Notes 2 and 3 of the Notes to Consolidated
Financial Statements. A summary of investment securities as of December 31
follows:
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
LOYOLA CAPITAL CORPORATION
Date: September 1, 1995 By: /a/ Joseph W. Mosmiller
----------------------------
Joseph W. Mosmiller, Chairman of the Board
and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons of behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ James V. McAveney Date: September 1, 1995
------------------------------
James V. McAveney
Executive Vice President and
Principal Financial Officer
By: /s/ Dennis P. Neville Date: September 1, 1995
-------------------------------
Dennis P. Neville
Senior Vice President and Controller
Principal Accounting Officer
By: /s/ Joseph W. Mosmiller Date: September 1, 1995
------------------------------
Joseph W. Mosmiller
Chairman of the Board of Directors
By: /s/ James C. Johnson Date: September 1, 1995
------------------------------
James C. Johnson
President and Director
14
<PAGE>
By: /s/ H. Mebane Turner Date: September 1, 1995
------------------------------
H. Mebane Turner
Director
Date:
By: ------------------------------
William G. Scaggs
Director
By: /s/ C. Gordon Haines Date: September 1, 1995
-----------------------------
C. Gordon Haines
Director
By: /s/ John T. Stinson Date: September 1, 1995
-----------------------------
John T. Stinson
Director
By: /s/ Harry K. Wells Date: September 1, 1995
------------------------------
Harry K. Wells
Director
By: /s/ Morton J. Macks Date: September 1, 1995
----------------------------
Morton J. Macks
Director
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 24,426
<INT-BEARING-DEPOSITS> 3,286
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 347,336
<INVESTMENTS-MARKET> 322,230
<LOANS> 1,997,011
<ALLOWANCE> (13,733)
<TOTAL-ASSETS> 2,468,541
<DEPOSITS> 1,465,630
<SHORT-TERM> 429,407
<LIABILITIES-OTHER> 56,240
<LONG-TERM> 348,170
<COMMON> 809
0
0
<OTHER-SE> 168,285
<TOTAL-LIABILITIES-AND-EQUITY> 2,468,541
<INTEREST-LOAN> 137,641
<INTEREST-INVEST> 23,770
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 161,411
<INTEREST-DEPOSIT> 58,354
<INTEREST-EXPENSE> 94,506
<INTEREST-INCOME-NET> 66,905
<LOAN-LOSSES> 660
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 54,301
<INCOME-PRETAX> 25,065
<INCOME-PRE-EXTRAORDINARY> 25,065
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,030
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.73
<YIELD-ACTUAL> 3.01
<LOANS-NON> 7,682
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,461
<LOANS-PROBLEM> 13,304
<ALLOWANCE-OPEN> 14,625
<CHARGE-OFFS> 3,963
<RECOVERIES> 2,411
<ALLOWANCE-CLOSE> 13,733
<ALLOWANCE-DOMESTIC> 13,733
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
