<PAGE>
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
<PAGE>
INDEX
BAY VIEW CAPITAL CORPORATION
----------------------------
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
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
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1995
- ---------------------------------------------- ------------ ------------
<S> <C> <C>
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
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1995 1996 1995
- ---------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
======= ======== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
(DOLLARS IN THOUSANDS) 1996 1995
- --------------------- ----------- ----------
<S> <C> <C>
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
-------- --------
</TABLE>
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
(DOLLARS IN THOUSANDS) 1996 1995
- ---------------------- ----------- ----------
<S> <C> <C>
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
---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1995
---------------------- ----------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net interest income $46,707 $41,660
Net income 8,445 1,646
Earnings per share 1.20 0.23
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1986 1995 DIRECTOR
STOCK STOCK STOCK
OPTION OPTION OPTION
PLAN PLAN PLAN TOTAL
---------- -------- --------- ----------
<S> <C> <C> <C> <C>
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
---------- -------- -------- ----------
</TABLE>
At June 30, 1996, the Company had outstanding non-qualified options for all
three plans with expiration dates from 1997 to 2006 as follows:
<TABLE>
<CAPTION>
EXERCISE AVERAGE
NUMBER OF PRICE PRICE
OPTION SHARES RANGE PER SHARE
-------------- -------------- ---------
<S> <C> <C> <C>
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
======= ============== ======
</TABLE>
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
<PAGE>
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:
<TABLE>
<S> <C>
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
----------
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1996 1995 1996 1995
-------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
------- ------- ------- -------
</TABLE>
The following table is a summary of the net interest margin, including CTL for
June 1996 only.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1996 1995 1996 1995
-------- --------- --------- --------
<S> <C> <C> <C> <C>
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%
------- ------- ------- -------
</TABLE>
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
<PAGE>
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
(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%
========== ==== ========== ====
</TABLE>
(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
<PAGE>
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
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%
========== ==== ========== ====
</TABLE>
(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
<PAGE>
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1996 1995 1996 1995
------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
------- ------- ------- -------
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1996 1995 1996 1995
------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
------- ------- ------- -------
</TABLE>
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1996 1995 1996 1995
------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
------- ------- ------- -------
</TABLE>
15
<PAGE>
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.
<TABLE>
<CAPTION>
THREE MONTH VARIANCE SIX MONTH VARIANCE
----------------------------- --------------------------------
RATE VOLUME TOTAL RATE VOLUME TOTAL
------- -------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
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
====== ======= ======= ======= ======= =======
</TABLE>
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
<PAGE>
($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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1996 1995 1996 1995
------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
------- ------- ------- -------
</TABLE>
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
<PAGE>
- - $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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1996 1995 1996 1995
------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BVFB $442 $605 $1,168 $1,210
CTL (for June 1996 only) 236 --- 236 ---
---- ---- ------ ------
BVCC - Consolidated $678 $605 $1,404 $1,210
---- ---- ------ ------
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
----------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
----------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
19
<PAGE>
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.
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
--------------------- ----------------------
AMOUNT % AMOUNT %
---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
========== ===== ========== =====
</TABLE>
The following is a summary of loan originations/purchases, including CTL
for June 1996 only.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------------
1996 1995 1996 1995
---------- ------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
--------- ------- -------- --------
</TABLE>
20
<PAGE>
CREDIT QUALITY
Credit Quality has continued to improve as evidenced by the decline in
nonperforming assets and delinquencies as shown in the tables below:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS AS A PERCENTAGE OF
TOTAL ASSETS
JUNE 30, 1996 DECEMBER 31, 1995
--------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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%
------- ---- ------- ----
<CAPTION>
LOANS DELINQUENT 60 DAYS OR MORE AS
PERCENTAGE OF GROSS LOANS
JUNE 30, 1996 DECEMBER 31, 1995
--------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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%
------- ---- ------- ----
</TABLE>
The following table summarizes the Company's nonperforming assets and troubled
debt restructurings:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
-------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
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
======= =======
</TABLE>
21
<PAGE>
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:
<TABLE>
<CAPTION>
ALLOWANCE FOR LOSSES ON LOANS AND SECURITIES
AS A PERCENTAGE OF NONPERFORMING ASSETS
JUNE 30, 1996 DECEMBER 31, 1995
------------------ -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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%
------- ------- ------- -------
<CAPTION>
ALLOWANCE FOR LOSSES ON LOANS AS A PERCENTAGE
OF NONPERFORMING LOANS
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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%
------- ------- ------- -------
</TABLE>
The following is a summary of provision for losses on loans and securities,
including CTL for June 1996 only.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1996 1995 1996 1995
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BVFB $ 400 $ 900 $ 1,000 $ 1,800
CTL (for June 1996 only) 418 --- 418 ---
------- ------- ------- -------
BVCC - Consolidated $ 818 $ 900 $ 1,418 $ 1,800
------- ------- ------- -------
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
----------------- -------------------
AMOUNT % AMOUNT %
---------- ---- --------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
========== ==========
</TABLE>
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.
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
----------------- -------------------
AMOUNT % AMOUNT %
---------- ---- --------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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
======== ===== ======== =====
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
MATURITIES OF DERIVATIVE INSTRUMENTS
------------------------------------
2000 2001+ TOTAL
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
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%
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
MINIMUM FULLY
REQUIRED ACTUAL PHASED-IN
--------- ------- ----------
<S> <C> <C> <C>
Tangible 1.50% 5.75% 5.71%
Core 3.00% 5.85% 5.82%
Risk-based 8.00% 10.90% 10.84%
</TABLE>
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:
<TABLE>
<CAPTION>
WELL
CAPITALIZED
REQUIREMENT BVFB CTL
------------ ------ ------
<S> <C> <C> <C>
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%
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
PROPOSAL I FOR WITHHELD
<S> <C> <C>
John R. McKean 6,497,295 32,953
Roger K. Easley 6,499,698 30,550
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTE
<S> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 18,892
<INT-BEARING-DEPOSITS> 1,528
<FED-FUNDS-SOLD> 15,570
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 117,155
<INVESTMENTS-CARRYING> 568,001
<INVESTMENTS-MARKET> 549,637
<LOANS> 2,521,824
<ALLOWANCE> 36,821
<TOTAL-ASSETS> 3,388,847
<DEPOSITS> 2,201,604
<SHORT-TERM> 663,750
<LIABILITIES-OTHER> 34,885
<LONG-TERM> 282,431
0
0
<COMMON> 69
<OTHER-SE> 206,108
<TOTAL-LIABILITIES-AND-EQUITY> 3,388,847
<INTEREST-LOAN> 85,328
<INTEREST-INVEST> 25,175
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 110,503
<INTEREST-DEPOSIT> 47,711
<INTEREST-EXPENSE> 75,452
<INTEREST-INCOME-NET> 35,051
<LOAN-LOSSES> 1,418
<SECURITIES-GAINS> (262)
<EXPENSE-OTHER> 23,587
<INCOME-PRETAX> 14,378
<INCOME-PRE-EXTRAORDINARY> 8,209
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,209
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
<YIELD-ACTUAL> 2.37
<LOANS-NON> 12,649
<LOANS-PAST> 762
<LOANS-TROUBLED> 650
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 30,014
<CHARGE-OFFS> 3,194
<RECOVERIES> 529
<ALLOWANCE-CLOSE> 36,821
<ALLOWANCE-DOMESTIC> 36,821
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
