<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, 1997
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.)
1840 Gateway Drive, San Mateo, California 94404
(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, 1997
(Title of Class) 12,979,260 shares
1
<PAGE>
FORM 10-Q
INDEX
BAY VIEW CAPITAL CORPORATION
----------------------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page(s)
- ------- --------------------- -------
<S> <C>
Item 1. Financial Statements (Unaudited):
Consolidated Statements of Financial Condition.... 3
Consolidated Statements of Operations............. 4-5
Consolidated Statement of Stockholders' Equity.... 6
Consolidated Statements of Cash Flows............. 7-8
Notes to Consolidated Financial Statements........ 9-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..... 11-36
PART II. OTHER INFORMATION
- -------- -----------------
Other Information................................. 37-38
Signatures........................................ 38
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1997 1996
-------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from depository institutions $ 30,338 $ 22,608
Interest-bearing deposits and federal funds sold 64,715 84,220
----------- ----------
95,053 106,828
Loans held for sale - 294,949
Securities available-for-sale:
Mortgage-backed securities 78,030 83,154
Investment securities 7,803 13,802
Securities held-to-maturity:
Mortgage-backed securities 458,689 494,459
Investment securities 15,103 15,204
Loans receivable held for investment,
net of allowance for losses 2,294,246 2,179,768
Investment in stock of the FHLB of San Francisco 59,290 51,891
Real estate owned, net 8,818 7,387
Premises and equipment, net 10,095 6,905
Intangible assets 31,539 10,197
Other assets 37,547 35,718
----------- ----------
Total assets $ 3,096,213 $3,300,262
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits:
Transaction accounts $ 472,904 $ 493,571
Certificates of deposit 1,105,302 1,270,396
----------- ----------
1,578,206 1,763,967
Advances from the FHLB of San Francisco 1,092,730 977,750
Securities sold under agreements to repurchase 142,461 210,640
Senior Debentures 50,000 50,000
Other borrowings 6,485 7,147
Other liabilities 30,135 90,696
----------- ----------
Total liabilities 2,900,017 3,100,200
Stockholders' equity:
Serial preferred stock: authorized, 7,000,000
shares; outstanding: none -- --
Common stock ($.01 par value); authorized,
60,000,000 shares; issued: 6/30/97 - 15,091,374
shares; 12/31/96 - 15,005,384 shares;
outstanding: 6/30/97-12,979,260 shares;
12/31/96-13,349,270 shares; 151 150
Additional paid-in capital 101,318 100,436
Retained earnings (substantially restricted) 139,011 131,324
Treasury stock at cost, 6/30/97 - 2,112,114 shares
and 12/31/96 - 1,656,114 shares (38,847) (26,497)
Unrealized loss on securities available-for-sale
(net of tax) (1,220) (713)
Debt of Employee Stock Ownership Plan (4,217) (4,638)
----------- ----------
Total stockholders' equity 196,196 200,062
----------- ----------
Total liabilities and stockholders' equity $ 3,096,213 $3,300,262
----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
(DOLLARS IN THOUSANDS ------------------
EXCEPT PER SHARE AMOUNTS) 1997 1996
------ ------
<S> <C> <C>
Interest income:
Interest on loans receivable $48,406 $44,941
Interest on mortgage-backed securities 8,848 10,593
Interest and dividends on investments 2,085 1,560
------- -------
59,339 57,094
Interest expense:
Interest on customer deposits 18,545 24,453
Interest on Senior Debentures 1,114 406
Interest on borrowings 17,912 13,398
------- -------
37,571 38,257
Net interest income 21,768 18,837
Provision for losses on loans 612 818
------- -------
Net interest income after provision
for loan losses 21,156 18,019
Noninterest income:
Loan fees and charges 1,745 1,123
Other, net 2,003 1,386
------- -------
3,748 2,509
Noninterest expense:
General and administrative 16,211 13,231
Real estate owned operations, net (69) (774)
Recovery of losses on real estate (78) (70)
Amortization and write-down of
intangible assets 953 678
------- -------
17,017 13,065
Income before income tax expense 7,887 7,463
Income tax expense 3,383 3,247
------- -------
Net income $ 4,504 $ 4,216
======= =======
Primary earnings per share $0.34 $0.30
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(DOLLARS IN THOUSANDS ------------------
EXCEPT PER SHARE AMOUNTS) 1997 1996
------ ------
<S> <C> <C>
Interest income:
Interest on loans receivable $ 95,070 $ 85,328
Interest on mortgage-backed securities 18,079 21,963
Interest and dividends on investments 4,346 3,212
-------- --------
117,495 110,503
Interest expense:
Interest on customer deposits 38,139 47,711
Interest on Senior Debentures 2,228 406
Interest on borrowings 34,305 27,335
-------- --------
74,672 75,452
Net interest income 42,823 35,051
Provision for losses on loans 1,177 1,418
-------- --------
Net interest income after provision
for loan losses 41,646 33,633
Noninterest income:
Loan fees and charges 2,903 2,031
Gain (loss) on sale of loans and
securities 925 (262)
Rental income from premises - 403
Other, net 3,503 2,160
-------- --------
7,331 4,332
Noninterest expense:
General and administrative 30,831 23,968
Real estate owned operations, net (91) (1,662)
Recovery of losses on real estate (526) (123)
Amortization and write-down of
intangible assets 1,630 1,404
-------- --------
31,844 23,587
Income before income tax expense 17,133 14,378
Income tax expense 7,367 6,169
-------- --------
Net income $ 9,766 $ 8,209
======== ========
Primary earnings per share $0.73 $0.58
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON DEBT OF
SECURITIES EMPLOYEE
ADDITIONAL AVAILABLE STOCK TOTAL
(DOLLARS IN THOUSANDS NUMBER OF COMMON PAID-IN RETAINED TREASURY FOR SALE OWNERSHIP STOCKHOLDERS'
EXCEPT PER SHARE AMOUNTS) SHARES STOCK CAPITAL EARNINGS* STOCK (NET OF TAX) PLAN EQUITY
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 15,005,384 $150 $100,436 $131,324 $(26,497) $ (713) $ (4,638) $200,062
Repurchase of common stock (12,350) (12,350)
Exercise of stock options 85,990 1 882 883
Cash dividends declared (2,079) (2,079)
($0.16 per share)
Unrealized loss, net of tax (507) (507)
Repayment of debt of ESOP 421 421
Net income 9,766 9,766
Balance at June 30, 1997 15,091,374 $151 $101,318 $139,011 $(38,847) (1,220) $ (4,217) $196,196
=======================================================================================================
</TABLE>
* Substantially restricted
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
(DOLLARS IN THOUSANDS) 1997 1996
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,766 $ 8,209
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization and write-down of intangible assets 1,630 1,404
Write-down on disposal of fixed assets -- 925
Proceeds from loans sold and securitized 265,203 9,668
Provision for losses on loans and real estate owned 1,210 1,543
Depreciation and amortization of premises and equipment 1,400 1,355
Amortization of deferred loan costs 473 677
Decrease in capitalized excess servicing fees 138 230
Amortization of premiums, net of discounts 2,781 1,219
(Gain) loss on loans and securities (1,001) 262
(Increase) decrease in other assets 901 (1,996)
Decrease in other liabilities (59,623) (7,689)
Other, net 343 (138)
--------- -------
Net cash provided by operating activities 223,221 15,669
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries, net of
cash and cash equivalents received (9,924) (60,918)
Decrease in loans resulting from originations
net of principal payments 46,233 44,051
Purchase of loans (146,750) (37,950)
Principal payments on mortgage-backed securities 38,631 48,204
Proceeds from sale of mortgage-backed
securities available for sale - 26,808
Proceeds from maturities of investment securities 12,792 32,000
Purchase of investment securities (6,888) (200)
Proceeds from sale of other real estate owned 5,332 13,367
Net additions to premises and equipment (3,939) (494)
Increase in stock of FHLBSF (7,399) (1,268)
Other, net - (198)
--------- -------
Net cash provided by (used in) investing activities (71,912) 63,402
--------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
(DOLLARS IN THOUSANDS) 1997 1996
------ ------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net deposit outflows (185,761) (75,131)
Proceeds from advances from FHLBSF 3,584,032 540,000
Repayment of advances from FHLBSF (3,469,052) (560,740)
Issuance of Senior Debentures, net of issuance costs - 49,300
Repurchase of common stock (12,350) (7,562)
Proceeds from reverse repurchase agreements 321,017 -
Repayment of reverse repurchase (389,196) (29,098)
agreements
Decrease in other borrowings (10,578) (1,788)
Proceeds from issuance of common stock 883 1,248
Dividends paid to stockholders (2,079) (2,070)
----------- ---------
Net cash used in financing activities (163,084) (85,841)
----------- ---------
Net decrease in cash and cash equivalents (11,775) (6,770)
Cash and cash equivalents at beginning of period 106,828 42,760
----------- ---------
Cash and cash equivalents at end of period $ 95,053 $ 35,990
=========== =========
Cash paid for:
Interest $ 46,513 $ 31,900
Income taxes $ 7,463 $ 4,801
Supplemental noncash investing and
financing activities:
Loans transferred to real estate owned $ 6,677 $ 4,470
Loans originated to sell real estate owned $ -- $ 4,263
Loans transferred from held for sale to held for investment $ 117,187 $ --
The acquisition of subsidiaries involved the following :
Push-down of the Company's acquisition cost $ 15,000 $ 61,232
Preliminary estimate of liabilities assumed 13,358 469,971
Preliminary estimate of the fair value of assets acquired,
other than cash and cash equivalents (1,986) (512,472)
Goodwill (21,296) (18,417)
----------- ---------
Net cash and cash equivalents received $ 5,076 $ 314
=========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
BAY VIEW CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements include
the accounts of Bay View Capital Corporation (the "Company" or "BVCC") and its
subsidiaries, including Bay View Bank ("BVB"), California Thrift & Loan, a
California industrial loan company ("CTL"), Bay View Securitization Corporation,
a Delaware corporation formed for the purpose of issuing asset-backed securities
through a trust and Concord Growth Corporation, a commercial finance company.
All significant intercompany balances and transactions have been eliminated in
consolidation.
The Company completed its acquisition of EXXE Data Corporation ("EXXE") and
its wholly owned subsidiary, Concord Growth Corporation ("CGC") on March 17,
1997. Subsequent to the close of the transaction, EXXE was merged into CGC and
liquidated, such that CGC became a first-tier stand-alone subsidiary of the
Company. The acquisition did not have a significant impact on the consolidated
results of operations in the first quarter of 1997 and was accounted for as a
purchase effective April 1, 1997.
The information provided by these interim financial statements reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the Company's financial condition as of June 30, 1997 and
December 31, 1996; the results of its operations for the three and six months
ended June 30, 1997 and 1996; and the cash flows for the six months ended June
30, 1997 and 1996. Such adjustments are of a normal recurring nature unless
otherwise disclosed in this Form 10-Q. As necessary, reclassifications have
been made to prior period amounts to conform to the current period presentation.
These interim financial statements have been prepared in accordance with the
instructions to Form 10-Q and therefore do not include all the necessary
information and footnotes for a presentation in conformity with Generally
Accepted Accounting Principles.
The information included 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 1996 Annual Report on Form 10-K/A, which contains
the latest audited financial statements and notes thereto, together with
Management's Discussion and Analysis of Financial Condition as of December 31,
1996 and 1995 and Results of Operations for the years ended December 31, 1996,
1995 and 1994. Accordingly, only certain changes in financial condition and
results of operations are discussed in this Form 10-Q. Furthermore, the interim
financial results for the three and six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the entire fiscal
year or any other interim period.
NOTE 2 - EARNINGS PER SHARE
The earnings per share computation for the three and six months ended June
30, 1997 and 1996 was determined by dividing net income by the weighted average
number of common shares and common stock equivalents outstanding for the given
period. Common stock equivalents consist principally of outstanding stock
options. The average number of shares outstanding (including common stock
equivalents) for the three months ended June 30, 1997 and 1996 were 13,335,000
shares and 13,990,000 shares, respectively and for the six months ended June 30,
1997 and 1996 were 13,440,000 shares and 14,099,000 shares, respectively. The
Company's fully diluted earnings per share does not differ materially from its
primary earnings per share and therefore it has not been separately reported.
The Company declared a 2 for 1 stock split in the form of a 100% stock
dividend on April 14, 1997 to stockholders of record as of the close of business
on May 9, 1997, which was paid on June 2, 1997. All share and per share data,
including stock option plan information, have been restated to reflect the stock
split.
9
<PAGE>
NOTE 3 - STOCK OPTIONS
The Company has three stock option plans: the "Amended and Restated 1986
Stock Option and Incentive Plan", the "1995 Stock Option and Incentive Plan" and
the "Non-Employee Director Stock Option Plan", which authorize the issuance of
up to 1,759,430 shares, 2,000,000 shares, and 550,000 shares of common stock,
respectively. The following table summarizes the stock options available for
grant as of June 30, 1997:
<TABLE>
<CAPTION>
NON-EMPLOYEE
DIRECTOR
1986 STOCK OPTION PLAN 1995 STOCK OPTION PLAN OPTION PLAN TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares reserved for issuance 1,759,430 2,000,000 550,000 4,309,430
Granted (2,048,816) (1,055,500) (516,000) (3,620,316)
Canceled 290,074 161,500 20,000 471,574
Expired (688) - - (688)
-----------------------------------------------------------------------------
Total available for grant - 1,106,000 54,000 1,160,000
=============================================================================
</TABLE>
At June 30, 1997, the Company had outstanding non-qualified options
for all three plans with expiration dates from 1998 to 2007 as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE AVERAGE
OPTION SHARES RANGE PRICE
------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 1,154,890 $ 7.28 - $18.88 $12.67
Granted 513,500 $24.13 - $28.44 $26.36
Exercised (84,490) $ 7.28 - $17.50 $10.53
Canceled (141,500) $17.00 - $28.44 $26.01
Outstanding at June 30, 1997 1,442,400 $ 7.88 - $28.44 $16.36
==========================================
</TABLE>
NOTE 4 - DIVIDEND DECLARATION
The Company declared a quarterly cash dividend of $0.08 per share on June 26,
1997, payable to stockholders of record as of July 11, 1997. The dividend
payable, totaling $1.0 million, was accrued as of June 30, 1997 and is reflected
in the accompanying consolidated financial statements.
NOTE 5 - ACQUISITION OF AMERICA FIRST EUREKA HOLDINGS, INC./EUREKABANK
On May 8, 1997, the Company signed a definitive agreement to acquire America
First Eureka Holdings, Inc. ("AFEH") and its wholly owned bank subsidiary,
EurekaBank ("Eureka"). Under the terms of the definitive agreement, America
First Financial Fund 1987-A Limited Partnership (Nasdaq:"AFFFZ"), the
shareholder of AFEH capital stock, will receive $300 million comprised of Bay
View common stock valued at $210 million and cash of $90 million. The
acquisition of AFEH/Eureka will be accounted for as a purchase and is expected
to be completed on or about January 2, 1998. The purchase price is currently
estimated to exceed the fair value of the net assets acquired by approximately
$112 million, which Bay View anticipates amortizing over a 15 year period.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS
----------------------
GENERAL
Bay View Capital Corporation (the "Company" or "Bay View" or "BVCC") is a
diversified financial services holding company for Bay View Bank ("BVB"), Bay
View Securitization Corporation ("BVSC"), California Thrift & Loan ("CTL") and
Concord Growth Corporation ("CGC").
The results of operations and the balance sheet analysis includes the
effects of the acquisition of CTL effective June 1, 1996 and the acquisition of
CGC effective April 1, 1997. The analysis reflects the Company's restructuring
of its reporting for its operations based on business platforms.
STRATEGIC OVERVIEW
The Company's Mission Statement
To build a diversified financial services company by investing in and
creating niche asset generating companies that originate high yielding assets
and maximizing per share market value.
The Company's Strategy
In order to realize the Company's objectives, management is pursuing a
strategy that encompasses the following:
1. De-emphasizing the less profitable elements of the Company's
activities by (i) causing the Bank to cease originating new residential
mortgage loans, (ii) reducing the Bank's wholesale activities and (iii)
selling the business equipment leasing portfolio of CTL, the Company's
consumer finance subsidiary.
2. Enhancing the Bank's deposit base through the reduction of higher
cost deposits and expansion of lower cost transaction accounts by
emphasizing relationship banking and capitalizing on cross-sell
opportunities with loan customers.
3. Maintaining the capital of the Bank at or above the minimum "well-
capitalized" (as defined for bank regulatory purposes) level and returning
any excess capital to the Company.
4. Redeploying such excess capital in businesses intended to generate
assets with higher yields than those typically provided by mortgage loans.
5. Increasing the velocity of capital utilization through the
origination of shorter duration assets.
FORWARD LOOKING STATEMENTS
Certain statements included in this Form 10-Q or in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases or other shareholder communications or in oral statements made with the
approval of an authorized executive officer, constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and are subject to a number of risks
and uncertainties. Any such forward-looking statements should not be relied upon
as predictions of future events. Certain such forward-looking statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "are expected to," "will," "will allow," "will continue,"
"will likely result," "should," "would be," "seeks," "approximately," "intends,"
"plans," "projects," "estimates" or "anticipates" or similar expressions or the
negative thereof or other variations thereof or comparable terminology, or by
discussions of strategy, plans or intentions. In addition, all information
included herein or therein with respect to projected or future results of
operations, financial condition, financial performance or other financial or
statistical matters constitute such forward-looking statements. Such forward-
looking statements are necessarily dependent on assumptions, data or methods
that may be incorrect or imprecise and that may be incapable of being realized
and in some instances are based on consensus estimates of analysts not
affiliated with the Company. In that regard, the following factors, among others
could cause actual results and other matters to differ materially from those in
such forward-looking statements: increases in defaults by borrowers and other
loan delinquencies; increases in the provision for loan losses; failure to
consummate the proposed merger (the "merger") of AFEH (as defined herein) into
the Company; failure by the Company to realize expected cost savings or revenue
enhancements from the merger; deposit attrition, customer loss or revenue loss
following the merger; costs or difficulties related to the integration of the
businesses of the Company and AFEH and their respective subsidiaries following
the merger; changes in the terms of the merger, including the possibility that
the Company may have to increase the number of shares of its common stock issued
to consummate the merger; the risk that, as a result of the merger, the Company
and its subsidiaries (including subsidiaries acquired pursuant to the merger)
will become or remain subject to a capital maintenance agreement and an
assistance agreement with bank regulatory authorities to which AFEH and its
subsidiary, EurekaBank, a Federal Savings Bank, are currently subject; the
Company's ability to sustain or improve the performance of its subsidiaries
following the merger; the ability to identify suitable future acquisition
candidates; changes in interest rates which may, among other things, adversely
affect margins; competition in the banking, financial services and related
industries; government regulation and tax matters; the outcome of pending or
threatened legal or regulatory disputes and proceedings; credit and other risks
of lending and investment activities; changes in conditions in the securities
markets including the value of the Company's common stock and the ability to
repurchase such securities; and changes in regional and national business and
economic conditions and inflation. As a result of the foregoing, no assurance
can be given as to future results of operations or financial condition or as to
any other matters covered by any such forward-looking statements, and the
Company wishes to caution investors not to rely on any such forward-looking
statements. The Company does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements, which speak only as of the
date made.
11
<PAGE>
The Company does not undertake, and specifically disclaims any obligation,
to update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
BUSINESS PLATFORMS
The Company operates from three distinct business platforms:
[_] A Banking/Depository/Wholesale Platform ("Banking Platform") which is
comprised primarily of mortgage loans, home equity loans, lines of credit
and mortgage-backed securities.
[_] A Consumer Finance Platform which is comprised of motor vehicle loans
originated by CTL and motor vehicle loans purchased from Ultra Funding,
Ltd. ("Ultra"), a third party originator of motor vehicle loans.
[_] A Commercial Finance Platform which is comprised of loans attributable to
asset-based lending and transactional lending (including factoring)
activities of CGC.
NET INCOME BY BUSINESS PLATFORM
Net income for the first six months of 1997 and 1996 by business platform was as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1997
-----------------------
(DOLLARS IN THOUSANDS EARNINGS
EXCEPT PER SHARE DATA) NET INCOME PER SHARE
-----------------------
<S> <C> <C>
Banking Platform $8,559 $ 0.64
Consumer Finance Platform 865 0.06
Commercial Finance Platform (1) 342 0.03
------ ------
Total $9,766 $ 0.73
====== ======
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
-----------------------
(DOLLARS IN THOUSANDS EARNINGS
EXCEPT PER SHARE DATA) NET INCOME PER SHARE
-----------------------
<S> <C> <C>
Banking Platform $8,025 $0.57
Consumer Finance Platform 184 0.01
Commercial Finance Platform - -
------ ------
Total $8,209 $0.58
====== ======
</TABLE>
(1) CGC, which comprises the Commercial Finance Platform, was acquired by the
Company on March 17, 1997. This acquisition was recorded under the purchase
method of accounting effective April 1, 1997.
BANKING PLATFORM STRATEGIES
The Banking Platform is primarily represented by the operations of BVB which
has 27 branches serving primarily the San Francisco Bay Area. Its principal
business consists of attracting deposits from the general public and using those
deposits, together with borrowings and other funds, to originate loans secured
by real estate. Historically, BVB's performance has been negatively impacted by
weak retail asset origination (primarily Eleventh District Cost of Funds
Index("COFI")-based, multi-family and single family mortgage products), high
general and administrative expenses and also unfavorable interest rate risk
exposures. In addition, BVB purchased mortgage-backed securities ("MBS"), which
generally had lower yields than mortgage loans, when the Company was unable to
acquire sufficient mortgage loans.
12
<PAGE>
The Banking Platform's strategic focus is designed to reduce wholesale
activities (which is primarily composed of a large MBS portfolio primarily
funded by borrowings from the Federal Home Loan Bank of San Francisco
("FHLBSF")), reduce interest rate risk through the prepayment of selected high
cost borrowings and the execution of interest rate swaps, and expand the retail
deposit franchise by focusing on the growth of "transaction" (i.e. checking,
savings and money market) accounts instead of higher cost certificates of
deposit as a source of financing. As a result, transaction accounts at BVB as a
percentage of total deposits have increased to 30% in June 1997 from
approximately 21% at year-end 1995.
Change in Name to Bay View Bank
Marking its transition from a traditional savings institution to a community
bank, Bay View Federal Bank changed its name to Bay View Bank, effective March
17, 1997. In conjunction with the name change, the Company changed its Nasdaq
stock symbol to "BVCC" from "BVFS", effective May 1, 1997.
CONSUMER FINANCE PLATFORM STRATEGIES
The Consumer Finance Platform is comprised of motor vehicle loans originated
by CTL and motor vehicle loans purchased from Ultra. CTL underwrites and
purchases motor vehicle loans and has successfully carved out a niche in the
increasingly competitive motor vehicle finance industry. The Company acquired
CTL in June 1996 and the acquisition was accounted for as a purchase. CTL is
headquartered in Covina, California and operates 19 offices throughout
California and the western United States. The Company is currently reorganizing
CTL such that it will become a subsidiary of the Bank.
CTL's business strategy is to originate motor vehicle loans at rates which
generally exceed those offered by conventional financing sources (such as
commercial banks) while applying its traditional underwriting criteria on a
case-by-case basis to mitigate any potential loan losses. CTL underwrites
fixed-rate loans secured by new and used motor vehicles. CTL's typical motor
vehicle loan borrower desires a higher relative loan amount and/or longer term
than is offered by many other motor vehicle financing sources. In return for
the flexibility of the product it offers, the Company has been able to charge
interest rates 200 to 300 basis points higher than those typically offered by
traditional sources of motor vehicle financing, such as banks and captive
finance companies.
In late 1996, the Company's management began implementing a significant
restructuring of CTL's balance sheet. The following is a summary of the actions
taken:
1. Sale of entire equipment leasing portfolio of $60 million.
2. Sale and securitization of $253 million of the motor vehicle loan
portfolio.
3. Reduction of higher cost customer deposits.
In June 1997, CTL sold substantially all of its deposits (approximately $64
million) to BVB. Also, CTL redeemed the higher cost component (higher than
BVB's incremental borrowing cost) of the customer deposits at face value
(approximately $267 million) at year-end 1996. The Company is currently in the
process of reorganizing CTL such that it will become a subsidiary of the Bank.
As a result of the Company's plans to acquire EurekaBank (see discussion
elsewhere herein), the Company intends to discontinue the sale and
securitization of CTL's motor vehicle loan production.
The Company has a strategic alliance with Ultra, a Texas limited
partnership, to purchase motor vehicle installment contracts originated by
Ultra. These motor vehicle receivables are serviced by CTL and management
expects Ultra to be a significant component of its expanding consumer finance
strategy. The Company has recently executed a letter of intent to acquire Ultra.
13
<PAGE>
COMMERCIAL FINANCE PLATFORM STRATEGIES
The Commercial Finance Platform is comprised of CGC's asset-based lending
and transactional lending activities. The Company completed its acquisition of
EXXE Data Corporation and its wholly owned commercial finance subsidiary, CGC,
on March 17, 1997. At the close of the transaction, EXXE became a stand-alone
subsidiary of the Company. Subsequent to the transaction, EXXE was merged into
CGC and liquidated, such that CGC became a first-tier stand-alone subsidiary of
the Company. The former holders of EXXE capital stock, warrants and options
received an initial aggregate payment of $19.8 million and will be entitled to
potential future cash payments, depending upon the financial performance of CGC,
of up to $34 million. The acquisition was accounted for as a purchase effective
April 1, 1997.
In an acquisition accounted for as a purchase, the purchase price is
allocated to assets acquired and liabilities assumed based on their estimated
fair values at the time of consummation of the transaction. Based on initial
estimates, the aggregate costs exceeded the preliminary estimated fair value of
the net assets acquired by approximately $21 million, which is recorded as
goodwill and preliminarily amortized over a 15 year period. The purchase
accounting valuation is expected to be finalized during the second half of 1997.
CGC's corporate vision is to become a preeminent nationwide provider of
asset-based financing to small businesses. Management believes that meaningful
Commercial Finance Platform expansion opportunities exist due to the highly
fragmented nature of the segment of the commercial finance industry which serves
small businesses. Although there can be no assurance, the fragmented nature of
the industry may allow the Company to expand its market share through internal
growth and future acquisitions. CGC has two primary product lines:
[_] Transactional lending
[_] Transactional lending includes accounts receivable factoring and
accounts receivable portfolio financing. At June 30, 1997, these
products represented approximately one-third of the total
Commercial Finance Platform portfolio with average yields
approximating 38%.
[_] Asset-based lending
[_] Asset-based lending includes loans secured by accounts receivable,
inventory, machinery and equipment. At June 30, 1997, these
products represented approximately two-thirds of the total
Commercial Finance Platform portfolio with average yields
approximating 17%.
CAPITAL REDEPLOYMENT STRATEGIES
Stock Repurchase Program
- ------------------------
The Company's outstanding shares of common stock at December 31, 1996 and
1995 were 13,349,270 shares and 14,203,180 shares, respectively. The Company's
outstanding shares at June 30, 1997 decreased to 12,979,260 shares. The
Company's share repurchases during 1995 and 1996 completed its previously
announced intention to repurchase 1,600,000 shares of common stock. These
shares were repurchased at an average cost of $15.98. During the first quarter
of 1997, the Company repurchased a total of 456,000 shares of its common stock
in the open market at an average cost of $27.08. The share repurchases in the
first quarter of 1997 were part of a repurchase program of $25 million approved
in January 1997. Total shares repurchased aggregate 2,056,000 shares or $18.44
per share. There were no share repurchases during the second quarter of 1997.
On May 7, 1997, the Company approved an additional repurchase program of $25
million to further redeploy its excess capital. This authorization, combined
with the outstanding portion ($12 million of the $25 million authorized in
January 1997), may, subject to market conditions, enable Bay View to repurchase
approximately 1,400,000 additional shares at current market prices (based on
stock price of $26.25 on July 31, 1997). Following the completion of this
repurchase authorization, Bay View will have repurchased approximately 3.5
million shares, or nearly 25% of the 14.8 million shares outstanding when the
initial share repurchase program was announced.
14
<PAGE>
Acquisition of America First Eureka Holdings, Inc./EurekaBank
- -------------------------------------------------------------
On May 8, 1997, the Company signed a definitive agreement (the "Merger
Agreement") to acquire America First Eureka Holdings, Inc. ("AFEH") and its
wholly owned bank subsidiary, EurekaBank ("Eureka"). Under the terms of the
definitive agreement, America First Financial Fund 1987-A Limited Partnership
(the "Partnership") (Nasdaq:"AFFFZ"), the shareholder of AFEH capital stock,
will receive $300 million comprised of Bay View common stock valued at $210
million (subject to possible adjustment) and cash of $90 million. The $300
million purchase price includes an estimated $65 million being paid for
approximately $187 million of tax loss carryforwards.
As provided in the Merger Agreement, upon consummation of the merger, the
Partnership, as the sole stockholder of AFEH, will be entitled to receive in
exchange for all of the outstanding AFEH common stock (i) $90 million in cash
and (ii) a number of shares of Company common stock having a market value of
$210 million, subject to adjustment as described below, based upon a formula
that values the Company common stock for this purpose on the basis of its
trading price during a defined pricing period. Specifically, the number of
shares of Company common stock to be issued in the merger will be determined
by dividing $210 million by the Average Company Stock Price. The "Average
Company Stock Price" is the average (rounded to four decimal points) of the
average closing sale price of one share of Company common stock on the Nasdaq
Stock Market for the 20 consecutive full trading days ending on the fifth
business day immediately prior to the merger closing date (currently
anticipated to be January 2, 1998), but not in excess of $26.00 or less than
$21.00 unless (i) the Average Company Stock Price is less than $21.00, (ii)
AFEH has given notice of its intention to terminate the Merger Agreement (as
permitted by the Merger Agreement upon such an event) and (iii) the Company
has made an Adjustment Election, as described in the next paragraph.
As discussed above, if the Average Company Stock Price is less than $21.00,
AFEH shall have the right to terminate the Merger Agreement unless the Company
shall make an Adjustment Election. Pursuant to an "Adjustment Election," the
Company shall agree that the Average Company Stock Price shall be calculated
without regard to the $21.00 floor, which would increase, perhaps
substantially, the number of shares issued in the merger. For example, if the
Average Company Stock Price is $20.00 and an Adjustment Election is made, the
number of shares of Company common stock to be issued in the merger will be
determined by dividing $210 million by $20.00 (10,500,000 shares).
The lower the Average Company Stock Price, the greater the number of shares
of Company common stock that will be issued in the merger. The greater the
number of shares of Company common stock that are issued in the merger, the
more dilutive the transaction will be to the Company's existing stockholders
and to the Company's future earnings per share. In addition, in the event that
the Average Company Stock Price were less than $21.00, there can be no
assurance that the Company would agree to make an Adjustment Election, which
could result in the termination of the Merger Agreement. Moreover, although
the Average Company Stock Price may not exceed $26.00 per share regardless of
the value of the Company's common stock at the time of the merger, any
increase above $26.00 per share will increase the amount of goodwill generated
by the merger. For example, for every $1.00 increase in the price per share of
the Company's common stock over $26.00, goodwill created by the merger will
reduce the Company's income by approximately $540,000 per year for the
anticipated 15-year goodwill amortization period following the merger.
The Company expects to record restructuring charges in 1997 associated with
this transaction of approximately $5 million ($2.9 million after tax or $0.22
per share). These charges represent primarily severance, facilities, relocation,
consulting and debt restructuring costs directly related to this transaction.
The acquisition of AFEH/Eureka will be accounted for as a purchase and is
expected to be completed on or about January 2, 1998. The purchase price is
currently estimated to exceed the fair value of the net assets acquired by
approximately $112 million, which Bay View anticipates amortizing over a 15 year
period. Eureka will be merged into Bay View Bank.
15
<PAGE>
RESULTS OF OPERATIONS
Net income for the second quarter of 1997 was $4.5 million, or $.34 per
share. This compares with net income of $4.2 million, or $.30 per share, for the
second quarter of 1996, an improvement of $.04 per share, or 13.3% over the same
quarter last year. For the first six months of 1997, earnings were $9.8 million,
or $.73 per share, as compared with $8.2 million, or $.58 per share, for the
same period in 1996. The improvement in earnings was primarily due to higher net
interest income arising from the impact of higher yielding assets related to the
Consumer Finance and Commercial Finance Platforms combined with lower cost of
retail deposits. The improvement in earnings per share was primarily due to
higher net interest income combined with the impact of share repurchases (see
the "Capital Redeployment Strategies" section discussed above).
Tangible cash earnings for the second quarter of 1997 were $5.4 million, or
$.40 per share (see the "Tangible Cash Earnings" section discussed below). This
compares with tangible cash earnings of $4.8 million, or $.34 per share, for the
second quarter of 1996, an increase of $.06 per share, or 17.6% over the
quarter-to-quarter tangible cash earnings. For the first six months of 1997,
tangible cash earnings were $11.6 million, or $.86 per share, as compared with
$9.2 million, or $.65 per share, for the same period in 1996.
SPECIAL MENTION ITEMS
The net income for the periods indicated below contained certain items which
deserve special mention. All special mention items are set forth below on a pre-
tax basis.
Second Quarter 1997
- -------------------
The net impact of the following items was an improvement in net income of
$170,000 or $0.01 per share for the second quarter of 1997.
[_] $400,000 credit to income relating to a previous accrual associated with
the decision to cease the systems conversion with BISYS Group, Inc. and
remain with FISERV, Inc. (the current data processor for BVB and
EurekaBank).
[_] $100,000 expense accrual for Long-Term Incentive Plan awards due to an
increase in the Company's stock price.
First Quarter 1997
- ------------------
The net impact of the following items essentially offset each other during
the first quarter of 1997.
[_] $700,000 expense accrual for Long-Term Incentive Plan awards due to an
increase in the Company's stock price.
[_] $415,000 recovery related to a real estate joint venture previously
written-off.
[_] $250,000 credit to income relating to the reversal of an accrual for the
termination of BVB's data processing contract discussed above.
16
<PAGE>
Second Quarter 1996
- -------------------
The net impact of the following items was a decrease in net income of
$90,000 or $0.01 per share for the second quarter of 1996.
[_] $770,000 gain from the sale of and income received from certain real estate
owned properties.
[_] $500,000 write-down due to the sale of the corporate office complex.
[_] $425,000 write-down related to certain computer hardware and software due
to systems conversion.
First Quarter 1996
- ------------------
The net impact of the following items was an improvement in net income of
$109,000 or $0.01 per share for the first quarter of 1996.
[_] $800,000 gain from the sale of and income received from certain real estate
owned properties.
[_] $350,000 write-off of core deposit intangibles and fixed assets due to a
branch closure.
[_] $260,000 loss resulting from the sale of approximately $24 million of
mortgage-backed securities from the available-for-sale portfolio.
TANGIBLE CASH EARNINGS
Tangible cash earnings are based on earnings for each period and exclude
charges tied to the market value of the Company's common stock related to
management incentive plans, and the Employee Stock Ownership Plan and charges
associated with the amortization of intangibles. The following table shows the
components of tangible cash earnings for the respective periods:
THREE MONTHS ENDED
------------------
JUNE 30, JUNE 30,
1997 1996
-------------------
(DOLLARS IN THOUSANDS)
Net income $ 4,504 $4,216
Adjustments:
Amortization of intangibles 771 490
ESOP 60 56
Management incentive plans 63 ---
------- ------
Tangible cash earnings $ 5,398 $4,762
------- ------
Tangible cash earnings per share $ 0.40 $ 0.34
======= ======
17
<PAGE>
The following table shows the components of tangible cash earnings for the
six months ended June 30, 1997 and 1996:
SIX MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
1997 1996
--------------------
(DOLLARS IN THOUSANDS)
Net income $ 9,766 $8,209
Adjustments:
Amortization of intangibles 1,267 907
ESOP 120 112
Management incentive plans 465 ---
------- ------
Tangible cash earnings $11,618 $9,228
------- ------
Tangible cash earnings per share $0.86 $ 0.65
======= ======
NET INTEREST INCOME
Net interest income for the second quarter of 1997 was $21.8 million, an
increase of $3.0 million, as compared to net interest income for second quarter
1996 of $18.8 million. The consolidated net interest margin for the second
quarter of 1997 was 2.86%, up 33 basis points as compared to 2.53% for the same
period in the prior year. Net interest income for the first six months of 1997
was $42.8 million, an increase of $7.7 million, as compared to net interest
income for the same period in 1996 of $35.1 million. The net interest margin for
the first six months of 1997 was 2.79%, up 42 basis points as compared to 2.37%
for the same period in the prior year. The improvement in the net interest
margin was primarily due to the impact of the higher yielding assets from the
Commercial Finance Platform (which was acquired in March 1997, and effective
April 1, 1997) and Consumer Finance Platform combined with lower cost of retail
deposits.
A summary of consolidated net interest income and net interest margins
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1996
----------------------- ------------------------------
NET NET NET NET
INTEREST INTEREST INTEREST INTEREST
INCOME MARGIN INCOME MARGIN
---------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banking Platform $17,563 2.47% $17,276 2.39%
Consumer Finance Platform 1,653 4.47 1,561 6.75
Commercial Finance Platform 2,552 20.41 -- --
------- ------ ------- ------
Total $21,768 2.86% $18,837 2.53%
======= ====== ======= ======
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------------------------
JUNE 30, 1997 JUNE 30, 1996
--------------------------------------------------
NET NET NET NET
INTEREST INTEREST INTEREST INTEREST
INCOME MARGIN INCOME MARGIN
---------- --------------------- ----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Banking Platform $36,166 2.50% $33,490 2.30%
Consumer Finance Platform 4,105 5.34 1,561 6.75
Commercial Finance Platform 2,552 20.41 -- --
------- ------ ------- ------
Total $42,823 2.79% $35,051 2.37%
======= ====== ======= ======
</TABLE>
Banking Platform
- ----------------
The net interest margin for the second quarter of 1997 was 2.47%, an
increase of 8 basis points as compared to net interest margin of 2.39% for the
same period in 1996. The net interest margin for the first six months of 1997
was 2.50%, an increase of 20 basis points as compared to net interest margin of
2.30% for the same period in 1996. The improvement in net interest margin was
primarily due to a lower cost of funds related to retail deposits.
Consumer Finance Platform
- -------------------------
The Consumer Finance Platform was acquired in June 1996. The net interest
margin for the second quarter of 1997 was 4.47%. The net interest margin for
the second quarter of 1996 was 6.75% which represented the net interest income
from the motor vehicle loan portfolio for one month only (i.e. since the
acquisition date of CTL in June 1996). The net interest margin for the first
six months of 1997 was 5.34% as compared to 6.75% for the prior year period.
The decrease in the net interest margin as compared with the prior year period
was primarily due to the effects of the securitization of $253 million of CTL's
motor vehicle loan portfolio in January 1997 through BVSC.
Commercial Finance Platform
- ---------------------------
The net interest margin for the second quarter of 1997 was 20.41%. This
platform was created as a result of the acquisition of CGC in March 1997 and was
accounted for as a purchase effective April 1, 1997.
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 primarily from daily average balances. The yields for the periods
indicated include the amortization of deferred loan origination fees, net of
costs, which are considered adjustments to yield.
19
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID
-----------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
- ---------------------------------------------------------------------------------------------------------------
AVERAGE ACTUAL AVERAGE AVERAGE ACTUAL AVERAGE
(DOLLARS IN THOUSANDS) BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Interest-earning assets:
Loans receivable $2,343,491 $48,406 8.25% $2,222,296 $44,941 8.10%
Mortgage-backed securities (1) 546,438 8,848 6.48 665,855 10,593 6.36
Investments 139,447 2,085 6.28 110,752 1,560 5.66
----------- ------- ---- ---------- ------- ----
Total interest-earning assets 3,029,376 $59,339 7.84% 2,998,903 $57,094 7.62%
======= ==== ---------- ======= ====
Other assets 53,540 108,616
----------- ----------
Total assets $3,082,916 $3,107,519
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Customer deposits $1,612,775 $18,545 4.61% $1,927,043 $24,453 5.11%
Borrowings (2) 1,238,304 19,026 6.16 890,381 13,804 6.11
----------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 2,851,079 $37,571 5.29% 2,817,424 $38,257 5.42%
======= ==== ======= ====
Other liabilities 37,470 85,240
----------- ----------
Total liabilities 2,888,549 2,902,664
Stockholders' equity 194,367 204,855
------------ -------------
Total liabilities and stockholders'
equity $3,082,916 $3,107,519
=========== ===========
Net interest income/net interest spread $21,768 2.55% $18,837 2.20%
======= ==== ======= ====
Net interest earning assets $ 178,297 $ 181,479
=========== ===========
Net interest margin (3) 2.86% 2.53%
==== ====
</TABLE>
(1) Average balances and yields for mortgage-backed securities available for
sale are based on historical amortized cost.
(2) Interest expense for borrowings includes interest expense on interest rate
swaps of $660,000 and $585,000 for the three months ended June 30, 1997 and
1996, respectively.
(3) Annualized net interest income divided by average interest-earning assets.
20
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID
-----------------------------------------------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
- ---------------------------------------------------------------------------------------------------------------
AVERAGE ACTUAL AVERAGE AVERAGE ACTUAL AVERAGE
(DOLLARS IN THOUSANDS) BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Interest-earning assets:
Loans receivable $2,338,768 $ 95,070 8.13% $2,143,647 $ 85,328 7.96%
Mortgage-backed securities (1) 556,726 18,079 6.49 685,473 21,963 6.41
Investments 142,139 4,346 6.14 111,982 3,212 5.76
----------- ------- ---- ---------- ------- ----
Total interest-earning assets 3,037,633 $117,495 7.74% 2,941,102 $110,503 7.52%
======== ==== ======== ====
Other assets 49,466 91,946
----------- ----------
Total assets $3,087,099 $3,033,048
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
Interest-bearing liabilities:
Customer deposits $1,662,160 $ 38,139 4.63% $1,863,687 $ 47,711 5.15%
Borrowings (2) 1,181,770 36,533 6.22 906,356 27,741 6.09
----------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 2,843,930 $ 74,672 5.29% 2,770,043 $ 75,452 5.46%
======== ==== ======== ====
Other liabilities 47,778 57,482
----------- ----------
Total liabilities 2,891,708 2,827,525
Stockholders' equity 195,391 205,523
----------- ----------
Total liabilities and stockholders'
equity $3,087,099 $3,033,048
========== ==========
Net interest income/net interest spread $ 42,823 2.45% $ 35,051 2.06%
======================= =======================
Net interest earning assets $ 193,703 $ 171,059
============= ==============
Net interest margin (3) 2.79% 2.37%
============ ============
</TABLE>
(1) Average balances and yields for mortgage-backed securities available for
sale are based on historical amortized cost.
(2) Interest expense for borrowings includes interest expense on interest rate
swaps of $1.6 million and $975,000 for the six months ended June 30, 1997and
1996, respectively.
(3) Annualized net interest income divided by average interest-earning assets.
21
<PAGE>
INTEREST INCOME
INTEREST INCOME ON LOANS RECEIVABLE
Interest income on loans was $48.4 million and $44.9 million for the second
quarters of 1997 and 1996, respectively. Interest income on loans was $95.1
million and $85.3 million for the first six months of 1997 and 1996,
respectively. The following table is a summary of interest income on loans:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1996
---------------------------------------------------------------------
AMOUNTS WEIGHTED AVERAGE YIELD AMOUNTS WEIGHTED AVERAGE YIELD
---------- --------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Banking Platform $42,048 7.78% $42,187 7.93%
Consumer Finance Platform 3,184 9.38 2,754 11.84
Commercial Finance Platform 3,174 25.39 - -
Total $48,406 8.25% $44,941 8.10%
=====================================================================
SIX MONTHS ENDED
---------------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1996
---------------------------------------------------------------------
AMOUNTS WEIGHTED AVERAGE YIELD AMOUNTS WEIGHTED AVERAGE YIELD
---------- --------
(DOLLARS IN THOUSANDS)
Banking Platform $84,420 7.79% $82,574 7.88%
Consumer Finance Platform 7,476 10.29 2,754 11.84
Commercial Finance Platform 3,174 25.39 - -
Total $95,070 8.13% $85,328 7.96%
=====================================================================
</TABLE>
Banking Platform
- ----------------
The decrease in loan yields (primarily mortgage loans) for both the three and
six month periods ended June 30, 1997 as compared to the same prior year periods
was primarily due to the repricing of a significant portion of loans indexed to
the COFI and partially offset, to a lesser extent, by the repricing of loans
indexed to the one-year Treasury note. The average monthly COFI decreased by 21
basis points and 25 basis points for the three and six month periods,
respectively, which impacted the adjustable rate mortgages indexed to the COFI.
Consumer Finance Platform
- -------------------------
The decrease in motor vehicle loan yields for both the three and six month
periods ended June 30, 1997 as compared to the same prior year periods was
primarily due to the sale of the $253 million motor vehicle loan portfolio in
January 1997 to BVSC and the impact of loans purchased from Ultra which were at
lower average yields than the motor vehicle loans originated by CTL. The loan
yields for the prior year periods represented the interest income from the motor
vehicle loan portfolio for one monthly only (i.e. since the acquisition date of
CTL in June 1996).
Commercial Finance Platform
- ---------------------------
The commercial loan yields for the second quarter were 25.39%. This
platform was created as a result of the acquisition of CGC in March 1997 and was
accounted for as a purchase effective April 1, 1997.
22
<PAGE>
INTEREST INCOME ON MORTGAGE-BACKED SECURITIES
Interest income on the Company's mortgage-backed securities ("MBS") was $8.8
million and $10.6 million for the second quarters of 1997 and 1996,
respectively. Interest income on MBS was $18.1 million and $22.0 million for the
first six months of 1997 and 1996, respectively. The decrease in interest income
on MBS for both the three and six month periods ended June 30, 1997 was
primarily attributable to lower average balances due to sales and principal
amortization. There were no MBS purchased in 1996 or 1997. Management's
strategic focus has been on restructuring the balance sheet and de-emphasizing
the Company's wholesale investment and borrowing activities.
INTEREST AND DIVIDENDS ON INVESTMENTS
Interest and dividend income from the Company's investment portfolio was
$2.1 million and $1.6 million for the second quarters of 1997 and 1996,
respectively. Interest and dividend income from the Company's investment
portfolio was $4.3 million and $3.2 million for the first six months of 1997 and
1996, respectively. The increase in interest and dividend income from
investments for both the three and six month periods ended June 30, 1997 as
compared to the same prior year periods was primarily due to the impact of
higher average balances and higher yields on investments.
INTEREST EXPENSE
INTEREST EXPENSE ON CUSTOMER DEPOSITS
Interest expense on the Company's customer deposits was $18.5 million and
$24.5 million for the second quarters of 1997 and 1996, respectively. Interest
expense on customer deposits was $38.1 million and $47.7 million for the first
six months of 1997 and 1996, respectively. The decrease in interest expense for
both the three and six month periods ended June 30, 1997 as compared to the same
prior year periods was due to lower average customer deposit balances and lower
cost of retail deposits.
The lower average customer deposit balances for both the three and six month
periods ended June 30, 1997 as compared to the same prior year periods was a
result of pricing strategies and the redemption of the higher cost component of
CTL deposits (approximately $267 million) at year-end June 1996.
The decrease in the Company's cost of retail deposits was primarily due to
favorable repricing of certificates of deposit and an increase in transaction
accounts which are typically at lower rates than certificates of deposit. The
cost of retail deposits at June 30, 1997 in BVB was 4.63% which included the
retail deposits of CTL (at a higher cost than BVB's retail deposits) sold to BVB
in June 1997. The cost of retail deposits was 23 basis points below the COFI of
4.86% at June 30, 1997 as compared to 7 basis points above COFI at June 30,
1996. Also, CTL redeemed the higher cost component (higher than BVB's
incremental borrowing cost at the time) of these deposits (approximately $267
million) at face value at year-end 1996. Transaction accounts as a percentage of
total deposits were 30.0% at June 30, 1997 as compared to 25.8% and 21.3% at
June 30, 1996 and December 31, 1995, respectively.
The following table is a summary of the cost of retail deposits in BVB
versus COFI as of the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1997 1996 1996
-------------------------------------
<S> <C> <C> <C>
Cost of retail deposits 4.63% 4.60% 4.89%
COFI 4.86 4.84 4.82
-------------------------------------
Spread above / (below) COFI (0.23)% (0.24)% 0.07%
=====================================
</TABLE>
23
<PAGE>
INTEREST EXPENSE ON BORROWINGS
Interest expense on the Company's borrowings was $19.0 million and $13.8
million for the second quarters of 1997 and 1996, respectively. Interest
expense on borrowings was $36.5 million and $27.7 million for the first six
months of 1997 and 1996, respectively.
The increase in interest expense on borrowings for both the three and six
month periods ended June 30, 1997 was primarily due to higher average balances
arising from a decrease in average customer deposits. The interest expense on
borrowings for the first six months of 1996 reflects the impact of the
prepayment of $190 million of higher cost borrowings in the fourth quarter of
1995 which were replaced 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. Also, in May 1996, the Company issued $50 million
in Senior Debentures due 1999 (the "Senior Debentures") yielding 8.42% (all-in
cost was 8.91% annualized).
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, 1997
and 1996. The variances include the effects of the acquisition of CTL beginning
June 1996 and CGC beginning April 1997. Changes in rate and volume which cannot
be segregated (changes in weighted average interest rate multiplied by average
portfolio balance) have been allocated proportionately between the change in
rate and the change in volume.
<TABLE>
<CAPTION>
RATE VOLUME TOTAL
(DOLLARS IN THOUSANDS) VARIANCE VARIANCE VARIANCE
----------------------------------------
<S> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1997 VS
1996
Interest income:
Loans $ 976 $ 2,489 $ 3,465
Mortgage-backed securities 192 (1,937) (1,745)
Investments 101 424 525
----------------------------------------
1,269 976 2,245
----------------------------------------
Interest expense:
Customer deposits (2,158) (3,750) (5,908)
Borrowings (123) 5,345 5,222
----------------------------------------
(2,281) 1,595 (686)
----------------------------------------
Net interest income $ 3,550 $ (619) $ 2,931
========================================
RATE VOLUME TOTAL
(DOLLARS IN THOUSANDS) VARIANCE VARIANCE VARIANCE
----------------------------------------
SIX MONTHS ENDED JUNE 30, 1997 VS 1996
Interest income:
Loans $ 1,842 $ 7,900 $ 9,742
Mortgage-backed securities 301 (4,185) (3,884)
Investments 223 911 1,134
----------------------------------------
2,366 4,626 6,992
----------------------------------------
Interest expense:
Customer deposits (4,686) (4,886) (9,572)
Borrowings 281 8,511 8,792
----------------------------------------
(4,405) 3,625 (780)
----------------------------------------
Net interest income $ 6,771 $ 1,001 $ 7,772
========================================
</TABLE>
24
<PAGE>
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans was $612,000 for the second quarter of
1997 as compared to $818,000 for the same period in 1996. The provision for
losses on loans was $1.2 million for the first six months of 1997 as compared to
$1.4 million for the same period in 1996. See the "--Balance Sheet Analysis--
Allowance for Losses on Loans" for a more detailed discussion.
NONINTEREST INCOME
Noninterest income for the second quarter of 1997 was $3.7 million as
compared to $2.5 million for the same period in the prior year. Noninterest
income for the first six months of 1997 was $7.3 million as compared to $4.3
million for the same period in the prior year. The increase in noninterest
income for both the three and six month periods ended June 30, 1997 as compared
to the same prior year periods was primarily due to an increase in loan fees
attributable to commercial finance assets due to the acquisition of CGC
effective April 1, 1997. Also, during the first quarter of 1997, CTL sold $253
million of motor vehicle loans to BVSC and the premium arising from the sale of
the motor vehicle loans to BVSC was recorded as part of the purchase accounting
valuations related to the acquisition of CTL. A gain of $925,000 was recorded in
the statement of operations due to the improvement in the fair value of the
motor vehicle loans as a result of changes in market interest rates between the
acquisition date and the sale date of the motor vehicle loans. During the first
quarter of 1996, BVB sold $24.2 million of its mortgage-backed securities from
its available for sale portfolio and recorded a loss of $262,000.
SALE AND SECURITIZATION OF MOTOR VEHICLE LOANS
In November 1996, BVSC filed with the Securities and Exchange Commission a
shelf registration statement on Form S-3 for $500 million of motor vehicle
receivable-backed securities. During the first quarter of 1997, $253 million of
motor vehicle loans were sold and securitized with the premium from the sale
having been recorded as part of purchase accounting. A gain of $925,000 was
realized arising from the improvement in the fair value of the motor vehicle
loans sold due to change in market interest rates. As a result of the Company's
plans to acquire EurekaBank (see discussion elsewhere herein), the Company
intends to discontinue the sale and securitization of CTL's motor vehicle loan
portfolio.
NONINTEREST EXPENSE
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $16.2 million and $13.2 million for
the second quarters of 1997 and 1996, respectively, and included certain special
mention items (see "--Special Mention Items" discussed elsewhere herein).
Excluding special mention items, general and administrative expenses were $16.5
million as compared to $12.3 million for the same period a year ago. General and
administrative expenses were $30.8 million and $24.0 million for the first six
months of 1997 and 1996, respectively, and also included certain special mention
items (see Special Mention Items discussed elsewhere herein). Excluding special
mention items, general and administrative expenses were $30.7 million as
compared to $23.0 million for the same six month period a year ago. The higher
general and administrative expenses for both the three and six month periods
ended June 30, 1997 were attributable to the impact of the acquisitions of CTL
and CGC.
25
<PAGE>
The following is a summary of general and administrative expenses (excluding
special mention items) for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BVCC and BVB $11,078 $10,678 $21,389 $21,415
CTL 3,426 1,628 7,285 1,628
CGC 2,007 - 2,007 -
------------------------------------------------------------
Total $16,511 $12,306 $30,681 $23,043
============================================================
</TABLE>
The following table summarizes the ratio of general and administrative
expense (excluding special mention items) to average assets (including
securitized assets).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------------------------------------
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Banking Platform (includes the Company) 1.77% 1.51% 1.70% 1.48%
Consumer Finance Platform 2.00 3.91 2.41 3.91
Commercial Finance Platform 12.34 - 10.36 -
---------------------------------------------------------------
Total 2.01% 1.58% 1.87% 1.52%
===============================================================
</TABLE>
The consolidated efficiency ratio (excluding special mention items) for the
second quarter of 1997 was 64.7% as compared with 57.7% for the second quarter
of 1996. The consolidated efficiency ratio (excluding special mention items)
for the first six months of 1997 was 61.2% as compared with 58.1% for the same
period in 1996. The increase in the general and administrative expense ratio
and the efficiency ratio was primarily due to the effects of the acquisition of
Consumer Finance and Commercial Finance business platforms.
INCOME FROM REAL ESTATE OWNED AND NET PROVISION/RECOVERY OF LOSSES ON REAL
ESTATE
Income from real estate owned operations and net recoveries of losses on
real estate were $147,000 and $844,000 in the second quarters of 1997 and 1996,
respectively. Income from real estate owned operations and net recoveries of
losses on real estate owned were $617,000 and $1,785,000 in the first six months
of 1997 and 1996, respectively. The decrease for both the three and six month
periods ended June 30, 1997 was primarily due to gains from the sale of and
higher income received from real estate owned properties in the same prior year
periods.
AMORTIZATION AND WRITE-DOWN OF INTANGIBLES
The amortization and write-down of intangible assets were $953,000 and
$678,000, for the second quarters of 1997 and 1996, respectively. The
amortization and write-down of intangible assets were $1.6 million and $1.4
million for the first six months of 1997 and 1996, respectively. The higher
amortization of intangibles in 1997 as compared to 1996 was due to the
amortization of goodwill arising from the acquisitions of CTL and CGC. During
the first half 1996, core deposit intangibles of $270,000 were written-off due
to a decision to close one of BVB's branches.
26
<PAGE>
BALANCE SHEET ANALYSIS
The consolidated assets of the Company were $3.1 billion and $3.3 billion as
of June 30, 1997 and December 31, 1996, respectively. The decrease in total
assets was primarily due to the sale and securitization of $253 million of motor
vehicle loans.
SECURITIES
The Company invests in high-quality mortgage-backed securities ("MBS"),
primarily issued by the Federal Home Loan Mortgage Corporation ("FHLMC"),
Federal National Mortgage Association ("FNMA") and Government National Mortgage
Association ("GNMA").
The securities portfolio at June 30, 1997 and December 31, 1996 was as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
--------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
(DOLLARS IN THOUSANDS) COST VALUE COST VALUE
--------------------------------------------
AVAILABLE FOR SALE
- -----------------------------
<S> <C> <C> <C> <C>
Investment securities $ 7,788 $ 7,803 $ 13,792 $ 13,802
Mortgage-backed securities
FHLMC, FNMA and GNMA 80,160 78,030 84,401 83,154
--------------------------------------------
87,948 85,833 98,193 96,956
--------------------------------------------
HELD-TO-MATURITY
- -----------------------------
Investment securities 15,103 14,957 15,204 15,112
Mortgage-backed securities:
FHLMC, FNMA, GNMA
and other 458,689 448,865 494,459 483,461
--------------------------------------------
473,792 463,822 509,663 498,573
--------------------------------------------
$561,740 $549,655 $607,856 $595,529
============================================
</TABLE>
There were no MBS sold during the first six months of 1997. Total MBS sold
during the first six months of 1996 was $27.7 million. The sale of MBS in 1996
was consistent with management's strategic focus to restructure the balance
sheet and de-emphasize the Company's wholesale investment and borrowing
activities. There were no MBS purchases in 1996 or 1997.
27
<PAGE>
LOANS AND REAL ESTATE OWNED
The following is a summary of the Company's loan portfolio which includes
loans held for sale at June 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31,
- --------------------- 1997 1996
----------------------------
<S> <C> <C>
Banking Platform:
Single family mortgages $ 638,144 $ 692,086
Multifamily mortgages 1,053,315 1,048,291
Commercial real estate 371,643 381,822
----------------------------
2,063,102 2,122,199
Home equity loans, lines of
credit and other 79,861 68,018
----------------------------
2,142,963 2,190,217
Consumer Finance Platform:
Motor vehicle loans 139,330 315,439
Commercial Finance Platform:
Commercial loans 47,613 -
----------------------------
Gross loans receivable 2,329,906 2,505,656
Advances to borrowers 2,163 1,173
Deferred fees and discounts (2,734) (3,099)
Allowance for loan losses (35,089) (29,013)
----------------------------
Net loans receivable $2,294,246 $2,474,717
============================
</TABLE>
Management's strategy is to supplement its loan production with purchases of
higher yielding loans. The following is a summary of loan originations and loan
purchases for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(DOLLARS IN THOUSANDS) JUNE 30,
----------------------
LOAN ORIGINATIONS 1997 1996
----------------------
<S> <C> <C>
Real estate $ 29,630 $ 69,367
Motor vehicles 44,450 11,539
Commercial 3,707 --
Other 6,244 5,557
----------------------
Total Originations $ 84,031 $ 86,463
======================
LOAN PURCHASES
Real estate $ 18,802 $ 18,274
Motor vehicles 28,829 --
----------------------
Total Purchases $ 47,631 $ 18,274
======================
Total Originations and Purchases $131,662 $104,737
======================
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(DOLLARS IN THOUSANDS) JUNE 30,
----------------------
LOAN ORIGINATIONS 1997 1996
----------------------
<S> <C> <C>
Real estate $ 69,234 $109,400
Motor vehicles 82,847 11,539
Commercial 4,693 -
Other 15,893 8,882
----------------------
Total Originations $172,667 $129,821
======================
LOAN PURCHASES
Real estate $ 45,709 $ 37,755
Motor vehicles 45,812 -
----------------------
Total Purchases $ 91,521 $ 37,755
======================
Total Originations and Purchases $264,188 $167,576
======================
</TABLE>
The motor vehicle loan purchases were from Ultra. The Company recently
executed a letter of intent to acquire Ultra. The acquisition is expected to
close in the third quarter of 1997.
CREDIT QUALITY
The Company defines nonperforming assets as nonperforming loans, defaulted
mortgage-backed securities, real estate owned and other repossessed assets. The
Company defines nonperforming loans as loans 90 days or more delinquent
(excluding accruing loans delinquent 90 days or more) and loans less than 90
days delinquent designated as nonperforming when the Company determines that the
full collection of principal and/or interest is doubtful. Nonperforming assets
are placed on nonaccrual status. Troubled debt restructurings ("TDRs") are real
estate loans that have been modified (due to borrower financial difficulties) to
allow a stated interest rate and/or a monthly payment rate lower than those
prevailing in the market.
The following table summarizes the Company's nonperforming assets and
troubled debt restructurings:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1997 1996 1995
-------------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans $ 14,955 $ 16,125 $10,755
Real estate owned 8,369 7,387 24,476
Other repossessed assets 624 798 3,580
--------- ----------- -------
Nonperforming assets 23,948 24,310 38,811
Troubled debt restructurings 502 509 15,641
--------- ----------- -------
Total $ 24,450 $ 24,819 $54,452
=========== =========== =======
</TABLE>
A summary of trends in the nonperforming assets and delinquencies follows:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
AS A PERCENTAGE OF CONSOLIDATED TOTAL ASSETS
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS) JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Banking Platform $20,818 0.67% $23,323 0.71% $38,811 1.29%
Consumer Finance Platform 964 0.03% 987 0.03% -- --
Commercial Finance Platform 2,166 0.07% -- -- -- --
----------------- ---------- ---------------------------------
Total $23,948 0.77% $24,310 0.74% $38,811 1.29%
================= ========== =================================
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
LOANS DELINQUENT 60 DAYS OR MORE
AS A PERCENTAGE OF CONSOLIDATED LOANS
-------------------------------------------------------------------
(DOLLARS IN THOUSANDS) JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Banking Platform $19,724 0.85% $22,460 0.90% $20,166 0.96%
Consumer Finance Platform 782 0.03% 548 0.02% -- --
Commercial Finance Platform 2,541 0.11% - -- -- --
-------------------------------------------------------------------
Total $23,047 0.99% $23,008 0.92% $20,166 0.96%
===================================================================
</TABLE>
ALLOWANCE FOR LOSSES ON LOANS
The Company conducts an ongoing review of its asset categories to assess the
adequacy of the allowance for loan losses 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 the allowance for loan losses,
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
allowance for losses at June 30, 1997 was $35.1 million as compared to $36.4
million and $30.9 million at December 31, 1996 and 1995, respectively. The
following table is a summary of the allowance for losses and the allowance for
losses as a percentage of nonperforming loans, nonperforming assets, gross loans
and total assets, respectively:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) AT JUNE 30, 1997 AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming Loans $ 14,955 235% $ 16,125 226% $ 10,755 288%
Nonperforming Assets $ 23,948 147% $ 24,310 150% $ 38,811 80%
Gross Loans $2,329,906 1.51% $2,505,656 1.46% $2,094,433 1.48%
Total Assets $3,096,213 1.13% $3,300,262 1.10% $3,004,496 1.03%
</TABLE>
The provision for losses on loans was $612,000 for the second quarter of 1997
as compared to $818,000 for the same period in 1996. The provision for losses
on loans was $1.2 million for the first six months of 1997 as compared to $1.4
million for the same period in 1996.
Management believes that the allowance for loan losses is adequate to cover
estimated losses in its asset portfolios, although there can be no assurance
in this regard. Future adjustments may be necessary and earnings could be
significantly adversely 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.
Management monitors the impact of the economic environment on its lending
activities on a periodic basis. If real estate markets weaken in future
periods, no assurance can be given that the Company's future loss experience
will approximate its current estimates. In addition, various regulatory
agencies review the Company's allowance for losses as an integral part of
their examination process. Such agencies may require the Company to recognize
additions to this allowance based on their judgment relating to information
available to them at the time of their examinations.
30
<PAGE>
CUSTOMER DEPOSITS
As a primary part of the company's business, customer deposits are generated
for the purpose of funding loans and purchasing securities. The customer
deposits at June 30, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) AMOUNT % RATE AMOUNT % RATE
--------------------------------------------- ------------------
<S> <C> <C> <C> <C> <C><C> <C>
Transaction accounts $ 472,904 30.0% 2.75% $ 493,571 27.9% 2.62%
Certificates of deposit 1,105,302 70.0 5.45 1,270,396 72.1 5.49
------------------------------------------------------------------
Total $1,578,206 100.0% 4.63% $1,763,967 100.0% 4.69%
============================================= ==================
</TABLE>
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 ("Reverse Repurchase Agreements"). A summary
of outstanding borrowings at the dates indicated are as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Advances from FHLBSF $1,092,730 $ 977,750
Reverse repurchase
agreements 142,461 210,640
Senior Debentures 50,000 50,000
---------------------------
Total $1,285,191 $1,238,390
===========================
</TABLE>
31
<PAGE>
INTEREST RATE RISK
The Company pursues balance sheet strategies that it believes should, in the
long run, help mitigate the Company's exposure to rising interest rates. The
Company also considers other strategies to reduce the variability of the net
interest margin including off-balance sheet activities.
Interest Rate Swaps
- -------------------
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 principal amounts. As of June
30, 1997 and December 31, 1996, the total notional amount of interest rate swaps
were $452 million and $421 million, respectively.
The following schedule sets forth the maturities and weighted average rates of
interest rate swaps outstanding as of June 30, 1997, based on interest rates at
June 30, 1997. To the extent that interest rates change, variable interest rate
information will change.
<TABLE>
<CAPTION>
MATURITIES OF DERIVATIVE INSTRUMENTS
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1999 2000 2001 2002 TOTAL
----------------------------------------------------------
Notional amount $70,000 $100,000 $104,000 $177,500 $451,500
Weighted average receive rate
(3-month LIBOR) 6.27% 5.89% 5.88% 5.88% 5.94%
Weighted average pay rate (fixed) 6.33% 6.10% 6.72% 6.41% 6.40%
</TABLE>
Treasury Rate Lock Agreements
- -----------------------------
At June 30, 1997, the Company entered into $90 million of Treasury rate lock
agreements to hedge an anticipated issuance of subordinated debt. The Treasury
rate lock agreements guarantee a stated interest rate for a stated period of
time and the Company will receive/pay the difference between the lock rate and
the effective Treasury rate on settlement date. The Treasury rate lock
agreements at June 30, 1997 include a total of $60 million of participating
Treasury rate locks which allow the Company to cap its maximum potential payout
on the lock if rates decline dramatically. Gains and losses on the hedge are
deferred and recognized in income as an adjustment of net interest expense on
the anticipated subordinated debt beginning in the period of issuance.
Interest Rate Sensitivity
- -------------------------
The Company's interest rate risk policies are established and monitored by
its Asset/Liability Committee ("ALCO"). The ALCO reviews the sensitivity of
the Company's net interest income and market value of equity to interest rate
changes. The objective of the Company's ALCO activities is to improve results
of operations by adjusting the types of assets and liabilities to effectively
address changing conditions and risks. Management believes that its
asset/liability activities have improved earnings within safe and sound
parameters. To measure the Company's interest rate sensitivity, a cumulative
gap measure can be used to assess the impact of potential changes in interest
rates on the net interest income. The repricing gap represents the net
position of assets and liabilities subject to repricing in specified time
periods. Assets and liabilities are categorized according to the expected
repricing time frames based on management's judgment. A cumulative gap measure
alone cannot be used to evaluate interest rate sensitivity because interest rate
changes do not affect all categories of assets and liabilities equally or
simultaneously. In measuring interest rate sensitivity, the Company also uses
simulation modeling to estimate the potential effects of movements in interest
rates.
Interest rate risk sensitivity estimated by management, as measured by the
change in the net portfolio value of equity as a percentage of the present value
of assets from an immediate 200 basis point increase/decrease in interest rates,
was 0.59% at June 30, 1997. BVB's sensitivity measure of 0.86% as of March 31,
1997 was better than 85% of all thrift institutions based on data provided by
the Office of Thrift Supervision. Calculation of this interest rate sensitivity
is subject to a number of assumptions and uncertainties, and no assurance can be
given that actual interest rate sensitivity will not be greater or less than
these percentages.
Management has also estimated, based on interest rate risk analyses as of
June 30, 1997, that an increase in market interest rates of 100 and 200 basis
points would result in an annualized decrease in net interest income of
approximately $0.3 million and $2.3 million, respectively. However, the
foregoing estimate is based upon a number of uncertainties and assumptions, and
no assurance can be given that the decrease in net interest income as a result
of increases in market interest rates will not be greater than the foregoing
amounts.
32
<PAGE>
The following table sets forth information regarding the combined asset and
liability repricing of the Bank and CTL as of June 30, 1997:
<TABLE>
<CAPTION>
REPRICING PERIOD
---------------------------------------------------------------------
UNDER OVER OVER OVER
ONE ONE TO THREE THREE TO FIVE FIVE
(DOLLARS IN THOUSANDS) YEAR YEARS YEARS YEARS TOTAL
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Cash and investments (1) $ 124,008 $ 5,000 $ 10,000 $ - $ 139,008
Loans and mortgage-backed securities(1)(2) 1,951,464 307,865 190,251 404,147 2,853,727
---------------------------------------------------------------------
Total interest rate sensitive assets $2,075,472 $312,865 $ 200,251 $ 404,147 $2,992,735
=====================================================================
LIABILITIES
- -----------
Deposits:
Certificates of deposit $ 911,916 $180,946 $ 12,440 $ - $1,105,302
Money market accounts 205,745 - - - 205,745
Checking accounts 111,258 - - - 111,258
Passbook accounts 155,901 - - - 155,901
Borrowings 1,036,866 164,810 40,000 - 1,241,676
---------------------------------------------------------------------
Total interest rate sensitive
liabilities $2,421,686 $345,756 $ 52,440 $ - $2,819,882
=====================================================================
Repricing gap-positive (negative)
before impact of interest rate swaps $ (346,214) $(32,891) $ 147,811 $ 404,147 $ 172,853
Impact of interest rate swaps 387,250 (22,250) (212,500) (152,500) -
---------------------------------------------------------------------
$ 41,036 $(55,141) $ (64,689) $ 251,647 $ 172,853
=====================================================================
Cumulative repricing gap-positive
(negative) $ 41,036 $(14,105) $ (78,794) $ 172,853
=======================================================
Cumulative repricing gap as a
percentage of interest rate sensitive
assets at June 30, 1997 1.37% (0.47%) (2.63%) 5.78%
=======================================================
</TABLE>
(1) Investments and mortgage-backed securities are at amortized cost.
(2) Based on assumed annual prepayment and amortization rates which approximate
the Company's historical experience.
33
<PAGE>
The following table sets forth information regarding the combined asset and
liability repricing of the Bank and CTL as of December 31, 1996:
<TABLE>
<CAPTION>
REPRICING PERIOD
------------------------------------------------------------------------
UNDER OVER OVER OVER
ONE ONE TO THREE THREE TO FIVE FIVE
(DOLLARS IN THOUSANDS) YEAR YEARS YEARS YEARS TOTAL
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
- -------
Cash and investments (1) $ 171,876 $ 5,004 $ 10,000 $ - $ 186,880
Loans and mortgage-backed securities 2,171,372 311,191 178,822 414,397 3,075,782
(1) (2)
------------------------------------------------------------------------
Total interest rate sensitive assets $2,343,248 $ 316,195 $ 188,822 $ 414,397 $3,262,662
========================================================================
LIABILITIES
- -----------
Deposits:
Certificates of deposit $1,001,282 $ 249,177 $ 19,937 $ - $1,270,396
Money market accounts 192,856 - - - 192,856
Checking accounts 113,180 - - - 113,180
Passbook accounts 189,279 - - - 189,279
Borrowings 1,060,991 118,270 40,000 - 1,219,261
------------------------------------------------------------------------
Total interest rate sensitive $2,557,588 $ 367,447 $ 59,937 $ - $2,984,972
liabilities
========================================================================
Repricing gap-positive (negative) $ (214,340) $ (51,252) $ 128,885 $ 414,397 $ 277,690
before impact of interest rate swaps
Impact of interest rate swaps 421,000 (164,500) (154,000) (102,500) -
$ 206,660 $(215,752) $ (25,115) $ 311,897 $ 277,690
========================================================================
Cumulative repricing gap-positive $ 206,660 $ (9,092) $ (34,207) $ 277,690
(negative)
==========================================================
Cumulative repricing gap as a
percentage of interest rate sensitive
assets at December 31, 1996 6.33% (0.28%) (1.05%) 8.51%
==========================================================
</TABLE>
(1) Investments and mortgage-backed securities are at amortized cost.
(2) Based on assumed annual prepayment and amortization rates which approximate
the Company's historical experience.
34
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's primary sources of funds include cash flow from operations,
loan and MBS repayments, customer deposits, advances from the FHLBSF and Reverse
Repurchase Agreements. The Company uses its liquidity resources principally to
fund the originations and purchase of loans, repay maturing borrowings and fund
maturing time deposits and savings withdrawals.
The Company has commenced a public offering of $100 million of subordinated
notes by means of a prospectus which may be obtained from the Company. The
Company expects that the offering will close in the third quarter of 1997. The
Company expects the foregoing sources of funds, together with the net proceeds
from the issuance of the subordinated notes will satisfy its liquidity
requirements through the end of 1997. However, to the extent that the Company
seeks to make additional acquisitions, it may be required to seek additional
sources of outside financing.
CAPITAL RESOURCES
See also "Strategic Overview - Capital Redeployment Strategies" discussion.
BAY VIEW BANK
BVB's regulatory capital at June 30, 1997 exceeded the minimum requirements
of each regulatory capital standard on a fully phased in basis as follows:
<TABLE>
<CAPTION>
ACTUAL MINIMUM EXCESS
REQUIREMENT
---------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible $164,299 5.45% $ 45,195 1.50% $119,104 3.95%
Core (Leverage) $167,161 5.54% $ 90,476 3.00% $ 76,685 2.54%
Risk-based $190,256 10.26% $148,388 8.00% $ 41,868 2.26%
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires each Federal banking agency, including the OTS, to implement prompt
corrective actions for institutions that it regulates. Under capital guidelines
established by FDICIA, BVB met the criteria for the "well capitalized" standard
at June 30, 1997 as follows:
<TABLE>
<CAPTION>
WELL CAPITALIZED
ACTUAL REQUIREMENT EXCESS
-------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leverage $167,161 5.54% $150,793 5.00% $16,368 0.54%
Tier I risk-based $167,161 9.01% $111,291 6.00% $55,870 3.01%
Tier II risk-based $190,256 10.26% $185,485 10.00% $ 4,771 0.26%
</TABLE>
CALIFORNIA THRIFT & LOAN
Under capital guidelines established by FDICIA, CTL met the criteria for the
"adequately capitalized" standard at June 30, 1997.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 (Reporting Comprehensive Income), which
requires that an enterprise report, any major components and as a single total,
the change in its net assets during the period from nonowner sources; and SFAS
No. 131 (Disclosures about Segments of an Enterprise and Related Information),
which establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of these statements will not
impact the Company's consolidated financial position, results of operations or
cash flows, and any effect will be limited to the form and content of its
disclosures. Both statements are effective for fiscal years beginning after
December 15, 1997, with earlier application permitted.
35
<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 1997 Annual Meeting of Stockholders was held on May 22, 1997.
(b) Directors elected:
Paula R. Collins
Thomas M. Foster
(c) At the 1997 Annual Meeting of Stockholders, the stockholders
considered the following proposals:
III. The election of two directors of the Company
IV. The approval and adoption of an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares
of common stock from 20,000,000 to 60,000,000.
V. The approval and adoption of an amendment to the Company's 1995 Stock
Option and Incentive Plan to increase the number of shares of common
stock reserved thereunder by 1,000,000.
The vote on the election of the three proposals at the annual meeting
was as follows:
<TABLE>
<CAPTION>
For Withhold Against Abstain
<S> <C> <C> <C> <C>
Proposal I 5,453,112 264,711 0 0
Proposal II 3,447,198 0 2,094,050 176,575
Proposal III 3,033,440 0 2,137,228 176,419
</TABLE>
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a(i). Deferred Compensation Plan (Exhibit 10)
a(ii). Computation of Ratios of Earnings to Fixed Charges (Exhibit 12)
a(iii). Independent Auditors' Consent (Exhibit 23(a))
a(iv). Financial Data Schedule (Exhibit 27)
b(i). The Registrant filed the following report on Form 8-K dated June 23,
1997 during the three months ended June 30, 1997:
36
<PAGE>
Unaudited pro forma financial information relating to Bay View
Capital Corporation's acquisition of America First Eureka Holdings,
Inc prepared in accordance with Article 11 of Regulation S-X
b(ii). The Registrant filed the following report on Form 8-K dated June 23,
1997 during the three months ended June 30, 1997:
Consolidated financial statements of America First Eureka Holdings
prepared in accordance with Rule 3.05 of Regulation S-X of the
Securities and Exchange Commission.
b(iii). The Registrant filed the following report on Form 8-K dated June
18, 1997 during the three months ended June 30, 1997:
Materials presented to financial analysts
b(iv). The Registrant filed the following report on Form 8-K dated May 8,
1997 during the three months ended June 30, 1997:
On May 8, 1997, the Company signed a definitive agreement to acquire
America First Eureka Holdings, Inc. ("AFEH") and its wholly owned
bank subsidiary, EurekaBank ("Eureka"). Under the terms of the
definitive agreement, America First Financial Fund 1987-A Limited
Partnership (Nasdaq:"AFFFZ"), the shareholder of AFEH capital stock,
will receive $300 million comprised of Bay View common stock valued
at $210 million and cash of $90 million.
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 12, 1997 BY: /s/ David A. Heaberlin
---------------------------------------
David A. Heaberlin
Executive Vice President and Chief Financial
Officer
(Duly Authorized Officer and Principal Financial
Officer)
37
<PAGE>
EXHIBIT 10
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
EFFECTIVE JANUARY 1, 1997
COPYRIGHT (C) 1996
BY COMPENSATION RESOURCE GROUP, INC.
ALL RIGHTS RESERVED
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Purpose 1
ARTICLE 1 Definitions................................................................ 1
ARTICLE 2 Selection, Enrollment, Eligibility......................................... 5
2.2 Enrollment Requirements.................................................... 5
2.1 Selection by Committee..................................................... 5
2.3 Eligibility; Commencement of Participation................................. 5
2.4 Termination of Participation and/or Deferrals.............................. 5
ARTICLE 3 Deferral Commitments/Crediting/Taxes....................................... 5
3.1 Minimum Deferral........................................................... 5
3.2 Maximum Deferral........................................................... 6
3.3 Election to Defer; Effect of Election Form................................. 6
3.4 Withholding of Annual Deferral Amounts..................................... 7
3.5 Investment of Trust Assets................................................. 7
3.6 Vesting.................................................................... 7
3.7 Crediting/Debiting of Account Balances..................................... 7
3.8 FICA, Withholding and Other Taxes.......................................... 8
3.9 Distributions.............................................................. 8
ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election 9
4.1 Short-Term Payout.......................................................... 9
4.2 Other Benefits Take Precedence Over Short-Term Payout...................... 9
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies...... 9
4.4 Withdrawal Election........................................................ 9
ARTICLE 5 Retirement Benefit......................................................... 10
5.1 Retirement Benefit......................................................... 10
5.2 Payment of Retirement Benefit.............................................. 10
5.3 Death Prior to Completion of Retirement Benefit............................ 10
ARTICLE 6 Pre-Retirement Survivor Benefit............................................ 10
6.1 Pre-Retirement Survivor Benefit............................................ 10
6.2 Payment of Pre-Retirement Survivor Benefit................................. 10
</TABLE>
- --------------------------------------------------------------------------------
-i-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
<TABLE>
<C> <S> <C>
ARTICLE 7 Termination Benefit................................ 11
7.1 Termination Benefit................................ 11
7.2 Payment of Termination Benefit..................... 11
ARTICLE 8 Disability Waiver and Benefit...................... 11
8.1 Disability Waiver.................................. 11
8.2 Continued Eligibility; Disability Benefit.......... 11
ARTICLE 9 Beneficiary Designation............................ 12
9.1 Beneficiary........................................ 12
9.2 Beneficiary Designation; Change; Spousal Consent... 12
9.3 Acknowledgment..................................... 12
9.4 No Beneficiary Designation......................... 12
9.5 Doubt as to Beneficiary............................ 12
9.6 Discharge of Obligations........................... 12
ARTICLE 10 Leave of Absence................................... 12
10.1 Paid Leave of Absence.............................. 12
10.2 Unpaid Leave of Absence............................ 12
ARTICLE 11 Termination, Amendment or Modification............. 13
11.1 Termination........................................ 13
11.2 Amendment.......................................... 13
11.3 Plan Agreement..................................... 14
11.4 Effect of Payment.................................. 14
ARTICLE 12 Administration..................................... 14
12.1 Committee Duties................................... 14
12.2 Agents............................................. 14
12.3 Binding Effect of Decisions........................ 14
12.4 Indemnity of Committee............................. 14
12.5 Employer Information............................... 14
ARTICLE 13 Other Benefits and Agreements...................... 14
13.1 Coordination with Other Benefits................... 14
</TABLE>
- --------------------------------------------------------------------------------
-ii-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
<TABLE>
<C> <S> <C>
ARTICLE 14 Claims Procedures...................................... 15
14.1 Presentation of Claim.................................. 15
14.2 Notification of Decision............................... 15
14.3 Review of a Denied Claim............................... 15
14.4 Decision on Review..................................... 15
14.5 Legal Action........................................... 16
ARTICLE 15 Trust.................................................. 16
15.1 Establishment of the Trust............................. 16
15.2 Interrelationship of the Plan and the Trust............ 16
15.3 Distributions From the Trust........................... 16
ARTICLE 16 Miscellaneous.......................................... 16
16.1 Status of Plan......................................... 16
16.2 Unsecured General Creditor............................. 16
16.3 Employer's Liability................................... 17
16.4 Nonassignability....................................... 17
16.5 Not a Contract of Employment........................... 17
16.6 Furnishing Information................................. 17
16.7 Terms.................................................. 17
16.8 Captions............................................... 17
16.9 Governing Law.......................................... 17
16.10 Notice................................................. 17
16.11 Successors............................................. 17
16.12 Spouse's Interest...................................... 18
16.13 Validity............................................... 18
16.14 Incompetent............................................ 18
16.15 Court Order............................................ 18
16.16 Distribution in the Event of Taxation.................. 18
16.17 Insurance.............................................. 18
16.18 Legal Fees To Enforce Rights After Change in Control... 18
</TABLE>
- --------------------------------------------------------------------------------
-iii-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
BAY VIEW CAPITAL CORPORATION
DEFERRED COMPENSATION PLAN
Effective January 1, 1997
PURPOSE
-------
The purpose of this Plan is to provide specified benefits to a select group
of management and highly compensated Employees who contribute materially to the
continued growth, development and future business success of Bay View Capital
Corporation, a Delaware corporation, and its subsidiaries, if any, that sponsor
this Plan. This Plan shall be unfunded for tax purposes and for purposes of
Title I of ERISA.
ARTICLE 1
DEFINITIONS
-----------
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a credit on
the records of the Employer equal to the Deferral Account balance. The
Account Balance, and each other specified account balance, shall be a
bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a Participant,
or his or her designated Beneficiary, pursuant to this Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual
Salary relating to services performed during any calendar year, whether or
not paid in such calendar year or included on the Federal Income Tax Form
W-2 for such calendar year, payable to a Participant as an Employee under
any Employer's annual bonus and cash incentive plans, excluding stock
options.
1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base
Annual Salary and Annual Bonus that a Participant elects to have, and is
deferred, in accordance with Article 3, for any one Plan Year. In the event
of a Participant's Retirement, Disability (if deferrals cease in accordance
with Section 8.1), death or a Termination of Employment prior to the end of
a Plan Year, such year's Annual Deferral Amount shall be the actual amount
withheld prior to such event.
1.4 "Base Annual Salary" shall mean the annual cash compensation relating to
services performed during any calendar year, whether or not paid in such
calendar year or included on the Federal Income Tax Form W-2 for such
calendar year, excluding bonuses, commissions, overtime, fringe benefits,
stock options, relocation expenses, incentive payments, non-monetary
awards, directors fees and other fees, automobile and other allowances paid
to a Participant for employment services rendered (whether or not such
allowances are included in the Employee's gross income). Base Annual Salary
shall be calculated before reduction for compensation voluntarily deferred
or contributed by the Participant pursuant to all qualified or non-
qualified plans of any Employer and shall be calculated to include amounts
not otherwise included in the Participant's gross income under Code
Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by
any Employer; provided, however, that all such amounts will be included in
compensation only to the extent that, had there been no such plan, the
amount would have been payable in cash to the Employee.
- --------------------------------------------------------------------------------
-1-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
1.5 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.6 "Beneficiary Designation Form" shall mean the form established from time to
time by the Committee that a Participant completes, signs and returns to
the Committee to designate one or more Beneficiaries.
1.7 "Board" shall mean the board of directors of the Company.
1.8 "Change in Control" shall mean the first to occur of any of the following
events:
(a) Any "person" (as that term is used in Section 13 and 14(d)(2) of the
Securities Exchange Act of 1934 ("Exchange Act")) becomes the beneficial
owner (as that term is used in Section 13(d) of the Exchange Act), directly
or indirectly, of 50% or more of the Company's capital stock entitled to
vote in the election of directors;
(b) During any period of not more than two consecutive years, not including any
period prior to the adoption of this Plan, individuals who at the beginning
of such period constitute the board of directors of the Company, and any
new director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
clause (a), (c), (d) or (e) of this Section 1.8) whose election by the
board of directors or nomination for election by the Company's stockholders
was approved by a vote of at least three-fourths (3/4ths) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority thereof;
(c) The shareholders of the Company approve any consolidation or merger of the
Company, other than a consolidation or merger of the Company in which the
holders of the common stock of the Company immediately prior to the
consolidation or merger hold more than 50% of the common stock of the
surviving corporation immediately after the consolidation or merger;
(d) The shareholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company; or
(e) The shareholders of the Company approve the sale or transfer of all or
substantially all of the assets of the Company to parties that are not
within a "controlled group of corporations" (as defined in Code Section
1563) in which the Company is a member.
1.9 "Claimant" shall have the meaning set forth in Section 14.1.
1.10 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended
from time to time.
1.11 "Committee" shall mean the committee described in Article 12.
1.12 "Company" shall mean Bay View Capital Corporation, a Delaware corporation,
and any successor to all or substantially all of the Company's assets or
business.
1.13 "Deduction Limitation" shall mean the following described limitation on a
benefit that may otherwise be distributable pursuant to the provisions of
this Plan. Except as otherwise provided, this limitation shall be applied
to all distributions that are "subject to the Deduction Limitation" under
this Plan. If an Employer determines in good faith prior to a Change in
Control that there is a reasonable likelihood that any compensation paid to
a Participant for a taxable year of the Employer would not be deductible by
the Employer solely by reason of the limitation under Code Section 162(m),
- --------------------------------------------------------------------------------
-2-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
then to the extent deemed necessary by the Employer to ensure that the
entire amount of any distribution to the Participant pursuant to this Plan
prior to the Change in Control is deductible, the Employer may defer all or
any portion of a distribution under this Plan. Any amounts deferred
pursuant to this limitation shall continue to be credited/debited with
additional amounts in accordance with Section 3.7 below, even if such
amount is being paid out in installments. The amounts so deferred and
amounts credited thereon shall be distributed to the Participant or his or
her Beneficiary (in the event of the Participant's death) at the earliest
possible date, as determined by the Employer in good faith, on which the
deductibility of compensation paid or payable to the Participant for the
taxable year of the Employer during which the distribution is made will not
be limited by Section 162(m), or if earlier, the effective date of a Change
in Control. Notwithstanding anything to the contrary in this Plan, the
Deduction Limitation shall not apply to any distributions made after a
Change in Control.
1.14 "Deferral Account" shall mean (i) the sum of all of a Participant's Annual
Deferral Amounts, plus (ii) amounts credited in accordance with all the
applicable crediting provisions of this Plan that relate to the
Participant's Deferral Account, less (iii) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan that relate to
his or her Deferral Account.
1.15 "Disability" shall mean a period of disability during which a Participant
qualifies for permanent disability benefits under the Participant's
Employer's long-term disability plan, or, if a Participant does not
participate in such a plan, a period of disability during which the
Participant would have qualified for permanent disability benefits under
such a plan had the Participant been a participant in such a plan, as
determined in the sole discretion of the Committee. If the Participant's
Employer does not sponsor such a plan, or discontinues to sponsor such a
plan, Disability shall be determined by the Committee in its sole
discretion.
1.16 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.17 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the Committee
to make an election under the Plan.
1.18 "Employee" shall mean a person who is an employee of any Employer.
1.19 "Employer(s)" shall mean the Company and/or any of its subsidiaries (now in
existence or hereafter formed or acquired) that have been selected by the
Board to participate in the Plan and have adopted the Plan as a sponsor.
1.20 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
1.21 "First Plan Year" shall mean the period beginning January 1, 1997 and
ending December 31, 1997.
1.22 "Monthly Installment Method" shall be a monthly installment payment over
the number of months selected by the Participant in accordance with this
Plan, calculated as follows: The Account Balance of the Participant shall
be calculated as of the close of business three business days prior to the
last business day of the month. The monthly installment shall be calculated
by multiplying this balance by a fraction, the numerator of which is one,
and the denominator of which is the remaining number of monthly payments
due the Participant. By way of example, if the Participant elects a 120
month Monthly Installment Method, the first payment shall be 1/120 of the
Account Balance, calculated as described in this definition. The following
month, the payment shall be 1/119 of the Account Balance, calculated as
described in this definition. Each monthly installment shall be paid on or
as soon as practicable after the last business day of the applicable month.
1.23 "Participant" shall mean any Employee (i) who is selected to participate
in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a
Plan Agreement, and an Election Form (iv) whose signed Plan Agreement and
Election Form and Beneficiary Designation Form are accepted by the
Committee, (v) who commences participation in the Plan, and
- --------------------------------------------------------------------------------
-3-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
(vi) whose Plan Agreement has not terminated. A spouse or former spouse of
a Participant shall not be treated as a Participant in the Plan or have an
account balance under the Plan, even if he or she has an interest in the
Participant's benefits under the Plan as a result of applicable law or
property settlements resulting from legal separation or divorce.
1.24 "Plan" shall mean the Company's Deferred Compensation Plan, which shall be
evidenced by this instrument and by each Plan Agreement, as they may be
amended from time to time.
1.25 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant and the
Participant's Employer shall provide for the entire benefit to which such
Participant is entitled under the Plan; should there be more than one Plan
Agreement, the Plan Agreement bearing the latest date of acceptance by the
Employer shall supersede all previous Plan Agreements in their entirety
and shall govern such entitlement. The terms of any Plan Agreement may be
different for any Participant, and any Plan Agreement may provide
additional benefits not set forth in the Plan or limit the benefits
otherwise provided under the Plan; provided, however, that any such
additional benefits or benefit limitations must be agreed to by both the
Employer and the Participant.
1.26 "Plan Year" shall mean a period beginning on January 1 of each calendar
year and continuing through December 31 of such calendar year.
1.27 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.28 "Retirement", "Retire(s)" or "Retired" shall mean severance from
employment from all Employers for any reason other than a leave of
absence, death or Disability on or after the earlier of the attainment of
(a) age sixty-five (65) or (b) age fifty-five (55) with ten (10) Years of
Service.
1.29 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.30 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.31 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.32 "Termination of Employment" shall mean the severing of employment with all
Employers voluntarily or involuntarily, for any reason other than
Retirement, Disability, death or an authorized leave of absence.
1.33 "Trust" shall mean one or more trusts established pursuant to that certain
Master Trust Agreement, dated as of January 1, 1997 between the Company
and the trustee named therein, as amended from time to time.
1.34 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency
that is caused by an event beyond the control of the Participant that
would result in severe financial hardship to the Participant resulting
from (i) a sudden and unexpected illness or accident of the Participant or
a dependent of the Participant, (ii) a loss of the Participant's property
due to casualty, or (iii) such other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant, all as determined in the sole discretion of the Committee.
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
----------------------------------
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a
----------------------
select group of management and highly compensated Employees of the Employers, as
determined by the Committee in its sole discretion. From that group, the
Committee shall select, in its sole discretion, employees to participate in the
Plan.
- --------------------------------------------------------------------------------
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<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
-----------------------
Employee shall complete, execute and return to the Committee a Plan
Agreement, an Election Form and a Beneficiary Designation Form, all within
30 days after he or she is selected to participate in the Plan. In
addition, the Committee shall establish from time to time such other
enrollment requirements as it determines in its sole discretion are
necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee selected
------------------------------------------
to participate in the Plan has met all enrollment requirements set forth in
this Plan and required by the Committee, including returning all required
documents to the Committee within the specified time period, that Employee
shall commence participation in the Plan on the first day of the month
following the month in which the Employee completes all enrollment
requirements. If an Employee fails to meet all such requirements within the
period required, in accordance with Section 2.2, that Employee shall not be
eligible to participate in the Plan until the first day of the Plan Year
following the delivery to and acceptance by the Committee of the required
documents.
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee determines
---------------------------------------------
in good faith that a Participant no longer qualifies as a member of a
select group of management or highly compensated employees, as membership
in such group is determined in accordance with Sections 201(2), 301(a)(3)
and 401(a)(1) of ERISA, the Committee shall have the right, in its sole
discretion, to (i) terminate any deferral election the Participant has made
for the remainder of the Plan Year in which the Participant's membership
status changes, (ii) prevent the Participant from making future deferral
elections and/or (iii) immediately distribute the Participant's then
Account Balance as a Termination Benefit and terminate the Participant's
participation in the Plan.
ARTICLE 3
DEFERRAL COMMITMENTS/CREDITING/TAXES
------------------------------------
3.1 Minimum Deferrals.
-----------------
(a) BASE ANNUAL SALARY, ANNUAL BONUS AND DIRECTOR'S FEES. For each Plan
----------------------------------------------------
Year, a Participant may elect to defer, as his or her Annual Deferral
Amount, Base Annual Salary and/or Annual Bonus s in the following
minimum amounts for each deferral elected:
<TABLE>
<CAPTION>
Minimum
Deferral Amount
-------- ------
<S> <C>
Base Annual Salary $0
Annual Bonus $0
</TABLE>
If an election is made for less than stated minimum amounts, or if no
election is made, the amount deferred shall be zero.
(b) SHORT PLAN YEAR. Notwithstanding the foregoing, if a Participant first
---------------
becomes a Participant after the first day of a Plan Year, the minimum
Base Annual Salary deferral shall be an amount equal to the minimum
set forth above, multiplied by a fraction, the numerator of which is
the number of complete months remaining in the Plan Year and the
denominator of which is 12.
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
3.2 MAXIMUM DEFERRAL.
----------------
(a) Base Annual Salary, Annual Bonus and Director's Fees. For each Plan
----------------------------------------------------
Year, a Participant may elect to defer, as his or her Annual Deferral
Amount, Base Annual Salary and/or Annual Bonus in the following
maximum amounts for each deferral elected:
<TABLE>
<CAPTION>
Maximum
Deferral Amount
-------- --------
<S> <C>
Base Annual Salary 10%
Annual Bonus 100%
</TABLE>
(b) Notwithstanding the foregoing, if a Participant first becomes a
Participant after the first day of a Plan Year, or in the case of the
first Plan Year of the Plan itself, the maximum Annual Deferral
Amount, with respect to Base Annual Salary and Annual Bonus shall be
limited to the amount of compensation not yet earned by the
Participant as of the date the Participant submits a Plan Agreement
and Election Form to the Committee for acceptance.
3.3 Election to Defer; Effect of Election Form.
------------------------------------------
(a) FIRST PLAN YEAR. In connection with a Participant's commencement of
---------------
participation in the Plan, the Participant shall make an irrevocable
deferral election for the Plan Year in which the Participant commences
participation in the Plan, along with such other elections as the
Committee deems necessary or desirable under the Plan. For these
elections to be valid, the Election Form must be completed and signed
by the Participant, timely delivered to the Committee (in accordance
with Section 2.2 above) and accepted by the Committee.
(b) Subsequent Plan Years. For each succeeding Plan Year, an irrevocable
deferral election for that Plan Year, and such other elections as the
Committee deems necessary or desirable under the Plan, shall be made
by timely delivering to the Committee, in accordance with its rules
and procedures, before the end of the Plan Year preceding the Plan
Year for which the election is made, a new Election Form. If no such
Election Form is timely delivered for a Plan Year, the Annual Deferral
Amount shall be zero for that Plan Year.
3.4 WITHHOLDING OF ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Base
--------------------------------------
Annual Salary portion of the Annual Deferral Amount shall be withheld from each
regularly scheduled Base Annual Salary payroll in equal amounts, as adjusted
from time to time for increases and decreases in Base Annual Salary. The Annual
Bonus portion of the Annual Deferral Amount shall be withheld at the time the
Annual Bonus is or otherwise would be paid to the Participant, whether or not
this occurs during the Plan Year itself.
3.5 INVESTMENT OF TRUST ASSETS. The Trustee of the Trust shall be
--------------------------
authorized, upon written instructions received from the Committee or investment
manager appointed by the Committee, to invest and reinvest the assets of the
Trust in accordance with the applicable Trust Agreement, including the
disposition of stock and reinvestment of the proceeds in one or more investment
vehicles designated by the Committee.
3.6 VESTING. A Participant shall at all times be 100% vested in his or
-------
her Deferral Account.
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
3.7 CREDITING/DEBITING OF ACCOUNT BALANCES. In accordance with, and subject
--------------------------------------
to, the rules and procedures that are established from time to time by the
Committee, in its sole discretion, amounts shall be credited or debited to a
Participant's Account Balance in accordance with the following rules:
(a) ELECTION OF MEASUREMENT FUNDS. A Participant, in connection
-----------------------------
with his or her initial deferral election in accordance with
Section 3.3(a) above, shall elect, on the Election Form, one or
more Measurement Fund(s) (as described in Section 3.7(c) below)
to be used to determine the additional amounts to be credited to
his or her Account Balance for the first calendar quarter or
portion thereof in which the Participant commences participation
in the Plan and continuing thereafter for each subsequent
calendar quarter in which the Participant participates in the
Plan, unless changed in accordance with the next sentence.
Commencing with the first calendar quarter that follows the
Participant's commencement of participation in the Plan and
continuing thereafter for each subsequent calendar quarter in
which the Participant participates in the Plan, no later than the
next to last business day of the calendar quarter, the
Participant may (but is not required to) elect, by submitting an
Election Form to the Committee that is accepted by the Committee,
to add or delete one or more Measurement Fund(s) to be used to
determine the additional amounts to be credited to his or her
Account Balance, or to change the portion of his or her Account
Balance allocated to each previously or newly elected Measurement
Fund. If an election is made in accordance with the previous
sentence, it shall apply to the next calendar quarter and
continue thereafter for each subsequent calendar quarter in which
the Participant participates in the Plan, unless changed in
accordance with the previous sentence.
(b) PROPORTIONATE ALLOCATION. In making any election described in
------------------------
Section 3.7(a) above, the Participant shall specify on the
Election Form, in increments of five percentage points (5%), the
percentage of his or her Account Balance to be allocated to a
Measurement Fund (as if the Participant was making an investment
in that Measurement Fund with that portion of his or her Account
Balance).
(c) MEASUREMENT FUNDS. The Participant may elect one or more of the
-----------------
following measurement funds, based on certain mutual funds (the
"Measurement Funds"), for the purpose of crediting or debiting
amounts to his or her Account Balance:
- T. Rowe Price Equity Index Fund
- T. Rowe Price International Stock Fund
- T. Rowe Price Corporate Income Fund
As necessary, the Committee may, in its sole discretion,
discontinue, substitute or add a Measurement Fund. Each such
action will take effect as of the first day of the calendar
quarter that follows by thirty (30) days the day on which the
Committee gives Participants advance written notice of such
change.
(d) CREDITING OR DEBITING METHOD. The performance of each selected
----------------------------
Measurement Fund (either positive or negative) will be determined
by the Committee, in its sole discretion, based on the
performance of the Measurement Funds themselves. A Participant's
Account Balance shall be credited or debited on a daily basis
based on the performance of each Measurement Fund selected by the
Participant, as determined by the Committee in its sole
discretion, as though (i) a Participant's Account Balance were
invested in the Measurement Fund(s) selected by the Participant,
in the percentages applicable to such calendar quarter, as of the
close of business on the first business day of such calendar
quarter, at the closing price on such date; (ii) the portion of
the Annual Deferral Amount that was actually deferred during any
calendar quarter were invested in the Measurement
- --------------------------------------------------------------------------------
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
Fund(s) selected by the Participant, in the percentages
applicable to such calendar quarter, no later than the close of
business on the third business day after the day on which such
amounts are actually deferred from the Participant's Base Annual
Salary through reductions in his or her payroll, at the closing
price on such date; and (iii) any distribution made to a
Participant that decreases such Participant's Account Balance
shall cease being invested in the Measurement Fund(s), in the
percentages applicable to such calendar quarter, no earlier than
three business days prior to the distribution, at the closing
price on such date.
(e) NO ACTUAL INVESTMENT. Notwithstanding any other provision of
--------------------
this Plan that may be interpreted to the contrary, the
Measurement Funds are to be used for measurement purposes only,
and a Participant's election of any such Measurement Fund, the
allocation to his or her Account Balance thereto, the calculation
of additional amounts and the crediting or debiting of such
amounts to a Participant's Account Balance shall not be
considered or construed in any manner as an actual investment of
his or her Account Balance in any such Measurement Fund. In the
event that the Company or the Trustee (as that term is defined in
the Trust), in its own discretion, decides to invest funds in any
or all of the Measurement Funds, no Participant shall have any
rights in or to such investments themselves. Without limiting the
foregoing, a Participant's Account Balance shall at all times be
a bookkeeping entry only and shall not represent any investment
made on his or her behalf by the Company or the Trust; the
Participant shall at all times remain an unsecured creditor of
the Company.
3.8 FICA AND OTHER TAXES. For each Plan Year in which an Annual
--------------------
Deferral Amount is being withheld from a Participant, the
Participant's Employer(s) shall withhold from that portion of the
Participant's Base Annual Salary and Bonus that is not being deferred,
in a manner determined by the Employer(s), the Participant's share of
FICA and other employment taxes on such Annual Deferral Amount. If
necessary, the Committee may reduce the Annual Deferral Amount in
order to comply with this Section 3.8.
3.9 DISTRIBUTIONS. The Participant's Employer(s), or the trustee of the
-------------
Trust, shall withhold from any payments made to a Participant under
this Plan all federal, state and local income, employment and other
taxes required to be withheld by the Employer(s), or the trustee of
the Trust, in connection with such payments, in amounts and in a
manner to be determined in the sole discretion of the Employer(s) and
the trustee of the Trust.
ARTICLE 4
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION
---------------------------------------------------------------------------
4.1 SHORT-TERM PAYOUT. In connection with each election to defer an
-----------------
Annual Deferral Amount, a Participant may irrevocably elect to receive
a future "Short-Term Payout" from the Plan with respect to such Annual
Deferral Amount. Subject to the Deduction Limitation, the Short-Term
Payout shall be a lump sum payment in an amount that is equal to the
Annual Deferral Amount plus amounts credited or debited in the manner
provided in Section 3.7 above on that amount, determined at the time
that the Short-Term Payout becomes payable (rather than the date of a
Termination of Employment). Subject to the Deduction Limitation and
the other terms and conditions of this Plan, each Short-Term Payout
elected shall be paid out during a period beginning 1 day and ending
60 days after the last day of any Plan Year designated by the
Participant that is at least five Plan Years after the Plan Year in
which the Annual Deferral Amount is actually deferred. By way of
example, if a five year Short-Term Payout is elected for Annual
Deferral Amounts that are deferred in the Plan Year commencing January
1, 1997, the five year Short-Term Payout would become payable during a
60 day period commencing January 1, 2003.
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM. Should an event
----------------------------------------------
occur that triggers a benefit under Article 5, 6, 7 or 8, any Annual
Deferral Amount, plus amounts credited or debited thereon, that is
subject to a Short-Term Payout election under Section 4.1 shall not be
paid in accordance with Section 4.1 but shall be paid in accordance
with the other applicable Article.
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL
---------------------------------------------------------
EMERGENCIES. If the Participant experiences an Unforeseeable
-----------
Financial Emergency, the Participant may petition the Committee to (i)
suspend any deferrals required to be made by a Participant and/or (ii)
receive a partial or full payout from the Plan. The payout shall not
exceed the lesser of the Participant's Account Balance, calculated as
if such Participant were receiving a Termination Benefit, or the
amount reasonably needed to satisfy the Unforeseeable Financial
Emergency. If, subject to the sole discretion of the Committee, the
petition for a suspension and/or payout is approved, suspension shall
take effect upon the date of approval and any payout shall be made
within 60 days of the date of approval. Following approval of a
payout under this Section 4.3, a Participant shall not be permitted to
resume participation in the Plan for the later of 6 months following
such withdrawal or the first day of the following Plan Year. If the
Participant petitions the Committee only to suspend deferrals and the
Committee approves such suspension, the participant shall not be
permitted to resume participation in the Plan until the first day of
the following Plan Year. The payment of any amount under this Section
4.3 shall be subject to the Deduction Limitation.
4.4 WITHDRAWAL ELECTION. A Participant (or, after a Participant's death,
-------------------
his or her Beneficiary) may elect, at any time, to withdraw all of his
or her Account Balance, calculated as if there had occurred a
Termination of Employment as of the day of the election, less a
withdrawal penalty equal to 10% of such amount (the net amount shall
be referred to as the "Withdrawal Amount"). This election can be made
at any time, before or after Retirement, Disability, death or
Termination of Employment, and whether or not the Participant (or
Beneficiary) is in the process of being paid pursuant to an
installment payment schedule. If made before Retirement, Disability
or death, a Participant's Withdrawal Amount shall be his or her
Account Balance calculated as if there had occurred a Termination of
Employment as of the day of the election. No partial withdrawals of
the Withdrawal Amount shall be allowed. The Participant (or his or
her Beneficiary) shall make this election by giving the Committee
advance written notice of the election in a form determined from time
to time by the Committee. The Participant (or his or her Beneficiary)
shall be paid the Withdrawal Amount within 60 days of his or her
election. Once the Withdrawal Amount is paid, the Participant's
participation in the Plan shall terminate and the Participant shall
not be eligible to participate in the Plan in the future. The payment
of this Withdrawal Amount shall be subject to the Deduction
Limitation.
ARTICLE 5
RETIREMENT BENEFIT
------------------
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a
------------------
Participant who Retires shall receive, as a Retirement Benefit, his or
her Account Balance.
5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his
-----------------------------
or her commencement of participation in the Plan, shall elect on an
Election Form to receive the Retirement Benefit in a lump sum or
pursuant to a Monthly Installment Method of 60, 120 or 180 months.
The Participant may annually change his or her election to an
allowable alternative payout period by submitting a new Election Form
to the Committee, provided that any such Election Form shall apply
only to subsequent deferrals under the Plan. If a Participant does
not make any election with respect to the payment of the Retirement
Benefit, then such benefit shall be payable in a lump sum. The lump
sum payment shall be made, or installment payments shall commence, no
later than 60 days after the date the Participant Retires. Any
payment made shall be subject to the Deduction Limitation.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant
-----------------------------------------------
dies after Retirement but before the Retire ment Benefit is paid in
full, the Participant's unpaid Retirement Benefit payments shall
continue and shall be
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
paid to the Participant's Beneficiary (a) over the remaining number of
months and in the same amounts as that benefit would have been paid to
the Participant had the Participant survived, or (b) in a lump sum, if
requested by the Beneficiary and allowed in the sole discretion of the
Committee, that is equal to the Participant's unpaid remaining Account
Balance.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
-------------------------------
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction
-------------------------------
Limitation, the Participant's Beneficiary shall receive a Pre-
Retirement Survivor Benefit equal to the Participant's Account Balance
if the Participant dies before he or she Retires, experiences a
Termination of Employment or suffers a Disability.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. A Participant, in
------------------------------------------
connection with his or her commencement of participation in the Plan,
shall elect on an Election Form whether the Pre-Retirement Survivor
Benefit shall be received by his or her Beneficiary in a lump sum or
pursuant to a Monthly Installment Method of 60, 120 or 180 months.
The Participant may annually change this election to an allowable
alternative payout period by submitting a new Election Form to the
Committee, which form must be accepted by the Committee in its sole
discretion. The Election Form most recently accepted by the Committee
prior to the Participant's death shall govern the payout of the
Participant's Pre-Retirement Survivor Benefit. If a Participant does
not make any election with respect to the payment of the Pre-
Retirement Survivor Benefit, then such benefit shall be paid in a lump
sum. Despite the foregoing, if the Participant's Account Balance at
the time of his or her death is less than $25,000, payment of the Pre-
Retirement Survivor Benefit may be made, in the sole discretion of the
Committee, in a lump sum or pursuant to a Monthly Installment Method
of not more than 60 months. The lump sum payment shall be made, or
installment payments shall commence, no later than 60 days after the
date the Committee is provided with proof that is satisfactory to the
Committee of the Participant's death. Any payment made shall be
subject to the Deduction Limitation.
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<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
ARTICLE 7
TERMINATION BENEFIT
-------------------
7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the
-------------------
Participant shall receive a Termination Benefit, which shall be equal
to the Participant's Account Balance if a Participant experiences a
Termination of Employment prior to his or her Retirement, death or
Disability.
7.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall be paid
------------------------------
in a lump sum. The lump sum payment shall be made no later than 60
days after the date of the Participant's Termination of Employment.
Any payment made shall be subject to the Deduction Limitation.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
-----------------------------
8.1 DISABILITY WAIVER.
-----------------
(a) WAIVER OF DEFERRAL. A Participant who is determined by the
------------------
Committee to be suffering from a Disability shall be excused from
fulfilling that portion of the Annual Deferral Amount commitment
that would otherwise have been withheld from a Participant's Base
Annual Salary and/or Annual Bonus for the Plan Year during which
the Participant first suffers a Disability. During the period of
Disability, the Participant shall not be allowed to make any
additional deferral elections, but will continue to be considered
a Participant for all other purposes of this Plan.
(b) RETURN TO WORK. If a Participant returns to employment with an
--------------
Employer, after a Disability ceases, the Participant may elect to
defer an Annual Deferral Amount for the Plan Year following his
or her return to employment or service and for every Plan Year
thereafter while a Participant in the Plan; provided such
deferral elections are otherwise allowed and an Election Form is
delivered to and accepted by the Committee for each such election
in accordance with Section 3.3 above.
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a
-----------------------------------------
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed and shall be eligible for the benefits
provided for in Articles 4, 5, 6 or 7 in accordance with the
provisions of those Articles. Notwithstanding the above, the
Committee shall have the right to, in its sole and absolute discretion
and for purposes of this Plan only, and must in the case of a
Participant who is otherwise eligible to Retire, deem the Participant
to have experienced a Termination of Employment, or in the case of a
Participant who is eligible to Retire, to have Retired, at any time
(or in the case of a Participant who is eligible to Retire, as soon as
practicable) after such Participant is determined to be suffering a
Disability, in which case the Participant shall receive a Disability
Benefit equal to his or her Account Balance at the time of the
Committee's determination; provided, however, that should the
Participant otherwise have been eligible to Retire, he or she shall be
paid in accordance with Article 5. The Disability Benefit shall be
paid in a lump sum within 60 days of the Committee's exercise of such
right. Any payment made shall be subject to the Deduction Limitation.
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<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
ARTICLE 9
BENEFICIARY DESIGNATION
-----------------------
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
-----------
designate his or her Beneficiary(ies) (both primary as well as
contingent) to receive any benefits payable under the Plan to a
beneficiary upon the death of a Participant. The Beneficiary
designated under this Plan may be the same as or different from the
Beneficiary designation under any other plan of an Employer in which
the Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant
------------------------------------------------
shall designate his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning it to the Committee or its
designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the
terms of the Beneficiary Designation Form and the Committee's rules
and procedures, as in effect from time to time. If the Participant
names someone other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Committee, must be signed by
that Participant's spouse and returned to the Committee. Upon the
acceptance by the Committee of a new Beneficiary Designation Form, all
Beneficiary designations previously filed shall be canceled. The
Committee shall be entitled to rely on the last Beneficiary
Designation Form filed by the Participant and accepted by the
Committee prior to his or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a
--------------
Beneficiary shall be effective until received and acknowledged in
writing by the Committee or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
--------------------------
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the Participant or die prior to
complete distribution of the Participant's benefits, then the
Participant's designated Beneficiary shall be deemed to be his or her
surviving spouse. If the Participant has no surviving spouse, the
benefits remaining under the Plan to be paid to a Beneficiary shall be
payable to the executor or personal representative of the
Participant's estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the
-----------------------
proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right, exercisable in its discretion, to
cause the Participant's Employer to withhold such payments until this
matter is resolved to the Committee's satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to
------------------------
a Beneficiary shall fully and completely discharge all Employers and
the Committee from all further obligations under this Plan with
respect to the Participant, and that Participant's Plan Agreement
shall terminate upon such full payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
----------------
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the
---------------------
Participant's Employer for any reason to take a paid leave of absence
from the employment of the Employer, the Participant shall continue to
be considered employed by the Employer and the Annual Deferral Amount
shall continue to be withheld during such paid leave of absence in
accordance with Section 3.3.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
-----------------------
Participant's Employer for any reason to take an unpaid leave of
absence from the employment of the Employer, the Participant shall
continue to be
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<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
considered employed by the Employer and the Participant shall be
excused from making deferrals until the earlier of the date the leave
of absence expires or the Participant returns to a paid employment
status. Upon such expiration or return, deferrals shall resume for the
remaining portion of the Plan Year in which the expiration or return
occurs, based on the deferral election, if any, made for that Plan
Year. If no election was made for that Plan Year, no deferral shall be
withheld.
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
--------------------------------------
11.1 TERMINATION. Although each Employer anticipates that it will
-----------
continue the Plan for an indefinite period of time, there is no
guarantee that any Employer will continue the Plan or will not
terminate the Plan at any time in the future. Accordingly, each
Employer reserves the right to discontinue its sponsorship of the Plan
and/or to terminate the Plan at any time with respect to any or all of
its participating Employees by action of its board of directors.
Upon the termination of the Plan with respect to any Employer, the
Plan Agreements of the affected Participants who are employed by that
Employer shall terminate and their Account Balances, determined as if
they had experienced a Termination of Employment on the date of Plan
termination or, if Plan termination occurs after the date upon which a
Participant was eligible to Retire, then with respect to that
Participant as if he or she had Retired on the date of Plan
termination, shall be paid to the Participants as follows: Prior to a
Change in Control, if the Plan is terminated with respect to all of
its Participants, an Employer shall have the right, in its sole
discretion, and notwithstanding any elections made by the Participant,
to pay such benefits in a lump sum or pursuant to a Monthly
Installment Method of up to 15 years, with amounts credited and
debited during the installment period as provided herein. If the Plan
is terminated with respect to less than all of its Participants, an
Employer shall be required to pay such benefits in a lump sum. After
a Change in Control, the Employer shall be required to pay such
benefits in a lump sum. The termination of the Plan shall not
adversely affect any Participant or Beneficiary who has become
entitled to the payment of any benefits under the Plan as of the date
of termination; provided however, that the Employer shall have the
right to accelerate installment payments without a premium or
prepayment penalty by paying the Account Balance in a lump sum or
pursuant to a Monthly Installment Method using fewer months.
11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan
---------
in whole or in part with respect to that Employer by the action of its
board of directors; provided, however, that no amendment or
modification shall be effective to decrease or restrict the value of a
Participant's Account Balance in existence at the time the amendment
or modification is made, calculated as if the Participant had
experienced a Termination of Employment as of the effective date of
the amendment or modification or, if the amendment or modification
occurs after the date upon which the Participant was eligible to
Retire, the Participant had Retired as of the effective date of the
amendment or modification. The amendment or modification of the Plan
shall not affect any Participant or Beneficiary who has become
entitled to the payment of benefits under the Plan as of the date of
the amendment or modification; provided, however, that the Employer
shall have the right to accelerate installment payments by paying the
Account Balance in a lump sum or pursuant to a Monthly Installment
Method using fewer months (provided that the present value of all
payments that will have been received by a Participant at any given
point of time under the different payment schedule shall equal or
exceed the present value of all payments that would have been received
at that point in time under the original payment schedule).
11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and 11.2
--------------
above, if a Participant's Plan Agreement contains benefits or
limitations that are not in this Plan document, the Employer may only
amend or terminate such provisions with the consent of the
Participant.
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BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit under
-----------------
Articles 4, 5, 6, 7 or 8 of the Plan shall completely discharge all
obligations to a Participant and his or her designated Beneficiaries
under this Plan and the Participant's Plan Agreement shall terminate.
ARTICLE 12
ADMINISTRATION
--------------
12.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee
----------------
which shall consist of the Board, or such committee as the Board shall
appoint. Members of the Committee may be Participants under this
Plan. The Committee shall also have the discretion and authority to
(i) make, amend, interpret, and enforce all appropriate rules and
regulations for the administration of this Plan and (ii) decide or
resolve any and all questions including interpretations of this Plan,
as may arise in connection with the Plan. Any individual serving on
the Committee who is a Participant shall not vote or act on any matter
relating solely to himself or herself. When making a determination or
calculation, the Committee shall be entitled to rely on information
furnished by a Participant or the Company.
12.2 AGENTS. In the administration of this Plan, the Committee may, from
------
time to time, employ agents and delegate to them such administrative
duties as it sees fit (including acting through a duly appointed
representative) and may from time to time consult with counsel who may
be counsel to any Employer.
12.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee
---------------------------
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the
rules and regulations promulgated hereunder shall be final and
conclusive and binding upon all persons having any interest in the
Plan.
12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold
----------------------
harmless the members of the Committee, and any Employee to whom the
duties of the Committee may be delegated, against any and all claims,
losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan, except in the case of
willful misconduct by the Committee or any of its members or any such
Employee.
12.5 EMPLOYER INFORMATION. To enable the Committee to perform its
--------------------
functions, each Employer shall supply full and timely information to
the Committee on all matters relating to the compensation of its
Participants, the date and circumstances of the Retirement,
Disability, death or Termination of Employment of its Participants,
and such other pertinent information as the Committee may reasonably
require.
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS
-----------------------------
13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
--------------------------------
Participant and Participant's Beneficiary under the Plan are in
addition to any other benefits available to such Participant under any
other plan or program for employees of the Participant's Employer.
The Plan shall supplement and shall not supersede, modify or amend any
other such plan or program except as may otherwise be expressly
provided.
ARTICLE 14
CLAIMS PROCEDURES
-----------------
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
---------------------
Participant (such Participant or Beneficiary being referred to below
as a "Claimant") may deliver to the Committee a written claim for a
determination with respect to the
- --------------------------------------------------------------------------------
-14-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
amounts distributable to such Claimant from the Plan. If such a claim
relates to the contents of a notice received by the Claimant, the
claim must be made within 60 days after such notice was received by
the Claimant. All other claims must be made within 180 days of the
date on which the event that caused the claim to arise occurred. The
claim must state with particularity the determination desired by the
Claimant.
14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's
------------------------
claim within a reasonable time, and shall notify the Claimant in
writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant's requested determination, and such
notice must set forth in a manner calculated to be understood by
the Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
(ii) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is
necessary; and
(v) an explanation of the claim review procedure set forth in
Section 14.3 below.
14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice
------------------------
from the Committee that a claim has been denied, in whole or in part,
a Claimant (or the Claimant's duly authorized representative) may file
with the Committee a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review
procedure began, the Claimant (or the Claimant's duly authorized
representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
14.4 DECISION ON REVIEW. The Committee shall render its decision on
------------------
review promptly, and not later than 60 days after the filing of a
written request for review of the denial, unless a hearing is held or
other special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood
by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions
------------
of this Article 14 is a mandatory prerequisite to a Claimant's right
to commence any legal action with respect to any claim for benefits
under this Plan.
- --------------------------------------------------------------------------------
-15-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
ARTICLE 15
TRUST
-----
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust,
--------------------------
and each Employer shall, at each pay period, transfer over to the
Trust such cash as the Participant elected to defer under the Plan.
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the
-------------------------------------------
Plan and the Plan Agreement shall govern the rights of a Participant
to receive distributions pursuant to the Plan. The provisions of the
Trust shall govern the rights of the Employers, Participants and the
creditors of the Employers to the assets transferred to the Trust.
Each Employer shall at all times remain liable to carry out its
obligations under the Plan.
15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the
----------------------------
Plan may be satisfied with Trust assets distributed pursuant to the
terms of the Trust, and any such distribution shall reduce the
Employer's obligations under this Plan.
ARTICLE 16
MISCELLANEOUS
-------------
16.1 STATUS OF PLAN. The Plan is intended to be a plan that is not
--------------
qualified within the meaning of Code Section 401(a) and that
"is unfunded and is maintained by an employer primarily for the
purpose of providing deferred compensation for a select group of
management or highly compensated employees" within the meaning of
ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be
administered and interpreted to the extent possible in a manner
consistent with that intent.
16.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries,
--------------------------
heirs, successors and assigns shall have no legal or equitable rights,
interests or claims in any property or assets of an Employer. For
purposes of the payment of benefits under this Plan, any and all of an
Employer's assets shall be, and remain, the general, unpledged
unrestricted assets of the Employer. An Employer's obligation under
the Plan shall be merely that of an unfunded and unsecured promise to
pay money in the future.
16.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment of
--------------------
benefits shall be defined only by the Plan and the Plan Agreement, as
entered into between the Employer and a Participant. An Employer
shall have no obligation to a Participant under the Plan except as
expressly provided in the Plan and his or her Plan Agreement.
16.4 NONASSIGNABILITY. Neither a Participant nor any other person shall
----------------
have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate, alienate or
convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are
expressly declared to be, unassignable and non-transferable. No part
of the amounts payable shall, prior to actual payment, be subject to
seizure, attachment, garnishment or sequestration for the payment of
any debts, judgments, alimony or separate maintenance owed by a
Participant or any other person, be transferable by operation of law
in the event of a Participant's or any other person's bankruptcy or
insolvency or be transferable to a spouse as a result of a property
settlement or otherwise.
16.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
----------------------------
shall not be deemed to constitute a contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged
to be an "at will" employment relationship that can be terminated at
any time for any reason, or no reason, with or without cause, and with
or without notice, unless expressly provided in a written employment
agreement. Nothing in this Plan shall be
- --------------------------------------------------------------------------------
-16-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
deemed to give a Participant the right to be retained in the service
of any Employer, either as an Employee or a Director, or to interfere
with the right of any Employer to discipline or discharge the
Participant at any time.
16.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
----------------------
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and
the payments of benefits hereunder, including but not limited to
taking such physical examinations as the Committee may deem necessary.
16.7 TERMS. Whenever any words are used herein in the masculine, they
-----
shall be construed as though they were in the feminine in all cases
where they would so apply; and whenever any words are used herein in
the singular or in the plural, they shall be construed as though they
were used in the plural or the singular, as the case may be, in all
cases where they would so apply.
16.8 CAPTIONS. The captions of the articles, sections and paragraphs of
--------
this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
16.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall
-------------
be construed and interpreted according to the internal laws of the
State of California without regard to its conflicts of laws
principles.
16.10 NOTICE. Any notice or filing required or permitted to be given to
------
the Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the
address below:
Director of Human Resources
Bay View Federal Bank
2121 So. El Camino Real
San Mateo, CA 94403-1897
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing and
hand-delivered, or sent by mail, to the last known address of the
Participant.
16.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
----------
benefit of the Participant's Employer and its successors and assigns
and the Participant and the Participant's designated Beneficiaries.
16.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a
-----------------
spouse of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable by
such spouse in any manner, including but not limited to such spouse's
will, nor shall such interest pass under the laws of intestate
succession.
16.13 VALIDITY. In case any provision of this Plan shall be illegal or
--------
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal or invalid provision had never been
inserted herein.
16.14 INCOMPETENT. If the Committee determines in its discretion that a
-----------
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of
that person's property, the Committee may direct payment of such
benefit to the guardian, legal representative or person having the
care and custody of such minor, incompetent or incapable person. The
Committee may require proof of minority, incompetence, incapacity or
guardianship, as it may deem appropriate prior to distribution of the
benefit. Any payment
- --------------------------------------------------------------------------------
-17-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
of a benefit shall be a payment for the account of the Participant and
the Participant's Beneficiary, as the case may be, and shall be a
complete discharge of any liability under the Plan for such payment
amount.
16.15 COURT ORDER. The Committee is authorized to make any payments
-----------
directed by court order in any action in which the Plan or the
Committee has been named as a party. In addition, if a court
determines that a spouse or former spouse of a Participant has an
interest in the Participant's benefits under the Plan in connection
with a property settlement or otherwise, the Committee, in its sole
discretion, shall have the right, notwithstanding any election made by
a Participant, to immediately distribute the spouse's or former
spouse's interest in the Participant's benefits under the Plan to that
spouse or former spouse.
16.16 DISTRIBUTION IN THE EVENT OF TAXATION.
-------------------------------------
(a) IN GENERAL. If, for any reason, all or any portion of a
----------
Participant's benefits under this Plan becomes taxable to the
Participant prior to receipt, a Participant may petition the
Committee before a Change in Control, or the trustee of the Trust
after a Change in Control, for a distribution of that portion of
his or her benefit that has become taxable. Upon the grant of
such a petition, which grant shall not be unreasonably withheld
(and, after a Change in Control, shall be granted), a
Participant's Employer shall distribute to the Participant
immediately available funds in an amount equal to the taxable
portion of his or her benefit (which amount shall not exceed a
Participant's unpaid Account Balance under the Plan). If the
petition is granted, the tax liability distribution shall be made
within 90 days of the date when the Participant's petition is
granted. Such a distribution shall affect and reduce the benefits
to be paid under this Plan.
(b) TRUST. If the Trust terminates in accordance with Section
-----
3.6(e) of the Trust and benefits are distributed from the Trust
to a Participant in accordance with that Section, the
Participant's benefits under this Plan shall be reduced to the
extent of such distributions.
16.17 INSURANCE. The Employers, on their own behalf or on behalf of the
---------
trustee of the Trust, and, in their sole discretion, may apply for and
procure insurance on the life of the Participant, in such amounts and
in such forms as they may choose. The Employers or the trustee of the
Trust, as the case may be, shall be the sole owner and beneficiary of
any such insurance. The Participant shall have no interest whatsoever
in any such policy or policies, and at the request of the Employers
shall submit to medical examinations and supply such information and
execute such documents as may be required by the insurance company or
companies to whom the Employers have applied for insurance.
16.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The
----------------------------------------------------
Company and each Employer is aware that upon the occurrence of a
Change in Control, the Board or the board of directors of a
Participant's Employer (which might then be composed of new members)
or a shareholder of the Company or the Participant's Employer, or of
any successor corporation might then cause or attempt to cause the
Company, the Participant's Employer or such successor to refuse to
comply with its obligations under the Plan and might cause or attempt
to cause the Company or the Participant's Employer to institute, or
may institute, litigation seeking to deny Participants the benefits
intended under the Plan. In these circumstances, the purpose of the
Plan could be frustrated. Accordingly, if, following a Change in
Control, it should appear to any Participant that the Company, the
Participant's Employer or any successor corporation has failed to
comply with any of its obligations under the Plan or any agreement
thereunder or, if the Company, such Employer or any other person takes
any action to declare the Plan void or unenforceable or institutes any
litigation or other legal action designed to deny, diminish or to
recover from any Participant the benefits intended to be provided,
then the Company and the Participant's Employer irrevocably authorize
such Participant to retain counsel of his or her choice at the expense
of the Company and the Participant's Employer (who shall be jointly
and severally liable) to represent such Participant in connection with
the initiation or defense of any litigation or other legal action,
whether by or against the Company, the Participant's Employer or any
director, officer, shareholder or other person affiliated with the
Company, the Participant's Employer or any successor thereto in any
jurisdiction.
- --------------------------------------------------------------------------------
-18-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
IN WITNESS WHEREOF, the Company has signed this Plan document as of
December 31, 1996.
-----------------
"Company"
Bay View Capital Corporation, a Delaware
corporation
By: /s/ Edward H. Sondker
---------------------
Title: President
----------
- --------------------------------------------------------------------------------
-19-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
AMENDMENT NO. 1 TO THE BAY VIEW CAPITAL CORPORATION
DEFERRED COMPENSATION PLAN
1. Section 3.7(c) of the Master Plan Document is hereby amended by
restating said subsection in full as follows:
(c) Measurement Funds. The Participant may elect one or more of the
-----------------
following measurement funds, based on certain mutual funds or Company
common stock on a limited basis as hereinafter described (the "Measurement
Funds"), for the purpose of crediting or debiting amounts to his or her
Account Balance:
- T. Rowe Price Equity Index Fund
- T. Rowe Price International Stock Fund
- T. Rowe Price Corporate Income Fund
- Federated Funds Money Market Account
- Company Common stock (only with respect to the deferral of
compensation from the Company and not with respect to compensation
deferred from any other Employer)
With respect to any Company Annual Bonus that a participant elects to defer
pursuant to the Plan, such Participant is required to elect Company common
stock as the Measurement Fund for at least 50% (but up to 100%) of the
deferred amount of the Company Annual Bonus (the "Required Election").
Notwithstanding the provisions of Section 3.7(a) of the Plan, a Participant
must utilize Company common stock as the Measurement Fund relating to the
Required Election without change to any other Measurement Fund until the
calendar quarter next following the earliest of (i) a Change in Control,
(ii) such Participant's Termination of Employment, (iii) three years after
the applicable Required Election, or (iv) the date the Plan is amended to
delete Company common stock as a Measurement Fund. The Company common
stock cannot be used as a Measurement Fund with respect to the deferral of
the compensation from subsidiaries of the Company. Accordingly, the use of
Company common stock as a Measurement Fund may only be elected by or
imposed upon Participants who receive compensation from the Company and
only with respect to the deferral of Company compensation. The use of
Company common stock as a Measurement Fund by eligible Participants shall
only apply through the calendar quarter in which a Change in Control
occurs. To the extent that the Measurement Fund of an eligible Participant
consists of Company common stock, any cash dividends paid on Company common
stock shall be added to such Participant's Account Balance and deemed
reinvested in Company common stock.
As necessary, the Committee may, in its sole discretion, discontinue,
substitute or add a Measurement Fund. Each such action will take effect as
of the first day of the calendar quarter that follows by fifteen (15) days
the day on which the Committee gives Participants advance written notice of
such change.
2. Section 3.3(a) of the Master Trust Agreement is hereby amended by
restating said subsection in full as follows:
(a) To invest and reinvest the Trust Fund, together with the income
therefrom, in common stock, preferred stock, convertible preferred stock,
mutual funds, bonds, debentures, convertible debentures and bonds,
mortgages, notes, time certificates of deposit, commercial paper and other
evidences of indebtedness (including those issued by the Trustee or any of
its affiliates), other securities, policies of life
- --------------------------------------------------------------------------------
-20-
<PAGE>
BAY VIEW CAPITAL CORPORATION
Deferred Compensation Plan
Master Plan Document
================================================================================
insurance, annuity contracts, options to buy or sell securities or other
assets, and other property of any kind (personal, real, or mixed, and
tangible or intangible), including Company common stock at the direction of
the Committee at any time prior to a Change in Control on behalf of a
Participant to mirror such Participant's selection of Company common stock
as a Measurement Fund under the Plan, including reinvestment of cash
dividends thereon; provided however, that the Trustee shall not otherwise
invest in securities (including stock or rights to acquire stock) or
obligations issued by the Company or the Subsidiaries, other than a de
minimis amount held in common investment vehicles in which the Trustee
invests;
3. Section 3.5 of the Master Trust Agreement is hereby amended in full as
follows:
3.5. Substitution. Notwithstanding any provision of any Plan or the
------------
Trust to the contrary, the Company and/or any Subsidiary shall have the
right at any time, and from time to time in its sole discretion, to
substitute assets of equal fair market value for any asset held by the
Trust. This right shall be exercisable by the Company or any Subsidiary in
a nonfiduciary capacity without the approval or consent of any person in a
fiduciary capacity.
This Amendment No. 1 to the Bay View Capital Corporation Deferred
Compensation Plan shall be effective as of this 23rd day of June, 1997. This
-----
document is being executed by the Trustee under the Master Trust Agreement for
the sole purpose of complying with Section 9.1 of the Trust relating to the
amendments described in paragraphs 2 and 3 above.
THE COMPANY:
Bay View Capital Corporation,
a Delaware Corporation
By:/s/ Paula Collins
------------------
Title: Director
--------
THE TRUSTEE:
First Banker's Trust Co., N.A.
By: /s/ Carmen Walch
------------------
Title: Trust Officer
-------------
- --------------------------------------------------------------------------------
-21-
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Six Months
Ended June 30,
------------------
1997 1996
------- -------
<S> <C> <C>
Earnings:
Earnings before income tax expense 17,133 14,378
Add:
Interest on advances and other borrowings 36,533 27,741
Interest component of rental expense 467 263
------- -------
Earnings before fixed charges excluding 54,133 42,382
Interest on customer deposits
Interest on customer deposits 38,139 47,711
------- -------
Earnings before fixed charges 92,272 90,093
======= =======
Fixed Charges:
Interest on advances and other borrowings 36,533 27,741
Interest component of rental expense 467 263
------- -------
Fixed charges excluding interest on
customer deposits 37,000 28,004
Interest on customer deposits 38,139 47,711
------- -------
Total fixed charges 75,139 75,715
======= =======
Ratio of earnings to fixed charges including
interest on customer deposits 1.23x 1.19x
Ratio of earnings to fixed charges excluding
interest on customer deposits 1.46x 1.51x
</TABLE>
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 1 to Registration
Statement No. 333-29757 of Bay View Capital Corporation on Form S-3 of our
report dated January 24, 1997 (June 2, 1997 as to paragraphs 3, 4, and 5 of Note
24), appearing in the Annual Report on Form 10-K/A of Bay View Capital
Corporation for the year ended December 31, 1996 and to the reference to us
under the heading "Experts" in the Prospectus, which is a part of this
Registration Statement.
/s/ Deloitte & Touche LLP
San Francisco, California
August 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 30,338
<INT-BEARING-DEPOSITS> 8
<FED-FUNDS-SOLD> 1,864
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 85,833
<INVESTMENTS-CARRYING> 473,792
<INVESTMENTS-MARKET> 463,822
<LOANS> 2,294,246
<ALLOWANCE> 35,089
<TOTAL-ASSETS> 3,096,213
<DEPOSITS> 1,578,206
<SHORT-TERM> 1,031,866
<LIABILITIES-OTHER> 30,135
<LONG-TERM> 259,810
0
0
<COMMON> 151
<OTHER-SE> 196,045
<TOTAL-LIABILITIES-AND-EQUITY> 3,096,213
<INTEREST-LOAN> 95,070
<INTEREST-INVEST> 22,425
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 117,495
<INTEREST-DEPOSIT> 38,139
<INTEREST-EXPENSE> 74,672
<INTEREST-INCOME-NET> 48,823
<LOAN-LOSSES> 1,177
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 31,844
<INCOME-PRETAX> 17,133
<INCOME-PRE-EXTRAORDINARY> 17,133
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,766
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
<YIELD-ACTUAL> 2.79
<LOANS-NON> 14,955
<LOANS-PAST> 704
<LOANS-TROUBLED> 502
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 37,583
<CHARGE-OFFS> (4,206)
<RECOVERIES> 535
<ALLOWANCE-CLOSE> 35,089
<ALLOWANCE-DOMESTIC> 35,089
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
