<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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.)
2121 South El Camino Real, San Mateo, California 94403
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 573-7300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, Par Value $.01 Outstanding at May 31, 1997
(Title of Class) 12,971,160 shares
1
<PAGE>
The purpose of this amendment on Form 10-Q/A to the quarterly report on
Form 10-Q for the quarter ended March 31, 1997 (the "Form 10-Q") of Bay View
Capital Corporation (the "Company") is to retroactively restate all share and
per share amounts included in the Form 10-Q to give effect for a 2 for 1 stock
split in the form of a 100% stock dividend declared on April 14, 1997 to
stockholders of record as of May 9, 1997 which was paid on June 2, 1997. The
Company hereby amends the Form 10-Q in its entirety and replaces it with the
following:
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
Consolidated Statement of Stockholders' Equity....................... 5
Consolidated Statements of Cash Flows................................ 6
Notes to Consolidated Financial Statements........................... 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 12
<CAPTION>
PART II. OTHER INFORMATION
- -------- -----------------
<S> <C>
Other Information ..................................................... 35
Signatures ............................................................ 35
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 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 $ 18,840 $ 22,608
Interest-bearing deposits and short-term investments 29,459 84,220
---------- ----------
48,299 106,828
Loans held for sale 79,184 294,949
Securities available for sale:
Investment securities 9,497 13,802
Mortgage-backed securities 79,959 83,154
Securities held to maturity:
Investment securities (fair value: 1997 - $14,918; 1996 - $15,112) 15,004 15,204
Mortgage-backed securities (fair value: 1997 - $466,988; 1996 - $483,461) 478,231 494,459
Loans receivable held for investment, net of
allowance for losses; 1997 - $27,906; 1996 - $ 29,013 2,213,093 2,179,768
Investment in stock of FHLBSF 52,727 51,891
Real estate owned 8,895 7,387
Premises and equipment, net 7,547 6,905
Intangibles 9,520 10,197
Other assets 42,654 35,718
---------- ----------
Total Assets $3,044,610 $3,300,262
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $1,655,840 $1,763,967
Advances from FHLBSF 890,762 977,750
Securities sold under agreements to repurchase 198,556 210,640
Senior Debentures 50,000 50,000
Other borrowings 17,122 7,147
Other liabilities 40,196 90,696
---------- ----------
Total liabilities 2,852,476 3,100,200
---------- ----------
Stockholders' equity:
Serial preferred stock; authorized, 7,000,000 shares;
outstanding, none - -
Common stock ($.01 par value); authorized, 20,000,000 shares;
issued, 1997 - 15,082,274 shares and 1996 - 15,005,384 shares;
outstanding, 1997 - 12,970,160 shares and 1996 - 13,349,270 shares 151 150
Additional paid-in capital 101,204 100,436
Retained earnings (substantially restricted) 135,545 131,324
Treasury stock at cost, 1997 - 2,112,114 shares and 1996 -
1,656,114 shares (38,847) (26,497)
Unrealized loss on securities available for sale, net of tax (1,702) (713)
Debt of Employee Stock Ownership Plan (4,217) (4,638)
---------- ----------
Total stockholders' equity 192,134 200,062
---------- ----------
Total Liabilities and Stockholders' Equity $3,044,610 $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
MARCH 31,
-------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1997 1996
------- -------
<S> <C> <C>
Interest income:
Interest on loans receivable $46,664 $40,387
Interest on mortgage-backed securities 9,231 11,370
Interest and dividends on investments 2,261 1,652
------- -------
58,156 53,409
Interest expense:
Interest on customer deposits 19,594 23,258
Interest on Senior Debentures 1,114 -
Interest on borrowings 16,393 13,937
------- -------
37,101 37,195
Net interest income 21,055 16,214
Provision for losses on loans 565 600
------- -------
Net interest income after provision for loan losses 20,490 15,614
Noninterest income:
Loan fees and charges 1,158 908
Gain (loss) on sale of loans and securities 925 (262)
Rental income from premises - 197
Other, net 1,500 980
------- -------
3,583 1,823
Noninterest expense:
General and administrative:
Compensation and employee benefits 8,505 5,087
Office occupancy and equipment 2,182 1,800
Deposit insurance premiums and regulatory fees 391 1,311
Data processing service bureau 656 461
Other, net 2,886 2,078
------- -------
14,620 10,737
Real estate owned operations, net (22) (888)
Recovery of losses on real estate (448) (53)
Amortization and write-down of intangible assets 677 726
------- -------
14,827 10,522
Income before income tax expense 9,246 6,915
Income tax expense 3,984 2,922
------- -------
Net income $ 5,262 $ 3,993
======= =======
Primary earnings per share $ 0.39 $ 0.28
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED DEBT OF
LOSS EMPLOYEE
ADDITIONAL ON SECURITIES STOCK TOTAL
(DOLLARS IN THOUSANDS EXCEPT NUMBER OF COMMON PAID-IN RETAINED TREASURY AVAILABLE FOR SALE OWNERSHIP STOCKHOLDERS'
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 $ 150 $100,436 $131,324 $(26,497) $ (713) $(4,638) $200,062
Repurchase of common stock (12,350) (12,350)
Exercise of stock options 77 1 768 769
Cash dividends declared
($0.08 per share) (1,041) (1,041)
Unrealized loss, net of tax (989) (989)
Repayment of debt 421 421
Net income 5,262 5,262
----- ------ -------- -------- -------- ------- ------- --------
Balance at March 31, 1997 15,082 $ 151 $101,204 $135,545 $(38,847) $(1,702) $(4,217) $192,134
===== ====== ======== ======== ======== ======= ======= ========
</TABLE>
* Substantially restricted
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
(DOLLARS IN THOUSANDS) 1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,262 $ 3,993
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and write-down of intangible assets 677 726
Proceeds from loans sold 253,855 9,668
Provision for losses on loans and real estate owned 117 547
Depreciation and amortization of premises and equipment 637 545
Amortization of deferred loan costs 199 333
Decrease in capitalized excess servicing fees 251 139
Amortization of premiums, net of discounts 2,647 818
Loss on loans and securities - 262
(Increase) decrease in other assets (7,499) 1,553
Decrease in other liabilities (50,792) (10,258)
Other, net (187) (369)
-------- --------
Net cash provided by operating activities 205,167 7,957
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in loans resulting from originations
net of principal payments 21,092 25,856
Purchase of loans (97,380) (19,676)
Principal payments on mortgage-backed securities 16,914 21,517
Proceeds from sale of mortgage-backed securities available for sale - 26,807
Proceeds from maturities of investment securities held to maturity - 25,000
Proceeds from maturities of investment securities available for sale - 7,000
Purchase of investment securities available for sale (8,352) -
Proceeds from sale of investment securities available for sale 12,792 -
Proceeds from sale of other real estate owned 2,776 7,308
Additions to premises and equipment (1,279) (237)
Increase in stock of FHLBSF (836) (683)
-------- --------
Net cash provided by (used in) investing activities (54,273) 92,892
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
(DOLLARS IN THOUSANDS) 1997 1996
------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net deposit outflows (108,127) (10,810)
Proceeds from advances from FHLBSF 2,302,532 305,000
Repayment of advances from FHLBSF (2,389,520) (343,860)
Repurchase of common stock (12,350) (7,562)
Proceeds from reverse repurchase agreements 183,556 -
Repayment of reverse repurchase agreements (195,640) (29,098)
Increase (decrease) in other borrowings 10,396 (476)
Proceeds from issuance of common stock 769 973
Dividends paid to stockholders (1,039) (1,036)
----------- ---------
Net cash used in financing activities (209,423) (86,869)
----------- ---------
Net (decrease) increase in cash and cash equivalents (58,529) 13,980
Cash and cash equivalents at beginning of period 106,828 42,760
----------- ---------
Cash and cash equivalents at end of period $ 48,299 $ 56,740
=========== =========
Cash paid for:
Interest $ 22,780 $ 14,585
Income taxes $ 2,303 $ -
Supplemental noncash investing and financing activities:
Loans transferred to real estate owned $ 3,972 $ 2,413
Loans originated to sell real estate owned $ - $ 1,230
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<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"), and Bay View Securitization
Corporation, a Delaware corporation formed for the purpose of issuing asset-
backed securities through a trust. 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"), a
commercial finance company, 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 March 31, 1997 and
December 31, 1996; the results of its operations for the three months ended
March 31, 1997 and 1996; and the cash flows for the three months ended March 31,
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, 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 months ended March 31, 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 months ended March 31,
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 March 31, 1997 and 1996 were 13,552,000
shares and 14,174,000 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.
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128) is effective for financial statements issued for periods ending after
December 15, 1997. If SFAS 128 had been in
8
<PAGE>
effect during the current and prior year periods, basic earnings per share would
have been $0.40 and $0.28 for the quarters ended March 31, 1997 and 1996,
respectively. Diluted earnings per share under SFAS 128 would not differ
materially from primary earnings per share currently reported for the periods.
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 retroactively restated to
give effect for this split.
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, 1,000,000 shares, and 550,000 shares of common stock,
respectively. The following table summarizes the stock options available for
grant as of March 31, 1997:
<TABLE>
<CAPTION>
NON-
EMPLOYEE
1986 STOCK 1995 STOCK DIRECTOR
OPTION PLAN OPTION PLAN OPTION PLAN TOTAL
----------- ----------- ----------- ----------
<S> <C> <C> <C>
Shares reserved for issuance 1,759,430 1,000,000 550,000 3,309,430
Granted (2,048,816) (805,500) (516,000) (3,370,316)
Canceled 290,074 40,000 20,000 350,074
Expired (688) - - (688)
---------- -------- -------- ----------
Total available for grant - 234,500 54,000 288,500
=========== ======== ======== ==========
</TABLE>
At March 31, 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 - $18.87 $12.67
Granted 263,500 $25.50 - $28.44 $26.59
Exercised (76,890) $ 7.28 - $12.50 $10.04
Canceled (20,000) $17.00 - $28.44 $22.72
---------- --------------- ------
Outstanding at March 31, 1997 1,321,500 $ 7.88 - $28.44 $15.45
========== =============== ======
</TABLE>
NOTE 4 - DIVIDEND DECLARATION
The Company declared a quarterly cash dividend of $.08 per share on March
27 1997, payable to stockholders of record as of April 11, 1997. The dividend
payable, totaling $1.0 million, was accrued as of March 31, 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 December 31, 1997 or January 1, 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.
9
<PAGE>
NOTE 6 - SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
BAY VIEW CAPITAL CORPORATION
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF FINANCIAL CONDITION
- ---------------------------------------------------------------------------------------------------------------------
MARCH 31, 1997
-------------------------------------------------------------------------
PARENT CO
(DOLLARS IN THOUSANDS) BVB CTL & OTHER SUBS (1) ELIMINATIONS CONSOLIDATED
---------- --------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 44,501 $ 4,689 $ 3,567 $ (4,458) $ 48,299
Loans held for sale 19,336 59,848 - - 79,184
Securities available for sale:
Investment securities - - 9,497 - 9,497
Mortgage-backed securities 79,959 - - - 79,959
Securities held to maturity:
Investment securities 15,004 - - - 15,004
Mortgage-backed securities 478,231 - - - 478,231
Loans receivable held for investment, net 2,072,326 140,767 - - 2,213,093
Investment in stock of the FHLBSF 50,375 2,352 - - 52,727
Real estate owned 6,692 2,203 - - 8,895
Premises and equipment, net 6,416 1,131 - - 7,547
Investment in subsidiaries/due from affiliates 41,695 - 237,531 (279,226) -
Intangibles 3,382 6,138 - - 9,520
Other assets 25,846 4,217 4,824 7,767 42,654
---------- -------- -------- --------- ----------
Total Assets $2,843,763 $221,345 $255,419 $(275,917) $3,044,610
========== ======== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $1,535,893 $124,405 $ - $ (4,458) $1,655,840
Advances from the FHLBSF 890,762 - - - 890,762
Securities sold under agreements to repurchase 198,556 - - - 198,556
Senior Debentures - - 50,000 - 50,000
Other borrowings 18,782 53,069 - (54,729) 17,122
Other liabilities 24,000 20,022 2,871 (6,697) 40,196
---------- -------- -------- --------- ----------
Total Liabilities 2,667,993 197,496 52,871 (65,884) 2,852,476
Stockholders' equity:
Common stock - 4,000 151 (4,000) 151
Additional paid-in capital 74,187 19,330 111,714 (104,027) 101,204
Retained earnings (substantially restricted) 107,505 519 135,449 (107,928) 135,545
Treasury stock at cost - - (38,847) - (38,847)
Unrealized loss on securities available for sale
(net of tax) (1,705) - (1,702) 1,705 (1,702)
Debt of Employee Stock Ownership Plan (4,217) - (4,217) 4,217 (4,217)
---------- -------- -------- --------- ----------
Total Stockholders' Equity 175,770 23,849 202,548 (210,033) 192,134
---------- -------- -------- --------- ----------
Total Liabilities and Stockholders' Equity $2,843,763 $221,345 $255,419 $(275,917) $3,044,610
========== ======== ======== ========= ==========
</TABLE>
(1) Includes Bay View Securitization Corporation and Regent Financial
Corporation, wholly owned subsidiaries of the Company, which are not
material for separate financial statement disclosure for the period
presented.
10
<PAGE>
NOTE 5 (CON'T) - SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
BAY VIEW CAPITAL CORPORATION
SUPPLEMENTAL CONSOLIDATING SCHEDULE OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------------------------------
PARENT CO.
(DOLLARS IN THOUSANDS) BVB CTL & OTHER SUBS (1) ELIMINATIONS CONSOLIDATED
------- ------ ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest income:
Interest on loans receivable $39,913 $6,751 $ - $ - $46,664
Interest on mortgage-backed securities 9,231 - - - 9,231
Interest and dividends on investments 2,922 196 463 (1,320) 2,261
------- ------ ------ ------- -------
52,066 6,947 463 (1,320) 58,156
Interest expense:
Interest on customer deposits 17,457 2,141 - (4) 19,594
Interest on Senior Debentures - - 1,114 - 1,114
Interest on borrowings 16,533 1,173 3 (1,316) 16,393
------- ------ ------ ------- -------
33,990 3,314 1,117 (1,320) 37,101
Net interest income 18,076 3,633 (654) - 21,055
Provision for losses on loans 400 165 - - 565
------- ------ ------ ------- -------
Net interest income after provision for losses 17,676 3,468 (654) - 20,490
Noninterest income:
Loan fees and charges 754 404 - - 1,158
Gain on sale of loans - 925 - - 925
Equity in earnings of subsidiaries - - 6,074 (6,074) -
Other, net 1,110 394 - (4) 1,500
------- ------ ------ ------- -------
1,864 1,723 6,074 (6,078) 3,583
Noninterest expense:
General and administrative expenses:
Compensation and benefits 5,903 2,224 378 - 8,505
Office occupancy 1,912 339 (69) - 2,182
Deposits insurance premium and regulatory fees 376 15 - - 391
Service bureau expense 379 276 1 - 656
Other, net 1,551 1,005 334 (4) 2,886
------- ------ ------ ------- -------
10,121 3,859 644 (4) 14,620
Real estate owned operations, net (27) 5 - - (22)
Recovery of losses on real estate (448) - - - (448)
Amortization of intangible assets 428 249 - - 677
------- ------ ------ ------- -------
10,074 4,113 644 (4) 14,827
Income before income taxes 9,466 1,078 4,776 (6,074) 9,246
Income tax expense (benefit) 3,979 559 (554) - 3,984
------- ------ ------ ------- -------
Net income $ 5,487 $ 519 $5,330 $(6,074) $ 5,262
======= ====== ====== ======= =======
</TABLE>
(1) Includes Bay View Securitization Corporation and Regent Financial
Corporation, wholly owned subsidiaries of the Company, which are not
material for separate financial statement disclosure for the period
presented.
11
<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 ("Banking
Platform" or "BVB"), Bay View Securitization Corporation ("BVSC"), California
Thrift & Loan ("Consumer Finance Platform" or "CTL") and Concord Growth
Corporation ("Commercial Finance Platform" or "CGC").
STRATEGIC OVERVIEW
The Company's Mission Statement
To build a diversified financial services company by investing in and
creating niche lending generating companies that originate high yielding assets
and maximizing per share market value.
The Company's Capital Strategy
In order to realize the Company's objectives, management is pursuing a
capital strategy that encompasses the following:
1. To de-emphasize the less profitable elements of the Company's
subsidiaries
2. To return the capital of subsidiaries in excess of the regulatory
"well capitalized" requirement to the Company
3. To redeploy excess capital to generate a more profitable, risk-based
return or repurchase shares
4. To increase the velocity of capital utilization
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project", or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made, and to
advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from those
anticipated or projected.
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.
12
<PAGE>
NET INCOME BY BUSINESS PLATFORM
Net income for the first quarter of 1997 by business platform was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997
----------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) EARNINGS
NET INCOME PER SHARE
---------- ---------
<S> <C> <C>
Banking/Depository Platform $4,678 $0.35
Consumer Finance Platform * 584 0.04
Commercial Finance Platform ** - -
------ -----
BVCC - Consolidated $5,262 $0.39
====== =====
</TABLE>
* Includes CTL and BVSC
** Acquisition of commercial finance platform was completed on March 17, 1997
(see discussion elsewhere herein). Purchase accounting was effective April 1,
1997 and earnings benefit begins in the second quarter of 1997.
BAY VIEW BANK STRATEGIES
Bay View Bank 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, to originate loans secured
by real estate. Historically, BVB's performance has been negatively impacted by
weak retail asset origination (primarily COFI-based, commodity-oriented mortgage
products), high general and administrative expenses and also unfavorable
interest rate risk exposures. In addition, BVB has in the past purchased
mortgage-backed securities ("MBS") when high quality loan production was not
available.
BVB's strategic focus is to enhance its deposit franchise and, since 1996,
undertake efforts to restructure the wholesale (MBS and borrowings) portion of
its balance sheet. As a result, transaction accounts at BVB as a percentage of
total deposits have increased to 30% from approximately 20% 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.
CALIFORNIA THRIFT & LOAN STRATEGIES
CTL is the Company's consumer finance subsidiary, which underwrites and
purchases primarily high quality, high yielding auto loans and has successfully
carved out a niche in the increasingly competitive auto 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's focus at CTL is to capture asset values and increase the
velocity of capital utilization. As a result, the Company's management began
implementing a significant restructuring of CTL's balance sheet in late 1996.
The following is a summary of the actions taken:
1. Sale of equipment leasing portfolio
2. Reduction of high cost customer deposits
3. Sale and securitization of auto loan portfolio
13
<PAGE>
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 auto loan production. The Company has a strategic
alliance with Ultra Funding, Ltd. ("Ultra"), a Texas limited partnership, to
purchase motor vehicle installment contracts originated by Ultra. These auto
receivables are serviced by CTL and management expects Ultra to be a significant
component (current production approximates $6 million per month) of its
expanding consumer finance strategy.
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 March 31, 1997 decreased to 12,970,160 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.
On May 7, 1997, the Company approved a 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),
should enable Bay View to repurchase approximately 1,500,000 additional shares
at current market prices. Following the completion of this repurchase
authorization, Bay View will have repurchased approximately 3.6 million shares,
or nearly 25% of the 14.8 million shares outstanding when the initial share
repurchase program was announced.
Weighted average shares outstanding (including common stock equivalents)
used for earnings per share calculations were approximately 13,552,000 shares
for the first quarter of 1997 as compared to 13,568,000 shares and 14,174,000
shares for the fourth quarter and first quarter of 1996, respectively. As a
result of the stock repurchases during the first quarter of 1997, earnings per
share is expected to be enhanced by approximately $0.025 per share on an
annualized basis. Offsetting the impact of the stock repurchases during the
quarter was an increase in outstanding shares due to options exercised and an
increase in common stock equivalents calculated using the treasury stock method
as a result of the higher common stock price (Bay View's common stock price per
share increased from $21.188 at year-end 1996 to $25.50 at March 31, 1997).
Acquisition of EXXE Data Corporation/Concord Growth Corporation
- ---------------------------------------------------------------
The Company completed its acquisition of EXXE Data Corporation and its
wholly owned nationwide commercial finance subsidiary, Concord Growth
Corporation, 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. Accordingly, the earnings benefit
associated with this acquisition begins in the second quarter of 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 estimated fair value of the net
assets acquired by approximately $16 million, which is recorded as goodwill and
will be amortized over a 15 year period. The Company expects to finalize the
purchase accounting valuations during the second quarter of 1997.
14
<PAGE>
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 $300
million purchase price includes $65 million being paid for approximately $187
million of tax loss carryforwards. The $300 million purchase price represents
1.6 times estimated book value at closing and is consistent with recent
multiples paid for thrift transactions. The purchase price, excluding the $65
million for tax loss carryforwards, represents 1.25 times estimated book value
at closing.
The BVCC common stock component of the purchase price will be computed
utilizing a 20-day moving average of BVCC common stock price prior to closing.
If the 20-day average stock price is above $26.00 or below $21.00, the exchange
ratio will be fixed based on the $26.00 or $21.00 share price, as applicable.
Eureka has the right to terminate this transaction if the stock price falls
below $21.00. However, Bay View has the right to increase the purchase price
for any shortfall below $21.00 and cause Eureka to complete the transaction.
This transaction is subject to customary conditions (including mutual "lock-up"
options) and will require regulatory and shareholder approvals. Both parties
have completed their respective due diligence processes, and therefore, this
transaction is not subject to any further due diligence.
Bay View estimates that the 1998 accounting earnings per share dilution
from this transaction will be approximately $0.185 per share and will be
accretive by approximately $0.095 per share in 1999. Cash basis earnings per
share enhancement from this transaction, which excludes charges tied to the
market value of the Company's common stock and the amortization of goodwill
arising from the transaction, is estimated at $0.07 for 1998 and $0.37 for 1999.
If the 20-day average stock price is above $26.00, goodwill will increase by
approximately $4 million for every half dollar the average stock price is above
$26.00 and the related estimated impact of the goodwill amortization on earnings
would be $270,000 or $0.01 per share for 1998 and 1999, respectively.
In recognition of the low-cost funding platform which will be created, Bay
View will immediately cease auto securitization activities. This will reduce
Bay View's 1997 net income by an estimated $2.9 million ($0.22 per share). It
is estimated that net income for the second quarter of 1997 will be reduced by
an estimated $1.0 million ($0.075 per share).
The Company also 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 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 December 31, 1997 or January 1, 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 and all Eureka
branches will operate as Bay View Bank branches.
15
<PAGE>
RESULTS OF OPERATIONS
Consolidated net income for the three months ended March 31, 1997 was $5.3
million, or $0.39 per share. This compares with net income of $4.0 million, or
$0.28 per share, for the first quarter of 1996. The improvement in the Company's
earnings was primarily due to an expanding net interest margin attributable to
lower cost of funds from its banking platform and also the impact of the
acquisition of its consumer finance platform (which was completed in June 1996),
including the sale and securitization of auto loans in January 1997.
SPECIAL MENTION ITEMS
Net income for the first quarter of 1997 and 1996 contained certain items which
deserve special mention.
First Quarter 1997
- ------------------
These items essentially offset each other as follows:
o $700,000 expense accrual for long-term incentive plan awards
o $415,000 recovery related to a real estate joint venture previously written-
off
o $250,000 reduction to a previous accrual for the termination of data
processing contracts as a result of modifications in the timing of systems
conversion
First Quarter 1996
- ------------------
The net impact of the following items on first quarter 1996 results was a net
improvement of $109,000 or $0.01 per share.
o $800,000 gain from the sale of and income received from certain real estate
owned properties
o $350,000 write-off of core deposit intangibles and fixed assets due to a
branch closure
o $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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
---------- ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net income $5,262 $4,868 $3,993
Adjustments:
Amortization of intangibles 496 496 417
ESOP 60 56 56
Management incentive plans 402 - -
-------- ------ ------
Tangible cash earnings $6,220 $5,420 $4,466
======== ====== ======
Tangible cash earnings per share $ 0.46 $ 0.40 $ 0.31
======== ====== ======
</TABLE>
16
<PAGE>
NET INTEREST INCOME
A summary of consolidated net interest income and net interest margins
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
MARCH 31, 1997 MARCH 31, 1996
-------------------------------------------
NET NET NET NET
INTEREST INTEREST INTEREST INTEREST
(DOLLARS IN THOUSANDS) INCOME MARGIN INCOME MARGIN
-------- -------- -------- --------
<S> <C>
BVB * $18,076 2.56% $15,708 2.21%
CTL 3,633 5.03 - -
BVCC** (654) N/A 506 N/A
------- ---- ------- ----
BVCC-Consolidated $21,055 2.72% $16,214 2.21%
======= ==== ======= ====
</TABLE>
* Excludes intercompany interest expense due to BVCC and CTL.
** Excludes intercompany interest income due from BVB and consists primarily of
interest expense on $50 million of 8.42% Senior Debentures (all-in cost 8.91%
annualized) issued in May 1996 to partially finance the acquisition of CTL.
Consolidated net interest income for the first quarter of 1997 was $21.1
million, an increase of $4.9 million as compared to first quarter 1996 net
interest income of $16.2 million. The consolidated net interest margin for the
quarter ended March 31, 1997 was 2.72%, up 51 basis points as compared to 2.21%
for the same period in the prior year. The improvement in the consolidated net
interest margin was primarily due to lower cost of funds from the banking
platform and the inclusion of the net interest income for the consumer finance
platform.
Bay View Bank
- -------------
The banking platform's first quarter 1997 net interest margin was 2.56%, an
increase of 35 basis points as compared to net interest margin of 2.21% for the
same period in 1996. The improvement in net interest margin was primarily due
to lower cost of funds related to retail deposits.
The cost of retail deposits at March 31, 1997 was 4.53%, 23 basis points
below the Eleventh District Cost of Funds Index ("COFI") of 4.76%. The cost of
retail deposits at March 31, 1997 decreased by 7 basis points and 71 basis
points as compared to the cost of retail deposits at December 31, 1996 and 1995,
respectively. The decrease in the cost of retail deposits was primarily due to
favorable repricing of certificates of deposit and an increase in transaction
accounts which are at lower rates than certificates of deposit. Transaction
accounts as a percentage of total deposits were 30.8% at March 31, 1997 as
compared to 30.3% and 21.3% at December 31, 1996 and 1995, respectively.
The following table is a summary of the cost of retail deposits versus COFI:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
--------- ------------ ------------
<S> <C> <C> <C>
Cost of retail deposits 4.53% 4.60% 5.24%
COFI 4.76 4.84 5.12
----- ----- ----
Spread above / (below) COFI (0.23)% (0.24)% 0.12%
===== ===== ====
</TABLE>
17
<PAGE>
California Thrift & Loan
- ------------------------
The consumer finance platform's first quarter 1997 net interest margin was
5.03%, a decrease of 3 basis points from 5.06% for the fourth quarter of 1996.
The lower net interest margin was primarily due to the sale of its $253 million
auto portfolio during the first quarter of 1997 and the sale of its entire
leasing portfolio in December 1996, which aggregated to $60 million. However,
the net interest margin was favorably impacted by the redemption of CTL's high
cost customer deposits (higher than BVB's incremental borrowing cost) at face
value (approximately $267 million) at December 31, 1996.
AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the
Company's consolidated statements of financial condition and reflects the
average yields on interest-earning assets and average rates paid on interest-
bearing liabilities for the periods indicated. Such yields and rates are derived
by dividing interest income or expense by the average balances of interest-
earning assets or interest-bearing liabilities, respectively, for the periods
shown. Average balances of interest-earning assets and interest-bearing
liabilities were derived from daily average balances for BVCC and BVB. Average
balances of interest-earning assets and interest-bearing liabilities for CTL
were monthly averages. The yields for the periods indicated include the
amortization of deferred loan origination fees, net of costs, which are
considered adjustments to yield.
18
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID
------------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 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 $2,321,742 $46,664 8.00% $2,064,997 $40,387 7.82%
Mortgage-backed securities (1) 567,013 9,231 6.51 705,091 11,370 6.45
Investments 144,830 2,261 6.31 113,212 1,652 5.66
---------- ------- ---- ---------- ------- ----
Total interest-earning assets 3,033,585 $58,156 7.64% 2,883,300 $53,409 7.40%
======= ==== ======= ====
Other assets 57,697 75,276
---------- ----------
Total assets $3,091,282 $2,958,576
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Customer deposits $1,711,546 $19,594 4.64% $1,800,331 $23,258 5.20%
Borrowings (2) 1,125,235 17,507 6.27 922,331 13,937 6.08
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities 2,836,781 $37,101 5.29% 2,722,662 $37,195 5.49%
======= ==== ======= ====
Other liabilities 58,085 29,724
---------- ----------
Total liabilities 2,894,866 2,752,386
Stockholders' equity 196,416 206,190
---------- ----------
Total liabilities and stockholders' equity $3,091,282 $2,958,576
========== ==========
Net interest income/net interest spread $21,055 2.35% $16,214 1.91%
======= ==== ======= ====
Net earning assets $ 196,804 $ 160,638
========== ==========
Net interest margin 2.72% 2.21%
==== ====
</TABLE>
(1) Average balances 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 $930,000 and $390,000 for the three months ended March 31, 1997 and
1996, respectively.
19
<PAGE>
INTEREST INCOME
INTEREST INCOME ON LOANS RECEIVABLE
Interest income on loans was $46.7 million and $40.4 million for the first
quarters of 1997 and 1996, respectively. The following table is a summary of
interest income on loans.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
MARCH 31, 1997 MARCH 31, 1996
---------------- ----------------
AMOUNTS YIELD AMOUNTS YIELD
------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BVB $39,913 7.75% $40,387 7.82%
CTL 6,751 9.86 - -
------- ---- ------- ----
BVCC - Consolidated $46,664 8.00% $40,387 7.82%
======= ==== ======= ====
</TABLE>
Bay View Bank
- -------------
The decrease in loan yields for BVB of 7 basis points between the first
quarters of 1997 and 1996 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 which impacted BVB's adjustable rate mortgages decreased by 26
basis points. However, the rate on the one-year Treasury note increased by 49
basis points. The average loan balances for the first quarters of 1997 and 1996
were essentially the same at $2.06 billion.
California Thrift & Loan
- ------------------------
The interest income on loans for CTL primarily relates to interest income on
auto loans, real estate loans and revolving lines of credit. The interest
income on loans for CTL includes the amortization of purchase accounting
valuation adjustments for loans held for investment. The yield on loans for CTL
remained essentially the same since acquisition date. The interest income for
CTL for the first quarter of 1997 reflects the impact of the sale of its $253
million auto loan portfolio in January 1997 and the sale of its entire leasing
portfolio in December 1996, which aggregated to $60 million.
INTEREST INCOME ON MORTGAGE-BACKED SECURITIES
Interest income on mortgage-backed securities ("MBS") was $9.2 million and
$11.4 million for the first quarters of 1997 and 1996, respectively, and relates
solely to BVB. The decrease in interest income on MBS was primarily
attributable to lower average balances due to sales and principal amortization
in 1996 and principal amortization in the first quarter of 1997. There were no
MBS purchased in 1996 or 1997. Management's strategic focus during the past
year 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 $2.3
million and $1.7 million for the first quarters of 1997 and 1996, respectively.
Interest and dividend income attributable to CTL was $196,000 for the first
quarter of 1997. Excluding CTL, investment income for BVB increased by $0.4
million primarily due to higher average balances and average yields.
20
<PAGE>
INTEREST EXPENSE
INTEREST EXPENSE ON CUSTOMER DEPOSITS
Interest expense on customer deposits was $19.6 million and $23.3 million for
the first quarters of 1997 and 1996, respectively.
The following table summarizes interest expense on deposits:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
MARCH 31, 1997 MARCH 31, 1996
---------------- ----------------
AMOUNTS YIELD AMOUNTS YIELD
------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BVB $17,453 4.56% $23,258 5.20%
CTL 2,141 5.42 - -
------- ---- ------- ----
BVCC - Consolidated $19,594 4.64% $23,258 5.20%
======= ==== ======= ====
</TABLE>
Bay View Bank
- -------------
The decrease in cost of retail deposits for BVB was primarily due to
favorable repricing of certificates of deposit and an increase in transaction
accounts which are at lower rates than certificates of deposit. As of March 31,
1997, transaction accounts as a percentage of total deposits were 30.8% as
compared to 30.3% and 21.3% at December 31, 1996 and 1995, respectively. The
average balances of retail deposits decreased from $1.80 billion in the first
quarter of 1996 to $1.55 billion in the first quarter of 1997. However, average
transaction accounts increased from $439 million to $472 million.
California Thrift & Loan
- ------------------------
The cost of deposits for CTL remained essentially unchanged since the
acquisition date. CTL redeemed the higher cost component (higher than BVB's
incremental borrowing cost) of these deposits at face value (approximately $267
million) at year-end 1996.
INTEREST EXPENSE ON BORROWINGS
Interest expense on borrowings was $17.5 million and $13.9 million for the
first quarters of 1997 and 1996, respectively. The following table summarizes
the interest expense on borrowings.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------
MARCH 31, 1997 MARCH 31, 1996
---------------- ----------------
AMOUNTS RATE AMOUNTS RATE
------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BVB $16,533 6.11% $13,937 6.08%
CTL 1,173 6.36 - -
BVCC (Senior Debentures only) 1,114 8.91 - -
Eliminations (1,313) N/A - -
------- ---- ------- ----
BVCC - Consolidated $17,507 6.27% $13,937 6.08%
======= ==== ======= ====
</TABLE>
The increase in interest expense on borrowings for BVB was primarily due to
higher average balances of such borrowings arising from a decrease in average
customer deposits in BVB and also BVB's funding of CTL due to continued run-off
of its customer deposits due to pricing strategies. The interest expense on
borrowings for the first quarter of 1996 reflects the impact of the prepayment
of $190 million of high cost borrowings in the fourth quarter of 1995 which were
replaced with short-term lower cost borrowings. In conjunction with the
21
<PAGE>
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.
The interest expense on borrowings for CTL was primarily due to an
intercompany line of credit with BVB. As a result of continued run-off in CTL's
customer deposits, an intercompany line of credit has been established to
facilitate the funding of CTL's interest-earnings assets.
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 months ended March 31, 1997 and 1996.
Changes in rate and volume (changes in weighted average interest rate multiplied
by average portfolio balance), which cannot be segregated, have been allocated
proportionately between the change in rate and the change in volume.
<TABLE>
<CAPTION>
RATE VOLUME TOTAL
(DOLLARS IN THOUSANDS) VARIANCE VARIANCE VARIANCE
-----------------------------------------
THREE MONTHS ENDED MARCH 31, 1997 VS 1996
<S> <C> <C> <C>
Interest income:
Loans $ 1,142 $ 5,135 $ 6,277
Mortgage-backed securities 110 (2,249) (2,139)
Investments 122 487 609
------- ------- -------
1,374 3,373 4,747
------- ------- -------
Interest expense:
Customer deposits (2,556) (1,108) (3,664)
Borrowings * 424 3,146 3,570
------- ------- -------
(2,132) 2,038 (94)
------- ------- -------
Net interest income $ 3,506 $ 1,335 $ 4,841
======= ======= =======
</TABLE>
* Includes interest expense on interest rate swaps of $930,000 and $390,000 for
the three months ended March 31, 1997 and 1996, respectively.
PROVISION FOR LOSSES ON LOANS
The provision for losses on loans was $565,000 and $600,000 in the
first quarters of 1997 and 1996, respectively. See the "Allowance for Losses on
Loans" section elsewhere herein for a more detailed discussion of the provision
for losses.
22
<PAGE>
NONINTEREST INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
(DOLLARS IN THOUSANDS) 1997 1996
--------------------
<S> <C> <C>
BVB $1,860 $1,823
CTL 1,723 -
------ ------
BVCC - Consolidated $3,583 $1,823
====== ======
</TABLE>
Noninterest income for the first quarter of 1997 was $3.6 million as
compared to $1.8 million for the same period in the prior year. The increase in
noninterest income as compared to the prior year quarter was primarily due to
the following:
1. During the first quarter of 1997, CTL sold $253 million of auto loans and
the premium arising from the sale of the auto loans had been recorded as
part of the purchase accounting valuations related to the acquisition of
CTL. A gain of $925,000 was realized in the statement of operations due to
the improvement in the fair value of the auto loans as a result of changes
in market interest rates between the acquisition date and the sale date of
the auto loans. This gain was partially offset by a loss of $293,000 in
the fourth quarter of 1996 associated with a short sale of U.S. Treasury
securities utilized to hedge the valuations of CTL's auto loan portfolio
from movements in interest rates.
2. 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 Auto Loans
In November 1996, BVSC filed with the Securities and Exchange Commission a
shelf registration statement on form S-3 for $500 million of automobile
receivable-backed securities. During the first quarter of 1997, $253 million of
auto 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 auto 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 auto loan portfolio.
23
<PAGE>
NONINTEREST EXPENSE
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the first quarter of 1997 were
$14.6 million and included certain special mention items as discussed below.
General and administrative expenses for the first quarter of 1996, prior to the
CTL acquisition, were $10.7 million. The following is a summary of special
mention items included in general and administrative expenses:
First Quarter 1997
- ------------------
o $700,000 expense accrual for long-term incentive plan awards
o $250,000 reduction to a previous accrual for the termination of data
processing contracts as a result of modifications in the timing of systems
conversion
First Quarter 1996
- ------------------
o None
Exclusive of special mention items, general and administrative expenses
were $14.2 million and $10.7 million for the first quarters of 1997 and 1996,
respectively. The following table summarizes general and administrative expenses
and efficiency ratios exclusive of special mention items:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
MARCH 31, 1997 MARCH 31, 1996
-------------------- -------------------
G&A EFFICIENCY G&A EFFICIENCY
-------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BVB $ 9,671 48.50% $10,737 58.68%
CTL (post acquisition) 3,859 72.05 - -
BVCC 640 N/A - N/A
------- ----- ------- -----
BVCC-Consolidated $14,170 57.53% $10,737 58.68%
======= ===== ======= =====
</TABLE>
Bay View Capital Corporation and Bay View Bank
- ----------------------------------------------
The decrease in general and administrative expenses as compared to the
prior year quarter was primarily due to lower deposit insurance premiums.
General and administrative expenses for the first quarter of 1996 included
deposit insurance premiums of $1.3 million based on deposit insurance premiums
of 26 basis points for every $100 of deposits. As a result of legislation to
recapitalize and fully fund the Savings Association Insurance Fund ("SAIF"),
premiums on SAIF-insured deposits for BVB were reduced in the first quarter of
1997 to 6.48 basis points, which amounted to $376,000. The decrease in general
and administrative expenses was also attributable to lower staffing levels which
have declined to 381 full-time equivalents ("FTE") at March 31, 1997 from 383
FTE and 402 FTE at December 31, 1996 and 1995, respectively.
24
<PAGE>
California Thrift & Loan
- ------------------------
General and administrative expenses for the first quarter of 1997 were $3.9
million as compared to $4.1 million and $4.6 million during the fourth quarter
and third quarter of 1996, respectively. The decrease was primarily due to the
elimination of general and administrative expenses relating to the leasing
portfolio and continued implementation of cost reduction opportunities since the
acquisition. Staffing levels have decreased to 158 FTE at the end of first
quarter 1997 from 193 FTE and 208 FTE at December 31, 1996 and September 30,
1996, respectively.
INCOME AND EXPENSES FROM REAL ESTATE OWNED
Income from real estate owned operations was $22,000 and $888,000 in the
first quarters of 1997 and 1996, respectively. The decrease was primarily due
to gains from the sale of and higher income received from real estate owned
properties in the prior year. During the first quarter of 1997, recoveries of
losses on real estate were $448,000 as compared to $53,000 in the first quarter
of 1996.
AMORTIZATION AND WRITE-DOWN OF INTANGIBLES
The following table summarizes the amortization and write-down of
intangibles:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
(DOLLARS IN THOUSANDS) 1997 1996
------------------
<S> <C> <C>
BVB $ 428 $ 726
CTL 249 -
----- -----
BVCC - Consolidated $ 677 $ 726
===== =====
</TABLE>
The amortization and write-down of intangible assets for BVB during the
first quarter of 1996 included core deposit intangibles written-off of $270,000
due to a decision to close one of BVB's branches. The amortization of the
intangible assets of CTL was due to the inclusion of the amortization of
goodwill arising from the excess of the purchase price over the fair value of
net assets acquired discussed elsewhere herein.
25
<PAGE>
BALANCE SHEET ANALYSIS
The consolidated assets of the Company were $3.04 billion and $3.30
billion as of March 31, 1997 and December 31, 1996, respectively. The decrease
in total assets was primarily due to the sale and securitization of $253 million
of CTL's auto 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 March 31, 1997 and December 31, 1996 was
as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
--------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
(DOLLARS IN THOUSANDS) COST VALUE COST VALUE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
- ------------------
Investment securities $ 9,492 $ 9,497 $ 13,792 $ 13,802
Mortgage-backed securities
FHLMC, FNMA and GNMA 82,916 79,959 84,401 83,154
-------- -------- -------- --------
$ 92,408 $ 89,456 $ 98,193 $ 96,956
-------- -------- -------- --------
HELD-TO-MATURITY
- ----------------
Investment securities $ 15,004 $ 14,918 $ 15,204 $ 15,112
Mortgage-backed securities:
FHLMC, FNMA, GNMA
and other 478,231 466,988 494,459 483,461
-------- -------- -------- --------
$493,235 $481,906 $509,663 $498,573
-------- -------- -------- --------
$585,643 $571,362 $607,856 $595,529
======== ======== ======== ========
</TABLE>
During the first quarter of 1996, the Company sold $24.2 million of the
mortgage backed securities for a loss of $262,000, which represented
approximately 50% of the unrealized loss on securities available for sale at the
time of sale. Also, during the first quarter of 1996, the Company sold a $2.6
million mortgage-backed security which was scheduled to mature in April 1996
from its held-to-maturity portfolio. The sale of MBS in 1996 was consistent
with management's strategic focus to restructure the wholesale balance sheet.
There were no MBS purchases in 1996 and 1997.
26
<PAGE>
LOANS AND REAL ESTATE OWNED
The loan portfolio of BVB primarily consists of mortgage loans and the loan
portfolio of CTL primarily consists of consumer loans. The following is a
summary of the Company's loan portfolio (before deductions for deferred fees,
discounts and allowance for losses) which includes loans held for sale at March
31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
------------------------------------ ------------------------------------
(DOLLARS IN THOUSANDS) BVB CTL BVCC BVB CTL BVCC
---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Single family (1-4 units) $ 595,670 $ 79,894 $ 675,564 $ 610,607 $ 81,479 $ 692,086
Multifamily (5+ units) 1,033,655 17,306 1,050,961 1,033,252 15,039 1,048,291
Commercial Real Estate 366,218 15,869 382,087 367,104 14,718 381,822
---------- -------- ---------- ---------- -------- ----------
1,995,543 113,069 2,108,612 2,010,963 111,236 2,122,199
Consumer loans:
Auto 38,722 59,847 98,569 21,703 293,736 315,439
Home equity and other 35,792 28,765 64,557 36,058 31,960 68,018
---------- -------- ---------- ---------- -------- ----------
74,514 88,612 163,126 57,761 325,696 383,457
Commercial loans 49,716 - 49,716 - - -
---------- -------- ---------- ---------- -------- ----------
$2,119,773 $201,681 $2,321,454 $2,068,724 $436,932 $2,505,656
========== ======== ========== ========== ======== ==========
</TABLE>
The following is a summary of loan originations and loan purchases:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
LOAN ORIGINATIONS ------------------
(DOLLARS IN THOUSANDS) 1997 1996
------------------
<S> <C> <C>
BVB $38,902 $43,358
CTL 44,737 -
------- -------
BVCC - Consolidated $83,639 $43,358
======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
LOAN PURCHASES ------------------
(DOLLARS IN THOUSANDS) 1997 1996
------------------
<S> <C> <C>
BVB $94,465 $19,676
CTL 2,915 -
------- -------
BVCC - Consolidated $97,380 $19,676
======= =======
</TABLE>
Management's strategy is to supplement its loan production with purchases
of higher yielding loans. The increase in loan purchases at BVB was primarily
due to the purchase of commercial loans originated by CGC prior to its
acquisition date. Also, during the first quarter of 1997, loans purchased from
Ultra were $17.8 million.
27
<PAGE>
CREDIT QUALITY
The following table summarizes the Company's nonperforming assets and
troubled debt restructurings:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
------------------------------------ ------------------------------------
(DOLLARS IN THOUSANDS) BVB CTL TOTAL BVB CTL TOTAL
---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans $10,929 $2,238 $13,167 $14,033 $2,092 $16,125
Real estate owned 6,692 2,203 8,895 4,896 3,289 8,185
Other repossessed assets - 696 696 - - -
------- ------ ------- ------- ------ -------
Nonperforming assets 17,621 5,137 22,758 18,929 5,381 $24,310
Troubled debt restructurings 506 - 506 509 - 509
------- ------ ------- ------- ------ -------
Total $18,127 $5,137 $23,264 $19,438 $5,381 $24,819
======= ====== ======= ======= ====== =======
</TABLE>
BVB's credit quality has continued to remain strong as evidenced by a
continuing decline in nonperforming assets and delinquencies. CTL's credit
quality has remained essentially the same since its acquisition. A summary of
the trends in credit quality and delinquencies follows:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
AS A PERCENTAGE OF TOTAL ASSETS
--------------------------------------
(DOLLARS IN THOUSANDS) MARCH 31, 1997 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C> <C> <C>
BVB $17,621 0.62% $18,929 0.63%
CTL 5,137 2.32 5,381 1.16
------- ---- ------- ----
BVCC - Consolidated $22,758 0.75% $24,310 0.74%
======= ==== ======= ====
</TABLE>
<TABLE>
<CAPTION>
LOANS DELINQUENT 60 DAYS OR MORE
AS PERCENTAGE OF GROSS LOANS
--------------------------------------
(DOLLARS IN THOUSANDS) MARCH 31, 1997 DECEMBER 31, 1996
--------------------------------------
<S> <C> <C> <C> <C>
BVB $20,486 0.97% $19,769 0.96%
CTL 1,844 0.91 3,239 0.74
------- ---- ------- ----
BVCC - Consolidated $22,330 0.96% $23,008 0.92%
======= ==== ======= ====
</TABLE>
The increase in the nonperforming asset and 60-days delinquent ratios for
CTL was primarily due to the impact of the sale of $253 million of auto loans in
January 1997. Including the auto loans sold, the ratios would have been 1.16%
and 0.50% at March 31, 1997, respectively.
28
<PAGE>
ALLOWANCE FOR LOSSES ON LOANS
The Company conducts an ongoing review of its asset categories to assess
the adequacy of general valuation allowances ("GVA"), which are maintained at
levels that the Company believes are sufficient to cover estimated possible
losses in the portfolios. In determining the necessary level of GVA, the Company
considers prevailing and anticipated economic conditions, historical loss
experience, the levels of classified, nonperforming and delinquent assets,
weighting by property type, loan portfolio trends and other factors.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOSSES ON LOANS
AS A PERCENTAGE OF NONPERFORMING ASSETS
---------------------------------------
(DOLLARS IN THOUSANDS) MARCH 31, 1997 DECEMBER 31, 1996
---------------------------------------
<S> <C> <C> <C> <C>
BVB - Assets held for investment $26,840 152% $26,681 141%
CTL:
Assets held for investment 1,066 - 2,332 -
Assets held for sale 1,013 - 7,391 -
------- --- ------- ---
2,079 40% 9,723 181%
------- --- ------- ---
BVCC - Consolidated $28,919 127% $36,404 150%
======= === ======= ===
</TABLE>
<TABLE>
<CAPTION>
ALLOWANCE FOR LOSSES ON LOANS
AS A PERCENTAGE OF NONPERFORMING LOANS
--------------------------------------
(DOLLARS IN THOUSANDS) MARCH 31, 1997 DECEMBER 31, 1996
--------------------------------------
<S> <C> <C> <C> <C>
BVB - Assets held for investment $26,840 246% $26,681 190%
CTL:
Assets held for investment 1,066 - 2,332 -
Assets held for sale 1,013 - 7,391 -
------- --- ------- ---
2,079 93% 9,723 465%
------- --- ------- ---
BVCC - Consolidated $28,919 220% $36,404 226%
======= === ======= ===
</TABLE>
The decrease in the allowance for loan losses relating to CTL was due to
the sale of $253 million of auto loans. The allowance for loan losses related
to the auto loan portfolio was included in the lower of cost or market
measurement of the carrying value of the auto loans which were classified as
held for sale.
The following is a summary of provision for losses on loans:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------
(DOLLARS IN THOUSANDS) 1997 1996
-------------
<S> <C> <C>
BVB $400 $600
CTL 165 -
---- ----
BVCC - Consolidated $565 $600
==== ====
</TABLE>
Management believes that the GVA at March 31, 1997 is adequate to cover
estimated losses in its asset portfolios. However, future adjustments may be
necessary and earnings could be significantly affected if circumstances differ
substantially from the assumptions used in making such determinations.
Management will continue to monitor the adequacy of the allowance for losses
related to problem assets.
29
<PAGE>
CUSTOMER DEPOSITS
Customer deposits are generated for the purpose of funding loans. The
customer deposits at March 31, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
---------------------------- ----------------------------
AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) AMOUNT % RATE AMOUNT % RATE
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
BVB (SAIF-insured)
- -------------------
Transaction accounts $ 470,890 30.8% 2.57% $ 477,777 30.3% 2.57%
Certificates of deposit 1,060,545 69.2 5.41 1,100,559 69.7 5.48
---------- ----- ---- ---------- ---- ----
Total * $1,531,435 100.0% 4.53% $1,578,336 100.0% 4.60%
========== ===== ==== ========== ===== ====
CTL (BIF-insured)
- -----------------
Transaction accounts $ 13,815 11.1% 4.15% $ 16,057 8.6% 4.16%
Thrift certificates 110,590 88.9 5.50 169,837 91.4 5.55
---------- ----- ---- ---------- ---- ----
Total $ 124,405 100.0% 5.35% $ 185,894 100.0% 5.43%
========== ===== ==== ========== ===== ====
BVCC-Consolidated
- -----------------
Transaction accounts $ 484,705 29.3% 2.62% $ 493,571 27.9% 2.62%
Certificate of deposit 1,060,545 64.0 5.41 1,100,559 62.4 5.48
Thrift certificates 110,590 6.7 5.50 169,837 9.7 5.55
---------- ----- ---- ---------- ---- ----
$1,655,840 100.0% 4.59% $1,763,967 100.0% 4.69%
========== ===== ==== ========== ===== ====
</TABLE>
* Excludes intercompany deposit accounts
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. A summary of outstanding borrowings for
BVB and the parent Company are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
--------------------------------------------------------------------------
PARENT PARENT
(DOLLARS IN THOUSANDS) BVB CO. TOTAL BVB CO. TOTAL
---------- ------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Advances from FHLBSF $ 890,762 $ - $ 890,762 $ 977,750 $ - $ 977,750
Reverse repurchase
agreements 198,556 - 198,556 210,640 - 210,640
Senior Debentures - 50,000 50,000 - 50,000 50,000
---------- ------- ---------- ---------- ------- ----------
$1,089,318 $50,000 $1,139,318 $1,188,390 $50,000 $1,238,390
========== ======= ========== ========== ======= ==========
</TABLE>
CTL's borrowings comprise of an intercompany line of credit which is
eliminated on consolidation.
30
<PAGE>
INTEREST RATE RISK
The Company pursues balance sheet strategies designed, in the long run, to
mitigate the Company's exposure to rising interest rates. The Company also
considers other strategies to minimize 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 March
31, 1997 and December 31, 1996, the total notional amount of interest rate swaps
were $419 million and $421 million, respectively.
The following schedule sets forth the maturities and weighted average rates
of BVB's interest rate swaps outstanding as of March 31, 1997, based on interest
rates at March 31, 1997. To the extent that interest rates change, variable
interest rate information will change. There were no interest rate swaps for
CTL as of March 31, 1997.
<TABLE>
<CAPTION>
MATURITIES OF DERIVATIVE INSTRUMENTS
-----------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 2000 2001 2002 TOTAL
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Notional amount $37,000 $100,000 $104,000 $177,500 $418,500
Weighted average receive rate
(3-month LIBOR) 5.64% 5.69% 5.64% 5.69% 5.67%
Weighted average pay rate (fixed) 6.69% 6.10% 6.72% 6.41% 6.44%
</TABLE>
Hedging Auto Loans
- ------------------
At March 31, 1997, CTL entered into a $40 million treasury rate lock
agreement to hedge its auto loan portfolio pending sale to BVSC and subsequent
securitization and sale of asset-backed securities by BVSC. The treasury rate
lock agreement guarantees a stated interest rate for a stated period of time and
CTL will receive/pay the difference between the lock rate and the effective
treasury rate on settlement date. Gains and losses on the hedge are deferred and
recognized in income upon settlement of the hedge or sale of the underlying
assets being hedged.
The objective of the Company's asset/liability management activities is to
improve earnings 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.
Interest Rate Sensitivity
- -------------------------
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 1.07% at March 31, 1997 as compared to 1.15% at December 31, 1996. BVB's
sensitivity measure as of December 31, 1996 was better than 85% of all thrift
institutions based on data provided by the Office of Thrift Supervision.
Management estimates, based on interest rate risk analyses as of March 31, 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 $1.0
million and $4.0 million, respectively.
31
<PAGE>
The following table sets forth information regarding the Company's
consolidated asset and liability repricing as of March 31, 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
-----------------------------------------------------------------------
ASSETS
- ------
<S> <C> <C> <C> <C> <C>
Cash and investments (1) $ 123,948 $ 5,000 $ 10,000 $ - $ 138,948
Loans and mortgage-backed securities (1) (2) 1,985,229 259,443 160,925 451,356 2,856,953
---------- --------- --------- --------- ----------
Total interest rate sensitive assets $2,109,177 $ 264,443 $ 170,925 $ 451,356 $2,995,901
========== ========= ========= ========= ==========
LIABILITIES
- -----------
Deposits:
Certificates of deposit $ 991,195 $ 160,755 $ 19,209 $ - $1,171,159
Money market accounts 196,899 - - - 196,899
Checking accounts 121,639 - - - 121,639
Passbook accounts 174,122 - - - 174,122
Borrowings 970,881 150,300 40,000 - 1,161,181
---------- --------- --------- --------- ----------
Total interest rate sensitive liabilities $2,454,736 $ 311,055 $ 59,209 $ - $2,825,000
========== ========= ========= ========= ==========
Repricing gap-positive (negative)
before impact of interest rate swaps $ (345,559) $ (46,612) $ 111,716 $ 451,356 $ 170,901
Impact of interest rate swaps 406,000 (96,559) (154,000) (155,441) -
---------- --------- --------- --------- ----------
$ 60,441 $(143,731) $ (42,284) $ 295,915 $ 170,901
========== ========= ========= ========= ==========
Cumulative repricing gap-positive (negative) $ 60,441 $ (82,730) $(125,014) $ 170,901
========== ========= ========= =========
Cumulative repricing gap as a percentage of
interest rate sensitive assets at March 31, 1997 2.02% (2.76)% (4.17)% 5.70%
========== ========= ========= =========
</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
32
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's primary sources of funds include loan and MBS repayments,
retail deposit generation, advances from the FHLBSF, collateralized short-term
borrowings under reverse repurchase agreements and cash flows generated from
operations. The Company uses its liquidity resources principally to fund loans,
repay maturing borrowings, fund maturing time deposits and savings withdrawals
and provide for its foreseeable short and long-term cash needs. The Company
expects to be able to fund or refinance, on a timely basis, its commitments and
long-term liabilities.
CAPITAL RESOURCES
See also "Strategic Overview - Capital Redeployment Strategies" discussion.
BAY VIEW BANK
BVB's regulatory capital at March 31, 1997 exceeded the minimum requirements
of each regulatory capital standard on a fully phased in basis as follows:
<TABLE>
<CAPTION>
ACTUAL MINIMUM REQUIREMENT EXCESS
------------------ -------------------- ------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Tangible $171,172 6.02% $ 42,606 1.50% $128,566 4.52%
Core (Leverage) $174,424 6.13% $ 85,310 3.00% $ 89,114 3.13%
Risk-based $196,757 10.98% $143,385 8.00% $ 53,372 2.98%
</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
enacted by FDICIA, BVB met the criteria for the "well capitalized" standard at
March 31, 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 $174,424 6.13% $142,184 5.00% $32,240 1.13%
Tier I risk-based $174,424 9.73% $107,538 6.00% $66,886 3.73%
Tier II risk-based $196,757 10.98% $179,231 10.00% $17,526 0.98%
</TABLE>
CALIFORNIA THRIFT & LOAN
Under capital guidelines enacted by FDICIA, CTL met the criteria for the
"well capitalized" standard at March 31, 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 $17,711 8.23% $10,760 5.00% $6,951 3.23%
Tier I Risk-based $17,711 9.04% $11,760 6.00% $5,951 3.04%
Tier II Risk-based $19,790 10.10% $19,600 10.00% $ 190 0.10%
</TABLE>
33
<PAGE>
ACCOUNTING PRONOUNCEMENTS
- -------------------------
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 125 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." SFAS No. 125 establishes
standards for when transfers of financial assets, including those with
continuing involvement by the transferor, should be considered a sale. SFAS No.
125 also establishes standards for when a liability should be considered
extinguished. This statement is effective for transactions relating to the
transfers of assets and extinguishment of liabilities occurring after December
31, 1996; however, based on SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" which was issued in December 1996,
specific provisions of SFAS No. 125 have been delayed for a year. The financial
statement impact of adopting this standard has not been material.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The
Company is required to adopt SFAS 128 during the fourth quarter of fiscal 1997
and will restate at that time earnings per share (EPS) data for prior periods to
conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirement and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income (available to common shareholders) by the
weighted average number common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year periods,
basic EPS would have been $0.40 and $0.28 for the quarters ended March 31, 1997
and 1996, respectively. Diluted EPS under SFAS 128 would not differ materially
from primary EPS currently reported for the periods.
34
<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.
----------------------------------------------------
None
Item 5. Other Information
-----------------
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.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Financial Data Schedule (Exhibit 27)
b(i). The Registrant filed the following report on Form 8-K dated January
21, 1997 during the three months ended March 31, 1997:
On January 21, 1997, the Registrant issued a press release announcing a
definitive agreement to acquire EXXE Data Corporation, the parent
corporation of Concord Growth Corporation. Additional information
regarding the acquisition described in the press release was presented
in the exhibits included in the Form 8-K.
b(ii). The Registrant filed the following report on Form 8-K dated March
4, 1997 during the three months ended March 31, 1997:
The Board of Directors of the Registrant fixed May 22, 1997 as the date
of the Annual Meeting of Stockholders.
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: June 27, 1997 BY: /s/ David A. Heaberlin
---------------------------------------
David A. Heaberlin
Executive Vice President and Chief Financial
Officer (Duly Authorized Officer and Principal
Financial Officer)
35
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 18,840
<INT-BEARING-DEPOSITS> 1
<FED-FUNDS-SOLD> 637
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 89,456
<INVESTMENTS-CARRYING> 585,643
<INVESTMENTS-MARKET> 571,362
<LOANS> 2,292,277
<ALLOWANCE> 27,906
<TOTAL-ASSETS> 3,044,610
<DEPOSITS> 1,655,840
<SHORT-TERM> 885,928
<LIABILITIES-OTHER> 40,196
<LONG-TERM> 270,512
0
0
<COMMON> 75
<OTHER-SE> 192,059
<TOTAL-LIABILITIES-AND-EQUITY> 3,044,610
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<INTEREST-OTHER> 0
<INTEREST-TOTAL> 58,156
<INTEREST-DEPOSIT> 19,594
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<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
<YIELD-ACTUAL> 2.72
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<ALLOWANCE-DOMESTIC> 27,906
<ALLOWANCE-FOREIGN> 0
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</TABLE>
