<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 September 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 (650) 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 October 31, 1997
(Title of Class) 12,421,260 shares
1
<PAGE>
FORM 10-Q
INDEX
BAY VIEW CAPITAL CORPORATION
----------------------------
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page(s)
- ------- --------------------- -------
<S> <C> <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 ............ 11-42
PART II. OTHER INFORMATION
- -------- -----------------
Other Information ........................................ 43
Signatures ............................................... 43
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
- -------------------------------
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------- --------------------
(Dollars in thousands except
ASSETS per share amounts)
<S> <C> <C>
Cash and cash equivalents:
Cash and due from depository institutions $ 32,559 $ 22,608
Interest-bearing deposits and federal funds sold 56,087 84,220
------------------- --------------------
88,646 106,828
Loans held for sale - 294,949
Securities available for sale:
Mortgage-backed securities 76,019 83,154
Investment securities 4,909 13,802
Securities held to maturity:
Mortgage-backed securities 437,146 494,459
Investment securities 15,352 15,204
Loans receivable held for investment, net of allowance for losses 2,382,332 2,179,768
Investment in stock of the FHLB of San Francisco 60,927 51,891
Real estate owned, net 7,510 7,387
Premises and equipment, net 13,746 6,905
Intangible assets 30,315 10,197
Other assets 45,305 35,718
=================== ====================
Total assets $ 3,162,207 $ 3,300,262
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits:
Transaction accounts $ 458,357 $ 493,571
Certificates of deposit 1,165,695 1,270,396
------------------- --------------------
1,624,052 1,763,967
Advances from the FHLB of San Francisco 1,024,780 977,750
Securities sold under agreements to repurchase 138,612 210,640
Subordinated notes, net 99,355 -
Senior debentures 50,000 50,000
Other borrowings 6,345 7,147
Other liabilities 35,089 90,696
------------------- --------------------
Total liabilities 2,978,233 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: 9/30/97 - 15,121,374 shares; 12/31/96 - 15,005,384 shares;
outstanding: 9/30/97-12,421,260 shares; 12/31/96-13,349,270 shares; 151 150
Additional paid-in capital 101,588 100,436
Retained earnings (substantially restricted) 141,081 131,324
Treasury stock at cost, 9/30/97 - 2,700,114 shares
and 12/31/96 - 1,656,114 shares (54,061) (26,497)
Unrealized loss on securities availablea for sale (net of tax) (568) (713)
Debt of Employee Stock Ownership Plan (4,217) (4,638)
------------------- --------------------
Total stockholders' equity 183,974 200,062
------------------- --------------------
Total liabilities and stockholders' equity $ 3,162,207 $ 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
September 30,
-------------------------------------
1997 1996
---------------- ---------------
(Dollars in thousands except per
share amounts)
<S> <C> <C>
Interest income:
Interest on loans receivable $ 50,674 $ 53,839
Interest on mortgage-backed securities 8,374 10,294
Interest and dividends on investments 2,689 1,895
---------------- ---------------
61,737 66,028
Interest expense:
Interest on customer deposits 18,599 27,001
Interest on senior debentures and subordinated notes 1,978 1,114
Interest on borrowings 18,792 15,035
---------------- ---------------
39,369 43,150
Net interest income 22,368 22,878
Provision for losses on loans 651 433
---------------- ---------------
Net interest income after provision for loan losses 21,717 22,445
Noninterest income:
Loan fees and charges 1,713 1,528
Other, net 861 1,374
---------------- ---------------
2,574 2,902
Noninterest expense:
General and administrative 18,605 19,838
SAIF recapitalization assessment - 11,750
Real estate owned operations, net (63) (3,146)
Provision for losses on real estate 42 23
Amortization of intangibles 1,045 524
---------------- ---------------
19,629 28,989
Income (loss) before income tax expense 4,662 (3,642)
Income tax expense (benefit) 1,598 (1,534)
---------------- ---------------
Net income (loss) $ 3,064 $ (2,108)
================ ===============
Primary earnings (loss) per share $ 0.23 $ (0.15)
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
1997 1996
---------------- ---------------
(Dollars in thousands except per
share amounts)
<S> <C> <C>
Interest income:
Interest on loans receivable $ 145,744 $ 139,167
Interest on mortgage-backed securities 26,453 32,257
Interest and dividends on investments 7,122 5,108
---------------- ---------------
179,319 176,532
Interest expense:
Interest on customer deposits 56,723 74,712
Interest on senior debentures and subordinated notes 4,206 1,520
Interest on borrowings 53,199 42,370
---------------- ---------------
114,128 118,602
Net interest income 65,191 57,930
Provision for losses on loans 1,828 1,851
---------------- ---------------
Net interest income after provision for loan losses 63,363 56,079
Noninterest income:
Loan fees and charges 4,617 3,587
Gain (loss) on sale of loans and securities 925 (262)
Rental income from premises 1 539
Other, net 4,363 3,369
---------------- ---------------
9,906 7,233
Noninterest expense:
General and administrative 49,438 43,806
SAIF recapitalization assessment - 11,750
Real estate owned operations, net (154) (4,808)
Recovery of losses on real estate (484) (100)
Amortization and write-down of intangibles 2,675 1,928
---------------- ---------------
51,475 52,576
Income before income tax expense 21,794 10,736
Income tax expense 8,964 4,635
---------------- ---------------
Net income $ 12,830 $ 6,101
================ ===============
Primary earnings per share $ 0.96 $ 0.43
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
Consolidated Statement of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Additional
Number of Common Paid-in Retained Treasury
Shares Stock Capital Earnings* Stock
-------------------------------------------------------------------------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 14,803 $ 148 $ 97,484 $ 124,487 $ (8,436)
Repurchase of common stock (16,971)
Repurchase of common stock for retirement plan 1,090 (1,090)
Exercise of stock options 202 2 1,862
Cash dividends declared ($0.305 per share) (4,132)
Unrealized loss, net of tax
Repayment of debt of ESOP
Net income 10,969
-------------------------------------------------------------------------
Balance at December 31, 1996 15,005 150 100,436 131,324 (26,497)
Repurchase of common stock (27,564)
Exercise of stock options 116 1 1,152
Cash dividends declared ($0.24 per share) (3,073)
Unrealized gain, net of tax
Repayment of debt of ESOP
Net income 12,830
=========================================================================
Balance at September 30, 1997 15,121 $ 151 $ 101,588 $ 141,081 $ (54,061)
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
Unrealized Debt of
Loss Employee
On Securities Stock Total
Available for Sale Ownership Stockholders'
(net of tax) Plan Equity
----------------------- ---------------- --------------------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C>
Balance at December 31, 1995 $ (683) $ (5,023) $ 207,977
Repurchase of common stock (16,971)
Repurchase of common stock for retirement plan -
Exercise of stock options 1,864
Cash dividends declared ($0.305 per share) (4,132)
Unrealized loss, net of tax (30) (30)
Repayment of debt of ESOP 385 385
Net income 10,969
----------------------- ---------------- --------------------
Balance at December 31, 1996 (713) (4,638) 200,062
Repurchase of common stock (27,564)
Exercise of stock options 1,153
Cash dividends declared ($0.24 per share) (3,073)
Unrealized gain, net of tax 145 145
Repayment of debt of ESOP 421 421
Net income 12,830
======================= ================ ====================
Balance at September 30, 1997 $ (568) $ (4,217) $ 183,974
======================= ================ ====================
</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>
Nine Months Ended
September 30,
--------------------------------------
1997 1996
----------------- ------------------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 12,830 $ 6,101
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and write-down of intangible assets 2,675 1,928
Write-down on disposal of fixed assets - 1,767
Proceeds from loans sold and securitized 265,203 -
Provision for losses on loans and real estate owned 1,904 2,041
Depreciation and amortization of premises and equipment 1,706 1,709
Amortization of deferred loan costs 569 840
Decrease in capitalized excess servicing fees 162 321
Amortization of premiums, net of discounts 3,072 3,394
(Gain) loss on loans and securities (875) 262
Gain on sale of real estate owned - (3,586)
Increase in other assets (8,536) (4,074)
Increase (decrease) in other liabilities (52,712) 9,578
Other, net 1,335 (802)
----------------- ------------------
Net cash provided by operating activities 227,333 19,479
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries, net of cash and cash
equivalents received (9,930) (61,505)
Decrease in loans resulting from principal payments
net of originations 81,019 37,421
Purchase of loans (272,076) (63,554)
Principal payments on mortgage-backed securities 62,451 71,245
Proceeds from sale of mortgage-backed securities held to maturity - 2,766
Proceeds from sale of mortgage-backed securities available for sale - 24,042
Proceeds from maturities of investment securities held to maturity - 28,000
Proceeds from maturities of investment securities available for sale 12,792 7,000
Purchase of investment securities held to maturity (5,358) (3,200)
Proceeds from sales of other real estate owned 7,714 27,145
Proceeds from sales of loans held for investment - 9,668
Net additions to premises and equipment (8,504) 6,663
Increase in stock of FHLBSF (9,036) (3,725)
Other, net - 605
----------------- ------------------
Net cash provided by (used in) investing activities (140,928) 82,571
----------------- ------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
Consolidated Statements of Cash Flows (continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------------
1997 1996
------------------ ------------------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net deposit outflows (139,915) (182,281)
Proceeds from advances from FHLBSF 4,460,532 922,846
Repayment of advances from FHLBSF (4,413,502) (864,580)
Issuance of subordinated notes, net of discount 99,350 -
Issuance of senior debentures - 50,000
Repurchase of common stock (27,564) (18,054)
Proceeds from reverse repurchase agreements 444,629 177,632
Repayment of reverse repurchase agreements (516,657) (151,740)
Increase (decrease) in other borrowings (9,551) 911
Proceeds from issuance of common stock 1,164 2,338
Dividends paid to stockholders (3,073) (3,169)
------------------ ------------------
Net cash used in financing activities (104,587) (66,097)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents (18,182) 35,953
Cash and cash equivalents at beginning of period 106,828 42,760
================== ==================
Cash and cash equivalents at end of period $ 88,646 $ 78,713
================== ==================
Cash paid for:
Interest $ 54,533 $ 61,359
Income taxes $ 7,463 $ 6,190
Supplemental noncash investing and financing activities:
Loans transferred to real estate owned $ 8,252 $ 6,936
Loans originated to sell real estate owned $ - $ 4,395
Loans transferred from held for sale to held for investment $ 152,357 $ -
The acquisition of subsidiaries involved the following:
Push-down of the Company's acquisition cost $ 15,005 $ 61,819
Preliminary estimate of liabilities assumed 13,358 476,492
Preliminary estimate of the fair value of assets acquired,
other than cash and cash equivalents (1,986) (531,029)
Goodwill (21,301) (6,968)
================== ==================
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" or the "Bank"),
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 September 30,
1997 and December 31, 1996; the results of its operations for the three and nine
months ended September 30, 1997 and 1996; and the cash flows for the nine months
ended September 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 nine months ended September 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 months ended September
30, 1997 and the nine months ended September 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 loss per share for the
three months ended September 30, 1996 was determined using the weighted average
number of common shares outstanding. The average number of shares outstanding
(including common stock equivalents) for the three months ended September 30,
1997 and 1996 were 13,189,000 shares and 13,878,000 shares, respectively and for
the nine months ended September 30, 1997 and 1996 were 13,355,000 shares and
14,011,000 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.
9
<PAGE>
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.
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 September 30, 1997:
<TABLE>
<CAPTION>
Non-Employee
1986 Stock 1995 Stock Director
Option Plan 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) (1,135,000) (516,000) (3,699,816)
Canceled 290,074 161,500 20,000 471,574
Expired (688) - - (688)
------------- ------------- -------------- -----------
Total available for grant - 1,026,500 54,000 1,080,500
============= ============= ============== ===========
</TABLE>
At September 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 593,000 $23.63 - $28.44 $ 26.30
Exercised (114,490) $7.28 - $17.50 $ 10.18
Canceled (141,500) $17.00 - $28.44 $ 26.01
================ ================== ==========
Outstanding at September 30, 1997 1,491,900 $7.88 - $28.44 $ 17.02
================ ================== ==========
</TABLE>
Note 4 - Dividend Declaration
The Company declared a quarterly cash dividend of $0.08 per share on
September 25, 1997, payable to stockholders of record as of October 10, 1997.
The dividend payable, totaling $1.0 million, was accrued as of September 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 Federal
Savings Bank subsidiary, EurekaBank. Under the terms of the definitive
agreement, America First Financial Fund 1987-A Limited Partnership (Nasdaq:
"AFFFZ"), the sole shareholder of AFEH capital stock, will receive
approximately $300 million, comprised of Bay View common stock valued at $210
million and cash of $90 million. The acquisition of AFEH/EurekaBank will be
accounted for as a purchase and is expected to be completed on January 2,
1998. The purchase price is currently estimated to exceed the fair value of
the net assets acquired by approximately $112 million, which the Company
preliminarily 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 "BVCC") is a diversified
financial services holding company for Bay View Bank ("BVB" or the "Bank"),
California Thrift & Loan ("CTL"), Bay View Securitization Corporation ("BVSC")
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.
The Company acquired the assets of Ultra Funding, Ltd. ("Ultra") for
approximately $750,000 in cash through a newly formed operating subsidiary of
BVB, Ultra Funding, Inc. effective October 1, 1997. Prior to October 1, 1997,
the Company had a strategic alliance that began in November 1996 with Ultra, an
originator of motor vehicle loans, under which the Company had a right of first
refusal to purchase all of the motor vehicle installment contracts originated by
Ultra which met the Company's underwriting criteria.
Strategic Overview
The Company's Mission Statement
To build a diversified financial services company by investing in niche
businesses with risk-adjusted returns that enhance shareholder 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.
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 by investing in businesses intended
to generate assets with risk- adjusted yields higher than those
typically provided by mortgage loans or by repurchasing shares of
the Company's common stock.
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
11
<PAGE>
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 loans 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 achieve synergies in the CTL, CGC, Ultra and EurekaBank acquisitions, the
Company's ability to sustain or improve the performance of CTL, CGC, Ultra and
EurekaBank; 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 to reflect occurrences or unanticipated
events or circumstances after the date of such statements.
12
<PAGE>
Core Earnings
The following table illustrates the reconciliation of net income (loss) to
core earnings for the periods indicated. Special mention items for the third
quarter of 1997 consisted primarily of the previously disclosed and anticipated
non-recurring pre-merger costs related to the proposed acquisition of AFEH and
its bank subsidiary, EurekaBank. Special mention items are discussed elsewhere
herein.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------- -----------------------------------------
September 30, September 30, September 30, September 30,
1997 1996/(1)/ 1997 1996/(1)/
-------------------- ------------------- -------------------- ----------------
(Dollars in thousands, except
per share amounts)
<S> <C> <C> <C> <C>
Net income (loss) $ 3,064 $ (2,108) $ 12,830 $ 6,101
Special mention items, net of tax 1,691 6,791 1,539 6,771
==================== ------------------- -------------------- ----------------
Core earnings $ 4,755 $ 4,683 $ 14,369 $ 12,872
==================== =================== ==================== ================
Core earnings per share $ 0.36 $ 0.34 $ 1.08 $ 0.92
==================== =================== ==================== ================
</TABLE>
/(1)/ The third quarter of 1996 includes SAIF recapitalization assessment of
$11.7 million ($6.7 million after-tax, or $0.48 per share).
Tangible Cash Earnings
Tangible cash earnings are based on core earnings for each period and
exclude charges related to the amortization of intangibles and the Employee
Stock Ownership Plan, ("ESOP") as well as charges tied to the market value of
the Company's common stock utilized for management incentive plans.
The following table shows the components of tangible cash earnings for the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------- -----------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
-------------------- -------------------- --------------- ---------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Core earnings $ 4,755 $ 4,683 $ 14,369 $ 12,872
Adjustments:
Amortization of intangibles 865 397 2,130 1,304
ESOP 60 55 181 167
Management incentive plans - 690 465 690
-------------------- -------------------- --------------- ---------------
Tangible cash earnings $ 5,680 $ 5,825 $ 17,145 $ 15,033
==================== ==================== =============== ===============
Tangible cash earnings per share $ 0.43 $ 0.42 $ 1.28 $ 1.07
==================== ==================== =============== ===============
Tangible cash return on tangible assets 0.73% 0.69% 0.74% 0.64%
==================== ==================== =============== ===============
Tangible cash return on tangible equity 13.82% 12.51% 13.04% 10.60%
==================== ==================== =============== ===============
</TABLE>
13
<PAGE>
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 (which
was subsequently acquired by the Company effective October 1, 1997);
and
. A Commercial Finance Platform which is comprised of loans attributable
to asset-based lending and transactional lending (including factoring)
activities of CGC.
As each of the above platforms are funded by the deposits and borrowings
of BVB and the debt of BVCC, the cost of funds for each platform is equal to the
consolidated cost of funds.
Core Earnings by Business Platform
Core earnings for the three and nine months ended September 30, 1997 and
1996, by business platform, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
------------------------------------- --------------------------------------
Core Core
Core Earnings Core Earnings
Earnings Per Share Earnings Per Share
------------------------------------- --------------------------------------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C>
Banking Platform $ 4,171 $ 0.31 $ 12,578 $ 0.94
Consumer Finance Platform/(1) (2)/ 500 0.04 1,365 0.11
Commercial Finance Platform/(1)/ 84 0.01 426 0.03
------------------------------------- --------------------------------------
Total $ 4,755 $ 0.36 $ 14,369 $ 1.08
===================================== ======================================
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
------------------------------------- --------------------------------------
Core Core
Core Earnings Core Earnings
Earnings Per Share Earnings Per Share
------------------------------------- --------------------------------------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C>
Banking Platform $ 3,517 $ 0.26 $ 11,523 $ 0.82
Consumer Finance Platform/(1) (2)/ 1,166 0.08 1,349 0.10
Commercial Finance Platform/(1)/ - - - -
------------------------------------- --------------------------------------
Total $ 4,683 $ 0.34 $ 12,872 $ 0.92
===================================== ======================================
</TABLE>
/(1)/ The Consumer Finance Platform was acquired on June 14, 1996 and accounted
for as a purchase effective June 1, 1996 and the Commercial Finance
Platform was acquired on March 17, 1997 and accounted for as a purchase
effective April 1, 1997.
/(2)/ The third quarter of 1996 included an approximate $1.8 million (after-tax)
benefit associated with the $253 million of motor vehicle loans which were
securitized in January 1997 (see discussion elsewhere herein).
14
<PAGE>
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.
The Banking Platform's strategic focus is designed to reduce wholesale
activities (which is primarily composed of a large MBS portfolio 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 accounts" (i.e. checking, savings and
money market) instead of higher cost certificates of deposit as a source of
financing. As a result, transaction accounts at BVB as a percentage of total
retail deposits increased to 28.9% at September 30, 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 14 offices throughout
California and the western United States. The Company is currently reorganizing
CTL such that it will become a subsidiary of the Bank during the fourth quarter
of 1997.
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.
15
<PAGE>
In June 1997, CTL sold substantially all of its remaining deposits
(approximately $64 million) to BVB. Previously, 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 discontinued the sale
and securitization of CTL's motor vehicle loan production.
A significant source of the Consumer Finance Platform's loan purchases has
been a strategic alliance that began in November 1996 with Ultra, an originator
of motor vehicle loans, under which the Company had a right of first refusal to
purchase all of the motor vehicle installment contracts originated by Ultra
which met the Company's underwriting criteria. Effective October 1, 1997, the
Company acquired Ultra which became a subsidiary of BVB.
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 was recorded as
goodwill and preliminarily amortized over a 15-year period. The purchase
accounting valuation is expected to be finalized during the fourth quarter 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 September 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 September 30, 1997, these products
represented approximately two-thirds of the total Commercial Finance
Platform portfolio with average yields approximating 17%.
16
<PAGE>
Acquisition of America First Eureka Holdings, Inc./EurekaBank
On May 8, 1997, the Company signed a definitive agreement (the "Merger
Agreement") to acquire AFEH and AFEH's wholly owned Federal Savings Bank
subsidiary, EurekaBank. Under the terms of the definitive agreement, America
First Financial Fund 1987-A Limited Partnership (the "Partnership") (Nasdaq:
"AFFFZ"), the sole shareholder of AFEH capital stock, will receive approximately
$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 the trading
price of the Company's common stock 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.
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.
The acquisition of AFEH/EurekaBank will be accounted for as a purchase and
is expected to be completed on January 2, 1998. The purchase price is currently
estimated to exceed the fair value of the net assets acquired by approximately
$112 million, which the Company preliminarily anticipates amortizing over a 15-
year period in connection with the merger. As the $210 million stock portion of
the acquisition is, in essence, "fixed" regardless of the Average Company Stock
Price, no additional goodwill will be generated as a result of the Average
Company Stock Price exceeding $26.00 per share. EurekaBank will be merged into
BVB.
Securitization
In January 1997, $253 million of motor vehicle loans held by CTL were sold
and securitized. The gain on sale recognized in the first quarter of 1997 was
$925,000, representing 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. The premium from the sale was
recorded as part of purchase accounting. The third quarter of 1996 included an
approximate $1.8 million (after-tax) benefit associated with the $253
million of motor vehicle loans which were securitized in January 1997.
17
<PAGE>
The proposed acquisition of EurekaBank, discussed elsewhere herein, is
expected to provide the Company with an enhanced and expanded lower cost funding
base for its higher-yielding consumer and commercial finance platforms. As a
result of this potential significant increase in funding, the Company ceased its
planned quarterly securitizations of its motor vehicle portfolio during the
second quarter of 1997. The estimated impact of discontinuing securitizations in
1997 is a $5.7 million reduction in income, ($3.3 million after-tax, or $0.25
per share).
Stock Repurchase Program
In January 1997, the Company approved a $25 million stock repurchase
program to redeploy its excess capital and in May 1997, the Company approved an
additional $25 million stock repurchase program. During the first half 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. During the third quarter of 1997, the
Company purchased an additional 588,000 shares at an average cost of $25.87.
Year-to-date, the Company has purchased 1,044,000 shares at an average cost of
$26.40. At September 30, 1997 the Company had a remaining authorization to
repurchase approximately $22.4 million of its stock, or approximately 730,000
shares based on the market price of $30.50 on October 31, 1997.
As a result of share repurchases, the Company's outstanding shares of
common stock decreased to 12,421,260 at September 30, 1997 from 13,349,270 and
14,203,180 at December 31, 1996 and 1995, respectively.
Issuance of Subordinated Debt
The Company completed its first public debt offering with the issuance of
$100 million in subordinated notes on August 28, 1997. The issuance has a stated
coupon of 9.125% and yields 9.225%. The all-in cost of the subordinated debt is
approximately 9.6%. The Company intends to use the net proceeds for general
corporate purposes, which may include, among other things, the repayment of
outstanding indebtedness, investments in or extensions of credit to its
subsidiaries, the financing of acquisitions and repurchases, from time to time,
of the Company's common stock. The Company also intends to use a portion of the
net proceeds to fund part of the $90 million cash portion of the proposed
EurekaBank acquisition discussed elsewhere herein.
18
<PAGE>
Results of Operations
Net income for the third quarter of 1997 was $3.1 million, or $0.23 per
share. This compares with a net loss of $2.1 million, or $0.15 per share, for
the third quarter of 1996. For the first nine months of 1997, net income was
$12.8 million, or $0.96 per share, as compared with $6.1 million, or $0.43 per
share, for the same period in 1996. The third quarter of 1996 included the SAIF
recapitalization assessment of $6.7 million, after-tax, or $0.48 per share.
Core earnings, excluding special mention items discussed below, were $4.8
million, or $0.36 per share, for the third quarter of 1997. This compares with
core earnings of $4.7 million, or $0.34 per share, for the third quarter of
1996, an improvement of $0.02 per share, or 5.9% over the same prior year
quarter. Special mention items for the third quarter of 1997 consisted primarily
of the previously disclosed and anticipated non-recurring pre-merger costs
related to the proposed acquisition of AFEH and its bank subsidiary, EurekaBank.
Special mention items for the third quarter of 1996 consisted primarily of the
SAIF recapitalization assessment.
Core earnings were $14.4 million, or $1.08 per share, for the first nine
months of 1997. This compares with core earnings of $12.9 million, or $0.92 per
share, for the first nine months of 1996, an improvement of $0.16 per share, or
17.4% over the same prior year period.
The improvement in earnings over prior periods is the result of the
Company's continued expansion of net interest margin, as well as the impact of
share repurchases. Net interest margin has continued to increase
quarter-to-quarter to 2.94% for the third quarter of 1997 compared to 2.74% for
the third quarter of 1996. This improvement in margin reflects a continued
strategic shift in the balance sheet from commodity oriented, real estate-based
assets to consumer and commercial loans with higher risk-adjusted yields. These
higher yields, combined with BVB's low cost deposit-based funding platform, were
the primary factors driving the improvement.
Special Mention Items
The net income for the periods indicated below contained certain items
which deserve special mention and are excluded from net income to arrive at core
earnings.
Third Quarter 1997
- ------------------
In conjunction with the proposed acquisition of EurekaBank, the Company
has previously disclosed that it expects to incur pre-merger expenses of $5
million ($2.9 million after-tax, or $0.22 per share). During the third quarter,
the Company incurred $2.9 million of such pre-merger expenses ($1.7 million
after-tax, or $0.13 per share impact on net income for the quarter).
. $1.1 million payment to the senior debt holders. The $50 million senior
debt, issued in May 1996, contained certain covenants, including
restrictions on stock repurchases. In conjunction with the proposed
acquisition of EurekaBank, the Company negotiated covenant modifications
with the senior debt holders to allow the repurchase of additional shares
of stock.
. $900,000 in additional costs incurred by the Company in planning for the
proposed EurekaBank acquisition, as well as "ramping up" the Company's
operations in anticipation of the merger.
. $450,000 write-off of deferred expenses related to a shelf registration
statement on Form S-3 for $500 million of automobile receivable-backed
securities filed with the Securities and Exchange Commission in November
1996. With the Company's decision in 1997 to cease securitization of motor
vehicle loans, the Company wrote-off the remaining deferred expenses.
19
<PAGE>
. $460,000 in carrying costs related to the anticipated issuance of
subordinated debt. The Company had entered into $110 million of Treasury
rate lock agreements to hedge the anticipated issuance of subordinated
debt. The Treasury rate lock agreements guaranteed a stated rate for a
stated period of time and the Company paid the difference between the lock
rate and the effective Treasury rate on the settlement date. Of the
$750,000 paid by the Company, approximately $290,000 was deferred and will
be recognized as an adjustment of net interest expense over the life of
the subordinated debt.
Second Quarter 1997
- -------------------
The impact of the following items was a net benefit of $300,000 ($173,000
after-tax, or $0.01 per share).
. $400,000 benefit associated with the decision to cease the BISYS conversion
and remain with Fiserv (the current 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 after-tax net impact of the following items essentially offset each
other.
. $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.
Year-to-Date 1997
- -----------------
The impact of special mention items during the first nine months was a net
expense of $2.6 million ($1.5 million after-tax, or $0.12 per share).
Third Quarter 1996
- ------------------
The impact of the following items was a net expense of $11.8 million ($6.8
million after-tax, or $0.49 per share).
. $3.2 million gain from the sale of and income received from certain real
estate owned properties.
. $1.4 million of enhanced profitability resulting from purchase accounting
valuations associated with the CTL assets being held-for-sale.
. $11.7 million SAIF recapitalization assessment.
. $2.0 million accrual for termination of data processing contracts and an
additional write-down for computer hardware relating to the Company's
long-term information services technology agreement with BISYS Group, Inc.
. $1.3 million loss accrual for lease obligations in excess of related
sublease rentals resulting from unfavorable lease agreement terms.
20
<PAGE>
. $1.2 million expense accrual for long-term incentive plan awards.
. $210,000 accrual for downsizing loan operations and relocation of
administrative functions.
Second Quarter 1996
- -------------------
The impact of the following items was a net expense of $155,000 ($90,000
after-tax, or $0.01 per share).
. $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 impact of the following items was a net benefit of $190,000 ($109,000
after-tax, or $0.01 per share).
. $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.
Year-to-Date 1996
- -----------------
The impact of special mention items during the first nine months was a net
expense of $11.8 million ($6.8 million after-tax, or $0.49 per share). Excluding
the SAIF recapitalization assessment, special mention items essentially offset
each other for the nine months ended September 30, 1996.
Net Interest Income
Consolidated net interest income for the third quarter of 1997 was $22.4
million as compared with $22.9 million for the third quarter of 1996. Net
interest income for the third quarter of 1996 included an approximate $1.8
million (after-tax) benefit associated with the $253 million of motor vehicle
loans which were securitized in January 1997 (see discussion elsewhere herein).
The consolidated net interest margin for the third quarter of 1997 was 2.94%, up
20 basis points as compared to 2.74% for the same prior year period. The
improvement in the consolidated net interest margin over the prior year period
was primarily due to the impact of the higher-yielding assets from the consumer
and commercial finance platforms, as well as the purchase of approximately $70
million in home equity loans during the quarter, combined with BVB's lower cost
deposits. This was partially offset, however, by the interest expense on the
$100 million in subordinated notes, discussed elsewhere herein, issued in August
1997.
Excluding the incremental cost of the subordinated notes, estimated at
$200,000 (after-tax) based on the amount of time the notes were outstanding
during the quarter, or 1.5 cents per share, net interest margin for the quarter
would have been 2.99%, an increase of 5 basis points over the actual net
interest margin of 2.94%. The impact of the incremental cost of the subordinated
notes for an entire quarter is estimated at $600,000 (after-tax), or $0.05 per
share and decreases net interest margin by approximately 13 basis points.
21
<PAGE>
Consolidated net interest income for the first nine months of 1997 was
$65.2 million as compared with $57.9 million for the first nine months of 1996,
an increase of $7.3 million over the prior year period. The consolidated net
interest margin for the first nine months of 1997 was 2.84%, up 33 basis points
as compared to 2.51% for the same prior year period.
A summary of consolidated net interest income and net interest margins
follows:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------
September 30, 1997 September 30, 1996
---------------------------------- ----------------------------------
Net Net Net Net
Interest Interest Interest Interest
Income Margin Income Margin
--------------- --------------- ---------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Banking Platform $ 16,873 2.42% $ 18,261 2.42%
Consumer Finance Platform/(1)/ 3,041 6.36 4,617 5.94
Commercial Finance Platform/(1)/ 2,454 18.74 N/A N/A
--------------- --------------- ---------------- --------------
Total $ 22,368 2.94% $ 22,878 2.74%
=============== =============== ================ ==============
<CAPTION>
Nine Months Ended
---------------------------------------------------------------------------
September 30, 1997 September 30, 1996
--------------------------------- ----------------------------------
Net Net Net Net
Interest Interest Interest Interest
Income Margin Income Margin
-------------- --------------- --------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Banking Platform $ 53,039 2.47% $ 51,744 2.34%
Consumer Finance Platform/(1)/ 7,145 5.73 6,186 6.13
Commercial Finance Platform/(1)/ 5,006 19.56 N/A N/A
-------------- --------------- --------------- --------------
Total $ 65,190 2.84% $ 57,930 2.51%
============== =============== =============== ==============
</TABLE>
/(1)/The Consumer Finance Platform was acquired effective June 1996 and the
Commercial Finance Platform was acquired effective April 1997.
Banking Platform
- ----------------
The banking platform's third quarter 1997 and 1996 net interest margin was
2.42. The banking platform's margin benefited from a lower cost of funds related
to retail deposits and the $70 million in higher-yielding home equity loans
purchased during the quarter. The net interest margin, however, was reduced by
the interest expense related to the issuance of the $100 million in subordinated
notes in August 1997.
Net interest margin for the first nine months of 1997 was 2.47%, an
increase of 13 basis points as compared to the net interest margin of 2.34% for
the first nine months of 1996. The improvement in margin for the nine-month
period over the prior year period is due primarily to the lower cost of funds
related to retail deposits discussed above.
22
<PAGE>
Consumer Finance Platform
- -------------------------
The consumer finance platform's third quarter 1997 net interest margin was
6.36% as compared to 5.94% for the third quarter of 1996. The increase in margin
over the prior year period was a result of continued originations and purchases
of higher-yielding motor vehicle loans. Net interest margin for the first nine
months of 1997 was 5.73%, a decrease of 40 basis points as compared to the net
interest margin of 6.13% for the first nine months of 1996. The decrease was
primarily due to the securitization of the $253 million motor vehicle loan
portfolio in January 1997. The third quarter of 1996 included an approximate
$1.8 million (after-tax) benefit associated with the loans which were
securitized.
A significant source of the consumer finance platform's loan purchases has
been a strategic alliance that began in November 1996 with Ultra, an originator
of motor vehicle loans, under which the Company had a right of first refusal to
purchase all of the motor vehicle installment contracts originated by Ultra
which met the Company's underwriting criteria. Effective October 1, 1997, the
Company acquired Ultra.
Commercial Finance Platform
- ---------------------------
The commercial finance platform's third quarter 1997 net interest margin
was 18.74%. 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.
Year-to-date net interest margin was 19.56%. The decrease in net interest margin
for this platform during the third quarter is a result of the increasingly
competitive nature of the commercial finance business which translates to lower
margins.
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.
23
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID
--------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
----------------------------------------- ------------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
------------- ----------- ----------- ------------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Interest-earning assets:
Loans receivable $ 2,377,046 $ 50,674 8.51% $ 2,590,939 $ 53,839 8.30%
Mortgage-backed securities/(1)/ 523,049 8,374 6.40 639,918 10,294 6.43
Investments 161,594 2,689 6.56 125,868 1,895 5.96
------------- ----------- ----------- ------------- ----------- -----------
Total interest-earning assets 3,061,689 $ 61,737 8.05% 3,356,725 $ 66,028 7.86%
=========== =========== =========== ===========
Other assets 98,376 53,934
------------- -------------
Total assets $ 3,160,065 $ 3,410,659
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-bearing liabilities:
Customer deposits $ 1,591,239 $ 18,599 4.63% $ 2,141,809 $ 27,001 5.02%
Borrowings/(2)/ 1,320,455 20,770 6.26 1,026,745 16,149 6.26
------------- ------------ ----------- ------------- ----------- -----------
Total interest-bearing liabilities 2,911,694 $ 39,369 5.37% 3,168,554 $ 43,150 5.42%
=========== =========== =========== ===========
Other liabilities 53,058 38,240
------------- -------------
Total liabilities 2,964,752 3,206,794
Stockholders' equity 195,313 203,865
============= =============
Total liabilities and stockholders' equity $ 3,160,065 $ 3,410,659
============= =============
Net interest income/net interest spread $ 22,368 2.68% $ 22,878 2.44%
=========== =========== =========== ===========
Net interest earning assets $ 149,995 $ 188,171
------------- -------------
Net interest margin/(3)/ 2.94% 2.74%
=========== ===========
</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 $533,000 and $808,000 for the three months ended September 30,
1997 and 1996, respectively.
/(3)/ Annualized net interest income divided by average interest-earning assets.
24
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES PAID
--------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
----------------------------------------- ------------------------------------------
Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate
------------- ------------ ---------- --------------- ----------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Interest-earning assets:
Loans receivable $ 2,351,527 $ 145,744 8.26% $ 2,292,744 $ 139,167 8.09%
Mortgage-backed securities/(1)/ 545,500 26,453 6.47 670,288 32,257 6.42
Investments 148,623 7,122 6.30 116,611 5,108 5.77
------------ ---------- ------- ------------- ---------- ------
Total interest-earning assets 3,045,650 $ 179,319 7.84% 3,079,643 $ 176,532 7.64%
========== ======= ============= ========== ======
Other assets 65,771 79,275
============ =============
Total assets $ 3,111,421 $ 3,158,918
============ =============
Liabilities and Stockholders' Equity
- ------------------------------------
Interest-bearing liabilities:
Customer deposits $ 1,638,520 $ 56,723 4.63% $ 1,956,394 $ 74,712 5.10%
Borrowings/(2)/ 1,228,125 57,405 6.23 946,486 43,890 6.15
------------ ---------- ------- ------------- ---------- ------
Total interest-bearing liabilities 2,866,645 $ 114,128 5.32% 2,902,880 $ 118,602 5.44%
========== ======= ============= ========== ======
Other liabilities 49,411 51,068
------------ -------------
Total liabilities 2,916,056 2,953,948
Stockholders' equity 195,365 204,970
------------ -------------
Total liabilities and stockholders' equity $ 3,111,421 $ 3,158,918
============ =============
Net interest income/net interest spread $ 65,191 2.52% $ 57,930 2.20%
========== ======= ========== ======
Net interest earning assets $ 179,005 $ 176,763
============ =============
Net interest margin/(3)/ 2.84% 2.51%
====== ======
</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 $2.1 million and $1.8 million for the nine months ended September
30, 1997 and 1996, respectively.
/(3)/ Annualized net interest income divided by average interest-earning assets.
25
<PAGE>
Interest Income
Interest Income on Loans Receivable
Interest income on loans was $50.7 million and $53.8 million for the third
quarters of 1997 and 1996, respectively. Interest income on loans was $145.7
million and $139.2 million for the first nine months of 1997 and 1996,
respectively. The following table is a summary of interest income on loans:
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------
September 30, 1997 September 30, 1996
---------------------------------- ----------------------------------
Weighted Weighted
Average Average
Amounts Yield Amounts Yield
----------- ------------ ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Banking Platform $ 42,410 7.92% $ 45,246 7.93%
Consumer Finance Platform/(1)/ 5,141 11.08 8,593 11.06
Commercial Finance Platform/(1)/ 3,123 23.85 - -
----------- --------- ----------- ----------
Total $ 50,674 8.51% $ 53,839 8.30%
=========== ========= =========== ==========
<CAPTION>
Nine Months Ended
-------------------------------------------------------------------------------
September 30, 1997 September 30, 1996
---------------------------------- ----------------------------------
Weighted Weighted
Average Average
Amounts Yield Amounts Yield
----------- ------------ ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Banking Platform $ 126,830 7.83% $ 127,820 7.90%
Consumer Finance Platform/(1)/ 12,617 10.60 11,347 11.24
Commercial Finance Platform/(1)/ 6,297 24.61 - -
----------- --------- ----------- ----------
Total $ 145,744 8.26% $ 139,167 8.09%
=========== ========= =========== ==========
</TABLE>
/(1)/ The Consumer Finance Platform was acquired effective June 1996 and the
Commercial Finance Platform was acquired effective April 1997.
Banking Platform
- ----------------
The decrease in loan yields (primarily mortgage loans) for the nine month
period ended September 30, 1997 as compared to the same prior year period was
primarily due to the repricing of a significant portion of loans indexed to
COFI and partially offset, to a lesser extent, by the repricing of loans indexed
to the one-year Treasury note. The average monthly COFI for the nine months
ended September 30, 1997 decreased approximately 17 basis points as compared
with the prior year period, which impacted the adjustable rate mortgages indexed
to the COFI.
Consumer Finance Platform
- -------------------------
The decrease in motor vehicle loan yields for the nine month period ended
September 30, 1997 as compared to the same prior year period 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.
26
<PAGE>
Commercial Finance Platform
- ---------------------------
The commercial loan yields for the third quarter of 1997 were 23.85%. 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. Year-to-date 1997 yields
were 24.61%. The decrease in loan yields for this platform during the third
quarter is a result of the increasingly competitive nature of this business
which translates to lower margins.
Interest Income on Mortgage-backed Securities
Interest income on the Company's mortgage-backed securities ("MBS") was
$8.4 million and $10.3 million for the third quarters of 1997 and 1996,
respectively. Interest income on MBS was $26.5 million and $32.3 million for the
first nine months of 1997 and 1996, respectively. The decrease in interest
income on MBS for both the three and nine month periods ended September 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 has sought
to restructure the balance sheet and de-emphasize the Company's wholesale
investment and borrowing activities.
Interest and Dividends on Investments
Interest and dividend income from the Company's investment portfolio was
$2.7 million and $1.9 million for the third quarters of 1997 and 1996,
respectively. Interest and dividend income from the Company's investment
portfolio was $7.1 million and $5.1 million for the first nine months of 1997
and 1996, respectively. The increase in interest and dividend income from
investments for both the three and nine month periods ended September 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 $18.6 million and
$27.0 million for the third quarters of 1997 and 1996, respectively. Interest
expense on customer deposits was $56.7 million and $74.7 million for the first
nine months of 1997 and 1996, respectively. The decrease in interest expense for
both the three and nine month periods ended September 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 nine
month periods ended September 30, 1997 as compared to the 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 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 September 30, 1997 in BVB was 4.62% 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 28 basis points below COFI of
4.90% at September 30, 1997 as compared to 18 basis points below COFI at
September 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 retail deposits were 28.9% at September 30, 1997 as compared
to 30.3% and 21.3% at December 31, 1996 and 1995, respectively.
27
<PAGE>
The following table compares BVB's cost of retail deposits to COFI as of
the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
-------------- --------------- ----------------
<S> <C> <C> <C>
Cost of retail deposits 4.62% 4.60% 4.66%
COFI 4.90 4.84 4.84
-------------- --------------- ----------------
Spread below COFI (0.28)% (0.24)% (0.18)%
============== =============== ================
</TABLE>
Interest Expense on Borrowings
Interest expense on the Company's borrowings was $20.8 million and $16.1
million for the third quarters of 1997 and 1996, respectively. Interest expense
on borrowings was $57.4 million and $43.9 million for the first nine months of
1997 and 1996, respectively.
The increase in interest expense on borrowings for both the three and nine
month periods ended September 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 nine 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). Additionally, in August 1997,
the Company issued $100 million in Subordinated Notes (the "Subordinated Notes")
yielding 9.225% (all-in cost was 9.6% 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 nine months ended September 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
Variance Variance Variance
-------------- ---------------- --------------
Three Months Ended September 30, 1997 vs 1996
(Dollars in thousands)
<S> <C> <C> <C>
Interest income:
Loans $ 1,448 $ (4,613) $ (3,165)
Mortgage-backed securities (49) (1,871) (1,920)
Investments 226 568 794
-------------- ---------------- --------------
1,625 (5,916) (4,291)
-------------- ---------------- --------------
Interest expense:
Customer deposits (1,855) (6,547) (8,402)
Borrowings 1 4,620 4,621
-------------- ---------------- --------------
(1,854) (1,927) (3,781)
-------------- ---------------- --------------
Net interest income $ 3,479 $ (3,989) $ (510)
============== ================ ==============
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Rate Volume Total
Variance Variance Variance
----------------- ------------------- ------------------
Nine Months Ended September 30, 1997 vs 1996
(Dollars in thousands)
<S> <C> <C> <C>
Interest income:
Loans $ 2,968 $ 3,609 $ 6,577
Mortgage-backed securities 249 (6,053) (5,804)
Investments 514 1,500 2,014
----------------- ------------------- ------------------
3,731 (944) 2,787
----------------- ------------------- ------------------
Interest expense:
Customer deposits (6,570) (11,419) (17,989)
Borrowings 353 13,162 13,515
----------------- ------------------- ------------------
(6,217) 1,743 (4,474)
----------------- ------------------- ------------------
Net interest income $ 9,948 $ (2,687) $ 7,261
================= =================== ==================
</TABLE>
Provision for Losses on Loans
The provision for losses on loans was $651,000 for the third quarter of
1997 as compared to $433,000 for the same period in 1996. The provision for
losses on loans was $1.8 million for the first nine months of 1997 as compared
to $1.9 million for the same period in 1996. See the "Balance Sheet Analysis -
Allowance for Losses on Loans" discussed elsewhere herein.
Noninterest Income
Noninterest income for the third quarter of 1997 was $2.6 million as
compared to $2.9 million for the same period in the prior year. Noninterest
income for the first nine months of 1997 was $9.9 million as compared to $7.2
million for the same period in the prior year. Excluding special mention items,
noninterest income was $3.5 million and $10.8 million for the three and nine
months ended September 30, 1997, respectively. The increase in noninterest
income, excluding special mention items, for both the three and nine month
periods ended September 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. As a result of the Company's
plans to acquire EurekaBank (see discussion elsewhere herein), the Company
discontinued the sale and securitization of CTL's motor vehicle loan portfolio.
29
<PAGE>
Noninterest Expense
General and Administrative Expenses
General and administrative expenses were $18.6 million and $19.8 million
for the third 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 $16.6
million and $15.1 million for the third quarter of 1997 and 1996, respectively.
General and administrative expenses were $49.4 million and $43.8 million for the
first nine months of 1997 and 1996, respectively. Excluding special mention
items, general and administrative expenses were $47.3 million and $38.2 million
for the first nine months of 1997 and 1996, respectively. The higher general and
administrative expenses for both the three and nine month periods ended
September 30, 1997 were attributable to the impact of the acquisitions of CTL
and CGC.
The following is a summary of general and administrative expenses
(excluding special mention items) for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------------- ----------------------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
--------------------- --------------------- -------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
The Company and BVB $ 11,200 $ 10,728 $ 32,591 $ 32,143
CTL/(1)/ 3,364 4,400 10,649 6,028
CGC/(1)/ 2,028 - 4,035 -
--------------------- --------------------- -------------------- ---------------------
Total $ 16,592 $ 15,128 $ 47,275 $ 38,171
===================== ===================== ==================== =====================
</TABLE>
The following table summarizes the ratio of general and administrative
expenses (excluding special mention items) to average assets (including
securitized assets).
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------------- ----------------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
--------------------- --------------------- -------------------- ---------------
<S> <C> <C> <C> <C>
Banking Platform
(includes the Company) 1.72% 1.63% 1.70% 1.57%
Consumer Finance Platform/(1)/ 2.27 3.35 2.36 3.38
Commercial Finance Platform/(1)/ 11.20 - 11.74 -
--------------------- --------------------- -------------------- ---------------
Total 1.99% 1.80% 1.91% 1.75%
===================== ===================== ==================== ===============
</TABLE>
(1) The Consumer Finance Platform was acquired effective June 1996 and the
Commercial Finance Platform was acquired effective April 1997.
SAIF Recapitalization Special Assessment
Federal legislation to recapitalize and fully fund the Savings Association
Insurance Fund ("SAIF") was signed into law on September 30, 1996. Customer
deposits for BVB are SAIF-insured and as a result of the legislation, BVB was
required to pay a one-time special assessment of $11.7 million pre-tax ($6.7
million after tax or $0.48 per share). The legislation had no effect on CTL, as
its deposits were insured under the Bank Insurance Fund (BIF).
30
<PAGE>
Income from Real Estate Owned and Net Provision/Recovery of Losses on
Real Estate
Income from real estate owned operations and net provision/recovery of
losses on real estate were $21,000 and $3.1 million for the third quarters of
1997 and 1996, respectively. Income from real estate owned operations and net
provision/recovery of losses on real estate owned were $638,000 and $4.9 million
for the first nine months of 1997 and 1996, respectively. The decreases for both
the three and nine month periods ended September 30, 1997 were 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 $1.0 million and
$524,000, for the third quarters of 1997 and 1996, respectively. The
amortization and write-down of intangible assets were $2.7 million and $1.9
million for the first nine 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
1996, core deposit intangibles of $270,000 were written-off due to a decision to
close one of BVB's branches.
Income Tax Expense (Benefit)
Income tax expense (benefit) was $1.6 million and ($1.5) million for the
three months ended September 30, 1997 and 1996, respectively and $9.0 million
and $4.6 million for the nine months ended September 30, 1997. The decrease in
the effective tax rate to 41.1% for the nine months ended September 30, 1997
from 43.2% for the nine months ended September 30, 1996 is primarily due to
benefits resulting from enterprise zone tax credits as well as the finalization
of recent tax audits.
31
<PAGE>
Balance Sheet Analysis
The consolidated assets of the Company were $3.2 billion and $3.3 billion
as of September 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 as well as share repurchases in 1997.
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 September 30, 1997 and December 31, 1996 was as
follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
----------------------------------------- -------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------------ ------------------- -------------------- -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Available for sale
- ------------------
Investment securities $ 4,909 $ 4,909 $ 13,792 $ 13,802
Mortgage-backed securities:
FHLMC, FNMA and GNMA 77,005 76,019 84,401 83,154
------------------ ------------------- -------------------- -------------------
81,914 80,928 98,193 96,956
------------------ ------------------- -------------------- -------------------
Held to maturity
- ----------------
Investment securities 15,352 15,364 15,204 15,112
Mortgage-backed securities:
FHLMC, FNMA, GNMA
and other 437,146 433,133 494,459 483,461
------------------ ------------------- -------------------- -------------------
452,498 448,497 509,663 498,573
------------------ ------------------- -------------------- -------------------
$ 534,412 $ 529,425 $ 607,856 $ 595,529
================== =================== ==================== ===================
</TABLE>
There were no MBS sold during the first nine months of 1997. Total MBS
sold during the first nine 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.
32
<PAGE>
Loans and Real Estate Owned
The following is a summary of the Company's loan portfolio, which includes
loans held for sale, at September 30, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
---------------------- ---------------------
(Dollars in thousands)
<S> <C> <C>
Banking Platform:
Single family mortgages $ 594,439 $ 692,086
Multifamily mortgages 1,047,287 1,048,291
Commercial real estate 362,895 381,822
---------------------- ---------------------
2,004,621 2,122,199
Consumer (including home equity) 131,072 68,018
---------------------- ---------------------
2,135,693 2,190,217
Consumer Finance Platform:
Motor vehicle loans 229,385 315,439
Commercial Finance Platform:
Commercial loans 50,946 -
---------------------- ---------------------
Gross loans receivable 2,416,024 2,505,656
Advances to borrowers 1,822 1,173
Deferred fees, premiums and discounts 3,625 (3,099)
Allowance for loan losses (39,139) (29,013)
---------------------- ---------------------
Net loans receivable $ 2,382,332 $ 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 Nine Months Ended
September 30, September 30,
----------------------------------------- -----------------------------------------
1997 1996 1997 1996
------------------ ------------------ ------------------ -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loan Originations:
Real estate $ 40,593 $ 78,725 $111,177 $188,125
Motor vehicle/(1)/ 50,649 41,055 133,496 52,594
Commercial/(1)/ 9,260 - 13,953 -
Other 4,767 11,850 15,582 20,732
-------- -------- -------- --------
Total originations $105,269 $131,630 $274,208 $261,451
======== ======== ======== ========
Loan Purchases:
Real estate $ 1,062 $ 12,206 $ 50,544 $ 37,810
Home equity 69,996 - 69,996 -
Motor vehicle/(1)/ 39,870 16,757 85,682 28,033
-------- -------- -------- --------
Total purchases $110,928 $ 28,963 $206,222 $ 65,843
======== ======== ======== ========
Total originations and purchases $216,197 $160,593 $480,430 $327,294
======== ======== ======== ========
</TABLE>
/(1)/ The Consumer Finance Platform was acquired effective June 1996 and the
Commercial Finance Platform was acquired effective April 1997.
The motor vehicle loan purchases were from Ultra. The Company acquired
Ultra effective October 1, 1997.
33
<PAGE>
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>
September 30, December 31, December 31,
1997 1996 1995
--------------------- --------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans $ 10,922 $ 16,125 $ 10,755
Real estate owned 7,510 7,387 24,476
Mortgage-backed securities - - 3,580
Other repossessed assets 814 798 -
--------------------- --------------------- ---------------------
Nonperforming assets 19,246 24,310 38,811
Troubled debt restructurings 736 509 15,641
--------------------- --------------------- ---------------------
Total $ 19,982 $ 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
----------------------------------------------------------------------------------------------
September 30, 1997 December 31, 1996 December 31, 1995
-------------------------- ------------------------------ -----------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Banking Platform $ 17,461 0.55% $ 23,323 0.71% $ 38,811 1.29%
Consumer Finance Platform/(1)/ 964 0.03% 987 0.03% - -
Commercial Finance Platform/(1)/ 821 0.03% - - - -
------------ ---------- ------------ -------------- ----------- --------------
Total $ 19,246 0.61% $ 24,310 0.74% $ 38,811 1.29%
============ ========== ============ ============== =========== ==============
<CAPTION>
Loans Delinquent 60 Days or More
as a Percentage of Consolidated Loans
------------------------------------------------------------------------------------------------
September 30, 1997 December 31, 1996 December 31, 1995
----------------------------- ------------------------------- ----------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Banking Platform $ 18,888 0.80% $ 22,460 0.90% $ 20,166 0.96%
Consumer Finance Platform/(1)/ 677 0.03% 548 0.02% - -
Commercial Finance Platform/(1)/ 821 0.03% - - - -
--------------- ---------- ------------ -------------- ---------- -------------
Total $ 20,386 0.86% $ 23,008 0.92% $ 20,166 0.96%
=============== ========== ============ ============== ========== =============
</TABLE>
/(1)/ The Consumer Finance Platform was acquired effective June 1996 and the
Commercial Finance Platform was acquired effective April 1997.
34
<PAGE>
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 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 September 30, 1997 was $39.1 million as compared to
$36.4 million at December 31, 1996 (including approximately $7.4 million related
to loans held for sale) and $30.9 million at December 31, 1995. The increase in
the allowance is due to a combination of factors, including reserves established
in connection with the purchase of a $70 million home equity portfolio in August
1997 and reserves related to the commercial finance platform.
The majority of the loans in the $70 million home equity portfolio
acquired by the Company have loan to value ratios in excess of 90% and a
substantial portion have loan to value ratios in excess of 100%. Many of the
loans are to "credit impaired" borrowers at rates substantially higher than
single family residential mortgage loans. Although assets of these types
typically provide higher yields than single family residential mortgage loans,
these assets also involve a greater degree of risk, and in some cases a
substantially greater degree of risk, than single family loans. Accordingly, the
Company decided to conservatively account for these loans by establishing
approximately $5.6 million in reserves, upon acquisition, representing
management's estimate of losses over the life of the portfolio.
The following table is a summary of the allowance for losses as a
percentage of nonperforming assets, gross loans and total assets, respectively:
<TABLE>
<CAPTION>
Allowance for Losses
as a Percentage of Assets
-------------------------------------------------------------------------------------------------------
September 30, 1997 December 31, 1996 December 31, 1995
-------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Assets Percent Assets Percent Assets Percent
<S> <C> <C> <C> <C> <C> <C>
Nonperforming Assets $ 19,246 203% $ 24,310 147% $ 38,811 80%
Gross Loans $2,416,024 1.62% $2,505,656 1.46% $2,094,433 1.48%
Total Assets $3,162,207 1.24% $3,300,262 1.10% $3,004,496 1.03%
</TABLE>
35
<PAGE>
The following is a summary of changes in the allowance for loan losses for
the periods indicated (the beginning balances for 1997 and 1996 reflect the
effects of the acquisitions of CTL, CGC and the $70 million home equity
portfolio):
<TABLE>
<CAPTION>
For the Three For the Nine For the Year Ended December 31,
Months Ended Months Ended --------------------------------------
September 30, September 30,
1997 1997 1996 1995
----------------- ----------------- ----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Beginning balance $ 40,681 $ 43,175 $ 32,874 $ 29,115
Charge-offs:
Real Estate and Other (373) (2,559) (6,401) (4,879)
Motor Vehicle/(1)/ (876) (2,694) - -
Commercial/(1)/ (1,214) (1,416) - -
----------------- ----------------- ----------------- -----------------
(2,463) (6,669) (6,401) (4,879)
Recoveries:
Real Estate and Other 3 66 642 1,494
Motor Vehicle/(1)/ 203 675 - -
Commercial/(1)/ 64 64 - -
----------------- ----------------- ----------------- -----------------
270 805 642 1,494
----------------- ----------------- ----------------- -----------------
Net charge-offs (2,193) (5,864) (5,759) (3,385)
Provision for loan losses 651 1,828 1,898 4,284
----------------- ----------------- ----------------- -----------------
Ending balance $ 39,139 $ 39,139 $ 29,013 $ 30,014
================= ================= ================= =================
Net charge-offs ratio to average loans 0.37% 0.33% 0.24% 0.16%
</TABLE>
/(1)/ The Consumer Finance Platform was acquired effective June 1996 and the
Commercial Finance Platform was acquired effective April 1997.
The provision for losses on loans was $651,000 for the third quarter of
1997 as compared to $433,000 for the same period in 1996. The provision for
losses on loans was $1.8 million and $1.9 million for the first nine months of
1997 and 1996, respectively. 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.
36
<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 September 30, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
-------------------------------------------------- ---------------------------------------------------
Weighted Weighted
Average Average
Amount % Rate Amount % Rate
------------------ ------------- --------------- ----------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts $ 458,357 28.2% 2.47% $ 493,571 27.9% 2.62%
Retail CDs 1,125,695 69.3 5.49 1,270,396 72.1 5.49
Brokered CDs 40,000 2.5 5.50 - - -
------------------ ------------- --------------- ----------------- --------------- ---------------
Total $ 1,624,052 100.0% 4.62% $ 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>
September 30, December 31,
1997 1996
----------------------------------------------
(Dollars in thousands)
<S> <C> <C>
Advances from FHLBSF $ 1,024,780 $ 977,750
Reverse repurchase
agreements 138,612 210,640
Subordinated notes 99,355 -
Senior debentures 50,000 50,000
-------------------- --------------------
Total $ 1,312,747 $ 1,238,390
==================== ====================
</TABLE>
37
<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
September 30, 1997 and December 31, 1996, the total notional amount of interest
rate swaps were $449 million and $421 million, respectively.
The following schedule sets forth the maturities and weighted average
rates of interest rate swaps outstanding as of September 30, 1997. To the extent
that interest rates change, variable interest rate information will change.
<TABLE>
<CAPTION>
Maturities of Derivative Instruments
----------------------------------------------------------------------------------
1999 2000 2001 2002 Total
------------ ----------------- ----------------- ------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Notional amount $ 67,750 $ 100,000 $ 104,000 $ 177,500 $ 449,250
Weighted average receive rate
(3-month LIBOR) 5.82% 5.80% 5.88% 5.88% 5.85%
Weighted average pay rate (fixed) 6.32% 6.10% 6.72% 6.41% 6.40%
</TABLE>
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 ALCO is to improve the Company's 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 0.58% at September 30, 1997. BVB's sensitivity measure of 0.68% as of June
30, 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.
38
<PAGE>
The following table sets forth information regarding the combined asset
and liability repricing of the Bank and CTL as of September 30, 1997:
<TABLE>
<CAPTION>
Repricing Period
-----------------------------------------------------------------------------
Under Over Over Over
One One to Three Three to Five Five
Year Years Years Years Total
------------- -------------- ------------- ------------ ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets
- ------
Cash and investments/(1)/ $ 116,140 $ 5,003 $ 10,000 $ - $ 131,143
Loans and mortgage-backed securities/(1)//(2)/ 1,957,812 384,329 218,249 358,888 2,919,278
------------- -------------- ------------- ------------ ---------------
Total interest rate sensitive assets $ 2,073,952 $ 389,332 $ 228,249 $ 358,888 $ 3,050,421
============= ============== ============= ============ ===============
Liabilities
- -----------
Deposits:
Certificates of deposit $ 1,006,481 $ 150,422 $ 9,016 $ - $ 1,165,919
Money market accounts 196,557 - - - 196,557
Checking accounts 128,500 - - - 128,500
Savings accounts 145,510 - - - 145,510
Borrowings 1,101,086 115,678 50,917 - 1,267,681
------------- -------------- ------------- ------------ ---------------
Total interest rate sensitive liabilities $ 2,578,134 $ 266,100 $ 59,933 $ - $ 2,904,167
============= ============== ============= ============ ===============
Repricing gap-positive (negative) before impact of
interest rate swaps $ (504,182) $ 123,232 $ 168,316 $ 358,888 $ 146,254
Impact of interest rate swaps 389,250 (36,750) (175,000) (177,500) -
------------- -------------- ------------- ------------ ---------------
$ (114,932) $ 86,482 $ (6,684) $ 181,388 $ 146,254
============= ============== ============= ============ ===============
Cumulative repricing gap-positive (negative) $ (114,932) $ (28,450) $ (35,134) $ 146,254
============= ============== ============= ============
Cumulative repricing gap as a percentage of interest
rate sensitive assets at September 30, 1997 (3.77)% (0.93%) (1.15%) 4.79%
============= ============== ============= ============
</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.
39
<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
Year Years Years Years Total
------------ ------------- ---------------- -------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
- ------
Cash and investments (1) $ 171,876 $ 5,004 $ 10,000 $ - $ 186,880
Loans and mortgage-backed securities (1) (2) 2,171,372 311,191 178,822 414,397 3,075,782
------------ ------------- --------------- ------------- ------------
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 liabilities $ 2,557,588 $ 367,447 $ 59,937 $ - $ 2,984,972
============ ============= =============== ============= ============
Repricing gap-positive (negative) before impact
of interest rate swaps $ (214,340) $ (51,252) $ 128,885 $ 414,397 $ 277,690
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 (negative) $ 206,660 $ (9,092) $ (34,207) $ 277,690
============ ============= =============== =============
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.
40
<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.
Capital
Bay View Bank
BVB's regulatory capital at September 30, 1997 exceeded the minimum
requirements of each regulatory capital standard on a fully phased-in basis as
follows:
<TABLE>
<CAPTION>
Actual Minimum Requirement Excess
--------------------------------- ---------------------------------- ---------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- -------------- --------------- --------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible $ 180,074 5.82% $ 46,421 1.50% $ 133,653 4.32%
Core (Leverage) $ 181,296 5.86% $ 92,878 3.00% $ 88,418 2.86%
Risk-based $ 206,445 10.24% $ 161,283 8.00% $ 45,162 2.24%
</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 September 30, 1997 as follows:
<TABLE>
<CAPTION>
Well Capitalized
Actual Requirement Excess
---------------------------------- --------------------------------- ------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------------- -------------- --------------- ------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Leverage $ 181,296 5.86% $ 154,797 5.00% $ 26,499 0.86%
Tier I risk-based $ 181,296 8.99% $ 120,962 6.00% $ 60,334 2.99%
Tier II risk-based $ 206,445 10.24% $ 201,604 10.00% $ 4,841 0.24%
</TABLE>
California Thrift & Loan
Under capital guidelines established by FDICIA, CTL met the criteria for
the "well capitalized" standard at September 30, 1997.
41
<PAGE>
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 materially 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.
42
<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
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a(i). Computation of Ratios of Earnings to Fixed Charges (Exhibit 12)
a(ii). Financial Data Schedule (Exhibit 27)
b(i). The Registrant filed the following report on Form 8-K dated August 11,
1997 during the three months ended September 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(ii). The Registrant filed the following report on Form 8-K dated August 28,
1997 during the three months ended September 30, 1997.
The Indenture, Officers' Certificate and Form of 9.125% Subordinated
Note due 2007, pursuant to the Company's Registrations Statement of
Form S-3.
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: November 14, 1997 BY: /s/ David A. Heaberlin
------------------------
David A. Heaberlin
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
43
<PAGE>
Exhibit 12
COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Earnings:
Earnings before income tax expense $ 21,794 $ 10,736
Add:
Interest on advances and other
borrowings 57,405 43,890
Interest component of rental
expense 815 466
-------- --------
Earnings before fixed charges
excluding interest on customer
deposits 80,014 55,092
Interest on customer deposits 56,723 74,712
-------- --------
Earnings before fixed charges $136,737 $129,804
======== ========
Fixed Charges:
Interest on advances and other
borrowings 57,405 43,890
Interest component of rental
expense 815 466
-------- --------
Fixed charges excluding interest
on customer deposits 58,220 44,356
Interest on customer deposits 56,723 74,712
-------- --------
Total fixed charges $114,943 $119,068
======== ========
Ratio of earnings to fixed charges
including interest on customer deposits 1.19x 1.09x
Ratio of earnings to fixed charges
excluding interest on customer deposits 1.37x 1.24x
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 32,559
<INT-BEARING-DEPOSITS> 36
<FED-FUNDS-SOLD> 7,143
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 80,928
<INVESTMENTS-CARRYING> 452,498
<INVESTMENTS-MARKET> 448,497
<LOANS> 2,382,332
<ALLOWANCE> 39,139
<TOTAL-ASSETS> 3,162,207
<DEPOSITS> 1,624,052
<SHORT-TERM> 1,025,057
<LIABILITIES-OTHER> 35,089
<LONG-TERM> 294,035
0
0
<COMMON> 151
<OTHER-SE> 183,823
<TOTAL-LIABILITIES-AND-EQUITY> 3,162,207
<INTEREST-LOAN> 145,744
<INTEREST-INVEST> 33,575
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 179,319
<INTEREST-DEPOSIT> 56,723
<INTEREST-EXPENSE> 114,128
<INTEREST-INCOME-NET> 65,191
<LOAN-LOSSES> 1,828
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 51,475
<INCOME-PRETAX> 21,794
<INCOME-PRE-EXTRAORDINARY> 21,794
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,830
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.96
<YIELD-ACTUAL> 2.84
<LOANS-NON> 10,922
<LOANS-PAST> 1,069
<LOANS-TROUBLED> 736
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 43,175
<CHARGE-OFFS> (6,669)
<RECOVERIES> 805
<ALLOWANCE-CLOSE> 39,139
<ALLOWANCE-DOMESTIC> 39,139
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
