<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 March 31, 1998
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 o.)
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 April 30, 1998
(Title of Class) 20,262,898 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................................................... 4
Consolidated Statements of Operations............................................................ 5
Consolidated Statement of Stockholders' Equity................................................... 6
Consolidated Statements of Cash Flows............................................................ 7-8
Notes to Consolidated Financial Statements....................................................... 9-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................... 14-32
Item 3. Quantitative and Qualitative Disclosures About
Market Risk...................................................................................... 33-36
PART II. OTHER INFORMATION
Other Information................................................................................ 37
Signatures....................................................................................... 37
</TABLE>
2
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements included in this Form 10-Q or in future filings by Bay
View Capital Corporation (the "Company") with the Securities and Exchange
Commission, in the Company's press releases or shareholder communications or in
oral statements made with the approval of an authorized executive officer,
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are
subject to a number of risks and uncertainties. Any such forward-looking
statements should not be relied upon as predictions of future events. Certain
such forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "are expected to," "will,"
"will allow," "will continue," "will likely result," "should," "would be,"
"seeks," "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
results of operations, financial condition, financial performance or other
financial or statistical matters constitutes such forward-looking statements.
Such forward-looking statements are necessarily dependent on assumptions, data
or methods that may be incorrect or imprecise and that may be incapable of being
realized and in some instances are based on consensus estimates of analysts not
affiliated with the Company. In that regard, the following factors, among
others, could cause actual results and other matters to differ materially from
those in such forward-looking statements: increases in defaults by borrowers and
other loan delinquencies; increases in the provision for loan losses; failure by
the Company to realize expected cost savings or revenue enhancements from the
merger with America First Eureka Holdings, Inc. ("AFEH"); deposit attrition,
customer loss or revenue loss; costs or difficulties related to the integration
of the businesses of the Company and AFEH and their respective subsidiaries; the
Company's ability to sustain or improve the performance of Bay View Credit,
Concord Growth Corporation, Ultra Funding, Inc., and AFEH; the ability to
identify suitable future acquisition candidates; changes in interest rates which
may, among other things, adversely affect net interest 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 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.
3
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
-------------------------------------
(UNAUDITED)
MARCH 31, 1998 DECEMBER 31,
1997
---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from depository institutions $ 58,872 $ 40,885
Interest-bearing deposits and short-term investments 50,477 190,937
---------------- ----------------
109,349 231,822
Securities available for sale:
Mortgage-backed securities 230,368 54,402
Investment securities 7,336 5,639
Securities held to maturity:
Mortgage-backed securities 652,405 415,859
Investment securities 5,000 5,000
Loans receivable, net of allowance for loan losses 3,934,008 2,373,113
Investment in stock of the FHLB of San Francisco 82,780 61,012
Real estate owned, net 4,755 4,146
Premises and equipment, net 23,501 16,164
Intangible assets 139,960 29,507
Other assets 151,951 49,812
================ ================
Total assets $ 5,341,413 $ 3,246,476
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits:
Transaction accounts $ 1,376,402 $ 553,820
Certificates of deposit 2,115,555 1,123,315
---------------- ----------------
3,491,957 1,677,135
Advances from the FHLB of San Francisco 1,093,400 1,110,270
Securities sold under agreements to repurchase 168,428 90,134
Subordinated notes, net 99,388 99,372
Senior debentures 50,000 50,000
Other borrowings 5,591 6,200
Other liabilities 43,944 39,738
---------------- ----------------
Total liabilities 4,952,708 3,072,849
---------------- ----------------
Stockholders' equity:
Serial preferred stock: authorized, 7,000,000 shares; outstanding, none - -
Common stock ($.01 par value): authorized, 60,000,000 shares;
issued, 3/31/98 - 20,309,011 shares; 12/31/97 - 15,125,874 shares;
outstanding, 3/31/98 - 20,242,897 shares; 12/31/97 - 12,070,474 shares 203 151
Additional paid-in capital 248,846 103,052
Retained earnings (substantially restricted) 144,093 141,065
Treasury stock, at cost, 3/31/98 - 66,114 shares; 12/31/97 - 3,055,400 shares (1,094) (66,352)
Accumulated other comprehensive income:
Unrealized gain (loss) on securities available for sale, net of tax 416 (72)
Debt of Employee Stock Ownership Plan (3,759) (4,217)
---------------- ----------------
Total stockholders' equity 388,705 173,627
---------------- ----------------
Total liabilities and stockholders' equity $ 5,341,413 $ 3,246,476
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
--------------------------------
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1998 1997
------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Interest income:
Interest on loans receivable $ 81,257 $ 46,664
Interest on mortgage-backed securities 15,255 9,231
Interest and dividends on investments 2,551 2,261
------------- -------------
99,063 58,156
Interest expense:
Interest on customer deposits 40,996 19,594
Interest on debentures and notes 3,527 1,114
Interest on borrowings 17,606 16,393
------------- -------------
62,129 37,101
Net interest income 36,934 21,055
Provision for loan losses 660 565
------------- -------------
Net interest income after provision for loan losses 36,274 20,490
Noninterest income:
Loan fees and charges 1,730 1,158
Other, net 2,473 2,425
------------- -------------
4,203 3,583
Noninterest expense:
General and administrative 27,742 14,620
Real estate owned operations, net 37 (22)
Recovery of losses on real estate (24) (448)
Amortization and write-down of intangibles 2,746 677
------------- -------------
30,501 14,827
Income before income tax expense 9,976 9,246
Income tax expense 4,916 3,984
------------- -------------
Net income $ 5,060 $ 5,262
============= =============
Basic earnings per share $ 0.25 $ 0.40
============= =============
Diluted earnings per share $ 0.24 $ 0.39
============= =============
Average basic shares outstanding 20,251 13,214
============= =============
Average diluted shares outstanding 20,673 13,552
============= =============
Net income $ 5,060 $ 5,262
Other comprehensive income, net of tax:
Unrealized gain (loss) on securities available for sale,
net of tax expense (benefit) of $344 and ($716) for
the three months ended March 31, 1998 and
1997, respectively 488 (989)
------------- -------------
$ 5,548 $ 4,273
Comprehensive income ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON SECURITIES
NUMBER OF COMMON PAID-IN RETAINED TREASURY AVAILABLE FOR SALE
SHARES STOCK CAPITAL EARNINGS* STOCK (NET OF TAX)
---------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 15,005 $ 150 $ 100,436 $ 131,324 $ (26,497) $ (713)
Repurchase of common stock (39,855)
Exercise of stock options, including tax benefits 121 1 2,616
Cash dividends declared ($0.34 per share) (4,280)
Unrealized gain, net of tax 641
Repayment of debt
Net income 14,021
---------------------------------------------------------------------------------
Balance at December 31, 1997 15,126 151 103,052 141,065 (66,352) (72)
Issuance of common stock (AFEH acquisition):
From shares held in treasury 65,258
From authorized but unissued shares 5,087 51 144,691
Exercise of stock options 96 1 1,103
Cash dividends declared ($0.10 per share) (2,032)
Unrealized gain, net of tax 488
Repayment of debt
Net income 5,060
=================================================================================
Balance at March 31, 1998 (Unaudited) 20,309 $ 203 $ 248,846 $ 144,093 $ (1,094) $ 416
=================================================================================
----------------------------------
DEBT OF
EMPLOYEE
STOCK TOTAL
OWNERSHIP STOCKHOLDERS'
PLAN EQUITY
----------------------------------
Balance at December 31, 1996 $ (4,638) $ 200,062
Repurchase of common stock (39,855)
Exercise of stock options, including tax benefits 2,617
Cash dividends declared ($0.34 per share) (4,280)
Unrealized gain, net of tax 641
Repayment of debt 421 421
Net income 14,021
----------------------------------
Balance at December 31, 1997 (4,217) 173,627
Issuance of common stock (AFEH acquisition):
From shares held in treasury 65,258
From authorized but unissued shares 144,742
Exercise of stock options, including tax benefits 1,104
Cash dividends declared ($0.10 per share) (2,032)
Unrealized gain, net of tax 488
Repayment of debt 458 458
Net income 5,060
==================================
Balance at March 31, 1998 (Unaudited) $ (3,759) $ 388,705
==================================
</TABLE>
* Substantially restricted
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
---------------------------------
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
1998 1997
--------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,060 $ 5,262
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization and write-down of intangible assets 2,746 677
Proceeds from sale of loans held for sale - 253,855
Provision for losses on loans and real estate owned 636 117
Depreciation and amortization of premises and equipment 1,239 637
Decrease in capitalized excess servicing fees 134 251
Amortization of premiums, net of discounts 3,452 2,647
Gain on sale of loans and securities (112) -
Increase in other assets (31,512) (7,499)
Decrease in other liabilities (21,410) (50,792)
Other, net 932 12
--------------- ----------------
Net cash provided by (used in) operating activities (38,835) 205,167
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of subsidiaries, net of cash and cash
equivalents received 82,129 -
Decrease in loans resulting from principal payments,
net of originations 119,409 21,092
Purchases of loans (155,389) (97,380)
Principal payments on mortgage-backed securities 71,332 16,914
Proceeds from sale of mortgage-backed securities available for sale 9,436 -
Proceeds from sale of investment securities available for sale 595 12,792
Purchases of investment securities available for sale (2,252) (8,352)
Proceeds from sale of real estate owned 924 2,776
Net additions to premises and equipment (4,683) (1,279)
Increase in stock of FHLBSF (1,205) (836)
---------------- ----------------
Net cash provided by (used in) investing activities 120,296 (54,273)
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
----------------------------------
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1998 1997
--------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (197,821) (108,127)
Proceeds from advances from FHLBSF 833,300 2,302,532
Repayment of advances from FHLBSF (906,170) (2,389,520)
Proceeds from reverse repurchase agreements 153,428 183,556
Repayment of reverse repurchase agreements (75,134) (195,640)
Increase (decrease) in other borrowings (10,609) 10,396
Proceeds from issuance of common stock 1,104 769
Repurchase of common stock - (12,350)
Dividends paid (2,032) (1,039)
--------------- ----------------
Net cash used in financing activities (203,934) (209,423)
--------------- ----------------
Net decrease in cash and cash equivalents (122,473) (58,529)
Cash and cash equivalents at beginning of period 231,822 106,828
=============== ================
Cash and cash equivalents at end of period $ 109,349 $ 48,299
=============== ================
Supplemental disclosures:
Interest paid $ 66,657 $ 36,436
Income taxes paid $ - $ 2,303
Supplemental non-cash investing and financing activities:
Loans transferred to real estate owned $ 1,593 $ 3,972
The acquisition of subsidiaries involved the following:
Common stock issued $ 210,000 $ -
Fair value of liabilities assumed 2,103,482 -
Fair value of assets acquired, other than cash and cash equivalents (2,130,177)
Goodwill (101,176) -
=============== ================
Net cash and cash equivalents received $ 82,129 $ -
=============== ================
</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"),
a Delaware corporation operating as a diversified financial services company,
and its subsidiaries. The Company's principal business activities consist of
operating three business platforms: a Banking Platform, a Consumer Finance
Platform and a Commercial Finance Platform. The Company operates these platforms
through its wholly owned subsidiaries, Bay View Bank ("BVB"), a federally
chartered capital stock savings bank, Concord Growth Corporation ("CGC"), a
California corporation operating as a commercial finance company, including its
asset-based lending division, Bay View Financial Corporation ("BVFC"), Bay View
Securitization Corporation ("BVSC"), a Delaware corporation formed for the
purpose of issuing asset-backed securities through a trust, and Regent Financial
Corporation ("Regent"), a California corporation providing item processing
services. Bay View Acceptance Corporation ("BVAC"), a subsidiary of BVB, is a
Nevada corporation operating as a consumer finance company through its wholly
owned subsidiaries, Bay View Credit ("BVC") and Ultra Funding, Inc. ("Ultra").
All significant intercompany balances and transactions have been eliminated in
consolidation.
The Company completed its acquisition of America First Eureka
Holdings, Inc. ("AFEH") and its wholly owned subsidiary, EurekaBank, a federal
savings bank, on January 2, 1998. The Company's results for the first quarter of
1998 reflect the acquisition of AFEH, which was accounted for under the purchase
method of accounting.
The information provided by these interim financial statements
reflects all adjustments which are, in the opinion of management, necessary for
a fair presentation of the Company's financial condition as of March 31, 1998
and December 31, 1997, the results of its operations for the three months ended
March 31, 1998 and 1997; and its cash flows for the three months ended March 31,
1998 and 1997. 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 reclassifications had no effect on the results of operations or
stockholders' equity. 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 1997 Annual Report on Form 10-K, which contains the
latest audited financial statements and notes thereto, together with
Management's Discussion and Analysis of Financial Condition as of December 31,
1997 and 1996 and Results of Operations for the years ended December 31, 1997,
1996 and 1995. Accordingly, only certain changes in financial condition and
results of operations are discussed in this Form 10-Q. Furthermore, the interim
financial results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the entire fiscal year or any
other interim period.
9
<PAGE>
BAY VIEW CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
NOTE 2 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Measurement of
Earnings Per Share" ("SFAS 128"). SFAS 128 establishes standards for computing
and reporting earnings per share ("EPS") and applies to entities with publicly
held common stock or financial instruments that are potentially convertible into
publicly held common stock. SFAS 128 replaces Primary EPS and Fully Diluted EPS
with Basic EPS and Diluted EPS and was effective for the Company's December 31,
1997 financial statements. Basic EPS is calculated by dividing net earnings for
the period available to common stockholders by the weighted-average number of
common shares outstanding for that period. There is no adjustment to the number
of outstanding shares for dilutive instruments, such as stock options. Diluted
EPS takes into account the dilutive impact of such instruments and uses the
average share price for the period in determining the number of incremental
shares to add to the weighted-average number of common shares outstanding. All
prior period EPS amounts have been restated to reflect the adoption of SFAS 128.
The calculation of basic and diluted earnings per share is summarized as
follows:
<TABLE>
<CAPTION>
------------------------------
(UNAUDITED)
THREE MONTHS ENDED
-------------- ---------------
MARCH 31, MARCH 31,
1998 1997
-------------- ---------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net earnings available to common stockholders $ 5,060 $ 5,262
Weighted-average shares outstanding 20,251 13,214
Add: Dilutive potential common shares 422 338
-------------- ----------------
Diluted weighted average shares outstanding 20,673 13,552
-------------- ----------------
Basic earnings per share $ 0.25 $ 0.40
============== ================
Diluted earnings per share $ 0.24 $ 0.39
============== ================
</TABLE>
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 common share and
per share data, including stock option plan information, has been restated to
reflect the stock split.
NOTE 3 - COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which requires that all entities report
comprehensive income and its components in their financial statements. SFAS 130
requires that all items which are required to be recognized under generally
accepted accounting standards as components of comprehensive income be reported
in a financial statement which is displayed with the same prominence as other
financial statements. Comprehensive income is defined as net income plus the
change in "other comprehensive income," as defined by SFAS 130. The only
currently applicable component of other comprehensive income for the Company is
the net unrealized gain or loss on securities available for sale. This statement
was implemented during the first quarter of 1998.
10
<PAGE>
BAY VIEW CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
NOTE 4 - 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 March 31, 1998:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
(UNAUDITED)
------------------------------------------------------------------------
NON-EMPLOYEE
1986 STOCK 1995 STOCK DIRECTOR STOCK
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) (1,450,500) (570,000) (4,069,316)
Forfeited 290,074 80,000 20,000 390,074
Expired (688) - - (688)
----------------- ----------------- ----------------- -----------------
Total available for grant - 629,500 - 629,500
================= ================= ================= =================
</TABLE>
At March 31, 1998, the Company had outstanding stock options for
all three plans with expiration dates from 1998 to 2008 as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
(UNAUDITED)
--------------------------------------------------------------------
NUMBER OF EXERCISE PRICE AVERAGE
OPTION SHARES RANGE EXERCISE PRICE
--------------------- --------------------- ------------------
<S> <C> <C> <C>
Outstanding at December 31, 1997 1,758,400 $7.88 - $34.41 $ 19.70
Granted 181,500 $29.91 - $34.75 $ 31.70
Exercised (95,500) $7.88 - $26.19 $ 11.56
Forfeited (1,500) $34.41 - $34.41 $ 34.41
===================== ===================== ===================
Outstanding at March 31, 1998 1,842,900 $7.88 - $34.75 $ 21.28
===================== ===================== ==================
</TABLE>
NOTE 5 - DIVIDEND DECLARATION
The Company declared a quarterly cash dividend of $0.10 per share on March
26, 1998, payable to stockholders of record as of April 10, 1998. The dividend
payable, totaling $2.0 million, was accrued as of March 31, 1998 and is
reflected in the accompanying interim consolidated financial statements.
NOTE 6 - MERGER-RELATED ACTIVITY
Concord Growth Corporation
The Company completed its acquisition of EXXE Data Corporation ("EXXE") and
its wholly owned commercial finance subsidiary, Concord Growth Corporation, on
March 17, 1997. Subsequent to the close of the transaction, EXXE was merged into
CGC and liquidated and CGC became a wholly owned 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, of up to $34 million, depending upon the financial
performance of CGC. The acquisition was accounted for under the purchase method
of accounting effective April 1, 1997. The aggregate acquisition costs exceeded
the fair value of the net assets acquired by approximately $21 million, which
was recorded as goodwill and which is being amortized on a straight-line basis
over a 15-year period.
11
<PAGE>
BAY VIEW CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
Ultra Funding, Inc.
Effective October 1, 1997, the Company, through its newly formed
subsidiary, Ultra Funding, Inc., acquired the origination capabilities and
certain assets of Ultra Funding, Ltd. of Austin, Texas. The purchase price
exceeded the fair value of the net assets acquired by approximately $400,000,
which is being amortized on a straight-line basis over a 7-year period.
America First Eureka Holdings, Inc.
The Company completed its acquisition of America First Eureka Holdings,
Inc. and its wholly owned subsidiary, EurekaBank, a federal savings bank, on
January 2, 1998. Pursuant to the Merger Agreement, the Company paid $90 million
in cash and $210 million in stock (8,076,923 shares of the Company's common
stock, a portion of which were issued from the Company's shares in treasury) to
America First Financial Fund 1987-A Limited Partnership, the sole shareholder of
AFEH, for a total purchase price of $300 million. The number of common shares
issued was based on the average value of the Company's common stock for the 20
full trading days ending on the fifth business day prior to the merger closing
date. Based on the average value of $34.3031 during this period and pursuant to
the Merger Agreement, the number of common shares issued was determined by
dividing the $210 million stock portion of the purchase price by $26.00 per
share.
The acquisition of AFEH was accounted for under the purchase method of
accounting effective January 2, 1998. The amount of goodwill recorded as of the
merger date was approximately $101 million, excluding core deposit intangibles
of approximately $12 million. This goodwill, representing the excess of the
purchase price over the fair value of net assets acquired, is being amortized on
a straight-line basis over a 20-year period. This goodwill amount is subject to
the finalization of purchase accounting adjustments.
The following represents the estimated allocation of the purchase price:
<TABLE>
<CAPTION>
-----------------
(UNAUDITED,
DOLLARS IN
THOUSANDS)
-----------------
<S> <C>
Cash paid $ 90,000
Value of common stock issued 210,000
Acquisition costs 4,456
-----------------
Total purchase price 304,456
Fair value of assets acquired 2,306,762
Fair value of liabilities assumed 2,103,482
-----------------
Net assets acquired 203,280
-----------------
Purchase price in excess of net assets acquired $ 101,176
=================
</TABLE>
12
<PAGE>
BAY VIEW CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
The unaudited pro forma financial information in the table below presents
the combined results of operations of the Company and AFEH for the first quarter
of 1997 as if the acquisition had occurred as of January 1, 1997. The pro forma
financial information is presented for informational purposes and is not
necessarily indicative of the results of operations which would have occurred
had the Company and AFEH constituted a single entity during the first quarter of
1997. The pro forma financial information is also not necessarily indicative of
the future results of operations of the combined company. In particular, the
Company expects to achieve certain cost savings as a result of the acquisition
which have not been included in the pro forma financial information.
<TABLE>
<CAPTION>
(Unaudited)
Three Months
Ended March 31,
1997
-----------------
(Dollars in
thousands, except
per share
amounts)
<S> <C>
Net increase income $ 34,296
Provision for loan losses 817
Noninterest income 5,299
Noninterest expense 26,350
---------
Net income $ 6,574
=========
Basic earnings per share $ 0.31
=========
Diluted earnings per share $ 0.30
=========
</TABLE>
The unaudited pro forma combined net income of $6.6 million for the first
quarter of 1997 consists of net income for the Company of $5.3 million and net
income for AFEH of $6.1 million, less pro forma adjustments of $4.8 million.
Significant pro forma adjustments include additional interest expense of $2.4
million relating to $100 million in subordinated debt issued in August 1997,
additional amortization expense of $1.5 million relating to goodwill and core
deposit intangibles created as a result of the acquisition and additional income
tax expense of $1.5 million representing additional income taxes that would have
been recognized utilizing the Company's effective income tax rates for the first
quarter of 1997, net of the tax impact of the pro forma adjustments. The
unaudited pro forma financial information excludes the utilization of net
operating loss carryforwards as the tax benefit associated with the net
operating loss carryforwards was established as a deferred tax asset as of the
acquisition date. As of January 2, 1997, AFEH had approximately $209 million in
net operating loss carryforwards for federal tax purposes which expire in
various years through 2007 and approximately $29 million in net operating losses
for state franchise tax purposes which expired in 1997.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STRATEGIC OVERVIEW
The Company is a diversified financial services company which operates from
three distinct business platforms:
* A Banking/Depository/Wholesale Platform ("Banking Platform") which is
comprised primarily of mortgage loans and mortgage-backed securities.
* A Consumer Finance Platform which is comprised of motor vehicle loans
originated by BVC and Ultra and motor vehicle and high loan to value
("HLTV") home equity loans purchased by the Company.
* A Commercial Finance Platform which is comprised of the factoring,
re-discount and warehouse lending activities of CGC and the asset-
based lending activities of BVFC, a division of CGC.
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
The Company's strategy centers around the continued expansion of its net
interest margin. In order to realize this objective, management is pursuing a
strategy that encompasses the following:
* Replacing lower-yielding mortgage loans and mortgage-backed securities
with consumer and commercial loans and leases with higher risk-adjusted
returns, shorter maturities and less sensitivity to interest rate
fluctuations.
* Enhancing BVB's deposit base by reducing higher-cost deposits and
expanding lower-cost transaction accounts by emphasizing relationship
banking and capitalizing on cross-sell opportunities with customers.
* De-emphasizing the less profitable elements of the Company's business
activities by ceasing residential mortgage loan originations and
reducing BVB's wholesale activities.
* Maintaining the capital of BVB at or above the minimum "well
capitalized" (as defined for bank regulatory purposes) level and
returning any excess capital to the Company.
* Redeploying such excess capital in businesses intended to generate
assets with higher risk-adjusted returns than those typically provided
by mortgage loans and mortgage-backed securities.
Banking Platform Strategies
The Banking Platform is largely represented by the operations of BVB which
has 56 branches serving primarily the San Francisco Bay Area. The Banking
Platform's strategic focus is to expand the retail deposit franchise through the
growth of "transaction accounts" (e.g., checking, savings and money market
accounts), instead of the higher-cost certificates of deposit, as a source of
financing for the Consumer Finance Platform and the Commercial Finance Platform.
As a result, transaction accounts at BVB as a percentage of total retail
deposits increased to 39.5% at March 31, 1998 as compared with 34.6% and 30.3%
at December 31, 1997 and 1996, respectively.
14
<PAGE>
Consumer Finance Platform Strategies
The Consumer Finance Platform is comprised of motor vehicle loans
originated by BVC and Ultra and motor vehicle and HLTV home equity loans
purchased by the Company.
Bay View Credit
BVC (formerly California Thrift & Loan) underwrites and purchases motor
vehicle loans and has successfully carved out a niche in the increasingly
competitive motor vehicle finance industry. BVC is headquartered in Covina,
California and operates 9 offices throughout California and the Western United
States. BVC became a subsidiary of Bay View Acceptance Corporation, a wholly
owned subsidiary of BVB, at December 31, 1997.
BVC's business strategy is to originate motor vehicle loans at rates which
generally exceed those offered by conventional financing sources while applying
its traditional underwriting criteria on a case-by-case basis to mitigate any
potential loan losses. BVC underwrites fixed-rate loans secured by new and used
motor vehicles. BVC'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, BVC has been able to charge interest rates higher than those typically
offered by traditional sources of motor vehicle financing, such as banks and
captive finance companies.
Reduction of Higher-Cost Customer Deposits
BVC's customer deposits were primarily comprised of thrift certificates
which were similar to certificates of deposit with the exception that they were
callable at par plus accrued interest. When thrift certificates were purchased
by customers, BVC reserved the right to repurchase the certificates at any time
upon thirty days notice. Utilizing this call provision, BVC redeemed the
higher-cost component (higher than BVB's incremental borrowing cost) of these
deposits at face value (approximately $267 million) as of December 31, 1996. The
remainder of the BVC customer deposits (which were lower in cost than BVB's
incremental borrowing cost) were sold to BVB in June 1997.
Sale and Securitization of Motor Vehicle Loan Portfolio
In January 1997, BVC sold $253 million of its motor vehicle loan portfolio
to BVSC. The motor vehicle loan portfolio was recorded at its fair value upon
acquisition assuming that such loans would be securitized and sold. As a result,
the only gain recorded on the sale and securitization was related to the changes
in the market interest rates between the acquisition date of BVC and the sale
and securitization of the loans. The Company ceased its securitization
activities in conjunction with the announcement of the EurekaBank acquisition.
Ultra Funding, Inc.
A significant source of the Consumer Finance Platform's loan purchases has
been a strategic alliance that began in November 1996 with Ultra Funding, an
originator of prime motor vehicle loans, whereby the Company had a right of
first refusal to purchase all of the motor vehicle installment contracts
originated by Ultra Funding which met the Company's underwriting criteria.
Effective October 1, 1997, the Company, through its newly created subsidiary,
Ultra Funding, Inc., acquired the origination capabilities and certain assets of
Ultra Funding. Ultra operates one office in Austin, Texas.
Strategic Alliances
The Company has previously announced strategic alliances with Onyx
Acceptance Corporation ("Onyx") for the purchase of motor vehicle loans and with
Lendco Financial Services, Inc. ("Lendco") for the purchase of motor vehicle
leases. The agreements with Lendco also provide the Company with an option to
acquire Lendco. During the first quarter of 1998, the Company purchased
approximately $15 million in motor vehicle loans from Onyx. The Company began
purchasing motor vehicle leases from Lendco during the second quarter of 1998.
15
<PAGE>
Commercial Finance Platform Strategies
The Commercial Finance Platform is comprised of CGC and BVFC, a division of
CGC. CGC, based in San Mateo, California, offers factoring, warehouse lines and
re-discount lines. BVFC, based in Encino, California, offers asset-based
lending. CGC's corporate vision is to become a preeminent nationwide provider of
asset-based lending, factoring, warehouse lines and re-discount lines to small
and middle market companies.
In December 1997, the Company announced an expansion of the Commercial
Finance Platform including the formation of a new asset-based lending group
known as Bay View Financial Corporation. Specifically, the Company expanded the
asset-based lending segment of the business by adding personnel with significant
industry experience, relocating the asset-based lending business to Southern
California, one of the top asset-based lending markets in the country, and
adding new and enhanced products to the Commercial Finance Platform's product
array. This expansion represents a significant step in achieving the Company's
goal of establishing a $200-300 million asset-based lending platform.
Strategic Alliance
The Company recently entered into a strategic alliance with Signature
Financial Group ("Signature"), a Danville, California-based company specializing
in small equipment leases nationwide. The agreement also provides the Company
with an option to acquire Signature. The Company began purchasing leases from
Signature during the second quarter of 1998.
RESULTS OF OPERATIONS
Net income was $5.1 million, or $0.24 per diluted share, for the first
quarter of 1998. This compares with net income of $5.3 million, or $0.39 per
diluted share, for the first quarter of 1997. Net income for the first quarter
of 1997 includes net interest income on the $253 million of motor vehicle loans
securitized and sold in January 1997 and the corresponding $925,000 gain on the
sale.
Core earnings (excluding special mention items discussed elsewhere herein)
were $7.0 million, or $0.34 per diluted share, for the first quarter of 1998.
This compares with core earnings of $5.3 million, or $0.39 per diluted share,
for the first quarter of 1997. Special mention items for the first quarter of
1998 largely consisted of the previously announced and anticipated operations
and systems integration expenses relating to the acquisition of EurekaBank,
which was consummated on January 2, 1998.
The following table illustrates the reconciliation of net income to core
earnings for the periods indicated:
<TABLE>
<CAPTION>
-------------------------------------
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------
MARCH 31, MARCH 31,
1998 1997
---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net income $ 5,060 $ 5,262
Special mention items, net of tax 1,973 21
---------------- ----------------
Core earnings (1) $ 7,033 $ 5,283
================ ================
Core earnings per diluted share (1) $ 0.34 $ 0.39
================ ================
</TABLE>
(1) Core earnings are calculated excluding special mention items. See "Special
Mention Items" for further discussion. Core earnings are not a measure of
performance under generally accepted accounting principles and should not
be considered as an alternative to net income as an indicator of the
Company's operating performance. Core earnings are included herein as
management believes they are a useful tool for investors and analysts in
assessing the Company's performance and trends excluding the impact of such
items. These measures may not be comparable to similarly titled measures
reported by other companies.
16
<PAGE>
TANGIBLE CASH EARNINGS
Tangible cash earnings are based on core earnings and exclude charges
related to the amortization of intangibles and charges tied to the Company's
common stock and include the utilization of Net Operating Loss ("NOL")
carryforwards acquired from AFEH.
The following table shows the components of tangible cash earnings for the
periods indicated:
<TABLE>
<CAPTION>
------------------------------------------
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------
MARCH 31, MARCH 31,
1998 1997
------------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Core earnings (1) $ 7,033 $ 5,283
Adjustments, net of tax:
Amortization of intangibles 2,403 496
Charges tied to common stock 65 60
------------------- -------------------
Tangible cash earnings (1) $ 9,501 $ 5,839
=================== ===================
Tangible cash earnings per diluted share (1) $ 0.46 $ 0.44
=================== ===================
Tangible cash return on average assets (2) 0.72% 0.76%
=================== ===================
Tangible cash return on average equity (2) 15.44% 12.48%
=================== ===================
</TABLE>
The following table shows the components of tangible cash earnings,
including the utilization of NOL carryforwards, for the periods indicated:
<TABLE>
<CAPTION>
------------------------------------------
THREE MONTHS ENDED (UNAUDITED)
------------------------------------------
MARCH 31, MARCH 31,
1998 1997
------------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Tangible cash earnings (1) $ 9,501 $ 5,839
Utilization of NOL carryforwards 2,739 -
------------------- -------------------
Tangible cash earnings, including the
utilization of NOL carryforwards (1) $ 12,240 $ 5,839
=================== ===================
Tangible cash earnings, including the
utilization of NOL carryforwards,
per diluted share (1) $ 0.59 $ 0.44
=================== ===================
Tangible cash return on average assets, including
the utilization of NOL carryforwards (2) 0.93% 0.76%
=================== ===================
Tangible cash return on average equity, including
the utilization of NOL carryforwards (2) 19.89% 12.48%
=================== ===================
</TABLE>
(1) See definition and discussion of core earnings included elsewhere herein.
(2) Average tangible assets (equity) are defined as average assets (equity) less
average intangible assets.
In conjunction with the acquisition of AFEH, the Company acquired
approximately $62 million in NOL carryforwards. The Company may utilize these
carryforwards, subject to annual limitations, to reduce its current liability
for federal and state income taxes. The Company estimates that it will be able
to utilize approximately $11.0 million in NOL carryforwards during 1998. The
component included as tangible cash earnings in the above reconciliation
represents the first quarter's pro rata portion of the estimated annual
utilization.
17
<PAGE>
EARNINGS BY BUSINESS PLATFORM
Net income (loss), by business platform, were as follows for the periods
indicated:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------------------------- --------------------------------
NET
INCOME/ PER DILUTED NET PER DILUTED
(LOSS) SHARE INCOME SHARE
--------------- ---------------- ----------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Banking Platform $ 4,552 $ 0.22 $ 4,496 $ 0.33
Consumer Finance Platform (1) 715 0.03 766 0.06
Commercial Finance Platform (2) (207) (0.01) - -
--------------- --------------- ---------------- -------------
Total $ 5,060 $ 0.24 $ 5,262 $ 0.39
=============== ================ ================= ==============
</TABLE>
Core earnings, by business platform, were as follows for the periods
indicated:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
THREE MONTHS ENDED (UNAUDITED)
--------------------------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------------------------- --------------------------------
CORE
EARNINGS/ PER DILUTED CORE PER DILUTED
(LOSS) (3) SHARE (3) EARNINGS (3) SHARE (3)
--------------- ---------------- ----------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Banking Platform $ 6,486 $ 0.31 $ 4,517 $ 0.33
Consumer Finance Platform (1) 754 0.04 766 0.06
Commercial Finance Platform (2) (207) (0.01) - -
--------------- ---------------- ---------------- --------------
Total $ 7,033 $ 0.34 $ 5,283 $ 0.39
=============== ================ ================= ==============
</TABLE>
(1) The Consumer Finance Platform was redefined during the first quarter of
1998 to include the Company's portfolio of HLTV home equity loans purchased
by the Company. The Company began purchasing HLTV home equity loans during
the third quarter of 1997.
(2) The Commercial Finance Platform was created with the acquisition of CGC
effective April 1997.
(3) See definition and discussion of core earnings included elsewhere herein.
NET INTEREST INCOME
Consolidated net interest income for the first quarter of 1998 was $36.9
million compared with $21.1 million for the first quarter of 1997. The increase
in consolidated net interest income was a result of a higher level of net
interest earning assets combined with a higher net interest margin. The
consolidated net interest margin was 2.90% for the first quarter of 1998 as
compared with 2.72% for the first quarter of 1997. Net interest margin on a pro
forma combined basis (i.e., including the acquisition of EurekaBank) for the
fourth quarter of 1997 would have been 2.82%. This pro forma net interest margin
for the fourth quarter of 1997 reflects the impact of EurekaBank's
lower-yielding portfolio of mortgage loans. The Company's consolidated net
interest margin for the month of March 1998 was 3.05%.
The increase in net interest margin during the first quarter of 1998,
compared with the pro forma net interest margin for the fourth quarter of 1997
and the Company's consolidated net interest margin for the first quarter of
1997, was a result of a decrease in the Company's funding costs combined with
the continuing shift in the earning assets mix towards assets with higher
risk-adjusted yields.
The strategic shift in the balance sheet from commodity-oriented, real
estate-based assets with lower risk-adjusted yields and higher prepayment risk
to consumer and commercial assets with higher risk-adjusted yields, shorter
maturities and lower prepayment risk is expected to continue. During the first
quarter of 1998, prepayments on loans (primarily mortgage) and mortgage-backed
securities were approximately $330 million, with over 75% of this amount
reinvested in consumer and commercial assets with higher risk-adjusted yields.
18
<PAGE>
A summary of consolidated net interest income and net interest margin follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997
---------------------------- -----------------------------
NET NET NET NET
INTEREST INTEREST INTEREST INTEREST
INCOME MARGIN INCOME MARGIN
------------ ------------ ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banking Platform $ 28,411 2.47% $ 18,603 2.52%
Consumer Finance Platform 6,313 5.59 2,452 6.09
Commercial Finance Platform (1) 2,210 16.90 - -
------------ ------------ ------------- ------------
Total $ 36,934 2.90% $ 21,055 2.72%
============ ============ ============= ============
</TABLE>
(1) The Commercial Finance Platform was created with the acquisition of CGC
effective April 1997.
Banking Platform
The Banking Platform's first quarter 1998 net interest margin was 2.47%
compared with 2.52% for the first quarter of 1997. The Banking Platform's net
interest margin was negatively impacted by the acquisition of EurekaBank's
lower-yielding portfolio of mortgage loans, high prepayment activity associated
with mortgage loans and mortgage-backed securities, and the additional interest
expense on the $100 million of subordinated debt issued in August 1997 (with an
all-in cost of 9.6%). This negative impact was essentially offset, however, by a
lower cost of funds related to retail deposits, as discussed elsewhere herein.
Consumer Finance Platform
The Consumer Finance Platform's first quarter 1998 net interest margin was
5.59% compared with 6.09% for the first quarter of 1997. The decrease in net
interest margin was a result of the aforementioned $253 million of motor vehicle
loans securitized and sold in January 1997 combined with lower yields on
originations. This was partially offset by the Company's purchase of $133
million of HLTV home equity loans during the first quarter of 1998 with net
yields averaging 11.2% and the decrease in the cost of deposits. The lower
yields on originations are due to pricing strategies, tighter underwriting
standards and competition within the industry.
At March 31, 1998, the Consumer Finance Platform had approximately $190
million in HLTV home equity loans compared with approximately $67 million at
December 31, 1997. While these loans involve a higher degree of risk than other
types of mortgage lending, they generally provide higher risk-adjusted yields.
During the first quarter of 1998, the Consumer Finance Platform originated
approximately $100 million in motor vehicle loans compared with $56 million
during the first quarter of 1997. BVC originated approximately $64 million in
motor vehicle loans during the first quarter of 1998 with an average yield of
10.7% and an average Fair Isaac Credit Bureau ("FICO") score of 700. Ultra
originated approximately $35 million in motor vehicle loans during this same
period with an average yield of 8.9% and an average FICO score of 670.
19
<PAGE>
Commercial Finance Platform
The Commercial Finance Platform's first quarter 1998 net interest margin
was 16.90% compared with 17.43% for the fourth quarter of 1997. This platform
was created as a result of the acquisition of CGC effective April 1, 1997.
Although still very strong, the decrease in net interest margin for the
Commercial Finance Platform during the first quarter of 1998 was a result of the
shift in the asset mix towards lower-yielding asset-based loans as well as
increased competition in the commercial finance industry. These lower yields,
combined with the costs associated with the expansion of the asset-based lending
business by BVFC, were responsible for the Commercial Finance Platform's small
operating loss during the first quarter of 1998. The Company anticipates that
these expansion efforts should lead to additional loan growth during the second
quarter of 1998 as evidenced by the strong pipeline of business at March 31,
1998.
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 interest expense by the average
balances of interest-earning assets or interest-bearing liabilities,
respectively, for the periods indicated. Average balances of interest-earning
assets and interest-bearing liabilities were derived primarily from daily
average balances.
20
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------
AVERAGE BALANCES, YIELDS AND RATES (UNAUDITED)
-------------------------------------------------------
THREE MONTHS ENDED
MARCH 31, 1998
-------------------------------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE
----------------- ------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
------
Interest-earning assets:
Loans receivable $ 3,953,437 $ 81,257 8.24%
Mortgage-backed securities (1) 908,955 15,255 6.71
Investments 164,823 2,551 6.26
----------------- ------------- ---------------
Total interest-earning assets 5,027,215 $ 99,063 7.90%
============= ===============
Other assets 362,316
=================
Total assets $ 5,389,531
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Interest-bearing liabilities:
Customer deposits $ 3,601,041 $ 40,996 4.62%
Borrowings (2) 1,317,764 21,133 6.46
----------------- ------------- ---------------
Total interest-bearing liabilities 4,918,805 $ 62,129 5.11%
============= ===============
Other liabilities 84,342
-----------------
Total liabilities 5,003,147
Stockholders' equity 386,384
=================
Total liabilities and stockholders'
equity $ 5,389,531
=================
Net interest income/net interest spread $ 36,934 2.79%
============= ===============
Net interest earning assets $ 108,410
=================
Net interest margin (3) 2.90%
===============
</TABLE>
<TABLE>
--------------------------------------------------
THREE MONTHS ENDED
MARCH 31, 1997
---------------------------------------------------
AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE
---------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
------
Interest-earning assets:
Loans receivable $ 2,321,742 $ 46,664 8.00%
Mortgage-backed securities (1) 567,013 9,231 6.51
Investments 144,830 2,261 6.31
---------------- ------------- ---------------
Total interest-earning assets 3,033,585 $ 58,156 7.64%
============= ===============
Other assets 57,697
================
Total assets $ 3,091,282
================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Interest-bearing liabilities:
Customer deposits $ 1,711,546 $ 19,594 4.64%
Borrowings (2) 1,125,235 17,507 6.27
---------------- ------------ ---------------
Total interest-bearing liabilities 2,836,781 $ 37,101 5.29%
============= ===============
Other liabilities 58,085
----------------
Total liabilities 2,894,866
Stockholders' equity 196,416
================
Total liabilities and stockholders'
equity $ 3,091,282
================
Net interest income/net interest spread $ 21,055 2.35%
============= ===============
Net interest earning assets $ 196,804
================
Net interest margin (3) 2.72%
===============
</TABLE>
(1) Average balances and yields for mortgage-backed securities available for
sale are based on amortized cost
(2) Interest expense for borrowing includes interest expense on interest rate
swaps of $611,000 and $930,000 for the three months ended March 31, 1998 and
1997, respectively.
(3) Annualized net interest income divided by average interest-earning assets.
21
<PAGE>
INTEREST INCOME
Interest Income on Loans Receivable
Interest income on loans was $81.3 million for the first quarter of 1998
compared with $46.7 million for the first quarter of 1997. The following table
is a summary of interest income on loans:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
THREE MONTHS ENDED (UNAUDITED)
-------------------------------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997
---------------------------------- -----------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT YIELD AMOUNT YIELD
--------------- --------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Banking Platform $ 66,771 7.74% $ 42,372 7.80%
Consumer Finance Platform 11,623 10.46 4,292 11.06
Commercial Finance Platform (1) 2,863 21.90 - -
=============== =============== ============== ===============
Total $ 81,257 8.24% $ 46,664 8.00%
=============== =============== ============== ===============
</TABLE>
(1) The Commercial Finance Platform was created with the acquisition of CGC
effective April 1997.
Banking Platform
- ----------------
The decrease in the Banking Platform's loan yields for the first quarter of
1998, compared with the first quarter of 1997, was primarily due to the impact
of EurekaBank's lower-yielding portfolio of mortgage loans with high prepayment
activity associated with mortgage loans and mortgage-backed securities.
Consumer Finance Platform
- -------------------------
The decrease in the Consumer Finance Platform's loan yields for the first
quarter of 1998, compared with the first quarter of 1997, was the result of the
aforementioned $253 million of motor vehicle loans securitized and sold in
January 1997 combined with lower yields on originations, as discussed elsewhere
herein, partially offset by the purchase of HLTV home equity loans beginning in
the third quarter of 1997.
Commercial Finance Platform
- ---------------------------
The Commercial Finance Platform's loan yields for the first quarter of 1998
were 21.90%. This platform was created as a result of the acquisition of CGC
effective April 1997.
Interest Income on Mortgage-backed Securities
Interest income on the Company's mortgage-backed securities ("MBS") was
$15.3 million for the first quarter of 1998 compared with $9.2 million for the
first quarter of 1997. The yields on MBS were 6.71% for the first quarter of
1998 compared with 6.51% for the first quarter of 1997. The increase in interest
income and yields was primarily attributable to the acquisition of EurekaBank's
MBS portfolio effective January 2, 1998. There were no MBS purchased in 1997 or
1998 as 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
$2.6 million for the first quarter of 1998 compared with $2.3 million for the
first quarter of 1997. The yields on investments were 6.26% for the first
quarter of 1998, down slightly from the 6.31% for the first quarter of 1997. The
increase in interest and dividend income from investments was primarily due to
the impact of the acquisition of EurekaBank's investment portfolio.
22
<PAGE>
INTEREST EXPENSE
Interest Expense on Customer Deposits
Interest expense on the Company's customer deposits was $41.0 million for
the first quarter of 1998 compared with $19.6 million for the first quarter of
1997. The cost of deposits was 4.62% for the first quarter of 1998 compared with
4.64% for the first quarter of 1997. The increase in interest expense was due to
the acquisition of EurekaBank's customer deposit balances partially offset by
the decrease in the cost of deposits.
The consolidated cost of deposits for the month of March 1998 was 4.55%.
This consolidated cost was 42 basis points below the Eleventh District Cost of
Funds Index ("COFI") of 4.97% (56 basis points below COFI for BVB on a
stand-alone basis and 31 basis points below COFI for EurekaBank on a stand-alone
basis). Transaction account balances as a percentage of total retail deposits
were 39.5% at March 31, 1998 compared with 34.6% and 30.3% at December 31, 1997
and 1996, respectively.
The following table summarizes the cost of deposits versus COFI:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
(UNAUDITED)
----------------------------------------------------------------------------------------------
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1998 1998 1998 1997 1996
CONSOLIDATED BVB EUREKABANK CONSOLIDATED CONSOLIDATED
---------------- -------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Cost of deposits 4.55% 4.41% 4.66% 4.71% 4.60%
COFI 4.97 4.97 4.97 4.95 4.84
---------------- -------------- --------------- ---------------- -----------------
Spread (0.42)% (0.56)% (0.31)% (0.24)% (0.24)%
below COFI
================ =============== =============== ================ =================
</TABLE>
The decrease in the cost of deposits during the first quarter of 1998 was
due to a combination of factors, including an increase in lower-cost transaction
accounts, primarily money market accounts, aggressive deposit pricing strategies
and the run-off of jumbo and brokered certificates of deposit.
Interest Expense on Borrowings
Interest expense on the Company's borrowings was $21.1 million for the
first quarter of 1998 compared with $17.5 million for the first quarter of 1997.
The cost of borrowings was 6.46% for the first quarter of 1998 compared with
6.27% for the first quarter of 1997. The increase in both interest expense on
borrowings and the cost of borrowings was primarily due to the Company's
issuance of $100 million in subordinated debt in August 1997 with an all-in cost
of 9.6%.
23
<PAGE>
Changes in Rate and Volume
The following table sets forth the changes in net interest income due to
changes in the rate and volume of the Company's interest-earning assets and
interest-bearing liabilities for the three months ended March 31, 1998 as
compared with the three months ended March 31, 1997. The variances include the
effects of the Company's acquisitions. Changes in rate and volume which cannot
be segregated (e.g., 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>
---------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1998 VS 1997 (UNAUDITED)
---------------------------------------------------------------
RATE VOLUME TOTAL
VARIANCE VARIANCE VARIANCE
----------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income:
Loans receivable $ 1,416 $ 33,177 $ 34,593
Mortgage-backed securities 292 5,732 6,024
Investments (18) 308 290
----------------- ------------------- -------------------
1,690 39,217 40,907
----------------- ------------------- -------------------
Interest expense:
Customer deposits (84) 21,486 21,402
Borrowings 546 3,080 3,626
----------------- ------------------- -------------------
462 24,566 25,028
----------------- ------------------- -------------------
Net interest income $ 1,228 $ 14,651 $ 15,879
================= =================== ===================
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $660,000 for the first quarter of 1998
compared with $565,000 for the first quarter of 1997. See "Balance Sheet
Analysis - Allowance for Loan Losses" discussed elsewhere herein.
NONINTEREST INCOME
Noninterest income for the first quarter of 1998 was $4.2 million compared
with $3.6 million for the first quarter of 1997. The increase in noninterest
income was due to the acquisitions of EurekaBank effective January 1998 and CGC
effective April 1997. Noninterest income for the first quarter of 1997 included
approximately $925,000 in gains on the securitization and sale of the
aforementioned $253 million motor vehicle portfolio in January 1997.
NONINTEREST EXPENSE
General and Administrative Expenses
General and administrative expenses were $27.7 million for the first
quarter of 1998 compared with $14.6 million for the first quarter of 1997. Core
general and administrative expenses, excluding special mention items, were $24.4
million for the first quarter of 1998 compared with $14.2 million for the first
quarter of 1997. Special mention items for the first quarter of 1998 consisted
of the previously announced and anticipated operations and systems integration
expenses related to the acquisition of EurekaBank. The higher general and
administrative expenses were attributable to the acquisitions of EurekaBank
effective January 1998, Ultra effective October 1997 and CGC effective April
1997.
24
<PAGE>
The following table reconciles general and administrative expenses to core
general and administrative expenses for the periods indicated:
<TABLE>
<CAPTION>
----------------------------------------
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------
MARCH 31, MARCH 31,
1998 1997
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
General and administrative expenses $ 27,742 $ 14,620
Special mention items (1) (3,364) (450)
------------------ ------------------
Core general and administrative expenses (1) $ 24,378 $ 14,170
================== ==================
</TABLE>
The following is a summary of general and administrative expenses, by
business platform, for the periods indicated:
<TABLE>
<CAPTION>
----------------------------------------
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------
MARCH 31, 1998 MARCH 31, 1997
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Banking Platform (includes BVB and the Company) $ 21,405 $ 12,330
Consumer Platform 4,243 2,290
Commercial Platform (2) 2,094 -
------------------ ------------------
Total $ 27,742 $ 14,620
================== ==================
</TABLE>
The following is a summary of core general and administrative expenses, by
business platform, for the periods indicated:
<TABLE>
<CAPTION>
----------------------------------------
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------
MARCH 31, 1998 MARCH 31, 1997
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Banking Platform (includes BVB and the Company) $ 18,107 $ 11,880
Consumer Platform 4,177 2,290
Commercial Platform (2) 2,094 -
------------------ ------------------
Total (1) $ 24,378 $ 14,170
================== ==================
</TABLE>
The following table summarizes the ratio of core general and administrative
expenses, by business platform, to average assets (including securitized
assets):
<TABLE>
<CAPTION>
----------------------------------------
THREE MONTHS ENDED (UNAUDITED)
----------------------------------------
MARCH 31, 1998 MARCH 31, 1997
------------------ ------------------
<S> <C> <C>
Banking Platform (includes BVB and the Company) 1.39% 1.64%
Consumer Finance Platform 2.64 2.63
Commercial Finance Platform (2) 10.14 -
------------------ ------------------
Total (1) 1.81% 1.74%
================== ==================
</TABLE>
(1) Core general and administrative expenses are calculated excluding special
mention items. See "Special Mention Items" for further discussion. Core
general and administrative expenses are not a measure of performance under
generally accepted accounting principles and should not be considered as an
alternative to consolidated general and administrative expenses as an
indicator of the Company's operating performance. Core general and
administrative expenses are included herein as management believes they are
a useful tool for investors and analysts in assessing the Company's
performance and trends excluding the impact of such items. These measures
may not be comparable to similarly titled measures reported by other
companies.
(2) The Commercial Finance Platform was created with the acquisition of CGC
effective April 1997.
25
<PAGE>
The Company's core consolidated efficiency ratio was 59.3% for the first
quarter of 1998 compared with 57.5% for the first quarter of 1997. The increase
during the first quarter of 1998, compared with the first quarter of 1997, was
due to the impact of the Company's acquisitions of CGC and Ultra in 1997
partially offset by the acquisition of EurekaBank in 1998.
Real Estate Owned Operations and Recovery of Losses on Real Estate
Net expense (income) from real estate owned operations and recovery of
losses on real estate was $13,000 for the first quarter of 1998 compared with
($470,000) for the first quarter of 1997. The decrease is primarily due to a
$415,000 recovery received the first quarter of 1997. See "Special Mention
Items" for further discussion.
Amortization and Write-down of Intangibles
The amortization and write-down of intangible assets was $2.7 million for
the first quarter of 1998 compared with $677,000 for the first quarter of 1997.
The increase is due to the amortization of intangibles arising from the
EurekaBank, Ultra and CGC acquisitions.
INCOME TAX EXPENSE
Income tax expense was $4.9 million for the first quarter of 1998 compared
with $4.0 million for the first quarter of 1997. The increase in the effective
tax rate to 49.3% for the first quarter of 1998, compared with 43.1% for the
first quarter of 1997, was primarily due to the increase in nondeductible
goodwill amortization.
SPECIAL MENTION ITEMS
The Company's net income for the periods indicated below included certain
items which deserve special mention and which are excluded from net income to
arrive at core earnings.
First Quarter 1998
* $3.4 million ($2.0 million after tax, or $0.10 per diluted share) related
to the acquisition of EurekaBank and related systems, operations and
re-engineering integration projects. The Company had previously disclosed
that during 1998 it expects to incur approximately $5.0 million ($2.9
million after tax) in costs associated with integrating EurekaBank into the
Company, including training, systems and operations integration and costs
for transitional personnel.
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. $250,000 credit to income relating
to the reversal of an accrual for the termination of BVB's data processing
contract.
* $415,000 recovery related to a real estate joint venture previously
written-off.
26
<PAGE>
BALANCE SHEET ANALYSIS
The Company's consolidated assets were $5.3 billion at March 31, 1998
compared with $3.2 billion at December 31, 1997. The increase in consolidated
assets was primarily due to the acquisition of EurekaBank.
SECURITIES
The Company maintains a portfolio of high-quality MBS, primarily issued by
the Federal Home Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage
Association ("FNMA") and Government National Mortgage Association ("GNMA").
The Company's securities portfolio at March 31, 1998 and December 31, 1997
was as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
(UNAUDITED)
MARCH 31, 1998 DECEMBER 31, 1997
----------------------------------- -------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------------- ---------------- ----------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
- -----------------
Investment securities $ 7,336 $ 7,336 $ 5,639 $ 5,639
Mortgage-backed securities:
FHLMC, FNMA and GNMA 229,648 230,368 54,526 54,402
--------------- ---------------- ----------------- ----------------
236,984 237,704 60,165 60,041
--------------- ---------------- ----------------- ----------------
HELD TO MATURITY
- ----------------
Investment securities 5,000 5,000 5,000 5,015
Mortgage-backed securities:
FHLMC, FNMA, GNMA
and other 652,405 650,287 415,859 413,980
--------------- ---------------- ----------------- ----------------
657,405 655,287 420,859 418,995
--------------- ---------------- ----------------- ----------------
$ 894,389 $ 892,991 $ 481,024 $ 479,036
=============== ================ ================= ================
</TABLE>
The Company sold $9.4 million in MBS securities from the available for sale
portfolio during the first quarter of 1998. There were no sales of MBS during
the first quarter of 1997 nor were there any purchases of MBS during the first
quarter of 1998 or 1997.
27
<PAGE>
LOANS AND REAL ESTATE OWNED
The following is a summary of the Company's loan portfolio at March 31,
1998 and December 31, 1997:
<TABLE>
<CAPTION>
-------------------------------------------
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Banking Platform:
Single-family mortgages $ 1,788,523 $ 550,506
Multi-family mortgages 1,068,819 1,026,148
Nonresidential 400,538 348,754
------------------ ------------------
3,257,880 1,925,408
Consumer Finance Platform:
Motor vehicle loans 368,819 298,627
Home equity and other consumer 279,491 128,570
------------------ ------------------
648,310 427,197
Commercial Finance Platform:
Commercial loans 56,106 54,120
------------------ ------------------
Gross loans receivable 3,962,296 2,406,725
Premiums and discounts, deferred fees
and advances 20,347 4,846
Allowance for loan losses (48,635) (38,458)
================== ==================
Net loans receivable $ 3,934,008 $ 2,373,113
================== ==================
</TABLE>
Management's strategy is to supplement its loan production with purchases
of loans with higher risk-adjusted yields. The following is a summary of loan
originations and loan purchases for the periods indicated:
<TABLE>
<CAPTION>
-----------------------------------
THREE MONTHS ENDED
(UNAUDITED)
-----------------------------------
MARCH 31, 1998 MARCH 31, 1997
--------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
LOAN ORIGINATIONS:
Real estate $ 26,733 $ 40,786
Motor vehicle 99,878 56,238
Commercial 9,059 -
Other 6,756 4,571
--------------- ----------------
Total originations $ 142,426 $ 101,595
=============== ================
LOAN PURCHASES:
Real estate $ 4,495 $ 29,823
Home equity 132,907 -
Motor vehicle 17,987 -
--------------- ----------------
Total purchases $ 155,389 $ 29,823
=============== ================
Total originations and purchases $ 297,815 $ 131,418
=============== ================
</TABLE>
The shift in loan origination and purchase activity as compared with the
first quarter of 1997 is consistent with the Company's strategy of focusing on
building the loan portfolios within the Consumer Finance Platform and the
Commercial Finance Platform with their higher risk-adjusted yields.
28
<PAGE>
CREDIT QUALITY
The Company defines nonperforming assets ("NPAs") as nonperforming loans
("NPLs"), defaulted MBS, real estate owned and other repossessed assets. The
Company defines NPLs 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. NPAs 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 lower than those prevailing in the market.
Overall credit quality has continued to remain strong as evidenced by the
trends in NPAs and delinquencies. The following table summarizes the Company's
NPAs and TDRs and reflects the acquisition of EurekaBank effective January 2,
1998:
<TABLE>
<CAPTION>
------------------------------------------------------------
(UNAUDITED)
MARCH 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans $ 13,705 $ 10,991 $ 16,125
Real estate owned 4,755 4,146 7,387
Other repossessed assets 1,008 629 798
----------------- ------------------ ------------------
Nonperforming assets 19,468 15,766 24,310
Troubled debt restructurings 388 731 509
================= ================== ==================
Total $ 19,856 $ 16,497 $ 24,819
================= ================== ==================
</TABLE>
A summary of trends in NPAs and delinquencies follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
NONPERFORMING ASSETS
AS A PERCENTAGE OF CONSOLIDATED TOTAL ASSETS
---------------------------------------------------------------------------------------
(UNAUDITED)
MARCH 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------- -------------------------- ---------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Banking Platform $ 17,435 0.32% $ 14,345 0.45% $ 23,323 0.71%
Consumer Finance Platform 1,468 0.03% 748 0.02% 987 0.03%
Commercial Finance Platform (1) 565 0.01% 673 0.02% - -
----------- ------------ ------------ ------------ ----------- ------------
Total $ 19,468 0.36% $ 15,766 0.49% $ 24,310 0.74%
=========== ============ ============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
LOANS DELINQUENT 60 DAYS OR MORE
AS A PERCENTAGE OF CONSOLIDATED LOANS
-------------------------------------------------------------------------------------------
(UNAUDITED)
MARCH 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- ---------------------------- ----------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Banking Platform $ 17,054 0.43% $ 21,526 0.90% $ 22,460 0.90%
Consumer Finance Platform 2,338 0.06% 1,045 0.04% 548 0.02%
Commercial Finance Platform (1) 565 0.01% 673 0.03% - -
------------ ----------- ------------ ------------ ------------ ------------
Total $ 19,957 0.50% $ 23,244 0.97% $ 23,008 0.92%
============ =========== ============ ============ ============ ============
</TABLE>
(1) The Commercial Finance Platform was created with the acquisition of CGC
effective April 1997.
29
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The Company conducts an ongoing review of its asset categories to assess
the adequacy of the allowance for loan losses which are maintained at levels
that the Company believes are sufficient to cover estimated possible losses in
the portfolios. In determining the level of the allowance for loan losses, the
Company considers a number of factors, including 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 loan losses at March 31, 1998 was
$48.6 million compared with $38.5 million and $36.4 million at December 31, 1997
and 1996, respectively, including approximately $7.4 million related to loans
held for sale at December 31, 1996. The increased in the allowance for loan
losses were primarily due to the reserves related to acquisitions.
The following table is a summary of the allowance for losses as a
percentage of NPAs, gross loans and total assets, respectively:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
ALLOWANCE FOR LOSSES
AS A PERCENTAGE OF SPECIFIED ASSETS
--------------------------------------------------------------------------------------------
(UNAUDITED)
MARCH 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
ASSETS PERCENT ASSETS PERCENT ASSETS PERCENT
<S> <C> <C> <C> <C> <C> <C>
Nonperforming Assets $ 19,468 250% $ 15,766 244% $ 24,310 150%
Gross Loans $3,962,296 1.23% $ 2,406,725 1.60% $ 2,505,656 1.46%
Total Assets $ 5,41,413 0.91% $ 3,246,476 1.18% $ 3,300,262 1.10%
</TABLE>
The following is a summary of changes in the allowance for loan losses for
the periods indicated (the beginning balances reflect the effects of the
acquisitions of EurekaBank in 1998, CGC in 1997 and BVC in 1996):
<TABLE>
<CAPTION>
----------------------------------------------------------
(UNAUDITED)FOR
THE THREE
MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED ------------------------------------
MARCH 31,
1998 1997 1996
--------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance $ 38,458 $ 29,013 $ 30,014
Reserves related to acquisitions 11,374 14,162 2,860
Charge-offs:
Real Estate and Other (411) (2,699) (5,927)
Consumer (3,280) (4,057) (474)
Commercial (185) (1,685) -
--------------- --------------- --------------
(3,876) (8,441) (6,401)
Recoveries:
Real Estate and Other 1,663 706 522
Consumer 285 955 120
Commercial 71 111 -
--------------- --------------- --------------
2,019 1,772 642
--------------- --------------- --------------
Net charge-offs (1,857) (6,669) (5,759)
Provision for loan losses 660 1,952 1,898
=============== =============== ==============
Ending balance $ 48,635 $ 38,458 $ 29,013
=============== =============== ==============
Ratio of net charge-offs to average loans 0.19% 0.28% 0.24%
=============== =============== ==============
</TABLE>
30
<PAGE>
The provision for loan losses was $660,000 for the first quarter of 1998,
primarily related to the Consumer Finance Platform, compared with $565,000 for
the first quarter of 1997. The provision for loan losses for the first quarter
of 1998 reflects the credit quality of the Company's loan portfolio as evidenced
by the low levels of NPAs and NPLs as well as the significant level of
recoveries during the first quarter of 1998. The increase in consumer
charge-offs during the first quarter of 1998 is a result of the continued growth
of the Consumer Finance Platform and includes approximately $1.3 million in
charge-offs related to the HLTV home equity loans.
CUSTOMER DEPOSITS
As a primary part of the Company's business, customer deposits are
generated for the purpose of funding loans. The customer deposits at March 31,
1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
(UNAUDITED)
MARCH 31, 1998 DECEMBER 31, 1997
------------------------------------------- --------------------------------------------
% OF WEIGHTED % OF WEIGHTED
TOTAL AVERAGE TOTAL AVERAGE
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
---------------- ----------- ------------- ---------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts $ 1,376,402 39.4% 3.20% $ 553,820 33.0% 2.97%
Retail CDs 2,105,455 60.3 5.41 1,045,152 62.3 5.51
Brokered CDs 10,100 0.3 5.60 78,163 4.7 5.82
================ =========== ============= ================ ============= =============
Total $ 3,491,957 100.0% 4.55% $ 1,677,135 100.0% 4.71%
================ =========== ============= ================ ============= =============
</TABLE>
BORROWINGS
The Company utilizes collateralized advances from the FHLBSF and other
borrowings such as securities sold under agreements to repurchase ("Reverse
Repurchase Agreements"), on a collateralized and noncollateralized basis, for
purposes of funding loans and investments. A summary of outstanding borrowings
at the dates indicated is as follows:
<TABLE>
<CAPTION>
-------------------------------------------
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
-------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Advances from FHLBSF $ 1,093,400 $ 1,110,270
Reverse repurchase
agreements 168,428 90,134
Subordinated notes 99,388 99,372
Senior debentures 50,000 50,000
----------------- ------------------
Total $ 1,411,216 $ 1,349,776
================= ==================
</TABLE>
LIQUIDITY
The Company's primary sources of funds include cash flows 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 origination and purchase of loans, repay maturing borrowings and fund
maturing time deposits and savings withdrawals.
31
<PAGE>
CAPITAL
BVB's regulatory capital at March 31, 1998 exceeded the minimum
requirements of each Office of Thrift Supervision ("OTS") regulatory capital
standard on a fully phased-in basis as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
(UNAUDITED)
-----------------------------------------------------------------------------------------
MINIMUM
ACTUAL REQUIREMENT EXCESS
------------------------- ---------------------------- ----------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ --------- ------------- ----------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible $ 321,849 6.26% $ 77,083 1.50% $244,766 4.76%
Core 322,491 6.28% 154,167 3.00% 168,324 3.28%
Total Risk-based 363,477 11.02% 263,822 8.00% 99,655 3.02%
</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 under capitalized institutions that it regulates.
Under capital guidelines enacted by FDICIA, BVB met the criteria for the "well
capitalized" standard at March 31, 1998 as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
(UNAUDITED)
-----------------------------------------------------------------------------------------
WELL CAPITALIZED
ACTUAL REQUIREMENT EXCESS
------------------------- ---------------------------- ----------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ --------- ------------- ----------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Leverage $ 322,491 6.28% $ 256,945 5.00% $ 65,546 1.28%
Tier I Risk-based 322,491 9.78% 197,866 6.00% 124,625 3.78%
Total Risk-based 363,477 11.02% 329,777 10.00% 33,700 1.02%
</TABLE>
YEAR 2000
The Year 2000 issue arises from computer programs that were written using
two digits rather than four to define the applicable year. As a result, computer
programs with time-sensitive software may have a difficult time distinguishing
between the year 2000 and the year 1900, causing potential disruptions of
operations, including among other things, potential miscalculations or an
inability to process transactions.
The majority of the Company's data processing capabilities are either
currently provided by third party vendors or are on systems that are in the
process of converting to third party vendors. Contracts with the Company's key
vendors require that the vendor be Year 2000 compliant. The Company continues to
monitor these vendors' progress towards Year 2000 compliance. Additionally, the
Company is evaluating all internal systems for potential Year 2000 compliance
issues. The Company currently estimates that its total internal and external
costs associated with making these internal systems Year 2000 compliant will be
approximately $1.0 million which the Company expects to fund through operating
cash flows.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131 ("SFAS 131"), "Disclosures About
Segments of an Enterprise and Related Information," which establishes annual and
interim reporting standards for a publicly held entity's operating segments and
related disclosures about its products, services, geographic areas, and major
customers. Adoption of this statement will not impact the Company's consolidated
financial position, results of operations or cash flows, and any effect will be
limited to the form and content of its disclosures. SFAS 131 will be effective
for the Company's December 31, 1998 financial statements.
32
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
ASSET AND LIABILITY MANAGEMENT
The objective of the Company's asset/liability management activities is to
improve earnings by adjusting the type and mix of assets and liabilities to
effectively address changing conditions and risks. Through overall management of
its balance sheet and by controlling various risks, the Company seeks to
optimize its financial returns within safe and sound parameters. The Company's
operating strategies for attaining this objective include:
* Managing net interest margin through appropriate risk/return pricing
of assets and liabilities.
* Increasing retail deposits as a percentage of interest-bearing
liabilities and reducing the Company's cost of funds.
* Utilizing the Company's strong capital position to boost the earnings
power through acquisition of quality assets with higher risk-adjusted
yields.
* Controlling noninterest expense and enhancing noninterest income,
utilizing improved information systems to facilitate the analysis of
the profitability of individual business units and products.
* Utilizing interest rate swap agreements and other hedging strategies
to reduce exposure to fluctuations in interest rates. Enhancing
internal analysis capability for measuring, evaluating and monitoring
risk.
INTEREST RATE RISK
Financial institutions are subject to interest rate risk to the degree that
interest-bearing liabilities reprice or mature on a different basis and at
different times than interest-earning assets. The Company's strategy has been to
reduce the sensitivity of its earnings to interest rate fluctuations by more
closely matching the effective maturities or repricing characteristics of its
assets and liabilities. Certain assets and liabilities, however, may react in
different degrees to changes in market interest rates. Further, interest rates
on certain types of assets and liabilities may fluctuate prior to changes in
market interest rates, while rates on other types may lag behind. Additionally,
certain assets, such as ARMs, have features, including payment and rate caps,
which restrict changes in their interest rates. The Company considers the
anticipated effects of these factors when implementing its interest rate risk
management objectives.
The Company pursues balance sheet strategies that should, in the long run,
mitigate its exposure to rising interest rates. The Company also considers other
strategies to minimize the variability of the net interest margin including
off-balance sheet activities. The Company has initiated numerous actions which
significantly reduced the Company's exposure to fluctuations in interest rates.
These actions are discussed as follows.
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-rate and floating-rate interest payment
obligations without the exchange of the underlying notional amounts. At March
31, 1998 and December 31, 1997, the Company was party to interest rate swap
agreements with notional principal amounts of $449 million, which involve the
receipt of floating interest rates (based on 3-month LIBOR) and payment of fixed
interest rates on the underlying notional amounts.
INTEREST RATE SENSITIVITY
The Company's interest rate risk policies are established and monitored by
its Asset/Liability Committee ("ALCO"). The ALCO reviews the sensitivity of the
Company's net interest income and market value of equity to interest rate
changes. The objective of the Company's ALCO activities is to improve earnings
by adjusting the types of assets and liabilities to effectively address changing
conditions and risks. Management believes that its asset/liability activities
have improved earnings within safe and sound parameters.
33
<PAGE>
In measuring interest rate sensitivity, the Company uses simulation
modeling to estimate the potential effects of movements in interest rates.
Interest rate sensitivity analysis measures the Company's interest rate risk by
computing estimated market value of equity ("MVE") based on the net present
value of cash flows from assets, liabilities and off-balance sheet items in the
event of a range of assumed changes in market interest rates. MVE is equal to
the market value of assets minus the market value of liabilities, with
adjustments made for off-balance sheet items. This analysis assesses the risk of
loss in market risk sensitive instruments in the event of a sudden and sustained
100 to 400 basis point increase or decrease in market interest rates.
The following table presents BVB's projected change in MVE, with and
without interest rate swaps, for the various basis points ("bp") rate shock
levels at March 31, 1998. All market risk sensitive instruments presented in
this table are held to maturity or available for sale. The Company has no
trading securities.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
CHANGES IN MARKET VALUE OF EQUITY (UNAUDITED)
-------------------------------------------------------------------------------
Projected Effect: +100 BP +200 BP +300 BP +400 BP
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
MVE without swaps $ 326,357 $ 276,424 $ 223,155 $ 166,960
MVE with swaps $ 338,425 $ 300,500 $ 258,903 $ 213,884
Impact of swaps $ 12,068 $ 24,076 $ 35,748 $ 46,924
----------------- -- ---------------- -- ----------------- -- ----------------
Projected Effect: -100 BP -200 BP -300 BP -400 BP
----------------- ---------------- ----------------- ----------------
MVE without swaps $ 413,134 $ 447,132 $ 485,207 $ 528,843
MVE with swaps $ 402,155 $ 425,567 $ 452,515 $ 484,431
Impact of swaps $ (10,979) $ (21,565) $ (32,692) $ (44,412)
</TABLE>
The change in MVE as a percentage of the present value of assets from an
immediate 200 bp increase in interest rates was 1.06% at March 31, 1998 as
compared with 0.59% at December 31, 1997.
The computation of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, loan prepayments and deposit decay, and should not be relied
upon as indicative of actual results. Further, the computations do not
contemplate any actions the Company may undertake in response to changes in
interest rates. Certain shortcomings are inherent in the method of analysis
presented in the computation of MVE. Actual values may differ from those
projections set forth in the table, should market conditions vary from
assumptions used in the preparation of the table.
To measure the Company's interest rate sensitivity, a cumulative gap
measure can also be used to assess the impact of potential changes in interest
rates on 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.
34
<PAGE>
The following table sets forth information regarding the combined asset
and liability repricing of the Company as of March 31, 1998:
<TABLE>
<CAPTION>
---------------------------------------------------------
REPRICING PERIOD (UNAUDITED)
---------------------------------------------------------
UNDER OVER OVER
ONE ONE TO THREE THREE TO FIVE
YEAR YEARS YEARS
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
------
Cash and investments (1) $ 135,413 $ 5,000 $ -
Loans and mortgage-backed securities (1) (2) 3,043,980 779,652 454,584
----------------- ----------------- -----------------
Total interest rate sensitive assets $ 3,179,393 $ 784,652 $ 454,584
================= ================= =================
LIABILITIES
-----------
Deposits:
Transaction accounts $ 1,376,402 $ - $ -
Certificates of deposit 1,744,168 311,201 58,728
Borrowings 1,151,228 161,832 4,359
----------------- ----------------- -----------------
Total interest rate sensitive liabilities $ 4,271,798 $ 473,033 $ 63,087
================= ================= =================
Repricing gap-positive (negative) before impact
of interest rate swaps $ (1,092,405) $ 311,619 $ 391,497
Impact of interest rate swaps 389,250 (161,750) (100,000)
================= ================= ================
(703,155) 149,869 291,497
================= ================= ================
Cumulative repricing gap-positive (negative) $ (703,155) $ (553,286) $ (261,789)
================= ================= ================
Cumulative repricing gap as a percentage of
interest rate sensitive assets
at March 31, 1998 (14.17%) (11.15%) (5.28%)
================= ================= ================
</TABLE>
<TABLE>
----------------------------------
REPRICING PERIOD (UNAUDITED)
----------------------------------
OVER
FIVE
YEARS TOTAL
---------------- --------------
<S> <C> <C>
ASSETS:
------
Cash and investments (1) $ 5,180 $ 145,593
Loans and mortgage-backed securities (1) (2) 538,565 4,816,781
---------------- --------------
Total interest rate sensitive assets $ 543,745 $ 4,962,374
================ ==============
LIABILITIES
-----------
Deposits:
Transaction accounts $ - $ 1,376,402
Certificates of deposit 1,458 2,115,555
Borrowings 99,388 1,416,807
---------------- --------------
Total interest rate sensitive liabilities $ 100,846 $ 4,908,764
================ ==============
Repricing gap-positive (negative) before impact
of interest rate swaps $ 442,899 $ 53,610
================
Impact of interest rate swaps (127,500)
================
315,399
================
Cumulative repricing gap-positive (negative) $ 53,610
================
Cumulative repricing gap as a percentage of
interest rate sensitive assets
at March 31, 1998 1.08%
================
</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.
35
<PAGE>
The following table sets forth information regarding the combined asset
and liability repricing of the Company as of December 31, 1997:
<TABLE>
<CAPTION>
---------------------------------------------------------
REPRICING PERIOD (UNAUDITED)
--------------------------------------------------------
UNDER OVER OVER
ONE ONE TO THREE THREE TO FIVE
YEAR YEARS YEARS
----------------- ----------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
------
Cash and investments $ 257,588 $ 5,000 $ -
Loans and mortgage-backed securities (1) 1,950,582 371,275 201,178
----------------- ----------------- ----------------
Total interest rate sensitive assets $ 2,208,170 $ 376,275 $ 201,178
================= ================= ================
LIABILITIES
-----------
Deposits:
Transaction accounts $ 553,820 $ - $ -
Certificates of deposit 1,007,420 110,987 4,908
Borrowings 1,101,604 135,000 20,000
----------------- ----------------- ----------------
Total interest rate sensitive liabilities $ 2,662,844 $ 245,987 $ 24,908
----------------- ----------------- ----------------
Repricing gap-positive (negative) before
impact of interest rate swaps $ (454,674) $ 130,288 $ 176,270
Impact of interest rate swaps 389,250 (111,750) (100,000)
----------------- ----------------- ----------------
(65,424) 18,538 76,270
----------------- ----------------- ----------------
Cumulative repricing gap-positive (negative) $ (65,424) $ (46,886) $ 29,384
================= ================= ================
Cumulative repricing gap as a percentage of
interest rate sensitive assets
at December 31, 1997 (2.11%) (1.51%) 0.95%
================= ================= ================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------
REPRICING PERIOD (UNAUDITED)
------------------------------------
OVER
FIVE
YEARS TOTAL
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
------
Cash and investments $ - $ 262,588
Loans and mortgage-backed securities (1) 320,339 2,843,374
---------------- ----------------
Total interest rate sensitive assets $ 320,339 $ 3,105,962
================ ================
LIABILITIES
-----------
Deposits:
Transaction accounts $ - $ 553,820
Certificates of deposit - 1,123,315
Borrowings 99,372 1,355,976
---------------- ----------------
Total interest rate sensitive liabilities $ 99,372 $ 3,033,111
---------------- ----------------
Repricing gap-positive (negative) before
impact of interest rate swaps $ 220,967 $ 72,851
================
Impact of interest rate swaps (177,500)
----------------
43,467
----------------
Cumulative repricing gap-positive (negative) $ 72,851
================
Cumulative repricing gap as a percentage of
interest rate sensitive assets
at December 31, 1997 2.35%
================
</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.
36
<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 Schedules (Exhibit 27)
b(i). The Registrant filed the following report on Form 8-K dated
January 2, 1998 during the three months ended March 31, 1998:
The Registrant completed its acquisition of AFEH on January 2,
1998.
b(ii). The Registrant filed the following report on Form 8-K dated
March 3, 1998 during the three months ended March 31, 1998:
The Board of Directors of the Registrant fixed May 28, 1998 as
the date of the Annual Meeting of Stockholders.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BAY VIEW CAPITAL CORPORATION
----------------------------
Registrant
DATE: May 15, 1998 BY: /s/ David A. Heaberlin
-------------------------
David A. Heaberlin
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
37
<PAGE>
Exhibit 12
COMPUTATIONS OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Quarter Ended
March 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Earnings:
Earnings before income tax expense $ 9,976 $ 9,246
Add:
Interest on advances and other
borrowings 21,136 17,507
Interest component of rental
expense 556 215
------- -------
Earnings before fixed charges
excluding interest on customer
deposits 31,668 26,968
Interest on customer deposits 40,996 19,594
------- -------
Earnings before fixed charges $72,664 $46,562
======= =======
Fixed Charges:
Interest on advances and other
borrowings 21,136 17,507
Interest component of rental
expense 556 215
------- -------
Fixed charges excluding interest
on customer deposits 21,692 17,722
Interest on customer deposits 40,996 19,594
------- -------
Total fixed charges $62,688 $37,316
======= =======
Ratio of earnings to fixed charges
including interest on customer deposits 1.16x 1.25x
Ratio of earnings to fixed charges
excluding interest on customer deposits 1.46x 1.52x
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 58,872 18,840
<INT-BEARING-DEPOSITS> 71 1
<FED-FUNDS-SOLD> 39,313 637
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 237,704 89,456
<INVESTMENTS-CARRYING> 657,405 585,643
<INVESTMENTS-MARKET> 655,287 571,362
<LOANS> 3,934,008 2,292,277
<ALLOWANCE> 48,635 27,906
<TOTAL-ASSETS> 5,341,413 3,044,610
<DEPOSITS> 3,491,957 1,655,840
<SHORT-TERM> 962,800 885,928
<LIABILITIES-OTHER> 43,944 40,196
<LONG-TERM> 454,007 270,512
0 0
0 0
<COMMON> 203 150
<OTHER-SE> 388,502 191,984
<TOTAL-LIABILITIES-AND-EQUITY> 5,341,413 3,004,610
<INTEREST-LOAN> 81,257 46,664
<INTEREST-INVEST> 17,806 11,492
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 99,063 58,156
<INTEREST-DEPOSIT> 40,996 19,594
<INTEREST-EXPENSE> 62,129 37,101
<INTEREST-INCOME-NET> 36,934 21,055
<LOAN-LOSSES> 660 565
<SECURITIES-GAINS> 112 0
<EXPENSE-OTHER> 30,501 14,827
<INCOME-PRETAX> 9,976 9,246
<INCOME-PRE-EXTRAORDINARY> 9,976 5,262
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,060 5,252
<EPS-PRIMARY> 0.25 0.40
<EPS-DILUTED> 0.24 0.39
<YIELD-ACTUAL> 2.90 2.72
<LOANS-NON> 13,705 13,167
<LOANS-PAST> 0 933
<LOANS-TROUBLED> 388 506
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 49,832 29,013
<CHARGE-OFFS> 3,876 (504)
<RECOVERIES> 2,019 50
<ALLOWANCE-CLOSE> 48,635 27,906
<ALLOWANCE-DOMESTIC> 48,635 27,906
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
