SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
CTL Credit, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation)
1-470
(Commission File Number)
77-0316097
(IRS Employer ID No.)
319 E. Carrillo St., Santa Barbara, CA
(Address of principal executive office)
93101
(Zip Code)
(805) 963-8743
(Registrant's telephone number, including area code)
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 last 90 days.
Yes X No
As of April 29, 1996, there were 3,457,500 shares of the registrant's
common stock outstanding.
PART I. FINANCIAL INFORMATION
<TABLE>
CTL CREDIT, INC.
Consolidated Balance Sheets (Unaudited)
<CAPTION>
Dollars in thousands March 31, 1996 December 31, 1995
____________________ ______________ _________________
<S> <C> <C>
Cash and cash equivalents $ 662 $ 4,120
Investment securities (market value
$21,412 at March 31, 1996 and
$17,795 at December 31, 1995) 21,428 17,757
FHLB stock 1,856 1,507
Receivables and contracts 508,545 503,270
Deductions:
Unearned finance charges and loan fees 26,689 28,599
Allowance for doubtful receivables 8,421 8,371
_______ _______
Net receivables and contracts 473,435 466,300
_______ _______
Accrued interest receivable 2,315 2,308
Goodwill 346 353
Premises and equipment, net 4,581 4,692
Real estate owned 2,128 2,488
Other assets acquired in settlement
of receivables 649 536
Other assets 581 734
_______ _______
Total assets $507,981 $500,795
========= ========
Thrift certificates payable $449,517 $441,660
Short-term borrowings 1,500 1,500
Due to bank 4,440 5,904
Accounts payable and accrued expenses 2,898 3,843
Federal and state taxes payable 820 256
Other liabilities 316 338
_______ _______
Total liabilities 459,491 453,501
_______ _______
Stockholders' equity:
Preferred stock, $.01 par value.
Authorized 1,000,000 shares;
none outstanding - -
Common stock, $.01 par value.
Authorized 7,000,000 shares;
issued and outstanding 3,456,700
shares in 1996 and 3,456,200 in
1995 35 35
Additional paid-in capital 34,450 34,444
Retained earnings 14,005 12,815
_______ _______
Total stockholders' equity 48,490 47,294
_______ _______
Total liabilities and stockholders'
equity $507,981 $500,795
======= =======
See accompanying notes to unaudited financial statements
</TABLE>
<TABLE>
CTL CREDIT, INC.
Consolidated Statements of Income (Unaudited)
<CAPTION>
Three months ended Three months ended
Dollars in thousands March 31, 1996 March 31, 1995
____________________ __________________ __________________
<S> <C> <C>
Interest income $ 13,849 $ 13,728
Interest expense 5,789 5,803
_______ _______
Net interest income before
provision for doubtful receivables 8,060 7,925
Provision for doubtful receivables 1,477 1,107
_______ _______
Net interest income after
provision for doubtful receivables 6,583 6,818
_______ _______
Other operating income:
Servicing income 102 234
Other income 533 515
_______ _______
Total other operating income 635 749
_______ _______
Operating expenses:
Salaries and employee benefits 3,017 3,319
Other operating expenses 2,164 2,514
_______ _______
Total operating expense 5,181 5,833
_______ _______
Income before income taxes 2,037 1,734
Provision for income taxes 847 722
_______ _______
Net income $ 1,190 $ 1,012
========= =========
Net income per share $ 0.34 $ 0.29
========= =========
Weighted average number of shares 3,456,475 3,450,000
========== =========
See accompanying notes to unaudited financial statements
</TABLE>
<TABLE>
CTL CREDIT, INC.
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Three months ended Three months ended
Dollars in thousands March 31, 1996 March 31, 1995
____________________ __________________ __________________
<S> <C> <C>
Cash flows from operating
activities:
Net income $ 1,190 $ 1,012
Adjustments to reconcile
net income to net cash provided
by operating activities:
Provision for doubtful
receivables 1,477 1,107
Depreciation and amortization 220 259
Loss on sale or write-down of
real estate owned 159 20
Other - -
Net increase in other assets (133) (5)
Net increase (decrease) in
other liabilities (896) 366
Increase in federal and state
income taxes payable 564 380
_______ _______
Net cash provided by operating
activities 2,581 3,139
_______ _______
Cash flows from investing
activities:
Net increase in receivables
and contracts (8,977) (9,988)
Investment securities purchased (12,284) (5,122)
Proceeds from maturities of
investment securities 8,900 5,200
Proceeds from sale of securities
held for sale - 1,000
Purchase of FHLB stock (349) (38)
Proceeds from sale of real 566 373
estate owned
Payments of senior liens on real
estate owned (72) (14)
Other increase (222) (371)
_______ _______
Net cash used in investing
activities: (12,438) (8,960)
_______ _______
Cash flows from financing activities:
Net increase in thrift
certificates payable 7,857 27,975
Decrease in short-term
borrowings and due bank (1,464) (15,644)
Sales of Common Stock 6 -
_______ _______
Net cash provided by
financing activities 6,399 12,331
_______ _______
Increase (decrease) in cash (3,458) 6,510
Cash at beginning of period 4,120 2,158
_______ _______
Cash at end of period $ 662 $ 8,668
======= =======
See accompanying notes to unaudited financial statements
</TABLE>
CTL CREDIT, INC.
Notes to Consolidated Financial Statements (Unaudited)
(1) Acquisition of California Thrift & Loan
On April 30, 1993, all of the issued and outstanding stock of CalThrift,
a wholly owned subsidiary of CalFed Bank, was acquired by CTLI for a cash
purchase price of approximately $30,756,000. The purchase price was
accounted for under the purchase method of accounting, and accordingly,
assets and liabilities were adjusted to and recorded at their estimated
fair values as of the date of acquisition.
Summarized below are the assets and liabilities recorded at fair values
at the date of acquisition:
<TABLE>
<CAPTION>
Value of assets Premiums or
acquired and discounts at date of
Dollars in thousands liabilities assumed acquisition
____________________ ____________________ ___________________
<S> <C> <C>
Assets:
Cash and cash equivalents $ 3,532 $ -
Investment securities 15,830 4
Receivables and contracts,
net of allowance 381,077 7,792
Premises and equipment 5,054 -
Federal and state
taxes receivable 2,643 -
Excess purchase price
over fair value of net
assets acquired 428 -
Other assets 5,615 433
_______ _______
Total assets $ 414,179 $ 8,229
======= =======
Liabilities:
Thrift certificates
payable $ 380,019 $ 8,229
Other liabilities 3,404 -
_______ _______
Total liabilities $ 383,423 $ 8,229
======= =======
Purchase price and other
acquisition costs $ 30,756
=======
</TABLE>
2) Financial Statement Presentation and Consolidation
The consolidated financial statements include, after intercompany
eliminations, all subsidiary accounts. All adjustments which, in the
opinion of management, are necessary for a fair presentation have been
reflected. These unaudited consolidated financial statements should
be read in conjunction with the audited consolidated financial statements
included in the Company's annual report on Form 10-K for the year ended
December 31, 1995.
3) Supplemental Cash Flow Information
During the three month period ended March 31, 1996, the Company paid
$284,000 in income taxes and $7,301,000 in interest expense. During the
three month period ended March 31, 1995, the Company paid $342,000 in
income taxes and $5,850,000 in interest expense.
4) Receivables, Contracts and the Allowance for Doubtful Receivables
Receivables and contracts, net of unearned finance charges and unearned loan
fees, are comprised of the following:
<TABLE>
<CAPTION>
Dollars in thousands March 31, 1996 December 31, 1995
(Unaudited) (Audited)
____________________ ______________ _________________
<S> <C> <C>
Motor vehicle loans $ 276,679 $ 266,106
Real estate loans 111,272 110,566
Commercial equipment leases 67,592 70,233
Other installment loans 18,381 19,608
Direct loans 7,932 8,158
_______ _______
Total receivables and contracts $ 481,856 $ 474,671
======= =======
Transactions in the allowance for doubtful receivables were as follows:
Three months ended Three months ended
Dollars in thousands March 31, 1996 March 31, 1995
(Unaudited) (Unaudited)
____________________ __________________ _________________
Balance, beginning of period 8,371 8,318
Provision for doubtful receivables 1,477 1,107
Receivables charged off 1,698 1,409
Recoveries on accounts charged off 271 219
_______ _______
Net charge-offs 1,427 1,190
_______ _______
Balance, end of period $ 8,421 $ 8,235
======== =======
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
CTL Credit, Inc. (NASDAQ: CTLI) was formed to raise capital through an
initial public offering to purchase all of the common stock of California
Thrift & Loan (CalThrift) and to assume certain lending operations of Cal
Fed Credit (CFC) from its previous parent, California Federal Bank
(CalFed). CTLI completed its initial public offering by selling 3,000,000
common shares at $11.00 per share on May 5, 1993 and an additional 450,000
common shares at $11.00 per share on June 4, 1993 by exercise of the
underwriter's overallotment option. The Company used substantially all of
the net proceeds of the offering to purchase and increase the capital of
CalThrift, which is presently the only operating subsidiary of CTLI. The
same senior management and directors serve both companies.
The Company's business is to originate loans and leases at rates which are
generally above those offered through more conventional financing sources,
such as commercial banks, while applying its traditional underwriting
criteria on a case-by-case basis so as to ensure that non-performing assets
and charge-offs remain at acceptable levels. The Company finances its
portfolio of receivables and contracts with FDIC insured deposits, which
are offered at rates slightly higher than those of competitive financial
institutions. The Company does not offer traditional banking services such
as checking accounts and ATMs.
The Company underwrites and purchases high yield consumer loans (primarily
motor vehicle loans), residential real estate loans and commercial
equipment leases. The Company's motor vehicle loans are purchased in
Arizona, California, Colorado, Illinois, Nevada, New Mexico, Oregon and
Texas. The Company's non-motor vehicle consumer loans (installment
contracts and direct loans) are purchased in Arizona, California,
Colorado, Nevada, New Mexico and Texas. The Company's commercial equipment
leases are purchased nationally, but primarily in California. The Company's
residential real estate loans are purchased in California. All underwriting
is performed in California offices, the Houston, Texas loan production
office or in the Chicago, Illinois loan production office. All servicing
is performed in California offices.
On February 5, 1996, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with Bay View Capital Corporation ("BVCC"), BVCC's
subsidiary BV Sub Corp., and CalThrift. Subject to the satisfaction or
waiver of certain conditions, including governmental approvals and the
approval of the Company's stockholders, the Agreement contemplates that BV
Sub Corp. will be merged with and into the Company, and the Company will
become a wholly owned subsidiary of BVCC. The Agreement provides that the
Company's stockholders will receive $18.00 per share, without interest, for
each share of the Company's common stock owned by them at the effective
time of the transaction, for an aggregate consideration of approximately $64.2
million in cash. The transaction is expected to close by June 30, 1996. The
Company has set May 17, 1996 as the date for a special meeting of stock-
holders to vote on the Agreement.
The Company's net income for the three month period ended March 31, 1996
was $1.2 million, or $0.34 per share, as compared to $1.0 million, or $0.29
per share, for the three month period ended March 31, 1995. The increase in
net income resulted primarily from a $0.1 million increase in net interest
income before the provision for doubtful receivables, a $0.4 million
increase in the provision for doubtful receivables, a $0.1 million
decrease in other income, a $0.7 million decrease in operating expenses and a
$0.1 million increase in income tax expense. The Company's annualized
return on average assets and on average stockholders' equity for the first
three months of 1996 was 0.95% and 9.95%, respectively, as compared to
0.83% and 9.46%, respectively, for the first three months of 1995.
Receivable originations for the first quarter of 1996 were $63.5 million as
compared to $53.3 million for the fourth quarter of 1995 and $61.4 million
for first quarter of 1995. During the first quarter of 1996, the fourth
quarter of 1995 and the first quarter of 1995, the Company purchased $3.5
million, $1.8 million and $2.7 million, respectively, of primarily variable
-rate real estate loan participations from one unrelated party in 1995 and
two unrelated parties in 1996. The Company does not service these real
estate loan participations. The Company may continue to purchase loans
originated by others where such loans meet the Company's credit quality
standards and asset management objectives. Loan originations for the
Chicago loan production office, which began operations in October 1995,
were $3.1 million for the first quarter of 1996 as compared to $0.9
million for the fourth quarter of 1995.
CalThrift is a party to Servicing Agreements with CFC, which provide that
CalThrift will service CFC's primarily motor vehicle loan portfolio through
maturity. In consideration of CalThrift's services, CFC pays to CalThrift
on a monthly basis 0.19% of the beginning monthly balance of the serviced
portfolio (or 2.25% on an annualized basis). This serviced portfolio is not
being replaced and will continue to runoff. The remaining balance of the
serviced portfolio at March 31, 1996 was $12.4 million as
compared to $30.8 million at March 31, 1995.
NET INTEREST INCOME BEFORE PROVISION FOR DOUBTFUL RECEIVABLES
Net interest income before the provision for doubtful receivables
increased from $7,925,000 for the three month period ended March 31, 1995
to $8,060,000 for the three month period ended March 31, 1996, an increase
of $135,000, or 1.7%. The increase in net interest income before the
provision for doubtful receivables was the net result of (1) an increase in
both net interest margin and average interest-earning assets from 6.28%
and $487.8 million, respectively, in the first quarter of 1995 to 6.37% and
$497.8 million, respectively, in the first quarter of 1996, which added
$294,000 to net interest income in the first quarter of 1996, (2) an
increase in mark-to-market amortization (described below) in the first
quarter of 1996 as compared to a year earlier, which added $143,000
and $22,000 to net interest income in 1996 and 1995, respectively, (3) and
a $280,000 premium amortization adjustment (described below), which added
$280,000 to net interest income in the first quarter of 1995.
The Company typically pays a premium to the automobile dealer when it
purchases an automobile contract. The Company capitalizes and then
amortizes these premiums paid as a reduction to interest income over the
life of the contract. Net interest income for the three months ended March
31, 1995 includes a one-time adjustment applicable to the way in which
premiums are amortized. Capitalized premiums were being amortized into
income at a faster rate than is required by generally accepted
accounting principles. The Company made an adjustment of $280,000 (before
taxes) to its consolidated financial statements in January 1995 which had
the effect of increasing the unamortized balance of capitalized premiums
and increasing interest income. This adjustment reflects the cumulative
effect of excess premium amortization on prior periods.
As discussed in note 1 to the unaudited consolidated financial
statements, CTLI acquired all of the outstanding stock of CalThrift in a
business combination accounted for as a purchase. Purchase accounting
adjustments resulted in both interest-earning assets and interest-bearing
liabilities of CalThrift being marked-to-market as of May 1, 1993. These
mark-to-market adjustments resulted in increases to interest-earning assets
and interest-bearing liabilities of $7.8 million and $8.2 million,
respectively. During the first quarter of 1996, mark-to-market amortization
resulted in reductions in interest income and interest expense of $795,000
and $938,000, respectively. During the first quarter of 1995, mark-to-
market amortization resulted in reductions in both interest income and
interest expense of $461,000 and $483,000, respectively. Mark-to-market
adjustments were fully amortized as of March 31, 1996.
Net interest spread is defined as the difference between the average
yield earned on interest-earning assets and the average rate paid on
interest-bearing liabilities. Net interest margin is defined as net
interest income before provision for doubtful receivables divided by
average interest-earning assets. The Company's net interest spread and net
interest margin, before mark-to-market amortization and the premium
amortization adjustment, was 5.78% and 6.37%, respectively, for the first
three months of 1996 as compared to 5.70% and 6.28%, respectively, for the
first three months of 1995.
Average yields on interest-earning assets and average rates on interest-
bearing liabilities, before mark-to-market amortization and the premium
amortization adjustment, increased from 11.46% and 5.76%, respectively, for
the first three months of 1995 to 11.78% and 5.99%, respectively, for the
first three months of 1996. The increase in the average yield on interest
earning assets and the average rate on interest-bearing liabilities
is primarily the result of increases in the Company's lending and borrowing
rates, both of which increased with interest rates in the US during 1995.
PROVISION FOR DOUBTFUL RECEIVABLES
The provision for doubtful receivables for the three month period ended
March 31, 1996 was $1.5 million as compared to $1.1 million for the three
month period ended March 31, 1995, an increase of $0.4 million, or 36.4%.
Net charge-offs for the first three months of 1996 were $1.4 million as
compared to $1.2 million for the first three months of 1995, an increase of
$0.2 million, or 16.7%. The allowance for doubtful receivables increased
from $8.2 million at March 31, 1995 to $8.4 million at March 31, 1996, an
increase of $0.2 million, or 2.4%.
Management maintains the allowance for doubtful receivables for the
inherent risk of potential future losses on receivables based upon
historical loan loss experience, the ratio of the allowance to total
delinquency, the ratio of the allowance to total receivables and forecasts
of the future level of charge-offs with respect to each category
of receivable. The annualized ratio of net charge-offs to average
receivables for the first three months of 1996 was 1.19%, which was
slightly above the Company's historical five year moving average net charge
-off ratio of 1.18%. The ratio of net charge-offs to average receivables
for 1995 was 1.01%, which was slightly below the historical five year
moving average. The ratio of the allowance for doubtful receivables to
receivables 30 or more days past due decreased from 138% at March 31, 1995
and 128% at December 31, 1995 to 105% at March 31, 1996. This decrease was
primarily the result of an increase in total delinquency from the first and
last quarters of 1995 to the first quarter of 1996. (See "Asset Quality"
below). The ratio of the allowance for doubtful receivables to total
receivables was 1.75% at March 31, 1996, 1.76% at December 31, 1995 and
1.75% at March 31, 1995. Management considers the dollar level of the
allowance for doubtful receivables at March 31, 1996 to be adequate.
ASSET QUALITY
The Company defines delinquent receivables as receivables 30 or more
days past due. Up to December 31, 1994 the Company did not classify a
customer's payment as delinquent if 50% or more of that payment was
received by the Company. The Company changed the 50% threshold to 75%
effective January 1995, and changed the 75% threshold to 90%, which is the
percentage used by the FDIC, effective January 1996. The following table
presents data with respect to the Company's delinquent receivables at
March 31, 1996, December 31, 1995 and March 31, 1995.
<TABLE>
<CAPTION>
Dollars in thousands March 31, 1996 December 31, 1995 March 31, 1995
___________________ _____________ ________________ _____________
<S> <C> <C> <C>
Delinquent receivables:
Consumer finance $ 2,270 $ 2,080 $ 1,630
Real estate loans 3,937 3,546 3,554
Commercial equipment
leases 1,285 918 801
_______ _______ _______
Total delinquency $ 7,492 $ 6,544 $ 5,985
======= ======= =======
Total receivables (1) $ 481,856 $ 474,671 $ 469,255
Allowance for doubtful
receivables 8,421 8,371 8,235
Ratio of total delinquency
to total receivables 1.55% 1.38% 1.28%
Ratio of the allowance
for doubtful receivables
to total delinquency 112% 128% 138%
(1) Net of unearned finance charges and deferred loan fees and before
the allowance for doubtful receivables
</TABLE>
The increase in the ratio of total delinquency to total receivables from
1.28% at March 31, 1995 to 1.55% at March 31, 1996 was primarily due to a $
0.4 million increase in real estate loan delinquency, a $0.6 million
increase in consumer loan delinquency and a $0.5 million increase in
commercial equipment lease delinquency. The increase in real
estate loan delinquency was primarily due to one real estate loan
participation, which had balances in excess of $400,000, which became 30
days delinquent at the end of the first quarter of 1996. This loan was
brought current in April of 1996. The increase in consumer loan delinquency
was primarily due to the change in the delinquency threshold from 75% to
90% effective January 1, 1996 as discussed above. The increase in
equipment lease delinquency is not attributable to any identifiable factors.
The Company defines non-performing receivables as receivables which are
90 or more days past due. The Company defines non-performing assets as non
-performing receivables plus REO and other assets acquired in settlement of
receivables. The following table presents data with respect to the
Company's non-performing assets at March 31, 1996, December 31, 1995 and
March 31, 1995.
<TABLE>
<CAPTION>
Dollars in thousands March 31, 1996 December 31, 1995 March 31, 1995
____________________ ______________ _________________ ______________
<S> <C> <C> <C>
Non-performing receivables:
Consumer finance $ 390 $ 388 $ 340
Real estate loans 1,716 2,313 1,782
Commercial equipment leases 590 326 522
______________________________________
Total 2,696 3,027 2,644
______________________________________
Real estate owned 2,128 2,488 2,049
Other assets acquired in
settlement of receivables 649 536 579
_______ _______ _______
Total non-performing assets $ 5,473 $ 6,051 $ 5,272
======= ======= =======
Total assets $ 507,980 $ 500,795 $ 500,951
Ratio of non-performing assets
to total assets 1.08% 1.21% 1.05%
</TABLE>
Non-performing assets decreased from $6.1 million at December 31, 1995
to $5.5 million at March 31, 1996. The decrease in non-performing assets is
primarily the result of a $0.6 million decrease in non-performing real
estate loans and a $0.4 million decrease in real estate owned. The
decreases in non-performing real estate loans and real estate owned is not
attributable to any identifiable factors.
The Company records REO at the lesser of the property's appraised
liquidation value or estimated selling price less estimated holding and
selling costs. Liquidation value is the forced or distressed sale value of
a property based on an expedited sale in a period shorter than the period
required to sell the property under normal conditions. The Company has not
yet determined whether it will continue to use a "forced sale" property
value, since this requirement may be deleted by the proposed 1996 revisions
to California regulations. All of the Company's REO properties are located
in California. Other assets acquired in settlement of receivables consist
primarily of repossessed automobiles and commercial equipment.
OTHER OPERATING INCOME
Other operating income decreased from $0.7 million for the three month
period ended March 31, 1995 to $0.6 million for the three month period
ended March 31, 1996, a decrease of $0.1 million, or 14.3%. The decrease
in other operating income was primarily due to a decrease in servicing
income in 1996 as compared to 1995.
Servicing income is derived from loans owned by CFC and serviced by
CalThrift. Servicing income totaled $0.1 million for the first three months
of 1996 as compared to $0.2 million for the first three months of 1995.
Each month this income source will continue to decline as the serviced
portfolio runs off. CalThrift does not service loans in which it has
purchased participating interests.
The following table presents data with respect to the Company's other
income for the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Dollars in thousands For the three months ended March 31,
____________________ ____________________________________
1996 1995
_______ _______
<S> <C> <C>
Late charges $ 278 $ 257
Prepayment penalties 90 73
Loan fees 67 51
Insurance income 15 13
FHLB stock income 25 40
Other income 58 81
_______ _______
Total other income $ 533 $515
======= =======
</TABLE>
OPERATING EXPENSES
Total operating expense for the three month period ended March 31, 1996 was
$5.2 million as compared to $5.8 million for the three month period ended
March 31, 1995, a decrease of $0.6 million, or 10.3%.
The largest component of total operating expense is personnel expense,
which totaled $3.0 million for the first three months of 1996 as compared
to $3.3 million for the first three months of 1995, a decrease of $0.3
million, or 9.1%. The decrease in personnel expense is primarily due to a
reduction in the number of full-time-equivalent (FTE) employees. The
average number of FTE employees decreased from 237 for the first
quarter of 1995 to 212 for the first quarter of 1996. The number of FTE
employees at March 31, 1996 was 208 as compared to 230 at March 31, 1995.
The decrease in FTE employees is primarily due to the Company's
centralization of loan servicing during the first half of 1995.
Other operating expenses were $2.2 million for the first three months of
1996 as compared to $2.5 million for the first three months of 1995, a
decrease of $0.3 million, or 12.0%. The following table presents data
with respect to the Company's other operating expenses for the three
months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Dollars in thousands For the three months ended March 31,
____________________ ____________________________________
1996 1995
_______ _______
<S> <C> <C>
Office expenses $ 375 $ 420
Occupancy 352 362
Data processing 237 264
Professional services 237 156
Depreciation and amortization 220 260
Travel and promotion 185 235
Tax, license and insurance 146 193
Net real estate owned
operating costs 105 44
Collection expense 75 26
FDIC deposit insurance
premium 1 241
Other 226 295
_______ _______
Total other operating
expenses $ 2,159 $ 2,496
======== ========
</TABLE>
FDIC deposit insurance premiums decreased from $241,000 in the first
quarter of 1995 to $1,000 in the first quarter of 1996 primarily as a
result of the FDIC reducing CalThrift's annual deposit insurance premium
from 0.23% of deposits to 0.04% of deposits effective June 1, 1995, and
from 0.04% of deposits to a flat $2,000 effective January 1, 1996.
Professional services expense increased from $156,000 in 1995 to $237,000
in 1996 primarily as a result of additional legal expenses incurred in
connection with the planned sale of the Company to BVCC.
INCOME TAX EXPENSE
Income tax provisions for the first three months of 1996 and 1995 were
based on an estimated combined federal and state income tax rate of
approximately 42%. Income tax expense accrued for the first three months of
1996 was $0.8 million as compared to $0.7 million for the first three
months of 1995. A tax-sharing policy for CTLI and CalThrift, which file
consolidated tax returns, provides for taxes to be allocated to the two
companies based on relative income.
INTEREST RATE RISK MANAGEMENT
The objective of the Company's policy of interest rate risk management
is to control the risks associated with interest rate movements by
appropriately matching the maturities of interest-earning assets with the
maturities of interest-bearing liabilities.
Management uses duration gap to measure its interest rate risk.
Duration gap attempts to measure the effect of a change in interest
rates on portfolio equity. Portfolio equity is defined as the difference
between the value of the Company's interest-earning asset portfolio and the
value of its interest-bearing liability portfolio. An exactly matched
company will have a duration gap of zero which means that the duration
(measured in months) of its interest-earning assets will equal the
duration of its interest-bearing liabilities, after adjusting for leverage.
Without taking into account basis risk (risk that an increase or decrease
in interest rates will affect lending and funding rates differently), a
rise or fall in market interest rates for an exactly matched company will
theoretically result in both the interest-earning asset and interest-bearing
liability portfolios being marked-to-market by the same amount thereby
having no effect on portfolio equity. A non-zero duration gap means that
portfolio equity will increase or decrease with changes in market interest
rate and that the magnitude of the change will increase in direct
proportion to the absolute value of the duration gap. The Company
calculates its duration gap using both contractual maturities and expected
maturities with more emphasis placed on the latter. The Company's
contractual and expected duration gap at March 31, 1996 was 10.1 months and
2.2 months, respectively. A positive duration gap means that portfolio
equity will decrease when interest rates rise (the mark-down of
interest-earning assets will be greater than the mark-down of interest-
bearing liabilities) but will increase when rates decline (the mark-up of
interest-earning assets will be greater than the mark-up of its interest-
bearing liabilities). Management estimates that with a positive expected
duration gap of 2.2 months, a 100 basis point parallel increase in
market interest rates will result in a 1.9% decrease in portfolio equity
while a 100 basis point parallel decrease in market interest rates will
result in a 1.9% increase in portfolio equity.
Management also monitors the RSA:RSL ratio. Rate sensitive assets (RSA) are
defined as short-term investments plus loans receivable. Rate sensitive
liabilities (RSL) are defined as short-term debt plus thrift deposits. The
RSA:RSL ratio is the ratio of rate sensitive assets to rate sensitive
liabilities maturing within six months and within twelve months. A ratio of
greater than 100% will enhance earnings in a rising interest rate
environment and inhibit earnings when rates decline. Conversely, a ratio of
less than 100% will inhibit earnings when interest rates increase but will
serve to enhance earnings when interest rates decline. A ratio of 100%
would indicate exact matching for the six and twelve month period to follow.
The Company's six and twelve month ratio was 62.5% and 59.5%, respectively,
at March 31, 1996 as compared to 61.7% and 60.8%, respectively, at December
31, 1995. RSA:RSL uses contractual maturities of receivables rather than
expected maturities. Management estimates that its recent historical monthly
receivable liquidation rate has been between 4.00% and 4.50%. Management
estimates that given this receivable liquidation rate, actual receivable
maturities will approximate contractual debt maturities.
LIQUIDITY
CTLI maintains liquidity principally in CalThrift so that it can pay
maturing deposits and finance the origination of receivables. CalThrift's
liquid investment portfolio at March 31, 1996 consisted of US Treasury Bills.
CalThrift's Treasury Bill portfolio at March 31, 1996 had a market value of
$17.6 million, a weighted average remaining maturity of 172 days and a
weighted average yield of 5.53%. CalThrift's ratio of cash and liquid
investments to non-liquid tangible assets was 3.71% at March 31, 1996 as
compared to 3.72% at December 31, 1995. CTLI, CalThrift's parent, had a liquid
investment portfolio at March 31, 1996 which consisted of US Treasury Bills
with a market value of $3.9 million, a weighted average remaining maturity
of 86 days and a weighted average yield of 4.98%.
For funding and additional liquidity, CalThrift maintains approximately $35
million in lines of credit: $15 million with the Federal Home Loan Bank of
San Francisco (FHLB) and $20 million with a large commercial bank. CalThrift
pledges as collateral on the FHLB line of credit certain real estate loans
which were underwritten and purchased by its real estate division located
in Covina, California. CalThrift pledges as collateral on the commercial
bank line its California auto receivables. The Federal Home Loan Bank
line had a balance outstanding of $1.5 million at March 31, 1996. Though
CalThrift drew on the commercial bank line of credit during the first
quarter of 1996, no balance was outstanding on this line at March 31, 1996.
CAPITAL RESOURCES
At March 31, 1996, CalThrift's Tier I and tangible capital, regulatory
measures comprised of common stockholders' equity less intangible assets,
amounted to $44.2 million as compared to $43.0 million at December 31,
1995. The increase in Tier I and tangible capital is due to CalThrift's
first quarter earnings less $180,000 in dividends paid to CTLI. (Such
dividends are the principal source of cash used by CTLI to pay expenses.
CTLI paid no dividends to stockholders during this period). CalThrift's
tangible capital ratio at March 31, 1996 was 8.77%. CalThrift's Tier I
capital ratio at March 31, 1996 was 9.43%. The minimum Tier I capital
ratio required by the FDIC at March 31, 1996 was 4.00%.
Tier II capital is comprised of Tier I capital plus the allowance for
doubtful receivables up to a maximum of 1.25% of risk-weighted assets.
CalThrift's Tier II capital and the risk-weighted capital ratio at March
31, 1996 were $50.0 million and 10.73%, respectively. The minimum
risk-weighted capital ratio required by the FDIC at March 31,1996 was
8.00%. Because CalThrift's risk-weighted capital ratio exceeds 10%, its Tier I
risk-based capital ratio exceeds 6%, and its ratio of Tier I capital to
total assets exceeds 5%, the FDIC considers CalThrift to be "well
capitalized".
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) REPORTS ON FORM 8-K. On February 8, 1996, the Company filed a Current
Report on Form 8-K. In this filing, the Company reported, under Item 5
("Other Events"), the Agreement and Plan of Merger with Bay View Capital
Corporation (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations -- General"
in Part I, above). A copy of the Agreement and Plan of Merger was
attached as an exhibit to the 8-K filing.
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.
CTL CREDIT, INC.
Robert O. Heavner
_________________
Date: May 2, 1996 Robert O. Heavner
Executive Vice President
Finance and Administration
(Chief Financial Officer)
(Also duly Authorized to Execute
on behalf of Registrant)
