SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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 0-15169
Loyola Capital Corporation
__________________________________________________________________________
Exact Name of Registrant as Specified in its Charter
Maryland #52-14779656
_______________________________ ___________________________________
State of Incorporation I.R.S. Employer Identification No.
1300 N. Charles St., Baltimore, Maryland 21201-5705
_______________________________ ___________________________________
Address of Principal Executive Offices Zip Code
Registrant's telephone number, including area code is (410) 787-3100
__________________________________________________________________________
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
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 and 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 ninety days.
Yes X No _________
On July 31, 1995, 8,114,575 shares of the Registrant's Common
Stock, $.10 par value, were outstanding.
1
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
10-Q Quarterly Report
Quarter Ended June 30, 1995
INDEX
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements:
Unaudited Consolidated Statements of Financial
Condition as of June 30, 1995 and December 31, 1994 3
Unaudited Consolidated Statements of Income for the
three months ended June 30, 1995 and 1994 and the six
months ended June 30, 1995 and 1994 4-5
Unaudited Consolidated Statements of Cash Flows for the
six months ended June 30, 1995 and 1994 6-7
Unaudited Note to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-16
Part II - Other Information 17
Signatures 18
Exhibit 11 - Calculation of Earnings Per Share 19
Exhibit 27 - Financial Data Schedule 20
2
Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
JUNE 30, DECEMBER 31,
1995 1994
------------ ------------
(IN THOUSANDS)
ASSETS
Cash and demand deposits $ 22,737 24,426
Money market investments 59,279 3,286
Investment securities, fair value $50,576
in 1995 and $114,709 in 1994 51,765 117,907
Mortgage-backed securities, fair value $214,708
in 1995 and $207,521 in 1994 220,011 229,429
Loans held for sale 65,426 31,006
Loans receivable, net 2,053,093 1,952,272
Investments in real estate, net 19,716 26,374
Federal Home Loan Bank of Atlanta stock, at cost 37,109 37,418
Property and equipment 25,091 24,707
Prepaid expenses and other assets 18,010 19,933
Deferred income taxes 7,455 6,078
------------ ------------
$ 2,579,692 2,472,836
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 1,518,276 1,469,925
Notes payable and other borrowings 805,968 777,577
Mortgage escrow accounts 51,543 27,918
Drafts payable 15,896 16,908
Federal and state income taxes 2,625 2,876
Accrued expenses and other liabilities 9,646 8,538
------------ ------------
Total liabilities 2,403,954 2,303,742
------------ ------------
Stockholders' equity:
Preferred stock, $.10 par value,
15,000,000 shares authorized, none issued --- ---
Common stock, $.10 par value, 35,000,000
shares authorized, 8,111,600 shares issued
and outstanding in 1995 and 8,091,699 shares
in 1994 811 809
Additional paid-in capital 44,258 44,118
Retained income, substantially restricted 130,669 124,167
------------ ------------
Total stockholders' equity 175,738 169,094
------------ ------------
$ 2,579,692 2,472,836
------------ ------------
------------ ------------
See accompanying note to consolidated financial statements.
3
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
-------- ------ ------ -----
(IN THOUSANDS EXCEPT PER-SHARE DATA)
INTEREST INCOME
Loans receivable $ 41,618 32,542 81,527 65,092
Mortgage-backed securities 3,387 3,664 6,844 7,364
Investments 2,070 2,321 4,401 5,207
-------- ------ ------ ------
Total interest income 47,075 38,527 92,772 77,663
-------- ------ ------ ------
INTEREST EXPENSE
Deposits 18,059 14,226 34,394 27,772
Notes payable and other borrowings 11,298 7,906 22,907 16,763
-------- ------ ------ ------
Total interest expense 29,357 22,132 57,301 44,535
-------- ------ ------ ------
NET INTEREST INCOME 17,718 16,395 35,471 33,128
PROVISION FOR LOAN LOSSES 236 180 437 360
-------- ------ ------ ------
Net interest income after
provision for loan losses 17,482 16,215 35,034 32,768
-------- ------ ------ ------
NONINTEREST INCOME
Service fees on loans 1,471 1,687 3,082 3,226
Service fees on deposits 392 253 713 474
Insurance commissions 695 580 1,232 1,066
Gain (loss) on sales of loans, net (52) 765 (114) 1,168
Other 363 231 645 450
-------- ------ ------ ------
Total noninterest income 2,869 3,516 5,558 6,384
-------- ------ ------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 6,734 6,920 13,235 13,279
Rent and other occupancy 1,156 1,173 2,413 2,333
Advertising 573 656 1,151 1,147
Data processing 1,621 1,647 3,230 3,275
Equipment 404 443 843 876
Federal deposit insurance and fees 935 920 1,869 1,839
Income on investments in real
estate, net (907) (293) (1,258) (64)
Other 2,503 2,262 4,965 4,657
-------- ------ ------ ------
Total noninterest expense 13,019 13,728 26,448 27,342
-------- ------ ------ ------
INCOME BEFORE INCOME TAXES 7,332 6,003 14,144 11,810
INCOME TAXES 2,951 2,362 5,695 4,679
-------- ------ ------ ------
NET INCOME $ 4,381 3,641 8,449 7,131
-------- ------ ------ ------
-------- ------ ------ ------
(continued)
4
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
-------- ------ ------ -----
(IN THOUSANDS EXCEPT PER-SHARE DATA)
NET INCOME PER SHARE
Primary $ .50 .42 .97 .83
Average shares primary 8,765 8,656 8,714 8,626
Fully diluted $ .50 .42 .97 .82
Average shares fully diluted 8,786 8,675 8,745 8,654
See accompanying note to consolidated financial statements.
5
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------
1995 1994
---------- ---------
(IN THOUSANDS)
Operating activities:
Net income $ 8,449 7,131
Adjustments to reconcile net income to
net cash provided by operating activities:
Loans originated for sale, net (139,737) (282,024)
Purchase of loans acquired for sale (72,128) (189,278)
Sales of loans originated for sale 177,331 549,112
Amortization of unearned loan fees (843) (644)
Depreciation and amortization 2,056 2,115
Deferred income taxes (1,377) (1,098)
Equity in net income of real estate
joint ventures (1,007) (1,369)
Net increase (decrease) in accrued
interest payable on deposits (1,676) 14
Provision for losses on loans and
investments in real estate 885 1,742
(Gain) loss on sales of loans 114 (1,168)
Gain on sale of real estate owned (621) (427)
Net increase in accrued expenses and
other liabilities 1,108 34
Net increase (decrease) in federal
and state income taxes payable (251) 1,964
Other, net 1,691 840
---------- ---------
Net cash provided (used) by
operating activities (26,006) 86,944
---------- ---------
Investing activities:
Loan originations (221,522) (236,954)
Loan fees deferred 931 2,713
Purchases of loans and participations in
loans (32,037) (41,683)
Principal repayments on loans 157,040 192,138
Purchases of investment securities and
Federal Home Loan Bank stock (11,990) (2,772)
Redemptions of investment securities and
Federal Home Loan Bank stock 77,843 58,196
Purchases of mortgage-backed securities --- (23)
Repayments of mortgage-backed securities 8,812 4,576
Net (increase) decrease in investments
in and advances to real estate joint ventures (807) 701
Net decrease in other real estate 4,782 3,869
Purchase of equipment (2,440) (1,696)
---------- ---------
Net cash used by investing
activities (19,388) (20,935)
---------- ---------
(continued)
6
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------
1995 1994
---------- ---------
(IN THOUSANDS)
Financing activities:
Net increase (decrease) in deposits 50,027 (1,625)
Net increase (decrease) in short-term
borrowings (original maturities
less than three months) 34,903 (217,797)
Proceeds from advances from Federal Home
Loan Bank of Atlanta 1,612,148 537,968
Repayment of advances from Federal Home
Loan Bank of Atlanta (1,619,200) (480,200)
Net increase in mortgage escrow accounts 23,625 23,273
Payment of dividends on common stock (1,945) (1,612)
Proceeds from exercise of stock options 140 184
---------- ---------
Net cash provided (used) by financing
activities 99,698 (139,809)
---------- ---------
Increase (decrease) in cash and cash equivalents 54,304 (73,800)
Cash and cash equivalents at beginning of period 27,712 94,000
---------- ---------
Cash and cash equivalents at end of period $ 82,016 20,200
---------- ---------
---------- ---------
See accompanying note to consolidated financial statements.
7
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
(Unaudited)
(1) Basis of Presentation
In the opinion of management of Loyola Capital Corporation (the
"Corporation"), the unaudited Consolidated Financial Statements contain all
adjustments (comprising only normal recurring accruals) necessary for a fair
presentation of the statements of financial condition, income and cash flows
for the periods presented (the "Statements"). The Statements have been
prepared using the accounting policies described in the 1994 Annual Report to
Stockholders.
Cash equivalents for purposes of the Consolidated Statements of Cash
Flows includes money market investments. Cash payments for income taxes were
$7.3 million and $3.8 million for the six months ended June 30, 1995 and
1994, respectively. Interest paid on deposits and borrowings was $58.2
million and $45.5 million for the six months ended June 30, 1995 and 1994,
respectively. Loans transferred to real estate acquired through foreclosures
were $1.2 million and $2.2 million for the six months ended June 30, 1995 and
1994, respectively. Loans originated to finance the sale of investments in
real estate were $4.7 million and $3.9 million for the six months ended June
30, 1995 and 1994, respectively.
Primary net income per common share has been computed based on the
weighted average number of shares of common stock and common stock
equivalents outstanding during the six months ended June 30, 1995 and 1994.
Fully diluted net income per common share is based on the average shares
outstanding during the six months ended June 30, 1995 and 1994, adjusted for
the dilutive effect of stock options, which are considered common stock
equivalents in the calculation of net income per common share.
The consolidated results of operations for the six months ended June 30,
1995 are not necessarily indicative of the results that may be expected for
the entire year. Certain amounts in the 1994 financial statements have been
reclassified to conform with the 1995 presentation.
The market values of investment securities and mortgage-backed securities
are shown in the Consolidated Statements of Financial Condition. Gross
unrealized gains and losses on such securities were as follows:
June 30, 1995 December 31, 1994
---------------------- ----------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
---------- ---------- ---------- ----------
(IN THOUSANDS)
Investment securities $ 5 1,194 18 3,216
Mortgage-backed securities --- 5,303 --- 21,908
The Corporation adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan" ("Statement 114"), as amended by Statement 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" (collectively referred to as "Statement 114") effective January 1,
1995. As of January 1, 1995 and June 30, 1995 the Corporation did not
have any loans which are considered to be impaired as defined in Statement
114.
8
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Interest Income
Net interest income increased 8.1% during the quarter and
7.1% for the six months ended June 30, 1995 when compared with
the prior year periods. The following table presents changes in
interest income and interest expense attributable to changes in
interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities for the periods
indicated.
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1995
Compared to 1994 Compared to 1994
---------------------- ----------------------
Increase(Decrease) Increase(Decrease)
---------------------- ----------------------
Due to Due to Due to Due to
Volume Rate Net Volume Rate Net
------- ------ ------ ------ ------ ------
(IN THOUSANDS)
Interest Income:
Mortgage loans $ 5,836 1,180 7,016 10,632 1,848 12,480
Construction loans 661 163 824 1,502 334 1,836
Consumer loans 1,226 10 1,236 2,297 (178) 2,119
Mortgage-backed securities (449) 172 (277) (1,097) 577 (520)
Investments (1,064) 813 (251) (2,615) 1,809 (806)
------- ------ ------ ------ ------ ------
Total interest-earning
assets 6,210 2,338 8,548 10,719 4,390 15,109
------- ------ ------ ------ ------ ------
Interest Expense:
Certificates of deposit 1,760 2,263 4,023 2,344 3,429 5,773
Money market deposits (327) 218 (109) 143 949 1,092
Other deposits (50) (31) (81) (196) (47) (243)
Short-term borrowings 2,819 564 3,383 4,752 2,146 6,898
Long-term borrowings (180) 189 9 (1,078) 324 (754)
------- ------ ------ ------ ------ ------
Total interest-bearing
liabilities 4,022 3,203 7,225 5,965 6,801 12,766
------- ------ ------ ------ ------ ------
Net interest income $ 2,188 (865) 1,323 4,754 (2,411) 2,343
------- ------ ------ ------ ------ ------
------- ------ ------ ------ ------ ------
The increase in net interest income for the quarter and the six months
ended June 30, 1995 was due primarily to the increased size of the mortgage
and consumer loan portfolios which was partially offset by the decline in the
Corporation's interest rate spread. Also contributing to this increase was
the redeployment of assets from lower-yielding investments and
mortgage-backed securities to higher-yielding mortgage and consumer loans.
The decline in the Corporation's interest rate spread for the quarter and the
six months ended June 30, 1995 was due primarily to higher market interest
rates when compared to the prior year periods which impact deposit and
short-term borrowing rates more quickly than mortgage rates.
The average balances of interest-earning assets and interest-bearing
liabilities increased during the quarter and the six months ended June 30,
1995 when compared to the same period for the prior year. These increases
reflect management's decision in 1994 to expand the level of interest-earning
assets thus leveraging the capital position of the Corporation's principal
subsidiary, Loyola F.S.B. (the "Bank").
9
The following table sets forth information regarding the dollar amount of
revenue from interest-earning assets and the resulting yields, as well as the
interest expense associated with interest-bearing liabilities for the three
and six month periods ended June 30. The table also reflects the interest
rate spread and the net interest margin on the Corporation's interest-earning
assets and the ratio of average interest-earning assets to average
interest-bearing liabilities.
Three Months Ended June 30,
----------------------------------------------------------
1995 1994
---------------------------- ---------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ --------- -------- ------
(DOLLARS IN THOUSANDS)
WEIGHTED AVERAGE YIELD ON:
Mortgage loans $1,581,360 31,419 7.95% 1,285,380 24,403 7.59%
Construction loans 88,566 2,521 11.42 64,951 1,696 10.48
Consumer loans 393,499 7,678 7.83 330,683 6,443 7.81
Mortgage-backed securities 229,911 3,387 5.89 260,821 3,664 5.62
Investments 131,540 2,070 6.31 212,446 2,321 4.38
---------- -------- --------- --------
Total interest-earning
assets $2,424,876 47,075 7.77 2,154,281 38,527 7.16
---------- -------- --------- --------
---------- -------- --------- --------
WEIGHTED AVERAGE RATES PAID ON:
Certificates of deposit $ 888,338 12,871 5.81 752,464 8,848 4.72
Money market deposits 370,326 3,855 4.18 402,518 3,965 3.95
Other deposits 297,010 1,333 1.80 308,000 1,413 1.84
Short-term borrowings 435,155 6,666 6.14 246,954 3,282 5.33
Long-term borrowings 328,091 4,632 5.66 341,135 4,624 5.44
---------- -------- --------- --------
Total interest-bearing
liabilities $2,318,920 29,357 5.08 2,051,071 22,132 4.33
---------- -------- --------- --------
---------- -------- --------- --------
Interest rate spread 2.69 2.83
Net yield 2.91 3.04
Ratio of average interest-earning
assets to average interest-bearing
liabilities 1.05 x 1.05 x
(continued)
10
Six Months Ended June 30,
----------------------------------------------------------
1995 1994
---------------------------- ---------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ --------- -------- ------
(DOLLARS IN THOUSANDS)
Weighted average yield on:
Mortgage loans $1,559,379 61,451 7.88% 1,288,158 48,970 7.60%
Construction loans 86,351 4,975 11.62 59,851 3,139 10.58
Consumer loans 387,031 15,101 7.87 328,205 12,983 7.98
Mortgage-backed securities 229,911 6,844 5.95 267,835 7,364 5.50
Investments 148,412 4,401 5.98 253,160 5,207 4.15
---------- -------- --------- --------
Total interest-earning
assets $2,411,084 92,772 7.71 2,197,209 77,663 7.09
---------- -------- --------- --------
---------- -------- --------- --------
Weighted average rates paid on:
Certificates of deposit $ 855,184 23,815 5.62 762,749 18,041 4.77
Money market deposits 383,317 7,876 4.14 375,561 6,785 3.64
Other deposits 292,318 2,703 1.86 313,451 2,946 1.90
Short-term borrowings 440,377 13,658 6.25 276,380 6,760 4.93
Long-term borrowings 332,805 9,249 5.60 371,907 10,003 5.42
---------- -------- --------- --------
Total interest-bearing
liabilities $2,304,001 57,301 5.02 2,100,048 44,535 4.28
---------- -------- --------- --------
---------- -------- --------- --------
Interest rate spread 2.69 2.81
Net yield 2.92 3.00
Ratio of average interest-earning
assets to average interest-bearing
liabilities 1.05 x 1.05 x
Non-accruing loans are included in the average balances for loans
receivable in the preceding table.
ASSET QUALITY
The provision for losses on loans and investments in real estate is
determined based on management's judgment concerning the inherent risks and
quality of the loan portfolio. Management considers a range of factors in its
regular review of asset quality. Such factors include historical loss
experience, the present and prospective financial condition of borrowers, the
estimated value of underlying collateral, geographical and industry
concentrations, economic conditions, delinquency experience and the status of
nonperforming assets. The adequacy of the allowances for losses on loans and
investments in real estate is determined through an asset classification
process performed on a quarterly basis. This process involves a consistent
detailed analysis of the loan and real estate portfolios and the related
allowances for losses. Management believes that based on these analyses, the
allowances for losses on loans and investments in real estate are adequate at
June 30, 1995.
11
The following is a summary of the Corporation's nonperforming assets as
of the dates indicated:
June 30, December 31,
1995 1994
-------- ------------
(IN THOUSANDS)
Nonaccrual loans $ 6,461 7,682
Troubled debt restructurings 1,455 1,461
Real estate acquired through foreclosure 13,137 20,601
Repossessed autos and boats 581 581
-------- ------------
$ 21,634 30,325
-------- ------------
-------- ------------
It is the Corporation's policy to place all loans 90 days or more past
due on nonaccrual status, accordingly, nonaccrual loans includes all loans 90
days or more past due plus loans which, in the opinion of management,
full collection of principal and interest is in doubt. A reserve for
uncollected interest on nonaccrual loans over 90 days past due is
maintained and adjusted monthly. This method effectively charges off
against interest income all accrued interest and places the account in
nonaccrual status when 90 days delinquent. All significant delinquent
residential and construction loans are reviewed by management on a
continuing basis to ascertain the adequacy of the allowance for loan losses.
Real estate acquired through foreclosure decreased $7.5 million
during the six months ended June 30, 1995 primarily due to the sale of a
hotel during the second quarter and sales of lots and condominium units in
various projects.
The following table presents the Corporation's allowances for losses
on loans and investments in real estate acquired through foreclosure as
of the dates indicated:
June 30, December 31,
1995 1994
-------- ------------
(DOLLARS IN THOUSANDS)
Consumer and commercial loans $ 11,496 10,560
Construction and mortgage loans 3,339 3,173
Real estate acquired through foreclosure 6,226 9,008
-------- ------------
$ 21,061 22,741
-------- ------------
-------- ------------
Ratio of allowances for losses to
nonperforming assets 97.4% 75.0
12
Provision for Loan Losses
The following table sets forth the activity in the allowance for loan
losses for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1995 1994 1995 1994
-------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Balance at beginning of period $ 13,796 14,252 13,733 14,625
-------- ------- ------- -------
Charge-offs 539 1,010 1,212 2,226
Recoveries 1,342 678 1,877 1,341
-------- ------- ------- -------
Net charge-offs (recoveries) (803) 332 (665) 885
-------- ------- ------- -------
Provision for loan losses 236 180 437 360
-------- ------- ------- -------
Balance at end of period $ 14,835 14,100 14,835 14,100
-------- ------- ------- -------
-------- ------- ------- -------
The provision for loan losses increased $56,000 for the quarter and
$77,000 for the six months ended June 30, 1995 when compared to the same
periods for the prior year. Charge-offs net of recoveries decreased $1.1
million for the quarter and $1.5 million for the six months ended June 30,
1995 when compared to the prior year periods. The increase in
recoveries was due primarily to the sale in the second quarter of
previously charged-off automobile loans which resulted in a recovery of
$850,000.
NONINTEREST INCOME
When compared with the same periods in 1994, noninterest income
decreased $647,000 for the quarter and $826,000 for the six months ended
June 30, 1995 primarily due to a decrease in gains on sales of loans which
totalled $817,000 for the quarter and $1.3 million for the six months ended
June 30, 1995. These decreases for the quarter and six months are the
result of a decline in the volume of loans sold on a servicing-released
basis as the Corporation experienced significantly lower loan
origination volumes.
NONINTEREST EXPENSES
Noninterest expenses decreased $709,000 for the quarter and $894,000 for
the six months ended June 30, 1995 when compared with the same periods
in 1994. The above decreases were due primarily to an increase in income
on investments in real estate of $614,000 for the quarter and $1.2 million
for the six months ended June 30, 1995 when compared to the prior year
periods.
The increases in income on investments in real estate were due
primarily to a reduction in the provision for losses on real estate acquired
through foreclosure. Such provisions declined $607,000 for the quarter
and $1.2 million for the six months ended June 30, 1995 when compared to
the prior year periods. The reduced provisions were due to a declining
level of foreclosed assets, recoveries of previously recognized losses due
to legal action and improving market conditions for the sale of such
properties.
Excluding the effect of the income on investments in real estate,
noninterest expense decreased $95,000 for the quarter and increased $300,000
for the six months ended June 30, 1995 when compared to the prior year
periods.
Salaries and employee benefits decreased $186,000 for the quarter and
$44,000 for the six months ended June 30, 1995 when compared with the same
periods in 1994. These decreases reflect reduced staffing levels resulting
from the restructuring of the Corporation's mortgage banking subsidiary
13
which was completed during the third quarter of 1994. Such decreases were
partially offset by lower loan origination volumes, which result in a higher
ratio of salaries and benefits charged to expense rather than being deferred
and expensed over the life of the related loans.
Other noninterest expenses increased $241,000 for the quarter and
$308,000 for the six months ended June 30, 1995 when compared to the prior
year periods. These increases were due primarily to increased amortization
of deposit purchase premiums on deposits purchased in the third quarter of
1994.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Money market investments increased $56.0 million while investment
securities decreased $66.1 million (56.1%) during the six months ended June
30, 1995. These changes were due to the reinvestment of matured
securities primarily into overnight federal funds.
Loans receivable increased $100.8 million (5.2%) at June 30, 1995
compared to December 31, 1994. This increase was due mainly to a greatly
reduced level of loan payoffs over the last six months. This reduced
level of loan payoffs together with increased volumes of adjustable
rate mortgage loans which are maintained in portfolio more than offset
the effect of the decrease in originations of fixed-rate mortgage loans.
LIQUIDITY AND CAPITAL RESOURCES
As a federal thrift institution, the Bank is required by its primary
regulator, the Office of Thrift Supervision ("OTS"), to maintain daily
average balances of liquid assets equal to 5% of net withdrawable accounts
and borrowings payable in one year or less. The Bank's liquidity ratio
averaged 5.0% for June, 1995, and 4.0% for December, 1994. The Bank's
liquidity ratio declined below the required 5% in December, 1994 due to
certain U.S. Treasury securities which had been pledged as collateral
on reverse repurchase agreements, thus disqualifying such
investments from the liquidity calculation. This shortfall was restored in
January, 1995.
The Bank's principal sources of funds are deposits, loan payments,
sales of loans, advances from the Federal Home Loan Bank of Atlanta,
reverse repurchase agreements and income from operations.
OTS regulations require that thrift institutions maintain the
following minimum capital levels: (a) tangible capital of 1.5% of adjusted
total assets, (b) core capital of 3% of adjusted total assets, and (c)
risk-based capital of 8.0% of total risk-weighted assets.
The tangible capital ratio seeks to measure the adequacy of capital to
assets without giving credit for the value of most intangible assets which
can be carried on the balance sheet of a thrift institution. The core
capital ratio also tests the strength of capital to assets but gives
credit for certain intangible assets. The risk-based capital requirement
involves weighting assets, commitments and obligations for credit and
other risk factors so that thrift institutions with higher risks of loss
will be required to maintain more capital than those with less risky
operations. A transitional rule which requires that an increasing
percentage of certain assets be eliminated from the calculations has the
effect of making the ratios progressively more difficult to achieve.
In August 1993, the OTS adopted a final rule for calculating an interest
rate risk ("IRR") component of risk-based capital. The new rule became
effective January 1, 1994, however, the IRR capital deduction discussed
below has been waived until the OTS publishes guidelines under which
institutions may appeal such a deduction. The OTS began calculating the
IRR component quarterly for each institution starting in 1994.
To estimate IRR, the OTS computes each institution's net portfolio
value ("NPV") in the present interest rate environment versus NPVs derived
after applying parallel rate shifts of plus and minus 200 basis points.
If there is a measured decline in NPV greater than 2% of the estimated
market value of the institution's assets at each of the three most
recent quarter ends, then an institution will be required to deduct an
IRR component in calculating its
14
risk-based capital. This component is equal to one-half of the difference
between its measured IRR and 2%, multiplied by the market value of its
assets.
Based upon the latest available quarterly proforma computations
of NPV by the OTS, the Bank's measured IRR exceeded 2% of the estimated
market value of its assets at September 30 and December 31, 1994 and March
31, 1995. Thus, the Bank's risk-based capital ratio may be reduced at
September 30, 1995. Such reduction is not expected to affect the Bank's
ability to meet its minimum capital requirements. However, it could
affect the Bank's capital category discussed below.
The prompt corrective action regulations of the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") define specific
capital categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Institutions categorized as
"undercapitalized" or worse are subject to certain defined restrictions. To
be considered "well capitalized," an institution must generally have a
leverage ratio of at least 5%, a tier one risk-based capital ratio of at
least 6%, and a total risk-based capital ratio of at least 10%. The Bank is
in the "well capitalized" category at June 30, 1995 based upon its capital
ratios noted below.
The table below presents the Bank's regulatory capital position at
June 30, 1995 relative to its various minimum regulatory capital
requirements applicable at that date and on a fully phased-in basis.
Fully Phased-In
Actual at Using June 30, 1995
June 30, 1995 Balances
----------------------- ---------------------
Percent of Percent of
Regulatory Regulatory
Amount Assets Amount Assets
----------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
Tangible capital $ 152,267 5.93% 145,480 5.68%
Tangible capital regulatory
requirement 38,537 1.50 38,422 1.50
----------- ---------- --------- ----------
Excess $ 113,730 4.43% 107,058 4.18%
----------- ---------- --------- ----------
----------- ---------- --------- ----------
Leverage (core) capital $ 152,267 5.93% 145,480 5.68%
Leverage (core) capital
regulatory requirement 77,074 3.00 76,844 3.00
----------- ---------- --------- ----------
Excess $ 75,193 2.93% 68,636 2.68%
----------- ---------- --------- ----------
----------- ---------- --------- ----------
Regulatory assets $ 2,569,134 2,561,455
----------- ---------
----------- ---------
Risk-based capital $ 163,948 10.27% 157,161 9.89%
Current risk-based capital
regulatory requirement 127,760 8.00 127,146 8.00
----------- ---------- --------- ----------
Excess $ 36,188 2.27% 30,015 1.89%
----------- ---------- --------- ----------
----------- ---------- --------- ----------
Risk-weighted assets $ 1,596,998 1,589,319
----------- ---------
----------- ---------
15
The Bank's excess risk-based capital increased as of June 30, 1995
when compared with December 31, 1994 primarily due to net income for the
six months ended June 30, 1995 which was partially offset by an increase
of $79.5 million in risk-weighted assets.
The primary reason for the decrease in capital on a fully phased-in
basis is the phase-out from capital of the Bank's investment in real
estate held for development and sale and investments in and advances to
real estate joint ventures.
IMPACT OF NEW ACCOUNTING STANDARDS
MORTGAGE SERVICING RIGHTS. In May 1995, the FASB issued Statement of
Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing
Rights" (Statement 122). Statement 122 is effective for years beginning
after December 15, 1995. Earlier application is permitted. The Statement
will require, among other provisions, the Bank to capitalize the estimated
fair value of servicing rights on loans originated for sale and amortize
such amount over the estimated servicing life of the loan. Management has
not determined when it will adopt the provisions of Statement 122
and has not estimated the effect of adoption on the Bank's financial
condition or results of operation.
RECENT DEVELOPMENTS
The Bank's premiums for deposit insurance are based upon rates
established for the Savings Association Insurance Fund ("SAIF") of the FDIC.
As SAIF remains substantially undercapitalized, legislation has been
introduced in Congress (i) to recapitalize SAIF, (ii) to merge SAIF with the
Bank Insurance Fund ("BIF"), and (iii) to provide for the payment of interest
on the Financing Corporation ("FICO") bonds issued in 1987. Under the
proposed legislation, a significant one-time special assessment may have to
be paid by the Bank (amounting to 85 cents to 90 cents per $100 of SAIF
insured deposits or between $13 million and $14 million based on deposits at
June 30, 1995). Further, the Bank would have to pay annually approximately
2.5 cents per $100 of insured deposits (in addition to regular deposit
insurance premiums) to fund FICO interest payments. Although passage of the
legislation appears likely, the ultimate form of the legislation, including
the timing and amount of any payments to be made thereunder, cannot be
determined at this time.
16
Part II
Other Information
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
a. None
b. None
Item 3. Defaults Upon Senior Securities.
a. None
b. None
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of the Corporation
was held on May 16, 1995. Proxies for the meeting were
solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934. There was no solicitation or
opposition to management's nominees as listed in the
Proxy Statement, and all such nominees were re-elected.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
a. None
b. The Registrant filed a Current Report on Form 8-K
on May 31, 1995 to report that it had entered into an
agreement and plan of merger on May 16, 1995 and
related stock option agreement with Crestar Financial
Corporation ("Crestar") under which the outstanding
Common Stock of the Registrant would be exchanged for
between .64 and .75 shares of Crestar Common Stock (the
"Acquisition"). The Acquisition is subject to approval
by regulators and the Registrant's stockholders.
17
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.
Loyola Capital Corporation
________________________________________
(Registrant)
August 11, 1995 /s/ James V. McAveney
Date _______________________ By _____________________________________
James V. McAveney
Executive Vice President,
Chief Financial
Officer and Treasurer
August 11, 1995 /s/ Dennis P. Neville
Date ______________________ By _____________________________________
Dennis P. Neville
Senior Vice President and
Controller
18