SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 September 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
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Loyola Capital Corporation
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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
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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 October 31, 1995, 8,123,722 shares of the Registrant's Common Stock,
$.10 par value, were outstanding.
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
10-Q Quarterly Report
Quarter Ended September 30, 1995
INDEX
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements:
Unaudited Consolidated Statements of Financial
Condition as of September 30, 1995 and
December 31, 1994 3
Unaudited Consolidated Statements of Income for the
three months ended September 30, 1995 and 1994 and
the nine months ended September 30, 1995 and 1994 4-5
Unaudited Consolidated Statements of Cash Flows for
the nine months ended September 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)
September 30, December 31,
1995 1994
------------- ------------
(IN THOUSANDS)
ASSETS
Cash and demand deposits $ 26,439 24,426
Money market investments 47,306 3,286
Investment securities, fair value $45,824 in 1995
and $114,709 in 1994 46,710 117,907
Mortgage-backed securities, fair value $208,735 in 1995
and $207,521 in 1994 213,679 229,429
Loans held for sale 42,561 31,006
Loans receivable, net 2,063,844 1,952,272
Investments in real estate, net 16,754 26,374
Federal Home Loan Bank of Atlanta stock, at cost 36,053 37,418
Property and equipment 24,949 24,707
Prepaid expenses and other assets 18,626 19,933
Deferred income taxes 5,930 6,078
------------- ------------
$ 2,542,851 2,472,836
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 1,532,640 1,469,925
Notes payable and other borrowings 781,712 777,577
Mortgage escrow accounts 23,088 27,918
Drafts payable 12,222 16,908
Federal and state income taxes 3,885 2,876
Accrued expenses and other liabilities 11,774 8,538
------------- ------------
Total liabilities 2,365,321 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,
8,120,541 shares issued and outstanding in 1995 and
8,091,699 shares in 1994 812 809
Additional paid-in capital 44,327 44,118
Retained income, substantially restricted 132,391 124,167
------------- ------------
Total stockholders' equity 177,530 169,094
------------- ------------
$ 2,542,851 2,472,836
============= ============
See accompanying note to consolidated financial statements.
3
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER-SHARE DATA)
INTEREST INCOME
Loans receivable $ 42,649 34,961 124,176 100,053
Mortgage-backed securities 3,298 3,606 10,142 10,970
Investments 2,002 1,981 6,403 7,188
-------- -------- -------- --------
Total interest income 47,949 40,548 140,721 118,211
-------- -------- -------- --------
INTEREST EXPENSE
Deposits 18,889 14,833 53,283 42,605
Notes payable and other borrowings 11,500 8,986 34,407 25,749
-------- -------- -------- --------
Total interest expense 30,389 23,819 87,690 68,354
-------- -------- -------- --------
NET INTEREST INCOME 17,560 16,729 53,031 49,857
PROVISION FOR LOAN LOSSES 231 150 668 510
-------- -------- -------- --------
Net interest income after provision for loan losses 17,329 16,579 52,363 49,347
-------- -------- -------- --------
NONINTEREST INCOME
Service fees on loans 1,494 1,667 4,576 4,893
Service fees on deposits 399 270 1,112 744
Insurance commissions 679 641 1,911 1,707
Gain on sales of loans, net 547 460 433 1,628
Other 349 265 994 715
-------- -------- -------- --------
Total noninterest income 3,468 3,303 9,026 9,687
-------- -------- -------- --------
NONINTEREST EXPENSE
Salaries and employee benefits 6,583 6,644 19,818 19,923
Rent and other occupancy 1,313 1,269 3,726 3,602
Advertising 644 483 1,815 1,630
Data processing 1,591 1,572 4,821 4,847
Equipment 376 435 1,219 1,311
Federal deposit insurance and fees 969 926 2,838 2,765
(Income) loss on investments in real estate, net (68) 20 (1,326) (44)
Other 2,690 2,359 7,655 7,016
-------- -------- -------- --------
Total noninterest expense 14,118 13,708 40,566 41,050
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 6,679 6,174 20,823 17,984
INCOME TAXES 3,009 2,418 8,704 7,097
-------- -------- -------- --------
NET INCOME $ 3,670 3,756 12,119 10,887
======== ======== ======== ========
(continued)
4
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER-SHARE DATA)
NET INCOME PER SHARE
Primary $ .41 .43 1.38 1.25
Average shares primary 8,802 8,692 8,743 8,648
Fully diluted $ .41 .43 1.38 1.25
Average shares fully diluted 8,811 8,692 8,767 8,667
See accompanying note to consolidated financial statements.
5
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
------------------------
1995 1994
---------- ----------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net income $ 12,119 10,887
Adjustments to reconcile net income to net cash provided by
operating activities:
Loans originated for sale, net (246,861) (379,024)
Purchase of loans acquired for sale (126,016) (249,277)
Sales of loans originated for sale 361,756 708,970
Amortization of unearned loan fees (1,383) (1,287)
Depreciation and amortization 3,046 3,199
Deferred income taxes 148 489
Equity in net income of real estate joint ventures (1,461) (2,177)
Net increase (decrease) in accrued interest payable on deposits (194) 17
Provision for losses on loans and investments in real estate 1,564 2,605
Gain on sales of loans (433) (1,628)
Gain on sale of real estate owned (933) (514)
Net increase (decrease) in accrued expenses and other liabilities 3,236 (269)
Net increase in federal and state income taxes payable 1,009 400
Other, net 843 (3,277)
---------- ----------
Net cash provided by operating activities 6,440 89,114
---------- ----------
INVESTING ACTIVITIES:
Loan originations (333,921) (392,653)
Loan fees deferred 1,375 3,931
Purchases of loans and participations in loans (34,615) (82,987)
Principal repayments on loans 262,460 275,518
Purchases of investment securities and Federal Home Loan Bank stock (14,167) (6,161)
Redemptions of investment securities and Federal Home Loan Bank stock 86,061 67,196
Purchases of mortgage-backed securities -- (23)
Repayments of mortgage-backed securities 15,079 9,177
Net (increase) decrease in investments in and advances to real estate joint ventures 459 (434)
Net decrease in other real estate 6,026 4,736
Purchase of equipment (3,288) (2,384)
Other, net -- (467)
---------- ----------
Net cash used by investing activities (14,531) (124,551)
---------- ----------
(continued)
6
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
------------------------
1995 1994
---------- ----------
(IN THOUSANDS)
FINANCING ACTIVITIES:
Net increase in deposits 62,909 8,436
Net increase (decrease) in short-term borrowings (original maturities less
than three months) 27,583 (166,085)
Proceeds from advances from Federal Home Loan Bank of Atlanta 1,980,945 961,718
Repayment of advances from Federal Home Loan Bank of Atlanta (2,008,800) (836,178)
Net increase in mortgage escrow accounts (4,830) (527)
Payment of dividends on common stock (3,894) (2,420)
Proceeds from exercise of stock options 211 262
---------- ----------
Net cash provided (used) by financing activities 54,124 (34,794)
---------- ----------
Increase (decrease) in cash and cash equivalents 46,033 (70,231)
Cash and cash equivalents at beginning of period 27,712 94,000
---------- ----------
Cash and cash equivalents at end of period $ 73,745 23,769
========== ==========
See accompanying note to consolidated financial statements.
7
LOYOLA CAPITAL CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
September 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
$7.5 million and $6.1 million for the nine months ended September 30, 1995
and 1994, respectively. Interest paid on deposits and borrowings was $87.7
million and $68.6 million for the nine months ended September 30, 1995 and
1994, respectively. Loans transferred to real estate acquired through
foreclosures were $1.9 million and $2.8 million for the nine months ended
September 30, 1995 and 1994, respectively. Loans originated to finance the
sale of investments in real estate were $6.0 million and $4.0 million for the
nine months ended September 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 nine months ended September 30, 1995 and
1994. Fully diluted net income per common share is based on the average
shares outstanding during the nine months ended September 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 nine months ended
September 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:
September 30, 1995 December 31, 1994
----------------------- -----------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
---------- ---------- ---------- ----------
(IN THOUSANDS)
Investment securities $ 4 890 18 3,216
Mortgage-backed securities 2 4,946 -- 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 September 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 5.0% during the quarter and 6.4% for the
nine months ended September 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 Nine Months Ended
September 30, 1995 September 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 $4,920 1,160 6,080 15,550 3,011 18,561
Construction loans 225 284 509 1,739 606 2,345
Consumer loans 1,147 (48) 1,099 3,444 (227) 3,217
Mortgage-backed securities (285) (23) (308) (1,384) 556 (828)
Investments (544) 565 21 (3,186) 2,401 (785)
------ ------ ----- ------ ------- ------
Total interest-earning assets 5,463 1,938 7,401 16,163 6,347 22,510
------ ------ ----- ------ ------- ------
INTEREST EXPENSE:
Certificates of deposit 2,569 2,654 5,223 4,880 6,116 10,996
Money market deposits (686) (290) (976) (501) 617 116
Other deposits (71) (120) (191) (275) (159) (434)
Short-term borrowings 2,395 157 2,552 7,217 2,233 9,450
Long-term borrowings (230) 192 (38) (1,309) 517 (792)
------ ------ ----- ------ ------- ------
Total interest-bearing liabilities 3,977 2,593 6,570 10,012 9,324 19,336
------ ------ ----- ------ ------- ------
Net interest income $1,486 (655) 831 6,151 (2,977) 3,174
====== ====== ===== ====== ======= ======
The increase in net interest income for the quarter and the nine months
ended September 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
nine months ended September 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 nine months ended September
30, 1995 when compared to the same period for the prior year. These increases
reflect a lower level of mortgage refinance activity in 1995 as well as
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 nine month periods ended September 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 September 30,
-------------------------------------------------------
1995 1994
------------------------------- -----------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ --------- -------- ------
(DOLLARS IN THOUSANDS)
WEIGHTED AVERAGE YIELD ON:
Mortgage loans $1,612,693 32,111 7.96% 1,362,994 26,031 7.64%
Construction loans 88,522 2,579 11.56 76,210 2,070 10.78
Consumer loans 405,933 7,959 7.78 347,453 6,860 7.83
Mortgage-backed securities 229,191 3,298 5.76 249,011 3,606 5.79
Investments 125,894 2,002 6.31 165,904 1,981 4.74
---------- -------- --------- --------
Total interest-earning assets $2,462,233 47,949 7.77 2,201,572 40,548 7.35
========== ======== ========= ========
WEIGHTED AVERAGE RATES PAID ON:
Certificates of deposit $ 916,465 13,812 5.98 725,203 8,589 4.70
Money market deposits 367,216 3,803 4.11 432,096 4,779 4.39
Other deposits 288,288 1,274 1.75 303,389 1,465 1.92
Short-term borrowings 461,155 7,064 6.08 304,507 4,513 5.88
Long-term borrowings 312,979 4,436 5.62 329,541 4,473 5.39
---------- -------- --------- --------
Total interest-bearing liabilities $2,346,103 30,389 5.14 2,094,736 23,819 4.51
========== ======== ========= ========
Interest rate spread 2.63 2.84
Net yield 2.88 3.06
Ratio of average interest-earning
assets to average interest-
bearing liabilities 1.05x 1.05x
(continued)
10
Three Months Ended September 30,
-------------------------------------------------------
1995 1994
------------------------------- -----------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- -------- ------ --------- -------- ------
WEIGHTED AVERAGE YIELD ON:
Mortgage loans $1,577,347 93,562 7.91% 1,313,378 75,001 7.61%
Construction loans 87,543 7,554 11.54 65,364 5,209 10.66
Consumer loans 393,401 23,060 7.84 334,691 19,843 7.93
Mortgage-backed securities 229,669 10,142 5.89 261,491 10,970 5.59
Investments 140,824 6,403 6.08 223,754 7,188 4.29
---------- -------- --------- --------
Total interest-earning assets $2,428,784 140,721 7.73 2,198,678 118,211 7.17
========== ======== ========= ========
WEIGHTED AVERAGE RATES PAID ON:
Certificates of deposit $ 875,836 37,626 5.74 750,097 26,630 4.75
Money market deposits 377,891 11,680 4.13 394,613 11,564 3.92
Other deposits 290,959 3,977 1.83 310,764 4,411 1.90
Short-term borrowings 447,294 20,722 6.19 285,859 11,272 5.27
Long-term borrowings 326,124 13,685 5.61 357,630 14,477 5.41
---------- -------- --------- --------
Total interest-bearing liabilities $2,318,104 87,690 5.06 2,098,963 68,354 4.35
========== ======== ========= ========
Interest rate spread 2.67 2.82
Net yield 2.90 3.02
Ratio of average interest-earning
assets to average interest-
bearing liabilities 1.05x 1.05x
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
September 30, 1995.
11
The following is a summary of the Corporation's nonperforming assets as
of the dates indicated:
September 30, December 31,
1995 1994
------------- ------------
(IN THOUSANDS)
Nonaccrual loans $ 6,563 6,221
Troubled debt restructurings 1,455 1,461
Real estate acquired through foreclosure 11,699 20,601
Repossessed autos and boats 542 581
------- ------
$20,259 28,864
======= ======
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 $8.9 million during
the nine months ended September 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:
September 30, December 31,
1995 1994
------------- ------------
(DOLLARS IN THOUSANDS)
Consumer and commercial loans $ 8,044 10,560
Construction and mortgage loans 3,486 3,173
Real estate acquired through foreclosure 6,005 9,008
------- ------
$17,535 22,741
======= ======
Ratio of allowances for losses to nonperforming assets 86.6% 78.8%
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 Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
------- ------ ------ ------
(IN THOUSANDS)
Balance at beginning of period $14,835 14,100 13,733 14,625
------- ------ ------ ------
Charge-offs 3,594 1,011 4,806 3,237
Recoveries 58 (608) (1,935) (1,949)
------- ------ ------ ------
Net charge-offs (recoveries) 3,536 403 2,871 1,288
------- ------ ------ ------
Provision for loan losses 231 150 668 510
------- ------ ------ ------
Balance at end of period $11,530 13,847 11,530 13,847
======= ====== ====== ======
The provision for loan losses increased $81,000 for the quarter and
$158,000 for the nine months ended September 30, 1995 when compared to the
same periods for the prior year. Charge-offs net of recoveries increased $3.1
million for the quarter and $1.6 million for the nine months ended September
30, 1995 when compared to the prior year periods. The increase in net
charge-offs was due primarily to the settlement in the third quarter of a
loan and related legal action both of which had been previously fully
reserved for.
NONINTEREST INCOME
When compared with the same periods in 1994, noninterest income increased
$165,000 for the quarter and decreased $661,000 for the nine months ended
September 30, 1995. The decrease for the nine months is primarily the result
of a decrease in gains on sales of loans caused by a decline in the volume of
loans sold on a servicing-released basis as the Corporation experienced
significantly lower loan origination volumes during the first six months of
the year. The lower level of service fees on loans for the quarter was due
primarily to lower late charges accrued on consumer loans.
The increase in noninterest income for the quarter was due to higher
service fees on deposits and gains on sales of loans which offset reduced
service fees on loans. The increase in service fees on deposits was due to
growth in the number of transaction accounts and a revised fee structure. The
increase in gains on sales of loans was due to a favorable interest rate
environment and increased loan volume in the Corporation's mortgage-banking
subsidiary during the third quarter. The reduction in service fees on loans
was due primarily to lower late charges assessed on consumer loans.
NONINTEREST EXPENSES
Noninterest expenses increased $410,000 for the quarter and decreased
$484,000 for the nine months ended September 30, 1995 when compared with the
same periods in 1994. The increase for the quarter was due primarily to
increased shareholder communication, accounting and legal expenses relating
to the Corporation's pending merger with Crestar Financial Corporation
("Crestar"). The decrease for the nine months ended September 30, 1995 was
due primarily to an increase in income on investments in real estate which
totalled $1.3 million when compared to the prior year period. Excluding the
effect of the income on investments in real estate, noninterest expense
increased $498,000 for the quarter and $798,000 for the nine months ended
September 30, 1995 when compared to the prior year periods.
The increase in income on investments in real estate for the nine months
was due primarily to a reduction in the provision for losses on real estate
acquired through foreclosure. Such provision declined $980,000 for the nine
months ended
13
September 30, 1995 when compared to the prior year period. The reduced
provision was 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.
Salaries and employee benefits decreased $61,000 for the quarter and
$105,000 for the nine months ended September 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 which was completed during the third quarter of 1994. Such
decreases were offset by lower loan origination volumes, particularly in the
first six months of the year, which resulted in a higher ratio of salaries
and benefits charged to expense rather than being deferred and expensed over
the life of the related loans.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Money market investments increased $44.0 million while investment
securities decreased $71.2 million (60.4%) during the nine months ended
September 30, 1995. These changes were due to the reinvestment of matured
securities primarily into overnight federal funds.
Loans receivable increased $111.6 million (5.7%) at September 30, 1995
compared to December 31, 1994. This increase was due mainly to a greatly
reduced level of loan payoffs over the last nine 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.
Deposits increased $62.7 million (4.3%) at September 30, 1995 compared to
December 31, 1994. This increase was due primarily to an increase in
long-term fixed-rate certificates of deposit. Accrued expenses and other
liabilities increased $3.2 million (37.9%) at September 30, 1995 compared to
December 31, 1994. This increase was due to normal increases in accruals for
charitable contributions, incentive bonuses which will typically be funded by
year-end and marketing expenses. Also included was an increase of $555,000 in
accrued pension expense.
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 September, 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.
14
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
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 December 31, 1994, March 31, and June 30, 1995. Thus, the
Bank's risk-based capital ratio may be reduced at December 31, 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 September 30, 1995 based upon its capital ratios
noted below.
The table below presents the Bank's regulatory capital position at
September 30, 1995 relative to its various minimum regulatory capital
requirements applicable at that date and on a fully phase-in basis.
Fully Phased-In
Actual at Using September 30, 1995
September 30, 1995 Balances
------------------------- ---------------------------
Percent of Percent of
Regulatory Regulatory
Amount Assets Amount Assets
---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
Tangible capital $ 154,532 6.11% 150,152 5.95%
Tangible capital regulatory
requirement 37,936 1.50 37,862 1.50
---------- ---- --------- ----
Excess $ 116,596 4.61% 112,290 4.45%
========== ==== ========= ====
Leverage (core) capital $ 154,532 6.11% 150,152 5.95%
Leverage (core) capital
regulatory requirement 75,872 3.00 75,723 3.00
---------- ---- --------- ----
Excess $ 78,660 3.11% 74,429 2.95%
========== ==== ========= ====
Regulatory assets $2,529,059 2,524,107
========== =========
15
Fully Phased-In
Actual at Using September 30, 1995
September 30, 1995 Balances
------------------------- ---------------------------
Percent of Percent of
Regulatory Regulatory
Amount Assets Amount Assets
---------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
Risk-based capital $ 167,576 10.42% 163,196 10.18%
Current risk-based capital
regulatory requirement 128,621 8.00 128,225 8.00
---------- ----- --------- -----
Excess $ 38,955 2.42% 34,971 2.18%
========== ===== ========= =====
Risk-weighted assets $1,607,759 1,602,807
========== =========
The Bank's excess risk-based capital increased as of September 30, 1995
when compared with December 31, 1994 primarily due to net income for the nine
months ended September 30, 1995 which was partially offset by an increase of
$90.3 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 rights on loans originated for sale, and
amortize such amount over the estimated servicing life of the loan.
Management has determined that it will adopt the provisions of Statement 122
in the fourth quarter of 1995 and has determined that the effect of adoption
on the Bank's financial condition or results of operations will be immaterial.
STOCK-BASED COMPENSATION. In November 1995, the FASB issued Statement of
Financial Accounting Standards No. 123 "Accounting for Awards of Stock-Based
Compensation to Employees" ("Statement 123"). Statement 123 is effective for
years beginning after December 15, 1995. Earlier application is permitted.
The Statement defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to
adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
("Opinion 25"). Under the fair value based method, compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. Under the
intrinsic value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date or other measurement date over
the amount an employee must pay to acquire the stock. Most fixed stock option
plans -- the most common type of stock compensation plan -- have no intrinsic
value at grant date, and under Opinion 25 no compensation cost is recognized
for them. Compensation cost is recognized for other types of stock-based
compensation plans under Opinion 25, including plans with variable, usually
performance-based, features. This Statement requires that an employer's
financial statements include certain disclosures about stock-based employee
compensation arrangements regardless of the method used to account for them.
Management has not determined when it will adopt the provisions of Statement
123 and has not estimated the effect of adoption on the Corporation's
financial condition or results of operations.
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 approximately 78 CENTS per $100 of SAIF
insured deposits or approximately $11.7 million based on deposits at
September 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 tax deductability, 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.
A Special Meeting of Stockholders of the Corporation was held on
October 17, 1995. The purpose of the meeting was to vote on the
proposed merger of the Corporation into Crestar Financial Corporation.
The merger was approved by the stockholders as follows:
% of Shares
# of Shares Outstanding
----------- -----------
For 6,367,190 78.4%
Against 72,297 .9
Abstentions 24,075 .3
Broker non-votes 0 0
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 October
10, 1995 to report that it had executed a First Amendment (the
"Amendment") to the Agreement and Plan of Merger (the
"Merger") with Crestar Financial Corporation ("Crestar"). The
Amendment was executed to reflect that Crestar and the
Registrant deemed it advisable to commence branch closing
procedures with respect to seven branches of Loyola Federal
Savings Bank, the principal subsidiary of the Registrant prior
to the effective date of the Merger. In consideration of the
Registrant's agreement to commence such branch closing
procedures, Crestar agreed in the Amendment to waive certain
conditions precedent to Crestar's obligations to commence the
Merger.
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)
Date November 13, 1995 By /s/ James V. McAveney
------------------------ ----------------------------------------
James V. McAveney
Executive Vice President,
Chief Financial Officer and Treasurer
Date November 13, 1995 By /s/ Dennis P. Neville
------------------------ ----------------------------------------
Dennis P. Neville
Senior Vice President and Controller
18