BVCC Announces Definitive Agreement to Acquire PSB Lending Corp.SAN MATEO San Mateo (săn mətā`ō), city (1990 pop. 85,486), San Mateo co., W Calif., on San Francisco Bay; inc. 1894. It is a commercial and retail center with some high-technology manufacturing. San Mateo, Spanish for St. , Calif.--(BUSINESS WIRE)--June 10, 1998--Bay View Capital Corporation ("the company") (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :BVCC BVCC Blackstone Valley Chamber of Commerce (Whitinsville, Massachusetts) BVCC Buena Vista Construction Company ) today announced that it has executed a definitive agreement to acquire PSB PSB Pet Shop Boys (band) PSB Public Service Broadcasting (radio and television) PSB Public Service Board (Vermont) PSB Public Security Bureau (China) Lending Corp. ("PSBL PSBL Possible PSBL Passive Spam Block List "), an indirect originator of high loan-to-value ("HLTV HLTV High Loan to Value HLTV Half-Life Television HLTV Half Life True Voice ") home equity loans. Based in Carlsbad, Calif., PSBL is a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of Pacific Southwest Bank ("PSB") based in Dallas. Following the acquisition, PSBL will operate under the name Bay View Consumer Finance Corporation ("BVCFC") and will become a subsidiary of Bay View Bank ("BVB BVB Basler Verkehrsbetriebe BVB Ballspiel-Verein Borussia 1909 (German soccer club) BVB Belgische Voetbalbond BVB Bundesverband für Buero- und Informationssysteme BVB Boa Vista, Roraima, Brazil (Airport Code) "), the company's banking/depository subsidiary. Edward H. Sondker, the company's president and chief executive officer commented, "This acquisition is consistent with the company's mission of creating a diversified financial The diversified financial services segment includes a range of consumer and commercially-oriented companies offering a wide variety of products and services, including various lending products (such as home equity loans and credit cards), insurance, and securities and investment services company by investing in niche businesses with risk-adjusted yields that enhance shareholder value. "HLTV home equity loans are a natural extension of our Consumer Finance Platform with many characteristics similar to those products currently offered by Bay View Credit ("BVC BVC Bar Vocational Course (UK) BVC Bolsa de Valores de Colombia (Colombia) BVC Bureau Veritas Certification BVC Banco Venezolano de Credito (Venezuela) "), one of our auto finance subsidiaries, including advances above the collateral value. "Most importantly Adv. 1. most importantly - above and beyond all other consideration; "above all, you must be independent" above all, most especially , we believe that our ability to portfolio the majority of the assets originated, and thereby avoid the financial uncertainties associated with securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. and gain-on-sale accounting, provides us with a distinct competitive advantage compared to most other originators in this market." Transaction Structure In accordance with the terms of the definitive agreement, BVB will acquire all of the common stock of PSBL for approximately $153 million at the closing of the transaction. This consideration will be comprised of approximately $53 million in cash and $100 million in shares of the company's common stock, subject to approval by PSB's regulators of the issuance of such shares to PSBL's owner. In addition, PSBL's owner may be entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to receive additional consideration under an earn-out arrangement of up to approximately $147 million. The transaction is expected to close during the fourth quarter of 1998, subject to approval by the company's shareholders and regulators. Under the earn-out provisions of the definitive agreement, PSBL's owner may receive additional consideration in each year of the seven-year earn-out period to the extent the company's return on its investment ("ROI (Return On Investment) The monetary benefits derived from having spent money on developing or revising a system. In the IT world, there are more ways to compute ROI than Carter has liver pills (and for those of you who never heard of that expression, it means a lot). ") in PSBL exceeds defined target levels. The company must earn a 15% ROI before any earn-out is triggered. The earn-out is based on an annual calculation and is payable annually in cash or company common stock, at the election of PSBL's owner. In accordance with the definitive agreement, BVB will purchase PSBL HLTV home equity originations on a flow basis through the closing date of the transaction. This arrangement is expected to mitigate BVB's exposure to loan prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. during the second half of 1998. David A. Heaberlin, the company's executive vice president and chief financial officer commented, "This acquisition enables us to enter the HLTV home equity lending market at a time when there is significant market demand and growth potential. We have been purchasing this product since the third quarter of 1997 and have purchased approximately $300 million to date, $200 million of which was from PSBL. "This experience, combined with BVC's 30 years of historical experience with similar type products, has provided us with invaluable insight and a unique opportunity to carefully evaluate the risks and opportunities associated with this product. The acquisition also accelerates our ability to change-out BVB's assets and allows us to pursue future depository The place where a deposit is placed and kept, e.g., a bank, savings and loan institution, credit union, or trust company. A place where something is deposited or stored as for safekeeping or convenience, e.g., a safety deposit box. franchise acquisitions." Profile of PSBL PSBL commenced business in July 1996 as a subsidiary of PSB and has quickly become a major competitor in the origination, servicing and securitization of HLTV home equity loans. With an expanding nationwide network of over 225 carefully selected correspondents, PSBL originated over $750 million in loans during 1997. During 1997, PSBL ranked third in the HLTV home equity loan market with an 8% market share based on securitization statistics. At December 31, 1997, PSBL's servicing portfolio consisted of approximately 23,000 loans totaling $716 million. Approximately $673 million of the servicing portfolio, or 94%, represented retained servicing on loans sold through asset-backed securitizations. The ability to securitize Securitize The practice of a company selling accounts receivables or other debts owed to it. The third party that buys the debt assumes ownership of it and the responsibility for collecting the debts, and keeps the repayments when made. the majority of its originations validates the consistency of PSBL's underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. process and the inherent credit quality of the loans originated. PSBL has significant excess servicing capacity to support continued originations. PSBL senior management has extensive experience in consumer and mortgage lending led by Robert Emerling, president, who has over 25 years experience with an emphasis in consumer and mortgage lending. Donald Curtis, national sales manager sales manager n → gerente m/f de ventas sales manager n → directeur commercial sales manager sale n → , has over 7 years experience in consumer lending Consumer lending or consumer loans refers to any type of loan product that is not a mortgage; such as a car, boat, manufactured home, home equity loan, home equity line of credit, signature loan, signature line of credit, recreational vehicle, or Certificate of Deposit loans. . Gary McClary, credit manager, has over 15 years of direct consumer lending experience. Edward Regan Edward V. "Ned" Regan was a Republican politician and college president, originally from upstate New York. He was elected to the office of Comptroller of New York in 1978. Before him, Arthur Levitt held that position for 24 years. , loan servicing Loan servicing is the process by which a mortgage bank or subservicing firm collects the timely payment of interest and principal from borrowers. The level of service varies depending on the type loan and the terms negotiated between the firm and the investor seeking their services. , has over 30 years of banking and loan servicing experience. Janet Twombly, operations, has over 13 years of financial institution experience. Robert Emerling, PSBL president, commented, "We are excited about the opportunity to join Bay View. We believe that we are well positioned to expand our origination capabilities. Bay View Bank's low-cost deposit base and ability to portfolio the majority of our originations provides us with a real competitive advantage in the marketplace." Profile of the HLTV Industry The HLTV home equity lending market is one of the fastest growing segments of the lending arena. Approximately $10 billion in HLTV home equity loans were originated in 1997 as compared with $4 billion in 1996 and $1 billion in 1995. Industry analysts estimate the segment will grow 30% annually to $200 billion in outstandings. The primary driver behind this growth is debt consolidation and a corresponding lower monthly payment for the consumer. For example, a typical consumer with $20,000 in credit card debt Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards. Debt results when a client of a credit card company purchases an item or service through the card system. may be making minimum payments of $400 to $600 per month. By consolidating this credit card debt with a HLTV home equity loan at 14% interest and a 15-year amortization period, this monthly payment is reduced to approximately $266 per month, a portion of which may be tax deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). . This represents a significant benefit to the consumer in terms of enhanced cash flow. Risk Considerations Although HLTV home equity lending involves a higher level of credit risk than other forms of mortgage lending, the higher yields on the product provide a net risk-adjusted yield higher than more traditional mortgage lending products. As the segment grows and competition increases, however, the yields associated with this product could decrease and erode Erode (ĕrōd`), city (1991 urban agglomeration pop. 361,755), Tamil Nadu state, S India, on the Kaveri River. The city is located in a cotton-growing region, and its industries include cotton ginning and the manufacture of transport equipment. the risk-adjusted yields. PSBL mitigates this credit risk through its underwriting process. PSBL re-underwrites each loan to ensure it adheres to its underwriting criteria before the loan is approved for purchase from the correspondent. Unlike many traditional HLTV home equity lenders who rely predominantly on FICO scores FICO Score A standard credit score which makes up a substantial portion of a credit report that credit bureaus sell to lenders so they can asses an applicant's credit risk and whether to extend them credit. to determine whether a loan should be approved, PSBL utilizes FICO scores only as a factor, and not the sole factor in underwriting the loan. PSBL utilizes an established underwriting system supported by a review and analysis of important credit criteria including credit depth, high credit, past due credits, mortgage history and payment patterns, job type and stability, and sources and consistency of income. In addition, the HLTV home equity loan is secured by the borrower's property which provides an incentive for avoiding default. The company's credit risk will be further mitigated by a lending program which emphasizes underwriting loans to borrowers with excellent credit histories and the following risk profiles: -0-
-- Minimum FICO score of 650 with an average FICO score of 680-685
(the company considers a FICO score of 680 and above as "A-quality"
paper);
-- Maximum loan-to-value ratio of 125% with an average ratio of
110%;
-- Maximum debt-to-income ratio of 45% with an average ratio of 40%;
and
-- Maximum loan size of $50,000 with an average loan size of
$37,500.
Given the increased level of risk associated with HLTV home
equity loans, the company anticipates conservatively establishing
reserves for loan losses at 10% of the original loan balance over the
average life of the loan which is currently estimated at approximately
5 years.
Financial Analysis
The acquisition of PSBL will be accounted for under the purchase
method of accounting and will generate goodwill currently estimated at
$120 million, based on the initial consideration, which will be
amortized over 15 years.
The transaction is structured such that the acquisition will be
taxable to PSBL's owner and as a result, the goodwill generated will
be deductible by the company for tax purposes. Additional
consideration paid through the earn-out arrangement will increase the
amount of goodwill accordingly.
The price/earnings ("P/E") multiple for this acquisition
represents 10x PSBL's trailing 12-month earnings of $24.5 million.
This is based on the present value of the consideration being paid,
assuming the full earn-out being paid over the earn-out period.
This compares to an average P/E multiple of 22x prior year
earnings paid for recent acquisitions of consumer credit companies
(based on Piper Jaffray's analysis of consumer credit acquisitions).
Industry comparables for this transaction are difficult, however,
given that the company will not be securitizing the loans.
The acquisition is expected to be accretive in the years 1999 and
2000 on an accounting earnings per share ("EPS") basis and a tangible
cash EPS basis as follows:
------------------------------------
1999 Diluted EPS
------------------------------------
Accounting Tangible Cash
------------------ ----------------
First call consensus estimate $ 1.95 $ 1.95
Cash basis adjustments:
Intangible amortization
(including stock-based
compensation) - 0.48
NOL utilization - 0.53
------------------ ----------------
Forecasted before PSBL 1.95 2.96
Accretive impact of acquisition 0.01 0.05
------------------ ----------------
Forecasted after PSBL $ 1.96 $ 3.01
------------------ ----------------
------------------------------------
2000 Diluted EPS
------------------------------------
Accounting Tangible Cash
------------------ ----------------
Forecasted 2000 EPS (1) $ 2.15 $ 2.15
Cash basis adjustments:
Intangible amortization
(including stock-based
compensation) - 0.48
NOL utilization - 0.53
------------------ ----------------
Forecasted before PSBL 2.15 3.16
Accretive impact of acquisition 0.45 0.54
------------------ ----------------
Forecasted after PSBL $ 2.60 $ 3.70
------------------ ----------------
(1) Assumes a 10% earnings growth from 1999 consensus.
Other Considerations The company expects, in accordance with the definitive agreement, to immediately acquire a senior interest in PSBL's securitization assets, conservatively valued at $43 million. These assets are expected to yield 12.5% annually and, because of their senior interest, will receive all cash flows from the PSBL securitization until completely repaid. BVCC Corporate Profile Bay View Capital Corporation, headquartered in San Mateo, California San Mateo is a city in San Mateo County, California, in the San Francisco Bay Area. It is one of the larger suburbs on the San Francisco Peninsula, located between Burlingame to the north, Foster City to the East, and Belmont to the south. , is a diversified financial services holding company with $5.3 billion in assets. It operates three principal business platforms: a Banking Platform comprised of Bay View Bank with 56 full service branches throughout northern California Northern California, sometimes referred to as NorCal, is the northern portion of the U.S. state of California. The region contains the San Francisco Bay Area, the state capital, Sacramento; as well as the substantial natural beauty of the redwood forests, the northern ; a Commercial Finance Platform comprised of Concord Growth Corporation ("CGC CGC Canine Good Citizen (AKC Dog Title) CGC Commission Géologique du Canada (Geological Survey of Canada) CGC Confédération Générale des Cadres (French labor union) ") and its asset-based lending Asset-Based Lending A business loan secured by collateral (assets). The loan, or line of credit, is secured by inventory, accounts receivable and/or other balance-sheet assets. Also known as "commercial finance" or "asset-based financing". division, Bay View Financial Corporation; and a Consumer Finance Platform comprised of Bay View Acceptance Corporation and its wholly owned subsidiaries Bay View Credit and Ultra Funding, Inc ("Ultra"). Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. When used in this or future press releases, in the company's filings with the Securities and Exchange Commission or other public or shareholder communications, or in oral statements made with the approval of an authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: executive officer, the words or phrases "may", "estimates", "anticipates", "would like", "will be", "will enable", "will enhance", "should be able", "should allow", "to be able", "to ensure", "we expect", "we believe", or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. The company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and to advise readers that various factors, including but not limited to regional and national economic conditions; changes in the levels of market interest rates; credit risks of real estate, consumer, commercial, and other lending activities; competitive and regulatory factors; changes in accounting principles; changes in the market value of the company's common stock; the company's ability to achieve synergies in the PSBL, EurekaBank, Ultra, CGC, and BVC acquisitions and to sustain or improve the performance of PSBL, EurekaBank, Ultra, CGC, and BVC; the ability to identify suitable future acquisition candidates; and changes in the company's strategic plan, could cause actual results to differ materially from those projected. The company does not undertake, and specifically disclaims any obligations, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. Non-GAAP Performance Measures Non-GAAP performance measures contained in this presentation, including core earnings and tangible cash earnings, are calculated excluding special mention items. These amounts and ratios are not a measure of performance under generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ") and should not be considered an alternative to net income as an indicator of the company's operating performance. Such amounts are included herein as management believes they are useful tools for investors and analysts in assessing the company's performance and trends excluding the impact of such items. These measures may not be comparable to similarly titled measures reported by other companies. CONTACT: Bay View Capital Corporation David A. Heaberlin, 650/312-7272 Web Site: http://www.bayviewcapital.com or PSB Lending Corp. Robert Emerling, 888-211-6100 |
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