UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2001
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 0-27404
PFF BANCORP, INC.
(exact name of registrant as specified in its charter)
|
DELAWARE |
95-4561623 |
|
(State or other jurisdiction of |
(I.R.S. Employer I.D. No.) |
350 South Garey Avenue, Pomona, California 91766
(Address of principal executive offices)
(909) 623-2323
(Registrant's telephone number, including area code)
Not Applicable
(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 Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
The registrant had 13,294,993 shares of common stock, par value $.01 per share,
outstanding as of August 10, 2001.
PFF BANCORP, INC. AND SUBSIDIARIES
Form 10-Q
Index
|
PART I |
FINANCIAL INFORMATION (Unaudited) |
PAGE |
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Item 1 |
Financial statements Consolidated Balance Sheets as of |
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|
Consolidated Statements of Earnings for the |
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Consolidated Statements of Comprehensive Earnings |
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|
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Consolidated Statement of Stockholders' Equity |
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Consolidated Statements of Cash Flows for the |
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Notes to Unaudited Consolidated Financial Statements |
7 |
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Item 2 |
Management's Discussion and Analysis of |
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Item 3 |
Qualitative and Quantitative Disclosures about |
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PART II |
OTHER INFORMATION |
|
|
Item 1 |
Legal Proceedings |
17 |
|
Item 2 |
Changes in Securities |
17 |
|
Item 3 |
Defaults Upon Senior Securities |
17 |
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Item 4 |
Submission of Matters to a Vote of Security Holders |
17 |
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Item 5 |
Other Information |
17 |
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Item 6 |
Reports on Form 8-K |
17 |
|
SIGNATURES |
PART 1 - FINANCIAL INFORMATION (Unaudited)
Item 1. Financial Statements.
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
|
June 30, |
March 31, |
|
|
Assets |
||
|
Cash and cash equivalents |
$ 66,590 |
51,526 |
|
Loans held for sale at lower of cost or fair value |
1,746 |
583 |
|
Investment securities held-to-maturity (estimated fair value of $757 at June 30, 2001 and $772 at March 31, 2001) |
|
|
|
Investment securities available-for-sale, at fair value |
101,386 |
59,137 |
|
Mortgage-backed securities available-for-sale, at fair value |
285,323 |
302,964 |
|
Collateralized mortgage obligations available-for-sale, at fair value |
75,777 |
82,315 |
|
Trading securities, at fair value |
2,488 |
2,375 |
|
Loans receivable, net |
2,306,310 |
2,285,307 |
|
Federal Home Loan Bank (FHLB) stock, at cost |
36,720 |
46,121 |
|
Accrued interest receivable |
17,920 |
18,466 |
|
Real estate acquired through foreclosure, net |
575 |
351 |
|
Property and equipment, net |
22,383 |
22,946 |
|
Prepaid expenses and other assets |
14,930 |
13,638 |
|
Total assets |
$ 2,932,850 |
2,886,431 |
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
Liabilities: |
|
|
|
Deposits |
$ 2,047,028 |
2,021,261 |
|
FHLB advances |
570,000 |
575,000 |
|
Accrued expenses and other liabilities |
48,294 |
32,172 |
|
Total liabilities |
2,665,322 |
2,628,433 |
|
Commitments and contingencies |
- |
- |
|
Stockholders' equity: |
|
|
|
Preferred stock, $.01 par value. Authorized 2,000,000 shares; none issued |
|
|
|
Common stock, $.01 par value. Authorized 59,000,000 shares; issued 20,100,999 and 20,082,094; outstanding 13,257,532 and 13,238,627 at June 30, 2001 and March 31, 2000, respectively |
|
|
|
Additional paid-in capital |
133,714 |
131,919 |
|
Retained earnings, substantially restricted |
144,880 |
137,703 |
|
Unearned stock-based compensation |
(7,873) |
(8,953) |
|
Treasury stock (6,843,467 at June 30, 2001 and March 31, 2001) |
(68) |
(68) |
|
Accumulated other comprehensive losses |
(3,325) |
(2,803) |
|
Total stockholders' equity |
267,528 |
257,998 |
|
Total liabilities and stockholders' equity |
$ 2,932,850 |
2,886,431 |
See accompanying notes to the unaudited consolidated financial statements.
1
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)
|
For the Three Months Ended |
||
|
2001 |
2000 |
|
|
Interest income: |
||
|
Mortgage loans |
$ 41,902 |
42,404 |
|
Non-mortgage loans |
6,781 |
6,377 |
|
Mortgage-backed securities |
4,600 |
6,064 |
|
Collateralized mortgage obligations |
1,153 |
1,616 |
|
Investment securities and deposits |
2,769 |
3,237 |
|
Total interest income |
57,205 |
59,698 |
|
Interest expense: |
||
|
Interest on deposits |
23,217 |
22,307 |
|
Interest on borrowings |
8,615 |
13,270 |
|
Total interest expense |
31,832 |
35,577 |
|
Net interest income |
25,373 |
24,121 |
|
Provision for loan losses |
1,250 |
1,251 |
|
Net interest income after provision for loan losses |
24,123 |
22,870 |
|
Non-interest income: |
||
|
Deposit and related fees |
2,361 |
2,279 |
|
Loan and servicing fees |
833 |
963 |
|
Trust fees |
553 |
567 |
|
Gain (loss) on sales of assets, net |
187 |
(20) |
|
Gain (loss) on trading securities, net |
93 |
(370) |
|
Other non-interest income |
42 |
200 |
|
Total non-interest income |
4,069 |
3,619 |
|
Non-interest expense: |
||
|
General and administrative: |
||
|
Compensation and benefits |
7,839 |
7,258 |
|
Occupancy and equipment |
2,921 |
2,861 |
|
Marketing and professional services |
1,606 |
1,089 |
|
Other non-interest expense |
2,135 |
2,294 |
|
Total general and administrative |
14,501 |
13,502 |
|
Foreclosed real estate operations, net |
7 |
(19) |
|
Total non-interest expense |
14,508 |
13,483 |
|
Earnings before income taxes |
13,684 |
13,006 |
|
Income taxes |
5,760 |
5,639 |
|
Net earnings |
$ 7,924 |
7,367 |
|
Basic earnings per share |
$ 0.68 |
0.63 |
|
Weighted average shares outstanding for basic earnings per share calculation |
|
|
|
Diluted earnings per share |
$ 0.60 |
0.59 |
|
Weighted average shares outstanding for diluted earnings per share calculation |
|
|
| See accompanying notes to the unaudited consolidated financial statements. | ||
2
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE EARNINGS
(Dollars in thousands)
(Unaudited)
|
For the Three Months Ended |
||
|
2001 |
2000 |
|
|
Net earnings |
$ 7,924 |
7,367 |
|
Other comprehensive earnings (losses), net of ($378) and $281 income taxes (benefit) at June 30, 2001 and 2000, respectively: |
||
|
Unrealized gains (losses) on securities available-for-sale: |
||
|
U.S. Treasury and agency securities and other investment securities available-for-sale, at fair value |
|
|
|
Collateralized mortgage obligations available-for-sale, at fair value |
|
|
|
Mortgage-backed securities available-for-sale, at fair value |
(376) |
351 |
|
Reclassification of realized gains included in earnings |
1 |
- |
|
Other comprehensive earnings (losses) |
(522) |
388 |
|
Comprehensive earnings |
$ 7,402 |
7,755 |
| See accompanying notes to the unaudited consolidated financial statements. | ||
3
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
(Unaudited)
|
|
|
|
Retained |
|
|
Accumulated |
|
|
|
Balance at March 31, 2001 |
13,238,627 |
$ 200 |
$ 131,919 |
$ 137,703 |
$ (8,953) |
$ (68) |
$ (2,803) |
$257,998 |
|
Net earnings |
- |
- |
- |
7,924 |
- |
- |
- |
7,924 |
|
Amortization of shares under stock-based compensation plans |
|
|
|
|
|
|
|
|
|
Stock options exercised |
18,905 |
235 |
- |
- |
- |
- |
235 |
|
|
Cash dividends ($.06 per share) |
- |
- |
- |
(747) |
- |
- |
- |
(747) |
|
Other comprehensive loss, net of income tax |
- |
- |
- |
- |
- |
- |
(522) |
(522) |
|
Tax benefit from stock options |
- |
- |
1,091 |
- |
- |
- |
1,091 |
|
|
Balance at June 30, 2001 |
13,257,532 |
$ 200 |
$ 133,714 |
$ 144,880 |
$ (7,873) |
$ (68) |
$ (3,325) |
$267,528 |
See accompanying notes to the unaudited consolidated financial statements.
4
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
Three Months Ended |
||
|
2001 |
2000 |
|
|
Cash flows from operating activities: |
||
|
Net earnings |
$ 7,924 |
7,367 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||
|
Amortization of premiums net of discount accretion on loans and securities |
|
|
|
Amortization of deferred loan origination fees |
1,056 |
(151) |
|
Loan fees collected |
25 |
(71) |
|
Dividends on FHLB stock |
(783) |
(914) |
|
Provisions for losses on loans |
1,250 |
1,251 |
|
Gains on sales of loans, mortgage-backed securities available-for-sale, real estate and property and equipment |
|
|
|
(Gains) losses on trading securities |
(93) |
370 |
|
Depreciation and amortization of property and equipment |
750 |
834 |
|
Loans originated for sale |
(8,102) |
(4,071) |
|
Proceeds from sale of loans held-for-sale |
7,100 |
10,528 |
|
Amortization of unearned stock-based compensation |
1,549 |
1,276 |
|
Increase in accrued expenses and other liabilities |
17,591 |
7,011 |
|
(Increase) decrease in: |
||
|
Accrued interest receivable |
546 |
(837) |
|
Prepaid expenses and other assets |
(1,292) |
(1,405) |
|
Net cash provided by operating activities |
27,516 |
21,403 |
|
Cash flows from investing activities: |
||
|
Loans originated for investment |
(336,340) |
(251,196) |
|
Increase in construction loans in process |
63,955 |
3,025 |
|
Purchases of loans held-for-investment |
(104,992) |
- |
|
Principal payments on loans |
354,230 |
254,417 |
|
Principal payments on mortgage-backed securities available-for-sale |
|
|
|
Principal payments on collateralized mortgage obligations available-for-sale |
|
|
|
Purchases of investment securities available-for-sale |
(81,380) |
- |
|
Redemption of FHLB stock |
10,184 |
- |
|
Purchases of mortgage-backed securities available-for-sale |
(15,094) |
- |
|
(Continued) |
||
5
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
Three Months Ended |
||
|
2001 |
2000 |
|
|
Proceeds from maturities of investment securities available-for-sale |
|
|
|
Proceeds from sale of real estate |
296 |
1,097 |
|
Investment in or proceeds from real estate held for investment |
- |
4,477 |
|
Purchases of property and equipment |
(191) |
(289) |
|
Net cash provided by (used in) investing activities |
(32,707) |
37,298 |
|
Cash flows from financing activities: |
||
|
Proceeds from FHLB advances and other borrowings |
93,200 |
183,100 |
|
Repayment of FHLB advances and other borrowings |
(98,200) |
(248,100) |
|
Net change in deposits |
25,767 |
10,743 |
|
Proceeds from exercise of stock options |
235 |
- |
|
Cash dividends |
(747) |
(743) |
|
Net cash provided by (used in) financing activities |
20,255 |
(55,000) |
|
Net increase in cash and cash equivalents |
15,064 |
3,701 |
|
Cash and cash equivalents, beginning of period |
51,526 |
35,131 |
|
Cash and cash equivalents, end of period |
$ 66,590 |
38,832 |
|
Supplemental information: |
||
|
Interest paid, including interest credited |
$ 32,286 |
35,857 |
|
Non-cash investing and financing activities: |
||
|
Change in unrealized gain (loss) on securities |
||
|
available-for-sale |
(900) |
668 |
|
Net transfers from loans receivable to real estate acquired through foreclosure |
|
|
| See accompanying notes to the unaudited consolidated financial statements. | ||
6
PFF BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements
Basis of Consolidation
The accompanying consolidated financial statements include the accounts
of PFF Bancorp, Inc. (the "Bancorp") and its subsidiary PFF Bank &
Trust (collectively, "the Company'). The Company's business is
conducted primarily through PFF Bank & Trust and its subsidiary, Pomona
Financial Services, Inc (collectively, "the Bank"). Pomona Financial
Services, Inc. includes the accounts of Diversified Services, Inc. and PFF
Financial Services, Inc. All material intercompany balances and transactions
have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments (consisting
principally of normal recurring accruals) necessary for a fair presentation have
been included. Certain reclassifications have been made to the consolidated
financial statements for the prior period to conform to the current
presentation.
The results of operations for the three months ended June 30, 2001 are
not necessarily indicative of results that may be expected for the entire fiscal
year ending March 31, 2002.
New Accounting Pronouncements
In September 2000, the FASB issued Statement of
Financial Accounting Standards No. 140 ("SFAS 140") to replace
SFAS 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities". SFAS 140 provides the accounting
and reporting guidance for transfers and servicing of financial assets and
extinguishment of liabilities. SFAS 140 will be the authoritative accounting
literature for: (1) securitization transactions involving financial assets; (2)
sales of financial assets (including loan participations); (3) factoring
transactions; (4) wash sales; (5) servicing assets and liabilities; (6)
collateralized borrowing arrangements; (7) securities lending transactions; (8)
repurchase agreements; and (9) extinguishment of liabilities. Management has
implemented SFAS 140 and it has not had a significant impact on the Company's
financial position or results of operations.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS 141") and Statement
of Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142").
SFAS 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. The use of the
pooling-of-interests method will be prohibited. It is not anticipated that the
financial impact of this statement will have a material effect on the Company.
SFAS 142 applies to all acquired intangible assets whether acquired
singularly, as part of a group, or in a business combination. The Statement
supersedes APB Opinion No. 17, "Intangible Assets," and will carry
forward provisions in Opinion 17 related to internally developed intangible
assets. The Statement changes the accounting for goodwill from an amortization
method to an impairment-only approach. Goodwill should no longer be amortized,
but instead tested for impairment at least annually at the reporting unit level.
The accounting provisions are effective for fiscal years beginning after
December 31, 2001. For the first three months of fiscal 2002, the amortization of
excess of cost over fair value of net assets acquired was $81,000 and as of June
30, 2001, goodwill amounted to $1.5 million. It is not anticipated that the
financial impact of this statement will have a material effect on the Company.
7
PFF BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements - Continued
(3) Earnings per share
Basic EPS excludes dilution and is computed by dividing earnings available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted from issuance of common stock that then shared in
earnings.
The following table is a reconciliation of the numerators and denominators of
the basic and diluted EPS computations for net earnings for PFF Bancorp, Inc.
|
For the Three Months Ended June 30, |
|||||||
|
2001 (1) |
2000 (2) |
||||||
|
Earnings |
Shares |
Per-Share |
Earnings |
Shares |
Per-Share |
||
|
(Dollars in thousands, except per share data) |
|||||||
|
Net Earnings |
$ 7,924 |
$ 7,367 |
|||||
|
Basic EPS |
|||||||
|
Earnings available to common stockholders |
7,924 |
11,722,167 |
$ 0.68 |
7,367 |
11,609,116 |
$ 0.63 |
|
|
Effect of Dilutive Securities |
|||||||
|
Options and Stock Awards |
1,400,566 |
800,143 |
|||||
|
Diluted EPS |
|||||||
|
Earnings available to common stockholders and assumed conversions |
|
|
|
|
|
|
|
8
PFF BANCORP, INC. AND SUBSIDIARY
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
Average Balance Sheets
The following table sets forth certain information
relating to the Company for the three months ended June 30, 2001 and 2000. The
yields and costs are derived by dividing income or expense by the average
balance of assets or liabilities, respectively, for the periods shown. Average
balances are derived from average daily balances. The yields and costs include
fees that are considered adjustments to yields.
|
|
Three Months Ended June 30, |
|||||
|
|
2001 |
2000 |
||||
|
|
|
|
Average |
|
|
Average |
|
|
(Dollars in thousands) |
|||||
|
Assets: |
|
|
|
|||
|
Interest-earning assets: |
||||||
|
Interest-earning deposits and short-term investments |
$ 68,164 |
$ 841 |
4.95% |
$ 23,959 |
$ 340 |
5.69% |
|
Investment securities, net |
64,534 |
1,220 |
7.58 |
95,225 |
1,678 |
7.07 |
|
Loans receivable, net |
2,301,185 |
48,683 |
8.46 |
2,333,444 |
48,781 |
8.36 |
|
Mortgage-backed securities, net |
282,782 |
4,600 |
6.51 |
373,361 |
6,064 |
6.50 |
|
Collateralized mortgage obligations |
82,121 |
1,153 |
5.62 |
88,081 |
1,616 |
7.34 |
|
FHLB stock |
39,749 |
708 |
7.14 |
45,200 |
1,219 |
10.82 |
|
Total interest-earning assets |
2,838,535 |
57,205 |
8.06 |
2,959,270 |
59,698 |
8.07 |
|
Non-interest-earning assets |
96,796 |
61,608 |
|
|||
|
Total assets |
$2,935,331 |
$3,020,878 |
||||
|
|
||||||
|
Liabilities and Stockholders' Equity: |
||||||
|
Interest-bearing liabilities: |
||||||
|
Savings accounts |
$ 124,478 |
524 |
1.69 |
$ 134,108 |
733 |
2.19 |
|
Money market accounts |
422,985 |
4,210 |
3.99 |
375,681 |
4,530 |
4.84 |
|
NOW and other demand deposit accounts |
266,775 |
538 |
0.81 |
225,957 |
370 |
0.66 |
|
Certificate accounts |
1,214,635 |
17,945 |
5.93 |
1,163,554 |
16,674 |
5.75 |
|
Total |
2,028,873 |
23,217 |
4.59 |
1,899,300 |
22,307 |
4.71 |
|
FHLB advances and other borrowings |
600,911 |
8,615 |
5.75 |
866,450 |
13,270 |
6.14 |
|
Total interest-bearing liabilities |
2,629,784 |
31,832 |
4.86 |
2,765,750 |
35,577 |
5.16 |
|
Non-interest-bearing liabilities |
41,706 |
|
29,745 |
|||
|
Total liabilities |
2,671,490 |
2,795,495 |
||||
|
Stockholders' Equity |
263,841 |
225,383 |
||||
|
Total liabilities and stockholders' equity |
$2,935,331 |
$3,020,878 |
||||
|
Net interest income |
|
$ 25,373 |
$ 24,121 |
|
||
|
Net interest spread |
3.20 |
2.91 |
||||
|
Effective interest spread |
3.58 |
3.26 |
||||
|
Ratio of interest-earning assets to interest-bearing liabilities |
107.94% |
107.00% |
||||
9
PFF BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis
(Continued)
Rate/Volume Analysis
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume); (iii) changes attributable to changes in
rate/volume (change in rate multiplied by change in volume); and (iv) the net
change.
|
Three Months Ended June 30, 2001 |
||||
|
Increase (Decrease) |
||||
|
Volume |
Rate |
Rate/ |
Net |
|
|
(Dollars in thousands) |
||||
|
Interest-earning assets: |
||||
|
Interest-earning deposits and short-term investments |
$ 627 |
(44) |
(82) |
501 |
|
Investment securities, net |
(541) |
122 |
(39) |
(458) |
|
Mortgage-backed securities, net |
(1,472) |
584 |
(8) |
(896) |
|
Collateralized mortgage obligations, net |
(109) |
6 |
2 |
(101) |
|
Loans receivable, net |
(674) |
(379) |
25 |
(1,028) |
|
FHLB stock |
(147) |
(414) |
50 |
(511) |
|
Total interest-earning assets |
(2,316) |
(125) |
(52) |
(2,493) |
|
Interest-bearing liabilities: |
||||
|
Savings accounts |
(53) |
(168) |
12 |
(209) |
|
Money market accounts |
571 |
(794) |
(97) |
(320) |
|
NOW and other demand deposit accounts |
67 |
84 |
17 |
168 |
|
Certificate accounts |
732 |
510 |
29 |
1,271 |
|
FHLB advances and other borrowings |
(4,078) |
(885) |
308 |
(4,655) |
|
Total interest-bearing liabilities |
(2,761) |
(1,253) |
269 |
(3,745) |
|
Change in net interest income |
$ 445 |
1,128 |
(321) |
1,252 |
10
PFF BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis
(Continued)
Forward-Looking Statements
Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve substantial risks and uncertainties.
When used in this report, or in the documents incorporated by reference herein,
the words "anticipate," "believe," "estimate,"
"may," "intend," "expect" and similar expressions
identify certain of such forward-looking statements. Actual results could differ
materially from such forward-looking statements contained herein. Factors that
could cause future results to vary from current expectations include, but are
not limited to, the following: changes in economic conditions (both generally
and more specifically in the markets in which the Company operates); changes in
interest rates, deposit flows, loan demand, real estate values and competition;
changes in accounting principles, policies or guidelines and in government
legislation and regulation (which change from time to time and over which the
Company has no control); other factors affecting the Company's operations,
markets, products and services; and other risks detailed in this Form 10-Q and
in the Company's other Securities and Exchange Commission filings. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof.
Comparison of Operating Results for the Three Months Ended June 30,
2001 and 2000
General
The Company recorded net earnings of $7.9 million or $0.60 per diluted share for
the three months ended June 30, 2001 compared to net earnings of $7.4 million or
$0.59 per diluted share for the comparable period of 2000.
Net interest income increased to $25.4 million for the three months ended June
30, 2001 from $24.1 million for the comparable period of 2000. The increase in
net interest income was attributable to a 29 basis point increase in net
interest spread from 2.91% for the three months ended June 30, 2000 to 3.20% for
the comparable period of 2001. Average interest-earning assets decreased $120.7
million from $2.96 billion for the three months ended June 30, 2000 to $2.84
billion for the comparable period of 2001.
Provision for loan losses was $1.3 million for both the three months ended June
30, 2000 and 2001.
Total non-interest income, was $4.1 million for the three months ended June 30,
2001 compared to $3.6 million for the comparable period of 2000. Total
non-interest expense was $14.5 million for the three months ended June 30, 2001
compared to $13.5 million for the comparable period of 2000.
Interest Income
Interest income was $57.2 million for the three months ended June 30, 2001
compared to $59.7 million for the comparable period of 2000. The $2.5 million
decrease in interest income was attributable primarily to the $120.7 million
decrease in average interest-earning assets. Average yield on interest-earning
assets decreased 1 basis point between the three months ended June 30, 2000 and
2001. The decrease in average interest-earnings assets was due to a $127.2
million decrease in the average aggregate balance of mortgage-backed securities,
collateralized mortgage obligations and investment securities (collectively,
"securities") from $556.7 million for the three months ended June 30,
2000 to $429.4 million for the comparable period of 2001 reflecting the Company's
strategy of decreasing the proportion of its earning asset base comprised by
securities.
11
PFF BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis
(Continued)
The average balance of loans receivable, net decreased $32.3
million between the three months ended June 30, 2000 and 2001. Principal
paydowns on loans receivable increased from $254.4 million for the three months
ended June 30, 2000 to $354.2 million for the comparable period of 2001. This
increase in principal paydowns has been driven by the decrease in the general
level of interest rates along with the robust residential housing market in
Southern California. In response to this acceleration in loan paydowns, the Bank
increased its loan originations and purchases from $255.3 million and zero,
respectively for the three months ended June 30, 2000 to $344.4 million and
$105.0 million, respectively for the comparable period of 2001. The increased
velocity of funds flows contributed to an increase in the average balance of
interest-earning deposits and short-term investments from $24.0 million for the
three months ended June 30, 2000 to $68.2 million for the comparable period of
2001. The downward impact on loan yields from the decrease in the general level
of interest rates was offset by the upward impact derived from the changing
composition of the portfolio noted below. As a result, the average yield on
loans receivable, net increased from 8.36 percent for the three months ended
June 30, 2000 to 8.46 percent for the comparable period of 2001.
The increase in the average yield on loans receivable, net between the three
months ended June 30, 2000 and 2001 was attributable to a $117.2 million
increase in the aggregate disbursed balance of construction, commercial
business, commercial real estate and consumer loans (the "Four-Cs")
from $778.6 million or 34% of loans receivable, net at June 30, 2000 to $895.8
or 39% of loans receivable, net at June 30, 2001. Originations of the Four-Cs
represented 87% and 92% of total loan originations for the three months ended
June 30, 2001 and 2000, respectively.
The average yield on securities was 6.50% for the three months ended June 30,
2001 compared to 6.73% for the comparable period of 2000. The decrease in the
average yield on securities reflects the impact of the decrease in the general
level of interest rates. The one-year Constant Maturity Treasury index (CMT) and
one month London Inter-Bank Offered Rate (LIBOR) averaged approximately 3.78%
and 4.11%, respectively for the three months ended June 30, 2001 compared to
approximately 6.22% and 6.37%, respectively for the comparable period of 2000.
As of June 30, 2001, approximately 29% and 18% of the Company's securities are
indexed to the one year CMT and one month LIBOR, respectively.
During the three months ended June 30, 2000, as a member of the FHLB of San
Francisco, the Bank received a special dividend of $329,000 in addition to its
regular quarterly dividend. For the three months ended June 30, 2000, this
special dividend increased the average yield on FHLB stock by 292 basis points
and increased the average yield on interest earning assets, net interest spread
and effective interest spread by 4 basis points.
Interest Expense
Interest expense was $31.8 million for the three months ended June 30, 2001
compared to $35.6 million for the comparable period of 2000. The $3.7 million
decrease in interest expense was attributable to a 30 basis point decrease in
the average cost of interest-bearing liabilities coupled with a $136.0 million
decrease in average interest-bearing liabilities from $2.77 billion for the
three months ended June 30, 2000 to $2.63 billion for the comparable period of
2001. The 30 basis point decrease in the average cost of interest-bearing
liabilities reflects a 12 basis point decrease in the average cost of deposits,
and a 39 basis point decrease in the average cost of FHLB advances and other
borrowings. Strong growth in deposits coupled with net paydowns of loans and
securities resulted in a reduction in the proportion of total interest-bearing
liabilities comprised by FHLB advances and other borrowings from 31% for the
three months ended June 30, 2000 to 23% for the comparable period of 2001.
Average cost of deposits decreased from 4.71% for the three months ended June
30, 2000 to 4.59% for the comparable period of 2001 reflecting strong growth in
the lower cost categories of deposits coupled with a decrease in the general
level of interest rates. The average balances of
12
PFF BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis
(Continued)
money market, savings and NOW accounts (collectively,
"core deposits") increased $78.5 million from $735.7 million or 39% of
average total deposits for the three months ended June 30, 2000 to $814.2
million or 40% of average total deposits for the comparable period of 2001. The
average cost of core deposits was 2.60% for the three months ended June 30, 2001
compared to 5.93% for certificate accounts. The average balance of total
deposits increased $129.6 million from $1.90 billion for the three months ended
June 30, 2000 to $2.03 billion for the comparable period of 2001.
The average balance of FHLB advances and other borrowings decreased $265.5
million from $866.5 million for the three months ended June 30, 2000 to $600.9
million for the comparable period of 2001. The average cost of FHLB advances and
other borrowings decreased from 6.14% for the three months ended June 30, 2000
to 5.75% for the comparable period of 2001 reflecting this net paydown activity.
At June 30, 2001 the Bank's putable borrowings totaled $165.0 million.
Provision for Loan Losses
Provision for loan losses was $1.3 million for both the three months ended June
30, 2000 and 2001. See "Comparison of Financial Condition at June 30, 2001
and March 31, 2001."
Non-Interest Income
Non-interest income was $4.1 million for the three months ended June 30, 2001
compared to $3.6 million for the comparable period of 2000. Deposits and related
fees increased $82,000 from $2.3 million for the three months ended June 30,
2000 to $2.4 million for the comparable period of 2001. The decrease in trust
fees from $567,000 for the three months ended June 30, 2000 to $553,000 for the
comparable period of 2001 reflects a decrease in assets under custody or
management from $288.3 million at June 30, 2000 to $250.0 million at June 30,
2001. The decrease in assets under custody or management was attributable
largely to a decrease in the market value of certain equity investments held in
trust arising from the general market conditions. During the three months ended
June 30, 2001, the Company incurred a net gain of $93,000 on trading securities
activity compared to a net loss of $370,000 for the comparable period of 2000.
Total non-interest income excluding trading securities activity ("core
non-interest income") was $4.0 million for both the three months ended June
30, 2000 and 2001.
Non-Interest Expense
Non-interest expense as well as general and administrative expense was $14.5
million for the three months ended June 30, 2001. General and administrative
expense was 1.98% of average assets for the three months ended June 30, 2001
compared to 1.79% of average assets for the comparable period of 2000.
Compensation and benefits expense was $7.8 million for the three months ended
June 30, 2001 compared to $7.3 million for the comparable period of 2000.
Included in compensation and benefits expense are non-cash charges associated
with the amortization of shares under the Company's Employee Stock Ownership
Plan (ESOP) and 1996 Incentive Plan of $1.5 million for the three months ended
June 30, 2001 compared to $1.3 million for the comparable period of 2000.
Income Taxes
Income taxes were $5.8 million for the three months ended June 30, 2001 compared
to $5.6 million for the comparable period of 2000. The effective tax rates were
42.1% and 43.4% for the three months ended June 30, 2001 and 2000.
13
PFF BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis
(Continued)
Comparison of Financial Condition at June 30, 2001 and
March 31, 2001
Total assets increased $46.4 million from $2.89 billion at March 31, 2001 to
$2.93 billion at June 30, 2001. Loans receivable, net increased $21.0 million
from $2.29 billion at March 31, 2001 to $2.31 billion at June 30, 2001. The
$42.2 million increase in investment securities reflects the investment of funds into several adjustable
rate mortgage mutual funds as the Bank deals with the increased velocity of
funds flows resulting from higher levels of loan payoffs, originations and
purchases as well as strong growth in deposits.
Non-accrual loans decreased from $11.5 million or 0.45% of gross loans at March
31, 2001 to $10.4 million or 0.40% of gross loans at June 30, 2001. At June 30,
2001, the status of the 296 home residential development in Castaic, California,
on which the Company has loans outstanding totaling $30.4 million, is as
follows: 162 of the 296 homes have been sold and closed or are in escrow. An
additional 26 homes are currently under construction. The remaining 108 homes
are expected to be built and sold in calendar 2002 or early calendar 2003.
During the current quarter, 8 homes closed escrow, an additional 20 homes
entered escrow and construction was started on 45 homes.
The allowance for loan losses is maintained at an amount management considers
adequate to cover losses on loans receivable, which are deemed probable and
estimable. The allowance is based upon a number of factors, including current
economic conditions, actual loss experience, industry trends and the composition
of the loan portfolio by type. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to make additional
provisions for loan losses based upon information available at the time of the
review. At June 30, 2001, the Company's allowance for loan losses was $31.5
million or 1.19% of gross loans and 301.45% of non-accrual loans compared to
$31.0 million or 1.22% of gross loans and 270.20% of non-accrual loans at March
31, 2001. The Company will continue to monitor and modify its allowance for loan
losses as economic conditions, loss experience, changes in portfolio composition
and other factors dictate. The following table sets forth activity in the Bank's
allowance for loan losses for the three months ended June 30, 2001.
|
Balance at March 31, 2001 |
$ 31,022 |
|
Provision for loan losses |
1,250 |
|
Charge-offs, net |
(808) |
|
Recoveries |
7 |
|
Balance at June 30, 2001 |
$ 31,471 |
Total liabilities increased $36.9 million from $2.63 billion at March 31,
2001 to $2.67 billion at June 30, 2001. Deposits increased $25.8 million from
$2.02 billion at March 31, 2001 to $2.05 billion at June 30, 2001. Core deposits
increased $29.8 million from $803.9 million at March 31, 2001 to $833.7 million
at June 30, 2001. FHLB advances were paid down by a net $5.0 million from $575.0
million at March 31, 2001 to $570.0 million at June 30, 2001.
Total stockholders' equity was $267.5 million at June 30, 2001 compared to
$258.0 million at March 31, 2001. The $9.5 million increase in total
stockholders' equity is comprised principally of a $7.2 million increase in
retained earnings, substantially restricted, and a $1.8 million increase in
additional paid-in-capital. The $7.2 million increase in retained earnings,
substantially restricted reflects the $7.9 million of net earnings for the three
months ended June 30, 2001 partially offset by a quarterly cash dividend of
$0.06 per common share paid on June 29, 2001 to shareholders of record as of
June 15, 2001. The $1.8 million increase in additional paid-in-capital reflects
a reclassification between additional paid-in-capital and income taxes payable
of tax benefits
14
PFF BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis
(Continued)
associated with the Company's accounting for stock
options issued to employees and amortization of shares under stock-based
compensation plans.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, principal and interest
payments on loans and securities, FHLB advances and other borrowings, proceeds
from the maturation of securities and, to a lesser extent, proceeds from the
sale of loans and securities. While maturities and scheduled amortization of
loans and securities are predictable sources of funds, deposit flows and
mortgage and security prepayments are greatly influenced by the general level of
interest rates, economic conditions and competition. Effective March 14, 2001
the OTS adopted an interim rule eliminating the statutory liquidity requirement.
In its place, the OTS adopted a policy, consistent with that of the other
Federal banking regulatory agencies, that liquidity be maintained at a level
which provides for safe and sound banking practices and financial flexibility.
The Bank's average liquidity ratio was 6.69% for the three months ended June
30, 2001. The Bank invests in corporate securities when
the yields thereon are more attractive than U.S. government and federal agency
securities of similar maturity. While corporate securities are not backed by any
government agency, the maturity structure and credit quality of all corporate
securities owned by the Bank meet the minimum standards set forth by the OTS for
regulatory liquidity-qualifying investments. The Bank invests in callable debt
issued by federal agencies of the U.S. government when the yields thereon to
call date(s) and maturity exceed the yields on comparable term and credit
quality non-callable investments by amounts which management deems sufficient to
compensate the Bank for the call options inherent in the securities.
The Company's cash flows are comprised of three primary classifications: cash
flows from operating activities, investing activities and financing activities.
Cash flows provided by operating activities were $27.5 million and $21.4 million
for the three months ended June 30, 2001 and 2000, respectively. Net cash
provided by (used in) investing activities consisted primarily of disbursements
for loan originations and purchases of mortgage-backed and other investment
securities, offset by principal collections on loans and proceeds from
maturation of investments and paydowns on mortgage-backed securities. Principal
payments on loans were $354.2 million and $254.4 million for the three months
ended June 30, 2001 and 2000, respectively. Disbursements on loans originated
and purchased were $449.4 million and $255.3 million for the three months ended
June 30, 2001 and 2000, respectively. Disbursements for purchases of
mortgage-backed and other investment securities were $96.5 million and zero for
the three months ended June 30, 2001 and 2000, respectively. Proceeds from the
maturation of investment securities and paydowns of mortgage-backed securities
and collateralized mortgage obligations were $76.6 million and $25.8 million for
the three months ended June 30, 2001 and 2000, respectively. Net cash provided
by (used in) financing activities consisted primarily of net activity in deposit
accounts and FHLB advances and other borrowings. The net increases in deposits
were $25.8 million and $10.7 million for the three months ended June 30, 2001
and 2000, respectively. FHLB advances and other borrowings decreased $5.0
million and $65.0 million for the three months ended June 30, 2001 and 2000,
respectively.
At June 30, 2001, the Bank exceeded all of its regulatory capital requirements
with a tangible capital level of $247.6 million, or 8.49% of adjusted total
assets, which is above the required level of $43.8 million, or 1.5%; core
capital of $247.6 million, or 8.49% of adjusted total assets, which is above the
required level of $116.7 million, or 4.0%; and total risk-based capital of
$273.9 million, or 12.78% of risk-weighted assets, which is above the required
level of $171.5 million, or 8.0%.
The Company's most liquid assets are cash and short-term investments. The
levels of these assets are dependent on the Company's operating, financing,
lending and investing activities during any
15
PFF BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis
(Continued)
given period. At June 30, 2001 cash and short-term
investments totaled $66.6 million. The Company has other sources of liquidity if
a need for additional funds arises, including the utilization of reverse
repurchase agreements and FHLB advances. At June 30, 2001, the Bank has $570.0
million of FHLB advances outstanding. Other sources of liquidity include
investment securities maturing within one year.
The Company currently has no material contractual obligations or commitments for
capital expenditures. At June 30, 2001, the Bank had outstanding commitments to
originate and purchase loans of $633.1 million and zero respectively, compared
to $417.3 million and zero, respectively, at June 30, 2000. At June 30, 2001,
and 2000 the Company had no outstanding commitments to purchase securities. The
Company anticipates that it will have sufficient funds available to meet these
commitments. Certificate accounts that are scheduled to mature in less than one
year from June 30, 2001 totaled $1.06 billion. The Bank expects that a
substantial portion of the maturing certificate accounts will be retained by the
Bank at maturity.
Segment Reporting
The Company, through the branch network of the Bank, provides a broad
range of financial services to individuals and companies located primarily in
Southern California. These services include demand, time, and savings deposits;
real estate, business and consumer lending; ATM processing; cash management; and
trust services. While the Company's chief decision makers monitor the revenue
streams of the various Company products and services, operations are managed and
financial performance is evaluated on a Company-wide basis. Accordingly, all of
the Company's banking operations are considered by management to be aggregated
in one reportable operating segment.
Item 3. Qualitative and Quantitative Disclosures
about Market Risk
Readers should refer to the qualitative disclosures (consisting primarily of
interest rate risk) in the Company's March 31, 2001 Form 10-K, as there have
been no significant changes in these disclosures during the three months ended
June 30, 2001.
16
PART II - OTHER INFORMATION
PFF BANCORP, INC. AND SUBSIDIARY
Item 1. Legal Proceedings
The Company and subsidiary have been named as defendants in various lawsuits
arising in the normal course of business. The outcome of the lawsuits cannot be
predicted, but the Company intends to vigorously defend the actions and is of
the opinion that the lawsuits will not have a material adverse effect on the
Company.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a
Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 3(I) - Certificate of Incorporation of PFF Bancorp, Inc. *
Exhibit 3(ii) - Bylaws of PFF Bancorp, Inc. *
Reports on form 8-K
None
_________________________
*Incorporated herein by reference to Form S-1, Registration Statement, as
amended, filed on December 8, 1995, SEC Registration Number 33-94860.
17
PFF BANCORP, INC. AND SUBSIDIARY
Pursuant to the requirements of Section 13 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.
| PFF BANCORP, INC.
|
|
| DATED: August 10, 2001 | BY:/s/ LARRY M. RINEHART |
| Larry M. Rinehart | |
| President, Chief Executive Officer | |
| and Director | |
| DATED: August 10, 2001 | BY:/s/ GREGORY C. TALBOTT |
| Gregory C. Talbott | |
| Executive Vice President, Chief | |
|
Financial Officer and Treasurer |
18