<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 incorporation or (I.R.S. Employer
organization) Identification No.)
350 SOUTH GAREY AVENUE, POMONA, CALIFORNIA 91766
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(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. X Yes No
--- ---
The registrant had 19,837,500 shares of common stock, par value $.01 per
share, outstanding as of August 12, 1996.
<PAGE> 2
PFF BANCORP, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
PAGE
----
PART I FINANCIAL INFORMATION (UNAUDITED)
Item 1 Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 (unauditied) and March 31, 1996 1
Consolidated Statements of Operations for the
Three Months Ended June 30, 1996 and 1995 (unaudited) 2
Consolidated Statements of Changes in Stockholders'
Equity for the Three Months Ended June 30, 1996 and
1995 (unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 1996 and 1995 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 1 Legal Proceedings 23
Item 2 Changes in Securities 23
Item 3 Defaults Upon Senior Securities 23
Item 4 Submission of Matters to a Vote of Security Holders 23
Item 5 Other Information 23
Item 6 Reports on Form 8-K 23
SIGNATURES
<PAGE> 3
PART I -- FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
PFF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, MARCH 31,
1996 1996
----------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents.............................. $ 39,937 175,904
Certificates of deposit................................ 190 190
Loans held for sale at lower of cost or fair value
(net of valuation allowance of $158 and $350 at
June 30, 1996 and March 31, 1996..................... 2,825 6,015
Investment securities held-to-maturity (estimated
fair value of $12,933, and $28,109 at June 30, 1996
and March 31, 1996).................................. 12,736 28,026
Investment securities available-for-sale, at fair
value................................................ 40,506 9,932
Mortgage-backed securities held-to-maturity (estimated
fair value of $6,955 and $7,180 at June 30, 1996 and
March 31, 1996)...................................... 6,541 7,134
Mortgage-backed securities available-for-sale, at fair
value................................................ 286,842 125,588
Loans receivable, net.................................. 1,681,534 1,574,935
Accrued interest receivable............................ 12,560 10,819
Real estate, net....................................... 6,646 7,644
Property and equipment, net............................ 24,636 24,673
Prepaid expenses and other assets...................... 31,340 37,279
------------- ----------
Total assets................................. $ 2,146,293 2,008,139
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits............................................. $ 1,660,654 1,682,073
FHLB advances and other borrowings................... 177,500 19,722
Deferred income taxes payable........................ 8,922 9,309
Accrued expenses and other liabilities............... 8,737 7,964
------------- ----------
Total liabilities................................... 1,855,813 1,719,068
------------- ----------
Commitments and contingencies........................ - -
Stockholders' equity:
Preferred stock, $.01 par value. Authorized
2,000,000 shares; none issued and outstanding...... - -
Common stock, $.01 par value. Authorized 59,000,000
shares; issued and outstanding 19,837,500 at June
30, 1996 and March 31, 1996........................ 198 198
Additional paid-in capital........................... 193,721 193,677
Retained earnings, substantially restricted.......... 112,612 110,187
Unearned ESOP shares................................. (15,473) (15,870)
Unrealized gains (losses) on securities available-
for-sale, net...................................... (578) 879
------------- ----------
Total stockholders' equity.......................... 290,480 289,071
------------- ----------
Total liabilities and stockholders' equity........ $ 2,146,293 2,008,139
============ ==========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
1
<PAGE> 4
<TABLE>
<CAPTION>
PFF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Interest income:
Mortgage loans................................ $ 30,859 28,194
Non-mortgage loans............................ 545 551
Mortgage-backed securities.................... 3,885 2,139
Investment securities and deposits............ 1,700 1,043
--------- ---------
Total interest income........................ 36,989 31,927
--------- ---------
Interest on deposits............................ 19,598 20,390
Interest on borrowings.......................... 752 1,165
--------- ---------
Total interest expense....................... 20,350 21,555
--------- ---------
Net interest income.......................... 16,639 10,372
Provision for loan losses....................... 4,695 1,524
--------- ---------
Net interest income after provision for
loan losses................................. 11,944 8,848
--------- ---------
Non-interest income:
Other fees and charges........................ 2,190 1,571
Mortgage loan servicing fees.................. 213 188
Dividends on FHLB stock....................... 230 147
Loss on sale of loans, net.................... (176) -
Other non-interest income..................... 326 7
--------- ---------
Total non-interest income.................... 2,783 1,913
--------- ---------
Non-interest expense:
General and administrative:
Compensation and benefits ................... 5,337 4,798
Occupancy and equipment ..................... 3,107 2,919
Marketing and professional services.......... 855 482
Other non-interest expense .................. 2,314 1,986
--------- ---------
Total general and administrative............ 11,613 10,185
Real estate operations, net .................. (1,205) 189
---------- ---------
Total non-interest expense.................. 10,408 10,374
--------- ---------
Earnings before income taxes................ 4,319 387
Income taxes.................................... 1,894 171
--------- ---------
Net earnings................................ $ 2,425 216
========= =========
Earnings per share.......................... $ 0.13 N/A
========= =========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
PFF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
UNREALIZED
RETAINED GAINS (LOSSES)
ADDITIONAL EARNINGS, UNEARNED ON SECURITIES
NUMBER OF COMMON PAID-IN SUBSTANTIALLY ESOP AVAILABLE-FOR-
SHARES STOCK CAPITAL RESTRICTED SHARES SALE, NET TOTAL
---------- -------- ---------- ------------ --------- --------------- --------
THREE MONTHS ENDED JUNE 30, 1995
- - --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1995......... - $ - $ - $108,122 $ - $ (69) $108,053
Net earnings...................... - - - 216 - - 216
Changes in unrealized gains
(losses) on securities
available-for-sale, net......... - - - - - 2 2
------- ------ -------- -------- -------- -------- --------
Balance at June 30, 1995.......... - $ - $ - $108,338 $ - $ (67) $108,271
======= ====== ======== ======== ======== ========= ========
THREE MONTHS ENDED JUNE 30, 1996
- - --------------------------------
Balance at March 31, 1996......... 19,837,500 $ 198 $193,677 $110,187 $(15,870) $ 879 $289,071
Net earnings...................... - - - 2,425 - - 2,425
Release of shares for employee
stock ownership plan (ESOP)..... - - 44 - 397 - 441
Changes in unrealized gains
(losses) on securities
available-for-sale, net......... - - - - - (1,457) (1,457)
---------- ------ -------- -------- -------- -------- ---------
Balance at June 30, 1996.......... 19,837,500 $ 198 $193,721 $112,612 $(15,473) $ (578) $290,480
========== ====== ======== ======== ========= ========= ========
See accompanying notes to the consolidated financial statements.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
PFF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE-MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ............................ $ 2,425 216
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Amortization of premiums (discounts)
on loans, investments and mortgage-
backed securities....................... 804 (457)
Amortization of deferred loan
origination fees...................... (339) (162)
Loan fees collected..................... 173 (47)
Provisions for losses on:
Loans................................. 4,695 1,524
Real estate........................... (1,275) -
Net (gain) loss on sales of loans,
mortgage-backed securities available-
for-sale, real estate and property
and equipment.......................... (119) (24)
Depreciation and amortization of
property and equipment................. 752 783
Loans originated for sale............... (4,317) (431)
Proceeds from sale of loans held for
sale................................... 7,331
Release of ESOP shares.................. 441 -
(Increase) decrease in:
Deferred income taxes................. 667 (134)
Accrued expenses and other
liabilities.......................... 773 619
Accrued interest receivable........... (1,741) (1,023)
Prepaid expenses and other assets..... 5,939 3,028
--------- ---------
Net cash provided by operating
activities......................... 16,209 3,889
--------- ---------
Cash flows from investing activities:
Loans originated for investment.......... (149,595) (63,271)
Purchases of loans held for investment... (18,811) -
Principal payments on loans.............. 55,406 36,608
Principal payments on mortgage-backed
securities held-to-maturity............ 593 2,302
Principal payments on mortgage-backed
securities available-for-sale.......... 11,594 -
Purchases of investment securities
held-to-maturity....................... - (29,790)
Purchases of investment securities
available-for-sale..................... (30,914) (28,499)
Purchases of mortgage-backed securities
available.............................. (175,930) -
Proceeds from maturities of investment
securities............................. 15,353 30,528
Proceeds from maturities of investment
securities available-for-sale......... 623 -
Investment in real estate................ (250) (346)
Proceeds from sale of real estate........ 4,114 3,620
Purchases of property and equipment...... (722) (282)
(Continued)
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
PFF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE-MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Proceeds from sale of property and equipment.... 4 4
---------- ---------
Net cash used in investing activities......... (288,535) (49,126)
----------- ----------
Cash flows from financing activities:
Proceeds from FHLB advances and other
borrowings..................................... 177,500 137,570
Repayment of FHLB advances and other borrowings. (19,722) (90,047)
Net change in deposits.......................... (21,419) (394)
---------- ---------
Net cash provided by financing activities.... 136,359 47,129
---------- ---------
Net (decrease) increase in cash and cash
equivalents................................ (135,967) 1,892
Cash and cash equivalents, beginning of period.... 175,904 30,098
---------- ---------
Cash and cash equivalents, end of period.......... $ 39,937 31,990
========== =========
Supplemental information:
Interest paid, including interest credited........ $ 19,945 21,106
Income taxes paid................................. 526 -
Non-cash investing and financing activities:
Securitization of mortgage loans transferred to
mortgage-backed securities held-to-maturity... - 73,407
Change in unrealized gain (loss) on securities
available-for-sale............................ 2,511 (4)
Net transfers from loans receivable to real
estate......................................... 1,293 4,428
Loans originated for the sale of real estate
acquired in settlement of loans............... - 445
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
5
<PAGE> 8
PFF BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Consolidation
Effective March 28, 1996, pursuant to a plan of conversion, Pomona First Federal
Savings and Loan Association (the Association) reorganized from a federally
chartered mutual savings and loan association to Pomona First Federal Bank &
Trust (the Bank), a federally chartered stock savings bank. PFF Bancorp, Inc.
(the Bancorp) was incorporated under Delaware law in October 1995 for the
purpose of acquiring and holding all of the outstanding capital stock of the
Bank as a part of the Bank's conversion. Any references to financial information
for periods before March 28, 1996, refer to the Association prior to conversion.
The accompanying consolidated financial statements include the accounts of PFF
Bancorp, Inc. and subsidiaries (the Company) which includes Pomona First Federal
Bank & Trust and its wholly owned subsidiary, Pomona Financial Services, Inc.
Pomona Financial Services, Inc. includes the accounts of Diversified Services,
Inc. and PFF Insurance Services. All material intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles 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 generally accepted accounting principles 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.
The results of operations for the three months ended June 30, 1996 are not
necessarily indicative of results that may be expected for the entire fiscal
year ended March 31, 1997.
(2) Recent Accounting Pronouncements
In May 1995, the FASB issued Statement of Financial Accounting Standards No. 122
(SFAS 122), "Accounting for Mortgage Servicing Rights," an amendment to
Statement of Financial Accounting Standards No. 65. SFAS 122 requires an
institution that purchases or originates mortgage loans and sells or securitizes
those loans with servicing rights retained to allocate the total cost basis of
the mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based upon their relative fair values. In addition,
institutions are required to assess impairment of the capitalized mortgage
servicing portfolio based upon the fair value of those rights on a stratified
basis with any impairment recognized through a valuation allowance for each
impaired stratum. Capitalized mortgage servicing rights are stratified based
upon one or more of the predominate risk characteristics of the underlying loans
such as loan type, size, note rate, date of origination, term and/or geographic
location. SFAS 122 was effective for fiscal years beginning after December 15,
6
<PAGE> 9
PFF BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1995. The implementation of this standard as of April 1, 1996 did not have a
material effect on the Company's operations.
In June 1996, the FASB issued Statement of Financial Accounting Standards No.
125, (SFAS 125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Under the financial-components
approach, after a transfer of financial assets, an entity recognizes all
financial and servicing assets it controls and liabilities it has incurred and
derecognizes financial assets it no longer controls and liabilities that have
been extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. Many of these assets and liabilities
are components of financial assets that existed prior to the transfer. If a
transfer does not meet the criteria for a sale, the transfer is accounted for as
a secured borrowing with pledge of collateral. SFAS 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and should be applied prospectively.
Management has not yet evaluated the effect of SFAS 125, if any, on the
Company's financial condition or operations.
7
<PAGE> 10
PFF BANCORP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
ASSET/LIABILITY MANAGEMENT
- - --------------------------
The Company's earnings depend primarily on its net interest income. Net interest
income is affected by (i) the amount of interest-earning assets and
interest-bearing liabilities, and (ii) the difference between yields on
interest-earnings assets and costs on interest-bearing liabilities ("interest
rate spread"). Changes in interest rate spread and net interest income are
influenced to a significant extent by the repricing characteristics of
interest-earning assets and interest-bearing liabilities ("interest rate risk").
The Company currently utilizes the following strategies to manage interest rate
risk: (i) emphasizing the origination of adjustable-rate one-to-four family
mortgage loans for portfolio, (ii) selling to the secondary market substantially
all fixed-rate mortgage loans originated, (iii) purchasing adjustable-rate and
balloon maturity mortgage-backed securities; and (iv) attempting to increase the
overall interest rate sensitivity of liabilities by shortening the maturities of
deposits and diversifying funding sources to include FHLB advances and other
borrowings.
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, therefore, a negative gap theoretically would tend to adversely affect
interest rate spread, while a positive gap would tend to result in an increase
in interest rate spread. Conversely, during a period of falling interest rates,
a negative gap position would theoretically tend to result in an increase in
interest rate spread while a positive gap would tend to affect interest rate
spread adversely.
At June 30, 1996, the Company's one-year interest sensitivity gap as a
percentage of total assets was positive 11.83%. The following table sets forth
the amounts of interest-earning assets and interest-bearing liabilities
outstanding at June 30, 1996, which are anticipated by the Company, based upon
certain assumptions, to reprice or mature in each of the future time periods
shown. The amount of assets and liabilities shown which reprice or mature during
a particular period were determined on the basis of contractual maturities,
anticipated prepayments, and scheduled rate adjustments.
8
<PAGE> 11
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Certain shortcomings are inherent in the method of analysis presented in the
table below as it does not necessarily indicate the impact of general interest
rate movements on the Company's interest rate spread because the repricing of
certain categories of assets and liabilities is subject to competitive and other
pressures beyond the Company's control. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Also the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate significantly
from those assumed in calculating the table. As a result, certain assets and
liabilities indicated as maturing or otherwise repricing within a stated period
may, in fact, mature or reprice at different times and at different volumes.
Another method of analyzing an institution's exposure to interest rate risk is
by measuring change in the institution's net portfolio value ("NPV") under
various interest rate scenarios. NPV is the difference between the net present
value of assets, liabilities and off-balance sheet contracts. An NPV ratio, in
any interest rate scenario defined as the NPV in the scenario divided by the
market value of assets in the same scenario. The sensitivity measure is the
decline in the NPV ratio, in basis points, caused by a 2% increase or decrease
in rates, whichever produces a larger decline. The higher an institution's
sensitivity measure is, the greater its exposure to interest rate risk is
considered to be. The OTS produces an analysis using its own model, based upon
data submitted on the Bank's quarterly Thrift Financial Report. The Bank also
calculates its NPV ratio utilizing an internal simulation model. The results of
the OTS model may vary from the Bank's internal model primarily due to
differences between assumptions utilized in the Bank's internal model and the
OTS model, including estimated loan market rates, prepayment rates, reinvestment
rates and deposit decay rates. The OTS has incorporated an interest rate risk
component into its regulatory capital rule. Under the rule, an institution whose
sensitivity measure exceeds 2% would be required to deduct an interest rate risk
component in caluculating its total capital for purpose of the risk-based
capital requirement. The OTS has postponed the date that the component will
first be deducted from an institution's total capital to provide themselves with
an opportunity to review the interest rate risk proposals issued by the other
federal banking agencies. As of March 31, 1996 (the latest date for which OTS
data is available) the Bank's sensitivity measure, as measured by the OTS, was
negative .93%. At that same date, the sensitivity measure as measured by the
Bank, was negative .29%. Both of these NPV ratio sensitivity measures are below
the thresholds at which the Bank would be required to hold additional risk-based
capital under OTS regulations. The Bank compares and reconciles the NPV ratio
results from the OTS with those from its internally generated model and provides
this information to management and the Board of Directors on a quarterly basis.
9
<PAGE> 12
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
The Bank utilizes simulation modeling to project the interest income and expense
that will be generated from interest-earning assets and interest-bearing
liabilities using the rate, maturity and repricing characteristics of each
individual interest sensitive asset or liability. The simulation modeling is
performed under several hypothetical interest rate scenarios utilizing
prepayment rate and other customer behavior assumptions tailored to the Bank's
asset and liability products. The simulation modeling is utilized by management
to analyze the projected impact of hypothetical interest rate scenarios on the
net interest income to be generated by the Bank from the current as well as
projected asset and liability rate, maturity and repricing structures and is an
essential element of the asset/liability management process conducted by the
Bank.
10
<PAGE> 13
<TABLE>
<CAPTION>
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
MORE THAN 3 MORE THAN 6 MORE THAN 12 MORE THAN 3
MONTHS TO 6 MONTHS TO 12 MONTHS TO 3 YEARS TO 5 MORE THAN
3 MONTHS OR LESS MONTHS MONTHS YEARS YEARS 5 YEARS TOTAL
---------------- ----------- ------------ ----------- ----------- --------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-earning deposits &
short-term investments......... $ 19,400 $ 5,000 $ - $ - $ - $ - $ 24,400
Investment securities, net (1).... 8,640 231 11,911 14,628 2,105 5,771 43,286
Loans receivable, net............. 997,555 363,531 77,867 183,206 26,726 64,788 1,713,675
Mortgage-backed securities........ 36,182 39,241 56,424 35,031 34,691 93,366 294,935
---------- -------- -------- -------- -------- -------- ---------
Total interest-earning assets.. 1,061,777 406,003 146,202 232,667 63,522 163,925 2,076,296
Unamortized premiums (discounts)
and deferred loan fees.......... (2,738) (1,151) (527) (658) (260) (682) (6,016)
Allowance for loan losses......... - - - - - (23,643) (23,643)
---------- -------- -------- -------- -------- --------- ----------
Net interest-earning assets.... 1,059,039 406,852 145,675 232,209 63,262 139,600 2,046,637
Non-interest earning assets....... - - - - - 99,656 99,656
---------- -------- -------- -------- -------- -------- ----------
Total assets................... $1,059,039 $406,852 $145,675 $232,209 $ 63,262 $239,256 $2,146,293
========== ======== ======== ======== ======== ======== ==========
Interest-bearing liabilities:
Money market savings accounts..... $10,780 $10,795 $21,589 $ 86,358 $8,106 $ - $137,630
Passbook accounts................. 5,550 5,550 11,099 44,397 44,397 47,003 157,996
NOW and other demand deposit
accounts........................ 6,305 6,305 12,611 50,442 50,442 4,062 130,167
Certificate accounts.............. 530,658 267,198 291,650 105,765 39,163 427 1,234,861
Borrowings........................ 87,500 90,000 - - - - 177,500
---------- -------- -------- -------- -------- -------- ----------
Total interest-bearing
liabilities.................. 640,793 379,848 336,949 286,962 142,110 51,492 1,838,154
Non-interest bearing liabilities.. - - - - - 17,659 17,659
Equity............................ - - - - - 290,480 290,480
-------- -------- -------- -------- -------- -------- ----------
Total liabilities and
stockholders' equity......... $640,793 $379,848 $336,949 $286,962 $142,110 $359,631 $2,146,293
======== ======== ======== ======== ======== ======== ==========
Interest sensitivity gap ......... $418,246 $ 27,004 ($191,274) ($ 54,753) ($ 78,848) $ 88,108
Cumulative interest sensitivity
gap............................. $418,246 $445,250 $253,976 $199,223 $120,357 $208,483
Cumulative interest sensitivity
gap as a percentage of total
assets.......................... 19.49% 20.75% 11.83% 9.18% 5.61% 9.71%
Cumulative interest earning assets
as a percentage of cumulative
interest bearing liabilities.... 165.27% 143.62% 118.71% 112.11% 106.74% 111.34%
</TABLE>
11
<PAGE> 14
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
(1) Includes certificates of deposit of $190,000 which mature in three
months or less and investment securities held-to-maturity of $2.7
million which reprice or mature as follows: more than six to twelve
months, $1.0 million, more than twelve months to three years $1.0
million and, more than three to five years, $700,000.
(2) For purposes of the gap analysis, loans receivable is net of loans
in process and includes non-performing loans and loans held for sale
but is not reduced for the allowance for loan losses, unamortized
discounts, net and deferred loan origination fees, net. Includes
loans receivable held for sale of $3.0 million which reprice in more
than five years.
(3) Unamortized premiums (discounts) and deferred loan fees are related
to loans receivable and mortgage-backed securities.
12
<PAGE> 15
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
AVERAGE BALANCE SHEETS
The following table sets forth certain information relating to the Company for
the three months ended June 30, 1996 and 1995. 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 which are considered
adjustments to yields.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
AVERAGE AVG. YIELD/ AVERAGE AVG. YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- ------------ ----------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets
Interest-earning deposits and short-term
investments $81,520 $ 976 4.79% $ 21,245 $ 343 6.46%
Investment securities, net (1)(2) 34,105 724 7.10 51,272 700 5.46
Loans receivable, net (3)(4) 1,618,470 31,404 7.76 1,590,919 28,745 7.23
Mortgage-backed securities, net (1)(5) 219,558 3,885 7.08 122,122 2,139 7.01
----------- --------- ---------- --------
Total interest-earning assets 1,953,653 36,989 7.55 1,785,558 31,927 7.15
--------- --------
Non-interest-earning assets 96,310 88,846
----------- ----------
Total assets $2,049,963 1,874,404
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities
Deposits $1,663,504 19,598 4.73 1,668,275 20,390 4.90
Borrowings 51,382 752 5.87 76,786 1,165 6.09
----------- --------- ---------- --------
Total interest-bearing liabilities 1,714,886 20,350 4.76 1,745,061 21,555 4.95
--------- --------
Non-interest-bearing liabilities 44,912 20,762
----------- ----------
Total liabilities 1,759,798 1,765,823
Stockholders' equity 290,165 108,581
----------- ----------
Total liabilities and stockholders'
equity $2,049,963 $1,874,404
=========== ==========
Net interest income $ 16,639 $ 10,372
========= ========
Net interest rate spread(6) 2.79 2.20
Net interest margin(7) 3.41 2.32
Ratio of interest-earning assets to
interest-bearing liabilities 113.92% 102.32%
</TABLE>
13
<PAGE> 16
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
- - -------------------------------
(1) Includes assets available for sale and held-to-maturity and unamortized
discounts and premiums and certificates of deposit.
(2) Included in the average balance of investment securities for the three
months ended June 30, 1996 and 1995 are average investment securities
held-to- maturity of $17.8 million and $46.4 million, respectively.
Interest income recognized on investment securities held-to-maturity
during these periods was $255,000 and $710,000 respectively, resulting in
average yields of 5.71% and 6.12%, respectively. Yields on average
investment securities have been calculated based upon the historical cost
bases of the underlying securities.
(3) Amount is net of deferred loan origination fees, undisbursed loan funds,
unamortized discounts and allowance for loan losses and includes loans
held for sale and non-performing loans.
(4) Included in the average balance of loans receivable, net for three months
ended June 30, 1996 and 1995, are average loans held for sale of $7.2
million and $109,000 respectively. Interest income recognized on loans
held for sale during these periods was $131,000 and $2,000, respectively,
resulting in average yields of 7.23% and 7.18% respectively.
(5) Included in the average balance of mortgage-backed securities, net for the
three months ended June 30, 1996 are average mortgage-backed securities
held-to-maturity of $6.8 million. Interest income recognized on mortgage
backed securities held-to-maturity during the three months ended June 30,
1996 was $124,000 resulting in an average yield of 7.23%.At and for the
three months ended June 30, 1995, all mortgage-backed securities were
classified as held-to-maturity.
(6) Net interest rate spread represents the difference between the yield
on interest-earnings assets and the cost of interest-bearing liabilities.
(7) Net interest margin represents net interest income divided by
average interest-earning assets.
14
<PAGE> 17
PFF BANCORP, INC. AND SUBSIDIARIES
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: (1) 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); and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1996
COMPARED TO JUNE 30, 1995
INCREASE (DECREASE)
------------------------------------
VOLUME RATE NET
------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-earning deposits and short-term $ 973 (340) 633
investments
Investment securities, net (1)(2) (234) 258 24
Loans receivable, net (3) 498 2,161 2,659
Mortgage-backed securities (1)(4) 1,707 39 1,746
---------- ---------- -----------
Total interest-earning assets 2,944 2,118 5,062
========== ========== ===========
INTEREST-BEARING LIABILITIES:
Deposits (58) (734) (792)
Borrowings (385) (28) (413)
---------- ---------- -----------
Total interest-bearing liabilities (443) (762) (1,205)
---------- ---------- -----------
Change in net interest income $ 3,387 2,880 6,267
========== ========== ===========
- - --------------------------
(1) Includes assets held-to-maturity.
(2) Included in the increases (decreases) in interest income on investment
securities, net for the three months ended June 30, 1996 compared to 1995
are (decreases) in interest income on investment securities held-to-maturity
attributable to volume and rate of $(437,000) and $(18,000) respectively.
(3) Included in the increases or (decreases) in interest income on loans
receivable, net for the three months ended June 30, 1996 compared to 1995
are increases in interest income on loans held for sale attributable to
volume and rate of $128,000 and $1,000, respectively.
(4) Included in the increase in interest income on mortgage-backed securities,
net for the three months ended June 30, 1996 compared to 1995 are
increases/(decreases) in interest income on mortgage-backed securities
held-to-maturity attributable to volume and rate of $(2.0 million) and
$4,000, respectively.
</TABLE>
15
<PAGE> 18
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND
- - --------------------------------------------------------------------------------
1995
- - ----
GENERAL
- - -------
The Company recorded net earnings of $2.4 million or $0.13 per share for the
three months ended June 30, 1996 compared to net earnings of $216,000 for the
comparable period of 1995. The increase in net earnings between the three months
ended June 30, 1995 and 1996 was attributable principally to an increase in net
interest income.
Net interest income was $16.6 million for the three months ended June 30, 1996
compared to $10.4 million for the comparable period of 1995. The increase
resulted from an increase in average interest rate spread coupled with a
combination of growth in average interest-earning assets coupled with a decrease
in average interest-bearing liabilities as the proceeds from the Company's
initial public offering of common stock were utilized to increase investment in
interest-earning assets and to retire short-term borrowings. The Company's ratio
of average interest-earning assets to average interest-bearing liabilities was
113.92% for the three months ended June 30, 1996 compared to 102.32% for the
comparable period of 1995. Average interest rate spread was 2.79% for the three
months ended June 30, 1996 compared to 2.20% for the comparable period of 1995.
Net interest margin was 3.41% for the three months ended June 30, 1996 compared
to 2.32% for the comparable period of 1995.
Total non-interest income was $2.8 million for the three months ended June 30,
1996 compared to $1.9 million for the comparable period of 1995 while total
non-interest expense remained consistent between the three months ended June 30,
1995 and 1996 at $10.4 million. The improvement in operating results
attributable to the increases in net interest income and non-interest income was
partially offset by an increase in provision for loan losses to $4.7 million for
the three months ended June 30, 1996 from $1.5 million for the comparable period
of 1995.
INTEREST INCOME
- - ---------------
Interest income was $37.0 million for the three months ended June 30, 1996
compared to $31.9 million for the comparable period of 1995. The increase was
attributable to a $168.1 million increase in average interest-earning assets
from $1.79 billion for the three months ended June 30, 1995 to $1.95 billion for
the comparable period of 1996 coupled with an increase in the yield on average
interest-earning assets from 7.15% for the three months ended June 30, 1995 to
7.55% for the comparable period of 1996. The increase in average interest-
earning assets was due principally to a $97.4 million increase in the average
balance of mortgage-backed securities (MBS) from $122.1 million for the three
months ended June 30, 1995 to $219.6 million for the comparable period of 1996
and a $60.3 million increase in interest-earning deposits and short-term
investments from $21.2 million for the three months ended June 30, 1995 to $81.5
million for the comparable period of 1996, which reflects the investment of
proceeds from the Company's initial public offering of common stock. The average
balance of loans receivable increased $27.6 million from $1.59 billion for the
16
<PAGE> 19
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
three months ended June 30, 1995 to $1.62 billion for the comparable period of
1996. The yield on loans receivable increased from 7.23% for the three months
ended June 30, 1995 to 7.76% for the comparable period of 1996 reflecting the
impact of changes in the Federal Home Loan Bank (FHLB) Eleventh District Cost of
Funds Index (COFI) on the Company's portfolio of adjustable-rate loans indexed
to COFI. While COFI decreased from 5.18% at June 30, 1995 to 4.78% at June 30,
1996, the impact of COFI on the Company's loan portfolio lags changes in the
index due to the repricing interval of the adjustable-rate loans tied to COFI.
The yields on interest-earning deposits and short-term investments decreased
from 6.46% for the three months ended June 30, 1995 to 4.79% for the comparable
period of 1996 while the yield on investment securities increased from 5.46% for
the three months ended June 30, 1995 to 7.10% for the comparable period of 1996.
The decrease in the yields on interest-earning deposits and short-term
investment reflect the impact of the temporary increase in lower-yielding
overnight investments resulting from the receipt of proceeds from the Company's
initial public offering of common stock. The Company completed the deployment of
these proceeds during the later stages of the three months ended June 30, 1996.
The increase in the yield on investment securities reflects a change in the
average stated final maturity of the portfolio from 12 months at June 30, 1995
to 8.9 years at June 30, 1996 as the Company continues to seek to increase its
net interest margin without incurring undue interest rate or credit risk.
Excluding two collateralized mortgage obligations with carrying values totaling
$12.3 million at June 30, 1996, which are expected to experience some degree of
prepayments which would shorten their stated final maturities, the average
stated final maturity of the investment securities portfolio would decline from
8.9 to 3.6 years.
INTEREST EXPENSE
- - ----------------
Interest expense was $20.4 million for the three months ended June 30, 1996
compared to $21.6 million for the comparable period of 1995. The decrease was
attributable to a decrease in the cost of average interest-bearing liabilities
from 4.95% for the three months ended June 30, 1995 to 4.76% for the comparable
period of 1996 coupled with a $30.2 million decrease in the average balance of
interest-bearing liabilities from $1.75 billion for the three months ended June
30, 1995 to $1.71 billion for the comparable period of 1996. The decrease in
average interest-bearing liabilities was due principally to a $25.4 million
decrease in the average balance of FHLB advances and other borrowings from $76.8
million for the three months ended June 30, 1995 to $51.4 million for the
comparable period of 1996 as a portion of the proceeds from the Company's
initial public offering of common stock was used to retire short-term borrowings
as they matured during the later stages of the three months ended March 31,
1996. The outstanding balance of borrowings remained low during the initial
stages of the three months ended June 30, 1996 as the Company completed the
deployment of the proceeds from its stock offering into MBS and other
investments. Borrowings were increased during the later stages of the three
months ended June 30, 1996 in connection with the Company's strategy of
utilizing both retail and wholesale sources of funding to achieve its strategic
growth objectives. The average balance of deposits was $1.66 billion for the
three months ended June 30, 1996, a decrease of $4.8 million from the comparable
period of 1995. The Company's weighted average cost of interest-bearing
liabilities was 4.76% for the three months ended June 30, 1996 compared to 4.95%
for the three months ended 1995 reflecting a decrease in the general level of
interest rates.
17
<PAGE> 20
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
PROVISION FOR LOAN LOSSES
- - -------------------------
The provision for loan losses was $4.7 million for the three months ended June
30, 1996 compared to $1.5 million for the three months ended 1995. The provision
for loan losses for the three months ended 1996 includes $2.5 million applicable
to the establishment of specific allowances on several loans based upon updated
reviews. See "Comparison of Financial Condition at June 30, 1996 and March 31,
1996."
NON-INTEREST INCOME
- - -------------------
Non-interest income was $2.8 million or .54% of average assets for the quarter
ended June 30, 1996 compared to $1.9 million or .41% of average assets for the
comparable period of 1995. Savings fees and charges were $1.1 million for the
quarter ended June 30, 1996 compared to $897,000 for the comparable period of
1995. Sales of non-deposit investment products generated $449,000 of fee income
in the quarter ended June 30, 1996 compared to $79,000 in the comparable period
of 1995 as the Bank scaled up its sales efforts in this area.
NON-INTEREST EXPENSE
- - --------------------
Non-interest expense was $10.4 million for both the three months ended June 30,
1996 and 1995. General and administrative expense was $11.6 million or 2.27% of
average assets for the three months ended June 30, 1996 compared to $10.2
million or 2.17% of average assets for the three months ended 1995. Compensation
and benefits expense was $5.3 million for the three months ended June 30, 1996
compared to $4.8 million for the three months ended 1995, due principally to the
addition of $441,000 of expense associated with the allocation of shares under
the Company's Employee Stock Ownership Plan. Other non-interest expense was $2.3
million for the three months ended June 30, 1996 compared to $2.0 million for
the three months ended 1995 due to the inclusion of a $350,000 non-recurring
legal judgement in the three months ended June 30, 1996. Marketing and
professional services expense was $855,000 for the three months ended June 30,
1996 compared to $482,000 for the three months ended 1995 due principally to an
increase in marketing expense associated with the promotion of the name change
of the Bank which was formerly known as Pomona First Federal Savings and Loan
Association.
Real estate operations, net reflects income of $1.2 million for the three months
ended June 30, 1996 compared to expense of $189,000 for the three months ended
1995. The results for the three months ended June 30, 1996 reflect a $1.4
million reduction in the allowance for real estate losses based upon updated
property valuations.
INCOME TAXES
- - ------------
Income tax expense was $1.9 million for the three months ended June 30, 1996
compared to $171,000 for the comparable period of 1995. The increase in income
tax expense was primarily the result of an increase in earnings before income
taxes from $387,000 for the three months ended June 30, 1995 to $4.3 million for
the comparable period of 1996.
18
<PAGE> 21
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1996 AND MARCH 31, 1996
- - ---------------------------------------------------------------------
Total assets increased $138.2 million or 6.9% to $2.15 billion at June 30, 1996
from $2.01 billion at March 31, 1996 due primarily to strong growth in loans
receivable. Loans receivable, net increased $106.6 million to $1.68 billion at
June 30, 1996 from $1.57 billion at March 31, 1996. Loan originations for the
three months ended June 30, 1996 were $162.7 million, compared to $64.1 million
for the comparable period of 1995. Non-performing loans declined from $23.0
million or 1.41% of gross loans at March 31, 1996 to $21.0 million or 1.20% of
gross loans at June 30, 1996. Non-performing assets, which includes foreclosed
real estate, net of specific allowances, declined from $29.7 million or 1.48% of
total assets at March 31, 1996 to $27.1 million or 1.26% of total assets at June
30, 1996. Troubled-debt restructured loans increased from $13.8 million at March
31, 1996 to $17.2 million at June 30, 1996. The increase in troubled debt
restructured loans is comprised of four loans totaling $2.0 million secured by
commercial real estate and ten loans totaling $1.4 million secured by
one-to-four family residential real estate.
The allowance for loan losses is maintained at an amount management considers
adequate to cover future 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 and industry trends. 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, 1996, the Bank's
allowance for loan losses was $23.6 million or 1.35% of gross loans compared to
$19.7 million or 1.21% of gross loans at March 31, 1996. The Bank will continue
to monitor and modify its allowances for loan losses as conditions dictate. The
following table sets forth activity in the Bank's allowance for loan losses for
the three months ended June 30, 1996.
<TABLE>
<CAPTION>
<S> <C>
Balance at March 31, 1996 $ 19,741
Provision for loan losses 4,695
Charge-offs (793)
Recoveries -
--------
Balance at June 30, 1996 $ 23,643
========
</TABLE>
MBS increased $160.7 million to $293.4 million at June 30, 1996 from $132.7
million at March 31, 1996 and cash and cash equivalents decreased $136.0 million
to $39.9 million at June 30, 1996 from $175.9 at March 31, 1996 as the proceeds
from the Company's stock offering, which were initially placed into short-term
investments, were invested in MBS.
Total liabilities increased $136.7 million or 8.0% to $1.86 billion at June 30,
1996 from $1.72 billion at March 31, 1996. Deposits decreased $21.4 million to
$1.66 billion at June 30, 1996 from $1.68 billion at March 31, 1996 while FHLB
advances and other borrowings increased $157.8 million to $177.5 million at June
30, 1996 from $19.7 million at March 31, 1996. FHLB advances were utilized to
fund the strong level of loan originations and the outflow of deposits during
the three months ended June 30, 1996. The outflow of deposits during the quarter
was caused in part by the Bank's efforts to maintain discipline in its deposit
pricing relative to FHLB advances and other depository institutions in an effort
to widen its average interest rate spread.
19
<PAGE> 22
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Total stockholders' equity was $290.5 million at June 30, 1996 compared to
$289.1 million at March 31, 1996. The $1.4 million increase in stockholders'
equity is comprised of a $2.4 million increase arising from net earnings for the
three months ended June 30, 1996, a $1.5 million decrease arising from a change
in the unrealized gains (losses) on securities available-for-sale and a $441,000
increase resulting from the allocation of shares under the Company's Employee
Stock Ownership Plan.
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. While maturities and scheduled amortization of loans and
securities are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition. The Bank is subject to minimum regulatory liquidity
requirements. The Bank has maintained the required minimum levels of liquid
assets as defined by OTS regulations. These requirements, which may be varied at
the direction of the OTS depending upon economic conditions and deposit flows,
are based upon a percentage of deposits and short-term borrowings. The required
ratios are currently 5% for total qualifying liquidity and 1% for short-term
qualifying liquidity (generally those investments having maturities of one year
or less). The Bank's average total and short-term liquidity ratios were 6.17%
and 3.48%, respectively for the three months ended June 30, 1996.
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 $16.2 million and $3.9 million
for the three months ended June 30, 1996 and 1995 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 $55.4 million and $36.6 million for the three months
ended June 30, 1996 and 1995, respectively. Disbursements on loans originated
and purchased, excluding loans originated for sale, were $168.4 million and
$63.3 million for the three months ended June 30, 1996 and 1995, respectively.
Disbursements for purchases of mortgage-backed and other investment securities
were $206.8 million and $58.3 million for the three months ended June 30, 1996
and 1995, respectively. Proceeds from the maturation of investment securities
and paydowns of mortgage-backed securities were $28.2 million and $32.8 million
for the three months ended June 30, 1996 and 1995, 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 decreases in
deposits were $21.4 million and $394,000 for the three months ended June 30,
1996 and 1995, respectively. The net increases in FHLB advances and other
borrowings were $157.8 million and $47.5 million for the three months ended June
30, 1996 and 1995, respectively.
At June 30, 1996, on a consolidated basis, the Company had total capital of
$290.5 million or 13.53% of total assets. At June 30, 1996, the Bank exceeded
all of its regulatory capital requirements with a tangible capital level of
$213.7 million, or 10.23% of adjusted total assets,
20
<PAGE> 23
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
which is above the required level of $31.4 million, or 1.5%; core capital of
$213.7 million, or 10.23% of adjusted total assets, which is above the required
level of $62.8 million, or 3%, and total risk-based capital of $228.6 million or
19.24% of risk weighted assets, which is above the required level of $95.0
million or 8%.
The Company's most liquid assets are cash and short-term investments. The level
of these assets are dependent on the Company's operating, financing, lending and
investing activities during any given period. At June 30, 1996 cash and cash
equivalents totaled $39.9 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, 1996, the Company had no
reverse repurchase agreements outstanding. Other sources of liquidity include
MBS and other investment securities available-for-sale or maturing within one
year.
At June 30, 1996, the Bank had outstanding commitments to originate mortgage
loans of $29.7 million and no outstanding commitments to purchase
mortgage-backed securities or other investment securities. The Bank anticipates
that it will have sufficient funds available to meet these commitments.
Certificate accounts which are scheduled to mature in less than one year from
June 30, 1996 totaled $1.08 billion. The Bank expects that a substantial portion
of the maturing certificate accounts will be retained by the Bank at maturity.
The Bank anticipates finalizing five year contracts with new core electronic
data processing system providers in August 1996 and completing a conversion to
the new systems in October 1996. The anticipated range of one-time costs for
this conversion is $1.0 million to $1.5 million of which a substantial portion
represents equipment costs which will be capitalized and amortized against
earnings in future years. Annual data processing expenses under these contracts
are expected to be within the range of $2.1 million to $3.0 million, which is
not materially different from the Bank's current level of expenditures.
LEGISLATIVE MATTERS
- - -------------------
Legislation is pending in Congress to mitigate the effect of the Bank Insurance
Fund ("BIF") Savings Association Insurance Fund ("SAIF") premium disparity.
Under the legislation, a special assessment would be imposed on the amount of
deposits held by SAIF-member institutions, including the Bank, as of a specified
date, currently March 31, 1995, to recapitalize the SAIF. The amount of the
special assessment would be left to the discretion of the FDIC but is generally
estimated at between 79 to 85 basis points of insured deposits. The legislation
would also require that the BIF and SAIF be merged, provided that subsequent
legislation is enacted requiring federal savings associations to become national
banks or state chartered banks or thrifts, and that the Financing Insurance
Company ("FICO") payments be spread across all BIF and SAIF members. The payment
of the special assessment would have the effect of immediately reducing the
capital of SAIF-member institutions, net of any tax effect; however, it would
not affect the Bank's compliance with its regulatory capital requirements.
Management cannot predict whether legislation imposing such an assessment will
be enacted, or, if enacted, the specific terms of such legislation including the
amount of any special assessment and when and whether ongoing SAIF premiums will
be reduced to a level equal to that of BIF premiums. Management can also not
predict whether or
21
<PAGE> 24
PFF BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
when the BIF and SAIF will merge. A significant increase in SAIF insurance
premiums or a significant special assessment to recapitalize the SAIF would
likely have an adverse effect on the operating expenses of the Company. Based on
the Bank's deposit insurance assessment base as of June 30, 1996, the assessment
of a 79 to 85 basis point fee to recapitalize the SAIF would result in a $7.4
million to $8.0 million payment on an after-tax basis.
Legislation regarding bad debt recapture has been passed by Congress and sent to
the President for signature. The legislation requires recapture of reserves
accumulated after 1987. The recapture tax on post 1987 reserves must be paid
over a six year period starting in 1996. The payment of the tax can be deferred
in each of 1996 and 1997 if an institution originates at least the same average
annual principal amount of mortgage loans that it originated in the six years
prior to 1996. In the opinion of management, this legislation will not have a
material impact on the financial condition or operations of the Company.
No assurances can be given as to whether legislation as discussed above will be
enacted or if enacted, what the terms of such legislation would be.
22
<PAGE> 25
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company and subsidiaries have been named as defendants in various lawsuite
arising in the normal course of business. The outcome of these lawsuits cannot
be predicted, but the Company intends to rigorously defend the actions and is of
the opinion that the lawsuits will not have a material effect on the Company.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 3(i) - Certificate of Incorporation of PFF Bancorp, Inc.*
Exhibit 3(ii) - Bylaws of PFF Bancorp, Inc.*
Exhibit 11 - Statement Re: Computation of Earnings Per Share.
Exhibit 27.0 - Financial Date Schedule (filed herewith)
(b) 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.
23
<PAGE> 26
PFF BANCORP, INC. AND SUBSIDIARIES
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.
PFF BANCORP, INC.
/s/ Larry M. Rinehart
--------------------------------------
Date 8/14/96 Larry M. Rinehart
------------------ President, Chief Executive Officer
and Director
/s/ Gregory C. Talbott
--------------------------------------
Date 8/14/96 Gregory C. Talbott
------------------ Senior Vice President, Chief Financial
Officer and Treasurer
24
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARIES
EXHIBIT 11. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1996
------------------
(DOLLARS IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C>
Net Income................................... $ 2,425
===========
Weighted average number of common shares
and equivalents outstanding:
Issued and outstanding.................... 19,837,500
==========
Shares held by the ESOP which have not
been committed to be released........... (1,550,631)
==========
Weighted average number of common shares
and equivalents outstanding................ 18,286,869
==========
Earnings per share........................... $ 0.13
===========
</TABLE>
Earnings per share is meaningful only for the three months ended June 30, 1996,
since the Company's common stock was issued March 28, 1996 in connection with
the conversion of the Association from the mutual to stock form of ownership.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001004969
<NAME> PFF BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 39,937
<INT-BEARING-DEPOSITS> 190
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 327,348
<INVESTMENTS-CARRYING> 19,277
<INVESTMENTS-MARKET> 19,888
<LOANS> 1,684,359
<ALLOWANCE> 23,643
<TOTAL-ASSETS> 2,146,293
<DEPOSITS> 1,660,654
<SHORT-TERM> 177,500
<LIABILITIES-OTHER> 17,659
<LONG-TERM> 0
0
0
<COMMON> 198
<OTHER-SE> 290,282
<TOTAL-LIABILITIES-AND-EQUITY> 2,146,293
<INTEREST-LOAN> 31,404
<INTEREST-INVEST> 5,585
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 36,989
<INTEREST-DEPOSIT> 19,598
<INTEREST-EXPENSE> 20,350
<INTEREST-INCOME-NET> 16,639
<LOAN-LOSSES> 4,695
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,408
<INCOME-PRETAX> 4,319
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,425
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
<YIELD-ACTUAL> 3.41
<LOANS-NON> 21,017
<LOANS-PAST> 0
<LOANS-TROUBLED> 17,204
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19,741
<CHARGE-OFFS> 793
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 23,643
<ALLOWANCE-DOMESTIC> 23,643
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
