<PAGE>
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 December 31, 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 (I.R.S. Employer
incorporation or 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 18,845,625 shares of common stock, par value $.01 per
share, outstanding as of February 12, 1997.
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION (UNAUDITED)
Item 1 Financial Statements
Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1996 1
Consolidated Statements of Operations for the Three and
Nine Months Ended December 31, 1996 and 1995 2
Consolidated Statements of Changes in Stockholders'
Equity for the Three and Nine Months Ended
December 31, 1996 and 1995 3
Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 1996 and 1995 5
Notes to Unaudited Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 1 Legal Proceedings 25
Item 2 Changes in Securities 25
Item 3 Defaults Upon Senior Securities 25
Item 4 Submission of Matters to a Vote of Security Holders 25
Item 5 Other Information 25
Item 6 Reports on Form 8-K 25
SIGNATURES
</TABLE>
<PAGE>
PART I -- FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS.
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................ $ 42,503 175,904
Certificates of deposit.................................................. - 190
Loans held for sale at lower of cost or fair value (net of valuation
allowance of $76 and $350 at December 31, 1996 and March 31, 1996)..... 2,490 6,015
Investment securities held-to-maturity (estimated fair value of $1,724
and $28,109 at December 31, 1996 and March 31, 1996)................... 1,689 28,026
Investment securities available-for-sale, at fair value.................. 69,345 9,932
Mortgage-backed securities held-to-maturity (estimated fair value of
$5,941 and $7,180 at December 31, 1996 and March 31, 1996)............. 5,872 7,134
Mortgage-backed securities available-for-sale, at fair value............. 515,049 125,588
Loans receivable, net.................................................... 1,800,442 1,574,935
Federal Home Loan Bank (FHLB) stock, at cost............................. 26,500 15,891
Accrued interest receivable.............................................. 14,839 10,819
Real estate, net......................................................... 10,346 7,644
Property and equipment, net.............................................. 25,792 24,673
Prepaid expenses and other assets........................................ 9,745 21,388
---------- ---------
Total assets......................................................... $2,524,612 2,008,139
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits............................................................... $1,683,130 1,682,073
FHLB advances and other borrowings..................................... 535,000 19,722
Accrued expenses and other liabilities................................. 25,881 17,273
---------- ---------
Total liabilities.................................................... 2,244,011 1,719,068
---------- ---------
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 and outstanding 19,837,500 at December 31,
1996 and March 31, 1996.............................................. 198 198
Additional paid-in capital.............................................. 193,934 193,677
Retained earnings, substantially restricted............................. 110,412 110,187
Unearned stock based compensation....................................... (25,942) (15,870)
Unrealized gains on securities available-for-sale, net.................. 1,999 879
---------- ---------
Total stockholders' equity........................................... 280,601 289,071
---------- ---------
Total liabilities and stockholders' equity......................... $2,524,612 2,008,139
========== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
1
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ----------------------
1996 1995 1996 1995
----------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans............................................... $ 33,430 29,776 96,740 87,506
Non-mortgage loans........................................... 543 569 1,640 1,681
Mortgage-backed securities................................... 9,067 3,031 19,018 8,321
Investment securities and deposits........................... 1,772 1,283 5,135 3,789
----------- ------ ---------- -------
Total interest income...................................... 44,812 34,659 122,533 101,297
----------- ------ ---------- -------
Interest on deposits............................................ 20,100 20,879 59,482 62,215
Interest on borrowings.......................................... 7,508 1,308 12,622 3,923
----------- ------ ---------- -------
Total interest expense..................................... 27,608 22,187 72,104 66,138
----------- ------ ---------- -------
Net interest income........................................ 17,204 12,472 50,429 35,159
Provision for loan losses....................................... 2,896 4,310 10,662 7,446
----------- ------ ---------- -------
Net interest income after provision for loan losses.......... 14,308 8,162 39,767 27,713
----------- ------ ---------- -------
Non-interest income:
Other fees and charges....................................... 2,052 1,879 6,660 5,187
Mortgage loan servicing fees................................. 246 234 668 676
Gain (loss) on sale of loans, net............................ 120 35 (29) 58
Other non-interest income.................................... 44 17 280 49
----------- ------ ---------- -------
Total non-interest income.................................. 2,462 2,165 7,579 5,970
----------- ------ ---------- -------
Non-interest expense:
General and administrative:
Compensation and benefits.................................... 5,853 4,583 16,600 14,319
Occupancy and equipment...................................... 2,672 2,542 7,691 7,475
Marketing and professional services.......................... 805 449 2,326 1,278
Other non-interest expense................................... 2,981 2,576 8,871 7,201
----------- ------ ---------- -------
Total general and administrative........................... 12,311 10,150 35,488 30,273
----------- ------ ---------- -------
SAIF recapitalization assessment............................... - - 10,900 -
Real estate operations, net.................................... 507 268 (558) 1,335
----------- ------ ---------- -------
Total non-interest expense................................. 12,818 10,418 45,830 31,608
----------- ------ ---------- -------
Earnings (loss) before income taxes........................ 3,952 (91) 1,516 2,075
Income taxes (benefit)......................................... 1,736 (20) 1,292 921
----------- ------ ---------- -------
Net earnings (loss)........................................ $ 2,216 (71) 224 1,154
=========== ====== ========== =======
Primary and fully diluted earnings per share............... $ 0.12 N/A 0.01 N/A
=========== ====== ========== =======
Weighted average shares outstanding for primary
earnings per share calculation........................... 18,161,928 N/A 18,212,528 N/A
=========== ====== ========== =======
Weighted average shares outstanding for fully
diluted earnings per share calculation................... 18,286,111 N/A 18,253,923 N/A
=========== ====== ========== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
RETAINED GAINS (LOSSES)
ADDITIONAL EARNINGS, UNEARNED ON SECURITIES
NUMBER OF COMMON PAID-IN SUBSTANTIALLY STOCK BASED AVAILABLE-FOR-
SHARES STOCK CAPITAL RESTRICTED COMPENSATION SALE, NET TOTAL
---------- ------ ---------- -------------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
DECEMBER 31, 1996
- -----------------------------
Balance at September 30, 1996 19,837,500 $198 $193,803 $108,196 $(15,077) $ (259) $286,861
Net earnings - - - 2,216 - - 2,216
Purchase of 793,500 shares
for the Company's
1996 Incentive Plan - - - - (11,263) - (11,263)
Amortization of shares under
employee stock ownership
plan (ESOP) - - 131 - 398 - 529
Changes in unrealized gains
(losses) on securities
available-for-sale, net - - - - - 2,258 2,258
---------- ---- -------- -------- -------- ------ --------
Balance at December 31, 1996 19,837,500 $198 $193,934 $110,412 $(25,942) $1,999 $280,601
========== ==== ======== ======== ======== ====== ========
THREE MONTHS ENDED
DECEMBER 31, 1995
- -----------------------------
Balance at September 30, 1995 - - - $109,347 - $ (3) $109,344
Net earnings - - - (71) - - (71)
Changes in unrealized gains
(losses) on securities
available-for-sale, net - - - - - 1,376 1,376
---------- ---- -------- -------- -------- ------ --------
Balance at December 31, 1995 - $ - $ - $109,276 $ - $1,373 $110,649
========== ==== ======== ======== ======== ====== ========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
RETAINED GAINS (LOSSES)
ADDITIONAL EARNINGS, UNEARNED ON SECURITIES
NUMBER OF COMMON PAID-IN SUBSTANTIALLY STOCK BASED AVAILABLE-FOR-
SHARES STOCK CAPITAL RESTRICTED COMPENSATION SALE, NET TOTAL
---------- ------ ---------- -------------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
NINE MONTHS ENDED
DECEMBER 31, 1996
- -----------------------------
Balance at March 30, 1996 19,837,500 $198 $193,677 $110,188 $(15,870) $ 879 $289,072
Net earnings - - - 224 - - 224
Purchase of 793,500 shares
for the Company's
1996 Incentive Plan - - - - (11,263) - (11,263)
Amortization of shares under
employee stock ownership
plan (ESOP) - - 257 - 1,191 - 1,448
Changes in unrealized gains
(losses) on securities
available-for-sale, net - - - - - 1,120 1,120
---------- ---- -------- -------- -------- ------ --------
Balance at December 31, 1996 19,837,500 $198 $193,934 $110,412 $(25,942) $1,999 $280,601
========== ==== ======== ======== ======== ====== ========
NINE MONTHS ENDED
DECEMBER 31, 1995
- -----------------------------
Balance at March 31, 1995 - - - $108,122 - $ (69) $108,053
Net earnings - - - 1,154 - - 1,154
Changes in unrealized gains
(losses) on securities
available-for-sale, net - - - - - 1,442 1,442
---------- ---- -------- -------- -------- ------ --------
Balance at December 31, 1995 - $ - $ - $109,276 $ - $1,373 $110,649
========== ==== ======== ======== ======== ====== ========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................................................. $ 224 1,154
Adjustments to reconcile net earnings to net cash provided by operating activities:
Amortization of premiums (discounts) on loans, investments and
mortgage-backed securities................................................................ (55) (1,206)
Amortization of deferred loan origination fees.............................................. (1,114) (1,080)
Loan fees collected......................................................................... (180) 371
Dividends on FHLB stock..................................................................... (1,452) (509)
Provisions for losses on:
Loans..................................................................................... 10,662 7,473
Real estate............................................................................... (1,046) 695
Net (gain) loss on sales of loans, mortgage-backed securities available-for-sale,
real estate and property and equipment.................................................... (503) (6)
Depreciation and amortization of property and equipment..................................... 2,313 2,474
Loans originated for sale................................................................... (7,494) (4,236)
Proceeds from sale of loans held for sale................................................... 10,990 3,962
Proceeds from sale of loans held for accelerated disposition................................ - 6,080
Amortization of ESOP shares................................................................. 1,448 -
(Increase) decrease in:
Accrued expenses and other liabilities...................................................... 7,797 (1,240)
Accrued interest receivable................................................................. (4,020) (1,638)
Prepaid expenses and other assets........................................................... 11,642 1,541
--------- --------
Net cash provided by operating activities............................................... 29,212 13,835
--------- --------
Cash flows from investing activities:
Net (purchase) maturities of long-term certificates of deposit.............................. 190 (10,000)
Loans originated for investment............................................................. (404,390) (206,693)
Increase in construction loans in process................................................... 20,610 6,041
Purchases of loans held for investment...................................................... (28,417) (9,303)
Principal payments on loans................................................................. 168,135 135,220
Principal payments on mortgage-backed securities held-to-maturity........................... 1,262 19,951
Principal payments on mortgage-backed securities available-for-sale......................... 44,510 -
Purchases of investments held-to-maturity................................................... - (39,559)
Purchases of investment securities available-for-sale....................................... (61,515) (74,410)
Purchases of FHLB stock..................................................................... (9,156) -
Purchase of mortgage-backed securities held-to-maturity..................................... - (31,952)
Purchases of mortgage-backed securities available-for-sale.................................. (441,473) -
Proceeds from maturities of investment securities........................................... 26,400 111,612
Proceeds from maturities of investment securities available-for-sale........................ 2,152 12,000
</TABLE>
(Continued)
5
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Proceeds from sale of mortgage-backed securities available-for-sale........................... $ 10,059 -
Investment in real estate..................................................................... (1,020) (471)
Proceeds from sale of real estate............................................................. 8,350 7,680
Purchases of property and equipment........................................................... (3,512) (1,205)
Proceeds from sale of property and equipment.................................................. 129 21
---------- --------
Net cash used in investing activities....................................................... (667,686) (81,068)
---------- --------
Cash flows from financing activities:
Proceeds from FHLB advances and other borrowings.............................................. 1,026,200 337,202
Repayment of FHLB advances and other borrowings............................................... (510,922) (261,914)
Net change in deposits........................................................................ 1,057 4,344
Repurchase of shares for deferred compensation................................................ (11,262) -
---------- --------
Net cash provided by financing activities.................................................. 505,073 79,632
---------- --------
Net (decrease) increase in cash and cash equivalents....................................... (133,401) 12,399
Cash and cash equivalents, beginning of period................................................. 175,904 30,098
---------- --------
Cash and cash equivalents, end of period....................................................... $ 42,503 42,497
========== ========
Supplemental information:
Interest paid, including interest credited................................................... $ 65,444 65,558
Income taxes paid............................................................................ 1,838 2,230
Non-cash investing and financing activities:
Change in unrealized gain (loss) on securities available-for-sale.......................... (1,931) (2,263)
Net transfers from loans receivable to real estate......................................... 8,568 8,899
Loans originated for the sale of real estate acquired in settlement of loans............... 810 2,668
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
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) converted 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 subsidiary (the Company) PFF Bank & Trust. The Company's
business is conducted primarily through PFF Bank & Trust and subsidiary, Pomona
Financial Services, Inc. Pomona Financial Services, Inc. includes the accounts
of Diversified Services, Inc. and PFF Insurance Service. 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 and nine months ended December 31, 1996
are not necessarily indicative of results that may be expected for the entire
fiscal year ending 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,
1995. The implementation of this standard as of April 1, 1996 did not have a
material effect on the Company's operations.
7
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
(3) Subsequent Event
On January 8, 1997, the Office of Thrift Supervision approved the Company's
application to repurchase 5% (991,875 shares) of its outstanding common stock.
All of these shares were repurchased on January 24, 1997 at $14.94 per share.
8
<PAGE>
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 and nine months ended December 31, 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 DECEMBER 31,
--------------------------------------------------------------------------------
1996 1995
----------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
---------- -------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets
Interest-earning deposits and
short-term investments $ 24,559 $ 329 5.31% $ 23,501 $ 406 6.91%
Investment securities, net(1)(2) 65,440 1,126 6.83 42,248 666 6.25
Mortgage-backed securities,
net (1)(5) 528,340 9,067 6.86 169,786 3,031 7.14
Loans receivable, net(3)(4) 1,797,242 33,973 7.56 1,573,955 30,345 7.71
FHLB stock 25,719 317 4.93 14,683 211 5.75
---------- -------- ---------- -------
Total interest-earning assets 2,441,300 44,812 7.34 1,824,173 34,659 7.60
-------- -------
Non-interest-earning assets 79,256 85,143
---------- ----------
Total assets $2,520,556 $1,909,316
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities
Passbook accounts $ 191,649 1,396 2.89 $ 165,536 970 2.33
Money market savings accounts 123,226 1,104 3.55 106,329 690 2.57
NOW and other demand deposit accounts 128,149 266 0.82 127,468 292 0.91
Certificate accounts 1,240,664 17,334 5.54 1,280,451 18,927 5.86
---------- -------- ---------- -------
Total deposits 1,683,688 20,100 4.74 1,679,784 20,879 4.93
---------- -------- ---------- -------
FHLB advances and other borrowings 513,366 7,496 5.79 87,661 1,292 5.85
Other 3,905 12 1.22 4,278 16 1.48
---------- -------- ---------- -------
Total borrowed funds 517,271 7,508 5.76 91,939 1,308 5.64
---------- -------- ---------- -------
Total interest-bearing liabilities 2,200,959 27,608 4.98 1,771,723 22,187 4.97
-------- ---------- -------
Non-interest-bearing liabilities 32,181 28,132
---------- --------
Total liabilities 2,233,140 1,799,855
Stockholders' equity 287,416 109,461
---------- --------
Total liabilities and stockholders'
equity $2,520,556 $1,909,316
========== ==========
Net interest income before provision for
loan losses $17,204 $12,472
======= =======
Net interest rate spread(6) 2.36 2.63
Net interest margin(7) 2.82 2.73
Ratio of interest-earning assets to
interest-bearing liabilities 110.92% 102.96%
</TABLE>
9
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
_______________________________
(1) Includes assets available for sale and held-to-maturity and unamortized
discounts and premiums.
(2) Included in the average balance of investment securities for the three
months ended December 31, 1996 and 1995 are average investment securities
held-to-maturity of $3.5 million and $42.2 million, respectively. Interest
income recognized on investment securities held-to-maturity during these
periods was $58,000 and $666,000, respectively, resulting in average yields
of 6.52% and 6.25%, 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 December 31, 1996 and 1995, are average loans held for sale of $2.5
million and $685,000, respectively. Interest income recognized on loans
held for sale during these periods was $42,000 and $13,000, respectively,
resulting in average yields of 6.82% and 7.63% respectively.
(5) Included in the average balance of mortgage-backed securities, net for the
three months ended December 31, 1996 and 1995 are average mortgage-backed
securities held-to-maturity of $5.9 million and $116.5 million,
respectively. Interest income recognized on mortgage backed securities
held-to-maturity during these periods was $107,000 and $2.1 million,
respectively, resulting in average yields of 7.22% and 7.18%, respectively.
(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.
10
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1996 1995
----------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
---------- -------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets
Interest-earning deposits and
short-term investments $ 36,130 $ 1,517 5.57% $ 22,914 $ 916 5.31%
Investment securities, net(1)(2) 53,469 2,800 6.95 49,245 2,321 6.26
Mortgage-backed securities,
net (1)(5) 369,350 19,018 6.87 156,468 8,321 7.09
Loans receivable, net(3)(4) 1,722,134 98,380 7.62 1,572,267 89,187 7.56
FHLB stock 19,492 818 5.60 14,506 552 5.07
---------- -------- ---------- -------
Total interest-earning assets 2,200,575 122,533 7.42 1,815,400 101,297 7.44
-------- -------
Non-interest-earning assets 78,748 77,488
---------- ----------
Total assets $2,279,323 $1,892,888
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities
Money market savings accounts $ 103,370 2,562 3.29 $ 116,479 2,140 2.44
Passbook accounts 196,247 4,285 2.90 156,773 2,730 2.31
NOW accounts 131,572 820 0.83 123,494 855 0.92
Certificate accounts 1,239,822 51,815 5.55 1,276,640 56,490 5.87
---------- -------- ---------- -------
Total deposits 1,671,011 59,482 4.72 1,673,386 62,215 4.93
---------- -------- ---------- -------
FHLB advances and other borrowings 279,082 12,584 5.98 85,038 3,836 5.99
Other 2,992 38 1.69 3,548 87 3.25
---------- -------- ---------- -------
Total borrowed funds 282,074 12,622 5.94 88,586 3,923 5.88
---------- -------- ---------- -------
Total interest-bearing liabilities 1,953,085 72,104 4.90 1,761,972 66,138 4.98
-------- ---------- -------
Non-interest-bearing liabilities 36,836 21,919
---------- ----------
Total liabilities 1,989,921 1,783,705
Stockholders' equity 289,402 109,183
---------- ----------
Total liabilities and stockholders'
equity $2,279,323 $1,892,888
========== ==========
Net interest income before provision for
loan losses $ 50,429 $ 35,159
======== ========
Net interest rate spread(6) 2.52 2.46
Net interest margin(7) 3.06 2.58
Ratio of interest-earning assets to
interest-bearing liabilities 112.67% 103.03%
</TABLE>
11
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
_______________________________
(1) Includes assets available for sale and held-to-maturity and unamortized
discounts and premiums.
(2) Included in the average balance of investment securities for the nine
months ended December 31, 1996 and 1995 are average investment securities
held-to-maturity of $11.5 million and $45.9 million, respectively. Interest
income recognized on investment securities held-to-maturity during these
periods was $496,000 and $2.1 million, respectively, resulting in average
yields of 5.85% and 6.19%, 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 nine months
ended December 31, 1996 and 1995, are average loans held for sale of $4.6
million and $381,000 respectively. Interest income recognized on loans held
for sale during these periods was $247,000 and $22,000, respectively,
resulting in average yields of 7.13% and 7.76%, respectively.
(5) Included in the average balance of mortgage-backed securities, net for the
nine months ended December 31, 1996 and 1995 are average mortgage-backed
securities held-to-maturity of $6.3 million and $138.7 million,
respectively. Interest income recognized on mortgage backed securities
held-to-maturity during these periods was $341,000 and $7.4 million
resulting in average yields of 7.23% and 7.09%, respectively.
(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.
12
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
MANAGEMENT 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); 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 NINE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1996
COMPARED TO DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1995
INCREASE (DECREASE) INCREASE (DECREASE)
---------------------------------- -----------------------------------
VOLUME RATE NET VOLUME RATE NET
------- --------- -------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-earning deposits and short-
term investments $ 18 $ (95) $ (77) $ 528 $ 73 $ 601
Investment securities, net(1)(2) 366 94 460 199 280 479
Mortgage-backed securities(1)(4) 6,401 (365) 6,036 12,075 (1,378) 10,697
Loans receivable, net(3) 4,305 (677) 3,628 8,501 692 9,193
FHLB stock 160 (54) 106 189 77 266
------- ------- ------- ------- -------- -------
Total interest-earning assets $11,250 $(1,097) $10,153 $21,492 $ (256) $21,236
------- ------- ------- ------- -------- -------
INTEREST-BEARING LIABILITIES:
Passbook accounts $ 153 $ 273 $ 426 $ 687 $ 868 $ 1,555
Money market savings accounts 110 304 414 (242) 664 422
NOW & other demand deposit accounts 2 (28) (26) 56 (91) (35)
Certificate accounts (588) (1,005) (1,593) (2,067) (2,608) (4,675)
FHLB advances and other borrowings 5,699 505 6,204 8,753 (5) 8,748
Other (1) (3) (4) (14) (35) (49)
------- ------- ------- ------- -------- -------
Total interest-bearing liabilities 5,375 46 5,421 7,173 (1,207) 5,966
------- ------- ------- ------- -------- -------
Change in net interest income $ 5,875 $(1,143) $ 4,732 $14,319 $ 951 $15,270
======= ======== ======= ======= ======== =======
</TABLE>
- -----------------
(1) Includes assets held-to-maturity.
(2) Included in the (decrease) in interest income on investment securities, net
for the three and nine months ended December 31, 1996 compared to 1995 are
(decreases) in interest income on investment securities held-to-maturity
attributable to volume and rate of ($610,000) and $2,000, and ($1.6
million) and ($29,000), respectively.
(3) Included in the increases in interest income on loans receivable, net for
the three and nine months ended December 31, 1996 compared to 1995 are
increases/(decreases) in interest income on loans held for sale
attributable to volume and rate of $34,000 and ($5,000) and $247,000 and
($22,000), respectively.
(4) Included in the increase in interest income on mortgage-backed securities,
net for the three and nine months ended December 31, 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
$1,000 and ($7.0 million) and $7,000, respectively.
13
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND
- --------------------------------------------------------------------------------
1995
- ----
GENERAL
- -------
The Company recorded net earnings of $2.2 million or $0.12 per share for the
three months ended December 31, 1996 compared to a net loss of $71,000 for the
comparable period of 1995.
Net interest income was $17.2 million for the three months ended December 31,
1996 compared to $12.5 million for the comparable period of 1995. The increase
resulted in part, from an increase in the ratio of average interest-earning
assets to average interest-bearing liabilities as the proceeds from the
Company's March 1996 initial public offering of common stock were invested into
interest-earning assets. Also contributing to the increase in net interest
income was the net interest rate spread earned on the additional growth in both
interest-earning assets and interest-bearing liabilities. The increase in net
interest income from these two factors was partially offset by a decrease in
average interest rate spread. The Company's ratio of average interest-earning
assets to average interest-bearing liabilities was 110.92% for the three months
ended December 31, 1996 compared to 102.96% for the comparable period of 1995.
Average interest rate spread was 2.36% for the three months ended December 31,
1996 compared to 2.63% for the comparable period of 1995. Net interest margin
was 2.82% for the three months ended December 31, 1996 compared to 2.73% for the
comparable period of 1995.
Provision for loan losses was $2.9 million for the three months ended December
31, 1996 compared to $4.3 million for the comparable period of 1995.
Total non-interest income was $2.5 million for the three months ended December
31, 1996 compared to $2.2 million for the comparable period of 1995. Total non-
interest expense increased from $10.4 million for the three months ended
December 31, 1995 to $12.8 million for the comparable period of 1996 due
principally to the expenses associated with the Company's stock-based incentive
plans and non-recurring expenses associated with the Bank's transition of its
EDP systems to a new third party service provider in October 1996.
INTEREST INCOME
- ---------------
Interest income was $44.8 million for the three months ended December 31, 1996
compared to $34.7 million for the comparable period of 1995. The increase was
attributable to a $617.1 million increase in average interest-earning assets
from $1.82 billion for the three months ended December 31, 1995 to $2.44 billion
for the comparable period of 1996. The weighted average yield on interest-
earning assets decreased from 7.60% for the three months ended December 31, 1995
to 7.34% for the comparable period of 1996. The increase in average interest-
earning assets was due principally to a $223.3 million increase in the average
balance of loans receivable from $1.57 billion for the three months ended
December 31, 1995 to $1.80 billion for the comparable period of 1996, coupled
with a $358.6 million increase in the average balance of mortgage-backed
securities (MBS) from $169.8 million for the three months ended December 31,
1995 to $528.3 million for the comparable period of 1996. The average yield on
loans receivable was 7.56% for the three months ended December 31, 1996 compared
to 7.71% for the comparable period of 1995.
14
<PAGE>
The Bank has increased its emphasis on the origination of mortgages which
provide higher yields than those earned on single-family residential loans tied
to the Federal Home Loan Bank (FHLB) Eleventh District Cost of Funds Index
(COFI). The disbursed balance of the Bank's portfolio of construction loans
totaled $63.5 million at a yield of 12.96% at December 31, 1996 compared to
$50.8 million at a yield of 9.48% at December 31, 1995. The Bank has also
increased the proportion of its loan portfolio comprised by ("36/6") single
family residential mortgage loans which provide for a fixed rate of interest for
36 months before transitioning to a six month adjustable rate loan tied to the
one-year constant maturity treasury index. At December 31, 1996, the Bank's
portfolio of these loans totaled $212.9 million at an average yield of 7.19%
compared to $ 50.3 million at an average yield of 7.14% at December 31, 1995.
Unlike the typical COFI based adjustable-rate loans originated by the Bank,
these "36/6" loans are not originated with lower introductory rates. The
increase in yield on loans receivable, net attributable to the change in the
composition of the loan portfolio was offset by a decrease in the COFI to which
a large portion of the Company's portfolio of adjustable-rate loans are tied.
For the three months ended December 31, 1996, COFI averaged 4.84% compared to
5.12% for the comparable period of 1995.
The average yield on MBS was 6.86% for the three months ended December 31, 1996
compared to 7.14% for the comparable period of 1995. The decrease in the yield
on MBS reflects the impact of the change in the composition of the Company's MBS
portfolio to include a higher proportion of adjustable-rate and balloon maturity
securities. At December 31, 1996, adjustable-rate or balloon MBS comprised 74.9%
of the total MBS portfolio compared to 56.8% at December 31, 1995.
The increase in the average yield on investment securities from 6.25% for the
three months ended December 31, 1995 to 6.83% for the comparable period of 1996
reflects a change in the average stated final maturity of the portfolio from 3
months at December 31, 1995 to 12.7 years at December 31, 1996 as the Company
continues to seek to increase net interest income without incurring undue
interest rate or credit risk. Excluding the four collateralized mortgage
obligations with carrying values totaling $26.7 million at December 31, 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 at December 31, 1996 would decline from 12.7 to
3.9 years.
INTEREST EXPENSE
- ----------------
Interest expense was $27.6 million for the three months ended December 31, 1996
compared to $22.2 million for the comparable period of 1995. The increase was
attributable to a $429.2 million increase in the average balance of interest-
bearing liabilities from $1.77 billion for the three months ended December 31,
1995 to $2.20 billion for the comparable period of 1996. The cost of average
interest-bearing liabilities was 4.98% for the three months ended December 31,
1996 compared to 4.97% for the comparable period of 1995. The increase in
average interest-bearing liabilities was due to a $425.7 million increase in the
average balance of FHLB advances and other borrowings from $87.7 million for the
three months ended December 31, 1995 to $513.4 million for the comparable period
of 1996. The increase in FHLB advances and other borrowings was due to the
Company's strategy of utilizing both wholesale and retail sources of funding to
achieve its strategic growth objectives. The average balance of deposits was
$1.68 billion for the three months ended December 31, 1996, an increase of $3.9
million from the comparable period of 1995. The stability in the weighted
average cost of interest-bearing liabilities reflects the net impact of an
upward bias caused by the Bank's increased use of FHLB advances and other
borrowings offset by the impact of the decrease in average cost of deposits. For
the three months ended December 31, 1996, the average
15
<PAGE>
cost of FHLB advances and other borrowings was 5.79% compared to 5.85% for the
comparable period of 1995. The decrease in the average cost of deposits reflects
the Bank's effort to increase the proportion of its deposit base comprised by
money market, passbook and NOW and other demand deposit accounts. For the three
months ended December 31, 1996 the average balance of these lower cost accounts
represented 26.3% of average total deposits compared to 23.8% for the comparable
period of 1995.
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses was $2.9 million for the three months ended
December 31, 1996 compared to $4.3 million for the comparable period of 1995
primarily reflecting a gradual improvement in the level of non-performing loans
and management's determination regarding the adequacy of the level of allowance
for loan losses. See "Comparison of Financial Condition at December 31, 1996 and
March 31, 1996."
NON-INTEREST INCOME
- -------------------
Non-interest income was $2.5 million or 0.39% of average assets for the three
months ended December 31, 1996 compared to $2.2 million or 0.45% of average
assets for the comparable period of 1995. Savings fees and charges were $1.1
million for the three months ended December 31, 1996 compared to $877,000 for
the comparable period of 1995. Sales of non-deposit investment products
generated $239,000 of fee income for the three months ended December 31, 1996
compared to $298,000 for the comparable period of 1995. Trust fee income was
$344,000 for the three months ended December 31, 1996 compared to $339,000 for
the comparable period of 1995. Assets under custody by the Bank's trust
department were $189.6 million at December 31, 1996 compared to $191.0 million
at December 31, 1995.
NON-INTEREST EXPENSE
- --------------------
Non-interest expense was $12.8 million for the three months ended December 31,
1996 compared to $10.4 million for the comparable period of 1995. General and
administrative expense was $12.3 million or 1.95% of average assets for the
three months ended December 31, 1996 compared to $10.2 million or 2.13% of
average assets for the comparable period of 1995. Compensation and benefits
expense was $5.9 million for the three months ended December 31, 1996 compared
to $4.6 million for the comparable period of 1995. The $1.3 million increase in
compensation and benefits was due principally to the addition of $529,000 of
expense associated with the allocation of shares under the Company's ESOP and
$530,000 of expense for the 1996 Incentive Plan under which stock has been
granted to key officers and directors subject to the Company achieving certain
performance levels. Other non-interest expense was $3.0 million for the three
months ended December 31, 1996 compared to $2.6 million for the comparable
period of 1995 due to $570,000 of non-recurring expenses associated with the
Bank's transition of its EDP systems to new third party providers in October
1996. Marketing and professional services expense was $805,000 for the three
months ended December 31, 1996 compared to $449,000 for the comparable period of
1995 due to an increase in marketing expense associated with the Bank's
increased focus on promoting its business banking products and services and
professional expenses incurred in connection with the Company's operating as a
public entity beginning in March, 1996.
Real estate operations, net expense was $507,000 for the three months ended
December 31, 1996 compared to $268,000 for the comparable period of 1995. The
results for the three months ended December 31, 1996 reflect
16
<PAGE>
a loss of the sale of REO of $55,000 compared to a gain on the sale of REO of
$204,000 for the comparable period of 1995.
INCOME TAXES
- ------------
Income tax expense was $1.7 million for the three months ended December 31, 1996
compared to a benefit of $20,000 for the comparable period of 1995.
17
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND
- -------------------------------------------------------------------------------
1995
- ----
GENERAL
- -------
The Company recorded net earnings of $224,000 or $0.01 per share for the nine
months ended December 31, 1996 compared to net earnings of $1.2 million for the
comparable period of 1995.
Net interest income was $50.4 million for the nine months ended December 31,
1996 compared to $35.2 million for the comparable period of 1995. The increase
resulted from an increase in the ratio of average interest-earning assets to
average interest-bearing liabilities as the proceeds from the Company's March
1996 initial public offering of common stock were invested into interest-earning
assets. Also contributing to the increase in net interest income was the net
interest rate spread earned on the additional growth in both interest-earning
assets and interest-bearing liabilities and an increase in average interest rate
spread. The Company's ratio of average interest-earning assets to average
interest-bearing liabilities was 112.67% for the nine months ended December 31,
1996 compared to 103.03% for the comparable period of 1995. Average interest
rate spread was 2.52% for the nine months ended December 31, 1996 compared to
2.46% for the comparable period of 1995. Net interest margin was 3.06% for the
nine months ended December 31, 1996 compared to 2.58% for the comparable period
of 1995.
Provision for loan losses was $10.7 million for the nine months ended December
31, 1996 compared to $7.4 million for the comparable period of 1995.
Total non-interest income was $7.6 million for the nine months ended December
31, 1996 compared to $6.0 million for the comparable period of 1995. Total non-
interest expense increased from $31.6 million for the nine months ended December
31, 1995 to $45.8 million for the comparable period of 1996 due principally to
the $10.9 million special assessment to recapitalize the Savings Association
Insurance Fund of the Federal Deposit Insurance Corporation (SAIF) recorded in
September 1996.
INTEREST INCOME
- ---------------
Interest income was $122.5 million for the nine months ended December 31, 1996
compared to $101.3 million for the comparable period of 1995. The increase was
attributable to a $385.2 million increase in average interest-earning assets
from $1.82 billion for the nine months ended December 31, 1995 to $2.20 billion
for the comparable period of 1996 partially offset by a decline in the yield on
average interest-earning assets from 7.44% for the nine months ended December
31, 1995 to 7.42% for the comparable period of 1996. The increase in average
interest-earning assets was due to a $149.9 million increase in the average
balance of loans receivable from $1.57 billion for the nine months ended
December 31, 1995 to $1.72 billion for the comparable period of 1996, coupled
with a $212.9 million increase in the average balance of MBS from $156.5 million
for the nine months ended December 31, 1995 to $369.4 million for the comparable
period of 1996. The average yield on loans receivable was 7.62% for the nine
months ended December 31, 1996 compared to 7.56% for the comparable period of
1995. Included in interest income on loans receivable for the nine months ended
December 31, 1995 is $860,000 of income applicable to a non-recurring adjustment
of the amortization of loan fees.
Without this non-recurring item, the average yield on loans receivable for the
nine months ended December 31, 1995 would have been 7.49% and the average yield
on interest-earning assets for the nine months ended December
18
<PAGE>
31, 1995 would have been 7.38%. The increase in yield resulting from the Bank's
increased emphasis on originating higher yielding mortgage loans was partially
offset by a decrease in COFI. COFI in effect for the nine months ended December
31, 1996 averaged 4.83% compared to 5.11% for the comparable period of 1995. The
yield on MBS was 6.87% for the nine months ended December 31, 1996 compared to
7.09% for the comparable period of 1995. This decline is attributable to change
in composition noted in the three month discussion. The increase in the yield on
investment securities from 6.26% for the nine months ended December 31, 1995 to
6.95% for the comparable period of 1996 reflects the change in the average
stated final maturity of the portfolio.
INTEREST EXPENSE
- ----------------
Interest expense was $72.1 million for the nine months ended December 31, 1996
compared to $66.1 million for the comparable period of 1995. The average
balance of interest-bearing liabilities increased $191.1 million from $1.76
billion for the nine months ended December 31, 1995 to $1.95 billion for the
comparable period of 1996 creating an increase in interest expense due to
increases in volume of $7.2 million. This increase in interest expense was
partially offset by a $1.2 million decrease in interest expense caused by a
decrease in the weighted average cost of interest-bearing liabilities from 4.98%
for the nine months ended December 31, 1995 to 4.90% for the comparable period
of 1996. The increase in average interest-bearing liabilities was due to a
$194.0 million increase in the average balance of FHLB advances and other
borrowings from $85.0 million for the nine months ended December 31, 1995 to
$279.1 million for the comparable period of 1996 in connection with the
Company's strategy of utilizing both wholesale and retail sources of funding to
achieve its strategic growth objectives. The average balance of deposits was
$1.67 billion for the nine months ended December 31, 1996, a decrease of $2.4
million from the comparable period of 1995. The decrease in the Company's
weighted average cost of interest-bearing liabilities reflects the impact of a
decline in the general level of interest rates as reflected in COFI, partially
offset by the higher cost associated with an increased use of FHLB advances and
other borrowings. For the nine months ended December 31, 1996, the average cost
of deposits was 4.72% compared to 4.93% for the comparable period of 1995. For
the nine months ended December 31, 1996, the average cost of FHLB advances and
other borrowings was 5.98% compared to 5.99% for the comparable period of 1995.
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses was $10.7 million for the nine months ended
December 31, 1996 compared to $7.4 million for the comparable period of 1995.
While the level of non-performing assets has improved slightly during the nine
months ended December 31, 1996, the Company has continued to emphasize building
its allowance for loan losses. See "Comparison of Financial Condition at
December 31, 1996 and March 31, 1996."
NON-INTEREST INCOME
- -------------------
Non-interest income was $7.6 million or 0.44% of average assets for the nine
months ended December 31, 1996 compared to $6.0 million or 0.42% of average
assets for the comparable period of 1995. Savings fees and charges were $3.4
million for the nine months ended December 31, 1996 compared to $2.6 million for
the comparable period of 1995. Sales of non-deposit investment products
generated $1.1 million of fee income in the nine months ended December 31, 1996
compared to $504,000 in the comparable period of 1995 as the Bank increased its
sales efforts in this area. Trust fee income was $1.1 million for both nine
month periods.
19
<PAGE>
NON-INTEREST EXPENSE
- --------------------
Non-interest expense was $45.8 million for the nine months ended December 31,
1996 compared to $31.6 million for the comparable period of 1995. General and
administrative expense was $35.5 million or 2.08% of average assets for the nine
months ended December 31, 1996 compared to $30.3 million or 2.14% of average
assets for the comparable period of 1995. Compensation and benefits expense was
$16.6 million for the nine months ended December 31, 1996 compared to $14.3
million for the comparable period of 1995, due principally to the addition of
$1.4 million of expense associated with the allocation of shares under the
Company's ESOP and $530,000 of expense associated with the 1996 Incentive Plan.
Other non-interest expense increased to $8.9 million for the nine months ended
December 31, 1996 compared to $7.2 million for the comparable period of 1995 due
to $787,000 of non-recurring expenses associated with the Bank's EDP conversion,
inclusion of a $350,000 non-recurring legal judgement, a $400,000 accrual for
the interest portion of a possible adverse California franchise tax settlement
and approximately $300,000 of forms, supplies and other expenses associated with
the Bank's name change. Marketing and professional services expense was $2.3
million for the nine months ended December 31, 1996 compared to $1.3 million for
the comparable period of 1995 due principally to an increase in marketing
expense associated with the promotion of the name change of the Bank and the
Bank's increased focus on business banking and professional expenses incurred in
connection with the Company's operating as a public entity.
Real estate operations, net reflects income of $558,000 for the nine months
ended December 31, 1996 compared to expense of $1.3 million for the comparable
period of 1995. The results for the nine months ended December 31, 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 $1.3 million for the nine months ended December 31, 1996
compared to $921,000 for the comparable period of 1995. Income tax expense for
the nine months ended December 31, 1996 includes a $470,000 expense accrual for
the tax portion of the possible adverse California franchise tax settlement
recorded in September 1996, as well as a year to date $113,000 accrual for
Delaware corporate tax.
20
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND MARCH 31, 1996
- -------------------------------------------------------------------------
Total assets increased $516.5 million or 25.7% to $2.52 billion at December 31,
1996 from $2.01 billion at March 31, 1996 due to strong growth in loans
receivable and MBS. Loans receivable, net increased $225.5 million to $1.80
billion at December 31, 1996 from $1.57 billion at March 31, 1996. Loan
originations for the nine months ended December 31, 1996 were $411.9 million,
compared to $210.9 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
$21.8 million or 1.16% of gross loans at December 31, 1996. Non-performing
assets, which includes foreclosed real estate, net of specific allowances,
increased slightly from $29.7 million or 1.48% of total assets at March 31, 1996
to $31.1 million or 1.23% of total assets at December 31, 1996. The $1.4 million
increase in non-performing assets was attributable to the $1.4 million reduction
in the unallocated allowance for losses on foreclosed real estate in June, 1996.
Troubled-debt restructured loans increased from $13.8 million at March 31, 1996
to $18.0 million at December 31, 1996. The increase in troubled debt
restructured loans is comprised of six loans totaling $2.2 million secured by
commercial real estate and 17 loans totaling $2.0 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 the
level of non-performing loans, 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 adequacy of
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 December 31, 1996, the Bank's allowance for loan losses
was $27.0 million or 1.44% 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 and nine months
ended December 31, 1996.
<TABLE>
<CAPTION>
Three months Nine months
ended ended
December 31, 1996 December 31, 1996
----------------- ------------------
<S> <C> <C>
Beginning balance $25,658 $19,741
Provision for loan losses 2,896 10,662
Charge-offs, net (1,587) (3,436)
------- -------
Ending balance $26,967 $26,967
======= =======
</TABLE>
MBS increased $388.2 million to $520.9 million at December 31, 1996 from $132.7
million at March 31, 1996 and cash and cash equivalents decreased $133.4 million
to $42.5 million at December 31, 1996 from $175.9 at March 31, 1996 as a portion
of the proceeds from the Company's stock offering, which were initially placed
into short-term investments, were invested in MBS and the Company continued its
strategy of increasing net interest income through increasing its investment in
MBS.
Total liabilities increased $524.9 million or 30.5% to $2.24 billion at December
31, 1996 from $1.72 billion at March 31, 1996. Deposits remained stable between
March 31 and December 31, 1996 at $1.68 billion through December 31, 1996, while
FHLB advances and other borrowings increased $515.3 million to $535.0 million at
December 31, 1996 from $19.7 million at March 31, 1996. FHLB advances were
utilized to fund the growth in loans receivable and the increase in MBS during
the nine months ended December 31, 1996.
21
<PAGE>
Total stockholders' equity was $280.6 million at December 31, 1996 compared to
$289.1 million at March 31, 1996. The $8.5 million decrease in stockholders'
equity is comprised of a $9.8 million increase in unearned stock based
compensation, offset by an increase of $224,000 arising from the net earnings
for the nine months ended December 31, 1996, and a $1.1 million increase arising
from a change in the unrealized gains on securities available-for-sale. The $9.8
million increase in unearned stock based compensation is comprised of an $11.3
million increase attributable to the purchase of 793,500 shares of the Company's
common stock by the third party trustee administrator of the Company's 1996
Incentive Plan partially offset by a $1.4 million decrease attributable to the
allocation of shares under the Company's ESOP.
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 5.14%
and 3.50% and 5.47% and 4.02%, respectively for the three and nine months ended
December 31, 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 $29.2 million for the nine
months ended December 31, 1996 and $13.8 million for the comparable period of
1995. 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 $168.1 million for the nine months ended
December 31, 1996 and $135.2 million for the comparable period of 1995.
Disbursements on loans originated and purchased, excluding loans originated for
sale, were $ 432.8 million for the nine months ended December 31, 1996 and
$216.0 million for the comparable period of 1995. Disbursements for purchases of
mortgage-backed and other investment securities were $503.0 million for the nine
months ended December 31, 1996 and $145.9 million for the comparable period of
1995. Proceeds from the maturation of investment securities and paydowns of
mortgage-backed securities were $74.3 million for the nine months ended December
31, 1996 and $143.6 million for the comparable period of 1995. 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 $1.1 million for the nine months ended December 31, 1996 and $4.3 million
for the comparable period of 1995. The net increases in FHLB advances and other
borrowings were $ 515.3 million for the nine months ended December 31, 1996 and
$75.3 million for the comparable period of 1995.
At December 31, 1996, on a consolidated basis, the Company had total capital of
$280.6 million or 11.11% of total assets. At December 31, 1996, the Bank
exceeded all of its regulatory capital requirements with a tangible capital
level of $209.1 million, or 8.53% of adjusted total assets, which is above the
required level of $36.8 million, or
22
<PAGE>
1.5%; core capital of $209.1 million, or 8.53% of adjusted total assets, which
is above the required level of $73.5 million, or 3%, and total risk-based
capital of $226.0 million or 16.75% of risk-weighted assets, which is above the
required level of $107.9 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 December 31, 1996 cash and cash
equivalents totaled $42.5 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. Other sources of liquidity include MBS
and other investment securities available-for-sale or maturing within one year.
At December 31, 1996, the Company had outstanding commitments to originate
mortgage loans of $8.4 million and no outstanding commitments to purchase
mortgage-backed securities or other investment securities. The Company
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 December 31, 1996 totaled $1.1 billion. The Bank expects that a
substantial portion of the maturing certificate accounts will be retained by the
Bank at maturity.
LEGISLATIVE MATTERS
- -------------------
On September 30, 1996, the President signed into law the Deposit Insurance Funds
Act of 1996 (the "Funds Act") which, among other things, imposed a special one-
time assessment on SAIF member institutions, including the Association, to
recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a special
assessment of 65.7 basis points on SAIF assessable deposits held as of March 31,
1995, payable November 27, 1996. The SAIF recapitalization assessment was
recognized by the Bank as an expense in the quarter ended September 30, 1996.
The Funds Act also spreads the obligations for repayment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits will
be assessed for FICO repayment at 1.3 basis points, while SAIF deposits will be
assessed a 6.48 basis points. Full pro rata sharing of the FICO payments between
BIF and SAIF members will occur on the earlier of January 1, 2000 or the date
the BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF will
be merged on January 1, 1999, provided no savings associations remain as of that
time. As a result of the Funds Act, the FDIC recently voted to effectively lower
SAIF assessments to 0 to 27 basis points as of January 1, 1997, a range
comparable to that of BIF members. SAIF members will also continue to make the
FICO payments described above. The FDIC also lowered the SAIF assessment
schedule for the fourth quarter of 1996 to 18 to 27 basis points. The Bank's
SAIF assessment for the quarter ended December 31, 1996 was 18 basis points.
The legislation also requires that the Department of Treasury submit a report to
Congress by March 31, 1997 that makes recommendations regarding a common
financial institutions charter, including whether the separate charters for
thrifts and banks should be abolished. Various proposals to eliminate the
federal thrift charter, create a uniform financial institutions charter and
abolish the OTS have been introduced in Congress. The bills would require
federal savings institutions to convert to a national bank or some type of state
charter by a specified date (January 1, 1998 in one bill, June 30, 1998 in the
other) or they would automatically become national banks. Converted federal
thrifts would generally be required to conform their activities to those
permitted for the charter selected and divestiture of nonconforming assets would
be required over a two year period, subject to two possible one year
extensions. State chartered thrifts would become subject to the same federal
regulation as applies to state commercial banks.
23
<PAGE>
Holding companies for savings institutions would become subject to the same
regulation as holding companies that control commercial banks, with a limited
grandfather provision for unitary savings and loan holding company activities.
The Bank is unable to predict whether such legislation would be enacted, the
extent to which the legislation would restrict or disrupt its operations or
whether the BIF and SAIF funds will eventually merge.
24
<PAGE>
PART II -- OTHER INFORMATION
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 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 Data 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.
25
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
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.
February 14, 1997 /s/ LARRY M. RINEHART
- ----------------- -----------------------------------
Date Larry M. Rinehart
President, Chief Executive Officer
and Director
February 14, 1997 /s/ GREGORY C. TALBOTT
- ----------------- -----------------------------------
Date Gregory C. Talbott
Senior Vice President, Chief Financial
Officer and Treasurer
<PAGE>
PFF BANCORP, INC. AND SUBSIDIARY
EXHIBIT 11. STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED
THREE MONTHS ENDED NINE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996 DECEMBER 31, 1996
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA) (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Net Earnings.............................. $ 2,216 $ 224 $ 2,216 $ 224
=========== =========== =========== ===========
Weighted average number of common shares
and equivalents outstanding:
Issued and outstanding.................... 19,837,500 19,837,500 19,837,500 19,837,500
Less:
Unearned ESOP shares and shares held
by benefit plans......................... (1,756,535) (1,651,959) (1,756,535) (1,651,959)
Add:
Common stock equivalents due to dilutive
effect of stock options.................. 80,963 26,987 205,146 68,382
----------- ----------- ----------- -----------
Weighted average number of common shares
and equivalents outstanding.............. 18,161,928 18,212,528 18,286,111 18,253,923
=========== =========== =========== ===========
Earnings per share........................ $ 0.12 $ 0.01 $ 0.12 $ 0.01
=========== =========== =========== ===========
</TABLE>
Earnings per share is meaningful only for the three and nine months ended
December 31, 1996, since the Company's common stock was issued March 28, 1996 in
connection with the conversion of the Bank from the mutual to stock form of
ownership.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997
<PERIOD-START> OCT-01-1996 APR-01-1996
<PERIOD-END> DEC-31-1996 DEC-31-1996
<CASH> 42,503 42,503
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 584,394 584,394
<INVESTMENTS-CARRYING> 591,955 7,561
<INVESTMENTS-MARKET> 592,059 7,665
<LOANS> 1,802,932 1,802,932
<ALLOWANCE> 26,967 26,967
<TOTAL-ASSETS> 2,524,612 2,524,612
<DEPOSITS> 1,683,130 1,683,130
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 560,881 560,881
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 198 198
<OTHER-SE> 280,403 280,403
<TOTAL-LIABILITIES-AND-EQUITY> 2,524,612 2,524,612
<INTEREST-LOAN> 33,973 96,740
<INTEREST-INVEST> 10,839 25,793
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 44,812 122,533
<INTEREST-DEPOSIT> 20,100 59,482
<INTEREST-EXPENSE> 27,608 72,104
<INTEREST-INCOME-NET> 17,204 50,429
<LOAN-LOSSES> 2,896 10,662
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 12,818 45,830
<INCOME-PRETAX> 3,952 1,516
<INCOME-PRE-EXTRAORDINARY> 2,216 224
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,216 224
<EPS-PRIMARY> 0.12 0.01
<EPS-DILUTED> 0.12 0.01
<YIELD-ACTUAL> 7.34 7.42
<LOANS-NON> 21,800 21,800
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 18,000 18,000
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 25,658 19,741
<CHARGE-OFFS> 1,587 3,436
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 26,967 26,967
<ALLOWANCE-DOMESTIC> 26,967 26,967
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
