PFF BANCORP INC
10-Q, 2000-08-14
SAVINGS INSTITUTION, FEDERALLY CHARTERED
Previous: COTELLIGENT INC, 10-Q, EX-27, 2000-08-14
 Next: FTM MEDIA INC, 10QSB, 2000-08-14

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 

FORM 10-Q

(Mark One) 

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2000 

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 organization)

(I.R.S. Employer I.D. No.)

350 South Garey Avenue, Pomona, California 91766
(Address of principal executive offices) 

(909) 623-2323
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report) 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . 

The registrant had 13,314,750 shares of common stock, par value $.01 per share, outstanding as of August 11, 2000.

 

PFF BANCORP, INC. AND SUBSIDIARIES
Form 10-Q
Index

PART I

FINANCIAL INFORMATION (Unaudited)

PAGE
     

Item 1

Financial statements 

Consolidated Balance Sheets as of
June 30, 2000 and March 31, 2000




1
 

Consolidated Statements of Earnings for the
Three Months ended June 30, 2000 and 1999

 
2
 

Consolidated Statements of Comprehensive Earnings
for the Three Months ended June 30, 2000 and 1999

 
3
 

Consolidated Statement of Stockholders' Equity
for the Three Months ended June 30, 2000

 
4
 

Consolidated Statements of Cash Flows for the
Three Months ended June 30, 2000 and 1999

 
5
 

Notes to Unaudited Consolidated Financial Statements

7

Item 2

Management's Discussion and Analysis of
Financial Condition and Results of Operations

 
9

Item 3

Qualitative and Quantitative disclosures about
Market Risk

 
16

PART II

OTHER INFORMATION

  

Item 1

Legal Proceedings

17

Item 2

Changes in Securities

17

Item 3

Defaults Upon Senior Securities

17

Item 4

Submission of Matters to a Vote of Security Holders

17

Item 5

Other Information

17

Item 6

Reports on Form 8-K

17

SIGNATURES

    

 

PART 1 - FINANCIAL INFORMATION (Unaudited)

Item 1. Financial Statements.

PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 

June 30,
2000

March 31,
2000
     

Assets

    

Cash and cash equivalents

$ 38,832

35,131

Loans held for sale at lower of cost or fair value (net of valuation
allowance)


825


7,362

Investment securities held-to-maturity (estimated fair value
of $720 at June 30, 2000 and $719 at March 31, 2000)

 
702

 
701

Investment securities available-for-sale, at fair value

87,896

87,810

Mortgage-backed securities available-for-sale, at fair value

356,134

381,277

Collateralized mortgage obligations available-for-sale, at fair value


85,027


85,653

Trading securities, at fair value

3,961

4,318

Investments in real estate

595

4,928

Loans receivable, net

2,319,153

2,326,702

Federal Home Loan Bank (FHLB) stock, at cost

45,464

44,550

Accrued interest receivable

19,421

18,584

Real estate acquired through foreclosure, net

654

1,466

Property and equipment, net

21,829

22,374

Prepaid expenses and other assets

14,572

13,167

Total assets

$ 2,995,065

3,034,023
 

 

 

Liabilities and Stockholders' Equity

 

 

Liabilities:

 

 

Deposits

$ 1,917,277

1,906,534

FHLB advances and other borrowings

819,000

884,000

Accrued expenses and other liabilities

28,669

21,658

Total liabilities

2,764,946

2,812,192

Commitments and contingencies

-

-

Stockholders' equity:

 

 

Preferred stock, $.01 par value. Authorized 2,000,000
shares; none issued

 
-


-

Common stock, $.01 par value. Authorized 59,000,000
shares; issued 20,012,972; outstanding 13,314,505 at
June 30, 2000, and March 31, 2000



200



200

Additional paid-in capital

131,558

131,370

Retained earnings, substantially restricted

120,145

113,521

Unearned stock-based compensation

(12,215)

(13,303)

Treasury stock (6,698,467 at June 30, 2000 and March 31, 2000)


(67)


(67)

Accumulated other comprehensive losses

(9,502)

(9,890)

Total stockholders' equity

230,119

221,831

Total liabilities and stockholders' equity

$ 2,995,065

3,034,023

                See accompanying notes to the unaudited consolidated financial statements.

 

PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)

 

For the Three Months Ended
June 30,
 

2000

1999
     

Interest income:

    

Mortgage loans

$ 42,404

35,995

Non-mortgage loans

6,377

3,634

Mortgage-backed securities

6,064

7,748

Collateralized mortgage obligations

1,616

1,440

Investment securities and deposits

3,237

2,524

Total interest income

59,698

51,341

Interest expense:

    

Interest on deposits

22,307

19,295

Interest on borrowings

13,270

10,819

Total interest expense

35,577

30,114

Net interest income

24,121

21,227

Provision for loan losses

1,251

1,000

Net interest income after provision for loan losses

22,870

20,227

Non-interest income:

    

Deposit and related fees

2,279

2,412

Trust fees

567

520

Loan and servicing fees

963

778

Gain (loss) on sales of assets, net

(20)

53

Gain (loss) on trading securities, net

(370)

270

Other non-interest income

200

218

Total non-interest income

3,619

4,251

Non-interest expense:

    

General and administrative:

    

Compensation and benefits

7,258

6,960

Occupancy and equipment

2,861

2,808

Marketing and professional services

1,089

1,148

Other non-interest expense

2,294

2,268

Total general and administrative

13,502

13,184

Foreclosed real estate operations, net

(19)

30

Total non-interest expense

13,483

13,214

Earnings before income taxes

13,006

11,264

Income taxes

5,639

4,860

Net earnings

$ 7,367

6,404
     

Basic earnings per share

$ 0.63

0.51

Weighted average shares outstanding for basic
earnings per share calculation


11,609,116


12,547,461

Diluted earnings per share

$ 0.59

0.47

Weighted average shares outstanding for diluted
earnings per share calculation


12,409,259


13,546,247

                 See accompanying notes to the unaudited consolidated financial statements.

 

PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Dollars in thousands)
(Unaudited)
 

For the Three Months Ended
June 30,
 

2000

1999
     

Net earnings

$ 7,367

6,404
     

Other comprehensive earnings (loss), net of income taxes

    

Unrealized gains (losses) on securities available-for-sale:

    

U.S. Treasury and agency securities and other investment
securities available-for-sale, at fair value


34


(81)

Collateralized mortgage obligations available-for-sale, at fair
value


3


12

Mortgage-backed securities available-for-sale, at fair value

351

(2,578)

Reclassification of realized losses included in earnings

-

60

Other comprehensive earnings (losses)

388

(2,587)

Comprehensive earnings

$ 7,755

3,817

                 See accompanying notes to the unaudited consolidated financial statements.

 

 

PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
 



Number of
Shares



Common
Stock


Additional
Paid-in
Capital

Retained
Earnings,
Substantially
Restricted


Unearned
Stock-based
Compensation



Treasury
Stock

Accumulated
Other
Comprehensive
Earnings(Loss)




Total
                 

Balance at March 31, 2000

13,314,505

$ 200

$ 131,370

$ 113,521

$ (13,303)

$ (67)

$ (9,890)

$221,831
                 

Net earnings

-

-

-

7,367

-

-

-

7,367

Amortization of shares under stock-based
compensation plans


-


-


188


-


1,088


-


-


1,276

Dividends

-

-

-

(743)

-

-

-

(743)

Changes in unrealized losses on
securities available for sale, net


-


-


-


-


-


-


388


388

Balance at June 30, 2000

13,314,505

$ 200

$ 131,558

$ 120,145

$ (12,215)

$ (67)

$ (9,502)

$230,119

See accompanying notes to the unaudited consolidated financial statements.

 

PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

 

Three Months Ended
June 30,
 

2000

1999
     

Cash flows from operating activities:

    

Net earnings

$ 7,367

6,404

Adjustments to reconcile net earnings to net cash
provided by operating activities:

    

Amortization of premiums net of discount accretion on
loans and securities


358


694

Amortization of deferred loan origination fees

(151)

(91)

Loan fees collected

(71)

(665)

Dividends on FHLB stock

(914)

(655)

Provisions for losses on loans

1,251

1,000

Gains on sales of loans, mortgage-backed securities
available-for-sale, real estate and property and equipment


(143)


(111)

(Gains) losses on trading securities

370

(270)

Depreciation and amortization of property and equipment

834

952

Loans originated for sale

(4,071)

(22,575)

Proceeds from sale of loans held-for-sale

10,528

18,760

Amortization of unearned stock-based compensation

1,276

1,072

Increase in accrued expenses and other liabilities

7,011

5,737

(Increase) decrease in:

    

Accrued interest receivable

(837)

580

Prepaid expenses and other assets

(1,405)

(326)

Net cash provided by operating activities

21,403

10,506
     

Cash flows from investing activities:

    

Loans originated for investment

(251,196)

(232,108)

Increase in construction loans in process

3,025

3,650

Principal payments on loans

254,417

200,491

Principal payments on mortgage-backed securities
held-to-maturity


-


143

Principal payments on mortgage-backed securities
available-for-sale


25,152


40,315

Principal payments on collateralized mortgage obligations
available-for-sale


615


9,405

Purchases of investment securities available-for-sale

-

(3,066)

Redemption of FHLB stock

-

6,393
     
 

(Continued)

 

 

PFF BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

 

Three Months Ended
June 30,
 

2000

1999

Proceeds from maturities of investment securities
available-for-sale


$ -


16,973

Proceeds from sale of investment securities available-for-sale

-

6,126

Proceeds from sale of real estate

1,097

2,652

Investment in or proceeds from real estate held for investment

4,477

168

Purchases of property and equipment

(289)

(281)

Net cash provided by investing activities

37,298

50,861

Cash flows from financing activities:

    

Proceeds from FHLB advances and other borrowings

183,100

14,000

Repayment of FHLB advances and other borrowings

(248,100)

(80,000)

Net change in deposits

10,743

10,503

Proceeds from exercise of stock options

-

57

Cash dividends

(743)

-

Purchase of treasury stock

-

(28,774)

Net cash used in financing activities

(55,000)

(84,214)

Net increase (decrease) in cash and cash equivalents

3,701

(22,847)

Cash and cash equivalents, beginning of period

35,131

63,790

Cash and cash equivalents, end of period

$ 38,832

40,943

Supplemental information:

    

Interest paid, including interest credited

$ 35,857

31,039

Income taxes paid

-

600

Non-cash investing and financing activities:

    

Change in unrealized gain (loss) on securities

    

available-for-sale

668

(4,461)

Net transfers from loans receivable to real estate acquired
through foreclosure


344


1,128
     

                 See accompanying notes to the unaudited consolidated financial statements.

     

1.    Basis of Consolidation

The accompanying consolidated financial statements include the accounts of PFF Bancorp, Inc. (the "Bancorp") and its subsidiary PFF Bank & Trust (collectively, "the Company"). The Company's business is conducted primarily through PFF Bank & Trust and its subsidiary, Pomona Financial Services, Inc (collectively, "the Bank"). Pomona Financial Services, Inc. includes the accounts of Diversified Services, Inc. and PFF Financial Services, Inc. All material intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with 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. Certain reclassifications have been made to the consolidated financial statements for 1999 to conform to the 2000 presentation.

The results of operations for the three months ended June 30, 2000 are not necessarily indicative of results that may be expected for the entire fiscal year ending March 31, 2001.

2.    New Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction.

Under SFAS No. 133, an entity that elects to apply hedge accounting is required to establish at the inception of the hedge the method it will use for assessing the effectiveness of the hedging derivative and the measurement approach of determining the ineffective aspect of the hedge. Those methods must be consistent with the entity's approach to managing risk.

This statement was to be effective for all quarters of fiscal years beginning after June 15, 1999 however, the FASB issued SFAS No. 137 which has delayed the implementation by one year. Management is in the process of determining the impact of SFAS No. 133 on the Company's financial position and results of operations.

In June 2000, SFAS No. 133 was further amended by SFAS No. 138. SFAS No. 138 addresses a limited number of issues causing implementation difficulties for numerous entities that apply SFAS No. 133. SFAS No. 138 also amends SFAS No. 133 for the decisions reached by the Derivatives Implementation Group Process.

 

PFF BANCORP, INC. AND SUBSIDIARY
Notes to Unaudited Consolidated Financial Statements - Continued

3.    Earnings per share

 Basic EPS excludes dilution and is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted from issuance of common stock that then shared in earnings.

The following table is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for net earnings for PFF Bancorp, Inc.

 

For the Three Months Ended June 30,
 

2000 (1)

  

1999 (2)
 

Earnings
(Numerator)

Shares
(Denominator)

Per-Share
Amount

  

Earnings
(Numerator)

Shares
(Denominator)

Per-Share
Amount
 

(Dollars in thousands, except per share data)
               

Net Earnings

$ 7,367

      

$ 6,404

    
               

Basic EPS

              

Earnings available to common stockholders

7,367

11,609,116

$ 0.63

  

6,404

12,547,461

$ 0.51
               

Effect of Dilutive Securities

              

Options and Stock Awards

  

800,143

    

-

998,786

  
               

Diluted EPS

              

Earnings available to common stockholders
and assumed conversions


$ 7,367


12,409,259


$ 0.59

  


$ 6,404


13,546,247


$ 0.47

 

     

  1. Options to purchase 179,987 shares of common stock at a weighted average price of $16.40 per share were outstanding during the three month period ending June 30, 2000 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. The options, which expire between February 27, 2002 and June 28, 2005, were still outstanding at June 30, 2000.

    2.  

  2. Options to purchase 14,290 shares of common stock at a weighted average price of $19.54 per share were outstanding during the three month period ending June 30, 1999 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. The options, which expire between October 22, 2002 and May 26, 2004, were still outstanding at June 30,1999.

 

 

PFF BANCORP, INC. AND SUBSIDIARY
Item 2: Management's Discussion and Analysis of Financial Condition and Operation

Average Balance Sheets

The following table sets forth certain information relating to the Company for the three months ended June 30, 2000 and 1999. The yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown. Average balances are derived from average daily balances. The yields and costs include fees that are considered adjustments to yields.

 

Three Months Ended June 30,

 

2000

1999

 


Average
Balance



Interest

Average
Yield/
Cost


Average
Balance



Interest

Average
Yield/
Cost

 

(Dollars in thousands)

Assets:

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

Interest-earning deposits and short-term investments

$ 23,959

$ 340

5.69%

$ 66,952

$ 741

4.44%

Investment securities, net

95,225

1,678

7.07

55,870

931

6.68

Loans receivable, net

2,333,444

48,781

8.36

2,027,655

39,629

7.82

Mortgage-backed securities, net

373,361

6,064

6.50

490,503

7,748

6.32

Collateralized mortgage obligations

88,081

1,616

7.34

122,487

1,724

5.63

FHLB stock

45,200

1,219

10.82

46,434

568

4.91

Total interest-earning assets

2,959,270

59,698

8.07

2,809,901

51,341

7.31

Non-interest-earning assets

61,608

 

 

101,423

 

 

Total assets

$3,020,878

 

 

$2,911,324

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity:

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

Savings accounts

$ 134,108

733

2.19

$ 145,196

816

2.25

Money market accounts

375,681

4,530

4.84

406,312

4,451

4.39

NOW and other demand deposit accounts

225,957

370

0.66

206,364

339

0.66

Certificate accounts

1,163,554

16,674

5.75

1,091,639

13,689

5.03

Total

1,899,300

22,307

4.71

1,849,511

19,295

4.18

FHLB advances and other borrowings

863,922

13,267

6.16

793,600

10,807

5.46

Other

2,528

3

0.48

2,480

12

1.94

Total interest-bearing liabilities

2,765,750

35,577

5.16

2,645,591

30,114

4.57

Non-interest-bearing liabilities

29,745

 

 

38,355

 

 

Total liabilities

2,795,495

 

 

2,683,946

 

 

Stockholders' Equity

225,383

 

 

227,378

 

 

Total liabilities and stockholders' equity

$3,020,878

 

 

$2,911,324

 

 

Net interest income

 

$ 24,121

  

  

$ 21,227

 

Net interest spread

 

 

2.91

 

 

2.74

Effective interest spread

 

 

3.26

 

 

3.02

Ratio of interest-earning assets to interest-bearing liabilities

107.00%

 

 

106.21%

 

 

 

Rate/Volume Analysis

The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); (iii) changes attributable to changes in rate/volume (change in rate multiplied by change in volume); and (iv) the net change.

 

Three Months Ended June 30, 2000
Compared to
Three Months Ended June 30, 1999
 

Increase (Decrease)
Due to
 

Volume

Rate

Rate/Volume

Net
 

(Dollars in thousands)
         

Interest-earning assets:

        

Interest-earning deposits and short-term investments

$ (476)

209

(134)

(401)

Investment securities, net

656

54

37

747

Mortgage-backed securities, net

(1,850)

219

(53)

(1,684)

Collateralized mortgage obligations, net

(484)

523

(147)

(108)

Loans receivable, net

5,976

2,759

417

9,152

FHLB stock

(15)

684

(18)

651

Total interest-earning assets

3,807

4,448

102

8,357
         

Interest-bearing liabilities:

        

Savings accounts

(62)

(21)

-

(83)

Money market accounts

(335)

452

(38)

79

NOW and other demand deposit accounts

32

(2)

1

31

Certificate accounts

902

1,954

129

2,985

FHLB advances and other borrowings

957

1,384

119

2,460

Other

-

(9)

-

(9)

Total interest-bearing liabilities

1,494

3,758

211

5,463

Change in net interest income

$ 2,313

690

(109)

2,894

 

Forward-Looking Statements

Except for historical information contained herein, the matters discussed in this report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial risks and uncertainties. When used in this report, or in the documents incorporated by reference herein, the words "anticipate," "believe," "estimate," "may," "intend," "expect" and similar expressions identify certain of such forward-looking statements. Actual results could differ materially from such forward-looking statements contained herein. Factors that could cause future results to vary from current expectations include, but are not limited to, the following: changes in economic conditions (both generally and more specifically in the markets in which the Company operates); changes in interest rates, deposit flows, loan demand, real estate values and competition; changes in accounting principles, policies or guidelines and in government legislation and regulation (which change from time to time and over which the Company has no control); other factors affecting the Company's operations, markets, products and services; and other risks detailed in this Form 10-Q and in the Company's other Securities and Exchange Commission filings. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

Comparison of Operating Results for the Three Months Ended June 30, 2000 and 1999

General

The Company recorded net earnings of $7.4 million or $0.59 per diluted share for the three months ended June 30, 2000 compared to net earnings of $6.4 million or $0.47 per diluted share for the comparable period of 1999.

Net interest income was $24.1 million for the three months ended June 30, 2000 compared to $21.2 million for the comparable period of 1999. The increase in net interest income was attributable to a 17 basis point increase in net interest spread from 2.74% for the three months ended June 30, 1999 to 2.91% for the comparable period of 2000 coupled with a $149.4 million increase in average interest-earning assets from $2.81 billion for the three months ended June 30, 1999 to $2.96 billion for the comparable period of 2000.

Provision for loan losses was $1.3 million for the three months ended June 30, 2000 compared to $1.0 million for the comparable period of 1999.

Total non-interest income was $3.6 million for the three months ended June 30, 2000 compared to $4.3 million for the comparable period of 1999. Total non-interest expense was $13.5 million for the three months ended June 30, 2000 compared to $13.2 million for the comparable period of 1999.

Interest Income

Interest income was $59.7 million for the three months ended June 30, 2000 compared to $51.3 million for the comparable period of 1999. The $8.4 million increase in interest income was attributable to a 76 basis point increase in average yield on interest-earning assets coupled with the $149.4 million increase in average interest-earning assets noted above. The increase in average interest-earnings assets was due to a $305.8 million increase in the average balance of loans receivable from $2.03 billion for the three months ended June 30, 1999 to $2.33 billion for the comparable period of 2000. The average aggregate balance of mortgage-backed securities ("MBS"), collateralized mortgage obligations and investment securities (collectively, "securities") decreased $112.2 million from $668.9 million for the three months ended June 30, 1999 to $556.7 million for the comparable period of 2000 reflecting the Company's strategy of redeploying earning assets from securities into loans receivable.

The average yield on loans receivable, net increased 54 basis points from 7.82% for the three months ended June 30, 1999 to 8.36% for the comparable period of 2000. The increase in the average yield on loans receivable, net was attributable principally to a $250.1 million increase in the aggregate disbursed balance of construction, commercial business, commercial real estate and consumer loans (the "Four-C's") from $528.5 million or 26 percent of loans receivable, net at June 30, 1999 to $778.6 million or 34 percent of loans receivable, net at June 30, 2000. Originations of the Four-C's continues to be an area of focus for the Bank with such loans accounting for 92% and 53% of total loan originations for the three months ended June 30, 2000 and 1999, respectively. An increase in the general level of interest rates also contributed to the increase in loan yields.

The average yield on securities was 6.73% for the three months ended June 30, 2000 compared to 6.22% for the comparable period of 1999. The increase in the average yield on securities reflects the impact of an increase in the general level of interest rates. The one-year Constant Maturity Treasury (CMT) index and one month London Inter-Bank Offered Rate averaged approximately 6.22% and 6.37%, respectively for the three months ended June 30, 2000 compared to approximately 4.88% and 5.02%, respectively for the comparable period of 1999. Amortization of premiums, net of accretion of discounts was $232,000 (17 basis points) for the three months ended June 30, 2000 compared to $502,000 (30 basis points) for the comparable period of 1999.

During the three months ended June 30, 2000, as a member of the FHLB of San Francisco, the Bank received a special dividend of $329,000 in addition to its regular quarterly dividend. This special dividend increased the average yield on FHLB stock by 292 basis points and increased the average yield on interest earning assets, net interest spread and effective interest spread for the three months ended June 30, 2000 by 4 basis points.

Interest Expense

Interest expense was $35.6 million for the three months ended June 30, 2000 compared to $30.1 million for the comparable period of 1999. The $5.5 million increase in interest expense was attributable to a 59 basis point increase in the average cost of interest-bearing liabilities coupled with a $120.2 million increase in average interest-bearing liabilities from $2.65 billion for the three months ended June 30, 1999 to $2.77 billion for the comparable period of 2000. The 59 basis point increase in the average cost of interest-bearing liabilities reflects a 53 basis point increase in the average cost of deposits, a 70 basis point increase in the cost of FHLB advances and other borrowings and a slight increase in the proportion of total interest-bearing liabilities comprised by FHLB advances and other borrowings from 30.0% for the three months ended June 30, 1999 to 31.2% for the comparable period of 2000 as FHLB advances were utilized to fund a portion of the strong level of loan growth.

The increase in the average cost of deposits from 4.18% for the three months ended June 30, 1999 to 4.71% for the comparable period of 2000 reflects an increase in the general level of interest rates. The average balances of money market, savings and NOW accounts (collectively, "core deposits") decreased $22.1 million from $757.9 million or 41.0% of average total deposits for the three months ended June 30, 1999 to $735.7 million or 38.7% of average total deposits for the comparable period of 2000. The average balance of total deposits increased $49.8 million from $1.85 billion for the three months ended June 30, 1999 to $1.90 billion for the comparable period of 2000. The changes in deposit balances are net of $45.9 million of deposits (including $12.6 million of core deposits) sold in October 1999. The average cost of core deposits was 3.07% for the three months ended June 30, 2000 compared to 5.75% for certificate accounts.

The average cost of FHLB advances and other borrowings increased from 5.46% for the three months ended June 30, 1999 to 6.16% for the comparable period of 2000 reflecting an increase in the general level of interest rates coupled with the Bank's utilization of putable fixed rate FHLB advances. Under the putable advance program, in exchange for a favorable interest rate on the borrowing, the Bank grants to the FHLB an option to "put" the advance back to the Bank at specified "put" dates prior to maturity but after the conclusion of a specified lock out period. Under the putable advance program, the Bank obtains funds below the cost of non-putable FHLB advances of comparable final maturity. In exchange for this favorable funding rate, the Bank is exposed to the risk that the advance is put back to the Bank following an increase in the general level of interest rates causing the Bank to initiate a borrowing at a less advantageous cost. Between June 30, 1999 and June 30, 2000 $230.0 million of putable FHLB advances with a weighted average interest rate of 5.45% were put back to the Bank. Of the $230.0 million put back, $145.0 million was "rolled" into non-putable advances at a weighted average interest rate of 6.46 percent. The Bank did not initiate any new putable borrowings during the twelve months ended June 30, 2000. At June 30, 2000 the Bank's putable borrowings totaled $185.0 million.

Provision for Loan Losses

Provision for loan losses was $1.3 million for the three months ended June 30, 2000 compared to $1.0 million for the comparable period of 1999. See "Comparison of Financial Condition at June 30, 2000 and March 31, 2000".

Non-Interest Income

Non-interest income was $3.6 million for the three months ended June 30, 2000 compared to $4.3 million for the comparable period of 1999. Deposit and related fees decreased $133,000 from $2.4 million for the three months ended June 30, 1999 to $2.3 million for the comparable period of 2000. The decrease in deposit and related fees reflects a decrease in income from the sale of non-deposit investments. The increase in trust fees from $520,000 for the three months ended June 30, 1999 to $567,000 for the comparable period of 2000 reflects the updating of fee schedules coupled with growth in assets under custody or management from $238.1 million at June 30, 1999 to $288.3 million at June 30, 2000. During the three months ended June 30, 2000, the Company incurred a net loss of $370,000 on trading securities activity compared to a net gain of $270,000 for the comparable period of 1999. Total non-interest income excluding trading securities activity ("core non-interest income") was $4.0 million for both the three months ended June 30, 2000 and June 30, 1999.

Non-Interest Expense

Non-interest expense was $13.5 million for the three months ended June 30, 2000 compared to $13.2 million for the comparable period of 1999. General and administrative expense was $13.5 million or 1.79% of average assets for the three months ended June 30, 2000 compared to $13.2 million or 1.81% of average assets for the comparable period of 1999. Compensation and benefits expense was $7.3 million for the three months ended June 30, 2000 compared to $7.0 million for the comparable period of 1999.

Included in compensation and benefits expense are non-cash charges associated with the amortization of shares under the Company's Employee Stock Ownership Plan (ESOP) and 1996 Incentive Plan of $1.1million for the three months ended June 30, 2000 compared to $751,000 for the comparable period of 1999.

Income Taxes

Income taxes were $5.6 million for the three months ended June 30, 2000 compared to $4.9 million for the comparable period of 1999. The effective tax rates were 43.1% and 43.4% for the three months ended June 30, 1999 and 2000.

Comparison of Financial Condition at June 30, 2000 and March 31, 2000

Total assets decreased $39.0 million from $3.03 billion at March 31, 2000 to $3.00 billion at June 30, 2000. Loans receivable, net decreased $7.5 million from $2.33 billion at March 31, 1999 to $2.32 billion at June 30, 2000. Securities decreased $25.7 million from $555.4 million at March 31, 2000 to $529.8 million at June 30, 2000 reflecting the strategy discussed above of utilizing paydowns on securities to fund loan growth. The $7.5 million decrease in loans receivable, net was attributable to a $48.4 million decrease in 1-4 family residential mortgages as the Company continues to shift its loan focus toward the Four-C's.

Loan originations for the three months ended June 30, 2000 were $255.3 million, compared to $254.7 million for the comparable period of 1999. Loan principal payoffs and paydowns were $254.4 million for the three months ended June 30, 2000 compared to $200.5 million for the comparable period of 1999. Non-accrual loans increased from $5.4 million or 0.21% of gross loans at March 31, 2000 to $6.9 million or 0.27% of gross loans at June 30, 2000. Non-performing assets, which includes non-accrual loans, and foreclosed real estate, net of specific allowances, increased from $6.9 million or .23% of total assets at March 31, 2000 to $7.6 million or .25% of total assets at June 30, 2000. The increase in non-accrual loans is represented by one $990,000 construction loan.

The allowance for loan losses is maintained at an amount management considers adequate to cover losses on loans receivable which are deemed probable and estimable. The allowance is based upon a number of factors, including current economic conditions, actual loss experience, industry trends and the composition of the loan portfolio by type. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to make additional provisions for loan losses based upon information available at the time of the review. At June 30, 2000, the Bank's allowance for loan losses was $28.6 million or 1.12% of gross loans and 413.21% of non-accrual loans compared to $27.8 million or 1.09% of gross loans and 512.96% of non-accrual loans at March 31, 2000. The Bank will continue to monitor and modify its allowance for loan losses as economic conditions, loss experience, changes in portfolio composition and other factors dictate. The following table sets forth activity in the Bank's allowance for loan losses for the three months ended June 30, 2000.

Balance at March 31, 2000

$27,838

Provision for loan losses

1,251

Charge-offs

(506)

Recoveries

7

Balance at June 30, 2000

$28,590

Total liabilities decreased $47.2 million to $2.76 billion at June 30, 2000 from $2.81 billion at March 31, 2000. Deposits increased $10.7 million from $1.91 billion at March 31, 2000 to $1.92 billion at June 30, 2000. Core deposits increased $2.3 million from $739.2 million at March 31, 2000 to $741.5 million at June 30, 2000. FHLB advances and other borrowings were paid down by a net $65.0 million from $884.0 million at March 31, 2000 to $819.0 million at June 30, 2000 utilizing the cash flows arising from the planned net reduction in 1-4 family residential mortgages coupled with paydowns on securities and deposit inflows provided.

Total stockholders' equity was $230.1 million at June 30, 2000 compared to $221.8 million at March 31, 2000. The $8.3 million increase in total stockholders' equity is comprised principally of a $6.6 million increase in retained earnings, substantially restricted, and a $1.1 million decrease in unearned stock-based compensation.

The $6.6 million increase in retained earnings, substantially restricted reflects the $7.4 million of net earnings for the three months ended June 30, 2000 partially offset by a quarterly cash dividend of $0.06 per common share paid on June 30, 2000 to shareholders of record as of June 15, 2000. The $1.1 million decrease in unearned stock-based compensation reflects the amortization of shares under the Company's ESOP ($453,000) and 1996 Incentive Plan ($635,000).

Liquidity and Capital Resources

The Company's primary sources of funds are deposits, principal and interest payments on loans and securities, FHLB advances and other borrowings, proceeds from the maturation of securities and, to a lesser extent, proceeds from the sale of loans and securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage and security prepayments are greatly influenced by the general level of interest rates, economic conditions and competition. The Bank has maintained the required minimum levels of liquid assets as defined by OTS regulations. This requirement, which may be varied at the direction of the OTS depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowings. Effective with the quarter ended December 31, 1997 the required ratio is 4%. Prior to that the requirement was 5%. The Bank's average liquidity ratio was 4.62% for the three months ended June 30, 2000. Management attempts to maintain a liquidity ratio no higher than 1% above the regulatory requirement. This reflects management's strategy of investing excess liquidity in higher yielding interest-earning assets, such as loans or other investments, depending on market conditions. The Bank invests in corporate securities when the yields thereon are more attractive than U.S. government and federal agency securities of similar maturity. While corporate securities are not backed by any government agency, the maturity structure and credit quality of all corporate securities owned by the Bank meet the minimum standards set forth by the OTS for regulatory liquidity-qualifying investments. The Bank invests in callable debt issued by federal agencies of the U.S. government when the yields thereon to call date(s) and maturity exceed the yields on comparable term and credit quality non-callable investments by amounts which management deems sufficient to compensate the Bank for the call options inherent in the securities. The Bancorp has invested and will from time to time continue to invest in "non-rated" corporate debt and equity securities. Investments held at the Bancorp are not subject to the OTS regulatory restrictions applicable to the Bank.

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 $21.4 million and $10.5 million for the three months ended June 30, 2000 and 1999, 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 $254.4 million and $200.5 million for the three months ended June 30, 2000 and 1999, respectively. Disbursements on loans originated and purchased were $255.3 million and $254.7 million for the three months ended June 30, 2000 and 1999, respectively. Disbursements for purchases of mortgage-backed and other investment securities were zero and $3.1 million for the three months ended June 30, 2000 and 1999, respectively. Proceeds from the maturation of investment securities and paydowns of mortgage-backed securities and collateralized mortgage obligations were $25.8 million and $66.8 million for the three months ended June 30, 2000 and 1999, respectively. Net cash provided by (used in) financing activities consisted primarily of net activity in deposit accounts and FHLB advances and other borrowings. The net increases in deposits were $10.7 million and $10.5 million for the three months ended June 30, 2000 and 1999, respectively. FHLB advances and other borrowings decreased $65.0 million and $66.0 million for the three months ended June 30, 2000 and 1999, respectively.

At June 30, 2000, the Bank exceeded all of its regulatory capital requirements with a tangible capital level of $212.3 million, or 7.11% of adjusted total assets, which is above the required level of $44.8 million, or 1.5%; core capital of $212.3million, or 7.11% of adjusted total assets, which is above the required level of $119.4 million, or 4.0%; and total risk-based capital of $234.6 million, or 11.42% of risk-weighted assets, which is above the required level of $164.3 million, or 8.0%.

The Company's most liquid assets are cash and short-term investments. The levels of these assets are dependent on the Company's operating, financing, lending and investing activities during any given period. At June 30, 2000 cash and short-term investments totaled $38.8 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, 2000, the Bank has $819.0 million of FHLB advances outstanding. Other sources of liquidity include investment securities maturing within one year.

The Company currently has no material contractual obligations or commitments for capital expenditures. At June 30, 2000, the Bank had outstanding commitments to originate and purchase loans of $417.3 million and zero, respectively, compared to $366.6 million and zero, respectively, at June 30, 2000 and 1999. At June 30, 2000, and 1999 the Company had no outstanding commitments to purchase securities. The Company anticipates that it will have sufficient funds available to meet these commitments. Certificate accounts that are scheduled to mature in less than one year from June 30, 2000 totaled $1.00 billion. The Bank expects that a substantial portion of the maturing certificate accounts will be retained by the Bank at maturity.

Segment Reporting

The Company, through the branch network of the Bank, provides a broad range of financial services to individuals and companies located primarily in Southern California. These services include demand, time, and savings deposits; real estate, business and consumer lending; ATM processing; cash management; and trust services. While the Company's chief decision makers monitor the revenue streams of the various Company products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company's banking operations are considered by management to be aggregated in one reportable operating segment.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

Readers should refer to the qualitative disclosures (consisting primarily of interest rate risk) in the Company's March 31, 2000 Form 10-K, as there has been no significant changes in these disclosures during the three months ended June 30, 2000.

 

 

PART II - OTHER INFORMATION

PFF BANCORP, INC. AND SUBSIDIARY

Item 1. Legal Proceedings

The Company and subsidiary have been named as defendants in various lawsuits arising in the normal course of business. The outcome of the lawsuits cannot be predicted, but the Company intends to vigorously defend the actions and is of the opinion that the lawsuits will not have a material adverse effect on the Company.

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matter to a Vote of Security Holders.

None

Item 5. Other Information.

None

Item 6. Exhibits and Reports on Form 8-K.
    1. Exhibit 3(I) - Certificate of Incorporation of PFF Bancorp, Inc. *

      2. Exhibit 3(ii) - Bylaws of PFF Bancorp, Inc. *

      Exhibit 27.0 - Financial Data Schedule (filed herewith)

    2. 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.

 

PFF BANCORP, INC. AND SUBSIDIARY

SIGNATURES

 

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

                                                                                            PFF BANCORP, INC.

DATED: August 11, 2000                                                   BY:/s/ LARRY M. RINEHART
                                                                                                   Larry M. Rinehart
                                                                                                  President, Chief Executive Officer
                                                                                                  and Director

DATED: August 11, 2000                                                   BY:/s/ GREGORY C. TALBOTT
                                                                                                  Gregory C. Talbott
                                                                                                 Executive Vice President, Chief
                                                                                                 Financial Officer and Treasurer



© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission