<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
COMMISSION FILE NUMBER: 000-24215
PBOC HOLDINGS, INC.
DELAWARE 33-0220233
-------- ----------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
5900 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90036
(323) 938-6300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(b) 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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest possible date:
CLASS SHARES OUTSTANDING AT AUGUST 8, 2000
----- ------------------------------------
Common Stock, $.01 par value 19,876,205
================================================================================
<PAGE>
PBOC HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition - June 30, 2000
and December 31, 1999.......................................................... 3
Consolidated Statements of Operations - Three and Six months ended
June 30, 2000 and 1999......................................................... 4
Consolidated Statements of Comprehensive Earnings (Loss) - Three and Six
months ended June 30, 2000 and 1999............................................ 5
Consolidated Statements of Cash Flows - Six months ended June 30, 2000
and 1999....................................................................... 6
Notes to Consolidated Financial Statements..................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................................. 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........................ 20
PART II -- OTHER INFORMATION
ITEMS 1-5 NOT APPLICABLE.................................................................... 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................................. 22
SIGNATURES........................................................................ 23
</TABLE>
2
<PAGE>
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 2000 AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, 2000 1999
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents ...................................................... $ 33,201 $ 19,582
Federal funds sold ............................................................. 22,000 2,000
Securities available-for-sale, at estimated market values ...................... 731,691 771,864
Mortgage-backed securities held-to-maturity, market values
$3,891 at June 30, 2000 and $4,274 at December 31, 1999 ............... 3,938 4,326
Loans receivable, net .......................................................... 2,586,250 2,462,837
Real estate held for sale, net ................................................. 846 846
Premises and equipment, net .................................................... 7,155 7,105
Federal Home Loan Bank stock, at cost .......................................... 57,058 66,643
Accrued interest receivable .................................................... 18,418 16,863
Goodwill ....................................................................... 21,673 7,246
Deferred tax assets ............................................................ 57,549 32,116
Other assets ................................................................... 6,915 6,800
----------- -----------
Total assets ................................................. $ 3,546,694 $ 3,398,228
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ....................................................................... $ 1,867,172 $ 1,647,337
Securities sold under agreements to repurchase ................................. 357,603 381,109
Advances from Federal Home Loan Bank ........................................... 1,065,000 1,123,700
Accrued expenses and other liabilities ......................................... 12,829 28,754
Other borrowings - line of credit .............................................. 5,717 4,621
----------- -----------
Total liabilities ..................................................... 3,308,321 3,185,521
----------- -----------
Minority interest .............................................................. 33,250 33,250
Stockholders' equity:
Common stock, par value $.01 per share. Authorized 75,000,000 shares; issued
21,876,205 shares; and outstanding 19,876,205 and 19,941,005 at June 30,
2000 and December 31, 1999, respectively ................................ 219 219
Treasury stock, at cost (2,000,000 shares and 1,935,200 shares
at June 30, 2000 and December 31, 1999, respectively) ................. (19,331) (18,710)
Additional paid-in capital ............................................ 259,207 259,260
Accumulated other comprehensive loss .................................. (47,801) (38,300)
Retained earnings (accumulated deficit) ............................... 12,829 (23,012)
----------- -----------
Total stockholders' equity .......................... 205,123 179,457
----------- -----------
Total liabilities and stockholders' equity .......... $ 3,546,694 $ 3,398,228
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -----------------------------
2000 1999 2000 1999
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Interest, fees and dividend income:
Short term investments ........................ $ 536 $ 385 $ 1,532 $ 659
Securities purchased under agreements to resell 607 385 795 396
Investment securities ......................... 6,116 5,466 12,435 11,830
Mortgage-backed securities .................... 6,675 8,698 13,348 16,832
Loans receivable .............................. 49,453 40,030 97,519 78,222
Federal Home Loan Bank stock .................. 1,299 829 2,169 1,637
----------- ------------ ------------ ------------
Total interest, fees and dividend income 64,686 55,793 127,798 109,576
----------- ------------ ------------ ------------
Interest expense:
Deposits ...................................... 21,910 17,722 41,970 35,678
Advances from the Federal Home Loan Bank ...... 16,759 16,540 32,940 32,437
Securities sold under agreements to repurchase 6,506 5,474 13,253 10,575
Senior debt ................................... 162 -- 309 --
Hedging costs, net ............................ 27 34 59 81
----------- ------------ ------------ ------------
Total interest expense ................. 45,364 39,770 88,531 78,771
----------- ------------ ------------ ------------
Net interest income .................................... 19,322 16,023 39,267 30,805
Provision for loan losses ..................... 1,500 1,050 3,000 2,100
----------- ------------ ------------ ------------
Net interest income after provision for
loan losses ...................... 17,822 14,973 36,267 28,705
----------- ------------ ------------ ------------
Other income:
Loan service and loan related fees ............ 162 61 399 67
Gain on mortgage-backed securities sales, net . -- 76 127 197
Gain on loan and loan servicing sales, net .... 2 -- 2 49
Income from real estate operations, net ....... 17 55 11 115
Deposit fee income ............................ 603 387 1,263 887
Other income .................................. 207 128 301 333
----------- ------------ ------------ ------------
Total other income ..................... 991 707 2,103 1,648
Operating expenses:
Personnel and benefits ........................ 4,335 3,782 9,165 7,708
Occupancy ..................................... 2,925 2,346 5,727 4,552
FDIC insurance ................................ 212 339 426 673
Professional services ......................... 922 418 1,421 684
Office related expenses ....................... 1,470 1,277 3,163 2,404
Other ......................................... 1,570 703 2,933 1,320
----------- ------------ ------------ ------------
Total operating expenses ............... 11,434 8,865 22,835 17,341
----------- ------------ ------------ ------------
Earnings before income taxes and minority interest .... 7,379 6,815 15,535 13,012
Income taxes (Benefit) ................................. 3,009 (1,000) (21,991) (2,000)
----------- ------------ ------------ ------------
Earnings before minority interest ...................... 4,370 7,815 37,526 15,012
Minority interest ...................................... 869 869 1,738 1,738
----------- ------------ ------------ ------------
Net earnings ........................... $ 3,501 $ 6,946 $ 35,788 $ 13,274
=========== ============ ============ ============
Earnings per share basic and diluted ................... $ 0.18 $ 0.34 $ 1.80 $ 0.64
Basic weighted average shares .......................... 19,876,205 20,423,705 19,878,637 20,589,796
Diluted weighted average shares ........................ 19,884,151 20,423,705 19,882,356 20,589,796
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ---------------------
2000 1999 2000 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings ............................................ $ 3,501 $ 6,946 $ 35,788 $ 13,274
Other comprehensive loss:
Unrealized loss on securities
available-for-sale....................... (2,862) (17,829) (9,374) (19,125)
Reclassification of realized (gains) loss
included in earnings .................... -- 76 (127) 197
------- -------- -------- --------
Other comprehensive loss ....................... (2,862) (17,753) (9,501) (18,928)
------- -------- -------- --------
Comprehensive earnings (loss) ........................... $ 639 $(10,807) $ 26,287 $ (5,654)
======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
2000 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ................................................................ $ 35,788 $ 13,274
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Provision for loan losses ............................................ 3,000 2,100
Depreciation ......................................................... 963 912
Amortization/accretion of premiums, discounts and deferred fees ...... (5,001) 6,858
(Increase) decrease in net deferred tax assets ....................... (23,698) 2,250
Amortization of purchase accounting intangibles ...................... 90 92
Gain on sale of securities available-for-sale ........................ (127) (197)
Gain on sale of real estate owned .................................... (40) (142)
FHLB stock dividend .................................................. (2,204) (1,683)
Increase in accrued interest receivable .............................. (968) (153)
Decrease in accrued interest payable ................................. (1,472) (4)
(Increase) decrease in other assets .................................. 126 (4,430)
Amortization for discontinued lease operations ....................... 25 25
Increase (decrease) in accrued expenses .............................. (14,605) 145
Gain on sale of loans ................................................ (2) (49)
Amortization of goodwill ............................................. 913 70
------------ -----------
Net cash provided by (used in) operating activities .................. (7,212) 19,068
------------ -----------
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale ........................ 66,206 119,626
Proceeds from sale of loans ................................................. 258 92,548
Investment and mortgage-backed securities principal repayments and maturities 218,777 88,465
Loan originations, net of repayments ........................................ (56,146) (86,060)
Purchases of investments and mortgage-backed securities available-for-sale .. (205,219) (262,069)
Purchases of loans .......................................................... (155) (192,843)
Cost capitalized on real estate, net of insurance settlements ............... 123 (2)
Proceeds from the sale of real estate ....................................... 398 2,965
Net increase in premises and equipment ...................................... (301) (307)
Redemption of FHLB stock .................................................... 11,789 --
Bank of Hollywood acquisition ............................................... 12,063 --
------------ -----------
Net cash provided by (used in) investing activities ......................... 47,793 (237,677)
------------ -----------
Cash flows from financing activities:
Purchases of treasury stock ................................................. (621) (6,152)
Net increase in deposits .................................................... 74,769 69,073
Net increase (decrease) in securities sold under agreements to repurchase ... (23,506) 70,947
Issuance of FHLB advances ................................................... 4,587,379 359,750
Repayments of FHLB advances ................................................. (4,646,079) (298,750)
Net change in other borrowings - line of credit ............................. 1,096 --
------------ -----------
Net cash provided by (used in) financing activities ........................ (6,962) 194,868
------------ -----------
Net change in cash ................................................................... 33,619 (23,741)
Cash and cash equivalents at beginning of period ..................................... 21,582 46,401
------------ -----------
Cash and cash equivalents at end of period ........................................... $ 55,201 $ 22,660
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ............................................................. $ 89,632 $ 78,693
Income taxes ......................................................... 2,290 225
Supplemental schedule of non cash investing and financing activities:
Foreclosed real estate ...................................................... $ 481 $ 4,149
Transfer of loans held for investment to loans held for sale ................ 256 92,499
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF CONSOLIDATION
The consolidated financial statements include all the accounts of PBOC
Holdings, Inc. (the "Company") and its subsidiaries, all of which are wholly
owned, except for People's Preferred Capital Corporation ("PPCC") in which
People's Bank of California (the "Bank") owns all of the common stock. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles and with the
instructions to Form 10-Q and Rule 10-01 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 of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 2000 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2000.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the dates of the balance sheets and revenues and
expenses for the periods presented. Actual results could differ significantly
from those estimates. Prior period's consolidated financial statements have been
reclassified to conform to the 2000 presentation.
3. EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing
earnings (loss) available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share 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 in
the issuance of common stock that then shared in earnings.
Information used to calculate earnings per share was as follows (dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings ................................. $ 3,501 $ 6,946 $ 35,788 $ 13,274
Weighted average shares
Basic weighted average number of
common shares outstanding ...... 19,876,205 20,423,705 19,878,637 20,589,796
Dilutive effect of outstanding
Common stock equivalents ....... 7,946 -- 3,719 --
----------- ----------- ----------- -----------
Diluted weighted average number
of common shares outstanding ... 19,884,151 20,423,705 19,882,356 20,589,796
=========== =========== =========== ===========
Earnings per share basic and diluted ......... $ 0.18 $ 0.34 $ 1.80 $ 0.64
=========== =========== =========== ===========
</TABLE>
4. STOCK INCENTIVE PLAN
In April 1999, the stockholders of the Company approved the 1999 Stock
Option Plan (the "1999 Plan"), which authorized granting up to 985,500 options
to officers and key employees of the Company. All 985,500 options were granted
in January 1999 at an exercise price of $13.75 per share. Options under the 1999
Plan have a life of 10 years and vest over 3 years.
7
<PAGE>
In September 1999, the Board of Directors of the Company approved the
2000 Stock Incentive Plan (the "2000 Plan"), which authorized granting up to
991,822 options to officers, directors and key employees of the Company. In
September 1999, 479,250 options were granted at an exercise price of $9 per
share. In January 2000, the Board of Directors of the Company granted an
additional 100,000 options to officers, directors and key employees of the
Company at an exercise price of $10 per share. In April 2000, the stockholders
of the Company approved the 2000 Plan.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 137 and SFAS No. 138. Among other things, it
amends SFAS No.107, "Disclosure about Fair Value of Financial Instruments," to
include in SFAS No. 107 disclosure provisions about concentrations of credit
risk from SFAS No. 105. SFAS 133 established 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 statement of financial position 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. This Statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
Management believes that adoption of SFAS 133 will not have a material impact on
the Company's financial position and results of operations.
6. VOLUNTARY SUPERVISORY AGREEMENT
On June 16, 2000, the Company formalized on-going plans to reduce
interest rate risk, strengthen its lending infrastructure, and fill open
positions on the Board of Directors at the request of the Office of Thrift
Supervision ("OTS") through a voluntary supervisory agreement between the OTS
and the Bank. The adoption of the supervisory agreement formalizes many of the
steps the Company has already taken to expand and strengthen its lending
programs, particularly in the consumer and commercial areas.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WHEN USED IN THIS FORM 10-Q OR FUTURE FILINGS BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), IN THE COMPANY'S PRESS RELEASES OR
OTHER PUBLIC OR STOCKHOLDER COMMUNICATIONS, OR IN ORAL STATEMENTS MADE WITH AN
APPROVAL OF AN AUTHORIZED EXECUTIVE OFFICER, THE WORDS OR PHRASES "WOULD BE",
"WILL ALLOW", "INTENDS TO", "WILL LIKELY RESULT", "ARE EXPECTED TO", "WILL
CONTINUE", "IS ANTICIPATED", "ESTIMATE", "PROJECT", OR SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE LITIGATION REFORM ACT OF 1995.
THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON
ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE MADE, AND
TO ADVISE READERS THAT VARIOUS FACTORS, INCLUDING REGIONAL AND NATIONAL ECONOMIC
CONDITIONS, SUBSTANTIAL CHANGES IN LEVELS OF MARKET INTEREST RATES, CREDIT AND
OTHER RISK OF LENDING AND INVESTMENT ACTIVITIES AND COMPETITIVE AND REGULATORY
FACTORS, COULD AFFECT THE COMPANY'S FINANCIAL PERFORMANCE AND COULD CAUSE THE
COMPANY'S ACTUAL RESULTS FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED OR PROJECTED. THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY
DISCLAIMS ANY OBLIGATION, TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT
OCCURRENCES OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH
STATEMENTS.
ACQUISITION OF THE BANK OF HOLLYWOOD
On January 31, 2000, the Company completed the acquisition of The Bank
of Hollywood ("BOH"), a California-chartered commercial bank with $157.4 million
in assets and $145.1 million in deposits for a cash purchase price of $27.4
million. In connection with the acquisition, the Company recorded an addition of
$15.3 million in Goodwill to be amortized on a straight-line basis over
15-years.
8
<PAGE>
FINANCIAL CONDITION
The Company had consolidated total assets of $3.5 billion at June 30,
2000, compared to $3.4 billion at December 31, 1999. The increase of $148
million, or 4.4% in total assets over the past six months was primarily due to
increases in net loans receivable of $123 million, increases in cash and federal
funds sold of $34 million, an increase in the goodwill asset account (primarily
due to the BOH acquisition) of $14 million, and an increase in deferred tax
assets of $25 million, which were partially offset by a decrease in securities
available-for-sale of $40 million and a decrease in investment in the Federal
Home Loan Bank ("FHLB") stock of $10 million.
During the first six months of 2000 the Company's loan originations
were $259.3 million, exclusive of the $66.7 million acquired through The Bank of
Hollywood acquisition. Business, commercial real estate and consumer new loan
originations and purchases accounted for $270.7 million, or 83% of the $326.1
million total new loan originations, purchases and acquisitions. Loan repayments
of $204.3 million offset this increase in loans receivable.
The increase in earning assets during the first six months of 2000 was
funded by deposits, which increased by $219.8 million. Over the past six months,
FHLB advances decreased by $58.7 million to $1.1 billion at June 30, 2000. The
Company's stockholders' equity increased by $25.7 million to $205.1 million at
June 30, 2000 from December 31, 1999. The increase was primarily due to the
Company's net earnings of $35.8 million, partially offset by an increase in the
unrealized loss on securities available-for-sale of $9.5 million and additional
purchase of treasury stock during the period of $621,000.
RESULTS OF OPERATIONS
The Company's net earnings for the second quarter 2000 totaled $3.5
million, or $0.18 per diluted share compared to net earnings of $6.9 million,
or $0.34 per diluted share during the same period a year ago. Comparing the
Company on a proforma fully-tax-effected basis, net earnings for the second
quarter rose 11% to $3.5 million, or $0.18 per diluted share compared to
fully-taxed earnings in the like quarter a year ago of $3.2 million, or $0.16
per diluted share. Earnings before income taxes and minority interest
increased $564,000 to $7.4 million, or 8%, for the second quarter 2000, over
the like period a year ago, as a result of increases in net interest income
of $3.3 million and other income of $284,000. Offsetting these increases to
earnings before income taxes and minority interest were increases in the loan
loss provision of $450,000, and increases in total operating expenses of $2.6
million.
Net earnings for the six months ended June 30, 2000 were $35.8 million,
or $1.80 per diluted share compared to $13.3 million, or $0.64 per diluted share
during the like period a year ago. On a proforma fully-tax-effected basis, net
earnings for the six months ended June 30, 2000 were up 25% to $7.5 million, or
$0.38 per diluted share, compared to net earnings of $6.0 million, or $0.29 per
diluted share during the like period a year ago. Earnings before income taxes
and minority interest increased $2.5 million, or 19%, as a result of increases
in net interest income and other income of $8.5 million and $455,000,
respectively. Offsetting these increases to earnings before income taxes and
minority interest were increases in the loan loss provision of $900,000, and
increases in total operating expenses of $5.5 million.
9
<PAGE>
FINANCIAL RATIOS
The table below reflects selected financial performance ratios:
<TABLE>
<CAPTION>
Performance Ratios: THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Return on average assets ............................. 0.39% 0.81% 2.01% 0.79%
Proforma return on average assets, fully-tax-
effected ......................................... 0.39 0.37 0.42 0.36
Return on average equity ............................. 7.15 15.51 38.51 15.37
Proforma return on average equity, fully-tax-
effected ......................................... 7.15 7.07 8.03 6.91
Average equity to average assets ..................... 5.49 5.24 5.23 5.16
Interest-earning assets to interest-bearing
liabilities ...................................... 110.12 105.37 109.34 107.74
Interest rate spread ................................. 1.64 1.63 1.74 1.45
Net interest margin .................................. 2.20 1.90 2.24 1.86
Operating expenses to average assets ................. 1.28 1.04 1.28 1.04
Efficiency ratio ..................................... 56.29 52.99 55.20 53.43
</TABLE>
NET INTEREST INCOME
Net interest income after provision for loan losses increased during
the second quarter ended June 30, 2000 to $17.8 million compared to $15.0
million for the second quarter ended June 30, 1999. This increase was primarily
due to improvement in the net interest margin from 1.90% to 2.20%. The Company's
interest rate spread was 1.64% for the second quarter of 2000 compared to 1.63%
for the same period in 1999.
For the six months ended June 30, 2000, net interest income after
provision for loan losses increased by $7.6 million to $36.3 million compared to
$28.7 million during the same period a year ago. The increase in net interest
income after loan loss provision was the result of the increase in the average
balance of net interest-earning assets of $62.3 million. The Company's net
interest margin was 2.24% for the six months ended June 30, 2000, an increase of
38 basis points compared to 1.86% for the same period in 1999. This increase in
net interest margin was mainly due to higher yields on the Company's loan and
investment portfolios and a favorable change in the interest-bearing liabilities
mix. The net interest margin was 2 basis points lower than the 2.26% reported in
the March 2000 quarter because of higher borrowing costs. The interest rate
spread improved by 29 basis points to 1.74% for the six months ended June 30,
2000 compared to 1.45% for the like period a year ago.
10
<PAGE>
The following tables set forth, for the periods indicated, information
regarding: (a) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (b) the total dollar
amount of interest expense on interest-bearing liabilities and resultant average
rates; (c) net interest income; (d) interest rate spread; and (e) net interest
margin. Information is based on average daily balances during the indicated
periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------- ------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
-------------- ---------- ------------ -------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1).............. $2,598,141 $49,453 7.61% $2,233,832 $40,030 7.17%
Mortgage-backed securities (2) 429,176 6,675 6.22 633,772 8,698 5.49
Other interest-earning assets (3) 430,350 7,259 6.75 432,402 6,236 5.77
FHLB stock....................... 56,787 1,299 9.20 64,657 829 5.14
---------- ---------- ----------- ------
Total interest-earning assets.... 3,514,454 64,686 7.36 3,364,663 55,793 6.63
---------- ========== ------ ======
Non-interest-earning assets........ 73,431 64,079
---------- -----------
Total assets................. $3,587,885 $3,428,742
========== ===========
Interest-bearing liabilities:
Deposits:
Transaction accounts(4)........ $ 499,997 $ 4,756 3.83% $ 447,012 $ 3,063 2.75%
Term certificates of deposit... 1,181,416 17,154 5.84 1,130,442 14,659 5.20
---------- ---------- ---------- ------------
Total deposits............. 1,681,413 21,910 5.24 1,577,454 17,722 4.51
Other borrowings - line of credit 5,568 162 11.70 -- --
Other borrowings (5)............. 1,504,424 23,265 6.22 1,615,776 22,014 5.46
Hedging costs.................... -- 27 -- 34
---------- ---------- ---------- ------------
Total interest-bearing
liabilities...... 3,191,405 45,364 5.72% 3,193,230 39,770 5.00%
--------- ---------- ===== ------- =====
Non-interest-bearing liabilities... 199,649 55,910
---------- ----------
Total liabilities........... 3,391,054 3,249,140
Stockholders' equity............... 196,831 179,602
---------- ----------
Total liabilities and
stockholders' equity $3,587,885 $3,428,742
========== =========
Net interest-earning assets........ $ 323,049 $ 171,433
========== ==========
Net interest income/interest rate
spread.................... $19,322 1.64% $16,023 1.63%
========== =========== ======= ===========
Net interest margin................ 2.20% 1.90%
=========== ===========
Ratio of average interest-earning
assets to average interest-
bearing liabilities....... 110.12% 105.37%
=========== ===========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------- -------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
-------------- ---------- ------------ ----------- ------------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) .............. $2,567,979 $ 97,519 7.59% $2,189,445 $ 78,222 7.15%
Mortgage-backed securities (2) ... 435,420 13,348 6.13 619,336 16,832 5.44
Other interest-earning assets (3) 450,109 14,762 6.56 437,690 12,885 5.89
FHLB stock ....................... 59,575 2,169 7.32 64,251 1,637 5.14
---------- ------- ----------- --------
Total interest-earning assets .... 3,513,083 127,798 7.28 3,310,722 109,576 6.62
------- ====== -------- =====
Non-interest-earning assets ........ 61,516 65,762
---------- -----------
Total assets ................. $3,574,599 $3,376,484
========== ===========
Interest-bearing liabilities:
Deposits:
Transaction accounts(4) ........ $ 494,643 $ 8,828 3.59% $ 362,707 $ 6,088 3.38%
Term certificates of deposit ... 1,185,558 33,142 5.62 1,126,361 29,590 5.30
--------- ---------- --------- --------
Total deposits ............. 1,680,201 41,970 5.02 1,489,068 35,678 4.83
Other borrowings - line of credit 5,423 309 11.46 -- -- --
Other borrowings (5) ............. 1,527,352 46,193 6.08 1,583,812 43,012 5.48
Hedging costs .................... -- 59 -- 81
--------- ---------- --------- -------
Total interest-bearing
liabilities............... 3,212,976 88,531 5.54% 3,072,880 78,771 5.17%
------ ===== ------ =====
Non-interest-bearing liabilities ... 174,754 129,474
--------- ---------
Total liabilities ........... 3,387,730 3,202,354
Stockholders' equity ............... 186,869 174,130
-------- --------
Total liabilities and
stockholders' equity ....... $3,574,599 $3,376,484
========== ==========
Net interest-earning assets ........ $ 300,107 $ 237,842
========== ==========
Net interest income/interest rate
spread ............................ $ 39,267 1.74% $ 30,805 1.45%
======== ====== ======== =======
Net interest margin ................ 2.24% 1.86%
======== ======
Ratio of average interest-earning
assets to average interest- bearing
liabilities ....................... 109.34% 107.74%
======== ======
</TABLE>
(1) The average balance of loans receivable includes nonperforming loans,
interest on which is recognized on a cash basis.
(2) Includes mortgage-backed securities classified as held-to-maturity and
available-for-sale.
(3) Includes short-term investments, securities purchased under agreements
to resell and investment securities.
(4) Includes passbook, checking and money market accounts.
(5) Includes advances from FHLB and securities sold under agreements to
repurchase.
The following tables set forth the effects of changing rates and
volumes on net interest income of the Company. Information is provided with
respect to (a) effects on interest income attributable to changes in rate
(changes in rate multiplied by prior volume); (b) effects on interest income
attributable to changes in volume (changes in volume multiplied by prior rate);
and (c) changes in rate/volume (change in rate multiplied by change in volume).
12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000
COMPARED TO JUNE 30, 1999
(IN THOUSANDS)
--------------------------------------------------------
INCREASE (DECREASE) DUE TO
-----------------------------------
TOTAL NET
RATE VOLUME RATE/VOLUME INCREASE/(DECREASE)
------- ------ ----------- -------------------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable ................. $ 2,489 $ 6,528 $ 406 $ 9,423
Mortgage-backed securities ....... 1,159 (2,808) (374) (2,023)
Other interest-earning assets .... 1,058 (30) (5) 1,023
FHLB stock ....................... 650 (101) (79) 470
------- ------- ------ -------
Total net change in income on interest-
earning assets ........................ 5,356 3,589 (52) 8,893
------- ------- ------ -------
Interest-bearing liabilities:
Deposits:
Transaction accounts ............... 1,189 362 142 1,693
Term certificates of deposit ....... 1,755 659 81 2,495
------- ------- ------ -------
Total deposits ............ 2,944 1,021 223 4,188
Other borrowings - line of credit ..... -- -- 162 162
Other borrowings ...................... 2,973 (1,513) (209) 1,251
Hedging costs ......................... -- -- (7) (7)
------- ------- ------ -------
Total net change in expense on interest-
bearing liabilities ................... 5,917 (492) 169 5,594
------- ------- ------ -------
Change in net interest income ............. $ (561) $ 4,081 $(221) $ 3,299
======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
COMPARED TO JUNE 30, 1999
(IN THOUSANDS)
-------------------------------------------------
INCREASE (DECREASE) DUE TO
------------------------------
TOTAL NET
RATE VOLUME RATE/VOLUME INCREASE/(DECREASE)
----- ------ ----------- -------------------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable ................. $4,922 $ 13,524 $ 851 $ 19,297
Mortgage-backed securities ....... 2,154 (4,999) (639) (3,484)
Other interest-earning assets .... 1,470 366 41 1,877
FHLB stock ....................... 702 (119) (51) 532
------ --------- ----- --------
Total net change in income on interest-
earning assets ........................ 9,248 8,772 202 18,222
------ --------- ----- --------
Interest-bearing liabilities:
Deposits:
Transaction accounts ............... 385 2,221 134 2,740
Term certificates of deposit ....... 1,897 1,559 96 3,552
------ --------- ----- --------
Total deposits ............ 2,282 3,780 230 6,292
Other borrowings - line of credit ..... -- -- 309 309
Other borrowings ...................... 4,889 (1,538) (170) 3,181
Hedging costs ......................... -- -- (22) (22)
------ --------- ----- --------
Total net change in expense on interest-
bearing liabilities ................... 7,171 2,242 347 9,760
------ --------- ----- --------
Change in net interest income ............. $2,077 $ 6,530 $(145) $ 8,462
====== ========= ===== ========
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses for the second quarter 2000 was $1.5
million compared with $1.1 million for the like quarter a year ago. The
Company's provision for loan losses increased by $900,000 for the six months
ended June 30, 2000, compared to the same period in 1999. These increases were
primarily due to loan portfolio growth and the change in current portfolio mix
to a higher proportion of consumer and commercial loans. The
13
<PAGE>
provision for loan losses was $3 million for the six months ended June 30, 2000
compared to $2.1 million for the six months ended June 30, 1999. At June 30,
2000, the Company's allowance for loan losses amounted to $24.8 million, or
0.92% of total gross loans, and 571.58% of total non-performing loans.
OTHER INCOME
Second quarter other income increased to $991,000 from $707,000 in the
year ago quarter, primarily as a result of loan growth and the related increase
in loan service and loan related fees in the amount of $101,000 and an increase
of $216,000 in deposit fee income as a result of an increase in the number of
checking accounts. For the six months ended June 30, 2000 other income was up
28%, to $2.1 million compared to $1.6 million at June 30, 1999, due primarily to
increased deposit fee income.
OPERATING EXPENSES
Because of expansion, operating expenses for the second quarter
increased 29% to $11.4 million compared to $8.9 million for the like period a
year ago. The combination of the lending staff expansion coupled with the
Company's acquisitions pushed personnel and benefits to $4.3 million and
occupancy and office related to $4.4 million for the quarter ended June 30,
2000, compared to $3.8 million and $3.6 million, respectively, for the quarter
ended June 30, 1999. Other expenses increased by $867,000, primarily the result
of an increase in goodwill amortization expense of $465,000, related to the
acquisition of The Bank of Hollywood.
Operating expenses increased by $5.5 million to $22.8 million for the
six months ended June 30, 2000 compared to $17.3 million for the same period a
year ago. Contributing to the increases were $1.5 million increase in personnel
and benefits, $1.9 million increase in occupancy and office related, $737,000
increase in professional services and $1.6 million in other operating expense.
The acquisition of five branches coupled with the expansion of the Company
lending staff accounted for the increase in operating expenses.
INCOME TAXES
Second quarter income taxes include applicable federal and state income
taxes. The income tax provision for the second quarter was $3.0 million, which
represents an effective income tax rate of 41%, and compares to a deferred tax
benefit of $1.0 million, reported during the like period a year ago. For the six
months ended June 30, 2000 the Company reported an income tax benefit of $22.0
million, compared to an income tax benefit of $2.0 million during the same
period a year ago. During the first quarter 2000, the Company recorded a $25.0
million income tax benefit, resulting from a decrease in the valuation allowance
on its deferred tax assets which the Company expects will be realizable in
future periods.
ASSET AND LIABILITY MANAGEMENT
Asset and liability management is concerned with the timing and
magnitude of the repricing of assets and liabilities. It is the objective of the
Company to attempt to control the risk associated with interest rate movements.
In general, management's strategy is to match asset and liability balances
within maturity categories to limit the Bank's exposure to earnings variations
and variations in the value of assets and liabilities as interest rates change
over time. The Company's asset and liability management strategy is formulated
and monitored by the Bank's Asset/Liability Management Committee, which is
comprised of senior officers of the Bank, in accordance with policies approved
by the Board of Directors of the Bank.
The Asset/Liability Management Committee's methods for evaluating
interest rate risk include an analysis of the Bank's interest rate sensitivity
"gap," which is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period. A
gap is considered positive when the amount of interest-rate sensitive assets
exceeds the amount of interest-rate sensitive liabilities. A gap is considered
negative when the amount of interest-rate sensitive liabilities exceeds
interest-rate sensitive assets. During a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to affect net interest income adversely.
14
<PAGE>
On June 16, 2000, the Company formalized on-going plans to reduce
interest rate risk and strengthen its lending infrastructure at the request of
the OTS through a voluntary supervisory agreement between the OTS and the Bank.
See note 6 to Consolidated Financial Statements.
The following table summarizes the anticipated maturities or repricing
of the Company's interest-earning assets and interest-bearing liabilities as of
June 30, 2000, based on the information and assumptions set forth in notes
below.
<TABLE>
<CAPTION>
MORE THAN MORE THAN
THREE TO ONE YEAR THREE YEARS
WITHIN THREE TWELVE TO TO FIVE OVER FIVE
MONTHS MONTHS THREE YEARS YEARS YEARS TOTAL
------ ------- ----------- ---------- --------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets: (1)
Loans receivable(2)
Single-family residential:
Fixed ........................ $ 22,294 $ 106,105 $ 215,852 $ 224,194 $ 437,206 $1,005,651
Adjustable ................... 128,892 101,325 80,915 124,683 -- 435,815
Multi-family residential:
Fixed ........................ 326 1,561 5,169 3,831 15,702 26,589
Adjustable ................... 286,967 -- -- -- -- 286,967
Commercial, industrial and land:
Fixed ........................ 2,744 15,617 35,617 40,817 132,385 227,180
Adjustable ................... 111,892 142,073 -- -- -- 253,965
Other loans(3) ......................... 149,432 125,749 116,956 62,521 8,321 462,979
Mortgage-backed and other
securities (4) ............................ 55,599 43,836 36,515 50,079 231,901 417,930
Other interest-earning assets (5)............ 230,574 54,769 -- -- 159,621 444,964
-------- --------- ----------- --------- --------- ----------
Total .......................... $988,720 $ 591,035 $ 491,024 $ 506,125 $ 985,136 $3,562,040
======== ========= =========== ========= ========= ==========
Interest-bearing liabilities:
Deposits:
Checking accounts .............. $111,931 -- -- -- -- $ 111,931
Passbook accounts .............. 116,799 -- -- -- -- 116,799
Money market accounts .......... 259,415 -- -- -- -- 259,415
Term certificates of deposit ... 109,807 675,650 407,172 19,188 64 1,211,881
Other borrowings ................... 270,494 80,717 727,109 170,000 180,000 1,428,320
-------- --------- ----------- --------- --------- ----------
Total .......................... 868,446 756,367 1,134,281 189,188 180,064 3,128,346
======== ========= =========== ========= ========= ==========
Excess (deficiency) of interest
earning assets over
interest-bearing liabilities ...... $120,274 $(165,332) $ (643,257) $ 316,937 $ 805,072 $ 433,694
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities
as a percent of total
assets............................ 3.39% (4.66%) (18.14%) 8.94% 22.70% 12.23%
======== ========= =========== ========= ========= ==========
Cumulative excess (deficiency) of
interest-earning assets
over interest -bearing
liabilities ....................... $120,274 $ (45,058) $ (688,315) $(371,378) $ 433,694
======== ========= =========== ========= =========
Cumulative excess (deficiency) of
interest-earning assets
over interest-bearing liabilities
as a percentage of total assets .. 3.39% (1.27%) (19.41%) (10.47%) (12.23%)
======== ========= =========== ========= =========
</TABLE>
--------------------------------------------------------------------------------
(1) Adjustable-rate loans are included in the period in which interest
rates are next scheduled to adjust rather than in the period in which
they are due, and fixed rate loans are included in the periods in which
they are scheduled to be repaid, based on scheduled amortization, in
each case as adjusted to take into account estimated prepayments based
on assumptions used by the OTS in assessing the interest rate
sensitivity of savings associations in the Company's region.
(2) Balances have been reduced for non-performing loans, which amounted to
$4.3 million at June 30, 2000.
(3) Comprised of commercial and consumer loans and loans secured by
deposits.
(4) Does not include an unrealized loss on securities available for sale of
$48.2 million.
(5) Comprised of short-term investments, securities purchased under
agreements to resell, investment securities and FHLB stock.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Liquidity refers to a company's ability to generate sufficient cash to
meet the funding needs of current loan demand, deposit withdrawals, principal
and interest payments with respect to outstanding borrowings and to pay
operating expenses. The Bank monitors its liquidity in accordance with
guidelines established by the Bank and applicable regulatory requirements. The
Bank's need for liquidity is affected by loan demand, net changes in deposit
levels and the scheduled maturities of its borrowings. The Bank can minimize the
cash required during the times of heavy loan demand by modifying its credit
policies or reducing its marketing effort. Liquidity demand caused by net
reductions in deposits are usually caused by factors over which the Bank has
limited control. The Bank derives its liquidity from both its assets and
liabilities. Liquidity is derived from assets by receipt of interest and
principal payments and prepayments, by the ability to sell assets at market
prices and by utilizing unpledged assets as collateral for borrowings. Liquidity
is derived from liabilities by maintaining a variety of funding sources,
including deposits, advances from the FHLB of San Francisco and other short and
long-term borrowings.
At June 30, 2000, the Bank had $30.1 million in borrowing capacity
under a collateralized line of credit with the FHLB of San Francisco. At June
30, 2000, the Bank had total FHLB advances of $1.1 billion with a weighted
average interest rate of 6.27%, which mature between 2000 and 2008.
Additionally, at June 30, 2000, the Bank had securities sold under agreements to
repurchase totaling $357.6 million with a weighted average interest rate of
6.38%, which mature between 2000 and 2008.
At June 30, 2000, the Bank had outstanding commitments to originate
and/or purchase mortgage and non-mortgage loans of $16.6 million. In addition,
at June 30, 2000 the Bank had unused lines of credit in the amount of $92.5
million, which amount is included by loan type in the loan portfolio composition
table. Certificates of deposit which are scheduled to mature within one year
totaled $785.5 million at June 30, 2000, and borrowings that are scheduled to
mature within the same period amounted to $351.2 million. Management anticipates
that it will have sufficient funds available to meet its current loan
commitments.
CAPITAL RESOURCES
The OTS capital regulations include three separate minimum capital
requirements for savings institutions - a "tangible capital requirement," a
"leverage limit" and a "risk based capital requirement." These capital standards
must be no less stringent than the capital standards applicable to national
banks.
As of June 30, 2000 the Bank was deemed to be "well capitalized" under
applicable requirements. To be categorized as "well capitalized", the Bank must
maintain minimum tier 1 leverage capital, tier 1 risk-based capital and total
risk-based capital ratios as set forth in the table below. The following table
reflects the Bank's actual levels of regulatory capital and applicable
regulatory capital requirements at June 30, 2000:
<TABLE>
<CAPTION>
WELL CAPITALIZED
MINIMUM REQUIREMENT ACTUAL EXCESS
-------------------- --------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ --------- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible capital.................... $ 70,613 2.00% $227,205 6.44% $156,592 4.44%
Tier 1 leverage capital............. 176,532 5.00 227,205 6.44 50,673 1.44
Tier 1 risk-based capital........... 132,730 6.00 227,205 10.27 94,475 4.27
Total risk-based capital............ 221,217 10.00 248,904 11.25 27,687 1.25
</TABLE>
16
<PAGE>
LOAN PORTFOLIO COMPOSITION
The following table sets forth the composition of the Bank's loan portfolio
at the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
---------------------------- --------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
------------ ----------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage loans:
Single-family residential ......... $ 1,444,007 53% $1,475,151 57%
Multi-family residential .......... 314,119 12 327,252 13
Commercial ........................ 481,001 18 420,919 16
Land .............................. 709 -- 847 --
----------- ---------- ---------- ---
Total mortgage loans ..... 2,239,836 83 2,224,169 86
----------- ---------- ---------- ---
Other loans:
Commercial business ............... 194,519 7 159,740 6
Consumer .......................... 266,906 10 199,879 8
Secured by deposits ............... 2,230 -- 1,918 --
----------- ---------- ---------- ---
Total loans receivable ... 2,703,491 100% 2,585,706 100%
----------- ========== ---------- ===
Less:
Undisbursed loan proceeds ......... 92,520 95,683
Unamortized net loan discounts and
deferred originations fees (1,808) 4,045
Deferred gain on servicing sold ... 1,694 2,090
Allowance for loan losses ......... 24,835 21,051
---------- -----------
Loans receivable, net ...................... $ 2,586,250 $2,462,837
========== ===========
</TABLE>
17
<PAGE>
The following table sets forth information with respect to
non-performing assets identified by the Bank, including non-accrual loans,
real estate owned and troubled debt restructurings at the dates indicated:
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-performing loans, net:
Mortgage loans:
Single-family residential loans ......... $ 2,540 $ 2,331
Multi-family residential loans .......... 563 557
Commercial real estate loans ............ 565 20
Commercial business loans ................... 381 163
Consumer loans .............................. 296 107
------- -------
Total non-performing loans, net ............. 4,345 3,178
------- -------
Real estate owned, net:
Single-family residential ............... 846 846
------- -------
Total real estate owned, net ................ 846 846
------- -------
Total non-performing assets ................. 5,191 4,024
Troubled debt restructurings ................ 5,193 6,470
------- -------
Total non-performing assets and troubled debt
restructurings .......................... $10,384 $10,494
======= =======
Non-performing loans to total loans, net .... 0.17% 0.13%
Non-performing loans to total assets ........ 0.12 0.09
Non-performing assets to total assets ....... 0.15 0.12
Total non-performing assets and troubled debt
restructurings to total assets .......... 0.29 0.31
</TABLE>
Non-performing assets as presented in the table above and stated at
fair value as of June 30, 2000 and December 31, 1999 were $5.2 million and $4.0
million, respectively. As a result, the ratio of non-performing assets to total
assets increased from 0.12% at December 31, 1999 to 0.15% at June 30, 2000.
18
<PAGE>
The following table sets forth the activity in the Bank's allowance for
loan losses during the periods indicated:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
---- ------
(DOLLARS IN THOUSANDS)
---------------------
<S> <C> <C>
BEGINNING BALANCE ...................................................... $ 21,051 $ 18,897
-------- --------
Addition to allowance due to Bank of Hollywood acquisition ............. 2,084 --
Provision for loan losses .............................................. 3,000 2,100
-------- --------
CHARGE-OFFS:
Single-family residential loans ........................................ -- (439)
Commercial real estate loans ........................................... (7) (39)
Commercial business loans .............................................. (234) (703)
Consumer loans ......................................................... (1,301) (562)
-------- --------
Total charge-offs ............................................. (1,542) (1,743)
-------- --------
RECOVERIES:
Single-family residential loans ........................................ 1 32
Commercial business .................................................... -- 9
Consumer ............................................................... 241 79
-------- --------
Total recoveries ....................................................... 242 120
-------- --------
Net charge-offs ........................................................ (1,300) (1,623)
-------- --------
ENDING BALANCE ......................................................... $ 24,835 $ 19,374
======== ========
Allowance for loan losses to total non-performing loans at end of
period ........................................................ 571.58% 304.48%
Allowance for loan losses to total non-performing loans and
troubled debt restructurings at the end of period ............. 260.38 171.33
Allowance for loan losses to total gross loans, at the end of period 0.92 0.81
</TABLE>
Net loan charge-offs were $1.3 million for the six months ended June
30, 2000, a decrease of $323,000 from $1.6 million for the six months ended June
30, 1999. The decrease in net charge-offs was primarily due to decreases in real
estate and commercial business loan charge-offs, which were partially offset by
increases in consumer loan charge-offs.
19
<PAGE>
On an ongoing basis, management monitors the loan portfolio and
evaluates the adequacy of the allowance for loan losses. In determining the
adequacy of the allowance for loan losses, management considers such factors as
historical loan loss experience, underlying collateral values, evaluations made
by bank regulatory authorities, assessment of economic conditions and other
appropriate data to identify the risks in the loan portfolio.
The following table sets forth information concerning the allocation
of the Bank's allowance for loan losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
PERCENT TO PERCENT TO
TOTAL TOTAL
AMOUNT ALLOWANCE AMOUNT ALLOWANCE
------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Residential real estate.................. $ 4,351 17.5% $5,020 23.8%
Multi-family residential................. 4,116 16.6 4,990 23.7
Commercial real estate................... 4,189 16.9 4,073 19.4
Land..................................... 36 0.1 42 0.2
Commercial business...................... 6,963 28.0 3,959 18.8
Consumer................................. 198 0.8 243 1.2
Auto..................................... 4,982 20.1 2,724 12.9
-------- -------
Total........................... $24,835 100.0% $21,051 100.0%
======== ====== ======== =====
</TABLE>
Based on management's analysis of loss experience and various other
factors of the loan portfolio components, certain percentage allocations were
revised at March 31, 2000.
Loans deemed by management to be uncollectible are charged to the
allowance for loan losses. Recoveries on loans previously charged off are
credited to the allowance. Provisions for loan losses are charged to expense and
credited to the allowance in amounts deemed appropriate by management based upon
its evaluation of the known and inherent risks in the loan portfolio.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
20
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 24, 2000, the Company held its Annual Meeting of
Stockholders ("Annual Meeting"). The nominee for one director position was
elected. All other matters submitted to a vote of stockholders were also
approved, and the stockholder votes thereon are summarized as follows:
ELECTION OF DIRECTOR (Proposal One)
Nominee for a three-year term expiring in 2003: Robert W. MacDonald
<TABLE>
<CAPTION>
FOR WITHHELD NOT VOTED
<S> <C> <C>
18,032,429 98,946 1,744,830
</TABLE>
ADOPTION OF THE 2000 STOCK INCENTIVE PLAN (Proposal Two)
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NOT VOTED
<S> <C> <C> <C>
17,060,251 1,039,012 32,112 1,744,830
</TABLE>
AMENDMENT OF THE COMPANY'S BYLAWS TO INCREASE THE NUMBER OF DIRECTORS FROM SEVEN
TO NINE (Proposal Three)
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NOT VOTED
<S> <C> <C> <C>
16,215,655 1,892,500 23,200 1,744,830
</TABLE>
RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000 (Proposal Four)
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NOT VOTED
<S> <C> <C> <C>
18,070,018 42,835 18,522 1,744,830
</TABLE>
STOCKHOLDERS VOTE FOR APPROVAL OF ADJOURNMENT OF THE ANNUAL SHAREHOLDERS MEETING
(Proposal Five)
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NOT VOTED
<S> <C> <C> <C>
15,642,595 2,389,460 99,320 1,744,830
</TABLE>
No other proposals were considered at the Annual Meeting.
ITEM 5. OTHER INFORMATION.
None
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
LIST OF EXHIBITS (FILED HEREWITH UNLESS INDICATED)
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of PBOC Holdings, Inc.(1/)
3.2 Bylaws of PBOC Holdings, Inc.(1)
4 Stock Certificate of PBOC Holdings, Inc.(2)
10.1 Employment Agreement between PBOC Holdings, Inc.,
People's Bank of California and Rudolf P. Guenzel(1)
10.2 Employment Agreement between PBOC Holdings, Inc.,
People's Bank of California and J. Michael Holmes(1)
10.3 Employment Agreement between PBOC Holdings, Inc.,
People's Bank of California and William W. Flader(1)
10.4 Employment Agreement between the People's Bank of California and Doreen J. Blauschild(2)
10.5 Deferred Compensation Plan(1)
10.6 Grantor Trust(1)
10.7 Shareholder Rights Agreement(1)
10.8 Stockholders' Agreement(1)
10.9 1999 Stock Option Plan(3)
10.10 2000 Stock Incentive Plan(4)
10.11 Amendment Number 1 to Employment Agreement between PBOC Holdings, Inc., People's Bank
of California and Rudolf P. Guenzel.
10.12 Amendment Number 1 to Employment Agreement between PBOC Holdings, Inc., People's Bank
of California and J. Michael Holmes.
10.13 Amendment Number 1 to Employment Agreement between PBOC Holdings, Inc., People's Bank
of California and William W. Flader.
27 Financial Data Schedule
</TABLE>
-----------------------------
(1) Incorporated by reference from the Company's Form 10-K filed by the
Registrant with the SEC on December 31, 1998.
(2) Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-48397) filed by the Registrant with the SEC on
March 20, 1998, as amended.
(3) Incorporated by reference from the Company's Proxy Statement on
Schedule 14A as filed on March 22, 1999 (File No. 000-24215).
(4) Incorporated by reference from the Company's Proxy Statement on
Schedule 14A as filed on March 23, 2000 (File No. 000-24215).
NO REPORTS ON FORM 8-K HAVE BEEN FILED DURING THE QUARTER ENDED
JUNE 30, 2000.
22
<PAGE>
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.
PBOC HOLDINGS, INC.
Date: August 10, 2000 By: /S/ RUDOLF P. GUENZEL
-----------------------------
Rudolf P. Guenzel
President and Chief Executive Officer
By: /S/ J. MICHAEL HOLMES
-----------------------------
J. Michael Holmes
Senior Executive Vice President and
Chief Financial Officer
23
