<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 0-25664
SGV BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4524789
- --------------------------------- -------------------
(State or other jurisdiction (I. R. S. Employer
of incorporation or organization) Identification No.)
225 NORTH BARRANCA STREET, WEST COVINA, CALIFORNIA 91791
- -------------------------------------------------- -----
(Address of principal executive offices)
(626) 859-4200
----------------------------------------------------
(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
require to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 2,342,612 shares of common
stock, par value $0.01 per share, were outstanding as of November 6, 1997.
<PAGE>
SGV BANCORP, INC.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Consolidated Statements of Financial Condition:
September 30, 1997 (unaudited) and June 30, 1997......... 1
Consolidated Statements of Operations (unaudited):
For the Three Months Ended September 30, 1997 and 1996... 2
Consolidated Statements of Cash Flows(unaudited):
For the Three Months Ended September 30, 1997 and 1996... 3
Notes to Consolidated Financial Statements............... 5
Item 2 Management's Discussion and Analysis of
Results of Operations and Financial Condition............ 7
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 Exhibits and Reports on Form 8-K......................... 17
SIGNATURES............................................................. 18
<PAGE>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents, including short-term
bank obligations of $11,370 at September 30, 1997
and $18,600 at June 30, 1997 $ 15,396 $ 22,664
Investment securities available for sale,
amortized cost of $12,500 at September 30, 1997
and $12,500 at June 30, 1997 12,499 12,467
Mortgage-backed securities available for sale,
amortized cost of $20,978 at September 30, 1997
and $37,323 at June 30, 1997 20,970 37,164
Mortgage-backed securities held to maturity,
estimated fair value of $37,765 at September 30,
1997 and $38,783 at June 30, 1997 37,698 39,072
Loans receivable held for sale 348 230
Loans receivable held for investment, net of
allowance for estimated loan losses of $1,264 at
September 30, 1997 and $1,263 at June 30, 1997 309,191 284,608
Accrued interest receivable 2,840 2,911
Stock of Federal Home Loan Bank of San Francisco,
at cost 4,047 3,987
Real estate acquired through foreclosure, net 977 1,150
Premises and equipment, net 3,811 3,866
Prepaid expenses and other assets, net 1,198 1,221
----------- ------------
Total assets $408,975 $409,340
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposit accounts $292,956 $288,339
Federal Home Loan Bank advances 75,813 77,907
Securities sold under agreements to repurchase 6,000 9,430
Accrued expenses and other liabilities 3,795 3,761
----------- ------------
Total liabilities 378,564 379,437
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 2,000,000
shares authorized; none issued
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,727,656 issued; 2,342,176 shares
outstanding 27 27
Additional paid-in capital 20,841 20,789
Retained earnings, substantially restricted 15,532 15,201
Net unrealized loss on investment securities and
mortgage-backed securities available for sale,
net of taxes (5) (110)
Deferred stock compensation (1,860) (1,880)
Treasury stock, 385,480 shares (4,124) (4,124)
----------- -----------
Total stockholders' equity 30,411 29,903
----------- -----------
Total liabilities and stockholders' equity $408,975 $409,340
=========== ===========
</TABLE>
1
<PAGE>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
1997 1996
------------------------
<S> <C> <C>
INTEREST INCOME:
Interest on loans $5,478 $4,910
Interest on investment securities 313 312
Interest on mortgage-backed securities 1,268 740
Other 265 146
------ ------
Total interest income 7,324 6,108
------ ------
INTEREST EXPENSE:
Interest on deposit accounts 3,475 2,796
Interest on borrowings 1,342 1,067
------ ------
Total interest expense 4,817 3,863
------ ------
Net interest income before provision
for estimated loan losses 2,507 2,245
PROVISION FOR ESTIMATED LOAN LOSSES 75 188
------ ------
Net interest income after provision for
estimated loan losses 2,432 2,057
OTHER INCOME :
Loan servicing and other fees 126 109
Secondary marketing activity, net (5) (11)
Gain on sale of securities available
for sale, net 37
Other income 169 141
Net gain (loss) on real estate
acquired through foreclosure 12 (56)
------ ------
Total other income 339 183
------ ------
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation and other employee expenses 1,188 912
Office occupancy 269 188
Equipment 254 183
Advertising 52 30
FDIC insurance premiums 44 128
FDIC special assessment 1,332
Other operating expenses 389 269
------ ------
Total general and administrative expenses 2,196 3,042
------ ------
EARNINGS (LOSS) BEFORE INCOME TAXES 575 (802)
INCOME TAXES (BENEFIT) 244 (338)
------ ------
NET EARNINGS (LOSS) $ 331 $ (464)
====== ======
EARNINGS (LOSS) PER SHARE $ 0.15 $(0.20)
====== ======
Weighted Average Shares Outstanding (000's) 2,270 2,350
====== ======
</TABLE>
2
<PAGE>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 331 $ (464)
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 162 85
Loans originated for sale (3,099) (2,632)
Proceeds from sale of loans 2,992 2,633
Gain on sale of loans, net (10) (1)
Gain on sale of investments
available for sale, net (6)
Gain on sale of mortgage-backed
securities available for sale, net (31)
Federal Home Loan Bank stock dividend (61) (56)
Increase in prepaid expenses and
other assets (11) (108)
Amortization of deferred loan fees (25) (7)
Deferred loan origination costs (56) (45)
(Decrease) increase in accrued
expenses and other liabilities (227) 1,090
Provision for estimated loan losses 75 188
Provision for estimated real estate
losses 9 30
Premium amortization, net 60 61
Decrease (increase) in accrued
interest receivable 71 (108)
Other, net 257 (298)
-------- --------
Net cash provided by operating
activities 431 368
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities
available for sale (11,500) (10,001)
Proceeds from sale and redemption of
investment securities available for sale 11,506 8,000
Purchase of mortgage-backed securities
available for sale (9,962)
Proceeds from sale of mortgage-backed
securities available for sale 14,480
Principal repayments on
mortgage-backed securities 3,211 1,926
Loans funded, net (5,277) (4,296)
Loans purchased, net (29,003) (677)
Principal repayments on loans 9,323 5,822
Proceeds from sale of real estate 511 935
Purchase of premises and equipment (81) (20)
Other, net (32)
-------- --------
Net cash used in investing
activities (6,862) (8,273)
</TABLE>
3
<PAGE>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)(CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
1997 1996
--------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in certificate accounts $ 801 $ 8,821
Net increase (decrease) in passbook ,
money market savings NOW and
noninterest-bearing accounts 3,816 (597)
Proceeds from Federal Home Loan Bank
advances 10,000
Repayment of Federal Home Loan Bank
advances (2,094) (10,104)
Repayment of securities sold under
agreements to repurchase (3,430)
Other, net 70
------- --------
Net cash (used in) provided by
financing activities (837) 8,120
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (7,268) 215
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 22,664 8,884
------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $15,396 $ 9,099
======= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the period for:
Interest $ 4,845 $ 3,078
Income taxes, net 60 0
NONCASH INVESTING ACTIVITIES DURING THE
PERIOD:
Real estate acquired through foreclosure 304 1,381
Change in net unrealized loss on
investment securities and
mortgage-backed securities available
for sale, net of taxes 105 99
</TABLE>
4
<PAGE>
SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. Basis of Presentation:
---------------------
SGV Bancorp, Inc. (SGV) is a savings and loan holding company
incorporated in the state of Delaware that was organized for the purpose of
acquiring all of the capital stock of First Federal Savings and Loan Association
of San Gabriel Valley (the Association) upon its conversion from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan association. On June 28, 1995, SGV completed its sale of
2,727,656 shares of its common stock through subscription and community
offerings to the Association's depositors, the Employee Stock Ownership Plan and
the public and used approximately 60% of the net proceeds from such sales to
purchase all of the Association's common stock issued in the Association's
conversion to stock form. Such business combination was accounted for at
historical cost in a manner similar to a pooling of interests.
SGV engages only in limited business operations primarily involving
investments in federal agency securities and mortgage-backed securities, and as
a result, substantially all of the net earnings and performance figures herein
reflect the results of the Association.
The Association is primarily engaged in attracting deposits from the
general public in the areas in which its branches are located and investing such
deposits and other available funds primarily in mortgage loans secured by one-
to-four family residences. To a lesser extent, the Association invests in
multi-family residential mortgages, commercial real estate, land and other
loans. The Association's revenues are derived principally from interest on its
mortgage loans, and to a lesser extent, interest and dividends on its investment
and mortgage-backed securities and income from loan servicing. The
Association's primary sources of funds are deposits, principal and interest
payments on loans, advances from the Federal Home Loan Bank of San Francisco
(the FHLB) and, to a lesser extent, proceeds from the sale of loans. As of
September 30, 1997, the Association operated eight branch offices located in the
San Gabriel Valley.
The consolidated financial statements include the accounts of SGV
Bancorp, Inc. and its wholly-owned subsidiary, First Federal Savings and Loan
Association of San Gabriel Valley and its wholly-owned subsidiary, First Covina
Service Company, which is substantially inactive (collectively, the Company).
All material intercompany balances and transactions have been eliminated in
consolidation.
The accompanying 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 necessary adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation have been
5
<PAGE>
included. The results of operations for the three-month period ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the entire fiscal year.
These consolidated financial statements and the information under the
heading "Management's Discussion and Analysis of Results of Operations and
Financial Condition" should be read in conjunction with the audited consolidated
financial statements and notes thereto of SGV Bancorp, Inc. for the year ended
June 30, 1997 included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997.
2. Earnings Per Share
------------------
Earnings per share for the three months ended September 30, 1997 and
1996 are based on the weighted average common shares outstanding of 2,342,176
and 2,591,276, respectively. The total issued shares of 2,727,656 have been
adjusted for the weighted average of: unallocated shares under the ESOP of
129,565 and 159,872 at September 30, 1997 and 1996, respectively, the reduction
of outstanding shares purchased for the stock compensation plan of 58,546 and
81,829 at September 30, 1997 and 1996, respectively, the acquisition of treasury
stock of 385,480 and 136,380 at September 30, 1997 and 1996, respectively, and
the common stock equivalent shares of stock options of 115,595 at September 30,
1997.
3. Accounting Principles
---------------------
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share,
which is effective for financial statements issued for periods ending after
December 15, 1997. It replaces the presentation of primary earnings per share
with the presentation of basic earnings per share. It also requires the
presentation of diluted earnings per share for entities with complex capital
structures. Diluted earnings per share takes into account the potential
dilution that could occur if securities or other contracts to issue common
stock, such as options, were exercised or converted into common stock. The
Company does not believe that SFAS No. 128 will have a material impact on its
financial statements.
In February 1997, the FASB issued SFAS No. 129, Disclosure of
Information About Capital Structure. The statement establishes standards for
disclosing information about an entity's capital structure. The disclosure
requirements of SFAS No. 129 are effective for periods ending after December 15,
1997. The Company does not believe that the adoption of SFAS No. 129 will have
a significant impact on its financial statements.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 131 establishes standards of reporting by
publicly-held business enterprises and disclosure of information about operating
segments in annual financial statements to a lesser extent, in interim financial
reports issued to shareholders. SFAS No. 130 and 131 are effective for fiscal
years beginning after December 15, 1997. As both SFAS No. 130 and 131 deal with
financial statement disclosure,
6
<PAGE>
the Company does not anticipate that the adoption of these new standards will
have a material impact on its financial statements.
4. Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
5. Approved Stock Compensation Plans
---------------------------------
At the Company's Annual Meeting of Shareholders on January 17, 1996,
the shareholders approved the SGV Bancorp, Inc. 1995 Master Stock Option Plan,
the First Federal Savings and Loan Association of San Gabriel Valley 1995 Master
Stock Compensation Plan and the First Federal Savings and Loan Association of
San Gabriel Valley 1995 Directors' Deferred Fee Stock Unit Plan (the Plans).
The Master Stock Option Plan authorizes the granting of options to purchase
272,765 shares to the Company's outside directors, officers and employees. The
Association contributed funds to the Master Stock Compensation Plan trust to
purchase 81,829 shares of Common Stock through purchases in the open market.
The Master Stock Compensation Plan is reflected as deferred compensation
representing a reduction in stockholders' equity in the consolidated statements
of financial condition as of September 30, 1997. These Plans became effective
as of January 17, 1996.
Item 2. Management's Discussion and Analysis of Results of Operations and
-----------------------------------------------------------------
Financial Condition
-------------------
This Management's Discussion and Analysis should be read in
conjunction with the Management's Discussion and Analysis contained in the
Company's Annual Report on Form 10-K, which focuses upon relevant matters
occurring during the year ended June 30, 1997. Accordingly, the ensuing
discussion focuses upon the material matters at and for the three months ended
September 30, 1997.
GENERAL
- -------
The principal business of the Company is attracting retail deposits
from the general public and investing those deposits, together with funds
generated from operations and borrowings, primarily in one- to four-family
residential mortgage loans. To a lesser extent, the Company engages in
secondary marketing activities and invests in multi-family, commercial real
estate, construction, land and consumer loans. Loan sales come from loans held
in the Company's portfolio designated as being held for sale or originated
during the period and being so designated. The Company retains virtually all
the servicing rights of loans sold. The Company's revenues are derived
principally from interest on its mortgage loans, and to a lesser extent,
interest and dividends on its investment and mortgage-backed securities and
income from
7
<PAGE>
loan servicing. The Company's primary sources of funds are deposits, principal
and interest payments on loans, advances from the FHLB, securities sold under
agreements to repurchase and, to a lesser extent, proceeds from the sale of
loans.
RESULTS OF OPERATIONS
- ---------------------
The Company posted net earnings of $331,000 for the three months ended
September 30, 1997 compared to a net loss of $464,000 for the three months ended
September 30, 1996. The loss for the three months ended September 30, 1996 was
due to the accrual for the one-time special assessment to recapitalize the SAIF
insurance fund. This one-time special assessment (of approximately $1.3 million
on a pre-tax basis) represents 65.7 basis points of the deposits held by the
Association as of March 31, 1995. Excluding the accrual for the special
assessment, the net earnings for the three months ended September 30, 1996 would
have been approximately $302,000. For the three months ended September 30,
1997, the net earnings were $0.15 per share compared to a net loss of $0.20 per
share for the three months ended September 30, 1996. A discussion of the
specific components of net earnings is set forth in the Notes to Consolidated
Financial Statements.
Net Interest Income
- -------------------
Net interest income before the provision for estimated loan losses was
$2.5 million for the three months ended September 30, 1997 compared to $2.2
million for the three months ended September 30, 1996.
Interest Income
- ---------------
Total interest income for the three months ended September 30, 1997
was $7.3 million, an increase of $1.2 million from the comparable period a year
ago. The increase in interest income was primarily due to the $64.9 million
increase in the average balance of interest-earning assets to $395.4 million for
the three months ended September 30, 1997 from $330.5 million for the three
months ended September 30, 1996. The interest income on loans increased to $5.5
million for the three months ended September 30, 1997 from $4.9 million for the
three months ended September 30, 1996. The increase in interest on loans was
due to the increase in the average balance of loans receivable outstanding to
$289.9 million for the three months ended September 30, 1997 from $255.6 million
for the three months ended September 30, 1996. The interest income on mortgage-
backed securities increased to $1.3 million for the three months ended September
30, 1997 from $740,000 from the three months ended September 30, 1996 as a
result of the increase in average balances outstanding to $71.2 million for the
three months ended September 30, 1997 from $45.8 million for the three months
ended September 30, 1996. The increase in interest income on mortgage-backed
securities was also due to the increase in the average yield to 7.13% for the
three months ended September 30, 1997 compared to 6.46% for the three months
ended September 30, 1996 primarily due to the purchase of higher yielding
securities during the past year. The total yield on total interest-earning
assets increased slightly to 7.41% for the three months ended September 30, 1997
as compared to 7.39% for the three months ended September 30, 1996.
8
<PAGE>
Interest Expense
- ----------------
Total interest expense for the three months ended September 30, 1997
was $4.8 million, an increase of $0.9 million from $3.9 million for the three
months ended September 30, 1996. The increase in interest expense was primarily
due to the increase in the average balance of interest-bearing liabilities to
$368.0 million for the three months ended September 30, 1997 from $303.1 million
for the three months ended September 30, 1996. The increase in average
interest-bearing liabilities was comprised of a $48.3 million increase in
average interest-bearing savings accounts and a $16.6 million increase in
average borrowings, both from the FHLB and from entering into securities sold
under agreements to repurchase. The increase in interest-bearing liabilities
was partially due to the purchase of a $20 million branch from another financial
institution in February 1997 and the establishment of a de novo branch in March
1997 which has generated approximately $9.0 million in total deposits as of
September 30, 1997. The average cost of funds increased to 5.24% for the three
months ended September 30, 1997 from 5.10% for the three months ended September
30, 1996 due to the higher cost of funds paid on new and renewing certificates
of deposit in the current period.
9
<PAGE>
Analysis of Net Interest Income
- -------------------------------
The following table sets forth average interest rates on the Company's
interest-earning assets and interest-bearing liabilities for the three month
period ended September 30, 1997 and September 30, 1996 (dollars are in thousands
and average balances are based on month-end amounts):
<TABLE>
<CAPTION>
Three Months Ended September 30
--------------------------------------
1997 1996
--------------------------------------
Average Yield Average Yield
Balance Rate Balance Rate
-------- ------- -------- -------
<S> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans receivable $289,899 7.56% $255,586 7.68%
Mortgage-backed securities 71,168 7.13 45,796 6.46
Investment securities and other 34,352 6.73 29,090 6.30
-------- --------
Total interest-earning assets 395,419 7.41% 330,472 7.39%
Non-interest earning assets 13,199 10,518
-------- --------
Total assets $408,618 $340,990
======== ========
LIABILITIES AND EQUITY:
Interest-bearing liabilities:
Savings accounts $283,426 4.90% $235,139 4.76%
Borrowings 84,571 6.34 67,935 6.28
-------- --------
Total interest-bearing liabilities 367,997 5.24% 303,074 5.10%
Non-interest-bearing liabilities 10,445 6,322
Stockholders' equity 30,176 31,594
-------- --------
Total liabilities and equity $408,618 $340,990
======== ========
Net interest rate spread 2.17% 2.29%
Net interest margin 2.54% 2.72%
Ratio of interest-earning assets
to interest-bearing liabilities 107.45% 109.99%
</TABLE>
The Company's average net interest spread decreased to 2.17% for the
three months ended September 30, 1997 as compared 2.29% for the three months
ended September 30, 1996. The decrease was due primarily to the increase in the
cost of interest-bearing liabilities which increased to 5.24% for the three
months ended September 30, 1997 from 5.10% for the three months ended September
30, 1996. The increase in the cost of interest-bearing liabilities was due to
the increase in the rates offered on new and renewing certificates of deposit
and on promotional rates offered to attract customers to money market accounts
at the de novo branch.
The average yield on loans receivable decreased to 7.56% for the three
months ended September 30, 1997 from 7.68% for the three months ended September
30, 1996. The decrease in yield was due partially to the decrease in yields on
new loans originated or purchased which
10
<PAGE>
have adjustable rate features, primarily indexed to the Eleventh District Cost
of Funds (COFI) and partially to the increase in loans on non-accrual status for
the three months ended September 30, 1997 compared to the three months ended
September 30, 1996. The average yield on mortgage-backed securities increased to
7.13% for the three months ended September 30, 1997 from 6.46% for the three
months ended September 30, 1996. The increase was due to the Company's purchase
of fixed rate mortgage-backed securities with higher yields during the past
year.
The majority of the Association's savings accounts are relatively
short term (less than two years) and therefore the average cost of deposits
adjusts relatively rapidly to market rates. The average cost of savings
accounts increased by 14 basis points to 4.90% for the three months ended
September 30, 1997 from 4.76% for the three months ended September 30, 1996. As
stated earlier, the increase was due to the higher rates offered on new and
renewing certificates of deposits and to promotional rate and account offerings
related to the new branch. The average balance of savings accounts increased to
$283.4 million for the three months ended September 30, 1997 from $235.1 million
for the three months ended September 30, 1996 due partially to the purchase of a
branch from another institution and the de novo branch. Also, the average
balance of borrowings, principally from the FHLB, increased to $84.6 million for
the three months ended September 30, 1997 from $67.9 million for the three
months ended September 30, 1996. The increase in savings accounts and
borrowings funded the growth of the interest-earning assets.
Provision for Estimated Loan Losses
- -----------------------------------
The provision for estimated loan losses for the three months ended
September 30, 1997 was $75,000 compared with $188,000 for the three months ended
September 30, 1996. The decrease in the provision for estimated loan losses was
due primarily to a fair value writedown of approximately $100,000 related to a
single multi-unit residential property occurring in the three months ended
September 30, 1996 not recurring in the current period. See "Financial
Condition."
Other Income
- ------------
Other income increased to $339,000 for the three months ended
September 30, 1997 from $183,000 for the three months ended September 30, 1996.
The increase was partially due to the posting of $12,000 in net income on real
estate owned activities in the three months ended September 30, 1997 compared to
a $56,000 loss for the three months ended September 30, 1996 primarily due to
gains on sales of real estate owned. The increase was also due to the $28,000
increase in other income for increases in fees assessed on deposit accounts
related to the increase in deposit accounts and to the $37,000 for net gains on
sales of securities available for sale. See "Financial Condition."
General and Administrative Expenses
- -----------------------------------
For the three months ended September 30, 1997, general and
administrative expenses increased to $2.2 million from $1.7 million (excluding
the $1.3 million pre-tax accrual for the one-time special assessment to
recapitalize the insurance fund - SAIF) for the three months ended September 30,
1996. The increase was due partially to the $276,000 increase in
11
<PAGE>
compensation and benefits expense related to stock compensation programs
(approximately $100,000) and increases in personnel due to the addition of two
branches in the past year. Also contributing to the increased general and
administrative expenses were the building, equipment and data processing costs
associated with these two additional branches. Advertising expenses increased
$22,000 due to additional promotions related to the Company's intent to increase
its core deposits such as non-interest bearing checking accounts. Included in
the expenses for the three months ended September 30, 1997 was $27,000 in
amortization of the core deposit intangible related to the deposits purchased in
February 1997.
Income Taxes
- ------------
The Company recorded $244,000 in income taxes for the three months
ended September 30, 1997 compared to a tax benefit of approximately $338,000 for
the three months ended September 30, 1996 related to the loss for the period.
The effective tax rates for the three months ended September 30, 1997 and
September 30, 1996 were approximately 42.4% and (42.1)%, respectively.
FINANCIAL CONDITION
- -------------------
The Company's total assets were $409.0 million at September 30, 1997,
a very slight decrease from the $409.3 million in total assets at June 30, 1997.
The Company's loans receivable held for investment increased by $24.6 million to
$309.2 million at September 30, 1997 compared to $284.6 million at June 30,
1997. The increase is due primarily to the purchase of $29.0 million in
adjustable rate mortgage loans. The Company reduced its investment in overnight
federal funds sold and sold approximately $14.5 million in mortgage-backed
securities to fund this acquisition. The Company purchased the loans to
increase interest income and to reduce its sensitivity to changes in interest
rates.
During the three months ended September 30, 1997, the Company
originated and purchased for investment a total of $34.3 million in mortgage
loans as compared to the $5.0 million purchased and originated in the three
month period ended September 30, 1996. The loans purchased in the three months
ended September 30, 1997 were adjustable rate and primarily indexed to COFI.
The Company also originated and sold approximately $3.0 million in mortgage
loans to the secondary market during the three months ended September 30, 1997
as compared to approximately $2.6 million for the same period a year ago.
The Company's non-performing assets totaled $3.6 million at September
30, 1997 compared to $2.8 million at June 30, 1997. The increase in non-
performing assets was due primarily to the increase in the amount of loans on
non-accrual status to $2.6 million at September 30, 1997 compared to $1.7
million at June 30, 1997. The increase in non-accrual loans was due to the
continuation of an uncertain real estate market. The increase in the amount of
non-accrual loans was partially offset by a small decrease in real estate owned.
The overall result was an increase in the Company's ratio of non-performing
assets to total assets to 0.87% at September 30, 1997 from 0.70% at June 30,
1997.
12
<PAGE>
The following table sets forth the non-performing assets at September 30, 1997
and June 30, 1997:
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
------------------- --------------
(dollars in thousands)
<S> <C> <C>
Non-accrual loans $2,573 $1,699
Real estate acquired through foreclosure 977 1,150
------ ------
Non-performing assets $3,550 $2,849
====== ======
Non-performing assets as a percent of total
assets 0.87% 0.70%
Non-performing loans as a percent of gross
loans receivable 0.83% 0.59%
</TABLE>
The Company considers a loan impaired when it is probable that the
Company will be unable to collect all contractual principal and interest
payments under the terms of the loan agreement. Loans are evaluated for
impairment as part of the Company's normal internal asset review process. The
Company applies the measurement provisions of SFAS No. 114 to all loans in its
portfolio with the exception of one- to four-family residential mortgage loans
and consumer lines of credit which are evaluated on a collective basis for
impairment. Also, loans which have delays in payments of less than four months
are not necessarily considered impaired unless other factors apply to the loans.
The accrual of interest income on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due. When the interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received. Where impairment is considered temporary, an allowance
is established. Impaired loans which are performing under the contractual terms
are reported as performing loans, and cash payments are allocated to principal
and interest in accordance with the terms of the loan. At September 30, 1997,
the Company had classified one loan with a balance of $358,000 as impaired with
no specific reserve set aside as of September 30, 1997 as determined in
accordance with SFAS No. 114. In comparison, as of June 30, 1997, the Company
had classified $530,000 of its loans as impaired with $100,000 in specific
reserves. In addition, as of September 30, 1997, the Company had $2.2 million
in loans which were collectively evaluated for impairment compared to $1.7
million at June 30, 1997. The average recorded investment in impaired loans,
inclusive of those evaluated collectively, during the three months ended
September 30, 1997, was $2.8 million, whereas, the average for the twelve months
ended June 30, 1997 was $1.6 million.
The Company, in consideration of the current economic environment and
the condition of the loan portfolio, maintained the allowance for estimated loan
losses at September 30, 1997 at $1.3 million. Although loans on non-accrual
status have increased to $2.6 million at September 30, 1997 from $1.7 million at
June 30, 1997, the allowance for estimated loan losses is maintained at an
amount management considers adequate to cover estimated losses in loans
receivable which are deemed probable and estimable. The allowance is based upon
a number of
13
<PAGE>
factors, including current economic conditions, actual loss experience and
industry trends. The Company's non-performing loans are primarily made up of
one-to four-family residential mortgage loans. The following table sets forth
the activity in the Company's allowance for estimated loan losses for the three
months ended September 30, 1997:
<TABLE>
<CAPTION>
Activity for the three months ended
September 30, 1997
-----------------------------------
<S> <C>
Balance at June 30, 1997 $1,263,000
Add:
Provision for estimated loan losses 75,000
Recoveries of previous charge-offs -
Less:
Charge-offs 74,000
----------
Balance at September 30, 1997 $1,264,000
==========
</TABLE>
The Company's total liabilities decreased slightly to $378.9 million
at September 30, 1997 from $379.4 million at June 30, 1997. Total deposit
accounts increased $4.7 million to $293.0 million at September 30, 1997 from
$288.3 million at June 30, 1997, primarily as a result of the increase in the de
novo branch and due to interest credited to accounts. Of the total increase in
deposits, approximately $4.0 million represented core deposits as the Company is
continuing to focus on increasing customer relationships with checking and
savings accounts. Core deposits increased to approximately $70 million at
September 30, 1997 from approximately $66 million at June 30, 1997. The Company
reduced its borrowings from the FHLB by $2.1 million and its securities sold
under agreements to repurchase by $3.4 million during the three months ended
September 30, 1997 from the increase in deposit accounts. The Company continues
to utilize FHLB advances and securities sold under agreements to repurchase as
part of its asset and liability management strategy.
The Company's stockholders' equity increased to $30.4 million at
September 30, 1997 from $29.9 million at June 30, 1997 primarily due to the net
earnings from operations and the reduction of the net unrealized loss on
securities available for sale.
MANAGEMENT OF INTEREST RATE RISK
- --------------------------------
The Company's profitability is dependent to a large extent upon its
net interest income, which is the difference between its interest income on
interest-earning assets, such as loans and investments, and its interest expense
on interest-bearing liabilities, such as deposits and borrowings. To manage its
interest rate risk, the Company has utilized the following strategies :
(i) emphasizing the origination and/or purchase of adjustable-rate one- to four-
family mortgage loans for portfolio; (ii) selling to the secondary market
substantially all fixed-rate mortgage loans originated; (iii) holding primarily
short-term mortgage-backed and investment securities; and (iv) attempting to
reduce the overall interest rate sensitivity of liabilities by emphasizing core
and longer-term deposits, utilizing FHLB advances and securities sold under
agreements to repurchase.
14
<PAGE>
LIQUIDITY
- ---------
The Company's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, FHLB advances,
securities sold under agreements to repurchase, increases in deposits and, to a
lesser extent, proceeds from the sale of loans and investments. While
maturities and scheduled amortization of loans are predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition.
The Association, by regulation, must maintain its liquidity ratio at
no less than 5.0% of deposits and short-term borrowings. Liquidity represents
cash and certain investments which are not committed or pledged to specific
liabilities. The Association's average liquidity ratio for September 30, 1997
and September 30, 1996 was 11.76% and 11.11%, respectively.
COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------
At September 30, 1997, there were no material changes to the Company's
commitments or contingent liabilities from the period ended June 30, 1997 as
discussed in the Company's notes to the consolidated financial statements
reflected in the audited consolidated financial statements of SGV Bancorp, Inc.,
for the year ended June 30, 1997 included in the Annual Report on Form 10-K for
the year ended June 30, 1997. At September 30, 1997, the Company had
outstanding commitments to originate or purchase mortgage loans of $2.0 million
as compared to $1.4 million at June 30, 1997.
REGULATORY CAPITAL
- ------------------
The Office of Thrift Supervision (OTS) capital regulations require
savings institutions to meet three minimum capital requirements: a 1.5% tangible
capital ratio, a 3% leverage (core capital) ratio and an 8% risk-based capital
ratio. The core capital requirement has been effectively increased to 4%
because the prompt corrective action legislation provides that institutions
with less than 4% core capital will be deemed "undercapitalized". In addition,
the OTS, under the prompt corrective action regulation can impose various
constraints on institutions depending on their level of capitalization ranging
from well-capitalized to critically undercapitalized. At September 30, 1997,
the Association was considered "well-capitalized".
15
<PAGE>
The Association was in compliance with the capital requirements in
effect as of September 30, 1997. The following table reflects the required
ratios and the actual capital ratios of the Association at September 30, 1997:
<TABLE>
<CAPTION>
Capital
------------------
Actual Required Excess Actual Required
Capital Capital Amount Percent Percent
------- -------- ------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible $26,219 $ 6,096 $20,123 6.44% 1.50%
Core $26,219 $12,193 $14,026 6.44% 3.00%
Risk-based $27,481 $15,444 $12,037 14.23% 8.00%
</TABLE>
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
- --------------------------------------------------------------
In addition to historical information, this Form 10-Q may include
forward looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of the Company's
loan and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices. Further description of the risks and uncertainties to the business of
the Company are included in detail in the Company's Form 10-K for the fiscal
year ended June 30, 1997.
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is involved as plaintiff or defendant in various legal
actions incident to its business, none of which is believed by management to be
material to the financial condition of the Company.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults in Securities
----------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following exhibits are filed as part of this report:
3.1 Certificate of Incorporation of SGV Bancorp, Inc. *
3.2 Bylaws of SGV Bancorp, Inc. *
11.0 Computation of per share earnings (filed herewith).
27.0 Financial data schedule (filed herewith).
(b) Reports on Form 8-K
None.
- ---------------
* Incorporated herein by reference from the Exhibits to the Registration
Statement on Form S-1, as amended, filed on March 6, 1995 and declared
effective on May 9, 1995, Registration No. 33-90018.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SGV BANCORP, INC.
November 12, 1997 /s/ Barrett G. Andersen
- ----------------- -------------------------------------
Date Barrett G. Andersen
President and Chief Executive Officer
November 12, 1997 /s/ Ronald A. Ott
- ----------------- -------------------------------------
Date Ronald A. Ott
Executive Vice President
Chief Financial Officer and Treasurer
18
<PAGE>
SGV BANCORP, INC.
EXHIBIT NO. 11: STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended
September 30, 1997
------------------
(in thousands except per share amounts)
<S> <C>
Net Earnings $ 331
======
Weighted average shares outstanding 2,154
Common stock equivalents due to dilutive
effect on stock options 116
------
Total weighted average common shares
and equivalents outstanding 2,270
======
Primary earnings per share $ 0.15
======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,026,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,370,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,469,000
<INVESTMENTS-CARRYING> 37,698,000
<INVESTMENTS-MARKET> 37,765,000
<LOANS> 310,803,000
<ALLOWANCE> 1,264,000
<TOTAL-ASSETS> 408,975,000
<DEPOSITS> 292,956,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,795,000
<LONG-TERM> 81,813,000
0
0
<COMMON> 27,000
<OTHER-SE> 30,384,000
<TOTAL-LIABILITIES-AND-EQUITY> 408,975,000
<INTEREST-LOAN> 5,478,000
<INTEREST-INVEST> 1,581,000
<INTEREST-OTHER> 265,000
<INTEREST-TOTAL> 7,324,000
<INTEREST-DEPOSIT> 3,475,000
<INTEREST-EXPENSE> 4,817,000
<INTEREST-INCOME-NET> 2,507,000
<LOAN-LOSSES> 75,000
<SECURITIES-GAINS> 37,000
<EXPENSE-OTHER> 1,894,000
<INCOME-PRETAX> 575,000
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 331,000
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
<YIELD-ACTUAL> 7.41
<LOANS-NON> 2,573,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 769,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,263,000
<CHARGE-OFFS> 74,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,264,000
<ALLOWANCE-DOMESTIC> 1,264,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
