<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 of incorporation (I.R.S. Employer
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
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(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: 2,176,323 shares of common
stock, par value $0.01 per share, were outstanding as of November 9, 1999.
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SGV BANCORP, INC.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION PAGE
----
Item 1 Consolidated Statements of Financial Condition:
September 30, 1999 (unaudited) and June 30, 1999..............1
Consolidated Statements of Operations (unaudited):
For the Three Months Ended September 30, 1999 and 1998........2
Consolidated Statements of Cash Flows (unaudited):
For the Three Months Ended September 30, 1999 and 1998........3
Notes to Consolidated Financial Statements....................5
Item 2 Management's Discussion and Analysis of
Results of Operations and Financial Condition.................6
Item 3 Quantitative and Qualitative Disclosure Regarding
Market Risk..................................................16
PART II OTHER INFORMATION
Item 1 Legal Proceedings............................................17
Item 2 Changes in Securities........................................17
Item 3 Defaults Upon Senior Securities..............................17
Item 4 Submission of Matters to a Vote of Security Holders..........17
Item 5 Other Information............................................17
Item 6 Exhibits and Reports on Form 8-K.............................17
SIGNATURES .............................................................18
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<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, except share data)
- ----------------------------------------------------------------------------------------------------------
September 30, June 30,
1999 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents, including short-term bank obligations of
$1,950 at September 30, 1999 and $4,940 at June 30, 1999 $ 6,650 $ 9,515
Investment securities available for sale, amortized cost of $45,612
at September 30, 1999 and $26,109 at June 30, 1999 45,187 25,816
Mortgage-backed securities available for sale, amortized cost of
$24,006 at September 30, 1999 and $25,326 at June 30, 1999 23,406 24,871
Mortgage-backed securities held to maturity, estimated fair value of
$35,510 at September 30, 1999 and $36,984 at June 30, 1999 36,550 37,717
Loans receivable held for sale 460 100
Loans receivable held for investment, net of allowance for loan losses of
$2,013 at September 30, 1999 and $1,845 at June 30, 1999 365,276 354,989
Accrued interest receivable 2,991 2,979
Stock of Federal Home Loan Bank of San Francisco, at cost 5,478 5,407
Real estate acquired through foreclosure, net 294 827
Premises and equipment, net 3,625 3,166
Prepaid expenses and other assets, net 4,593 3,343
-------------- --------------
Total assets $ 494,510 $ 468,730
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposit accounts $ 362,634 $ 324,106
Federal Home Loan Bank advances 93,959 108,002
Securities sold under agreements to repurchase
Accrued expenses and other liabilities 5,127 4,251
-------------- --------------
Total liabilities 461,720 436,359
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; 2,176,323 shares outstanding at September 30, 1999
and at June 30, 1999 27 27
Additional paid-in capital 21,391 21,297
Retained earnings, substantially restricted 19,669 19,236
Accumulated other comprehensive income (603) (440)
Deferred stock compensation (1,086) (1,141)
Treasury stock; 551,333 shares at September 30, 1999 and at June 30, 1999 (6,608) (6,608)
-------------- --------------
Total stockholders' equity 32,790 32,371
-------------- --------------
Total liabilities and stockholders' equity $ 494,510 $ 468,730
============== ==============
</TABLE>
1
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<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
For the Three Months
Ended September 30,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
INTEREST INCOME:
Interest on loans $ 6,777 $ 5,939
Interest on investment securities 574 365
Interest on mortgage-backed securities 979 1,024
Other 128 209
---------------- ----------------
Total interest income 8,458 7,537
INTEREST EXPENSE:
Interest on deposit accounts 3,655 3,397
Interest on borrowings 1,360 1,278
---------------- ----------------
Total interest expense 5,015 4,675
---------------- ----------------
Net interest income before provision for loan losses 3,443 2,862
PROVISION FOR LOAN LOSSES 210 269
---------------- ----------------
Net interest income after provision for loan losses 3,233 2,593
OTHER INCOME :
Loan servicing and other fees 112 145
Deposit account fees 194 144
Secondary marketing activity, net 3 21
(Loss) gain on sale of securities available for sale, net (29) 7
Other income 157 96
---------------- ----------------
Total other income 437 413
OTHER EXPENSES:
General and administrative expenses:
Compensation and other employee expenses 1,422 1,229
Office occupancy 271 266
Equipment 344 277
Advertising 60 30
FDIC insurance premiums 47 44
Merger-related expenses 230
Other operating expenses 470 343
---------------- ----------------
Total general and administrative expenses 2,844 2,189
Net gain on real estate acquired through foreclosure (49) (145)
---------------- ----------------
Total other expenses 2,795 2,044
---------------- ----------------
EARNINGS BEFORE INCOME TAXES 875 962
INCOME TAXES 442 396
---------------- ----------------
NET EARNINGS $ 433 $ 566
================ ================
EARNINGS PER SHARE-Basic $ 0.20 $ 0.25
================ ================
EARNINGS PER SHARE-Diluted $ 0.18 $ 0.24
================ ================
</TABLE>
2
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<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
----------------------------------
1999 1998
----------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 433 $ 566
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 209 172
Loans originated for sale (1,584) (6,145)
Proceeds from sale of loans 1,227 4,960
Gain on sale of loans, net (3) (40)
Gain on sale of investments available for sale, net (10)
Gain on sale of mortgage-backed securities available for sale, net (2)
Federal Home Loan Bank stock dividend (70) (62)
Increase in prepaid expenses and other assets (1,321) (6)
Amortization of deferred loan fees (37) (27)
Deferred loan origination costs (100) (119)
Increase in accrued expenses and other liabilities 990 1,434
Provision for loan losses 210 269
Provision for (recapture of) real estate losses 3 (45)
Premium amortization, net 73 168
Increase in accrued interest receivable (11) (143)
Other, net 107 (222)
================= ==============
Net cash provided by operating activities 126 748
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities available for sale (38,000) (6,948)
Proceeds from sale and redemption of investment securities available
for sale 18,500 14,010
Purchase of mortgage-backed securities available for sale (10,153)
Proceeds from sale of mortgage-backed securities available for sale 6,931
Purchase of mortgage-backed securities held to maturity (667) (10,030)
Principal repayments on mortgage-backed securities 3,103 5,124
Loans funded, net (21,524) (16,102)
Loans purchased, net (2,309) (22,015)
Principal repayments on loans 13,719 21,531
Proceeds from sale of real estate 585 1,582
Purchase of premises and equipment (622) (17)
Purchase of Federal Home Loan Bank Stock (906)
Other, net (410) (15)
================= ==============
Net cash used in investing activities (27,625) (17,008)
</TABLE>
3
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<TABLE>
<CAPTION>
SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)(CONTINUED)
- -----------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS
ENDED SEPTEMBER 30,
---------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in certificate accounts $ 10,926 $ 5,865
Net (decrease) increase in passbook , money market savings
NOW and non-interest-bearing accounts (9,200) 902
Purchase of deposit accounts 36,802
Proceeds from Federal Home Loan Bank advances 14,000 35,000
Repayment of Federal Home Loan Bank advances (28,043) (1,505)
Proceeds from securities sold under agreements to repurchase 4,300
Repayment of securities sold under agreements to repurchase
Purchase of treasury stock (1,992)
Other, net 149 141
---------------- ---------------
Net cash provided by financing activities 24,634 42,711
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,865) 26,451
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,515 20,008
---------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,650 $ 46,459
================ ===============
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the period for:
Interest $ 4,981 $ 4,646
Income taxes, net 50 375
NONCASH INVESTING ACTIVITIES DURING THE PERIOD:
Real estate acquired through foreclosure 692
Change in net unrealized loss on investment securities and
mortgage-backed securities available for sale, net of taxes (163) (47)
</TABLE>
4
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SGV BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. Basis of Presentation:
---------------------
The accompanying unaudited consolidated financial statements include the
accounts of SGV Bancorp, Inc. (the "Company") and its wholly-owned subsidiary,
First Federal Savings and Loan Association of San Gabriel Valley (the
"Association") and its wholly-owned subsidiary, First Covina Service Company.
The interim 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
included. The results of operations for the three-month period ended September
30, 1999 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, 1999 included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1999.
2. Earnings Per Share
------------------
Earnings per share reconciliation is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
-------------- --------------- ------------
SEPTEMBER 30, 1999
--------------------------------------------
<S> <C> <C> <C>
BASIC EPS
Income available to common stockholders $ 433,000 2,176,000 $ 0.20
EFFECT OF DILUTIVE SECURITIES
Incremental shares from assumed exercise
of outstanding options 166,000 (0.02)
-------------- --------------- ------------
DILUTED EPS
Income available to common stockholders $ 433,000 2,342,000 $ 0.18
============== =============== ============
SEPTEMBER 30, 1998
--------------------------------------------
BASIC EPS
Income available to common stockholders $ 566,000 2,291,000 $ 0.25
EFFECT OF DILUTIVE SECURITIES
Incremental shares from assumed exercise
of outstanding options - 98,000 (0.01)
-------------- --------------- ------------
DILUTED EPS
Income available to common stockholders $ 566,000 2,389,000 $ 0.24
============== =============== ============
</TABLE>
5
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3. Comprehensive Income
--------------------
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, effective July 1, 1998. The standard requires
that comprehensive income and its components be disclosed in the financial
statements. The Company's comprehensive income includes all items which comprise
net income plus the unrealized holding losses on available-for-sale securities.
For the three months ended September 1999 and 1998, the Company's comprehensive
income was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-------------------- --------------------
(Dollars in thousands)
<S> <C> <C>
Net income $ 433 $ 566
Other comprehensive (loss) income (163) (47)
-------------------- --------------------
Total comprehensive income $ 270 $ 519
==================== ====================
</TABLE>
4. Accounting Principles
---------------------
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, was issued in June 1998 and establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. In July 1999, the Financial Accounting
Standards Board (FASB) issued SFAS No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB
STATEMENT NO. 133, which delays the effective date of SFAS No. 133 to fiscal
years beginning after June 15, 2000. Earlier application is encouraged, but it
is permitted only as of the beginning of any fiscal quarter that begins after
June 1998. The adoption of the provisions of SFAS No. 133 as amended by SFAS No.
137 is not expected to have a material impact on the results of operations or
the financial position of the Company.
5. 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.
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, 1999. Accordingly, the ensuing discussion focuses upon the
material matters at and for the three months ended September 30, 1999.
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 has historically retained the servicing rights
of loans sold, although it has recently sold loans to the secondary market on a
servicing released basis. 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
6
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securities and income from 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.
RECENT DEVELOPMENTS - ACQUISITION BY INDYMAC MORTGAGE HOLDINGS, INC.
On July 12, 1999, the Company and IndyMac Mortgage Holdings, Inc.
("IndyMac") entered into a definitive agreement pursuant to which IndyMac will
acquire the Company for cash. Under the terms of the merger agreement, each
share of the Company's common stock will be exchangeable for $25.00 in cash.
This price may be subject to adjustment as a result of changes in the net
portfolio value of certain assets and liabilities of the Company. In no event
will the purchase price be reduced below $22.50 or increased above $27.50 per
share. IndyMac will pay a total of approximately $62.5 million to acquire all of
the Company's shares outstanding and subject to options. In accordance with the
terms of the merger agreement, the Company will be the surviving entity of the
merger. To this end, IndyMac's current shareholders will receive one share of
the Company's common stock in exchange for each share of IndyMac common stock
they own when the merger is completed. The merger is subject to shareholder
approval by both companies as well as certain regulatory approvals. The merger
is expected to be completed in the first half of 2000.
RESULTS OF OPERATIONS
- ---------------------
The Company posted net earnings of $433,000 for the three months ended
September 30, 1999 compared to net earnings of $566,000 for the three months
ended September 30, 1998. For the three months ended September 30, 1999, the net
earnings were $0.20 per share-basic compared to net earnings of $0.25 per
share-basic for the three months ended September 30, 1998. The net earnings for
the three months ended September 30, 1999 include approximately $230,000 in
merger-related costs (such costs are not considered deductible under current tax
laws; therefore, no tax benefit has been provided) associated with the proposed
merger with IndyMac Mortgage Holdings, Inc. 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 loan losses was $3.4 million
for the three months ended September 30, 1999 compared to $2.9 million for the
three months ended September 30, 1998.
Interest Income
- ---------------
Total interest income for the three months ended September 30, 1999 was
$8.5 million, an increase of $921,000 from the comparable period a year ago. The
increase in interest income was primarily due to the $62.4 million increase in
the average balance of interest-earning assets to $471.5 million for the three
months ended September 30, 1999 from $409.1 million for the three months ended
September 30, 1998. A portion of the growth in interest-earning assets is
attributed to the savings account acquisition from Citibank, California, a
federal savings bank in July 1999, which contributed $37 million in funds
available for investment. The interest income on loans increased to $6.8 million
for the three months ended September 30, 1999 from $5.9 million for the three
months ended September 30, 1998. The increase in interest on loans was due
primarily to the increase in the average balance of loans receivable outstanding
to $359.5 million for the three months ended September 30, 1999 from $304.9
million for the three months ended September 30, 1998. This increase was
partially offset by the decrease in the average yield on loans receivable to
7.54% for the three months ended September 30, 1999 compared to 7.79% for the
three months ended September 30, 1998 primarily due to the decline in the
interest rate environment for most of the past year producing downward pressure
on lagging indices. For example, the Company has approximately 45% of its
mortgage loans indexed to the eleventh district cost of funds index (COFI) and
this index has declined by over 30 basis points over the past 12 months. The
interest income on mortgage-backed securities decreased by $45,000 to $979,000
for the three months ended September 30, 1999 primarily as a result of the
decrease in average balances outstanding to $61.3 million for the three months
ended September 30, 1999 from $63.8 million for the three months ended September
30, 1998. The interest income on investment securities and other securities
increased by $128,000 to $702,000 for the three months ended September 30, 1999
7
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primarily as a result of the increase in the average balances of such securities
to $50.6 million from $40.5 million for the same period a year ago partially
offset by the decrease in the average yield to 5.51% for the three months ended
September 30, 1999 from 5.67% for the same period a year ago.
Interest Expense
- ----------------
Total interest expense for the three months ended September 30, 1999 was
$5.0 million, an increase of approximately $340,000 from the $4.7 million in
interest expense for the three months ended September 30, 1998. The increase in
interest expense was primarily due to the increase in the average balance of
interest-bearing liabilities to $436.2 million for the three months ended
September 30, 1999 as compared to $375.8 million for the three months ended
September 30, 1998, partially offset by the 38 basis point decrease in the
average cost of interest-bearing liabilities to 4.60% for the three months ended
September 30, 1999. Interest expense on savings accounts increased to $3.7
million for the three months ended September 30, 1999 from $3.4 million for the
same period a year ago. This increase was related to the $50.5 million increase
in the average balance of interest-bearing savings accounts to $338.5 million
for the three months ended September 30, 1999 due partially to the acquisition
of $35 million in interest-bearing savings accounts from Citibank in July 1999.
The increase in interest expense from higher average balances was partially
offset by the 40 basis point decrease in the average cost of savings accounts to
4.32% for the three months ended September 30, 1999 from 4.72% for the same
period a year ago. Interest expense on borrowings increased by $82,000 to $1.4
million for the three months ended September 30, 1999 primarily due to the $10.0
million increase in the average balance of borrowings to $97.7 million for the
three months ended September 30, 1999. This increase in interest expense was
partially offset by the 26 basis point decrease in the average cost of
borrowings to 5.57% for the three months ended September 30, 1999.
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, 1999 and September 30, 1998 (dollars are in thousands
and average balances are based on month-end amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------
1999 1998
------------------------ ------------------------
Average Yield Average Yield
Balance Rate Balance Rate
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable $ 359,549 7.54% $ 304,853 7.79%
Mortgage-backed securities 61,297 6.39 63,802 6.42
Investment securities and other 50,638 5.51 40,466 5.67
----------- ------------
Total interest-earning assets 471,484 7.18% 409,121 7.37%
Non-interest-earning assets 16,391 13,553
----------- ------------
Total assets $ 487,875 $ 422,674
=========== ============
LIABILITIES AND EQUITY:
Interest-bearing liabilities
Savings accounts $ 338,544 4.32% $ 288,007 4.72%
Borrowings 97,701 5.57 87,782 5.83
----------- ------------
Total interest-bearing liabilities 436,245 4.60% 375,789 4.98%
Non-interest-bearing liabilities 19,048 15,228
Stockholders' equity 32,582 31,657
----------- ------------
Total liabilities and equity $ 487,875 $ 422,674
=========== ============
Net interest rate spread 2.58% 2.39%
Net interest margin 2.92% 2.80%
Ratio of interest-earning assets
to interest-bearing liabilities 108.08% 108.87%
</TABLE>
8
<PAGE> 11
The Company's average net interest spread increased to 2.58% for the three
months ended September 30, 1999 as compared 2.39% for the three months ended
September 30, 1998. The increase was due primarily to the decrease in the cost
of interest-bearing liabilities which decreased to 4.60% for the three months
ended September 30, 1999 from 4.98% for the three months ended September 30,
1998. The decrease in the cost of interest-bearing liabilities was due to the
continued increase in the average balance of core deposits (comprised of
passbook, money market and interest-bearing checking accounts), which have an
overall lower cost of funds, and to the overall lower interest rate environment
enabling the Company to renew existing certificates of deposit and borrowings at
lower interest rates. The increase in total savings deposits and, specifically,
in core deposits was aided by the acquisition in July 1999 of $37 million in
savings accounts from Citibank, California, a federal saving bank. The decrease
in the average cost of interest-bearing liabilities was partially offset by the
decrease in the overall yield on interest-earning assets to 7.18% for the three
months ended September 30, 1999 from 7.37% for the same period a year ago
primarily due to the overall lower interest rate environment resulting in a
decline in indices related to the Company's adjustable-rate mortgage loans.
The average yield on loans receivable decreased to 7.54% for the three
months ended September 30, 1999 from 7.79% for the three months ended September
30, 1998. The decrease in yield was due primarily to the decline in the COFI
index which, on average, was 38 basis points lower during the three months ended
September 30, 1999 as compared to the same period a year ago. The Company's
adjustable rate loan portfolio comprises approximately 75% of the total loan
portfolio and the adjustable rate loans indexed to COFI comprise 45% of total
loans. The majority of the remaining adjustable rate loans adjust annually and
are indexed to the Constant Maturity Treasury Index (CMT) which was also lower
during repricing periods resulting in lower current yields. The average yield on
mortgage-backed securities was relatively unchanged at 6.39% for the three
months ended September 30, 1999 as compared to 6.42% for the three months ended
September 30, 1998. The average yield on investment securities and other
securities decreased to 5.51% for the three months ended September 30, 1999 from
5.67% for three months ended September 30, 1998 primarily as a result of the
maintenance of higher overnight investments during the three months ended
September 30, 1999 resulting from the funds received in late July for the
completion of the deposit acquisition from Citibank.
The decrease in the average cost of savings accounts to 4.32% for the
three months ended September 30, 1999 from 4.72% for the same period a year ago
was the result of the $41.2 million increase in the average balance of core
deposits (passbook, money market and interest-bearing checking accounts), which
generally have a lower cost of funds than certificates of deposit, to $129.1
million for the three months ended September 30, 1999 from $87.9 million for the
same period a year ago. The growth in the core deposits was aided by the
Citibank deposit acquisition which contributed approximately $13.2 million in
core deposits. The Company's average cost of borrowings decreased to 5.57% for
the three months ended September 30, 1999 from 5.83% for the same period a year
ago as the Company renewed existing borrowings with those of lower rates in
relation to the decrease in the overall interest rate environment during the
past year.
Provision for Loan Losses
- -------------------------
The provision for loan losses totaled $210,000 for the three months ended
September 30, 1999 as compared to $269,000 for the three months ended September
30, 1998. The decrease from the three months ended September 30, 1998 was due
primarily to the higher fair value adjustments on two foreclosed properties
totaling $168,000 occurring in the three months ended September 30, 1998 and not
recurring in the current period. The Company's provision for loans losses in the
three months ended September 30, 1999 was related to the charge-off of $44,000
in consumer loans and to the overall growth of the loan portfolio, specifically
related to the $11.5 million increase in non-residential loans which normally
have higher loan loss factors. See "Financial Condition."
Other Income
- ------------
Other income increased slightly to $437,000 for the three months ended
September 30, 1999 from $413,000 for the three months ended September 30, 1998
The Company's fee income on savings accounts increased by $50,000 to $194,000
for the three months ended September 30, 1999 as compared to the same period a
year ago due to the increase in core deposits and the deposit acquisition. The
Company also experienced an increase in other income derived from the net income
of its subsidiary, First Covina Service Company, related to
9
<PAGE> 12
the increased commissions earned on the sale of tax-deferred annuities and other
investment vehicles. Contributing to the increase for the three months ended
September 30, 1999 was the income from bank owned life insurance (acquired in
December 1998) totaling $30,000 for the current period. Offsetting these
increases was the decline in fees generated from loan servicing operations. See
"Financial Condition."
Other Expenses
- --------------
The Company's other expenses increased to $2.8 million for the three
months ended September 30, 1999 as compared to $2.0 million for the three months
ended September 30, 1998. The Company incurred approximately $230,000 in
merger-related costs in regards to its pending merger with IndyMac Mortgage
Holdings, Inc. during the three months ended September 30, 1999. Compensation
and other employee costs increased approximately $193,000 to $1.4 million for
the three months ended September 30, 1999 due to additional employees, partially
related to the new branch office purchased from Citibank, and to the increase in
stock-related compensation plans as a result of the increase in the value of the
Company's common stock. The Company's data processing costs and other expenses
also increased during the three months ended September 30, 1999 as a result of
the costs to convert and acquire the deposits from Citibank. Included in other
expenses was approximately $70,000 in amortization of the goodwill associated
with the premiums paid on the deposits acquired from Citibank and a prior
acquisition.
Income Taxes
- ------------
The Company's income taxes increased to $442,000 for the three months
ended September 30, 1999 compared to $396,000 in income taxes for the three
months ended September 30, 1998. The increase in taxes was primarily due to the
expected non-deductibility of the $230,000 in merger-related expenses regarding
the pending merger with IndyMac Mortgage Holdings, Inc. As a result of these
non-deductible expenses, the effective tax rates for the three months ended
September 30, 1999 increased to 50.5% from 41.2% for the three months ended
September 30, 1998.
FINANCIAL CONDITION
- -------------------
The Company's total assets increased to $494.5 million at September 30,
1999 from $468.7 million in total assets at June 30, 1999. The Company's loans
receivable held for investment increased by $10.3 million to $365.3 million at
September 30, 1999 compared to $355.0 million at June 30, 1999. The growth in
the loan portfolio was due to the origination and purchase of $23.8 million in
mortgage loans during the three months ended September 30, 1999. Due to the
recent increase in interest rates, the level of prepayments declined
significantly from that experienced during most of fiscal 1999. Total principal
repayments received during the three months ended September 30, 1999 was $13.7
million as compared to $21.5 million for the same period a year ago. The
Company's investment in short-term investments and overnight federal funds sold
increased to $30.0 million at September 30, 1999 from $14.4 million at June 30,
1999 primarily due to the receipt of cash from the settlement of the deposit
acquisitio from Citibank.
During the three months ended September 30, 1999, the Company originated
and purchased for investment a total of $23.4 million in mortgage loans as
compared to the $38.1 million purchased and originated in the three month period
ended September 30, 1998. In regards to the loans funded for portfolio during
the three months ended September 30, 1999, approximately 92% were adjustable
rate mortgage loans as fixed-rate loan rates rose significantly during the
quarter which curtailed interest in this type of loan. Also, as a result of the
increase in interest rates for fixed rate mortgage loans, the Company only
originated $1.6 million in loans held for sale and sold only $1.2 million in
mortgage loans to the secondary market during the three months ended September
30, 1999. The total mortgage-backed securities portfolio declined to $60.0
million at September 30, 1999 from $62.6 million at June 30, 1999, primarily as
a result of principal reductions totaling $3.1 million during the three months
ended September 30, 1999. The Company's other assets increased during the three
months ended September 30, 1999 primarily due to the $1.3 million in deposit
premium related to the Citibank acquisition. This premium will be amortized over
a sixty-month period, resulting in a pre-tax charge to income of approximately
$21,000 per month.
10
<PAGE> 13
The Company's non-performing assets totaled $2.3 million at September 30,
1999 compared to $2.4 million at June 30, 1999. The decrease in non-performing
assets was due primarily to the decrease in the balance of real estate acquired
in settlement of loans which totaled $294,000 at September 30, 1999 versus
$827,000 at June 30, 1999. This improvement was partially offset by the increase
in non-performing loans to $2.0 million at September 30, 1999 from $1.5 million
at June 30, 1999. This change reduced the Company's ratio of non-performing
assets to total assets to 0.46% at September 30, 1999 from 0.50% at June 30,
1999.
The following table sets forth the non-performing assets at September 30,
1999 and June 30, 1999:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 JUNE 30, 1999
---------------------- ----------------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual loans $ 1,969 $ 1,524
Real estate acquired through foreclosure 294 827
Non-performing assets $ 2,263 $ 2,351
--------------- ------------------
Non-performing assets as a percent
of total assets 0.46% 0.50%
Non-performing loans as a percent
of gross loans receivable 0.54% 0.43%
</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, as amended by SFAS No. 118, 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, 1999 and at
June 30, 1999, for those loans which are reviewed individually for impairment,
the Company had classified none of such loans as impaired and there were no
specific reserves determined in accordance with SFAS No. 114, as amended by SFAS
No. 118. In addition, the Company had $2.0 million and $1.5 million at September
30, 1999 and June 30, 1999, respectively, in impaired loans, which were
collectively evaluated for impairment with $266,000 and $238,000 in reserves set
aside as of September 30, 1999 and June 30, 1999, respectively. The average
recorded investment in impaired loans, inclusive of those evaluated
collectively, during the three months ended September 30, 1999, was $1.7
million, whereas, the average for the twelve months ended June 30, 1999 was $1.9
million.
The Company, in consideration of the current economic environment and the
condition of the loan portfolio, maintained the allowance for loan losses at
September 30, 1999 at $2.0 million. Although loans on non-accrual status have
increased to $2.0 million at September 30, 1999 from $1.5 million at June 30,
1999, the allowance for 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 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.
11
<PAGE> 14
The following table sets forth the activity in the Company's allowance for
loan losses for the three months ended September 30, 1999:
<TABLE>
<CAPTION>
ACTIVITY FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
--------------------------------
(Dollars in thousands)
<S> <C>
Balance at June 30, 1999 $ 1,845
Add:
Provision for loan losses 210
Recoveries of previous charge-offs 2
Less:
Charge-off of consumer loans 44
Charge-off of real estate loans -
---------------
Balance at September 30, 1999 $ 2,013
===============
</TABLE>
The Company's total liabilities increased to $461.7 million at September
30, 1999 from $436.4 million at June 30, 1999. Total deposit accounts increased
$38.5 million to $362.6 million at September 30, 1999 from $324.1 million at
June 30, 1999, primarily as a result of the acquisition of deposit accounts from
Citibank in July 1999. The Company decreased its borrowings from the FHLB by
$14.0 million during the three months ended September 30, 1999 as the Company
used a portion of the cash received from the acquisition of the Citibank
deposits to allow maturing short-term FHLB borrowings to roll off. Also, an
additional $14.0 million in FHLB borrowings which matured during the three
months ending September 30, 1999 were renewed into five-year terms to assist in
the lengthening of the average life of the Company's liabilities and lessen its
interest-rate sensitivity. 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 $32.8 million at September
30, 1999 from $32.4 million at June 30, 1999 primarily as a result of the net
earnings for the three months ending September 30, 1999. Although the total
assets of the Company increased as a result of the deposit acquisition, the
Association's capital still is in excess of all regulatory requirements.
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 4.0% of deposits and short-term borrowings. Liquidity represents cash
and the majority of the Company's investments which are not committed or pledged
to specific liabilities. The Association's average liquidity ratio for September
30, 1999 and September 30, 1998 was 21.65% and 26.16%, respectively.
COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------
At September 30, 1999, there were no material changes to the Company's
commitments or contingent liabilities from the period ended June 30, 1999 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, 1999 included in the Annual Report on Form 10-K for
the year ended June 30, 1999. At September 30, 1999, the Company had outstanding
commitments to originate or purchase mortgage loans of $2.2 million, as compared
to $4.8 million at June 30, 1999.
12
<PAGE> 15
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, 1999, the
Association was considered "well-capitalized".
The Association was in compliance with the capital requirements in effect
as of September 30, 1999. The following table reflects the required ratios and
the actual capital ratios of the Association at September 30, 1999:
<TABLE>
<CAPTION>
CAPITAL
----------------------
Actual Required Excess Actual Required
Capital Capital Amount Percent Percent
----------- ----------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Tangible $ 30,558 $ 7,412 $ 23,146 6.19% 1.50%
Core $ 30,558 $ 19,745 $ 10,813 6.19% 4.00%
Risk-based $ 32,305 $ 20,780 $ 11,525 12.44% 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 an 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, 1999.
YEAR 2000
- ---------
In recent years the Company has been executing a formal plan to address
year 2000 issues ("Y2K"). The Y2K issues relate to the way software was
programmed through much of this Century. Specifically, years were coded with two
digits. The Company's Y2K plan has been designed to address potential problems
that could arise from software, hardware and equipment both within the Company's
direct control and outside of the Company's control, yet which the Company
relies upon, in that it electronically or operationally interfaces with such
software, hardware and equipment.
The Company principally utilizes third-party data processors and
third-party software for its information technology (IT) needs. As a result, the
year 2000 compliance of the company's information technology assets, such as
computer hardware, software and systems, is primarily dependent upon the year
2000 compliance efforts and results of its third-party vendors. The year 2000
compliance of the Company's non-IT assets, such as automated teller machines,
telecommunication systems, copiers, fax machines, elevators, and HVAC systems,
is also primarily dependent upon the year 2000 compliance efforts and results of
third parties.
13
<PAGE> 16
Financial institution regulators have focused their attention on year 2000
issues and have published guidance concerning the responsibilities of senior
management and directors. Year 2000 testing and certification, liquidity risk,
customer awareness, and contingency planning have been addressed as key safety
and soundness issues in conjunction with regulatory Y2K examinations.
The Company has appointed a year 2000 team that includes officers and
staff from all operational areas. The team is responsible for the development,
implementation and monitoring of the Company's Year 2000 Plan. Also, the Company
has enlisted the services of outside contractors to assist in the attainment of
year 2000 readiness. In order to address the year 2000 issue, the Company has
developed and implemented a five-phase plan, which is divided into the following
major components:
- - awareness
- - assessment
- - renovation
- - validation
- - implementation
The Company has completed all phases of this plan. Because the Company
outsources its data processing and item processing operations, a significant
component of the Year 2000 Plan is to work with external vendors to test and
certify their systems as year 2000 compliant. The software used in these
systems, both purchased and related to our external data processing vendors, has
been tested for year 2000 readiness with minimal issues detected. Any issues
detected have been reported to the respective vendor or service provider for
corrective action. None of the issues noted during the testing, if not corrected
by year 2000, are expected to have any material effect on the Company. The
Company's primary third-party service bureau provides data processing for all of
the Company's savings accounts, lending operations and its general ledger. Upon
review of the test results, the few issues detected were forwarded to the data
processor for corrective action. Although the Company is confident these issues
will be resolved, none of the issues detected are expected to have any material
impact to the Company's successful transition to year 2000 even if they have not
been corrected by year 2000. The Company also completed testing with the Federal
Reserve Bank of San Francisco, its primary ATM processor, primary ATM
interchange provider, its accounting sub-systems, its front-end loan origination
system and Fannie Mae and detected no date-related issues which would be
expected to present any material Y2K problems to the Company.
The Company surveyed its primary vendors and others with whom it relies on
to assure their systems will be year 2000 ready. Of the vendors the Company
considers critical to its operations, all have responded that they are year 2000
ready or are in process of becoming ready. Vendors the Company considers mission
critical include its primary data processor, item processor, ATM provider, the
Federal Reserve Bank and the FHLB, as well as all utility providers. Of the
critical vendors the Company tested, no material year 2000 date-related issues
were identified. In addition, the majority of critical vendors not tested
(primarily utility providers) have represented that they are Y2K ready. If any
mission critical vendor were to fall out of Y2K compliance, the Company will
seek to switch to a new vendor. However, due to the timing required to change to
another vendor, if mission critical vendors are not year 2000 ready (all have
represented that they are or expect to be year 2000 ready), the Company ma be
adversely affected. Further, the Company will be unable to seek alternative
service providers with respect to some critical vendors such as utility
providers. The Company has endeavored to determine such vendors will be year
2000 compliant and at this time, based upon information supplied by such
vendors, has no information suggesting utility services will be interrupted.
However, any disruption in utility service would directly affect the Company's
ability to operate.
In regard to vendors or service providers the Company deems are important
for the normal operations of the Company, but not considered critical,
approximately 87% have represented that they are year 2000 ready or are working
towards readiness. The Company is continuing to perform follow-up work on those
vendors or service providers (primarily title companies and appraisal firms) who
have not responded. For those vendors the Company believes will not be year 2000
ready, the Company will evaluate the potential impact on the operations of the
Company by such vendor to determine if changing vendors or other solutions are
necessary. However, there can be no assurance that these systems or other
vendors will be year 2000 ready or that any such failure in readiness by
14
<PAGE> 17
such vendors would not have an adverse effect on the Company's operations. The
Company has completed proxy testing with its data processor in third-party
interfaces for year 2000 readiness.
Another important segment of the Year 2000 Plan is to identify those loan
customers or deposit customers whose possible lack of year 2000 preparedness
might expose the Company to financial loss. The Company completes a risk
analysis of their large dollar fund users and fund providers quarterly and has
determined that such customers are not expected to expose the Company to any
material impact by a lack of year 2000 preparedness. Also, the analysis of fund
users indicates that the Company does not expect to have any material financial
exposure in regard to its loan portfolio as the portfolio is comprised primarily
of loans to individuals and, to a lessor extent, to businesses secured by real
estate. Management believes that loans secured by real estate are less likely to
be impacted by any year 2000 issues.
The Company has completed its Year 2000 Contingency Plan for handling
issues which may present concern to the Company if certain processes or vendors
are unable to provide services. The contingency plan provides a basis for
identifying and allocating resources in the event of year 2000 disruptions and
the timely resumption and recovery of critical functions. The contingency plan
has been reviewed by an independent outside consultant for feasibility with
management's stated business resumption goals and other plans adopted by the
Company. Recommendations made by the consultant were reviewed by management and
incorporated into the contingency plan. The Company conducted a test of its
contingency plan during the three months ended September 30, 1999 and based upon
the results of this test, made minor revisions to its contingency plan. The
contingency plan will continue to be reviewed throughout the remainder of
calendar 1999 and will be updated as new information becomes available on the
Company's vendors and service providers.
During the execution of this project, the Company will incur internal
staff costs as well as consulting and other expenses related to enhancements
necessary to prepare the systems for the year 2000. Since the Company replaced
many of the internal systems with year 2000 compliant personal computers in
1997, the expenses incurred to bring the Company to year 2000 compliance will be
expensed as incurred, with the majority of such costs being the reallocation of
current staff to bring about this readiness. The Company replaced the majority
of its internal computer hardware and software in early 1997. The capitalized
costs of this replacement were in excess of $700,000 and are being amortized
over several years in compliance with the Company's normal depreciation of such
hardware or software. The future expenses of the year 2000 project as well as
the related potential effect on the Company's earnings is not expected to have a
material effect on its financial position or results of operations. Through the
three months ended September 30, 1999, the Company has spent approximately
$205,000 for year 2000 related issues which included approximately $151,000 of
internal staff resources. Management does not expect the total costs of the year
2000 project to exceed $260,000 (excluding the $700,000 in hardware and software
discussed above), the majority of which is primarily related to the reallocation
of internal staff resources.
The Company believes it has developed an effective and prudent plan to
review, renovate and resolve any potential year 2000 issues. In respect to
operations under the Company's direct control and due to management's year 2000
readiness efforts and those of its strategic business partners, management does
not expect that Year 2000 failures will have a material effect on the financial
condition or results of operations of the Company. However, the impact of
disruptions in the local or national economy as a result of year 2000 issues is
not quantifiable at this time and could adversely and materially affect the
Company. In addition, the Company is heavily dependent on the year 2000
readiness of infrastructure suppliers such as utilities, communication and other
such services. As discussed above, if such infrastructure suppliers would have
year 2000 disruptions, this could adversely and materially affect the Company's
ability to provide services to its customers.
PENDING LEGISLATION
- -------------------
Pending legislation designed to modernize the regulation of the financial
services industry expands the ability of bank holding companies to affiliate
with other types of financial services companies such as insurance companies and
investment banking companies. However, the legislation provides that companies
that acquire control of a single savings association after May 4, 1999 (or that
filed an application for that purpose after that date) are not entitled to the
unrestricted activities formerly allowed for a unitary savings and loan holding
15
<PAGE> 18
company. Rather, these companies will have authority to engage in the activities
permitted "a financial holding company" under the new legislation, including
insurance and securities-related activities, and the activities currently
permitted for multiple savings and loan holding companies, but generally not in
commercial activities. The authority for unrestricted activities is
grandfathered for unitary savings and loan holding companies, such as the
Company, that existed prior to May 4, 1999. However, the authority for
unrestricted activities would not apply to any company that acquired the
Company. Accordingly, it is likely that after the consummation of the Company's
acquisition by IndyMac Mortgage Holdings, Inc., IndyMac will not be entitled to
engage in the unrestricted activities in which the Company is currently
authorized to engage.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
---------------------------------------------------------
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
the majority of the fixed-rate mortgage loans originated; and (iii) 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.
The Company's interest rate sensitivity is monitored by management
through the use of an interest rate risk (IRR) model. Based on internal IRR
modeling, management does not believe that there has been a material change in
the Company's interest rate sensitivity from June 30, 1999 to September 30,
1999. All methods used to measure interest rate sensitivity involve the use of
assumptions, which may tend to oversimplify the manner in which actual yields
and costs respond to changes in market interest rates. The Company's interest
rate sensitivity should be reviewed in conjunction with the financial statements
and notes thereto contained in the Company's Annual Report for the fiscal year
ended June 30, 1999.
16
<PAGE> 19
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:
2.1 Agreement and Plan of Merger By and Between SGV Bancorp, Inc. and
IndyMac Mortgage Holdings, Inc., Dated as of July 12, 1999**
2.2 Amended and Restated Plan of Merger By and Between SGV Bancorp, Inc.
and IndyMac Mortgage Holdings, Inc., Dated as of July 12, 1999 and
Amended and Restated as of October 25, 1999
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
(i) On July 14 1999, the Company filed a Form 8-K to announce
that it had entered into an agreement and plan of merger
with IndyMac Mortgage Holdings, Inc.
(ii) On September 23, 1999, the Company filed a Form 8-K to
announce the completion of its acquisition of deposits
totaling approximately $36.8 million from Citibank,
California, a federal savings bank.
- -------------------
* 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.
** Incorporated by reference from the Form 8-K (File No. 000-25664) filed
with the SEC on July 14, 1999.
17
<PAGE> 20
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 9, 1999 /s/ Barrett G. Andersen
- --------------------------- -------------------------------------
Date Barrett G. Andersen
President and Chief Executive Officer
November 9, 1999 /s/ Ronald A. Ott
- --------------------------- -------------------------------------
Date Ronald A. Ott
Executive Vice President
Chief Financial Officer and Treasurer
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary information extracted from the Form 10-Q and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000940511
<NAME> SGV Bancorp, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 4,700,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,950,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68,593,000
<INVESTMENTS-CARRYING> 36,550,000
<INVESTMENTS-MARKET> 35,510,000
<LOANS> 367,749,000
<ALLOWANCE> 2,013,000
<TOTAL-ASSETS> 494,510,000
<DEPOSITS> 362,634,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,127,000
<LONG-TERM> 93,959,000
0
0
<COMMON> 27,000
<OTHER-SE> 32,763,000
<TOTAL-LIABILITIES-AND-EQUITY> 494,510,000
<INTEREST-LOAN> 6,777,000
<INTEREST-INVEST> 1,553,000
<INTEREST-OTHER> 128,000
<INTEREST-TOTAL> 8,458,000
<INTEREST-DEPOSIT> 3,655,000
<INTEREST-EXPENSE> 5,015,000
<INTEREST-INCOME-NET> 3,443,000
<LOAN-LOSSES> 210,000
<SECURITIES-GAINS> (29,000)
<EXPENSE-OTHER> 2,329,000
<INCOME-PRETAX> 875,000
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 433,000
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.18
<YIELD-ACTUAL> 7.18
<LOANS-NON> 1,969,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 444,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,845,000
<CHARGE-OFFS> 44,000
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 2,013,000
<ALLOWANCE-DOMESTIC> 2,013,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
