At our 2004 Annual Meeting of Shareholders, we adopted the PFF Bancorp, Inc. 2004 Equity Incentive Plan. In implementing the plan and evaluating our compensation structure, the Employee Compensation and Benefits Committee (the “Committee”) has elected to emphasize incentive based awards which vest based on the achievement of specific financial performance targets over awards which vest based on the passage of time, as had been our previous practice. In this regard, the Committee has made performance-based stock awards which are designed based upon the following underlying principles: 100 percent of the stock awards to executives under this program are performance-based. No awards to executives vest based solely on the passage of time. The performance criteria are based on the metrics that the Committee believes lead to sustainable increases in shareholder value. The use of a multi-year performance measurement period provides incentives for participants to focus on sustainable results as opposed to short-term metrics. The use of cliff-vesting assists in the retention of key management personnel. The establishment of minimum stock ownership requirements assists in maintaining an alignment of management interests with those of our shareholders.
The Committee believes these principles help to ensure that our management compensation structure remains closely aligned with the value that management creates for our shareholders. Item 1.01 Entry into a Material Definitive Agreement. Performance-Based Awards On May 24, 2005, certain employees, including executive officers, of PFF Bancorp, Inc. (the “Registrant”), were granted performance-based awards pursuant to the Registrant’s 2004 Equity Incentive Plan (the “Plan”). The awards were granted by the Employee Compensation and Benefits Committee (the “Committee”) of the Registrant’s Board of Directors as administrator of the Plan. Three sets of awards were granted, the first payable after March 31, 2006 (the “2006 Awards”), the second payable after March 31, 2007 (the “2007 Awards”) and the third payable after March 31, 2008 (the “2008 Awards”). The awards are payable in shares of the Registrant’s common stock. Vesting and payment of the awards will occur only upon the achievement by the Registrant of certain financial targets during a performance measuring periods. The measurement period for the 2006 Awards begins on April 1, 2003 and ends on March 31, 2006. The measurement period for the 2007 Awards begins on April 1, 2004 and ends on March 31, 2007. The measurement period for the 2008 Awards begins on April 1, 2005 and ends March 31, 2008. The Registrant must achieve certain targets in three of the following six performance criteria during the applicable measurement period for awards to be vested: (i) return on average equity, (ii) total return, (iii) diluted earnings per share growth percentage, (iv) efficiency ratio, (v) increase in number of deposit households, and (vi) growth in the “Four-Cs” (commercial, construction and land, commercial real estate and equity based consumer loans). Notwithstanding the foregoing, no award will vest and be paid if the Registrant does not achieve the financial target in the diluted earnings per share growth percentage category. If three of the six performance criteria (including diluted earnings per share growth percentage) are met, a pro-rata portion of the awards are earned in a manner such that for the full number of shares specified in the table below to be earned, the Registrant must achieve the specified targets for all six performance criteria.
The plans require participants who, from the time an award is granted to the applicable measurement date, have effected a net reduction in share ownership of the Registrant’s common stock to hold certain specified numbers of shares of the Registrant’s common stock in order for awards to be payable. This requirement will not apply in certain situations where a participant has decreased his or her share ownership in order to satisfy the payment of taxes resulting from the vesting or exercise of a previous stock award or stock option. In addition, awards are payable only if the recipient is employed by the Registrant, or an affiliate, on the final date of the respective measurement period, unless such recipient has terminated service due to death or Disability (as defined in the Plan) in which case the award will be pro-rated and paid as if a Change in Control (as defined in the Plan) has occurred. Upon a Change in Control, a pro-rata distribution of the awards then earned vest and are payable with the performance criteria being measured as of the last completed calendar quarter. The number of shares of the Registrant’s common stock to be issued pursuant to the awards is computed using all six or the performance criteria categories. The table below sets forth the minimum and maximum number of shares of common stock to be granted to each of the Registrant’s executive officers, other employees in the aggregate, and the total number of shares to be granted in each year under the Plan assuming the performance targets described above are met.
2006 2007 2008 Name Minimum Maximum Minimum Maximum Minimum Maximum Larry M. Rinehart, 4,782 20,325 9,708 41,265 14,490 61,950
President and Chief
Executive Officer Kevin McCarthy,
Senior Vice President 2,630 8,669 5,340 17,601 7,970 26,270
Gregory C. Talbott,
Executive Vice President, 2,630 8,669 5,340 17,601 7,970 26,270
Chief Financial Officer
and Treasurer Gerald W. Groene,
Senior Vice President, 1,673 5,379 3,397 10,921 5,070 16,300
Chief Lending Officer
Gilbert F. Smith, Senior 1,436 4,184 2,915 8,496 4,350 12,680
Vice President and
General Counsel Other employees 11,152 24,836 22,620 50,434 33,770 74,910 Total 24,303 72,062 49,320 146,318 73,620 218,380
Forms of the 2006 Award Agreement, the 2007 Award Agreement and the 2008 Award Agreement are filed herewith. Annual Incentive Plans On May 24, 2005, the Committee also approved annual incentive plans for the Registrant (the “Bancorp Plan”) and PFF Bank & Trust (the “Bank Plan”) for the fiscal year ended March 31, 2006. Executive officers of the Registrant are eligible to participate in each of the plans. The Bank Plan The Bank Plan provides for incentive payments based on threshold, targeted and premium performance in five performance measures (net earnings, return on average equity, efficiency ratio, 4-Cs growth and deposit growth). The performance measures, which are set forth in the following table, are equally weighted and treated independently for purposes of qualifying for a potential pro-rata distribution. It is not necessary to reach threshold levels on all five performance measures for payments to occur under the Bank Plan.
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