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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
COMMISSION FILE NUMBER: 000-24215
PBOC HOLDINGS, INC.
DELAWARE 33-0220233
-------- ----------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
5900 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90036
(323) 938-6300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest possible date:
CLASS SHARES OUTSTANDING AT APRIL 5, 2000
----- ------------------------------------
Common Stock, $.01 par value 19,876,205
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PBOC HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Consolidated Statements of Financial Condition - March 31, 2000
and December 31, 1999......................................................................... 3
Consolidated Statements of Operations - Three months ended
March 31, 2000 and 1999....................................................................... 4
Consolidated Statements of Comprehensive Earnings - Three months ended
March 31, 2000 and 1999....................................................................... 5
Consolidated Statements of Cash Flows - Three months ended March 31, 2000
and 1999...................................................................................... 6
Notes to Consolidated Financial Statements.................................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................................................ 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................... 18
PART II -- OTHER INFORMATION
ITEMS 1-5 NOT APPLICABLE................................................................................... 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES....................................................................................... 21
2
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 2000 AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
MARCH 31, 2000 1999
-------------------- -------------------
ASSETS
Cash and cash equivalents................................................ $ 27,475 $ 19,582
Federal funds sold....................................................... 25,600 2,000
Securities purchased under agreements to resell.......................... 20,000 --
Securities available-for-sale, at estimated market values................ 771,426 771,864
Mortgage-backed securities held-to-maturity, market values
$4,035 at March 31, 2000 and $4,274 at December 31, 1999.............. 4,083 4,326
Loans receivable, net.................................................... 2,559,323 2,454,612
Real estate held for sale, net........................................... 1,346 846
Premises and equipment, net.............................................. 7,366 7,105
Federal Home Loan Bank stock, at cost.................................... 55,775 66,643
Accrued interest receivable.............................................. 19,167 16,863
Goodwill ................................................................ 22,172 7,246
Deferred tax assets...................................................... 57,625 32,116
Other assets ......................................................... 16,152 15,025
-------------------- -------------------
Total assets........................................................ $3,587,510 $3,398,228
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits................................................................. $1,911,358 $1,647,337
Securities sold under agreements to repurchase........................... 366,109 381,109
Advances from Federal Home Loan Bank..................................... 1,056,000 1,123,700
Accrued expenses and other liabilities................................... 10,860 28,754
Other borrowings - line of credit........................................ 5,449 4,621
-------------------- -------------------
Total liabilities..................................................... 3,349,776 3,185,521
-------------------- -------------------
Minority interest........................................................ 33,250 33,250
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 25,000,000 shares:
none issued and outstanding....................................... -- --
Common stock, par value $.01 per share. Authorized
75,000,000 shares; issued 21,876,205 shares; and outstanding 19,876,205
and 19,941,005 at March 31, 2000
and December 31, 1999, respectively............................... 219 219
Treasury stock, at cost (2,000,000 shares and 1,935,200 shares .......
at March 31, 2000 and December 31, 1999, respectively)............... (19,331) (18,710)
Additional paid-in capital............................................ 259,260 259,260
Accumulated other comprehensive loss.................................. (44,939) (38,300)
Retained earnings (accumulated deficit)............................... 9,275 (23,012)
-------------------- -------------------
Total stockholders' equity...................................... 204,484 179,457
-------------------- -------------------
Total liabilities and stockholders' equity...................... $3,587,510 $3,398,228
==================== ===================
See accompanying notes to consolidated financial statements.
3
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended March 31,
------------------------------------
2000 1999
------------------- ---------------
Interest, fees and dividend income:
Short term investments................................. $ 996 $ 274
Securities purchased under agreements to resell........ 188 11
Investment securities.................................. 6,319 6,364
Mortgage-backed securities............................. 6,673 8,134
Loans receivable....................................... 47,959 38,081
Federal Home Loan Bank stock........................... 870 808
------------------- ---------------
Total interest, fees and dividend income.......... 63,005 53,672
------------------- ---------------
Interest expense:
Deposits............................................... 20,060 17,956
Advances from the Federal Home Loan Bank............... 16,181 15,897
Securities sold under agreements to repurchase......... 6,747 5,101
Other borrowings - line of credit...................... 147 --
Hedging costs, net..................................... 32 47
------------------- ---------------
Total interest expense............................ 43,167 39,001
------------------- ---------------
Net interest income....................................... 19,838 14,671
Provision for loan losses.............................. 1,500 1,050
------------------- ---------------
Net interest income after provision for loan losses 18,338 13,621
------------------- ---------------
Other income:
Loan service and loan related fees..................... 237 6
Gain on investment securities sales, net............... 127 121
Gain on loan sales, net.............................. -- 49
Income (loss) from real estate operations, net ........ (6) 60
Other income........................................... 858 816
------------------- ---------------
Total other income................................ 1,216 1,052
Operating expenses:
Personnel and benefits................................. 4,830 3,926
Occupancy.............................................. 2,802 2,206
FDIC insurance......................................... 214 334
Professional services.................................. 499 266
Office related expenses................................ 1,693 1,127
Other ............................................... 1,360 617
------------------- ---------------
Total operating expenses.......................... 11,398 8,476
------------------- ---------------
Earnings before income tax benefit and minority interest.. 8,156 6,197
Income tax benefit ....................................... 25,000 1,000
------------------- ---------------
Earnings before minority interest......................... 33,156 7,197
Minority interest......................................... 869 869
=================== ===============
Net earnings ..................................... $ 32,287 $ 6,328
=================== ===============
Earnings per share basic and diluted ..................... $ 1.62 $ 0.30
Weighted average number of shares outstanding ............ 19,881,070 20,757,733
See accompanying notes to consolidated financial statements.
4
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2000 1999
---------------- ---------------
Net earnings .............................................. $ 32,287 $ 6,328
Other comprehensive loss:
Unrealized loss on securities available-for-sale ....... (6,512) (1,082)
Reclassification of realized gains included in earnings (127) (93)
---------------- ---------------
Other comprehensive loss................................ (6,639) (1,175)
---------------- ---------------
Comprehensive earnings..................................... $ 25,648 $ 5,153
================ ===============
See accompanying notes to consolidated financial statements.
5
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
2000 1999
------------------- -------------------
Cash flows from operating activities:
Net earnings ................................................................... $ 32,287 $ 6,328
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Provision for loan losses................................................... 1,500 1,050
Depreciation................................................................ 470 416
Amortization/accretion of premiums, discounts and deferred fees ............ (3,473) 4,383
Decrease in valuation allowance on net deferred tax assets.................. (25,000) (1,000)
Amortization of purchase accounting intangibles............................. 45 45
Gain on sale of securities available-for-sale............................... (127) (121)
Gain on sale of real estate owned........................................... (2) (107)
FHLB stock dividend......................................................... (921) (850)
(Increase) decrease in accrued interest receivable.......................... (1,717) 395
Decrease in accrued interest payable........................................ (1,346) (12)
Decrease in other assets.................................................... 340 3,309
Amortization for discontinued lease operations.............................. 13 13
Decrease in accrued expenses................................................ (16,688) (362)
Gain on sale of loans ...................................................... -- (49)
Amortization of goodwill.................................................... 414 26
------------------- -------------------
Net cash provided (used in) by operating activities......................... (14,205) 13,464
------------------- -------------------
Cash flows from investing activities:
Increase in securities purchased under agreements to resell..................... (20,000) (78,000)
Proceeds from sales of securities available-for-sale............................ 75,191 92,439
Proceeds from sale of loans .................................................... 6 92,546
Investment and mortgage-backed securities principal repayments and maturities 17,382 44,600
Loan originations, net of repayments............................................ (37,999) (27,096)
Purchases of investments and mortgage-backed securities available-for-sale...... (49,138) (101,583)
Purchases of loans.............................................................. (67) (27,476)
Cost capitalized on real estate, net of insurance settlements................... (19) 8
Proceeds from the sale of real estate........................................... 2 1,674
Net (increase) decrease in premises and equipment............................... 26 (141)
Redemption of FHLB stock........................................................ 11,789 --
Bank of Hollywood acquisition................................................... 12,063 --
------------------- -------------------
Net cash provided by (used in) investing activities............................. 9,236 (3,029)
------------------- -------------------
Cash flows from financing activities:
Purchases of treasury stock .................................................... (621) (6,152)
Net increase in deposits........................................................ 118,955 41,347
Net decrease in securities sold under agreements to repurchase.................. (15,000) --
Issuance of FHLB advances....................................................... 3,665,100 196,500
Repayments of FHLB advances..................................................... (3,732,800) (210,500)
Net change in other borrowings - line of credit................................. 828 --
------------------- -------------------
Net cash provided by financing activities....................................... 36,462 21,195
------------------- -------------------
Net change in cash.................................................................. 31,493 31,630
Cash and cash equivalents at beginning of period.................................... 21,582 46,401
----------------- -------------------
Cash and cash equivalents at end of period.......................................... $ 53,075 $ 78,031
=================== ===================
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest...................................................................... $ 44,513 $ 39,013
=================== ===================
Supplemental schedule of non cash investing and financing activities:
Foreclosed real estate.......................................................... 481 3,757
Transfer of loans held for investment to loans held for sale.................... $ 6 $ 92,497
=================== ===================
See accompanying notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF CONSOLIDATION
The consolidated financial statements include all the accounts of PBOC
Holdings, Inc. (the "Company") and its subsidiaries, all of which are wholly
owned, except for People's Preferred Capital Corporation ("PPCC") in which
People's Bank of California (the "Bank") owns all of the common stock. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the dates of the balance sheets and revenues and
expenses for the periods presented. Actual results could differ significantly
from those estimates. Prior period's consolidated financial statements have been
reclassified to conform to the 2000 presentation.
3. EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing
earnings (loss) available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in earnings.
Earnings per share is calculated by taking the net earnings and
dividing by the weighted average number of shares of common stock outstanding.
The weighted average number of shares of common stock for the three months ended
March 31, 2000 and 1999 were 19,881,070 and 20,757,733, respectively for basic
and diluted earnings per share.
4. STOCK INCENTIVE PLAN
In April 1999, the stockholders of the Company approved the 1999 Stock
Option Plan (the "1999 Plan"), which authorized granting up to 985,500 options
to officers and key employees of the Company. All 985,500 options were granted
in January 1999 at an exercise price of $13.75 per share. Options under the 1999
Plan have a life of 10 years and vest over 3 years.
In September 1999, the Board of Directors of the Company approved the
2000 Stock Incentive Plan (the "2000 Plan"), which authorized granting up to
991,822 options to officers, directors and key employees of the Company. In
September 1999, 479,250 options were granted at an exercise price of $9 per
share. In January 2000, the Board of Directors of the Company granted an
additional 100,000 options to officers, directors and key employees of the
Company at an exercise price of $10 per share. In April 2000, the stockholders
of the Company approved the 2000 Plan.
7
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities,"
as amended by SFAS No. 137. Among other things, it amends SFAS No.107,
"Disclosure about Fair Value of Financial Instruments," to include in SFAS No.
107 disclosure provisions about concentrations of credit risk from SFAS No. 105.
SFAS 133 established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. This Statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000.
Management believes that adoption of SFAS 133 will not have a material impact on
the Company's financial position and results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
WHEN USED IN THIS FORM 10-Q OR FUTURE FILINGS BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), IN THE COMPANY'S PRESS RELEASES OR
OTHER PUBLIC OR STOCKHOLDER COMMUNICATIONS, OR IN ORAL STATEMENTS MADE WITH AN
APPROVAL OF AN AUTHORIZED EXECUTIVE OFFICER, THE WORDS OR PHRASES "WOULD BE",
"WILL ALLOW", "INTENDS TO", "WILL LIKELY RESULT", "ARE EXPECTED TO", "WILL
CONTINUE", "IS ANTICIPATED", "ESTIMATE", "PROJECT", OR SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE LITIGATION REFORM ACT OF 1995.
THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON
ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE MADE, AND
TO ADVISE READERS THAT VARIOUS FACTORS, INCLUDING REGIONAL AND NATIONAL ECONOMIC
CONDITIONS, SUBSTANTIAL CHANGES IN LEVELS OF MARKET INTEREST RATES, CREDIT AND
OTHER RISK OF LENDING AND INVESTMENT ACTIVITIES AND COMPETITIVE AND REGULATORY
FACTORS, COULD AFFECT THE COMPANY'S FINANCIAL PERFORMANCE AND COULD CAUSE THE
COMPANY'S ACTUAL RESULTS FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED OR PROJECTED. THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY
DISCLAIMS ANY OBLIGATION, TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT
OCCURRENCES OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH
STATEMENTS.
ACQUISITION OF THE BANK OF HOLLYWOOD
On January 31, 2000, the Company completed the acquisition of The Bank of
Hollywood ("BOH"), a California-chartered commercial bank with $157.4 million in
assets and $145.1 million in deposits for a cash purchase price of $27.2
million. In connection with the acquisition, the Company recorded an addition of
$15.3 million in Goodwill to be amortized on a straight-line basis over
15-years.
FINANCIAL CONDITION
The Company had consolidated total assets of $3.6 billion at March 31,
2000, compared to $3.4 billion at December 31, 1999. The increase of $189.3
million (5.6%) in total assets over the past three months was primarily due to
increases in loans receivable, net of $104.7 million, increases in cash, fed
funds sold and securities sold under agreement to repurchase of $51.5 million,
increase in the goodwill asset account (primarily due to the BOH acquisition) of
$14.9 million, and an increase in deferred tax assets of $25.5 million, which
was partially offset by a decrease in investment in FHLB stock of $10.9 million.
The increase in earning assets during the first three months of 2000
was funded by deposits, which increased by $264.0 million. Over the past three
months, FHLB advances decreased by $67.7 million to $1.1 billion at March 31,
2000. The Company's stockholders' equity increased by $25.0 million to $204.5
million at March 31, 2000 from December 31, 1999. The increase was primarily due
to the Company's net earnings of $32.3 million, partially offset by an increase
in the unrealized loss on securities available for sale of $6.6 million and
additional purchase of treasury stock during the quarter of $621,000.
8
RESULTS OF OPERATIONS
Net earnings amounted $32.3 million for the first quarter ended March
31, 2000, compared to net earnings of $6.3 million for the first quarter ended
March 31, 1999. The Company's basic and diluted earnings per common share
amounted to $1.62 and $0.30 during the quarters ended March 31, 2000 and 1999,
respectively. For the quarter ended March 31, 2000, net earnings included a
one-time $25.0 million income tax benefit. The Company determined that a
significant portion of the valuation allowance against the Company's deferred
tax assets was no longer necessary based on its recent earnings history and the
projections of future taxable income. The deferred tax assets resulted primarily
from income tax net operating loss carry-forwards from prior years. Beginning
next quarter, the Company's net earnings will be fully tax-effected.
Earnings exclusive of the income tax benefit for the first quarter of
2000 totaled $7.3 million, or $0.37 per share, compared to $5.3 million, or
$0.26 per share in the year-ago quarter. On a fully-taxed basis, net earnings
would have been $4.0 million, or $0.20 per diluted share for the first quarter
of 2000, compared to $2.8 million, or $0.14 per diluted share during the first
quarter for 1999, an increase of 43%.
The Company's return on average equity amounted to 73.23% for the
three months ended March 31, 2000, compared to 14.82% for the three months ended
March 31, 1999. Return on average equity, before income tax benefits amounted to
16.53% for the three months ended March 31, 2000, a 32.6% increase over the
12.47% return on average equity, before income tax benefits for the three months
ended March 31, 1999.
9
NET INTEREST INCOME
Net interest income after provision for loan losses increased
significantly during the first quarter ended March 31, 2000 to $18.3 million
compared to $13.6 million for the first quarter ended March 31, 1999. This
increase was mainly due to loan income growth generated by substantially higher
average outstanding balances.
The following tables set forth, for the periods indicated, information
regarding: (a) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (b) the total dollar
amount of interest expense on interest-bearing liabilities and resultant average
rates; (c) net interest income; (d) interest rate spread; and (e) net interest
margin. Information is based on average daily balances during the indicated
periods.
Three months ended March 31,
----------------------------------------------------------------------------------------------
2000 1999
------------------------------------------ ------------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
-------------- ---------- ------------ -------------- ------------ -------------
(Dollars in thousands)
Interest-earning assets:
Loans receivable(1)........... $2,538,250 $ 47,959 7.56% $2,138,057 $ 38,081 7.12%
Mortgage-backed securities (2) 441,664 6,673 6.04 604,899 8,134 5.38
Other interest-earning assets (3) 469,868 7,503 6.39 442,978 6,649 6.00
FHLB stock.................... 62,362 870 5.61 63,845 808 5.13
-------------- ---------- --------------- ------------
Total interest-earning assets. 3,512,144 63,005 7.18 3,249,779 53,672 6.61
---------- =========== ------------ =============
Non-interest-earning assets..... 48,291 76,614
============== ---------------
Total assets.............. $3,560,435 $3,326,393
============== ===============
Interest-bearing liabilities:
Deposits:
Transaction accounts(4)..... 476,182 4,072 3.44% 354,822 3,025 3.46
Term certificates of deposit 1,189,700 15,988 5.41 1,122,560 14,931 5.39
-------------- ---------- --------------- ------------
Total deposits.......... 1,665,882 20,060 4.84 1,477,382 17,956 4.93
Other borrowings - line of credit 5,405 147 10.94 -- -- --
Other borrowings (5).......... 1,550,301 22,928 5.95 1,551,847 20,998 5.49
Hedging costs................. -- 32 -- -- 47 --
-------------- ---------------
---------- ------------
Total interest-bearing
liabilities............ 3,221,588 43,167 5.39 3,029,229 39,001 5.22
---------- =========== ------------ =============
Non-interest-bearing liabilities 161,511 123,947
-------------- ---------------
Total liabilities........ 3,383,099 3,153,176
Stockholders' equity............ 177,336 173,217
---------------
--------------
Total liabilities and
stockholders' equity... 3,560,435 3,326,393
============== ===============
Net interest-earning assets..... $ 290,556 $ 220,550
============== ===============
Net interest income/interest rate
spread..................... $ 19,838 1.79% $ 14,671 1.39%
========== ============
=========== =============
Net interest margin............. 2.26% 1.81%
=========== =============
Ratio of average interest-earning
assets to average interest-
bearing liabilities........ 109.02% 107.28%
=========== =============
(1) The average balance of loans receivable includes nonperforming loans,
interest on which is recognized on a cash basis.
(2) Includes mortgage-backed securities classified as held-to-maturity and
available-for-sale.
(3) Includes short-term investments, securities purchased under agreements to
resell and investment securities.
(4) Includes passbook, checking and money market accounts.
(5) Includes advances from FHLB and securities sold under agreements to
repurchase.
10
The Company's interest rate spread was 1.79% for the first quarter of
2000, an increase of 40 basis points compared to 1.39% for the same period in
1999. The increase in interest rate spread was mainly due to increases in the
Company's yields on its interest earning assets.
The Company's net interest margin was 2.26% for the three months ended
March 31, 2000, an increase of 45 basis points compared to 1.81% for the same
period in 1999. This increase in net interest margin was mainly due to higher
yields on the Company's loan and investment portfolios and a decrease in the
cost of deposit funds.
The following tables set forth the effects of changing rates and
volumes on net interest income of the Company. Information is provided with
respect to (a) effects on interest income attributable to changes in rate
(changes in rate multiplied by prior volume); (b) effects on interest income
attributable to changes in volume (changes in volume multiplied by prior rate);
and (c) changes in rate/volume (change in rate multiplied by change in volume).
Three Months Ended March 31, 2000
Compared to March 31, 1999
(In Thousands)
---------------------------------------------------------------------------
Increase (Decrease) Due to
-----------------------------------------------------
Total Net
Rate Volume Rate/volume Increase/(Decrease)
---- ------ ----------- -------------------
Interest-earning assets:
Loans receivable............................. $2,317 $7,128 $433 $9,878
Mortgage-backed securities................... 1,005 (2,195) (271) (1,461)
Other interest-earning assets ............... 425 404 25 854
FHLB stock................................... 83 (19) (2) 62
---------------------------------------------------------------------------
Total net change in income on interest-
earning assets ............... 3,830 5,318 185 9,333
---------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
Transaction accounts.................... 9 1,043 (5) 1,047
Term certificates of deposit............ 155 900 2 1,057
---------------------------------------------------------------------------
Total deposits........................ 164 1,943 (3) 2,104
Other borrowings - line of credit........... -- -- 147 147
Other borrowings........................... 1,953 (21) (2) 1,930
Hedging costs............................... -- -- (15) (15)
---------------------------------------------------------------------------
Total net change in expense on interest-
bearing liabilities........................ 2,117 1,922 127 4,166
---------------------------------------------------------------------------
Change in net interest income.................. $1,713 $3,396 $ 58 $5,167
===========================================================================
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses increased by $450,000 for the
three months ended March 31, 2000, compared to the same period in 1999. This
increase was primarily due to loan portfolio growth and the change in current
portfolio mix to a higher proportion of consumer and commercial loans. The
provision for loan losses was $1.5 million for the three months ended March 31,
2000 compared to $1.1 for the three months ended March 31, 1999. At March 31,
2000, the Company's allowance for loan losses amounted to $23.8 million, or
0.88% of total gross loans, and 316% of total non-performing loans.
11
OTHER INCOME
The Company's total other income increased by $164,000 for the quarter
ended March 31, 2000 compared to the same period in 1999, primarily due to an
increase of $231,000 in loan service and loan related fees partially offset by a
$66,000 decrease in income from real estate operations.
OPERATING EXPENSES
Total operating expenses increased by $2.9 million for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999. The
Company's total operating expenses were $11.4 million for the three months ended
March 31, 2000 compared to $8.5 million for the same period last year. Operating
expenses increased 34.47%, with compensation and benefits growing $904,000 and
occupancy and office related expenses increasing $1.2 million during the first
quarter of 2000 compared to the first quarter a year ago. The increase in
compensation and occupancy expense was mainly due to the acquisition five
branches from the second quarter of 1999 to date, including BOH, which has two
branches and which acquisition was completed on January 31, 2000. Other
operating expenses also increased $743,000 primarily due to increases in
customer data processing, check printing and courier expense of $285,000 and an
increase in goodwill amortization expense of $387,000.
INCOME TAXES
During the March 2000 quarter, the Company reported a $25 million
income tax benefit compared to a $1 million income tax benefit for the same
period last year, resulting from a decrease in the valuation allowance on its
deferred tax assets which the Company expects will be realizable in future
periods. On a fully-taxed basis, net earnings would have been $4.0 million for
the first quarter of 2000 and $2.8 million for the first quarter of 1999.
ASSET AND LIABILITY MANAGEMENT
Asset and liability management is concerned with the timing and
magnitude of the repricing of assets and liabilities. It is the objective of the
Company to attempt to control the risk associated with interest rate movements.
In general, management's strategy is to match asset and liability balances
within maturity categories to limit the Bank's exposure to earnings variations
and variations in the value of assets and liabilities as interest rates change
over time. The Company's asset and liability management strategy is formulated
and monitored by the Bank's Asset/Liability Management Committee, which is
comprised of senior officers of the Bank, in accordance with policies approved
by the Board of Directors of the Bank.
The Asset/Liability Management Committee's methods for evaluating
interest rate risk include an analysis of the Bank's interest rate sensitivity
"gap," which is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time period. A
gap is considered positive when the amount of interest-rate sensitive assets
exceeds the amount of interest-rate sensitive liabilities. A gap is considered
negative when the amount of interest-rate sensitive liabilities exceeds
interest-rate sensitive assets. During a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a
positive gap would tend to affect net interest income adversely.
12
The following table summarizes the anticipated maturities or repricing
of the Company's interest-earning assets and interest-bearing liabilities as of
March 31, 2000, based on the information and assumptions set forth in notes
below.
More Than More Than
Three to One Year Three Years
Within Three Twelve to to Five Over Five
Months Months Three Years Years Years Total
------ ------ ----------- ----- ----- -----
(Dollars in Thousands)
Interest-earning assets: (1)
Loans receivable(2)
Single-family residential:
Fixed.............................. $ 27,818 $ 118,989 $ 235,893 $ 198,879 $ 452,867 $1,034,446
Adjustable ........................ 139,081 105,275 69,521 112,033 -- 425,910
Multi-family residential:
Fixed.............................. 5,438 2,060 5,926 4,271 14,696 32,391
Adjustable ........................ 287,359 -- -- -- -- 287,359
Commercial, industrial and land:
Fixed.............................. 4,402 23,209 50,074 49,011 104,401 231,097
Adjustable ........................ 154,860 68,523 -- -- -- 223,383
Other loans(3)........................ 152,911 130,463 98,688 62,941 9,917 454,920
Mortgage-backed and other securities (4). 90,776 21,965 37,599 51,716 234,774 436,830
Other interest-earning assets (5)........ 326,969 -- -- -- 158,430 485,399
-----------------------------------------------------------------------------------------
Total......................... $1,189,614 $ 470,484 $ 497,701 $ 478,851 $ 975,085 $3,611,735
=========================================================================================
Interest-bearing liabilities:
Deposits:
Checking accounts.................... $ 138,602 -- -- -- -- $ 138,602
Passbook accounts.................... 139,173 -- -- -- -- 139,173
Money market accounts................ 253,852 -- -- -- -- 253,852
Term certificates of deposit......... 308,264 675,751 230,972 10,752 62 1,225,801
Other borrowings......................... 220,000 130,449 727,109 170,000 180,000 1,427,558
-----------------------------------------------------------------------------------------
Total......................... $1,059,891 $ 806,200 $ 958,081 $ 180,752 $ 180,062 $3,184,986
=========================================================================================
Excess (deficiency) of interest earning
assets over interest-bearing liabilities 129,723 (335,716) (460,380) 298,099 795,023 426,749
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities
as a percent of total assets........... 3.62% (9.36%) (12.83%) 8.31% 22.16% 11.90%
===========================================================================
Cumulative excess (deficiency) of
interest-earning assets over interest
-bearing liabilities................... $ 129,723 $ (205,993) $ (666,373) $ (368,274) $ 426,749
===========================================================================
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities as a percentage of
total assets........................... 3.62% (5.74%) (18.57%) (10.27%) 11.90%
===========================================================================
- --------------------------------------------------------------------------------
(1) Adjustable-rate loans are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are
due, and fixed rate loans are included in the periods in which they are
scheduled to be repaid, based on scheduled amortization, in each case as
adjusted to take into account estimated prepayments based on assumptions
used by the Office of Thrift Supervision ("OTS") in assessing the interest
rate sensitivity of savings associations in the Company's region.
(2) Balances have been reduced for non-performing loans, which amounted to $7.5
million at March 31, 2000.
(3) Comprised of commercial and consumer loans and loans secured by deposits.
(4) Does not include an unrealized loss on securities available for sale of
$45.3 million.
(5) Comprised of short-term investments, securities purchased under agreements
to resell, investment securities and FHLB stock.
13
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Liquidity refers to a company's ability to generate sufficient cash to
meet the funding needs of current loan demand, deposit withdrawals, principal
and interest payments with respect to outstanding borrowings and to pay
operating expenses. The Bank monitors its liquidity in accordance with
guidelines established by the Bank and applicable regulatory requirements. The
Bank's need for liquidity is affected by loan demand, net changes in deposit
levels and the scheduled maturities of its borrowings. The Bank can minimize the
cash required during the times of heavy loan demand by modifying its credit
policies or reducing its marketing effort. Liquidity demand caused by net
reductions in deposits are usually caused by factors over which the Bank has
limited control. The Bank derives its liquidity from both its assets and
liabilities. Liquidity is derived from assets by receipt of interest and
principal payments and prepayments, by the ability to sell assets at market
prices and by utilizing unpledged assets as collateral for borrowings. Liquidity
is derived from liabilities by maintaining a variety of funding sources,
including deposits, advances from the FHLB of San Francisco and other short and
long-term borrowings.
At March 31, 2000, the Bank had $1.10 billion in borrowing capacity
under a collateralized line of credit with the FHLB of San Francisco. At March
31, 2000, the Bank had total FHLB advances of $1.06 billion with a weighted
average interest rate of 6.10%, which mature between 2000 and 2008.
Additionally, at March 31, 2000, the Bank had securities sold under agreements
to repurchase totaling $366.1 million with a weighted average interest rate of
6.25%, which mature between 2001 and 2008.
At March 31, 2000, the Bank had outstanding commitments (including
unused lines of credit) to originate and/or purchase mortgage and non-mortgage
loans of $140.1 million. Certificates of deposit which are scheduled to mature
within one year totaled $984.0 million at March 31, 2000, and borrowings that
are scheduled to mature within the same period amounted to $350.4 million.
Management anticipates that it will have sufficient funds available to meet its
current loan commitments.
CAPITAL RESOURCES
The OTS capital regulations include three separate minimum capital
requirements for savings institutions - a "tangible capital requirement," a
"leverage limit" and a "risk based capital requirement." These capital standards
must be no less stringent than the capital standards applicable to national
banks.
As of March 31, 2000 the Bank was deemed to be "well capitalized" under
applicable requirements. To be categorized as "well capitalized", the Bank must
maintain minimum tier 1 leverage capital, tier 1 risk-based capital and total
risk-based capital ratios as set forth in the table below. The following table
reflects the Bank's actual levels of regulatory capital and applicable
regulatory capital requirements at March 31, 2000:
Well Capitalized
Minimum Requirement Actual Excess
------------------- ------ ------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Tangible capital...................... $ 71,368 2.00% $ 222,996 6.25% $ 151,628 4.25%
Tier 1 leverage capital .............. 178,419 5.00 222,996 6.25 44,577 1.25
Tier 1 risk-based capital ............ 133,905 6.00 222,996 9.99 89,091 3.99
Total risk-based capital ............. 223,175 10.00 243,388 10.91 20,213 0.91
14
LOAN PORTFOLIO COMPOSITION
The following table sets forth the composition of the Bank's loan portfolio
at the dates indicated:
March 31, 2000 December 31, 1999
------------------------------------- --------------------------------------
Percent of Percent of
Amount Total Amount Total
---------------- ---------------- ---------------- ----------------
(Dollars in Thousands)
Mortgage loans:
Single-family residential.................. $1,462,118 54% $1,475,151 57%
Multi-family residential................... 320,319 12 327,252 13
Commercial................................. 458,338 17 420,919 16
Land and other ............................ 712 -- 847 --
---------------- ---------------- ---------------- ----------------
Total mortgage loans ................... 2,241,487 83 2,224,169 86
---------------- ---------------- ---------------- ----------------
Other loans:
Commercial business........................ 213,580 8 151,515 6
Consumer................................... 240,137 9 199,879 8
Secured by deposits........................ 1,849 -- 1,918 --
---------------- ---------------- ---------------- ----------------
Total loans receivable.................. 2,697,053 100% 2,577,481 100%
---------------- ================ ---------------- ================
Less:
Undisbursed loan proceeds ................. 111,781 95,683
Unamortized net loan discounts and
deferred originations fees.............. 216 4,045
Deferred gain on servicing sold............ 1,888 2,090
Allowance for loan losses ................. 23,845 21,051
-------------- ----------------
Loans receivable, net.......................... $2,559,323 $2,454,612
================ ================
15
The following table sets forth information with respect to
non-performing assets identified by the Bank, including non-accrual loans, real
estate owned and troubled debt restructurings at the dates indicated:
March 31, 2000 December 31, 1999
-------------- -----------------
(Dollars in Thousands)
-------------------------------------------------------
Non-performing loans, net:
Mortgage loans:
Single-family residential loans.................... $ 1,762 $ 2,331
Multi-family residential loans..................... 569 557
Commercial real estate loans....................... 4,570 20
Commercial business loans.............................. 433 163
Consumer loans......................................... 212 107
---------------------- -----------------------
Total non-performing loans, net........................ 7,546 3,178
---------------------- -----------------------
Real estate owned, net:
Single-family residential.......................... 1,346 846
---------------------- -----------------------
Total real estate owned, net........................... 1,346 846
---------------------- -----------------------
Total non-performing assets............................ 8,892 4,024
Troubled debt restructurings........................... 5,240 6,470
---------------------- -----------------------
Total non-performing assets and troubled debt
restructurings..................................... $14,132 $10,494
Non-performing loans to total loans, net............... 0.29% 0.13%
Non-performing loans to total assets................... 0.21 0.09
Non-performing assets to total assets.................. 0.25 0.12
Total non-performing assets and troubled debt
restructurings to total assets..................... 0.39 0.31
Non-performing assets as presented in the table above and stated at
fair value as of March 31, 2000 and December 31, 1999 were $8.9 million and $4.0
million, respectively. The increase in non-performing assets was primarily due
to one commercial real estate loan going into default status. As a result, the
ratio of non-performing assets to total assets increased from 0.12% at December
31, 1999 to 0.25% at March 31, 2000.
16
The following table sets forth the activity in the Bank's allowance for
loan losses during the periods indicated:
For the Three Months Ended
March 31,
-----------------------------------------
2000 1999
------------------- -------------------
(Dollars in Thousands)
-----------------------------------------
BEGINNING BALANCE....................................................... $ 21,051 $ 18,897
------------------- -------------------
Addition to allowance due to Bank of Hollywood acquisition.............. 2,084 --
Provision for loan losses............................................... 1,500 1,050
------------------- -------------------
CHARGE-OFFS:
Single-family residential loans......................................... -- (402)
Commercial real estate loans............................................ (7) (39)
Commercial business loans............................................... (182) (703)
Consumer loans.......................................................... (653) (37)
------------------- -------------------
Total charge-offs.................................................... (842) (1,181)
------------------- -------------------
RECOVERIES:
Single-family residential loans......................................... -- 1
Commercial business..................................................... -- 4
Consumer................................................................ 52 --
------------------- -------------------
Total recoveries........................................................ 52 5
------------------- -------------------
Net charge-offs......................................................... (790) (1,176)
------------------- -------------------
ENDING BALANCE ......................................................... $ 23,845 $ 18,771
=================== ===================
Allowance for loan losses to total non-performing loans at end of
period............................................................... 316.00% 250.78%
Allowance for loan losses to total non-performing loans and
troubled debt restructurings at the end of period.................... 186.49% 150.53%
Allowance for loan losses to total gross loans, at the end of period.... 0.88% 0.88%
Net loan charge-offs were $790,000 for the three months ended March 31,
2000, a decrease of $386,000 from $1.2 million for three months ended March 31,
1999. The decrease in net charge-offs was primarily due to decreases in real
estate and commercial business loan charge-offs, which were partially offset by
increases in consumer loan charge-offs.
17
On an ongoing basis, management monitors the loan portfolio and
evaluates the adequacy of the allowance for loan losses. In determining the
adequacy of the allowance for loan losses, management considers such factors as
historical loan loss experience, underlying collateral values, evaluations made
by bank regulatory authorities, assessment of economic conditions and other
appropriate data to identify the risks in the loan portfolio.
The following table sets forth information concerning the allocation
of the Bank's allowance for loan losses by loan category at the dates indicated.
March 31, 2000 December 31, 1999
-------------- -----------------
Percent to Percent to
Total Total
Amount Allowance Amount Allowance
------ --------- ------ ---------
(Dollars in Thousands)
Residential real estate........ $ 2,742 11.5% $ 5,020 23.8%
Multi-family residential....... 5,501 23.1 4,990 23.7
Commercial real estate......... 4,391 18.4 4,073 19.4
Land 36 0.1 42 0.2
Commercial business............ 6,693 28.1 3,959 18.8
Consumer ...................... 167 0.7 243 1.2
Auto 4,315 18.1 2,724 12.9
------------ ---------- ------------ ----------
Total..................... $23,845 100.0% $21,051 100.0%
============ ========== ============ ==========
Based on management's analysis of loss experience and various other
factors of the loan portfolio components, certain percentage allocations were
revised at March 31, 2000.
Loans deemed by management to be uncollectible are charged to the
allowance for loan losses. Recoveries on loans previously charged off are
credited to the allowance. Provisions for loan losses are charged to expense and
credited to the allowance in amounts deemed appropriate by management based upon
its evaluation of the known and inherent risks in the loan portfolio.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
18
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
LIST OF EXHIBITS (FILED HEREWITH UNLESS INDICATED)
No. Description
- ------------ -------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of PBOC Holdings,
Inc.(1)
3.2 Bylaws of PBOC Holdings, Inc.(1)
4 Stock Certificate of PBOC Holdings, Inc.(2)
10.1 Employment Agreement between PBOC Holdings, Inc.,
People's Bank of California and Rudolf P. Guenzel (1)
10.2 Employment Agreement between PBOC Holdings, Inc.,
People's Bank of California and J. Michael Holmes (1)
10.3 Employment Agreement between PBOC Holdings, Inc.,
People's Bank of California and William W. Flader (1)
10.4 Employment Agreement between the People's Bank of California and
Doreen J. Blauschild (2)
10.5 Deferred Compensation Plan (1)
10.6 Grantor Trust (1)
10.7 Shareholder Rights Agreement (1)
10.8 Stockholders' Agreement (1)
10.9 1999 Stock Option Plan (3)
10.10 2000 Stock Incentive Plan (4)
27 Financial Data Schedule
- ----------
(1) Incorporated by reference from the Company's Form 10-K filed by the
Registrant with the SEC on December 31, 1998.
(2) Incorporated by reference from the Registration Statement on Form S-1
(Registration No. 333-48397) filed by the Registrant with the SEC on March
20, 1998, as amended.
19
(3) Incorporated by reference from the Company's Proxy Statement on Schedule
14A as filed on March 22, 1999 (File No. 000-24215).
(4) Incorporated by reference from the Company's Proxy Statement on Schedule
14A as filed on March 23, 2000 (File No. 000-24215).
No reports on form 8-K have been filed during the quarter ended March 31,
2000.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PBOC HOLDINGS, INC.
Date: May 15, 2000 By: /s/ RUDOLF P. GUENZEL
---------------------------------------
Rudolf P. Guenzel
President and Chief Executive Officer
By: /s/ J. MICHAEL HOLMES
---------------------------------------
J. Michael Holmes
Senior Executive Vice President and
Chief Financial Officer
21