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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 SEPTEMBER 30, 2000
COMMISSION FILE NUMBER: 000-24215
PBOC HOLDINGS, INC.
DELAWARE 33-0220233
------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
5900 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90036
(323) 938-6300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(b) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest possible date:
CLASS SHARES OUTSTANDING AT NOVEMBER 1, 2000
----- ---------------------------------------
Common Stock, $.01 par value 19,876,205
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1
PBOC HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
-------------------------------
ITEM 1. FINANCIAL STATEMENTS PAGE
----
Consolidated Statements of Financial Condition - September 30, 2000
and December 31, 1999......................................................................... 3
Consolidated Statements of Operations - Three and Nine months ended
September 30, 2000 and 1999................................................................... 4
Consolidated Statements of Comprehensive Earnings (Loss) - Three and Nine
months ended September 30, 2000 and 1999...................................................... 5
Consolidated Statements of Cash Flows - Nine months ended September 30, 2000
and 1999...................................................................................... 6
Notes to Consolidated Financial Statements.................................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................................................ 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................... 21
PART II -- OTHER INFORMATION
----------------------------
ITEMS 1-5 NOT APPLICABLE................................................................................... 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................................................ 22
SIGNATURES....................................................................................... 23
2
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------------- -------------------
(Unaudited)
ASSETS
------
Cash and cash equivalents................................................ $ 29,039 $ 19,582
Federal funds sold....................................................... 28,800 2,000
Securities available-for-sale, at estimated market values................ 514,585 771,864
Mortgage-backed securities held-to-maturity, market values
$3,918 at September 30, 2000 and $4,274 at December 31, 1999............. 3,924 4,326
Loans receivable, net.................................................... 2,531,929 2,462,837
Real estate held for sale, net........................................... 1,006 846
Premises and equipment, net.............................................. 6,818 7,105
Federal Home Loan Bank stock, at cost.................................... 58,082 66,643
Accrued interest receivable.............................................. 18,944 16,863
Goodwill ................................................................ 21,174 7,246
Deferred tax assets...................................................... 55,145 31,569
Other assets............................................................. 7,241 7,347
-------------------- -------------------
Total assets........................................................ $3,276,687 $3,398,228
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits................................................................. $2,000,631 $1,647,337
Securities sold under agreements to repurchase........................... 135,000 381,109
Advances from Federal Home Loan Bank..................................... 871,000 1,123,700
Accrued expenses and other liabilities................................... 12,293 28,754
Other borrowings - line of credit........................................ -- 4,621
-------------------- -------------------
Total liabilities..................................................... 3,018,924 3,185,521
-------------------- -------------------
Company-obligated mandatorily redeemable preferred securities of a
subsidiary trust holding solely junior subordinated deferrable
interest notes of the Company......................................... 10,000 --
Minority interest........................................................ 33,250 33,250
Stockholders' equity:
Common stock, par value $.01 per share. Authorized 75,000,000 shares;
issued 21,876,205 shares; and outstanding 19,876,205 and 19,941,005
at September 30, 2000 and December 31, 1999, respectively........... 219 219
Treasury stock, at cost (2,000,000 shares and 1,935,200 shares at
September 30, 2000 and December 31, 1999, respectively)............. (19,331) (18,710)
Additional paid-in capital............................................ 259,207 259,260
Accumulated other comprehensive loss.................................. (32,353) (38,300)
Retained earnings (accumulated deficit)............................... 6,771 (23,012)
-------------------- -------------------
Total stockholders' equity...................................... 214,513 179,457
-------------------- -------------------
Total liabilities and stockholders' equity...................... $3,276,687 $3,398,228
==================== ===================
See accompanying notes to consolidated financial statements.
3
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
------------ ---------------- ------------ ---------------
Interest, fees and dividend income:
Short term investments ................................. $ 1,246 $ 194 $ 3,306 $ 853
Securities purchased under agreements to resell ........ -- -- 267 396
Investment securities .................................. 6,334 6,064 18,769 17,894
Mortgage-backed securities ............................. 6,255 9,387 19,603 26,219
Loans receivable ....................................... 48,897 43,056 146,416 121,278
Federal Home Loan Bank stock ........................... 1,062 857 3,231 2,494
------------ ------------ ------------ ------------
Total interest, fees and dividend income .......... 63,794 59,558 191,592 169,134
------------ ------------ ------------ ------------
Interest expense:
Deposits ............................................... 25,009 18,189 66,979 53,867
Advances from the Federal Home Loan Bank ............... 16,246 17,031 49,186 49,468
Securities sold under agreements to repurchase ......... 5,401 6,382 18,654 16,957
Other borrowings ....................................... 260 -- 569 --
Hedging costs, net ..................................... 8 32 67 113
------------ ------------ ------------ ------------
Total interest expense ............................ 46,924 41,634 135,455 120,405
------------ ------------ ------------ ------------
Net interest income ....................................... 16,870 17,924 56,137 48,729
Provision for loan losses .............................. 2,500 1,200 5,500 3,300
------------ ------------ ------------ ------------
Net interest income after provision for loan
losses........................................... 14,370 16,724 50,637 45,429
------------ ------------ ------------ ------------
Other income:
Loan service and loan related fees ..................... 169 116 568 183
Gain (loss) on mortgage-backed securities sales, net ... (8,330) 3 (8,203) 200
Gain on loan and loan servicing sales, net ............. 2 -- 4 49
Income (loss) from real estate operations, net ......... (48) 418 (37) 533
Deposit fee income ..................................... 634 434 1,897 1,340
Other income ........................................... 82 145 383 459
------------ ------------ ------------ ------------
Total other income (loss) ......................... (7,491) 1,116 (5,388) 2,764
Operating expenses:
Personnel and benefits ................................. 4,442 3,994 13,607 11,702
Occupancy .............................................. 2,821 2,651 8,548 7,203
FDIC insurance ......................................... 237 368 663 1,041
Professional services .................................. 718 280 2,139 964
Office related expenses ................................ 1,215 1,431 4,378 3,835
Other ................................................ 1,774 1,299 4,707 2,619
------------ ------------ ------------ ------------
Total operating expenses .......................... 11,207 10,023 34,042 27,364
------------ ------------ ------------ ------------
Earnings (loss) before income taxes (benefit) and minority
interest................................................ (4,328) 7,817 11,207 20,829
Income taxes (benefit) .................................... 807 (1,500) (21,184) (3,500)
------------ ------------ ------------ ------------
Earnings (loss) before minority interest .................. (5,135) 9,317 32,391 24,329
Minority interest ......................................... 869 869 2,607 2,607
------------ ------------ ------------ ------------
Net earnings (loss) ............................... $ (6,004) $ 8,448 $ 29,784 $ 21,722
============ ============ ============ ============
Earnings (loss) per share basic and diluted ............... $ (0.30) $ 0.41 $ 1.50 $ 1.06
============ ============ ============ ============
Basic and diluted weighted average shares ................. 19,876,205 20,423,705 19,877,821 20,533,824
See accompanying notes to consolidated financial statements.
4
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
Net earnings (loss) ........................................ $ (6,004) $ 8,448 $ 29,784 $ 21,722
Other comprehensive loss:
Unrealized gain (loss) on securities available-for-sale.. 7,118 (12,326) (2,256) (31,451)
Reclassification of realized loss included in earnings... 8,330 3 8,203 200
-------- -------- -------- --------
Other comprehensive earnings (loss) ..................... 15,448 (12,323) 5,947 (31,251)
-------- -------- -------- --------
Comprehensive earnings (loss) .............................. $ 9,444 $ (3,875) $ 35,731 $ (9,529)
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
5
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
2000 1999
------------------- -------------------
Cash flows from operating activities:
Net earnings ................................................................... $ 29,784 $ 21,722
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Provision for loan losses................................................... 5,500 3,300
Depreciation................................................................ 1,443 1,359
Amortization/accretion of premiums, discounts and deferred fees ............ (5,049) 8,960
Increase in net deferred tax assets......................................... (22,630) (3,750)
Amortization of purchase accounting intangibles............................. 135 139
(Gain) loss on sale of securities available-for-sale........................ 8,203 (200)
(Gain) loss on sale of real estate owned................................... 3 (562)
FHLB stock dividend......................................................... (3,228) (2,528)
Increase in accrued interest receivable..................................... (1,494) (1,496)
Decrease in accrued interest payable........................................ (732) (1,086)
(Increase) decrease in other assets......................................... 1,150 (2,690)
Amortization for discontinued lease operations.............................. 38 38
Increase (decrease) in accrued expenses and other liabilities............... (15,947) 6,148
Gain on sale of loans ...................................................... (4) (49)
Amortization of goodwill.................................................... 1,412 240
------------------- -------------------
Net cash provided by (used in) operating activities......................... (1,416) 29,545
------------------- -------------------
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale............................ 272,458 121,331
Proceeds from sale of loans .................................................... 464 92,548
Investment and mortgage-backed securities principal repayments and maturities... 361,048 128,457
Loan originations, net of repayments............................................ 5,122 (196,237)
Purchases of investments and mortgage-backed securities available-for-sale...... (330,090) (270,731)
Purchases of loans.............................................................. (9,823) (193,148)
Cost capitalized on real estate, net of insurance settlements................... 123 46
Proceeds from the sale of real estate........................................... 831 7,691
Net increase in premises and equipment.......................................... (489) (1,145)
Redemption of FHLB stock........................................................ 11,789 --
Bank of Hollywood acquisition................................................... 12,063 --
------------------- -------------------
Net cash provided by (used in) investing activities............................. 323,496 (311,188)
------------------- -------------------
Cash flows from financing activities:
Purchases of treasury stock .................................................... (621) (6,152)
Net increase in deposits........................................................ 208,228 148,954
Net increase (decrease) in securities sold under agreements to repurchase....... (246,109) 64,901
Issuance of FHLB advances....................................................... 4,886,379 721,950
Repayments of FHLB advances..................................................... (5,139,079) (674,950)
Net change in other borrowings - line of credit................................. (4,621) --
Issuance of preferred securities of a subsidiary trust.......................... 10,000 --
------------------- -------------------
Net cash provided by (used in) financing activities............................ (285,823) 254,703
------------------- -------------------
Net increase (decrease) in cash..................................................... 36,257 (26,940)
Cash and cash equivalents at beginning of period.................................... 21,582 46,401
------------------- -------------------
Cash and cash equivalents at end of period.......................................... $ 57,839 $ 19,461
=================== ===================
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest...................................................................... $ 136,187 $ 121,377
Income taxes.................................................................. 2,690 330
Supplemental schedule of non cash investing and financing activities:
Foreclosed real estate.......................................................... 1,185 6,384
Transfer of loans held for investment to loans held for sale.................... 460 92,499
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 PBOC Capital Trust I (the "subsidiary trust") in
which the Company owns all the common stock (see Note 7 herein), and 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 nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent 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
September 30, 2000 and 1999 were 19,876,205 and 20,423,705, respectively. The
weighted average number of shares of common stock for the nine months ended
September 30, 2000 and 1999 were 19,877,821 and 20,533,824, respectively.
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 and SFAS No. 138. Among other things,
it amends SFAS No.107, "Disclosure about Fair Value of Financial
Instruments," to include in SFAS No. 107 disclosure provisions about
concentrations of credit risk from SFAS No. 105. SFAS 133 established
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation,
an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. This Statement, as
amended, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. In June 2000, SFAS No. 133 was further amended by SFAS No.
138, which addresses a limited number of issues causing implementation
difficulties for numerous entities that apply SFAS No. 133. SFAS No. 138 also
amends SFAS No. 133 for the decisions reached by the Derivatives
Implementation Group Process. Management believes that adoption of SFAS 133,
as amended, will not have a material impact on the Company's financial
position and results of operations.
6. VOLUNTARY SUPERVISORY AGREEMENT
On June 16, 2000, the Company formalized on-going plans to reduce
interest rate risk, strengthen its lending infrastructure, and fill open
positions on the Board of Directors at the request of the Office of Thrift
Supervision ("OTS") through a voluntary supervisory agreement between the OTS
and the Bank. The adoption of the supervisory agreement formalizes many of
the steps the Company has already taken to expand and strengthen its lending
programs, particularly in the consumer and commercial areas.
7. COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF A
SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEFERRABLE INTEREST
NOTES OF THE COMPANY
On July 26, 2000, the subsidiary trust, a subsidiary of the
Company, issued $309,000 of 11.045% Common Securities (the "common
securities") to the Company and $10,000,000 of 11.045% Trust Preferred
Securities (the "preferred securities") in a private placement transaction.
In connection with the subsidiary trust's issuance of the common securities
and the preferred securities, the Company, issued to the subsidiary trust
$10,309,000 principal amount of its 11.045% junior subordinated notes, due
July 2030 (the "subordinated notes"). The sole assets of the subsidiary trust
are and will be the subordinated notes. The Company's, obligations under the
subordinated notes and related agreements, taken together, constitute a full
and unconditional guarantee by the Company of the subsidiary trust's
obligations under the preferred securities.
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
8
ACTUAL RESULTS FOR FUTURE PERIODS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED
OR PROJECTED. THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY
OBLIGATION, TO UPDATE ANY FORWARD-LOOKING STATEMENTS TO REFLECT OCCURRENCES
OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.
ACQUISITION OF THE BANK OF HOLLYWOOD
On January 31, 2000, the Company completed the acquisition of The Bank
of Hollywood ("BOH"), a California-chartered commercial bank with $157.4
million in assets and $145.1 million in deposits for a cash purchase price of
$27.4 million. In connection with the acquisition, the Company recorded an
addition of $15.3 million in Goodwill which is being amortized on a
straight-line basis over 15-years.
PENDING ACQUISITIONS
On October 4, 2000, the Company announced the execution of an
agreement to acquire two branch offices and related deposits from Universal
Bank, a West Covina based bank. The purchase of the Encino and Woodland Hills
offices includes buildings, furniture, fixtures and equipment. The branches
have a combined deposit base of just over $54 million. The transaction,
pending regulatory approval, will be accounted for as a purchase and is
expected to be completed in December 2000.
On November 2, 2000, the Company announced the signing of a
definitive merger agreement for the Company to acquire BYL Bancorp and its
wholly owned commercial bank subsidiary, BYL Bank Group ("BYL"). BYL, which
was chartered as a California commercial bank in 1980, is headquartered in
Orange, California and operates seven full-service branches and two loan
origination offices in Orange and Riverside counties. The combined
institution will have 31 branch offices and approximately $3.6 billion in
total assets, servicing Los Angeles, Orange, Ventura and Riverside counties.
BYL also originates for sale, single-family residential loans. BYL had total
assets of $322.3 million, total deposits of $293.3 million and stockholders'
equity of $29.0 million at June 30, 2000.
Under the terms of the agreement, which was approved unanimously by
both boards of directors, holders of BYL Bancorp common stock will receive
$15.00 in cash for each share of BYL common stock owned. The cash amount may
be adjusted upward or downward under certain circumstances which are set
forth in the agreement. The transaction, which has an approximate value of
$39 million, will be accounted for as a purchase and will add $11 million in
goodwill to the balance sheet. The purchase is expected to close during the
first half of calendar 2001 pending regulatory approvals and approval of
BYL's shareholders.
FINANCIAL CONDITION
ASSETS.
At September 30, 2000 the Company's consolidated assets were of $3.3
billion, a decrease of $121.5 million or 4%, from $3.4 billion at December
31, 1999. The decrease was primarily the result of the sale and principal
repayments of securities available-for-sale of $257.3 million and a decrease
in the Federal Home Loan Bank stock ("FHLB") of $8.6 million. These decreases
were partially offset by increases in net loans receivable of $69.1 million,
cash and federal funds sold of $36.3 million, the goodwill asset account
(primarily due to the BOH acquisition) of $13.9 million, and an increase in
deferred tax assets of $23.6 million.
LOAN PORTFOLIO.
Total loans receivable at September 30, 2000 were $2.6 billion an
increase of $39.3 million from December 31, 1999. The increase in loan
receivable balances was primarily the result of the origination of new loans.
During the first nine months of 2000 the Company's loan originations were
$355.5 million, exclusive of the $66.7 million acquired through The Bank of
Hollywood acquisition. Including the BOH acquisition total new loan
originations were $422.2 million, of which business, commercial real estate
and consumer new loan originations and purchases accounted for $350.2
million, or 83.0%. Single and multi-family new loan originations and
purchases accounted for $72.0 million or 17.0%. Loan repayments of $342.9
million offset this increase in loans receivable.
9
The following table sets forth the composition of the Bank's loan portfolio
at the dates indicated:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------------------- --------------------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
---------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
Mortgage loans:
Single-family residential.................. $1,397,526 53% $1,475,151 57%
Multi-family residential................... 315,266 12 327,252 13
Commercial................................. 458,345 18 420,919 16
Land ..................................... 706 -- 847 --
---------------- ---------------- ---------------- ----------------
Total mortgage loans ................... 2,171,843 83 2,224,169 86
---------------- ---------------- ---------------- ----------------
Other loans:
Commercial business........................ 181,209 7 159,740 6
Consumer................................... 269,376 10 199,879 8
Secured by deposits........................ 2,595 -- 1,918 --
---------------- ---------------- ---------------- ----------------
Total loans receivable.................. 2,625,023 100% 2,585,706 100%
---------------- ================ ---------------- ================
Less:
Undisbursed loan proceeds ................. 67,510 95,683
Unamortized net loan discounts and
Deferred origination fees............... (2,256) 4,045
Deferred gain on servicing sold............ 1,509 2,090
Allowance for loan losses ................. 26,331 21,051
---------------- ----------------
Loans receivable, net.......................... $2,531,929 $2,462,837
================ ================
LIABILITIES
During the nine months ended September 30, 2000, the Company reduced
higher cost borrowings by decreasing the securities sold under agreements to
repurchase by $246.1 million and reducing FHLB advances by $252.7 million.
These decreases were funded by an increase of $353.3 million in deposits and
a decrease in securities available-for-sale of $257.3 million.
The following table sets forth the composition of the Bank's deposits at the
dates indicated:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------------------- --------------------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
---------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
Transaction accounts:
Checking accounts.......................... $ 281,747 14.1% $ 214,113 13.0%
Passbook accounts.......................... 112,524 5.6 134,377 8.1
Money market accounts...................... 273,673 13.7 152,899 9.3
---------------- ---------------- ---------------- ----------------
Transaction accounts.................... 667,944 33.4 501,389 30.4
---------------- ---------------- ---------------- ----------------
Term Certificates:
Certificates of deposit.................... 931,288 46.5 825,515 50.1
$100,000 and over.......................... 401,399 20.1 320,433 19.5
---------------- ---------------- ---------------- ----------------
Total certificates...................... 1,332,687 66.6 1,145,948 69.6
---------------- ---------------- ---------------- ----------------
Total deposits................................. $2,000,631 100.0% $1,647,337 100.0%
================ ================ ================ ================
10
Transaction accounts increased to $667.9 million, or 33% of total
deposits at September 30, 2000, an increase of $166.6 million compared to
$501.4 million at December 31, 1999. Checking accounts comprised 41% of the
increase in transaction accounts.
EQUITY.
The Company's stockholders' equity increased by $35.1 million to
$214.5 million at September 30, 2000 from December 31, 1999. The increase was
primarily due to the Company's net earnings of $29.8 million and a decrease
in the unrealized loss on securities available-for-sale of $5.9 million,
offset by an additional purchase of treasury stock during the period of
$621,000.
RESULTS OF OPERATIONS
The Company reported a net loss for the third quarter 2000 of $6.0
million, or $0.30 per diluted share compared to net earnings of $8.4 million,
or $0.41 per diluted share during the same period a year ago. The third
quarter 2000 loss was the result of steps taken by the Company to improve its
net interest margin and reduce interest rate risk by selling $197.4 million
of low-yielding fixed-rate securities from its available-for-sale portfolio.
On a proforma fully-tax-effected basis and excluding the $8.7 million loss on
the sale of fixed-rate securities, net earnings for the third quarter would
have been $1.7 million, or $0.09 per diluted share compared to fully-taxed
earnings in the like quarter a year ago of $3.8 million, or $0.18 per diluted
share.
Net earnings for the nine months ended September 30, 2000 were $29.8
million, or $1.50 per diluted share compared to $21.7 million, or $1.06 per
diluted share during the like period a year ago. On a proforma
fully-tax-effected basis and excluding the $8.7 million loss on the sale of
securities, net earnings for the nine months ended September 30, 2000 would
have been $9.2 million, or $0.46 per diluted share, compared to a proforma
fully-tax-effected net earnings of $9.7 million, or $0.47 per diluted share
during the like period a year ago.
FINANCIAL RATIOS
The table below reflects selected financial performance ratios:
Financial Ratios: Three months ended September 30, Nine months ended September 30,
----------------------------------- ----------------------------------
2000 1999 2000 1999
---------------- --------------- --------------- ---------------
Return (loss) on average assets.................. (0.68)% 0.94% 1.12% 0.85%
Proforma return on average assets,
fully-tax-effected, excluding losses
on securities sales 0.19 0.42 0.34 0.38
Return (loss) on average equity.................. (11.88) 20.18 20.98 16.97
Proforma return on average equity,
fully-tax-effected, excluding losses
on securities sales 3.36 8.98 6.45 7.60
Average equity to average assets................. 5.70 4.68 5.33 4.98
Interest-earning assets to interest-bearing
liabilities................................... 106.02 105.65 105.68 105.49
Interest rate spread............................. 1.66 1.81 1.84 1.65
Net interest margin.............................. 1.95 2.03 2.14 1.92
Operating expenses to average assets............. 1.27 1.12 1.28 1.07
Efficiency ratio excluding losses on
securities sales.............................. 62.13 52.64 57.30 53.14
NET INTEREST INCOME
A higher cost of funds impacted the net interest margin in the third
quarter. The net interest margin was 1.95% compared to 2.03% for the third
quarter of 1999 and 2.20% for the second quarter of 2000. The net
11
interest margin for the nine months ended September 30, 2000 was 2.14%, an
improvement over 1.92% for the same period a year ago. Impacted by the higher
cost of funds, net interest income before provision for loan losses for the
third quarter decreased 6% to $16.9 million, compared to $17.9 million in the
year-ago quarter. Net interest income before provision for loan losses for
the first nine months of 2000 rose 15% to $56.1 million from $48.7 million in
the comparable period of 1999. The loan loss provision was $2.5 million in
the third quarter 2000, an increase of $1.3 million over the third quarter of
1999. This increase coupled with the higher cost of funds led to a decrease
in net interest income after provision for loan losses to $14.4 million for
the third quarter 2000 compared to $16.7 million for the like quarter a year
ago. Net interest income after provision for loan losses for the first nine
months of 2000 increased 11% to $50.6 million compared to $45.4 million in
the like period a year ago.
The Company's interest rate spread was 1.66% for the three months
ended September 30, 2000, compared to 1.81% for the same period in 1999. This
decrease in the interest rate spread was due primarily to the increased cost
of deposits and borrowings. For the nine months ended September 30, 2000, the
interest rate spread was 1.84% an increase of 19 basis points higher than the
1.65% reported in the like period a year ago.
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 September 30,
--------------------------------------------------------------------------------------
2000 1999
------------------------------------------ -----------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
----------- ----------- ------------ ---------- ----------- ----------
(Dollars in thousands)
Interest-earning assets:
Loans receivable(1) ............. $2,570,748 $ 48,897 7.61% $2,382,557 $ 43,056 7.23%
Mortgage-backed securities (2) .. 402,506 6,255 6.22 659,544 9,387 5.69
Other interest-earning assets (3) 433,231 7,580 7.00 415,639 6,258 6.02
FHLB stock ...................... 57,873 1,062 7.30 65,505 857 5.19
---------- ---------- ---------- ----------
Total interest-earning assets ... 3,464,358 63,794 7.37% 3,523,245 59,558 6.76%
---------- ====== ---------- ======
Non-interest-earning assets ....... 60,704 27,231
---------- ----------
Total assets ................ $3,525,062 $3,550,476
========== ==========
Interest-bearing liabilities:
Deposits:
Transaction accounts(4) ....... $ 639,892 5,005 3.11% $ 445,005 3,269 2.91%
Term certificates of deposit .. 1,284,794 20,004 6.19 1,190,516 14,920 4.97
---------- ---------- ---------- ----------
Total deposits ............ 1,924,686 25,009 5.17 1,635,521 18,189 4.41
Other borrowings (5) ............ 1,334,093 21,647 6.46 1,699,195 23,413 5.47
Other borrowings - line of credit 1,555 58 14.84 -- -- --
Preferred securities of a
subsidiary trust .......... 7,204 202 11.17 -- -- --
Hedging costs ................... -- 8 -- -- 32 --
---------- ---------- ---------- ----------
Total interest-bearing
liabilities .............. 3,267,538 46,924 5.71% 3,334,716 41,634 4.95%
---------- ====== ---------- ======
Non-interest-bearing liabilities .. 56,459 49,686
---------- ----------
Total liabilities .......... 3,323,997 3,384,402
Stockholders' equity .............. 201,065 166,073
---------- ----------
Total liabilities and
stockholders' equity ..... $3,525,062 $3,550,475
========== ==========
Net interest-earning assets ....... $ 196,820 $ 188,529
========== ==========
Net interest income/interest rate
spread ....................... $ 16,870 1.66% $ 17,924 1.81%
========== ====== ========== ======
Net interest margin ... 1.95% 2.03%
====== ======
Ratio of average interest-earning
assets to average interest-
bearing liabilities .......... 106.02% 105.65%
====== ======
12
Nine months ended September 30,
-------------------------------------------------------------------------------------------
2000 1999
------------------------------------------ ---------------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------------- ---------- ------------ ------------- ------------ -------------
(Dollars in thousands)
Interest-earning assets:
Loans receivable(1)........... $2,568,898 $146,416 7.60% $2,253,816 $121,278 7.17%
Mortgage-backed securities (2) 424,449 19,603 6.16 632,738 26,219 5.52
Other interest-earning assets (3) 444,483 22,342 6.70 430,339 19,143 5.93
FHLB stock.................... 59,008 3,231 7.31 64,669 2,494 5.16
------------- ----------- ------------- ------------
Total interest-earning assets. 3,496,838 191,592 7.31% 3,381,562 169,134 6.67%
----------- =========== ------------ =============
Non-interest-earning assets..... 58,286 52,813
------------- -------------
Total assets.............. $3,555,124 $3,434,375
============= =============
Interest-bearing liabilities:
Deposits:
Transaction accounts(4)..... 620,727 13,833 2.98% 435,486 9,357 2.87%
Term certificates of deposit 1,218,637 53,146 5.83 1,147,839 44,510 5.18
------------- ----------- ------------- ------------
Total deposits.......... 1,839,364 66,979 4.86 1,583,325 53,867 4.55
Other borrowings (5).......... 1,462,933 67,840 6.19 1,622,273 66,425 5.47
Other borrowings - line of credit 4,161 367 11.78 -- -- --
Preferred securities of a
subsidiary trust........ 2,409 202 11.17 -- -- --
Hedging costs................. -- 67 -- -- 113 --
------------- ----------- ------------- ------------
Total interest-bearing
liabilities............ 3,308,867 135,455 5.47% 3,205,598 120,405 5.02%
----------- =========== ------------ =============
Non-interest-bearing liabilities 56,666 57,687
------------- -------------
Total liabilities........ 3,365,533 3,263,285
Stockholders' equity............ 189,591 171,090
------------- -------------
Total liabilities and
stockholders' equity... $3,555,124 $3,434,375
============= =============
Net interest-earning assets..... $ 187,971 $ 175,964
============= =============
Net interest income/interest rate
spread..................... $ 56,137 1.84% $ 48,729 1.65%
=========== =========== ============ =============
Net interest margin............. 2.14% 1.92%
=========== =============
Ratio of average interest-earning
assets to average interest-
bearing liabilities........ 105.68% 105.49%
=========== =============
(1) The average balance of loans receivable includes nonperforming loans,
interest on which is recognized on a cash basis.
(2) Includes mortgage-backed securities classified as held-to-maturity and
available-for-sale.
(3) Includes short-term investments, securities purchased under agreements to
resell and investment securities.
(4) Includes passbook, checking and money market accounts.
(5) Includes advances from FHLB and securities sold under agreements to
repurchase.
The following tables set forth the effects of changing rates and
volumes on net interest income of the Company. Information is provided with
respect to (a) effects on interest income attributable to changes in rate
(changes in rate multiplied by prior volume); (b) effects on interest income
attributable to changes in volume (changes in volume multiplied by prior
rate); and (c) changes in rate/volume (change in rate multiplied by change in
volume).
13
THREE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO SEPTEMBER 30, 1999
(IN THOUSANDS)
---------------------------------------------------------------------------
INCREASE (DECREASE) DUE TO
-------------------------------------------------
TOTAL NET
RATE VOLUME RATE/VOLUME INCREASE/(DECREASE)
---- ------ ----------- -------------------
Interest-earning assets:
Loans receivable............................. $ 2,262 $ 3,401 $ 178 $ 5,841
Mortgage-backed securities................... 863 (3,658) (337) (3,132)
Other interest-earning assets ............... 1,014 265 43 1,322
FHLB stock................................... 345 (100) (40) 205
---------------------------------------------------------------------------
Total net change in income on interest-
earning assets .............................. 4,484 (92) (156) 4,236
---------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
Transaction accounts.................... 212 1,428 96 1,736
Term certificates of deposit............ 3,616 1,178 290 5,084
---------------------------------------------------------------------------
Total deposits........................ 3,828 2,606 386 6,820
Other borrowings............................. 4,158 (5,031) (893) (1,766)
Other borrowings - line of credit............ -- 58 -- 58
Preferred securities of a subsidiary trust... -- 202 -- 202
Hedging costs................................ -- -- (24) (24)
---------------------------------------------------------------------------
Total net change in expense on interest-
bearing liabilities.......................... 7,986 (2,165) (531) 5,290
---------------------------------------------------------------------------
Change in net interest income.................. $(3,502) $ 2,073 $ 375 $ (1,054)
===========================================================================
NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO SEPTEMBER 30, 1999
(IN THOUSANDS)
---------------------------------------------------------------------------
INCREASE (DECREASE) DUE TO
--------------------------------------------------
TOTAL NET
RATE VOLUME RATE/VOLUME INCREASE/(DECREASE)
---- ------ ----------- -------------------
Interest-earning assets:
Loans receivable............................. $ 7,180 $16,955 $ 1,003 $25,138
Mortgage-backed securities................... 3,004 (8,631) (989) (6,616)
Other interest-earning assets ............... 2,488 629 82 3,199
FHLB stock................................... 1,047 (219) (91) 737
---------------------------------------------------------------------------
Total net change in income on interest-
earning assets .............................. 13,719 8,734 5 22,458
---------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits:
Transaction accounts.................... 348 3,984 144 4,476
Term certificates of deposit............ 5,548 2,748 340 8,636
---------------------------------------------------------------------------
Total deposits........................ 5,896 6,732 484 13,112
Other borrowings............................. 8,804 (6,530) (859) 1,415
Other borrowings - line of credit............ -- 367 -- 367
Preferred securities of a subsidiary trust... -- 202 -- 202
Hedging costs................................ -- -- (46) (46)
---------------------------------------------------------------------------
Total net change in expense on interest-
bearing liabilities.......................... 14,700 771 (421) 15,050
---------------------------------------------------------------------------
Change in net interest income.................. $ (981) $ 7,963 $ 426 $ 7,408
===========================================================================
PROVISION FOR LOAN LOSSES
The provision for loan losses for the third quarter 2000 was $2.5
million compared with $1.2 million for the like quarter a year ago. The
Company's provision for loan losses increased by $2.2 million for the nine
months ended September 30, 2000, compared to the same period in 1999. The
provision for loan losses was $5.5 million
14
for the nine months ended September 30, 2000 compared to $3.3 million for the
nine months ended September 30, 1999. These increases were primarily due to
an increase in non- performing loans, to loan portfolio growth and the change
in the current portfolio mix to a higher proportion of consumer and
commercial loans.
OTHER INCOME
Due to an $8.3 million net loss on the sale of fixed-rate
securities, non-interest income (loss) decreased to $(7.5) million in the
third quarter 2000 compared to $1.1 million in the like quarter a year ago.
Additionally income (loss) from real estate operations decreased by $466,000
to $(48,000) compared to income from real estate operations of $418,000 for
the same quarter a year ago. Loan service and deposit fee income increased by
$53,000 and $200,000, respectively, from the same quarter a year ago. For the
nine months ended September 30, 2000 other income (loss) was $(5.4) million
compared to $2.8 million at September 30, 1999.
OPERATING EXPENSES
Reflecting the costs associated with acquisitions, PBOC's operating
expenses for the third quarter of 2000 rose 12% over third quarter 1999
levels. For the three months ended September 30, 2000, operating expenses
were $11.2 million compared to $10.0 million for the same period last year.
Operating expenses for the first nine months of the year rose 24% to $34.0
million versus $27.4 million in the like period of 1999. The acquisition of
two branches during the third quarter of 1999 and the Bank of Hollywood
during the first quarter of 2000 resulted in the increase in personnel,
occupancy and office related expenses of $1.9 million, $1.3 million and
$543,000, respectively, for the first nine months of 2000. Other expenses
increased by $2.1 million, to $4.7 million for the nine months ended
September 30, 2000 compared to $2.6 million for the like period a year ago.
The increase in other expense was primarily the result of an increase in
goodwill amortization of $1.2 million for the nine months ended September 30,
2000.
INCOME TAXES
Third quarter income taxes include applicable federal and state income
taxes. The income tax provision for the third quarter was $807,000, compared
to an income tax benefit of $1.5 million, reported during the like period a
year ago. For the nine months ended September 30, 2000 the Company reported
an income tax benefit of $21.2 million, compared to an income tax benefit of
$3.5 million during the same period a year ago. During the first quarter of
2000, the Company recorded a $25.0 million income tax benefit, resulting from
a decrease in the valuation allowance on its deferred tax assets which the
Company expects will be realizable in future periods.
15
ASSET QUALITY
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:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------
Non-performing loans, net:
Mortgage loans:
Single-family residential loans.................... $ 2,319 $ 2,331
Multi-family residential loans..................... 561 557
Commercial real estate loans....................... 18 20
Commercial business loans.............................. 10,258 163
Consumer loans......................................... 694 107
---------------------- -----------------------
Total non-performing loans, net........................ 13,850 3,178
---------------------- -----------------------
Real estate owned, net:
Single-family residential.......................... 1,006 846
---------------------- -----------------------
Total real estate owned, net........................... 1,006 846
---------------------- -----------------------
Total non-performing assets............................ 14,856 4,024
Troubled debt restructurings........................... 3,743 6,470
---------------------- -----------------------
Total non-performing assets and troubled debt
restructurings..................................... $18,599 $10,494
====================== =======================
Non-performing loans to total loans, net............... 0.55% 0.13%
Non-performing loans to total assets................... 0.42 0.09
Non-performing assets to total assets.................. 0.45 0.12
Total non-performing assets and troubled debt
restructurings to total assets..................... 0.57 0.31
Assets considered to be non-performing include nonaccrual loans and
foreclosed assets. Classification of a loan as nonaccrual does not
necessarily indicate that the principal of the loan is uncollectible in whole
or in part. Loans are generally placed on a nonaccrual status when they are
four payments or more past due. Non-performing assets as presented in the
table above and stated at fair value as of September 30, 2000 and December
31, 1999 were $14.9 million and $4.0 million, respectively. As a result, the
ratio of non-performing assets to total assets increased from 0.12% at
December 31, 1999 to 0.45% at September 30, 2000. The increase was primarily
the result of delinquencies in two participations in syndicated loans
totaling $7.5 million. In January, the Company chose to discontinue its
participation in syndicated loans and to focus solely on local originations.
16
The following table sets forth the activity in the Bank's allowance
for loan losses during the periods indicated:
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
2000 1999
------------------- -------------------
(DOLLARS IN THOUSANDS)
-----------------------------------------
BEGINNING BALANCE................................................... $21,051 $18,897
------------------- -------------------
Addition to allowance due to Bank of Hollywood acquisition.......... 2,084 --
Transfer to other real estate owned................................. (53) --
Provision for loan losses........................................... 5,500 3,300
CHARGE-OFFS:
Single-family residential loans..................................... -- 303
Multi-family residential loans...................................... -- 131
Commercial real estate loans........................................ 7 175
Commercial business loans........................................... 606 703
Consumer loans...................................................... 2,155 823
------------------- -------------------
Total charge-offs................................................ 2,768 2,135
------------------- -------------------
RECOVERIES:
Single-family residential loans..................................... 2 32
Commercial business................................................. 1 11
Consumer............................................................ 514 245
------------------- -------------------
Total recoveries.................................................... 517 288
------------------- -------------------
Net charge-offs..................................................... 2,251 1,847
------------------- -------------------
ENDING BALANCE ..................................................... $26,331 $20,350
=================== ===================
Allowance for loan losses to total non-performing loans at end of
period........................................................... 190.12% 412.95%
Allowance for loan losses to total non-performing loans and
troubled debt restructurings at the end of period................ 149.67 204.21
Allowance for loan losses to total gross loans, at the end of
period........................................................... 1.00 0.79
Net loan charge-offs were $2.3 million for the nine months ended
September 30, 2000, compared to $1.8 million for the nine months ended
September 30, 1999.
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.
17
The following table sets forth information concerning the
allocation of the Bank's allowance for loan losses by loan category at the
dates indicated.
September 30, 2000 December 31, 1999
------------------ -----------------
Percent to Percent to
Total Total
Amount Allowance Amount Allowance
-------- ------------- -------- ------------
(Dollars in Thousands)
Residential real estate........ $ 3,732 14.2% $ 5,020 23.8%
Multi-family residential....... 3,960 15.0 4,990 23.7
Commercial real estate......... 3,505 13.3 4,073 19.4
Land........................... 36 0.1 42 0.2
Commercial business............ 9,948 37.8 3,959 18.8
Consumer ...................... 197 0.8 243 1.2
Auto........................... 4,953 18.8 2,724 12.9
------------ ---------- ------------ ----------
Total..................... $26,331 100.0% $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.
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.
On June 16, 2000, the Company formalized on-going plans to reduce
interest rate risk and strengthen its lending infrastructure at the request
of the OTS through a voluntary supervisory agreement between the OTS and the
Bank. See note 6 to Consolidated Financial Statements.
18
The following table summarizes the anticipated maturities or
repricing of the Company's interest-earning assets and interest-bearing
liabilities as of September 30, 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.............................. $ 23,809 $ 111,907 $ 221,280 $ 218,025 $ 391,421 $ 966,442
Adjustable ........................ 128,902 108,795 88,930 102,138 -- 428,765
Multi-family residential:
Fixed.............................. 317 1,559 5,137 4,047 15,342 26,402
Adjustable ........................ 270,190 18,113 -- -- -- 288,303
Commercial, industrial and land:
Fixed.............................. 4,567 11,714 34,111 36,056 125,939 212,387
Adjustable ........................ 129,249 117,397 -- -- -- 246,646
Other loans(3)........................ 136,833 114,400 115,668 59,325 16,002 442,228
Mortgage-backed and other securities (4). 77,892 25,227 35,651 30,200 26,702 195,672
Other interest-earning assets (5)........ 281,925 -- -- -- 160,553 442,478
-----------------------------------------------------------------------------------------
Total........................ $1,053,684 $ 509,112 $ 500,777 $ 449,791 $ 735,959 $3,249,323
=========================================================================================
Interest-bearing liabilities:
Deposits:
Checking accounts.................... $ 110,415 $ -- $ -- $ -- $ -- $ 110,415
Passbook accounts.................... 112,524 -- -- -- -- 112,524
Money market accounts................ 273,673 -- -- -- -- 273,673
Term certificates of deposit......... 106,371 755,624 440,094 30,531 67 1,332,687
Other borrowings......................... -- -- 656,000 170,000 190,000 1,016,000
-----------------------------------------------------------------------------------------
Total......................... $ 602,983 $ 755,624 $1,096,094 $ 200,531 $ 190,067 $2,845,299
=========================================================================================
Excess (deficiency) of interest earning
assets over interest-bearing
liabilities............................ $ 450,701 $(246,512) $ (595,317) $ 249,260 $ 545,892 $ 404,024
Excess (deficiency) of interest-earning
assets over interest-bearing
liabilities as a percent of total
assets................................. 13.75% (7.52%) (18.17%) 7.61% 16.66% 12.33%
=========================================================================================
Cumulative excess (deficiency) of
interest-earning assets over interest
-bearing liabilities................... $ 450,701 $ 204,189 $ (391,128) $(141,868) $ 404,024
===========================================================================
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities as a percentage of
total assets........................... 13.75% 6.23% (11.94%) (4.33%) 12.33%
===========================================================================
- -------------------------------------------------------------------------------
(1) Adjustable-rate loans are included in the period in which interest rates
are next scheduled to adjust rather than in the period in which they are
due, and fixed rate loans are included in the periods in which they are
scheduled to be repaid, based on scheduled amortization, in each case as
adjusted to take into account estimated prepayments based on assumptions
used by the OTS in assessing the interest rate sensitivity of savings
associations in the Company's region.
(2) Balances have been reduced for non-performing loans, which amounted to
$13.9 million at September 30, 2000.
(3) Comprised of commercial and consumer loans and loans secured by deposits.
(4) Does not include an unrealized loss on securities available-for-sale of
$32.8 million.
(5) Comprised of short-term investments, securities purchased under agreements
to resell, investment securities and FHLB stock.
19
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 September 30, 2000, the Bank had $257.4 million in borrowing
capacity under a collateralized line of credit with the FHLB of San
Francisco. At September 30, 2000, the Bank had total FHLB advances of $871
million with a weighted average interest rate of 6.2%, which mature between
2002 and 2008. Additionally, at September 30, 2000, the Bank had securities
sold under agreements to repurchase totaling $135 million with a weighted
average interest rate of 7.0%, which mature between 2001 and 2002.
At September 30, 2000, the Bank had outstanding commitments to
originate and/or purchase mortgage and non-mortgage loans of $3.3 million. In
addition, at September 30, 2000 the Bank had unused lines of credit in the
amount of $17.1 million, which amount is included by loan type in the loan
portfolio composition table. Certificates of deposit which are scheduled to
mature within one year totaled $862 million at September 30, 2000, and there
are no borrowings that are scheduled to mature within the same period.
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 September 30, 2000 the Bank was deemed to be "well
capitalized" under applicable requirements. To be categorized as "well
capitalized", the Bank must maintain minimum tier 1 leverage capital, tier 1
risk-based capital and total risk-based capital ratios as set forth in the
table below. The following table reflects the Bank's actual levels of
regulatory capital and applicable regulatory capital requirements at
September 30, 2000:
WELL CAPITALIZED
MINIMUM REQUIREMENT ACTUAL EXCESS
-------------------- -------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
Tangible capital...................... $ 64,934 2.00% $ 222,283 6.85% $157,349 4.85%
Tier 1 leverage capital .............. 162,334 5.00 222,283 6.85 59,949 1.85
Tier 1 risk-based capital ............ 127,668 6.00 222,283 10.45 94,615 4.45
Total risk-based capital ............. 212,780 10.00 245,866 11.55 33,086 1.55
20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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
21
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.(5)
4 Stock Certificate of PBOC Holdings, Inc.(2)
10.1 Employment Agreement between PBOC Holdings, Inc.,
People's Bank of California and Rudolf P. Guenzel(1)
10.2 Employment Agreement between PBOC Holdings, Inc.,
People's Bank of California and J. Michael Holmes(1)
10.3 Employment Agreement between PBOC Holdings, Inc.,
People's Bank of California and William W. Flader(1)
10.4 Employment Agreement between the People's Bank of California and
Doreen J. Blauschild(2)
10.5 Deferred Compensation Plan(1)
10.6 Grantor Trust(1)
10.7 Shareholder Rights Agreement(1)
10.8 Stockholders' Agreement(1)
10.9 1999 Stock Option Plan(3)
10.10 2000 Stock Incentive Plan(4)
10.11 Amendment Number 1 to Employment Agreement between PBOC Holdings,
Inc., People's Bank of California and Rudolf P. Guenzel.(5)
10.12 Amendment Number 1 to Employment Agreement between PBOC Holdings,
Inc., People's Bank of California and J. Michael Holmes.(5)
10.13 Amendment Number 1 to Employment Agreement between PBOC Holdings,
Inc., People's Bank of California and William W. Flader.(5)
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.
(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).
(5) Incorporated by reference from the Company's Form 10-Q filed by the
Registrant with the SEC on August 11, 2000.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated July 6, 2000, reported the voluntary
supervisory agreement between the OTS and the Bank. See Note 6 to the Notes
to Consolidated Financial Statements herein.
22
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: November 10, 2000 By: /s/ Rudolf P. Guenzel
-------------------------------
Rudolf P. Guenzel
President and Chief Executive
Officer
By: /s/ J. Michael Holmes
-------------------------------
J. Michael Holmes
Senior Executive Vice President
and Chief Financial Officer
23