Draft 4
June 18, 1998
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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, 1998
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
(213) 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 / / No /X/
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 June 15, 1998
----- ------------------------------------
Common Stock, $.01 par value 21,876,205
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PBOC Holdings, Inc.
FORM 10-Q
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements Page
------------------- ----
Consolidated Statements of Financial Condition - March 31, 1998 and December 31, 1997......... 3
Consolidated Statements of Operations - Three months ended March 31, 1998 and 1997............ 4
Consolidated Statements of Cash Flows - Three months ended March 31, 1998 and 1997............ 6
Notes to Consolidated Financial Statements.................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................... 17
PART II -- OTHER INFORMATION
Items 1-5 Not Applicable................................................................................... 18
Item 6. Exhibits and Reports on Form 8-K
Signatures....................................................................................... 19
2
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1998 AND DECEMBER 31, 1997
(Dollars in thousands, except share data)
(Unaudited) (Unaudited)
Proforma March 31, December 31,
March 31, 1998 1998 1997
-------------- ------------------ -----------------
ASSETS
Cash and cash equivalents...............................................$ 14,717 $ 14,717 $ 14,113
Federal funds sold...................................................... 3,000 3,000 7,004
Securities available-for-sale, at estimated market values............... 525,926 525,926 571,160
Mortgage-backed securities held-to-maturity, estimated market values
$8,691 and $9,743 at March 31, 1998 and December 31, 1997............. 8,628 8,628 9,671
Loans receivable, net................................................... 1,618,290 1,618,290 1,533,212
Real estate held for investment and sale, net........................... 17,436 17,436 15,191
Premises and equipment, net............................................. 7,850 7,850 6,676
Federal Home Loan Bank stock, at cost................................... 29,600 29,600 23,634
Accrued interest receivable............................................. 13,080 13,080 13,216
Other assets............................................................ 31,426 31,426 19,177
-------------- ------------------ -----------------
Total assets......................................................... $ 2,269,953 $ 2,269,953 $ 2,213,054
-------------- ------------------ -----------------
-------------- ------------------ -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits................................................................ $ 1,284,386 $ 1,284,386 $ 1,266,615
Securities sold under agreements to repurchase.......................... 273,156 273,156 340,788
Advances from Federal Home Loan Bank.................................... 577,000 577,000 472,000
Senior debt............................................................. 11,224 11,224 11,113
Accrued expenses and other liabilities.................................. 10,418 10,418 9,686
-------------- ------------------ -----------------
Total liabilities 2,156,184 2,156,184 2,100,202
-------------- ------------------ -----------------
Minority interest....................................................... 33,250 33,250 33,250
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 1,000,000 shares;....... -- -- --
Preferred stock Series C, voting issued and outstanding
85,000 shares; liquidation value $8,500.......................... -- 1 1
Preferred stock Series D, voting issued and outstanding
68,000 shares; liquidation value $6,800.......................... -- 1 1
Preferred stock Series E, nonvoting issued and outstanding
332,000 shares; liquidation value $33,200........................ -- 3 3
Common stock, par value $.01 per share. Authorized
75,000,000 and 500,000 shares; issued and outstanding
11,679,537 and 98,502 shares; ................................... 12 1 1
Additional paid-in capital.............................................. 129,816 129,814 129,814
Unrealized losses on securities available-for-sale...................... (3,091) (3,091) (1,974)
Minimum pension liability, net of tax .................................. (293) (293) (293)
Accumulated deficit..................................................... (45,925) (45,917) (47,951)
-------------- ------------------ -----------------
Total stockholders' equity........................................... 80,519 80,519 79,602
-------------- ------------------ -----------------
Total liabilities and stockholders' equity........................... $ 2,269,953 $ 2,269,953 $ 2,213,054
-------------- ------------------ -----------------
-------------- ------------------ -----------------
See accompanying notes to consolidated financial statements.
3
PBOC HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
-----------------------------------------
1998 1997
------------------- -------------------
Interest, fees and dividend income:
Short term investments....................................................... $ 355 $ 267
Securities purchased under agreements to resell.............................. -- 748
Investment securities........................................................ 2,148 633
Mortgage-backed securities................................................... 7,789 7,845
Loans receivable............................................................. 28,278 20,968
Federal Home Loan Bank stock................................................. 374 240
------------------- -------------------
Total interest, fees and dividend income 38,944 30,701
------------------- -------------------
Interest expense:
Deposits....................................................................... 16,128 17,037
Advances from the Federal Home Loan Bank..................................... 7,631 -
Securities sold under agreements to repurchase............................... 4,658 4,948
Senior debt ................................................................. 299 307
Hedging costs, net........................................................... 55 80
------------------- -------------------
Total interest expense................................................ 28,771 22,372
------------------- -------------------
Net interest income............................................................. 10,173 8,329
Provision for loan losses.................................................... 450 422
------------------- -------------------
Net interest income after provision for loan losses................... 9,723 7,907
------------------- -------------------
Other income:
Loan service and loan related fees........................................... 5 313
Gain on mortgage-backed securities sales, net................................ 323 40
Gain on loan and loan servicing sales, net................................. -- 3,391
(Loss) income from real estate operations, net .............................. (148) 221
Other income................................................................. 678 372
------------------- -------------------
Total other income 858 4,337
Operating expenses
Personnel and benefits....................................................... 2,907 2,806
Occupancy.................................................................... 2,030 1,740
FDIC insurance............................................................... 1,116 1,256
Professional services........................................................ 340 191
Office related expenses...................................................... 1,013 862
Other...................................................................... 274 301
------------------- -------------------
Total operating expenses.............................................. 7,680 7,156
------------------- -------------------
Earnings before income taxes and minority interest.............................. 2,901 5,088
Income taxes ................................................................... -- --
------------------- -------------------
Earnings before minority interest.............................................. 2,901 5,088
Minority interest............................................................... 869 --
------------------- -------------------
Net earnings ......................................................... 2,032 5,088
Preferred dividends undeclared, but accumulated................................. 1,451 1,451
------------------- -------------------
Net earnings available to common stockholders $ 581 $ 3,637
------------------- -------------------
------------------- -------------------
Earnings per share basic and diluted ........................................... $ 0.18 $ 1.15
Weighted averages shares outstanding............................................ 3,152,054 3,152,064
Proforma earnings per share .................................................... $ 0.17
Proforma weighted average shares outstanding.................................... 11,679,537
See accompanying notes to consolidated financial statements.
4
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Dollars in thousands)
(Unaudited)
Three Months Ended
----------------- ----------------
1998 1997
----------------- ----------------
NET EARNINGS $ 2,032 $ 5,088
OTHER COMPREHENSIVE LOSS:
UNREALIZED LOSS ON SECURITIES HELD-FOR-SALE (1,117) (5,926)
MINIMUM PENSION LIABILITY, NET OF TAX - (293)
----------------- ----------------
OTHER COMPREHENSIVE LOSS (1,117) (6,219)
----------------- ----------------
COMPREHENSIVE EARNINGS (LOSS) $ 915 $ (1,131)
----------------- ----------------
----------------- ----------------
See accompanying notes to consolidated financial statements.
5
PBOC HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
Three Months Ended March 31,
Three Months Ended March 31,
-----------------------------------------
1998 1997
------------------- -------------------
(Dollars in thousands)
Cash flows from operating activities:
Net earnings ............................................................... $ 2,032 $ 5,088
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan and real estate losses............................... 450 667
Depreciation............................................................ 332 309
Decrease in valuation in net deferred tax assets........................ -- (521)
Amortization/accretion of premiums discounts, and deferred fees ........ 1,681 (224)
Amortization of purchase accounting intangibles......................... 45 45
Gain on sale of mortgage-backed securities available-for-sale........... (323) --
Gains on sale of real estate owned...................................... (124) (487)
FHLB stock dividend..................................................... -- (249)
Decrease in accrued interest receivable................................. 136 394
Increase (decrease) in accrued interest payable........................ 785 (2,676)
Increase in other assets................................................ (12,544) (2,213)
Amortization for discontinued lease operations.......................... 17 (28)
Decrease in accrued expenses............................................ (68) (15,378)
Decrease in pension liability........................................... -- (293)
Amortization of goodwill................................................ 14 --
------------------- -------------------
Net cash used in by operating activities................................ (7,567) (15,566)
------------------- -------------------
Cash flows from investing activities:
Proceeds from sales of mortgage-backed securities available-for-sale....... 156,569 --
Proceeds from sale of loans and hedging .................................... 357 8,594
Investment and mortgage-backed securities principal repayments and
maturities............................................................... 32,557 5,112
Loan originations, net of repayments........................................ 27,396 1,565
Purchases of investments and mortgage-backed securities available-for-sale.. (144,402) (4,221)
Purchases of loans.......................................................... (117,215) (6,859)
Cost capitalized on real estate............................................. (68) (778)
Proceeds from the sale of real estate....................................... 959 12,262
Purchases of premises and equipment......................................... (831) (80)
Purchase of FHLB stock...................................................... (5,966) --
------------------- -------------------
Net cash (used in) provided by investing activities......................... (50,644) 15,595
------------------- -------------------
Cash flows from financing activities:
Proceeds from capital infusion.............................................. -- 4
Increase (decrease) in deposits............................................. 17,771 (18,562)
(Decrease) increase in securities sold under repo........................... (67,632) 18,217
Issuance of FHLB advances................................................... 392,000 --
Repayments of FHLB advances................................................. (287,000) --
Increase in other borrowings................................................ 111 114
Decrease in minority interest............................................... (439) --
------------------- -------------------
Net cash provided by (used in) financing activities......................... 54,811 (227)
------------------- -------------------
Net decrease in cash............................................................ (3,400) (198)
Cash and cash equivalents at beginning of period................................ 21,117 21,920
------------------- -------------------
Cash and cash equivalents at end of period...................................... $ 17,717 $ 21,722
------------------- -------------------
------------------- -------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................................................ $ 27,745 $ 24,953
Income taxes.............................................................. 1 0
------------------- -------------------
------------------- -------------------
Supplemental schedule of non cash investing and financing activities:
Foreclosed real estate...................................................... $ 3,246 $ 17,545
Loans originated in connection with sale of foreclosed real estate.......... 257 3,176
Contribution of debt to equity
------------------- -------------------
------------------- -------------------
See accompanying notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 intercompany 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, 1998 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1998.
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 year's consolidated financial statements have been reclassified
to conform to the 1998 presentation.
3. Earnings per share
At December 31, 1997, the Company adopted SFAS No.128, "Earnings Per Share"
(SFAS 128). Under SFAS 128 basic earnings per share excludes dilution and is
computed by dividing income 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 from issuance of common stock that then shared in earnings.
On March 20, 1998 and April 20, 1998, the Board of Directors of the Company
approved an amendment to the Company's Certificate of Incorporation to (i)
increase the number of authorized shares of common stock from 500,000 to
75,000,000 and (ii) effect a 32 for 1 stock split of the issued common stock of
the Company prior to the commencement of the initial public offering referenced
in Note 5, respectively. The accompanying consolidated financial statements have
been restated for all periods presented to reflect the impact of the change in
the authorized number of shares of common stock and the stock split.
The proforma earnings per share data is calculated by taking the net
earnings available to the common stockholders and dividing by the weighted
average number of common stock outstanding of 11,679,537. The weighted average
number of shares of common stock outstanding reflects the exchange of all of the
Company's outstanding classes of preferred stock into common stock and the
subsequent 32 to 1 stock split referenced above on all then outstanding shares
of common stock, both of which actions took place immediately prior to the
public offering referenced in Note 5 hereto.
4. Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display
7
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The statements required by SFAS
No. 130 are included herein.
In June 1997, the FASB issued SFAS No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 establishes
standards for the way that public enterprises report information about operating
segments in annual financial statements and requires that selected information
about those operating segments be reported in interim financial statements. This
Statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segment of a Business Enterprise." SFAS 131 requires
that all public enterprises report financial and descriptive information about
its reportable operating segments. Operating segments are defined as components
of an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. This Statement is effective for
fiscal years beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years should be restated. This
statement need not be applied to interim financial statements in the year of
application, but comparative information for interim periods in the initial year
of the application shall be reported in financial statements for interim periods
in the second year of application. Early application is encouraged. Management
believes that the adoption of SFAS 131 will not have a material impact on the
company's operation.
In February 1998, the FASB issued Statement of the Financial Accounting
Standards No. 132 (SFAS 132), "Employers' Disclosures about Pension and Other
Postretirement Benefits." SFAS 132 amends the disclosure requirements of SFAS
No. 87, "Employer's Accounting for Pensions, SFAS No. 88, "Employer's Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and SFAS 106, "Employer's Accounting for Retirement
Benefits Other than Pensions." SFAS 132 standardizes the disclosure requirements
of SFAS Nos. 87 and 106 to the extent practicable and recommends a parallel
format for presenting information about pensions and other retirement benefits.
SFAS 132 is effective for fiscal years beginning after December 15, 1997. SFAS
132 will result in disclosure changes only.
5. Subsequent Event
On May 15, 1998, the Company completed its initial publicly underwritten
offering of its Common Stock. An aggregate of 12,666,667 shares of Common Stock
were sold to the public at an initial public offering price of $13.75 per share,
of which 8,866,667 shares were issued and sold by the Company and 3,800,000
shares were sold by the existing stockholders of the Company. In connection with
the underwriting agreement executed by the Company with the underwriters of the
public offering, the Company granted the underwriters an option to purchase up
to an additional 1,900,000 shares of Common Stock, on the same terms and
conditions as in the public offering, solely to cover over-allotments, if any.
Such over-allotment option was exercised in full, and on May 21, 1998, the
Company and the original stockholders sold an additional 1,330,000 shares and
570,000 shares, respectively. The Company did not receive any proceeds from the
sale of shares by the existing stockholders.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
The Company had consolidated total assets of $2.27 billion at March 31,
1998, an increase of $56.9 million or 2.6% from December 31, 1997. The increase
is primarily attributable to an $85.1 million increase in loan receivable, net,
due to loan originations of $85.8 million and a purchase of $117.2 million of
one-year adjustable-rate single-family residential mortgage loans, which were
partially offset by principal repayments of $113.4 million. The increase in
loans receivable, net was partially offset by a $ 45.2 million or 7.9% decrease
in securities available for sale. Increases in the Company's loan portfolio were
primarily funded by FHLB advances and, to a lesser extent, deposits, which
increased by $105.0 million or 22.3% and $17.8 million or 1.4%, respectively.
Securities sold under agreements to repurchase decreased by $67.6 million or
19.8%. The Company's stockholders' equity increased by $917,000 to $80.5 million
at March 31, 1998.
Results of Operations
8
The Company earned $2.0 million during the three months ended March 31,
1998, compared to $5.1 million during the comparable quarter in 1997. The
Company's return on assets amounted to 0.36% for the three months ended March
31, 1998, as compared to 1.13% for the three months ended March 31, 1997.
During the first quarter of 1997, the Company sold the servicing rights
with respect to substantially all of its residential mortgage loans and
recognized a gain of $3.4 million on that portion of the servicing of loans held
for other parties. Without giving effect to such one-time sale, the Company
would have earned $1.7 million for the comparable quarter in 1997. The sale of
servicing rights associated with residential mortgage loans held in the
Company's loan portfolio contributed to a reduction in the Company's interest
rate spread, which resulted in the decline in the Company's earnings during the
three months ended March 31, 1998 as compared to the same period in the prior
year.
Net Interest Income
The Company's net interest income increased by $1.8 million or 22.1% during
the three months ended March 31, 1998 over the comparable quarter, which is
attributable to an $8.2 million or 26.9% increase in total interest, fee and
dividend income, which more than offset a $6.4 million or 28.6% increase in
total interest expense from funding sources.
9
The following table sets 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
rate; (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,
-------------------------------------------------------------------------------------------------------
1998 1997
--------------------------------------------------- ------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------ ------- -------- -------
(Dollars in thousands)
Interest-earning assets:
Loans receivable(1)..... $ 1,520,672 $ 28,278 7.44% $ 1,132,478 $ 20,968 7.41%
Mortgage-backed
securities(2)......... 507,773 7,789 6.14 473,788 7,845 6.62
Other interest-earning 176,634 2,877 6.53 126,206 1,888 5.99
assets(3) ............ -------------- ----------------- -------------- --------------
Total interest-earning
assets.............. 2,205,079 38,944 7.07 1,732,472 30,701 7.09
---------------- -------------
Noninterest-earning assets 68,930 69,122
-------------- ---------------
Total assets........ $ 2,274,009 $ 1,801,594
-------------- ---------------
-------------- ---------------
Interest-bearing liabilities:
Deposits:
Transaction
accounts(4)...... $ 345,620 3,100 3.64% $ 361,960 3,382 3.79%
Term certificates
of deposit........ 934,261 13,028 5.66 991,120 13,655 5.59
-------------- --------------- --------------- --------------
Total deposits........ 1,279,881 16,128 5.11 1,353,080 17,037 5.11
Senior debt........... 11,168 299 10.86 11,164 307 11.15
Other borrowings...... 865,152 12,289 5.76 352,362 4,948 5.69
Hedging costs......... -- 55 -- 80
--------------- --------------- --------------- --------------
Total interest-bearing
liabilities 2,156,201 28,771 5.41% 1,716,606 22,372 5.29%
--------------- ---------------
Noninterest bearing
liabilities............... 38,553 20,112
--------------- ---------------
Total liabilities... 2,194,754 1,736,718
Stockholders' equity...... 79,255 64,876
--------------- ---------------
Total liabilities
and stockholders'
equity............ $ 2,274,009 $ 1,801,594
--------------- ---------------
--------------- ---------------
Net interest-earning
assets ................... $ 48,878 $ 15,866
--------------- ---------------
--------------- ---------------
Net interest income/interest rate
spread................. $ 10,173 1.66% $ 8,329 1.80%
--------------- ----- --------------- -----
--------------- ----- --------------- -----
Net interest margin....... 1.85% 1.92%
----- -----
----- -----
Ratio of average interest-earning
assets to average interest-bearing
liabilities............ 1.02% 1.01%
----- -----
----- -----
- ----------
(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, investment securities and FHLB stock.
(4) Includes passbook, NOW and money market accounts.
10
The Company's interest rate spread decreased over the comparable periods to
1.66% from 1.80%, mainly due to an increase in the Bank's cost of funds in the
first quarter of 1998 compared to the first quarter of 1997.
The following table sets 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, 1998
compared to March 31, 1997
(In thousands)
Increase (decrease) due to
-----------------------------------------------------
Total Net
Rate Volume Rate/Volume Increase/(Decrease)
-------------- ------------ ------------- -------------------
Interest-earning assets:
Loans receivable............................. $ 91 $ 7,188 $ 31 $ 7,310
Mortgage-backed securities................... (577) 563 (42) (56)
Other interest-earning assets ............... 180 757 52 989
-------------- ------------ ------------- -------------------
Total net change in income on interest-
earning assets ............... (306) 8,508 41 8,243
-------------- ------------ ------------- -------------------
Interest-bearing liabilities:
Deposits:
Transaction accounts.................... $ (136) $ (153) $ 7 $ (282)
Term certificates of deposit........... 169 (783) (13) (627)
-------------- ------------ ------------- -------------------
Total deposits........................ 33 (936) (6) (909)
Senior debt................................ (8) -- -- (8)
Other borrowings........................... 56 7,202 83 7,341
Hedging costs............................... -- -- (25) (25)
-------------- ------------ ------------- -------------------
Total net change in expense on interest-
bearing liabilities........................ 81 6,266 52 6,399
-------------- ------------ ------------- -------------------
Change in net interest income.................. $ (387) $ 2,242 $ (11) $ 1,844
-------------- ------------ ------------- -------------------
-------------- ------------ ------------- -------------------
Provision for Loan Losses
The Company's provision for loan losses increased by $28,000 to $450,000
during the quarter ended March 31, 1998, when compared to the prior comparable
period. At March 31, 1998, the Company's allowance for loan losses amounted to
$18.0 million or 1.10% of total loans and 146.9% of total non-performing loans.
Non Interest Income
The Company's total non-interest income declined significantly during the
three months ended March 31, 1998 over the prior comparable quarter, by $3.5
million or 80.2%, primarily due to the absence of the 1997 gain on sale of
servicing. Total non-interest income also decreased due to a loss of $148,000
during the March 1998 quarter from real estate operations, net, compared to
income of $221,000 during the 1997 quarter. The decrease in total non-interest
income was partially offset by $283,000 increase in gain on mortgage-backed
securities sales, net. During the quarter ended March 31, 1998, the Company sold
$66.7 million of fixed-rate mortgage-backed securities, the proceeds of which
were utilized to fund the purchase of adjustable-rate single-family residential
loans during the quarter.
Operating Expenses
The Company's total operating expenses increased by $524,000 or 7.3% during
the March 31, 1998 quarter over the comparable quarter in 1997. Total operating
expenses increased as a result of a $290,000 increase in occupancy expense (due
to installation and operation of new automated teller machines and automated
loan
11
machines and increased security measures in the Bank's branch offices), a
$149,000 increase in professional services (resulting primarily from consulting
services provided to the Bank with respect to its benefit plans and an increase
in audit costs) and a $101,000 increase in personnel and benefit expense (due to
hiring and training of new commercial and consumer lending personnel).
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 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 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, 1998, 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 loans:
Fixed..............................$ 23,006 $ 52,495 $ 82,292 $ 46,471 $ 66,286 $ 270,550
Adjustable ........................ 551,580 221,457 -- -- -- 773,037
Multi-family residential:
Fixed.............................. 2,685 5,387 10,188 7,099 7,676 33,035
Adjustable ........................ 385,233 164 -- -- -- 385,397
Commercial, industrial and land:
Fixed.............................. 2,271 8,064 9,489 5,961 5,869 31,654
Adjustable ........................ 99,678 989 -- -- -- 100,667
Other loans (3): ..................... 7,981 5,563 5,079 1,751 4,534 24,908
Mortgage-backed and other securities (4). 163,672 55,718 27,625 -- 290,631 537,646
Other interest-earning assets (5)........ 3,000 -- -- -- 29,600 32,600
--------------- ------------- --------------- ------------- ---------- ------------
Total.........................$ 1,239,106 $ 349,837 $ 134,673 $ 61,282 $ 404,596 $ 2,189,494
--------------- ------------- --------------- ------------- ---------- ------------
--------------- ------------- --------------- ------------- ---------- ------------
Interest-bearing liabilities:
Deposits:
NOW accounts.........................$ 113,578 -- -- -- -- $ 113,578
Passbook accounts.................... 163,283 -- -- -- -- 163,283
Money market accounts................ 76,973 -- -- -- -- 76,973
Term certificates of deposit......... 265,627 597,190 58,200 9,480 55 930,552
Senior debt.............................. -- -- -- 4,379 6,845 11,224
Other borrowings......................... 13,156 253,000 129,000 455,000 -- 850,156
--------------- ------------- --------------- ------------- ---------- ------------
Total.........................$ 632,617 $ 850,190 $ 187,200 $ 468,859 $ 6,900 $ 2,145,766
--------------- ------------- --------------- ------------- ---------- ------------
--------------- ------------- --------------- ------------- ---------- ------------
Excess (deficiency) of interest-earning
assets over interest-bearing
liabilities.............................$ 606,489 $ (500,353)$ (52,527)$ (407,577)$ 397,696 $ 43,728
--------------- ------------- --------------- ------------- ---------- ------------
--------------- ------------- --------------- ------------- ---------- ------------
Excess (deficiency) of interest-earning
assets over interest-bearing
liabilities as a percent of total
assets.................................. 26.72% (22.04)% (2.31)% (17.95)% 17.52% 1.93%
--------------- ------------- --------------- ------------- ---------- ------------
--------------- ------------- --------------- ------------- ---------- ------------
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities............$ 606,489 $ 106,136 $ 53,609 $ (353,968)$ 43,728
--------------- ------------- --------------- ------------- ----------
--------------- ------------- --------------- ------------- ----------
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities as a
percentage of total assets.............. 26.72% 4.68% 2.36% (15.59)% 1.93%
--------------- ------------- --------------- ------------- ----------
--------------- ------------- --------------- ------------- ----------
- ----------
(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
$12.2 million at March 31, 1998.
(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
$3.1 million.
(5) Comprised of short-term investments, securities purchased under agreements
to resell, investment securities and FHLB stock
13
Liquidity and Capital Resources
Liquidity
As the Bank is the primary operating vehicle for the Company, liquidity
management is generally handled by the Bank's management. Liquidity refers to a
company's ability to generate sufficient cash to meet the funding needs of
current loan demand, savings deposit withdrawals, principal and interest
payments with respect to outstanding borrowings and 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 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 FHLB of San
Francisco and other short and long-term borrowings.
At March 31, 1998, the Bank had $833 million in borrowing capacity under a
collateralized line of credit with the FHLB of San Francisco. At March 31, 1998,
the Bank had total FHLB advances of $577 million at a weighted average interest
rate of 5.66%, $257 million of which matures in 1998 and the remaining $320
million of which matures in 2002 and 2003. Additionally, at March 31, 1998 the
Bank had securities sold under agreements to repurchase totaling $273 million at
a weighted average interest rate of 5.75%, $9 million of which matures in 1998
and the remaining $264 million matures in 2000 and 2002.
At March 31, 1998, the Bank had outstanding commitments (including unused
lines of credit) to originate and/or purchase mortgage and non-mortgage loans of
$72 million. Certificates of deposit which are scheduled to mature within one
year totaled $863 million at March 31, 1998, and borrowings that are scheduled
to mature within the same period amounted to $266 million. The 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 the savings institution industry - 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, 1998 the Bank was deemed to be "well capitalized" under
applicable requirements. To be categorized as "well capitalized, the Bank must
maintain minimum core capital, core risk-based capital and risk-based capital
ratios as set forth in table below.
The following table reflects the Bank's actual levels of regulatory capital
and applicable regulatory capital requirements at March 31, 1998:
Required Actual Excess
--------------------- ---------------------- ------------------
Amount Percent Amount Percent Amount Percent
-------- -------- --------- ------- ------- -------
(Dollars in thousands)
Tangible capital...................... $34,030 1.50% $122,518 5.40% $88,488 3.90%
Tier 1 leverage capital .............. 90,746 4.00 122,518 5.40 31,772 1.40
Tier 1 risk-based capital ............ 47,673 4.00 122,518 10.28 74,845 6.28
Risk-based capital ................... 95,346 8.00 136,583 11.46 41,237 3.46
14
Use of Proceeds from Public Offering
Reference is made to Note 5 to the Notes to Consolidated Financial
Statements (Unaudited) for information on the Company's initial public offering.
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company was $129.6 million after deducting the underwriting
discounts and commissions and offering expenses paid by the Company.
Of the $129.6 million of net proceeds received by the Company, an aggregate
of $41.9 million was used to pay accumulated and unpaid dividends payable to the
Company's existing stockholders the Selling Stockholders, repurchase senior
notes held by a Selling Stockholder and to make other payments to insiders of
the Company. Specifically, the Company used $19.4 million of net proceeds from
the sale of the Common Stock offered by the Company to pay accumulated and
unpaid dividends through May 15, 1998 to the Selling Stockholders on the shares
of the Company's outstanding Preferred Stock, which was exchanged for Common
Stock of the Company in connection with the public offering. In addition, the
Company utilized $11.1 million of such net proceeds to make a one-time payment
in satisfaction of benefits due to certain senior executive officers of the
Company and the Bank under their original employment agreements, which benefits
were agreed to subject to consummation of the public offering. A portion of such
funds was contributed to a trust the Company established in connection with the
offering and was used to purchase Common Stock of the Company in the offering on
behalf of such executive officers. Furthermore, the Company used $11.4 million
of such net proceeds to prepay $10.0 million of senior notes (plus accrued
interest through May 15, 1998) which were previously issued to one of the
selling stockholders. The Company also used $4.5 million of such net proceeds to
pay the FDIC special assessment which the Bank had previously received
permission from the FDIC to defer. A substantial portion of the balance of the
net proceeds, $83 million, was contributed to the Bank and initially invested in
U.S. Government agency obligations and U.S. Government agency mortgage-backed
securities.
The following table sets forth the use of proceeds from the Company's
initial public offering:
(Dollars in
thousands)
----------------
Gross proceeds from the public offering.................................................. $ 140,205
Offering expenses and discounts.......................................................... 10,614
----------------
Net proceeds from the public offering.................................................. 129,591
Payment of accumulated and unpaid dividends on the outstanding Preferred Stock........... 19,440
Funding of certain employment agreement benefits ........................................ 11,090
Prepayment of outstanding senior notes................................................... 11,370
Payment of FDIC special assessment....................................................... 4,495
----------------
Remaining cash proceeds available for general corporate purposes......................... $ 83,196
----------------
----------------
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:
March 31, 1998 December 31, 1997
-------------- -----------------
(Dollars in thousands)
Non-performing loans, net:
Mortgage loans:
Single-family residential......................... $ 8,001 $ 8,435
Multi-family residential.......................... 3,015 405
Commercial........................................ 1,047 1,064
Land.............................................. -- --
Non-Mortgage Loans: Commercial................... 169 --
---------------------- -----------------------
Total non-performing loans, net....................... 12,232 9,904
---------------------- -----------------------
Real estate owned, net:
Single-family residential......................... 2,788 678
Multi-family residential.......................... 6,585 6,482
Commercial........................................ 5,929 5,921
Land.............................................. 202 202
---------------------- -----------------------
Total real estate owned, net.......................... 15,504 13,283
---------------------- -----------------------
Total non-performing assets........................... $ 27,736 $ 23,187
---------------------- -----------------------
---------------------- -----------------------
Troubled debt restructurings.......................... $ 9,896 $ 9,936
---------------------- -----------------------
---------------------- -----------------------
Total non-performing assets and troubled debt
restructurings.................................... $ 37,632 $ 33,123
---------------------- -----------------------
---------------------- -----------------------
Non-performing loans to total loans, net.............. 0.76% 0.65%
Non-performing loans to total assets.................. 0.54 0.45
Non-performing assets to total assets................. 1.22 1.05
Total non-performing assets and troubled debt
restructurings to total assets.................... 1.66 1.50
Non-performing assets increased by $4.5 million during the quarter due
primarily to increases of $2.1 million in single-family residential real
estate owned and $2.6 million in multi-family residential loans, the latter
of which is related to four properties. The Bank, which has initiated
foreclosure action against the borrowers on its multifamily residential
properties, does not anticipate taking any writedowns on such properties.
16
The following table sets forth the activity in the Bank's allowance for
loan losses during the periods indicated:
1998 1997
------------------- -------------------
(Dollars in thousands)
Beginning balance as of December 31, 1997 and 1996......................$ 17,824 $ 23,280
------------------- -------------------
Provision for loan losses............................................... 450 422
------------------- -------------------
Charge offs:
Mortgage loans:
Single-family residential............................................... (244) (712)
Multi-family residential................................................ (43) (4,125)
Commercial.............................................................. -- (216)
Non Mortgage Loans: Commercial......................................... 16 --
------------------- -------------------
Total charge-offs.................................................... (303) (5,053)
------------------- -------------------
Recoveries:
Mortgage loans:
Single-family residential............................................... 1 123
------------------- -------------------
Total recoveries..................................................... 1 123
------------------- -------------------
Net charge-offs (302) (4,930)
------------------- -------------------
Ending balance as of March 31, 1998 and 1997............................$ 17,972 $ 18,772
------------------- -------------------
------------------- -------------------
Allowance for loan losses to total non performing loans at end of period 146.93% 127.62%
Allowance for loan losses to total non performing loans and troubled
debt restructurings at the end of period............................ 81.22 84.27
Allowance for loan losses to total loans, net at the end of period.. 1.11 1.67
On an ongoing basis, Management monitors the loan portfolio and evaluates
the adequacy of the allowance for loan and lease losses. In determining the
adequacy of the allowance for loan and lease 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.
Loans deemed by management to be uncollectible are charged to the allowance
for loan and lease losses. Recoveries on loans previously charged off are
credited to the allowance. Provisions for loan and lease 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. Future additions to the allowance for loan and lease losses may be
necessary.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
See "Management's' Discussion and Analysis of Financial Condition and
Results of Operations." Reference is also made to the qualitative and
quantitative disclosures (consisting primarily of interest rate risk) in the
Company's prospectus dated May 12, 1998, as there has been no significant change
in these disclosures during the quarter ended March 31, 1998.
17
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.
(a) The following exhibit is included herein:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter
ended March 31, 1998.
18
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: June 19, 1998 By: /s/ Rudolf P. Guenzel
------------------------------------------
Rudolf P. Guenzel
President and Chief Executive Officer
By: /s/ J. Michael Holmes
------------------------------------------
J. Michael Holmes
Executive Vice President and
Chief Financial Officer
19