SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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Check the appropriate box:
/ / Preliminary Proxy Statement
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/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-12
PFF Bancorp
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(Name of Registrant as Specified In Its Charter)
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July 29, 2003
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
PFF Bancorp, Inc., the holding company for PFF Bank & Trust, which will be held
on Tuesday, September 16, 2003 at 9:00 a.m., local time, at the Sheraton Suites
Fairplex, 601 W. McKinley Avenue, Pomona, California 91766.
The attached Notice of Annual Meeting and proxy statement describe the
formal business that PFF Bancorp will transact at the annual meeting. The Board
of Directors of PFF Bancorp has determined that an affirmative vote on each
matter to be considered at the annual meeting is in the best interests of PFF
Bancorp and its shareholders and unanimously recommends a vote "FOR" each of
these matters.
Please complete, sign and return the enclosed proxy card promptly, whether
or not you plan to attend the annual meeting. YOUR VOTE IS IMPORTANT REGARDLESS
OF THE NUMBER OF SHARES YOU OWN. VOTING BY PROXY WILL NOT PREVENT YOU FROM
VOTING IN PERSON AT THE ANNUAL MEETING BUT WILL ASSURE THAT YOUR VOTE IS COUNTED
IF YOU CANNOT ATTEND.
On behalf of the Board of Directors and the employees of PFF Bancorp and
PFF Bank, we thank you for your continued support.
Sincerely yours,
/s/ Larry M. Rinehart
Larry M. Rinehart
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DATE: TUESDAY, SEPTEMBER 16, 2003
TIME: 9:00 A.M., LOCAL TIME
PLACE: SHERATON SUITES FAIRPLEX
601 W. MCKINLEY AVENUE
POMONA, CALIFORNIA 91766
At our 2003 annual meeting, PFF Bancorp will ask you to:
1. Elect Stephen C. Morgan, Ed. D., Jil H. Stark and Royce A. Stutzman to
serve as directors for a term of office set to expire in 2006 or until their
successors are elected and qualified.
2. Ratify the appointment of KPMG LLP as independent auditors of PFF
Bancorp for the fiscal year ending March 31, 2004.
3. Transact any other business as may properly come before the annual
meeting.
You may vote at the annual meeting if you were a shareholder of PFF Bancorp
at the close of business on July 18, 2003, the record date.
By Order of the Board of Directors,
/s/ Carole F. Olson
Carole F. Olson
Secretary
Pomona, California
July 29, 2003
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YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF SHARES YOU OWN. THE BOARD
OF DIRECTORS URGES YOU TO SIGN, DATE AND MARK THE ENCLOSED PROXY CARD PROMPTLY
AND RETURN IT IN THE ENCLOSED ENVELOPE. RETURNING THE PROXY CARD WILL NOT
PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE ANNUAL MEETING.
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GENERAL INFORMATION
GENERAL
PFF Bancorp is a Delaware corporation, which owns all the capital stock of
PFF Bank & Trust. As used in this proxy statement, the term "annual meeting"
includes any adjournment or postponement of such meeting.
PFF Bancorp has sent you this proxy statement and enclosed proxy card
because the Board of Directors is soliciting your proxy to vote at the annual
meeting. This proxy statement summarizes the information you will need to know
to cast an informed vote at the annual meeting. You do not need to attend the
annual meeting to vote your shares. You may simply complete, sign and return the
enclosed proxy card and your votes will be cast for you at the annual meeting.
This process is described below in the section entitled "Voting Rights."
PFF Bancorp began mailing this proxy statement, the Notice of Annual
Meeting and the enclosed proxy card on or about July 29, 2003 to all
shareholders entitled to vote. If you owned common stock of PFF Bancorp at the
close of business on July 18, 2003, the record date, you are entitled to vote at
the annual meeting. On the record date, there were 11,823,926 shares of common
stock outstanding.
QUORUM
A quorum of shareholders is necessary to hold a valid meeting. If the
holders of at least a majority of the total number of the outstanding shares of
common stock entitled to vote are represented in person or by proxy at the
annual meeting, a quorum will exist. PFF Bancorp will include proxies marked as
abstentions and broker non-votes to determine the number of shares present at
the annual meeting.
VOTING RIGHTS
You are entitled to one vote at the annual meeting for each share of the
common stock of PFF Bancorp that you owned as of record at the close of business
on July 18, 2003. The number of shares you own (and may vote) is listed at the
top of the back of the proxy card.
You may vote your shares at the annual meeting in person or by proxy. To
vote in person, you must attend the annual meeting and obtain and submit a
ballot, which PFF Bancorp will provide to you at the annual meeting. To vote by
proxy, you must complete, sign and return the enclosed proxy card. If you
properly complete your proxy card and send it to us in time to vote, your
"proxy" (one of the individuals named on your proxy card) will vote your shares
as you have directed. IF YOU SIGN THE PROXY CARD BUT DO NOT MAKE SPECIFIC
CHOICES, YOUR PROXY WILL VOTE YOUR SHARES FOR THE PROPOSALS IDENTIFIED IN THE
NOTICE OF ANNUAL MEETING.
If any other matter is presented, your proxy will vote the shares
represented by all properly executed proxies on such matters as a majority of
the Board of Directors determines. As of the date of this proxy statement, PFF
Bancorp knows of no other matters that may be presented at the annual meeting,
other than those listed in the Notice of Annual Meeting.
1
VOTE REQUIRED
PROPOSAL 1: To be elected, a nominee for director must receive a
Election of Directors plurality of the votes cast at the Annual Meeting.
So, if you do not vote for a nominee, or you
indicate "withhold authority" for a nominee on your
proxy card, your vote will not count "for" or
"against" the nominee. You may not vote your shares
cumulatively for the election of the director
nominees.
PROPOSAL 2: Approval of Proposal 2 requires the affirmative vote
Ratification of the of a majority of the votes entitled to be cast by
Appointment of the common stock represented at the Annual Meeting.
Independent Auditors Abstentions will be counted solely for the purpose
of determining whether a quorum is present.
EFFECT OF BROKER NON-VOTES
If your broker holds shares that you own in "street name," the broker may
vote your shares on the proposal listed above even if the broker does not
receive instructions from you. If your broker does not vote on this proposal,
this will constitute a "broker non-vote." Here is the effect of a "broker
non-vote."
o PROPOSAL 1: Election of Directors. A broker non-vote would have no
effect on the outcome of this proposal because only a plurality of
votes cast is required to elect the director nominees.
o PROPOSAL 2: Ratification of Independent Auditors. A broker non-vote
will be counted solely for the purpose of determining whether a quorum
is present.
CONFIDENTIAL VOTING POLICY
PFF Bancorp maintains a policy of keeping shareholder votes confidential.
PFF Bancorp only lets our Inspector of Election and certain employees of our
independent tabulating agents examine the voting materials. PFF Bancorp will not
disclose your vote to management unless it is necessary to meet legal
requirements. Our independent tabulating agent will, however, forward any
written comments that you may have to management.
REVOKING YOUR PROXY
You may revoke your grant of proxy at any time before it is voted by:
o filing a written revocation of the proxy with our Secretary;
o submitting a signed proxy card bearing a later date; or
o attending and voting in person at the annual meeting, but you also
must file a written revocation with the clerk of the annual meeting
prior to the voting.
IF YOUR SHARES ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED
APPROPRIATE DOCUMENTATION FROM YOUR SHAREHOLDER OF RECORD TO VOTE PERSONALLY AT
THE ANNUAL MEETING. Examples of such documentation include a broker's statement,
letter or other document that will confirm your ownership of shares of PFF
Bancorp.
2
SOLICITATION OF PROXIES
PFF Bancorp will pay the costs of soliciting proxies from its shareholders.
Directors, officers or employees of PFF Bancorp and PFF Bank may solicit proxies
by mail, telephone and other forms of communication. PFF Bancorp has also hired
Georgeson Shareholder to assist in the solicitation of proxies for a fee of
$5,000 plus reimbursement of out of pocket costs and expenses.
PFF Bancorp will also reimburse banks, brokers, nominees and other
fiduciaries for the expenses they incur in forwarding the proxy materials to
you.
OBTAINING AN ANNUAL REPORT ON FORM 10-K
Annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and all amendments to those reports are available free of
charge from the Company's internet site, www.pffbank.com, by clicking on
"Investor Relations" located on the home page, proceeding to "Financial" and
then to "SEC filings."
The Company will furnish any or all of the non-confidential exhibits upon
payment of a reasonable fee. Please send request for exhibits and/or fee
information to:
PFF Bancorp, Inc.
350 South Garey Avenue
Pomona, California 91766
Attn: Corporate Secretary
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS OF PFF BANCORP
The following table sets forth, as of July 18, 2003, certain information as
to common stock beneficially owned by persons owning in excess of 5% of the
outstanding shares of our common stock. PFF Bancorp knows of no person, except
as listed below, who beneficially owned more than 5% of the outstanding shares
of its common stock as of July 18, 2003. Except as otherwise indicated, the
information provided in the following table was obtained from filings with the
Securities and Exchange Commission and with PFF Bancorp pursuant to the
Securities Exchange Act of 1934, as amended, and on information presented to
management. Addresses provided are those listed in the filings as the address of
the person authorized to receive notices and communications. For purposes of the
table below, in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended, a person is deemed to be the beneficial owner, for purposes of
any shares of common stock: (1) over which he or she has or shares, directly or
indirectly, voting or investment power; or (2) of which he or she has the right
to acquire beneficial ownership at any time within 60 days after July 18, 2003.
As used in this proxy statement, "voting power" is the power to vote or direct
the voting of shares and "investment power" includes the power to dispose or
direct the disposition of shares.
3
AMOUNT AND
NATURE OF
BENEFICIAL
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT(5)
- -------------------- ------------------------------------------ ---------------- -------------
Common Stock, PFF Bank & Trust Employee Stock
$0.01 par value Ownership Plan
350 South Garey Avenue
Pomona, California 91766 1,587,000(1) 13.42%
Common Stock, Thomson Horstmann & Bryant, Inc.
$0.01 par value Park 80 West, Plaza Two
Saddle Brook, New Jersey 07663 795,200(2) 6.73%
Common Stock, Capital Group International, Inc.
$0.01 par value 11100 Santa Monica Boulevard
Los Angeles, California 90025 604,680(3) 5.11%
Common Stock, AXA Assurances I.A.R.D. Mutuelle
$0.01 par value 370, rue Saint Honore
75001 Paris, France 732,375(4) 6.19%
- -------------------
(1) The PFF Bank & Trust Employee Stock Ownership Plan ("ESOP") is administered
by the Employee Compensation and Benefits Committee. The ESOP's assets are
held in a trust (the "ESOP Trust"), for which The Mechanics Bank serves as
trustee (the "ESOP Trustee"). The ESOP Trustee, subject to its fiduciary
duty, must vote all allocated shares held in the ESOP in accordance with
the instructions of the participants. At July 18, 2003, 1,183,455 shares
held by the ESOP Trust have been allocated under the ESOP and 403,545
shares remain unallocated. Under the terms of the ESOP, the ESOP Trustee
will vote the unallocated shares in a manner calculated to most accurately
reflect the instructions received from participants regarding allocated
shares so long as the ESOP Trustee determines such vote is in accordance
with the provisions of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
(2) As reported by Thompson Horstmann & Bryant, Inc. in a Schedule 13G/A filed
with the SEC on January 9, 2003, which reported sole voting power with
respect to 406,200 shares and sole investment power with respect to 795,200
shares as of December 31, 2002.
(3) As reported by Capital Guardian Trust Company in a Schedule 13G/A filed
with the SEC on February 11, 2003, which reported sole voting power with
respect to 557,680 shares and sole investment power with respect to 604,680
shares as of December 31, 2002.
(4) As reported by AXA Assurances I.A.R.D. Mutuelle in a Schedule 13G filed
with the SEC on February 12, 2003, which reported sole voting power with
respect to 570,075 shares and sole investment power with respect to 506,575
shares as of December 31, 2002.
(5) Percentages with respect to each person or group of persons have been
calculated based upon 11,823,926 shares of common stock, the number of
shares outstanding as of July 18, 2003.
4
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information about the shares of common stock
beneficially owned by each director of PFF Bancorp, by each named executive
officer of PFF Bancorp identified in the Summary Compensation Table included
elsewhere in this proxy statement, and by all directors and executive officers
of PFF Bancorp or PFF Bancorp's wholly owned subsidiary, PFF Bank, as a group as
of July 18, 2003. Except as otherwise indicated, each person and each group
shown in the table has sole voting and investment power with respect to the
shares of common stock indicated.
PERCENT OF
AMOUNT AND NATURE COMMON STOCK,
POSITION WITH OF BENEFICIAL $.01 PAR VALUE
NAME PFF BANCORP OWNERSHIP(1) OUTSTANDING(2)
- --------------------------- ---------------------------------------- ----------------------- --------------------
Robert W. Burwell(3) Vice Chairman of the Board 87,474 *
Donald R. DesCombes(4) Chairman of the Board 154,773 1.3%
Jerald W. Groene(5) Senior Vice President and Chief
Lending Officer of PFF Bank 72,811 *
Kevin McCarthy(6) Senior Executive Vice President of
PFF Bancorp and Senior Executive
Vice President and Chief Operating
Officer of PFF Bank 257,860 2.15%
Stephen C. Morgan(7) Director 13,053 *
Curtis W. Morris(8) Director 93,710 *
Larry M. Rinehart(9) Director, President and Chief
Executive Officer 232,622 1.94%
Gilbert F. Smith(10) Senior Vice President and General
Counsel of PFF Bank 71,022 *
Jil H. Stark(11) Director 118,590 *
Royce A. Stutzman(12) Director 349 *
Gregory C. Talbott(13) Executive Vice President, Chief
Financial Officer and Treasurer 162,927 1.37%
All directors and
executive officers as a
group (11 persons)(14) 1,665,736 13.19%
- --------------------------
* Less than one percent
(footnotes on following page)
5
(1) See "Security Ownership of Certain Beneficial Owners and Management -
Principal Shareholders of PFF Bancorp" for a definition of "beneficial
ownership."
(2) Percentages with respect to each person or group of persons have been
calculated based on 11,823,926 shares of common stock, the total number of
shares of common stock outstanding as of July 18, 2003, plus shares of
common stock which such persons or group of persons has the right to
acquire within 60 days of July 18, 2003, by the exercise of stock options.
(3) Includes 13,603 shares in plan trusts related to the 1996 Incentive Plan
and 37,070 shares subject to currently exercisable options.
(4) Includes 26,737 shares vested but deferred to which Mr. DesCombes has
voting power, 6,000 shares held in trust, 12,923 in plan trusts related to
the 1996 Incentive Plan and 92,070 shares subject to currently exercisable
options.
(5) Includes 300 shares held by children, 2,459 shares held by the SERP trust,
10,612 shares allocated to Mr. Groene's account under the ESOP and 29,325
subject to currently exercisable options.
(6) Includes 5,071 shares held by the SERP trust, 12,806 shares allocated to
Mr. McCarthy's account under the ESOP and 172,285 shares subject to
currently exercisable options.
(7) Includes 12,053 shares subject to currently exercisable options.
(8) Includes 1,393 shares held by spouse, 1,741 shares held in an IRA, 3,742
shares held in plan trusts related to the 1996 Incentive Plan, 10,963
shares vested but deferred to which Mr. Morris has voting power and 72,070
shares subject to currently exercisable options.
(9) Includes 22,500 shares in plan trusts related to the 1996 Incentive Plan,
21,777 shares held by the SERP trust, 12,249 shares allocated to Mr.
Rinehart's account under the ESOP and 176,096 shares subject to currently
exercisable options.
(10) Includes 2,906 shares held in the 401(k) Plan trust, 3,528 shares held by
the SERP trust, 4,672 shares vested but deferred to which Mr. Smith has
voting power, 12,347 shares allocated to Mr. Smith's account under the ESOP
and 32,951 shares subject to currently exercisable options.
(11) Includes 97,070 shares subject to currently exercisable options.
(12) Includes 175 shares held in a SEP-IRA and 174 shares in a deferred
compensation plan.
(13) Includes 3,468 shares held in the 401(k) Plan trust, 10,528 shares held by
the SERP Trust, 12,951 shares allocated to Mr. Talbott's account under the
ESOP and 83,029 shares subject to currently exercisable options.
(14) The amount of shares for all directors and executive officers as a group
includes 403,545 shares held by the ESOP Trust that have not been allocated
to eligible participants as of March 31, 2003, over which the Employee
Compensation and Benefits Committee (consisting of Messrs. Morgan, Burwell
and Morris) may be deemed to have sole investment power, except in limited
circumstances, thereby causing each committee member to be a beneficial
owner of such shares. Each member of this committee disclaims beneficial
ownership of such shares and accordingly, such shares are not attributed to
the members of this committee individually. As of March 31, 2003, 1,183,455
shares have been allocated to participants pursuant to PFF Bancorp's ESOP.
6
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PROPOSAL 1
ELECTION OF DIRECTORS
------------------------------------------
GENERAL
NOMINEES TERM TO EXPIRE
------------------------------- ------------------
Stephen C. Morgan, Ed. D. 2006
Jil H. Stark 2006
Royce A. Stutzman 2006
Directors Morgan, Stark and Stutzman are currently serving on PFF Bancorp's
Board of Directors. If you elect the nominees listed above, they will hold
office until the annual meeting in 2006 or until their successors have been
elected and qualified.
PFF Bancorp knows of no reason why any of the nominees may be unable to
serve as directors. If any of the nominees is unable to serve, your proxy may
vote for another nominee proposed by the Board. If for any reason any of the
nominees proves unable or unwilling to stand for election, the Board will
nominate alternates or reduce the size of the Board of Directors to eliminate
the vacancy. The Board has no reason to believe that any of its nominees would
prove unable to serve if elected.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES
FOR ELECTION AS DIRECTORS.
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NOMINEES, CONTINUING AND RETIRING DIRECTORS
TERM DIRECTOR
NOMINEES AGE(1) EXPIRES POSITION(S) HELD WITH PFF BANCORP SINCE(2)
- --------------------------- -------- --------------- ----------------------------------------- --------------
Stephen C. Morgan, Ed. D. 57 2003 Director 2001
Jil H. Stark 66 2003 Director 1975
Royce A. Stutzman 67 2003 Director 2002
CONTINUING DIRECTORS
- ---------------------------
Robert W. Burwell 71 2005 Vice Chairman 1984
Donald R. DesCombes 71 2004 Chairman 1979
Curtis W. Morris 67 2005 Director 1988
Larry M. Rinehart 55 2004 Director, President and Chief Executive 1994
Officer
- --------------------
(1) At July 18, 2003.
(2) Includes years of service as a director of PFF Bank.
7
BIOGRAPHICAL INFORMATION
The principal occupation and business experience of the nominees for
election as director and each continuing director are set forth below.
NOMINEES
STEPHEN C. MORGAN, ED. D., has been the president of the University of
LaVerne since 1985.
JIL H. STARK is a retired college administrator and faculty member.
ROYCE A. STUTZMAN, a Certified Valuation Analyst and Certified Public
Accountant, is past managing partner and current Chairman of Vicenti, Lloyd &
Stutzman LLP, a local accounting firm.
CONTINUING DIRECTORS
ROBERT W. BURWELL was President and Chief Executive Officer of the Pomona
Valley Hospital Medical Center from 1972 until his retirement in 1993.
DONALD R. DESCOMBES has served as the Chairman of the Board of Directors of
PFF Bank since 1989. He was Chairman of the Board of Directors of Averbeck
Company Insurance Brokers until 2001.
CURTIS W. MORRIS is associated with the law firm of Lamb, Morris & Lobello
and has been a practicing attorney for 33 years.
LARRY M. RINEHART has served as President and Chief Executive Officer of
PFF Bank since 1992 and of PFF Bancorp since 1996. He served as President-elect
and Executive Vice President of PFF Bank from July 1991 to August 1992. Mr.
Rinehart also serves as Director, President and Chief Executive Officer of
Pomona Financial Services, Inc., and Diversified Services, Inc. He serves as a
Director of Glencrest Investment Advisors, Inc. and Diversified Builder
Services, Inc., recently formed subsidiaries of PFF Bancorp. He is also a
director of Glencrest Insurance Services, Inc.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
KEVIN MCCARTHY, age 51, serves as Senior Executive Vice President of PFF
Bancorp and Senior Executive Vice President and Chief Operating Officer of PFF
Bank. Mr. McCarthy is a Director of Pomona Financial Services, Inc. and
Diversified Services, Inc. Mr. McCarthy also serves as Chairman of the Board of
Directors of Glencrest Investment Advisors, Inc., a recently formed subsidiary
of PFF Bancorp and Chairman of the Board of Glencrest Insurance Services, Inc.
GREGORY C. TALBOTT, age 49, is the Executive Vice President, Chief
Financial Officer and Treasurer of PFF Bancorp and Executive Vice President and
Chief Financial Officer of PFF Bank & Trust. Mr. Talbott also serves as Director
of Glencrest Investment Advisors, Inc., a recently formed subsidiary of PFF
Bancorp and as a Director of Glencrest Insurance Services, Inc.
GILBERT F. SMITH, age 57, currently serves as Senior Vice President and
General Counsel of PFF Bank. Mr. Smith is Chairman of the Board of Directors of
Pomona Financial Services, Inc. and Diversified Services, Inc. Mr. Smith also
serves as Director of Glencrest Investment Advisors, Inc., a recently formed
subsidiary of PFF Bancorp, and as a director of Glencrest Insurance Services,
Inc.
8
JERALD W. GROENE, age 55, is Senior Vice President and Chief Lending
Officer of PFF Bank. Mr. Groene is a Director of Pomona Financial Services, Inc.
and Diversified Services, Inc. Mr. Groene also serves as Director of Glencrest
Investment Advisors, Inc., a recently formed subsidiary of PFF Bancorp and as a
Director of Glencrest Insurance Services, Inc.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND MANAGEMENT
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
PFF Bancorp's Board of Directors currently consists of seven members. The
Board of Directors oversees our business and monitors the performance of our
management. In accordance with our corporate governance procedures, the Board of
Directors does not involve itself in the day-to-day operations of PFF Bancorp.
PFF Bancorp's executive officers and management oversee our day-to-day
operations. Our directors fulfill their duties and responsibilities by attending
regular meetings of the board and committees, and also through considerable
telephone contact and other communications with the Chairman and others
regarding matters of concern and interest to PFF Bancorp. Our directors also
discuss business and other matters with the Chairman, other key executives, and
our principal external advisors (legal counsel, auditors, financial advisors and
other consultants).
The Board of Directors held a total of 13 meetings during the fiscal year
ended March 31, 2003. Each incumbent director, attended at least 75% of the
meetings of the Board of Directors held during the time in which they served as
director, plus meetings of committees on which that particular director served
during this period.
COMMITTEES OF THE BOARD
The Board of Directors of PFF Bancorp has established the following
committees:
AUDIT The Audit Committee oversees and monitors our financial
COMMITTEE reporting process and internal control system, reviews and
evaluates the audit performed by our outside auditors and
reports any substantive issues found during the audit to the
board of directors. The Audit Committee is directly
responsible for the appointment, compensation and oversight
of the work of our independent auditors. The committee will
also review and approve all transactions with affiliated
parties. The board of directors has adopted a written
charter for the Audit Committee. A copy of the Audit
Committee Charter is attached as APPENDIX A to this proxy
statement.
Directors Stark, Morgan, Burwell and Stutzman currently
serve as members of the committee. Director Stark is the
Chairman of the committee. All members of the Audit
Committee are independent directors as defined under The New
York Stock Exchange listing standards. PFF Bancorp believes
that Mr. Stutzman qualifies as an "Audit Committee Financial
Expert" as that term is defined by applicable SEC rules. The
Audit Committee met 5 times in fiscal 2003.
9
NOMINATING The Nominating Committee considers nominees for election to
COMMITTEE the Board of Directors, including any written
recommendations by shareholders that are mailed to the
attention of the Secretary. Directors DesCombes, Burwell and
Morris currently serve on the committee. Mr. DesCombes is
the Chairman of the committee. The Nominating Committee met
one time in the 2003 fiscal year.
EMPLOYEE The Employee Compensation and Benefits Committee establishes
COMPENSATION compensation and benefits for the executive officers, and
AND BENEFITS reviews the incentive compensation programs when necessary.
COMMITTEE The Committee is responsible for all matters regarding
compensation and benefits, hiring, termination and
affirmative action issues for other officers and employees.
Directors Morgan, Burwell and Morris currently serve on the
committee. Mr. Morgan is the Chairman of the committee. The
Employee Compensation and Benefits Committee met 2 times in
the 2003 fiscal year.
AUDIT COMMITTEE REPORT
THE FOLLOWING AUDIT COMMITTEE REPORT IS PROVIDED IN ACCORDANCE WITH THE
RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC").
PURSUANT TO SUCH RULES AND REGULATIONS, THIS REPORT SHALL NOT BE DEEMED
"SOLICITING MATERIALS," FILED WITH THE SEC, SUBJECT TO REGULATION 14A OR 14C OF
THE SEC OR SUBJECT TO THE LIABILITIES OF SECTION 18 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED.
During 2003, the Audit Committee of PFF Bancorp's Board held 5 formal
meetings. It also met periodically throughout the year to discuss matters
consistent with its duties.
During 2003, each member of PFF Bancorp's Audit Committee was independent
as defined under the New York Stock Exchange listing standards. The Board of
Directors has certified that Mr. Stutzman qualifies as an Audit Committee
Financial Expert as the term is defined by SEC regulations. PFF Bancorp Audit
Committee operates under a written charter approved by the Board.
PFF Bancorp's Audit Committee assists the Board by overseeing the audit
coverage and monitoring the accounting, financial reporting, data processing,
regulatory, and internal control environments. The primary duties and
responsibilities of PFF Bancorp's Audit Committee are to: (1) serve as an
independent and objective party to monitor PFF Bancorp's financial reporting
process and internal control systems; (2) review and appraise the audit efforts
of PFF Bancorp's independent auditors and internal audit department; (3)
evaluate PFF Bancorp's quarterly financial performance, as well as its
compliance with laws and regulations; (4) oversee management's establishment and
enforcement of financial policies; and (5) provide an open avenue of
communication among the independent auditors, financial and senior management,
the internal audit department, and the Board.
10
During the fiscal year ended March 31, 2003, PFF Bancorp retained and paid
KPMG LLP to provide audit and other services as follows:
AUDIT FEES
Audit Fees, excluding audit related (1) $ 277,806
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
None $ -
ALL OTHER FEES
Audit-Related Fees (2) $ 46,878
Other Non-Audit Services:
Tax Compliance (3) $ 83,725
---------
TOTAL FEES RECEIVED $ 408,409
=========
(1) This amount includes $21,806 related to the completion of the fiscal
2002 audit and $256,000 related to the fiscal 2003 audit.
(2) Audit related fees consisted principally of fees for audits of
financial statements of employee benefit plans.
(3) Tax compliance consists of fees related to the preparation of the
Company's income tax returns and other consultative matters.
The Committee reviewed with the Company's internal auditors and independent
accountants the overall scope and plans for their respective audits and the
results of internal audit examinations. The Committee also discussed with
management, the internal auditors and the independent accountants the quality
and adequacy of the Company's and the Bank's internal controls and the overall
quality of the Company's and the Bank's financial reporting process.
The Committee discussed and reviewed with its independent accountants
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and discussed and reviewed the results of
the independent accountants' examination of the consolidated financial
statements.
The Committee reviewed and discussed interim financial information
contained in each quarterly report and earnings announcement with management and
independent accountants prior to public release as necessary. The Committee
reviewed the audited consolidated financial statements of the Company as of and
for the year ended March 31, 2003, with management and the independent
accountants. Management has the responsibility for the preparation of the
Company's consolidated financial statements and the independent accountants have
the responsibility for the audit of those statements.
PFF Bancorp's Audit Committee has also received the written disclosures and
the letter from KPMG LLP required by Independence Standards Board Standard No. 1
(entitled "Independence Discussions with Audit Committees"), has discussed the
independence of KPMG LLP and considered whether the provision of non-audit
services by KPMG LLP is compatible with maintaining the auditor's independence.
Based on the review and discussions noted above, PFF Bancorp's Audit
Committee recommended to the Board that PFF Bancorp's audited financial
statements be included in PFF Bancorp's
11
Annual Report on Form 10-K for the fiscal year ended March 31, 2003 for filing
with the SEC. A representative of KPMG LLP is expected to be present at the
Annual Meeting to respond to appropriate questions and will have the opportunity
to make a statement if she or he so desires. PFF Bancorp's Audit Committee also
reappointed the independent auditors, subject to the ratification of PFF
Bancorp's shareholders.
AUDIT COMMITTEE OF PFF BANCORP, INC.
JIL H. STARK (CHAIRMAN)
ROBERT W. BURWELL
STEPHEN C. MORGAN
ROYCE A. STUTZMAN
DIRECTORS' COMPENSATION
MEETINGS AND FEES. Currently, each non-employee director of PFF Bancorp
receives an annual retainer of $12,500 for serving on the board of directors of
PFF Bancorp; and each non-employee director of PFF Bank, except for the Chairman
of the Board and Mr. Rinehart, receives a retainer of $3,300 per month. The
Chairman of the Board receives a monthly retainer of $4,500. Mr. Rinehart does
not receive any additional compensation for serving as a director. Directors are
also eligible to receive grants of options under PFF Bancorp's incentive plans.
PFF Bancorp paid fees totaling $63,333 to its non-employee directors for the
year ended March 31, 2003.
DIRECTORS' RETIREMENT PLAN. PFF Bank maintains the PFF Bank & Trust
Directors' Retirement Plan (the "Directors' Retirement Plan") which is a frozen
non-qualified plan under which no new benefits have accrued effective as of
December 31, 1995. The Directors' Retirement Plan provides that, upon
retirement, retiring directors are eligible to receive an annual benefit equal
to 70% of the retiring directors' annualized final earnings based on monthly
board compensation as of December 31, 1995 (reduced by one one hundred and
twentieth (1/120) for each month of service less than 120) which shall continue
to be paid for at least 10 years and over the lifetime of the director
thereafter. All Directors are currently credited with 120 months of service
under the plan except for Mr. Morgan and Mr. Stutzman who has not been credited
with any months of service. Mr. Rinehart does not participate in the plan.
Benefits may not start until the director retires from service and reaches age
65. The Directors' Retirement Plan provides that in the event of a participant's
death prior to payment of all benefits due to the participation under the plan,
the remaining benefits are to be paid to the beneficiary or beneficiaries
designated by the participants or, if no such designation has been made, to the
estate of the participant.
DIRECTORS' DEFERRED COMPENSATION PLAN. PFF Bank maintains the PFF Bank &
Trust Directors' Deferred Compensation Plan which is a non-qualified plan that
offers directors the opportunity to defer fee compensation and stock awarded
under the 1996 Incentive Plan. The primary form of benefit for deferred fees is
120 monthly installment payments of the account balance. Such balance shall
equal the amount of the deferrals and interest thereon. Other forms of benefit,
including a lump sum payout, are available with certain restrictions. Deferred
stock awarded under the 1996 Incentive Plan is accounted for in the plan in the
form of common stock units. The form of benefit for deferred stock is a single
lump sum payout or payment of equal installments over time. Prior to March 1995,
deferrals had been credited with an interest rate equal to the highest interest
rate paid on a designated date to depositors of PFF Bank. The plan has been
amended to allow for an alternative choice whereby deferrals may be credited
with investment earnings or losses equivalent to that of the common stock issued
in connection with our initial public offering ("Common Stock Rate"). Previous
deferrals, as well as future deferrals, may be credited with the Common Stock
Rate as of the initial public offering.
12
EXECUTIVE COMPENSATION
THE REPORT OF PFF BANCORP'S EMPLOYEE COMPENSATION AND BENEFITS COMMITTEE
AND PERFORMANCE GRAPH INCLUDED IN THIS SECTION ARE PROVIDED IN ACCORDANCE WITH
THE RULES AND REGULATIONS OF THE SEC. PURSUANT TO SUCH RULES AND REGULATIONS,
THE REPORT AND THE GRAPH ARE NOT TO BE DEEMED "SOLICITING MATERIALS," FILED WITH
THE SEC, SUBJECT TO REGULATION 14A OR 14C OF THE SEC OR SUBJECT TO THE
LIABILITIES OF SECTION 18 OF THE 1934 SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
THE REPORT OF THE EMPLOYEE COMPENSATION AND BENEFITS COMMITTEE AND THE
STOCK PERFORMANCE GRAPH SHALL NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY
GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY
FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
THE EXCHANGE ACT, EXCEPT AS TO THE EXTENT THAT THE COMPANY SPECIFICALLY
INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED
FILED UNDER SUCH ACTS.
EMPLOYEE COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Employee Compensation and Benefits Committee is responsible for
administering the compensation and benefits programs for the President and Chief
Executive Officer of PFF Bancorp and PFF Bank and all other executive officers.
Compensation of the President and Chief Executive Officer and other executive
officers for the fiscal year ended 2003 was paid by PFF Bank and PFF Bancorp,
respectively, and determined by both Boards of Directors upon the recommendation
of the Employee Compensation and Benefits Committee for PFF Bank and PFF
Bancorp.
The committee reviews the compensation and benefits programs for all
executive officers on an annual basis. Recommendations and rationale of Messrs.
Rinehart, McCarthy, Talbott, Smith and Groene's positions with PFF Bank and PFF
Bancorp, respectively, are taken into consideration during such review.
The committee strives to provide a compensation program that assures both
the motivation and retention of the executive officers, proper alignment with
the financial interests of PFF Bancorp's stockholders, and competitiveness with
the external marketplace. To this end, the Employee Compensation and Benefits
Committee has established the following goals as incentives in setting Executive
Compensation, including benefits: (i) to target base salaries at a competitive
average; (ii) to reward the achievement of PFF Bank's annual and long term
strategic goals; (iii) to retain executive officers by offering a full range of
benefits available at a competitive level to other executives of savings
institutions; and (iv) to provide additional motivation for the executive
officers to enhance stockholder value by linking a portion of the compensation
package to benchmarks that they believe influence the performance of PFF
Bancorp's common stock.
PFF Bancorp's and PFF Bank's compensation program for executive officers
consists of cash or non-cash remuneration in the form of: salary, bonus,
profit-sharing, deferred compensation, auto allowance, 401(k) employer match
contribution, Supplemental Executive Retirement Plan ("SERP") payments, ESOP
allocations, stock grants and options, and other types of remuneration deemed by
the Board to be appropriate. These elements are intended to provide an overall
compensation package that is commensurate with PFF Bancorp's and PFF Bank's
financial resources, that is appropriate to assure the retention of experienced
management personnel, and that will align their financial interests with those
of PFF Bancorp's shareholders.
13
BASE SALARIES. Salary levels recommended by the committee are intended to
be in the middle range of the marketplace. There is no provision for "automatic
annual raises;" however, adjustments will be made from time to time for
individuals whose salaries are trailing the market. Sources of compensation
information include a peer group analysis as obtained through review of proxy
statements and various compensation surveys including Employer Group Survey,
Economic Research Institute Survey, Western Management Group Survey, California
Bankers Association Survey, American Community Bankers Survey and other
published sources.
Notwithstanding modest salary levels, the Committee believes that high
performance deserves high financial rewards. For this reason, the Committee has
established two annual cash bonus plans. One plan, at the PFF Bank level,
measures and rewards achievement of internally established goals. The second
plan, at the PFF Bancorp level, measures performance compared to a peer group.
Taken together these cash bonus plans offer executive officers the opportunity
of approximately doubling their annual salaries for truly outstanding
performance.
Once each year the President and Chief Executive Officer presents to the
full Board, in executive session, his evaluation and the salary of each of the
senior executive officers. While such evaluations are the primary responsibility
of the President and Chief Executive Officer, the Board believes it prudent to
conduct general oversight of the status of the senior management team.
INCENTIVE PLANS. The Board and stockholders have approved Incentive Plans
in 1996 and 1999, under which officers may receive options and awards. All stock
options and awards under the 1996 Incentive Plan have vested. Under the 1999
Incentive Plan, the Committee may award stock options and other rights. The
vesting of stock options granted under the 1999 Incentive Plan are determined by
the Committee. All awards granted to date provide for vesting at fifty percent
(50%) per year over a two year period. The Committee believes that stock
ownership is a significant incentive in building stockholders' wealth and
aligning the interests of employees with those of stockholders. Stock options
under the 1999 Incentive Plan have been allocated by the Committee based upon
fiscal responsibility, regulatory practices and policies, the practices of other
financial institutions, as verified by external surveys based upon the officers'
level of responsibility and contributions to PFF Bancorp and PFF Bank. The
Committee will consider the amount of outstanding awards in determining the
total annual compensation package.
CHIEF EXECUTIVE OFFICER. In addition to the goals associated with the
annual incentive plan, the Board conducts a general evaluation of the President
and Chief Executive Officer's performance twice each year. This review includes
a variety of considerations such as the quality and source of earnings, budget
management, regulatory compliance, community and internal leadership and
strategic vision and implementation. Specific accomplishments included the
creation of Glencrest Investment Advisors, Inc., a wholly-owned subsidiary of
PFF Bancorp, the hiring of more experienced commercial bank employees, cost
reductions, growth of the business, consumer, commercial/industrial and
construction loan programs, record low volume of non-performing assets, and
asset growth. In addition to considering these specific accomplishments,
consideration was given to the results of an extensive survey of peer financial
institutions.
14
The goal of the above referenced compensation policies, as implemented by
the Committee, is to be certain that all Executives are compensated consistent
with the above guidelines and to assure that all reasonable and possible efforts
are being exerted to maximize shareholder value. Compensation levels will be
reviewed as frequently as necessary to ensure this result.
EMPLOYEE COMPENSATION AND BENEFITS COMMITTEE
OF PFF BANCORP, INC.
STEPHEN C. MORGAN (CHAIRMAN)
ROBERT W. BURWELL
CURTIS W. MORRIS
EMPLOYEE COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION.
During fiscal 2003, there were no interlocks between members of the
employee compensation and benefits committee or executive officers of PFF
Bancorp and corporations with respect to which such persons are affiliated.
15
PERFORMANCE GRAPH
The following graph compares PFF Bancorp's total cumulative shareholder
return based on the market price of PFF Bancorp's common stock with the
cumulative total return of companies on the S&P 500 and the SNL Western Thrift
Index for the period beginning on March 31, 1998 to March 31, 2003.
TOTAL RETURN PERFORMANCE
[PERFORMANCE GRAPH]
PERIOD ENDING
----------------------------------------------------------------------
03/31/98 03/31/99 03/31/00 03/31/01 03/31/02 03/31/03
---------- ---------- ---------- ----------- ----------- -------------
PFF Bancorp, Inc........... $ 100.00 $ 84.85 $ 75.93 $ 113.73 $ 156.42 $ 162.65
S&P 500.................... 100.00 118.43 139.68 109.41 109.67 82.39
SNL Western Thrift Index... 100.00 83.23 62.01 124.27 120.51 134.39
16
SUMMARY COMPENSATION TABLE
The following table provides information about the compensation paid during
the fiscal year ended March 31, 2003 to the Chief Executive Officer of PFF
Bancorp and PFF Bank and to the four other most highly compensated executive
officers of PFF Bancorp and PFF Bank whose combined annual salary and bonus for
2003 was at least $100,000. These individuals are referred to as "named
executive officers" in this proxy statement.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------- -------------------------- ----------------
OTHER RESTRICTED
ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL COMPENSATION AWARDS OPTIONS COMPENSATION
POSITIONS WITH PFF BANCORP YEAR SALARY($)(1) BONUS($) ($)(2) ($) (#) ($)
- ----------------------------------- ------ -------------- ----------- ---------------- ------------- ------------ ----------------
Larry M. Rinehart, 2003 $ 342,992 $362,130 $ 10,800 - - $ 47,472(5)
President and Chief 2002 342,992 229,940 58,425(3) - 88,125(4) 128,258
Executive Officer 2001 333,000 - - - - 71,675
Kevin McCarthy, 2003 $ 228,654 $241,414 $ 10,800 - - $ 33,563(5)
Senior Executive Vice 2002 228,654 137,966 36,900(3) - 63,000(4) 82,799
President and Chief 2001 222,000 - - - - 64,576
Operating Officer
Gregory C. Talbott, 2003 $ 217,235 $229,359 $ 10,800 - - $ 28,158(5)
Executive Vice President, 2002 217,235 130,109 36,900(3) - 53,562(4) 87,400
Chief Financial Officer and 2001 210,924 - - - - 72,175
Treasurer
Gilbert F. Smith, 2003 $ 171,496 $142,120 $ 10,800 - - $ 22,513(5)
Senior Vice President and 2002 171,496 80,478 20,756(3) - 30,250(4) 38,813
General Counsel 2001 166,500 - - - - 44,364
Jerald W. Groene, 2003 $ 171,496 $142,121 $ 10,800 - - $ 23,433(5)
Senior Vice President and 2002 171,496 80,478 20,756(3) - 30,250(4) 37,498
Chief Lending Officer 2001 166,500 - - - - 45,399
----------------------------
(1) Included in this figure are amounts deferred by the executive officer
pursuant to PFF Bank's 401(k) Plan, as hereinafter defined, pursuant
to which employees may defer up to 15% of their compensation and
executive officers may defer up to 5% of their compensation, up to the
maximum limits under the Code. These numbers are subject to change
based on Section 415 testing limits.
(2) Includes $10,800 for each officer as payment for automobile
allowances. The aggregate value of non-cash benefits and perquisites
for fiscal 2003 did not, in the case of any executive officer, exceed
the lesser of $50,000 or 10% of the aggregate salary and annual bonus
reported for him in the Summary Compensation Table.
(3) Consists of awards of 1,900, 1,200, 1,200, 675 and 675 shares of
common stock, which vested immediately, made pursuant to the 1996
Incentive Plan to Messrs. Rinehart, McCarthy, Talbott, Smith and
Groene, respectively, on March 27, 2002.
(4) Consists of options granted on November 28, 2001 under the 1999
Incentive Plan at an exercise price of $26.65 which vest at 50% per
year on October 23, 2002 and October 23, 2003.
(5) Includes (i) $7,300, $4,386, $80, $223 and $1,236 in life insurance
premiums; (ii) $10,353, $9,146, $9,024, $7,124 and $7,124, in
contributions to PFF Bank's 401(k) plan; and (iii) $17,577, $17,578,
$17,578, $15,073 and $15,073 in contributions to the ESOP paid by PFF
Bank for the benefit of Messrs. Rinehart, McCarthy, Talbott, Smith and
Groene, respectively. Includes $12,242, $2,453 and $1,476 in
adjustments to the ESOP/SERP Plans for the benefit of Messrs.
Rinehart, McCarthy and Talbott, respectively. Includes $93 in interest
on the Bank's Deferred Compensation Plan for the benefit of Mr. Smith.
17
EMPLOYMENT AGREEMENTS
PFF Bank and PFF Bancorp have entered into employment agreements with
Messrs. Rinehart, McCarthy and Talbott. The employment agreements are intended
to ensure that we will be able to maintain a stable and competent management
base. Our continued success depends to a significant degree on the skills and
competence of Messrs. Rinehart, McCarthy and Talbott. The employment agreements
provide for a three-year term for Messrs. Rinehart, McCarthy and Talbott. PFF
Bank employment agreements provide that, commencing on the first anniversary
date and continuing each anniversary date thereafter, the Board of Directors of
PFF Bank may extend the agreement for an additional year so that the remaining
term shall be three years, unless written notice of non-renewal is given by the
Board of Directors of PFF Bank after conducting a performance evaluation of each
executive. The terms of the PFF Bancorp employment agreements shall be extended
on a daily basis unless written notice of non-renewal is given by the Board of
Directors. The agreements provide that each executive's base salary will be
reviewed annually. The annual base salaries for Messrs. Rinehart, McCarthy and
Talbott for the fiscal year ended March 31, 2003 are $342,992, $228,654 and
$217,235, respectively. In addition to the base salary, the agreements provide
for, among other things, participation in stock benefit plans and other fringe
benefits applicable to executive personnel.
The agreements provide for termination for cause as defined in the
agreements at any time. In the event PFF Bank or PFF Bancorp chooses to
terminate the executive's employment for reasons other than for cause, or in the
event of the executive's resignation upon: (i) failure to re-elect the executive
to his current office(s); (ii) a material change in the executive's functions,
duties or responsibilities; (iii) a relocation of the executive's principal
place of employment by more than 25 miles; (iv) a material reduction in the
benefits and perquisites to the executive; (v) liquidation or dissolution of PFF
Bank or PFF Bancorp or (vi) a breach of the agreement by PFF Bank or PFF
Bancorp, the executive or, in the event of the executive's subsequent death, his
beneficiary, would be entitled to receive an amount equal to the remaining base
salary payments due to the executive and the contributions that would have been
made on the executive's behalf to any employee benefit plans during the
remaining term of the agreement provided, however, that the payment shall not,
in the aggregate, exceed three times the average of the executive's five
preceding taxable years' annual compensation. PFF Bank and PFF Bancorp would
also continue, and pay for, the executive's life, health and disability coverage
for the remaining term of the agreement.
Under the agreements, if an involuntary termination, other than for cause,
follows a change in control of PFF Bank or PFF Bancorp (as defined in the
Employment Agreement), the executive or, in the event of the executive's death,
his beneficiary, would be entitled to a severance payment equal to the greater
of: (i) the payments due for the remaining term of the agreement; or (ii) three
times the average of the five preceding taxable years' annual compensation. PFF
Bank and PFF Bancorp would also continue, and pay for, the executive's life,
health, and disability coverage for thirty-six months. The benefits described in
this paragraph would also be payable if the executive voluntarily resigns
following a change in control after any (i) demotion, (ii) loss of title, office
or significant authority, (iii) reduction in annual compensation or benefits or
(iv) relocation of the executive's principal place of employment to more than 25
miles from its location prior to the change in control.
Payments under the agreements in the event of a change in control may
constitute an excess parachute payment under Section 280G of the Internal
Revenue Code (the "Code") for executive officers, resulting in the imposition of
a 20% excise tax on the recipient and denial of the deduction for such excess
amounts to PFF Bancorp and PFF Bank. Under the PFF Bancorp agreement, if such
payment constitutes an excess parachute payment under Section 280G of the Code,
the executive officer will receive a benefit under the agreement equal to either
the (i) the total benefits payable under the agreement or (ii) the amount that
is one dollar less than the triggering amount for the imposition of the excise
tax
18
under Section 280G, whichever is larger after taking into account the state and
federal income and excise taxes on such amounts.
Payments to the executive under the PFF Bank agreement will be guaranteed
by PFF Bancorp in the event that payments or benefits are not paid by PFF Bank.
Payment under the PFF Bancorp agreement would be made by PFF Bancorp. All
reasonable costs and legal fees paid or incurred by the Executive pursuant to
any dispute or question of interpretation relating to the Agreements shall be
paid by PFF Bank or PFF Bancorp, respectively, if the executive is successful
pursuant to a legal judgment, arbitration or settlement. The employment
agreements also provide that PFF Bank and PFF Bancorp, shall indemnify the
executive to the fullest extent allowable under federal and Delaware law,
respectively.
TERMINATION AND CHANGE IN CONTROL AGREEMENTS. PFF Bank has entered into
two-year termination and change in control agreements with Messrs. Smith, Golish
and Groene and Ms. Scullin. Commencing on the first anniversary date and
continuing on each anniversary thereafter, the change in control agreements may
be renewed by the Board of Directors for an additional year. The change in
control agreements provide that in the event an involuntary termination, other
than for cause, follows a change in control of PFF Bank or PFF Bancorp, the
officer or, in the event of death, his beneficiary, would be entitled to receive
a severance payment equal to two times the officer's average annual compensation
(including employer contributions to benefit plans) for the five years preceding
termination subject to the limitation that such payment not exceed three times
the officer's average annual compensation of the previous five years. PFF Bank
would also continue, and pay for, the officer's life, health and disability
coverage for a period of twenty-four (24) months from the date of termination.
The same benefits would be payable if the officer voluntarily resigns following
a change in control after any (i) demotion, (ii) loss of title, office or
significant authority, (iii) reduction in annual compensation or benefits or
(iv) relocation of the officer's principal place of employment to more than 25
miles from its location prior to the change in control. Payments to the officer
under PFF Bank change in control agreements will be guaranteed by PFF Bancorp in
the event that payments or benefits are not paid by PFF Bank.
The change in control agreements also provide for a severance payment in
the event of an involuntary termination of the officer other than in a change in
control, except for cause. The severance payment is a sum equal to twenty-six
weeks of base salary for each three years of service (rounded up to the next
whole year of service in the case of partial years) up to a maximum of
one-hundred and four weeks and is conditioned on the officer releasing PFF Bank
from any causes of action against PFF Bank or PFF Bancorp arising during any
period of employment from the employment relationship, other than claims under
the various employee benefit plans of PFF Bank and PFF Bancorp.
In no event will any payment under a change in control agreements be made
if it would result in an excess parachute payment under Section 280G of the
Code. Any payments due under a change in control agreements will be reduced to
the extent necessary for the payments made to not be excess parachute payments
within the meaning of Section 280G of the Code.
BENEFIT PLANS
1996 INCENTIVE PLAN. PFF Bancorp maintains the 1996 Incentive Plan, a plan
that has provided discretionary awards of options to purchase common stock,
option-related awards and awards of common stock to officers, directors and key
employees as determined by a committee of the Board of Directors. All
outstanding awards to officers, directors and key employees have vested. The
1996 Incentive Plan is not subject to ERISA and is not a tax-qualified plan. PFF
Bancorp may amend or terminate the 1996 Incentive Plan, in whole or in part, at
any time, subject to the requirements of all applicable laws.
19
1999 INCENTIVE PLAN. PFF Bancorp maintains the 1999 Incentive Plan, a plan
that provides discretionary awards of options to purchase common stock and
option-related awards to officers, directors, employees and its affiliates as
determined by a committee of the Board of Directors or two or more outside
directors. PFF Bancorp has reserved a total of 625,000 shares for awards under
the 1999 Incentive Plan. The 1999 Incentive Plan is not subject to ERISA and is
not a tax-qualified plan. PFF Bancorp may amend or terminate the 1999 Incentive
Plan, in whole or in part, at any time, subject to the requirements of all
applicable laws. No awards were made under the 1999 Incentive Plan in fiscal
2003 to any of the named executive officers.
The following table provides the value for "in-the-money" options for the
named executive officers, which represent the positive spread between the
exercise price of any such existing stock options and the closing price per
share of the common stock on March 31, 2003, the last trading day of the 2003
fiscal year, which was $32.09 per share.
2003 FISCAL YEAR END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
ACQUIRED ON REALIZED ON YEAR-END YEAR-END
EXERCISE EXERCISE (#) ($)
NAME (#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- ---------------------- -------------- -------------- ---------------------------- -------------------------------
Larry M. Rinehart 203,752 4,244,650 176,096/44,063 2,845,388/239,703
Kevin McCarthy 20,000 394,112 172,285/31,500 2,894,142/171,360
Gregory C. Talbott 74,537 1,491,408 83,029/26,781 1,285,678/145,689
Gilbert F. Smith 18,000 360,843 36,703/15,125 499,599/82,280
Jerald W. Groene 5,000 107,612 29,325/15,125 356,908/82,280
- ---------------
(1) Based upon market price of shares upon exercise minus the exercise price of
the options.
(2) Based on the closing price per share of common stock on March 31, 2003, the
last trading day of the fiscal 2003 year, which was $32.09, minus the
exercise price of the options.
RETIREMENT PLAN. PFF Bank maintains a tax-qualified defined benefit plan
(the "Retirement Plan") for certain salaried employees who had attained the age
of 21 and completed one year of service prior to December 31, 1995. Effective
December 31, 1995, the Retirement Plan was frozen and participants ceased the
accrual of additional benefits under the Retirement Plan although vesting will
continue according to the terms of the Retirement Plan. After December 31, 1995,
no new participants entered the Retirement Plan.
The Retirement Plan provides for a monthly benefit to the employee upon
retirement after the later of (i) attainment of age 65 or (ii) the fifth
anniversary of the employee's initial participation in the Retirement Plan. The
Retirement Plan also provides for a monthly benefit upon the participant's
death, disability and early retirement. Early retirement is conditioned upon the
attainment of the age of 55, and the completion by the participant of 15 years
of service. No new accrual of years of service has occurred since December 31,
1995. Benefits under the Retirement Plan are determined taking into account the
participant's final average earnings, social security benefits and years of
credited service under the Retirement Plan as of December 31, 1995. The final
average salary as of December 31, 1995 for Messrs. Rinehart, McCarthy, Talbott,
Smith and Groene is $137,153, $92,124, $104,720, $107,220, and $84,334,
respectively.
20
The following table sets forth the estimated annual benefits payable upon
retirement at age 65 in the year ended December 31, 1995, expressed in the form
of a single life annuity, for the final average salary and benefit service
classifications specified.
PFF BANK & TRUST EMPLOYEE PENSION PLAN
YEARS OF SERVICE
-------------------------------------------------------------------------------
FINAL AVERAGE
COMPENSATION 15 20 25 30 35
---------------- --------------- ---------------- -------------- --------------- ---------------
$ 50,000 $ 13,598 $ 18,130 $ 22,663 $ 22,663 $ 49,538
100,000 29,723 39,630 49,538 49,538 76,413
150,000 45,848 61,130 76,413 76,413 76,413
200,000 45,848 61,130 76,413 76,413 76,413
250,000 45,848 61,130 76,413 76,413 76,413
300,000 45,848 61,130 76,413 76,413 76,413
350,000 45,848 61,130 76,413 76,413 76,413
400,000 45,848 61,130 76,413 76,413 76,413
Compensation under the Retirement Plan includes all regular pay and
overtime. The benefit amounts listed above were computed on a single life
annuity basis, which is the normal form under the plan.
The appropriate years of service, as of January 1, 1996, for the named
executive officers, are as follows:
SERVICE
-------
NAME YEARS MONTHS
---- ----- ------
Larry M. Rinehart 19 3
Kevin McCarthy 19 -
Gregory C. Talbott 9 7
Gilbert F. Smith 25 2
Jerald W. Groene 24 6
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. PFF Bank maintains a non-qualified
Supplemental Executive Retirement Plan ("SERP") to provide certain officers and
highly compensated employees with additional retirement benefits. The SERP
reflects the freezing of the Retirement Plan as of December 31, 1995. The
benefits provided under the SERP are directly related to those provided under
the three tax-qualified employee benefit plans sponsored by PFF Bank, namely the
ESOP, the 401(k) Plan and the Retirement Plan. With respect to the Retirement
Plan, the SERP provides a benefit equal to the present value of the previous
SERP benefit accrued as of December 31, 1995. For purposes of the SERP the final
average salary as of December 31, 1995 for Messrs. Rinehart, McCarthy, Talbott,
Smith and Groene is $238,164, $156,000, $155,880, $130,440 and $121,404,
respectively. However, this benefit is only provided to the extent not provided
under the Retirement Plan. No additional contributions will be made by PFF Bank
to provide this benefit, as this portion of the SERP is only a deferral
mechanism (with interest) of the frozen Retirement Plan benefit. The SERP also
provides a benefit equal to the difference between (i) the benefits which would
have been provided by employer contributions to the 401(k) Plan and the ESOP if
such contributions and benefits were calculated without the limitations imposed
by the applicable contribution limits of the Code for tax-qualified plans and
(ii) the actual benefit provided under
21
each plan. Benefits under the SERP will be provided at retirement in the form of
some combination of an annuity, lump sum cash or stock distribution.
EMPLOYEE STOCK OWNERSHIP PLAN. This plan is a tax-qualified plan that
covers substantially all employees who have at least one year of service and
have attained age 21. The plan originally purchased 1,587,000 shares by means of
a loan obtained from PFF Bancorp.
Although contributions to this plan will be discretionary, PFF Bank intends
to contribute enough money each year to make the required principal and interest
payments on the loan from PFF Bancorp. The loan made was for a term of ten years
of which four years remain and calls for annual payments of principal and
interest. The plan has pledged the shares it purchases as collateral for the
loan and holds them in a suspense account.
As of March 31, 2003, the plan has allocated 1,183,455 shares to
participant accounts. The plan will allocate the shares released each year among
the accounts of participants in proportion to their compensation for the year.
For example, if a participant's compensation for a year represents 1% of the
total compensation of all participants for the year, the plan would allocate to
that participant 1% of the shares released for the year. Participants direct the
voting of shares allocated to their accounts. Shares in the suspense account
will usually be voted in a way that mirrors the votes which participants cast
for shares in their individual accounts. This plan may purchase additional
shares in the future, and may do so using borrowed funds, cash dividends,
periodic employer contributions or other cash flow.
EMPLOYEE DEFERRED COMPENSATION PLAN. PFF Bank maintains the PFF Bank &
Trust Employee Deferred Compensation Plan which is a non-qualified plan that
offers certain employees the opportunity to defer cash compensation and stock
awarded under the 1996 Incentive Plan. The benefits under this plan (consisting
of participant deferrals and earnings or losses thereon) are payable in lump sum
or in installments. Deferred stock awarded under the 1996 Incentive Plan is
accounted for in the plan in the form of common stock units. The form of benefit
for deferred stock is a single lump sum payout or payment of equal installments
over time. Cash compensation deferrals are credited with earnings or losses
under a variety of investment options established by the Board of Directors and
selected by each plan participant. Deferred stock is credited with investment
earnings or losses according to the Common Stock Rate.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
With certain exceptions permitted under the Federal Reserve Act and
Regulation O, all loans or extensions of credit to executive officers and
directors must be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
the general public and must not involve more than the normal risk of repayment
or present other unfavorable features. In addition, loans made to a director or
executive officer in excess of the greater of $25,000 or 5% of PFF Bank's
capital and surplus (up to a maximum of $500,000) must be approved in advance by
a majority of the disinterested members of the Board of Directors.
PFF Bank has determined that preferred rate loans for executive officers
and directors are part of the Bank's overall benefits and compensation program,
and therefore, executive officers and directors are permitted to receive the
preferred rate so long as the loans are otherwise made within the limitations of
the Federal Reserve Act and Regulation O.
As of March 31, 2003, nine of PFF Bank's executive officers or directors
had a total of 11 loans outstanding, totaling approximately $2.25 million in the
aggregate. Of the 11 loans currently outstanding to executive officers or
directors, nine loans are receiving a preferred rate. For those receiving the
22
preferred rate, eight loans are secured by the borrower's principal residence
and one loan is secured by a second home.
It is our policy that all transactions between PFF Bancorp and its
executive officers, directors, holders of 10% or more of the shares of any class
of its common stock and affiliates thereof, contain terms no less favorable to
PFF Bancorp than could have been obtained by it in arm's-length negotiations
with unaffiliated persons and are required to be approved by a majority of
independent outside directors not having any interest in the transaction, other
than the preferred rate for executive officers and directors, which is
considered part of their overall benefits and compensation program.
Michael Rinehart, son of Larry M. Rinehart, performs appraisal services for
PFF Bank from time to time. PFF Bank paid $88,293 in fees to Michael Rinehart
for those appraisal services in fiscal year 2003.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
PFF Bancorp's directors and executive officers, and persons who own more than
10% of PFF Bancorp's common stock, to report to the SEC their initial ownership
of PFF Bancorp's common stock and any subsequent changes in that ownership.
Specific due dates for these reports have been established by the SEC and PFF
Bancorp is required to disclose in this proxy statement any late filings or
failures to file.
Based solely on its review of the copies of such reports furnished to PFF
Bancorp and written representations that no other reports were required during
the fiscal year ended March 31, 2003, all Section 16(a) filing requirements
applicable to PFF Bancorp's executive officers and directors during fiscal 2003
were met.
-------------------------------------
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
-------------------------------------
Our independent auditor for the fiscal year ended March 31, 2003 was KPMG
LLP. The Audit Committee has appointed KPMG LLP to act as the independent
auditor for PFF Bancorp, Inc. for the fiscal year ended March 31, 2004, and we
are asking shareholders to ratify the appointment.
Representatives of KPMG LLP are expected to be present at the annual
meeting to answer questions concerning the financial statements and to make a
statement at the meeting if they so desire.
A majority of the votes entitled to be cast by common shares represented at
the annual meeting is required for ratification.
================================================================================
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF
THE APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITOR FOR PFF BANCORP, INC.
================================================================================
23
ADDITIONAL INFORMATION
INFORMATION ABOUT SHAREHOLDER PROPOSALS
If you wish to submit proposals to be included in our proxy statement for
the 2004 Annual Meeting of Shareholders, PFF Bancorp must receive them on or
before April 1, 2004, pursuant to the proxy soliciting regulations of the SEC.
SEC rules contain standards as to what shareholder proposals are required to be
in the proxy statement. All shareholder proposals for inclusion in PFF Bancorp's
proxy materials shall be subject to the requirements of the proxy rules adopted
under the Securities Exchange Act of 1934, as amended, and as with any
shareholder proposal (regardless of whether it is included in PFF Bancorp's
proxy materials), PFF Bancorp's Certificate of Incorporation and Bylaws, and
Delaware law.
In addition, under PFF Bancorp's Bylaws, if you wish to nominate a director
or bring other business before an annual meeting (which is not included in the
proxy statement for the 2004 Annual Meeting), the following criteria must be
met: (i) you must be a shareholder of record; (ii) you must have given timely
notice in writing to the Secretary of PFF Bancorp; and (iii) your notice must
contain specific information required in our Bylaws. To be considered timely for
inclusion in our 2004 Annual Meeting, PFF Bancorp must receive your advance
written notice of business or nominations to the Board of Directors no less than
90 days preceding the date originally fixed for the annual meeting; provided,
however, that in the event that less than one hundred (100) days notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be received not later than the close
of business on the tenth day following the date on which the notice to
shareholders of the annual meeting date was mailed or such public disclosure was
made. The advance notice by shareholders must include the shareholder's name and
address, as they appear on our record of stockholders, a brief description of
the proposed business, the reason for conducting such business at the Annual
Meeting, the class and number of shares of capital stock that are beneficially
owned by such stockholder and any material interest of such stockholder in the
proposed business. In the case of nominations to the Board of Directors, certain
information regarding the nominee must be provided. Nothing in this paragraph
shall be deemed to require us to include in our proxy statement or the proxy
relating to an annual meeting any stockholder proposal which does not meet all
of the requirements for inclusion established by the SEC in effect at the time
such proposal is received.
By Order of the Board of Directors,
Carole F. Olson
SECRETARY
Pomona, California
July 29, 2003
================================================================================
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
================================================================================
24
APPENDIX A
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
I. AUDIT COMMITTEE PURPOSE
The Audit Committee is established by and among the Board of Directors (the
"Board") for the primary purpose of assisting the Board in overseeing:
o The integrity of PFF Bancorp's financial statements,
o PFF Bancorp's compliance with legal and regulatory requirements,
o The independent auditor's qualifications and independence,
o The performance of PFF Bancorp's internal audit function and
independent auditor, and
o PFF Bancorp's system of disclosure controls and system of internal
controls regarding finance, accounting, legal compliance, ethics and
other areas of Bancorp and Bank operations that management and the
Board have established.1
Consistent with this purpose, the Audit Committee encourages adherence to and
continuous improvement of PFF Bancorp's policies, procedures and practices at
all levels. The Audit Committee provides an avenue of communication among the
independent auditors, financial and senior management, the internal audit
function, and the Board of Directors.
The Audit Committee has the authority to obtain advice and assistance from
outside legal, accounting, or other advisors as deemed appropriate to perform
its duties and responsibilities.2
PFF Bancorp shall provide appropriate funding, as determined by the Audit
Committee, for compensation to the independent auditor and any advisers that the
Audit Committee chooses to engage.3
The Audit Committee will fulfill its responsibilities primarily by carrying out
the activities enumerated in Section III of this Charter, and by preparing the
report that SEC rules require be included in PFF Bancorp's annual proxy
statement. The Audit Committee will report regularly to the Board of Directors
regarding the execution of its duties and responsibilities.4
II. COMPOSITION AND MEETINGS
The Audit Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be independent directors (as defined by all
applicable rules and regulations), and free from any relationship (including
disallowed compensatory
- -----------------------
1 Sarbanes-Oxley Act Section 205(a), NYSE Corporate Governance Rule Proposals
7(b)(i)(A).
2 Sarbanes-Oxley Act Section 301, NYSE Corporate Governance Rule Proposals
7(b)(ii)(E).
3 Sarbanes-Oxley Act Section 301.
4 NYSE Corporate Governance Rule Proposals 7(b)(ii)(J).
A-1
arrangements) that, in the opinion of the Board, would interfere with the
exercise of his or her independent judgment as a member of the Committee.5 All
members of the Committee shall have a working familiarity with basic finance and
accounting practices. In addition, at least one member of the Audit Committee
shall have accounting or related financial management expertise. The Board shall
determine whether at least one member of the Committee qualifies as an "audit
committee financial expert" in compliance with the criteria established by the
SEC and other relevant regulations.6 The existence of such member, including his
or her name and whether or not he or she is independent, shall be disclosed in
PFF Bancorp's annual report on Form 10-K as required by the SEC.7 The
designation or identification of a person as an audit committee financial expert
does not impose on such person any duties, obligations or liability that are
greater than the duties, obligations or liability imposed on such person as a
member of the audit committee and board of directors in the absence of such
designation or identification.8 Committee members may enhance their familiarity
with finance and accounting by participating in educational programs conducted
by PFF Bancorp, an outside consultant or at seminars.9
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board and shall serve until their successors shall
be duly elected and qualified. Unless a Chair is elected by the full Board, the
members of the Committee may designate a Chair by majority vote of the full
Committee membership.
The Committee shall meet at least four times annually, or more frequently as
circumstances dictate. Each regularly scheduled meeting shall conclude with an
executive session of the Committee, absent members of management, and on such
terms and conditions as the Committee may elect. The Committee will meet
periodically with the CEO, CFO, General Counsel, the Chief Internal Auditor and
the independent auditors in separate executive sessions to discuss any matters
that the Committee or any of these groups believe should be discussed
privately.10 In addition, the Committee will meet quarterly with the independent
auditors and management to discuss the annual audited financial statements and
quarterly financial statements, including PFF Bancorp's
- -----------------------------------
5 Sarbanes-Oxley Act Section 301 and NYSE Corporate Governance Rule Proposals
2(a).
6 Section 407 of the Act and the final rules to implement Section 407 require
disclosure of whether or not at least one audit committee member is an "audit
committee financial expert" as defined by the SEC. If so, the name(s) of such
individual(s) must be disclosed. If not, the company must disclose why it does
not have an audit committee financial expert.
7 [SARBANES-OXLEY ACT SECTION 407] If a company has more than one audit
committee financial expert, the final rules to implement Section 407 of the Act
allow the company to determine whether to disclose the existence and name of the
other individual/individuals who qualify/qualifies.
8 A person who is determined to be an audit committee financial expert will
also not be deemed an "expert" for any purpose, including without limitation for
purposes of Section 11 of the Securities Act of 1933, as a result of being
designated or identified as an audit committee financial expert.
9 An additional consideration related to composition of the audit committee is
the amount of time members have to devote to the role. Although there are no
limits on the number of public company audit committees on which an individual
may serve, the NYSE did note in the commentary to Proposed Rule # 6: "..if an
audit committee member simultaneously serves on the audit committee of more than
three public companies...the board must determine that such simultaneous service
would not impair the ability of such member to effectively serve on the listed
PFF Bancorp audit committee and disclose such determination in the annual proxy
statement."
10 NYSE Corporate Governance Rule Proposals 7(b)(ii)(G)
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disclosures under "Management's Discussion and Analysis of Financial Condition
and Results of Operations".11
III. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
DOCUMENTS/REPORTS/ACCOUNTING INFORMATION REVIEW
1. Review this Charter periodically, at least annually, and recommend to the
Board any necessary amendments as conditions dictate.
2. Review and discuss with management and the independent auditor PFF
Bancorp's annual financial statements [ITEM 306 OF REGULATION S-K],
quarterly financial statements, and all internal controls reports (or
summaries thereof). Review other relevant reports or financial information
submitted by PFF Bancorp to any governmental body, or the public, including
management certifications as required by the Sarbanes-Oxley Act of 2002
(Sections 302 and 906) and relevant reports rendered by the independent
auditors (or summaries thereof).
3. Recommend to the Board whether the audited financial statements should be
included in the Annual Report on Form 10-K [ITEM 306 OF REGULATION S-K].
The Audit Committee or Audit Committee member designee will review with
management and the independent auditors the quarterly financial statements
and PFF Bancorp's disclosures under the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" prior to filing
of the Form 10-Q.
4. Review earnings press releases with management prior to official
dissemination, including a review of any "pro-forma" or "adjusted" non-GAAP
information.12
5. Discuss with management financial information and earnings guidance
provided to analysts and rating agencies. Such discussions may be on
general terms (e.g., discussion of the types of information to be disclosed
and the type of presentation to be made).13
6. Review the regular internal audit reports (or summaries thereof) to
management and management's response.
INDEPENDENT AUDITOR
7. Appoint (subject to shareholder ratification), compensate, and oversee the
work performed by the independent auditor for the purpose of preparing or
issuing an audit report or related work. Review the performance of the
independent auditor and remove the independent auditors if circumstances
warrant. The independent auditor shall report directly to the Audit
Committee and the Audit Committee shall oversee the resolution of
disagreements between management and the independent auditor in the event
that they arise.14 Consider whether the auditor's performance of
permissible
- ---------------------------------
11 NYSE CORPORATE GOVERNANCE RULE PROPOSALS 7(B)(II)(C)
12 NYSE CORPORATE GOVERNANCE RULE PROPOSALS 7(B)(II)(D) AND COMMENTARY TO
7(B)(III)
13 NYSE CORPORATE GOVERNANCE RULE PROPOSALS 7(B)(II)(D)
14 [Sarbanes-Oxley Act Section 301, NYSE Corporate Governance Rule Proposals
7(b)(ii)(A)]. Though not expressly required to be included in the audit
committee charter by rule or regulation, the audit committee
A-3
nonaudit services is compatible with the auditor's independence [ITEM 9 OF
SCHEDULE 14A].
8. Review with the independent auditor any audit problems or difficulties and
management's response, including any restrictions on the scope of the
independent auditor's activities or on access to requested information, and
any significant disagreements with management. The review may also include
any accounting adjustments that were noted or proposed by the auditor but
were "passed" (as immaterial or otherwise), any communications between the
audit team and the audit firm's national office regarding auditing or
accounting issues presented by the engagement, and any "management" or
"internal control" letter issued, or proposed to be issued, by the audit
firm to PFF Bancorp. The review should also include discussion of the
responsibilities, budget and staffing of PFF Bancorp's internal audit
function.15
9. Review the independent auditor's attestation and report on management's
internal control report;16 and hold timely discussions with the independent
auditor regarding the following:
o all critical accounting policies and practices;17
o all alternative treatments of financial information within generally
accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures
and treatments, and the treatment preferred by the independent
auditor;18
o other material written communications between the independent auditor
and management, including, but not limited to, the management letter
and schedule of unadjusted differences;19 and
o an analysis of the auditor's judgment as to the quality of PFF
Bancorp's accounting principles, setting forth significant reporting
issues and judgments made in connection with the preparation of the
financial statements [ITEM 306 OF REGULATION S-K].
10. At least annually, obtain and review a report by the independent auditor
describing:
o the firm's internal quality control procedures;
o any material issues raised by the most recent internal quality-control
review, peer review, or by any inquiry or investigation by
governmental or professional authorities, within the preceding five
years, respecting one or more independent
- --------------------------------------------------------------------------------
may consider including a responsibility to evaluate the qualifications of key
members of the independent auditor's team, as well as to ensure compliance with
the partner rotation requirements (though the ultimate responsibility for
executing rotation requirement rests with the registered public accounting
firms). IF THE AUDIT COMMITTEE CHOOSES TO INCLUDE SUCH LANGUAGE, THE FOLLOWING
IS RECOMMENDED: (SEEK ADVICE OF AUDIT COMMITTEE)
"The committee will review the experience and qualifications of senior members
of the independent audit team annually and ensure that all partner rotation
requirements, as promulgated by applicable rules and regulations, are executed."
15 NYSE Corporate Governance Rule Proposals 7(b)(ii)(H)
16 Sarbanes-Oxley Act Section 404(b)
17 Sarbanes-Oxley Act Section 204
18 Sarbanes-Oxley Act Section 204
19 Sarbanes-Oxley Act Section 204
A-4
audits carried out by the firm, and any steps taken to deal with any
such issues; and
o all relationships between the independent auditor and PFF Bancorp (to
assess the auditor's independence). 20
11. The Audit Committee will evaluate the qualifications, performance and
independence of the independent auditor, which will include considering
whether the auditor's quality controls are adequate and the provision of
non-audit services is compatible with maintaining the auditor's
independence, and taking into account the opinions of management and the
internal auditor. The Audit Committee will present its conclusions to the
Board and, if so determined by the Audit Committee, recommend that the
Board take additional action to satisfy the qualification, performance and
independence of the auditor.
12. Review and preapprove both audit engagement fees and terms, and nonaudit
services to be provided by the independent auditor (other than with respect
to DE MINIMIS21 exceptions permitted by the Sarbanes-Oxley Act of 2002).
This duty may be delegated to one or more designated members of the audit
committee with any such preapproval reported to the audit committee at its
next regularly scheduled meeting. Approval of nonaudit services shall be
disclosed to investors in periodic reports required by Section 13(a) of the
Securities Exchange Act of 1934.22
13. Consider whether, in order to assure continuing auditor independence, it is
appropriate to adopt a policy of rotating the lead audit partner or even
the independent audit firm itself on a regular basis.
14. Set clear hiring policies, compliant with governing laws or regulations,
for employees or former employees of the independent auditor. 23
FINANCIAL REPORTING PROCESSES AND ACCOUNTING POLICIES
15. In consultation with the independent auditors and the internal auditors,
review the integrity of the organization's financial reporting processes
(both internal and external), and the internal control structure (including
disclosure controls). Meet with representatives of the disclosure committee
on a periodic basis to discuss any
- --------------------------
20 NYSE Corporate Governance Rule Proposals 7(b)(ii)(B)
21 The DE MINIMIS exception to the pre-approval of nonaudit services is as
follows: (C) With respect to the provision of services other than audit, review
or attest services the pre-approval requirement is waived if: (1) The aggregate
amount of all such services provided constitutes no more than five percent of
the total amount of revenues paid by the audit client to its accountant during
the fiscal year in which the services are provided; (2) Such services were not
recognized by the issuer or registered investment company at the time of the
engagement to be non-audit services; and (3) Such services are promptly brought
to the attention of the audit committee of the issuer or registered investment
company and approved prior to the completion of the audit by the audit committee
or by one or more members of the audit committee who are members of the board of
directors to whom authority to grant such approvals has been delegated by the
audit committee.
22 [Sarbanes-Oxley Act Section 202] In its policy regarding preapproval on
audit and nonaudit services, the Audit Committee may choose to address which
classes of services (e.g., tax compliance services) can be preapproved in
advance.
23 NYSE Corporate Governance Rule Proposals 7(b)(ii)(I) Such policy should take
into consideration the one-year "cooling off period" for individuals in the role
of CEO, CFO, controller, CAO or the equivalent as outlined by Section 206 of the
Sarbanes-Oxley Act.
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matters of concern arising from the disclosure committee's quarterly
process to assist the CEO and CFO in their certifications per Section 302
of the Sarbanes-Oxley Act.
16. Review major issues regarding accounting principles and financial statement
presentations with management, including any significant changes in PFF
Bancorp's selection or application of accounting principles, and major
issues as to the adequacy of PFF Bancorp's internal controls and any
special audit steps adopted in light of material control deficiencies.24
17. Review analyses prepared by management (and the independent auditor)
setting forth significant financial reporting issues and judgments made in
connection with the preparation of the financial statements, including
analyses of the effects of alternative GAAP methods on the financial
statements. 25
18. Review with management the effect of regulatory and accounting initiatives,
as well as off-balance sheet structures, on the financial statements of PFF
Bancorp.26
19. Establish and maintain procedures for the receipt, retention, and treatment
of complaints regarding accounting, internal accounting, or auditing
matters.27
20. Establish and maintain procedures for the confidential, anonymous
submission by employees of PFF Bancorp regarding questionable accounting or
auditing matters.28
INTERNAL AUDIT 29 30
21. Review and advise on the selection and removal of the Chief Internal
Auditor.
22. Review activities, organizational structure, and qualifications of the
internal audit function.
23. Annually, review and recommend changes (if any) to the internal audit
charter.
24. Periodically and as circumstances warrant review with the Chief Internal
Auditor any significant difficulties, disagreements with management, or
scope restrictions encountered in the course of audit work.
25. Periodically review with the independent auditor the budget, staffing,
and responsibilities of the internal audit function.31
- ----------------------------
24 Commentary to NYSE Corporate Governance Rule Proposals 7(b)(iii)
25 Commentary to NYSE Corporate Governance Rule Proposals 7(b)(iii)
26 Commentary to NYSE Corporate Governance Rule Proposals 7(b)(iii)
27 Sarbanes-Oxley Act Section 301
28 Sarbanes-Oxley Act Section 301
29 Though not a requirement by rule or regulation, many companies have a
process in place by which the internal and external auditor evaluate each other
on an annual basis. Should the Audit Committee choose to include the
responsibility to review such evaluations, if they exist, the following language
is recommended:
o Review the results of the annual evaluation of the internal audit
department by the independent auditor and the review of the
independent auditor by the internal audit department. Make
suggestions, as necessary, as a result of such review.
30 The NYSE Corporate Governance Rule Proposals require that listed companies
have an internal audit function.
31 Commentary to NYSE Corporate Governance Rule Proposals 7(b)(ii)(H)
A-6
ETHICAL COMPLIANCE, LEGAL COMPLIANCE, AND RISK MANAGEMENT 32
26. Establish, review and periodically update a Code of Ethical Conduct and
ensure that management has established a system to enforce this Code.
Ensure that the code is in compliance with all applicable rules and
regulations.
27. Review management's monitoring of PFF Bancorp's compliance with the Ethical
Code, and ensure that management has the proper review system in place to
ensure that PFF Bancorp's financial statements, reports and other financial
information disseminated to governmental organizations and the public
satisfy legal requirements.
28. Review, with PFF Bancorp's counsel, legal compliance matters including
corporate securities trading policies. 29. Review with PFF Bancorp's
counsel, any legal matter that could have a significant impact on PFF
Bancorp's
financial statements.
30. Discuss policies with respect to risk assessment and risk management. Such
discussions should include PFF Bancorp's major financial and accounting
risk exposures and the steps management has undertaken to control them.33
OTHER RESPONSIBILITIES
31. Review with the independent auditors, the internal audit department and
management the extent to which changes or improvements in financial or
accounting practices, as approved by the Audit Committee, have been
implemented. (This review should be conducted at an appropriate time
subsequent to implementation of changes or improvements, as decided by the
Committee.)
32. Prepare the report that the SEC requires be included in the PFF Bancorp
annual proxy statement [NYSE CORPORATE GOVERNANCE RULE PROPOSALS
7(B)(I)(B)].
33. Annually, perform a self-assessment relative to the Audit Committee's
purpose, duties and responsibilities outlined herein.34
34. Perform any other activities consistent with this Charter, PFF Bancorp's
by-laws and governing law, as the Committee or the Board deems necessary or
appropriate.
- --------------------------
32 The audit committee charter should include Items 23 and 24 if the audit
committee, rather than another committee, has assumed responsibilities with
respect to ethical compliance.
33 NYSE Corporate Governance Rule Proposals 7(b)(ii)(F)
34 NYSE Corporate Governance Rule Proposals 7(b)(iii)
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your choice like
this in blue /X/
or black ink.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES NAMED
IN ITEM 1 AND A VOTE "FOR" THE PROPOSAL IN ITEM 2.
FOR AGAINST ABSTAIN
1. Election of three directors for terms of three years each. / / / / / /
Nominees: (01) Stephen C. Morgan, Ed.D.,(2) Jil H. Stark and (3) Royce A. Stutzman.
INSTRUCTION: To withhold authority to vote for any individual nominee, write that
nominee's name in the space provided:
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FOR AGAINST ABSTAIN
2. Ratification of the appointment of KPMG LLP as independent auditors of PFF Bancorp, / / / / / /
Inc. for the fiscal year ending March 31, 2004.
PLEASE MARK, SIGN AND DATE THIS PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. I Will Attend Annual Meeting. / /
The undersigned hereby acknowledges receipt of
the Notice of Annual Meeting of Stockholders
and the Proxy Statement for the Annual Meeting
dated July 29, 2003.
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Signature(s)
Dated: , 2003
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Please sign exactly as your name appears on
this proxy. Joint owners should each sign
personally. If signing as attorney, executor,
administrator, trustee or guardian, please
include your full title. Corporate or
partnership proxies should be signed by an
authorized officer.
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REVOCABLE PROXY
PFF BANCORP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF PFF BANCORP, INC. FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 16, 2003.
The undersigned stockholder of PFF Bancorp, Inc. hereby appoints Larry M.
Rinehart and Donald R. DesCombes, each of them, with full powers of
substitution, to represent and to vote as proxy, as designated, all shares of
common stock of PFF Bancorp, Inc. held of record by the undersigned on July 18,
2003, at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at
9:00 a.m., local time, on September 16, 2003, or at any adjournment or
postponement thereof, upon the matters described in the accompanying Notice of
Annual Meeting of Stockholders and Proxy Statement, dated July 29, 2003 and upon
such other matters as may properly come before the Annual Meeting. The
undersigned hereby revokes all prior proxies.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is given, this Proxy will be
voted FOR the election of all nominees listed in Item 1 and FOR the proposal
listed in Item 2.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
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