-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WI0XhGoEGnWVUUnIQHhwdirAfzhiW+TsoBGK+Gs3U7z2reY0hj4C3V816pAwFT6i PyzTCpMDgTEUvlJbDgJEMQ== 0000909654-98-000300.txt : 19981116 0000909654-98-000300.hdr.sgml : 19981116 ACCESSION NUMBER: 0000909654-98-000300 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SGV BANCORP INC CENTRAL INDEX KEY: 0000940511 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 954524789 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25664 FILM NUMBER: 98747109 BUSINESS ADDRESS: STREET 1: 225 NORTH BARRANCA AVE CITY: WEST COVINA STATE: CA ZIP: 91791 BUSINESS PHONE: 8188594200 10-Q 1 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------------- ------------------------ Commission File Number 0-25664 SGV BANCORP, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 95-4524789 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 225 NORTH BARRANCA STREET, WEST COVINA, CALIFORNIA 91791 - -------------------------------------------------------------------------------- (Address of principal executive offices) (626) 859-4200 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports require to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. /X/ Yes / / No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 2,218,823 shares of common stock, par value $0.01 per share, were outstanding as of November 9, 1998. 2 SGV BANCORP, INC. FORM 10-Q INDEX PART I FINANCIAL INFORMATION PAGE ---- Item 1 Consolidated Statements of Financial Condition: September 30, 1998 (unaudited) and June 30, 1998..................1 Consolidated Statements of Operations (unaudited): For the Three Months Ended September 30, 1998 and 1997............2 Consolidated Statements of Cash Flows(unaudited): For the Three Months Ended September 30, 1998 and 1997............3 Notes to Consolidated Financial Statements........................5 Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition.....................7 Item 3 Quantitative and Qualitative Disclosure Regarding Market Risk....18 PART II OTHER INFORMATION Item 1 Legal Proceedings................................................19 Item 2 Changes in Securities............................................19 Item 3 Defaults Upon Senior Securities..................................19 Item 4 Submission of Matters to a Vote of Security Holders..............19 Item 5 Other Information................................................19 Item 6 Exhibits and Reports on Form 8-K.................................19 SIGNATURES...................................................................20 3
SGV BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share data) - -------------------------------------------------------------------------------------------------------------- September 30, June 30, 1998 1998 --------------- ---------------- (Unaudited) ASSETS: Cash and cash equivalents, including short-term bank obligations of $41,850 at September 30, 1998 and $16,202 at June 30, 1998 $ 46,459 $ 20,008 Investment securities available for sale, amortized cost of $12,199 at September 30, 1998 and $19,241 at June 30, 1998 12,061 19,221 Mortgage-backed securities available for sale, amortized cost of $30,204 at September 30, 1998 and $29,386 at June 30, 1998 30,240 29,383 Mortgage-backed securities held to maturity, estimated fair value of $37,314 at September 30, 1998 and $30,089 at June 30, 1998 37,145 29,936 Loans receivable held for sale 1,616 391 Loans receivable held for investment, net of allowance for estimated loan losses of $1,449 at September 30, 1998 and $1,425 at June 30, 1998 311,643 295,739 Accrued interest receivable 2,916 2,774 Stock of Federal Home Loan Bank of San Francisco, at cost 5,202 4,234 Real estate acquired through foreclosure, net 1,084 1,902 Premises and equipment, net 3,409 3,537 Prepaid expenses and other assets, net 1,202 1,221 --------------- ---------------- Total assets $ 452,977 $ 408,346 =============== ================ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposit accounts $ 302,049 $ 295,281 Federal Home Loan Bank advances 104,037 70,543 Securities sold under agreements to repurchase 10,300 6,000 Accrued expenses and other liabilities 5,690 4,289 --------------- ---------------- Total liabilities $ 422,076 376,113 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 2,000,000 shares authorized; none Issued Common stock, $.01 par value; 10,000,000 shares authorized; 2,727,656 issued; 2,218,823 shares outstanding at September 30, 1998 and 2,348,068 shares outstanding at June 30, 1998 27 27 Additional paid-in capital 21,195 21,147 Retained earnings, substantially restricted 17,254 16,688 Accumulated other comprehensive income (60) (13) Deferred stock compensation (1,462) (1,555) Treasury stock; 508,833 shares at September 30, 1998 and 379,588 shares at June 30, 1998 (6,053) (4,061) --------------- ---------------- Total stockholders' equity 30,901 32,233 --------------- ---------------- Total liabilities and stockholders' equity $ 452,977 $ 408,346 =============== ================
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SGV BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)(Unaudited) - -------------------------------------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 1997 --------------- ---------------- INTEREST INCOME: Interest on loans $ 5,939 $ 5,478 Interest on investment securities 365 313 Interest on mortgage-backed securities 1,024 1,268 Other 209 265 --------------- ---------------- Total interest income 7,537 7,324 --------------- ---------------- INTEREST EXPENSE: Interest on deposit accounts 3,397 3,475 Interest on borrowings 1,278 1,342 --------------- ---------------- Total interest expense 4,675 4,817 --------------- ---------------- Net interest income before provision for estimated loan losses 2,862 2,507 PROVISION FOR ESTIMATED LOAN LOSSES 269 75 --------------- ---------------- Net interest income after provision for estimated loan losses 2,593 2,432 OTHER INCOME: Loan servicing and other fees 145 126 Deposit account fees 144 128 Secondary marketing activity, net 21 (5) Gain on sale of securities available for sale, net 7 37 Other income 96 41 Net gain on real estate acquired through foreclosure 145 12 --------------- ---------------- Total other income 558 339 --------------- ---------------- GENERAL AND ADMINISTRATIVE EXPENSES: Compensation and other employee expenses 1,229 1,188 Office occupancy 266 269 Equipment 277 254 Advertising 30 52 FDIC insurance premiums 44 44 Other operating expenses 343 389 --------------- ---------------- Total general and administrative expenses 2,189 2,196 --------------- ---------------- EARNINGS BEFORE INCOME TAXES 962 575 INCOME TAXES 396 244 --------------- ---------------- NET EARNINGS $ 566 $ 331 =============== ================ EARNINGS PER SHARE-Basic $ 0.25 $ 0.14 =============== ================ EARNINGS PER SHARE-Diluted $ 0.24 $ 0.14 =============== ================ 2
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SGV BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) - ------------------------------------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 1997 -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 566 $ 331 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 172 162 Loans originated for sale (6,145) (3,099) Proceeds from sale of loans 4,960 2,992 Gain on sale of loans, net (40) (10) Gain on sale of investments available for sale, net (10) (6) Gain on sale of mortgage-backed securities available for sale, net (2) (31) Federal Home Loan Bank stock dividend (62) (61) Increase in prepaid expenses and other assets (6) (11) Amortization of deferred loan fees (27) (25) Deferred loan origination costs (119) (56) Increase (decrease) in accrued expenses and other liabilities (1,434) (227) Provision for estimated loan losses 269 75 (Recapture of) provision for estimated real estate losses (45) 9 Premium amortization, net 168 60 (Increase) decrease in accrued interest receivable (143) 71 Other, net (222) 257 -------------- -------------- Net cash provided by operating activities 748 431 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of investment securities available for sale (6,948) (11,500) Proceeds from sale and redemption of investment securities available for sale 14,010 11,506 Purchase of mortgage-backed securities available for sale (10,153) Proceeds from sale of mortgage-backed securities available for sale 6,931 14,480 Purchase of mortgage-backed securities held to maturity (10,030) Principal repayments on mortgage-backed securities 5,124 3,211 Loans funded, net (16,102) (5,277) Loans purchased, net (22,015) (29,003) Principal repayments on loans 21,531 9,323 Proceeds from sale of real estate 1,582 511 Purchase of premises and equipment (17) (81) Purchase of Federal Home Loan Bank Stock (906) Other, net (15) (32) -------------- -------------- Net cash used in investing activities (17,008) (6,862) 3
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SGV BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)(CONTINUED) - ----------------------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED SEPTEMBER 30, ----------------------------------- 1998 1997 --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in certificate accounts $ 5,865 $ 801 Net increase (decrease) in passbook, money market savings NOW and non-interest-bearing accounts 902 3,816 Proceeds from Federal Home Loan Bank advances 35,000 Repayment of Federal Home Loan Bank advances (1,505) (2,094) Proceeds from securities sold under agreements to repurchase 4,300 Repayment of securities sold under agreements to repurchase (3,430) Purchase of treasury stock (1,992) Other, net 141 70 -------------- --------------- Net cash (used in) provided by financing activities 42,711 (837) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 26,451 (7,268) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 20,008 22,664 -------------- --------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 46,459 $ 15,396 ============== =============== SUPPLEMENTAL CASH FLOW DISCLOSURES Cash paid during the period for: Interest $ 4,646 $ 4,845 Income taxes, net 375 60 NONCASH INVESTING ACTIVITIES DURING THE PERIOD: Real estate acquired through foreclosure 692 304 Change in net unrealized loss on investment securities and mortgage-backed securities available for sale, net of taxes (47) 105
4 7 SGV BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (UNAUDITED) 1. Basis of Presentation: --------------------- SGV Bancorp, Inc. (SGV) is a savings and loan holding company incorporated in the state of Delaware that was organized for the purpose of acquiring all of the capital stock of First Federal Savings and Loan Association of San Gabriel Valley (the Association) upon its conversion from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan association. On June 28, 1995, SGV completed its sale of 2,727,656 shares of its common stock through subscription and community offerings to the Association's depositors, the Employee Stock Ownership Plan and the public and used approximately 60% of the net proceeds from such sales to purchase all of the Association's common stock issued in the Association's conversion to stock form. Such business combination was accounted for at historical cost in a manner similar to a pooling of interests. SGV engages only in limited business operations primarily involving investments in federal agency securities and mortgage-backed securities, and as a result, substantially all of the net earnings and performance figures herein reflect the results of the Association. The Association is primarily engaged in attracting deposits from the general public in the areas in which its branches are located and investing such deposits and other available funds primarily in mortgage loans secured by one-to-four family residences. To a lesser extent, the Association invests in multi-family residential mortgages, commercial real estate, land and other loans. The Association's revenues are derived principally from interest on its mortgage loans, and to a lesser extent, interest and dividends on its investment and mortgage-backed securities and income from loan servicing. The Association's primary sources of funds are deposits, principal and interest payments on loans, advances from the Federal Home Loan Bank of San Francisco (the FHLB) and, to a lesser extent, proceeds from the sale of loans. As of September 30, 1998, the Association operated eight branch offices located in the San Gabriel Valley. The consolidated financial statements include the accounts of SGV Bancorp, Inc. and its wholly-owned subsidiary, First Federal Savings and Loan Association of San Gabriel Valley and its wholly-owned subsidiary, First Covina Service Company (collectively, the Company). All material intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management all necessary adjustments, consisting only of normal recurring adjustments necessary for a fair presentation have been included. The results of operations for the three-month period ended September 30, 1998 are not necessarily indicative of the results that may be expected for the entire fiscal year. 5 8 These consolidated financial statements and the information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition" should be read in conjunction with the audited consolidated financial statements and notes thereto of SGV Bancorp, Inc. for the year ended June 30, 1998 included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998.
2. Earnings Per Share ------------------ Earnings per share reconciliation is as follows: WEIGHTED AVERAGE INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------- --------------- ----------- SEPTEMBER 30, 1998 ---------------------------------------------- BASIC EPS Income available to common stockholders $ 566,000 2,291,000 $ 0.25 EFFECT OF DILUTIVE SECURITIES Incremental shares from assumed exercise of outstanding options - 98,000 (0.01) -------------- -------------- -------------- DILUTED EPS Income available to common stockholders $ 566,000 2,389,000 $ 0.24 ============== ============== ==============
SEPTEMBER 30, 1997 ---------------------------------------------- BASIC EPS Income available to common stockholders $ 331,000 2,342,000 $ 0.14 EFFECT OF DILUTIVE SECURITIES Incremental shares from assumed exercise of outstanding options - 117,000 - -------------- -------------- -------------- DILUTED EPS Income available to common stockholders $ 331,000 2,459,000 $ 0.14 ============== ============== ==============
3. Comprehensive Income -------------------- The Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, effective July 1, 1998. The standard requires that comprehensive income and its components be disclosed in the financial statements. The Company's comprehensive income includes all items which comprise net income plus the unrealized holding losses on available-for-sale securities. For the three months ended September 1998 and 1997, the Company's comprehensive income was as follows:
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 ------------------ ------------------ (Dollars in thousands) Net income $ 566 $ 331 Other comprehensive income (47) 105 (loss) ----------------- ------------------ Total comprehensive income $ 519 $ 436 ================== ==================
6 9 4. Accounting Principles --------------------- In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards of reporting by publicly held business enterprises and disclosure of information about operating segments in annual financial statements to a lesser extent, in interim financial reports issued to shareholders. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. Since the primary business of the Company is performed through the Association, there is no material difference in the information already presented in the financial statements contained herein and those required under SFAS No. 131 for information about operating segments. At this time, no additional disclosure is required. SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, was issued in June 1998 and establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Earlier application is encouraged, but it is permitted only as of the beginning of any fiscal quarter that begins after June 1998. The adoption of the provisions of SFAS No. 133 is not expected to have a material impact on the results of operations or the financial position of the Company. 5. Use of Estimates in the Preparation of Financial Statements ----------------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Item 2. Management's Discussion and Analysis of Results of Operations and ------------------------------------------------------------------------ Financial Condition ------------------- This Management's Discussion and Analysis should be read in conjunction with the Management's Discussion and Analysis contained in the Company's Annual Report on Form 10- K, which focuses upon relevant matters occurring during the year ended June 30, 1998. Accordingly, the ensuing discussion focuses upon the material matters at and for the three months ended September 30, 1998. GENERAL - ------- The principal business of the Company is attracting retail deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, primarily in one- to four-family residential mortgage loans. To a lesser extent, the Company engages in secondary marketing activities and invests in multi-family, commercial real estate, construction, land and consumer loans. Loan sales come from loans held in the Company's portfolio designated as being held for sale or originated during the period and being so designated. 7 10 The Company retains virtually all the servicing rights of loans sold. The Company's revenues are derived principally from interest on its mortgage loans, and to a lesser extent, interest and dividends on its investment and mortgage-backed securities and income from loan servicing. The Company's primary sources of funds are deposits, principal and interest payments on loans, advances from the FHLB, securities sold under agreements to repurchase and, to a lesser extent, proceeds from the sale of loans. RESULTS OF OPERATIONS - --------------------- The Company posted net earnings of $566,000 for the three months ended September 30, 1998 compared to net earnings of $331,000 for the three months ended September 30, 1997. For the three months ended September 30, 1998, the net earnings were $0.25 per share-basic compared to net earnings of $0.14 per share-basic for the three months ended September 30, 1997. A discussion of the specific components of net earnings is set forth in the Notes to Consolidated Financial Statements. Net Interest Income - ------------------- Net interest income before the provision for estimated loan losses was $2.9 million for the three months ended September 30, 1998 compared to $2.5 million for the three months ended September 30, 1997. Interest Income - --------------- Total interest income for the three months ended September 30, 1998 was $7.5 million, an increase of $0.2 million from the comparable period a year ago. The increase in interest income was primarily due to the $13.7 million increase in the average balance of interest-earning assets to $409.1 million for the three months ended September 30, 1998 from $395.4 million for the three months ended September 30, 1997. The interest income on loans increased to $5.9 million for the three months ended September 30, 1998 from $5.5 million for the three months ended September 30, 1997. The increase in interest on loans was due partially to the increase in the average balance of loans receivable outstanding to $304.9 million for the three months ended September 30, 1998 from $289.9 million for the three months ended September 30, 1997. The increase was also due to the increase in the average yield on loans receivable to 7.79% for the three months ended September 30, 1998 compared to 7.56% for the three months ended September 30, 1997 partially related to the purchase of higher yielding equity lines of credit in December 1997. The interest income on mortgage-backed securities decreased to $1.0 million for the three months ended September 30, 1998 from $1.3 million from the three months ended September 30, 1997 as a result of the decrease in average balances outstanding to $63.8 million for the three months ended September 30, 1998 from $71.2 million for the three months ended September 30, 1997. The decrease in interest income on mortgage-backed securities was also due to the decrease in the average yield to 6.42% for the three months ended September 30, 1998 compared to 7.13% for the three months ended September 30, 1997 primarily due to the purchase of lower yielding securities during the past year and to the increase in prepayments resulting in a faster amortization of premiums on previously purchased securities. The interest income on investment securities and other securities was approximately the same for both periods which resulted from the increase in the average balance outstanding to $40.5 million for the three months ended September 30, 8 11 1998 from $34.4 million for the same period a year ago being offset by the decrease in the average yield to 5.67% for the three months ended September 30, 1998 from 6.73% for the same period a year ago. Interest Expense - ---------------- Total interest expense for the three months ended September 30, 1998 was $4.7 million, a decrease of $142,000 from $4.8 million for the three months ended September 30, 1997. The decrease in interest expense was primarily due to the decrease in the average cost of interest bearing liabilities to 4.98% for the three months ended September 30, 1998 from 5.24% for the same period a year ago, partially offset by the $7.8 million increase in the average balance of interest-bearing liabilities to $375.8 million for the three months ended September 30, 1998 from the same period a year ago. Interest expense on savings accounts decreased to $3.4 million for the three months ended September 30, 1998 from $3.5 million for the same period a year ago. This decrease was related to the decrease in the average cost of savings accounts to 4.72% for the three months ended September 30, 1998 from 4.90% for the same period a year ago partially offset by the increase in the average balance of savings accounts to $288.0 million for the three months ended September 30, 1998 from $283.4 million for the same period a year ago. Interest expense on borrowings decreased by $64,000 in a period-to-period comparison due primarily to the decrease in the average cost of borrowings to 5.83% for the three months ended September 30, 1998 from 6.34% for the same period a year ago. 9 12 Analysis of Net Interest Income - ------------------------------- The following table sets forth average interest rates on the Company's interest-earning assets and interest-bearing liabilities for the three month period ended September 30, 1998 and September 30, 1997 (dollars are in thousands and average balances are based on month-end amounts):
THREE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------- 1998 1997 --------------------------------------------------- AVERAGE YIELD AVERAGE YIELD BALANCE RATE BALANCE RATE ------------ --------- -------------- ---------- ASSETS: Interest-earning assets: Loans receivable $ 304,853 7.79% $ 289,899 7.56% Mortgage-backed securities 63,802 6.42 71,168 7.13 Investment securities and other 40,466 5.67 34,352 6.73 ------------ -------------- Total interest-earning assets 409,121 7.37% 395,419 7.39% Non-interest-earning assets 13,553 13,199 ------------ -------------- Total assets $ 422,674 $ 408,618 ============ ============== LIABILITIES AND EQUITY: Interest-bearing liabilities Savings accounts $ 288,007 4.72% $ 283,426 4.90% Borrowings 87,782 5.83 84,571 6.34 ------------ -------------- Total interest-bearing liabilities 375,789 4.98% 367,997 5.24% Non-interest-bearing liabilities 15,228 10,445 Stockholders' equity 31,657 30,176 ------------ -------------- Total liabilities and equity $ 422,674 $ 408,618 ============ ============== Net interest rate spread 2.39% 2.17% Net interest margin 2.80% 2.54% Ratio of interest-earning assets to interest-bearing liabilities 108.87% 107.45%
The Company's average net interest spread increased to 2.39% for the three months ended September 30, 1998 as compared 2.17% for the three months ended September 30, 1997. The increase was due primarily to the decrease in the cost of interest-bearing liabilities which decreased to 4.98% for the three months ended September 30, 1998 from 5.24% for the three months ended September 30, 1997. The decrease in the cost of interest-bearing liabilities was due to the significant increase in the average balance of core deposits (passbook, money market and interest-bearing checking accounts) and to the overall lower interest rate environment enabling the Company to renew existing certificates of deposit and borrowings at lower interest rates. The Company was able to maintain its yield on interest-bearing assets at similar levels on a period-to- 10 13 period comparison by increasing its investment in higher yielding assets such as equity lines of credit and non-residential real estate loans. The average yield on loans receivable increased to 7.79% for the three months ended September 30, 1998 from 7.56% for the three months ended September 30, 1997. The increase in yield was due primarily to the origination and purchase of higher yielding loans such as equity lines of credit and non-residential real estate loans during the past twelve months. In regards to the equity lines of credit, the portfolio has provided the Company a yield in excess of 13% since acquisition in December 1997. The Company recognizes that the portfolio of equity lines of credit also has a higher credit risk profile than the rest of the Company's loan portfolio. As part of the performance monitoring of this portfolio, the Company reviews the entire portfolio at least annually. The average yield on mortgage-backed securities decreased to 6.42% for the three months ended September 30, 1998 from 7.13% for the three months ended September 30, 1997. The decrease was due to the Company's purchase of fixed rate mortgage-backed securities with lower yields during the past year and to the increase in prepayments resulting from the lower overall interest rate environment which have required the Company to accelerate the amortization of related premiums. The average yield on investment securities and other securities decreased to 5.67% for the three months ended September 30, 1998 from 6.73% for three months ended September 30, 1997 as a result of the overall lower interest rate environment. The decrease in the average cost of savings accounts to 4.72% for the three months ended September 30, 1998 from 4.90% for the same period a year ago was the result of the $26.5 million increase in the average balance of core deposits (passbook, money market and interest-bearing checking accounts), which generally have a lower cost of funds than certificates of deposit, to $87.9 million for the three months ended September 30, 1998 from $61.4 million for the same period a year ago. There was also a corresponding reduction in the average balance of certificates of deposit which decreased to $200.1 million for the three months ended September 30, 1998 from $222.0 million for the same period a year ago. The Company's average cost of borrowings decreased to 5.83% for the three months ended September 30, 1998 from 6.34% for the same period a year ago as the Company renewed existing borrowings with those of lower rates in relation to the decrease in the overall interest rate environment. The Company also borrowed additional funds during the three months ended September 30, 1998 at an average rate below 5.00% with a weighted average term in excess of three years. The borrowings were entered into to facilitate the growth of the interest-earning assets of the Company. Provision for Estimated Loan Losses - ----------------------------------- The provision for estimated loan losses totaled $269,000 for the three months ended September 30, 1998 as compared to $75,000 for the three months ended September 30, 1997. The increase was due primarily to the initial fair value writedowns on two recently foreclosed properties totaling $168,000 and the charge-off of several home equity lines of credit totaling approximately $70,000. See "Financial Condition." Other Income - ------------ Other income increased to $558,000 for the three months ended September 30, 1998 from $339,000 for the three months ended September 30, 1997. The increase was due partially to the 11 14 $145,000 in net gains on real estate operations for the three months ended September 30, 1998 as compared to $12,000 for the same period a year ago. The increase in real estate operations was related to the gains recognized upon the sale of several real estate owned properties. Also, the Company experienced an increase in other income derived from the net income of its subsidiary, First Covina Service Company, related to the increased commissions earned on the sale of tax-deferred annuities and other investment vehicles. Fee income derived from loan operations, savings accounts and secondary marketing also reflected slight increases for the three months ended September 30, 1998 as compared to the same period a year ago. See "Financial Condition." General and Administrative Expenses - ----------------------------------- The Company's general and administrative expenses totaled $2.2 million for the three months ended September 30, 1998 and 1997. The $41,000 increase in compensation and other employee expenses to $1.2 million for the three months ended September 30, 1998 as compared to the same period a year ago was due primarily to additional staffing for open positions. This increase was offset by the $46,000 decrease in other operating expenses to $343,000 for the three months ended September 30, 1998 as compared to the same period a year ago related to the decrease in general office expense requirements. Income Taxes - ------------ The Company's income taxes increased to $396,000 for the three months ended September 30, 1998 compared to $244,000 in income taxes for the three months ended September 30, 1996 related to the increase in pre-tax earnings on a period-to-period comparison. The effective tax rates for the three months ended September 30, 1998 and September 30, 1997 were approximately 41.2% and 42.4%, respectively. FINANCIAL CONDITION - ------------------- The Company's total assets increased to $453.0 million at September 30, 1998 from $408.3 million in total assets at June 30, 1998. The Company's loans receivable held for investment increased by $15.9 million to $311.6 million at September 30, 1998 compared to $295.7 million at June 30, 1998. Although there was a substantial increase in loan prepayments in the three months ended September 30, 1998, the Company was able to increase the loan portfolio as a result of the purchase of $22.0 million in adjustable rate mortgage loans. The Company's investment in overnight federal funds sold increased to $41.9 million at September 30, 1998 from $16.2 million at June 30, 1998 as a result of the delay in the funding of a $35 million loan purchase. This loan purchase, comprised of well-seasoned single-family adjustable rate mortgage loans, was initially scheduled to close on September 30, 1998 but was delayed until October 2, 1998 at which time the purchase was consummated. The Company's earlier purchases of loans and the commitment to purchase the $35 million in loans at September 30 were entered into with the intent on increasing interest income, replacing loans which prepaid early and reducing its sensitivity to changes in interest rates. During the three months ended September 30, 1998, the Company originated and purchased for investment a total of $38.1 million in mortgage loans as compared to the $34.3 12 15 million purchased and originated in the three month period ended September 30, 1997. The loans purchased in the three months ended September 30, 1998 were adjustable rate and primarily indexed to COFI. The COFI is a lagging market index and therefore may adjust more slowly than the cost of the Association's interest-bearing liabilities. As the determination of the COFI becomes concentrated in fewer institutions, funding decisions by a relatively few large institutions could potentially further reduce the correlation of COFI to changes in general market interest rates and the Company's cost of funds. The Company also originated $6.1 million in loans held for sale and sold approximately $5.0 million in mortgage loans to the secondary market during the three months ended September 30, 1998 as compared to approximately $3.0 million originated and sold for the same period a year ago. The Company's non-performing assets totaled $2.8 million at September 30, 1998 compared to $3.8 million at June 30, 1998. The decrease in non-performing assets was due primarily to the decrease in the balance of real estate acquired in settlement of loans which totaled $1.1 million at September 30, 1998 versus $1.9 million at June 30, 1998. The Company's non-performing loans decreased slightly to $1.7 million at September 30, 1998 from $1.9 million at June 30, 1998. This change reduced the Company's ratio of non-performing assets to total assets to 0.62% at September 30, 1998 from 0.93% at June 30, 1998. The following table sets forth the non-performing assets at September 30, 1998 and June 30, 1998:
SEPTEMBER 30, 1998 JUNE 30, 1998 ---------------------- ----------------- (Dollars in thousands) Non-accrual loans $ 1,738 $ 1,911 Real estate acquired through foreclosure 1,084 1,902 ------------ ------------ Non-performing assets $ 2,822 $ 3,813 ============ ============ Non-performing assets as a percent of total assets 0.62% 0.93% Non-performing loans as a percent of gross loans receivable 0.55% 0.64%
The Company considers a loan impaired when it is probable that the Company will be unable to collect all contractual principal and interest payments under the terms of the loan agreement. Loans are evaluated for impairment as part of the Company's normal internal asset review process. The Company applies the measurement provisions of SFAS No. 114 to all loans in its portfolio with the exception of one- to four-family residential mortgage loans and consumer lines of credit which are evaluated on a collective basis for impairment. Also, loans which have delays in payments of less than four months are not necessarily considered impaired unless other factors apply to the loans. The accrual of interest income on impaired loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due. When the interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. Where impairment is considered temporary, an allowance is established. Impaired loans which are performing under the contractual terms are reported as performing loans, and cash payments are allocated to 13 16 principal and interest in accordance with the terms of the loan. At September 30, 1998, the Company had no classified loans considered impaired with no specific reserves set aside as of September 30, 1998 as determined in accordance with SFAS No. 114. In comparison, as of June 30, 1998, the Company had classified $569,000 of its loans as impaired with $100,000 in specific reserves. In addition, as of September 30, 1998 the Company had $1.7 million in loans which were collectively evaluated for impairment with $49,000 in specific reserves established compared to $1.3 million at June 30, 1998 collectively evaluated for impairment with no specific reserves set aside. The average recorded investment in impaired loans, inclusive of those evaluated collectively, during the three months ended September 30, 1998, was $1.9 million, whereas, the average for the twelve months ended June 30, 1998 was $2.9 million. The Company, in consideration of the current economic environment and the condition of the loan portfolio, maintained the allowance for estimated loan losses at September 30, 1998 at $1.4 million. Although loans on non-accrual status have decreased to $1.7 million at September 30, 1998 from $1.9 million at June 30, 1998, the allowance for estimated loan losses is maintained at an amount management considers adequate to cover estimated losses in loans receivable which are deemed probable and estimable. The allowance is based upon a number of factors, including current economic conditions, actual loss experience and industry trends. The Company's non-performing loans are primarily made up of one- to four-family residential mortgage loans. The following table sets forth the activity in the Company's allowance for estimated loan losses for the three months ended September 30, 1998:
Activity for the three months ended September 30, 1998 ---------------------------------------- (Dollars in thousands) Balance at June 30, 1998 $ 1,425,000 Add: Provision for estimated loan losses 269,000 Recoveries of previous charge-offs - Less: Charge-off of consumer loans 76,000 Charge-off of real estate loans 169,000 Balance at September 30, 1998 $ 1,449,000 =================
The Company's total liabilities increased to $422.1 million at September 30, 1998 from $376.1 million at June 30, 1998. Total deposit accounts increased $6.7 million to $302.0 million at September 30, 1998 from $295.3 million at June 30, 1998, primarily as a result of the increase in the balance of certificates of deposit, which provided partial funding for the loan purchases made and committed to, and due to interest credited to accounts. The Company increased its borrowings from the FHLB by $33.5 million and its securities sold under agreements to repurchase by $4.3 million during the three months ended September 30, 1998 to provide the majority of funding for the purchased loan portfolios and the commitment for the loan purchase funded on October 2, 1998. The Company continues to utilize FHLB advances and securities sold under agreements to repurchase as part of its asset and liability management strategy. 14 17 The Company's stockholders' equity decreased to $30.9 million at September 30, 1998 from $32.2 million at June 30, 1997 due primarily to the completion of a 5% stock repurchase program whereby the Company repurchased 117,245 shares at an average cost of $15.67 per share. The Company also announced its intent to repurchase an additional 5% of its outstanding common stock and to date has repurchased 12,000 shares. The reduction in stockholders' equity resulting from the stock repurchases was partially offset by the net earnings posted for the period. LIQUIDITY - --------- The Company's primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, FHLB advances, securities sold under agreements to repurchase, increases in deposits and, to a lesser extent, proceeds from the sale of loans and investments. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Association, by regulation, must maintain its liquidity ratio at no less than 4.0% of deposits and short-term borrowings. Liquidity represents cash and the majority of the Company's investments which are not committed or pledged to specific liabilities. The Association's average liquidity ratio for September 30, 1998 and September 30, 1997 was 26.16% and 11.76%, respectively. COMMITMENTS AND CONTINGENT LIABILITIES - -------------------------------------- At September 30, 1998, other than the Company's commitment to purchase approximately $35 million in single-family adjustable rate mortgage loans from another financial institution, there were no material changes to the Company's commitments or contingent liabilities from the period ended June 30, 1998 as discussed in the Company's notes to the consolidated financial statements reflected in the audited consolidated financial statements of SGV Bancorp, Inc., for the year ended June 30, 1998 included in the Annual Report on Form 10-K for the year ended June 30, 1998. At September 30, 1998, the Company had outstanding commitments to originate or purchase mortgage loans of $37.3 million, including the approximate $35 million bulk loan purchase discussed earlier, as compared to $3.0 million at June 30, 1998. REGULATORY CAPITAL - ------------------ The Office of Thrift Supervision (OTS) capital regulations require savings institutions to meet three minimum capital requirements: a 1.5% tangible capital ratio, a 3% leverage (core capital) ratio and an 8% risk-based capital ratio. The core capital requirement has been effectively increased to 4% because the prompt corrective action legislation provides that institutions with less than 4% core capital will be deemed "undercapitalized". In addition, the OTS, under the prompt corrective action regulation can impose various constraints on institutions depending on their level of capitalization ranging from well-capitalized to critically undercapitalized. At September 30, 1998, the Association was considered "well-capitalized". 15 18 The Association was in compliance with the capital requirements in effect as of September 30, 1998. The following table reflects the required ratios and the actual capital ratios of the Association at September 30, 1998:
CAPITAL ------------------------ ACTUAL REQUIRED EXCESS ACTUAL REQUIRED CAPITAL CAPITAL AMOUNT PERCENT PERCENT ---------- ------------ ----------- ---------- ------------ (Dollars in thousands) Tangible $ 28,664 $ 6,783 $ 21,881 6.34% 1.50% Core $ 28,664 $ 13,567 $ 15,097 6.34% 3.00% Risk-based $ 30,064 $ 16,619 $ 13,445 14.47% 8.00%
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT - -------------------------------------------------------------- In addition to historical information, this Form 10-Q may include forward looking statements based on current management expectations. The Company's actual results could differ materially from those management expectations. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company's loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company's operations, markets products, services and prices. Further description of the risks and uncertainties to the business of the Company are included in detail in the Company's Form 10-K for the fiscal year ended June 30, 1998. YEAR 2000 - --------- The year 2000 issue concerns the potential impact of historic computer software code that only utilizes two digits to represent the calendar year (e.g., "98" for "1998"). Software so developed could produce inaccurate or unpredictable results upon January 1, 2000, when current and future dates present a lower two digit year number than dates in the prior century. The Company, similar to most financial services providers, is subject to the potential impact of the year 2000 issue due to the nature of financial information. Potential impacts to the Company may arise from software, hardware, and equipment both within the Company's direct control and outside of the Company's ownership, yet with which the Company electronically or operationally interfaces (i.e., vendors providing or receiving service bureau information). 16 19 Financial institution regulators have recently increased their focus upon year 2000 issues, issuing guidance concerning the responsibilities of senior management and directors. Year 2000 testing and certification is being addressed as a key safety and soundness issue in conjunction with regulatory exams. In order to address the year 2000 issue, the Company has developed and implemented a five phase plan divided into the following major components: o awareness o assessment o renovation o validation o implementation The Company has completed the first two phases of the plan and is currently working internally and with external vendors on the final three phases. Because the Company outsources its data processing and item processing operations, a significant component of the Year 2000 Plan is to work with external vendors to test and certify their systems as year 2000 compliant. The Company replaced its internal retail branch computer system and its back office computer systems in 1997 with personal computers which are year 2000 ready. The software used in these systems, both purchased and related to our external data processing vendors, is currently being tested for year 2000 readiness. Also, the Company is currently testing its primary data processor for year 2000 readiness. The Company has contacted its primary vendors and others with whom it relies on to assure their systems will be year 2000 ready. However, there can be no assurance that these systems of other vendors will be year 2000 ready or that any such failure in readiness by such vendors would not have an adverse effect on the Company's operations. Another important segment of the Year 2000 Plan is to identify those loan customers whose possible lack of year 2000 preparedness might expose the Association to financial loss. It is management's belief that the Company does not have any material financial exposure in regards to its loan portfolio as the portfolio is comprised primarily of loans to individuals and, to a lessor extent, to businesses secured by real estate. In management's estimation, loans secured by real estate are less likely to be impacted by any year 2000 issues. Upon completion of its review and testing of both internal operations and external vendors, the Company will complete its contingency plans. The Company has recently completed testing of its data processing provider, which presents the Company with its largest exposure to year 2000 readiness issues, and is in the process of evaluating the results. Also, the Company has participated in the initial testing of the Federal Reserve Bank wire transfer system and is also in the process of evaluating the results of this test. The Company is participating, through proxy testing, with its data processor in third party interfaces for year 2000 readiness. After evaluation of such test results, the Company will finalize its contingency plans. It is expected that such contingency plans will be completed by January 31, 1999. The Company expects its year 2000 date conversion project to be completed by March 31, 1999. During the execution of this project, the Company will incur internal staff costs as well as consulting and other expenses related to enhancements necessary to prepare the systems for the year 2000. Since the Company replaced many of the internal systems with year 2000 compliant 17 20 personal computers in 1997, the expenses incurred to bring the Company to year 2000 compliance will be expensed as incurred, with the majority of such costs being the reallocation of current staff to bring about this readiness. As stated earlier, the Company replaced the majority of its internal computer hardware and software in early 1997. The capitalized costs of this replacement was in excess of $700,000 and is being amortized over several years in compliance with the Company's normal depreciation of such hardware or software. The future expenses of the year 2000 project as well as the related potential effect on the Company's earnings is not expected to have a material effect on its financial position or results of operations. Management does not expect the future costs of the year 2000 project to exceed $200,000, which is primarily related to the reallocation of internal staff's resources. Item 3. Quantitative and Qualitative Disclosure about Market Risk --------------------------------------------------------- MANAGEMENT OF INTEREST RATE RISK - -------------------------------- The Company's profitability is dependent to a large extent upon its net interest income, which is the difference between its interest income on interest-earning assets, such as loans and investments, and its interest expense on interest-bearing liabilities, such as deposits and borrowings. To manage its interest rate risk, the Company has utilized the following strategies : (i) emphasizing the origination and/or purchase of adjustable-rate one- to four-family mortgage loans for portfolio; (ii) selling to the secondary market substantially all fixed-rate mortgage loans originated; (iii) holding primarily short-term mortgage-backed and investment securities; and (iv) attempting to reduce the overall interest rate sensitivity of liabilities by emphasizing core and longer-term deposits, utilizing FHLB advances and securities sold under agreements to repurchase. The Company's interest rate sensitivity is monitored by management through the use of an interest rate risk (IRR) model. Based on internal IRR modeling, management does not believe that there has been a material change in the Company's interest rate sensitivity from June 30, 1998 to September 30, 1998. All methods used to measure interest rate sensitivity involve the use of assumptions, which may tend to oversimplify the manner in which actual yields and costs respond to changes in market interest rates. The Company's interest rate sensitivity should be reviewed in conjunction with the financial statements and notes thereto contained in the Company's Annual Report for the fiscal year ended June 30, 1998. 18 21 PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- The Company is involved as plaintiff or defendant in various legal actions incident to its business, none of which is believed by management to be material to the financial condition of the Company. Item 2. Changes in Securities --------------------- None. Item 3. Defaults in Securities ---------------------- None. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. Item 5. Other Information ----------------- None. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) The following exhibits are filed as part of this report: 3.1 Certificate of Incorporation of SGV Bancorp, Inc. * 3.2 Bylaws of SGV Bancorp, Inc. * 11.0 Computation of per share earnings (filed herewith). 27.0 Financial data schedule (filed herewith). (b) Reports on Form 8-K None. - ------------------- * Incorporated herein by reference from the Exhibits to the Registration Statement on Form S-1, as amended, filed on March 6, 1995 and declared effective on May 9, 1995, Registration No. 33-90018. 22 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SGV BANCORP, INC. November 9, 1998 /s/ Barrett G. Andersen - ---------------------------- ------------------------------------- Date Barrett G. Andersen President and Chief Executive Officer November 9, 1998 /s/ Ronald A. Ott - ---------------------------- ------------------------------------- Date Ronald A. Ott Executive Vice President Chief Financial Officer and Treasurer 20 EX-27 2
9 This schedule contains summary information extracted from the Form 10-Q and is qualified in its entirety by reference to such financial statements. 0000940511 SGV Bancorp, Inc. 1 U.S. Dollars 3-MOS JUN-30-1999 JUL-01-1998 SEP-30-1998 1 4,609,000 0 41,850,000 0 42,301,000 37,145,000 37,314,000 314,708,000 1,449,000 452,977,000 302,049,000 0 5,690,000 114,337,000 0 0 27,000 30,874,000 452,977,000 5,939,000 1,389,000 209,000 7,537,000 3,397,000 4,675,000 2,862,000 269,000 7,000 1,638,000 962,000 0 0 0 566,000 0.25 0.24 7.37 1,738,000 0 759,000 0 1,425,000 245,000 0 1,449,000 1,449,000 0 0
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