PFF BANCORP INC - 10-Q Quarterly Report

PFF BANCORP, INC. AND SUBSIDIARIES
Form 10-Q
Table of Contents

PART I	FINANCIAL INFORMATION (Unaudited)	PAGE

Item 1	Financial Statements Consolidated Balance Sheets as of March 31, 2004 and June 30, 2004	1

	Consolidated Statements of Earnings for the three months ended June 30, 2004 and 2003	2

	Consolidated Statements of Comprehensive Earnings for the three months ended June 30, 2004 and 2003	3

	Consolidated Statement of Stockholders' Equity for the three months ended June 30, 2004	4

	Consolidated Statements of Cash Flows for the three months ended June 30, 2004 and 2003	5

	Notes to Unaudited Consolidated Financial Statements	7

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3	Qualitative and Quantitative Disclosures about Market Risk	21

Item 4	Controls and Procedures	21
PART II	OTHER INFORMATION

Item 1	Legal Proceedings	22

Item 2	Changes in Securities and Use of Proceeds	22

Item 3	Defaults Upon Senior Securities	22

Item 4	Submission of Matters to a Vote of Security Holders	22

Item 5	Other Information	22

Item 6	Exhibits and Reports on Form 8-K	23

SIGNATURES		24

PART I --FINANCIAL INFORMATION

Item 1. Financial Statements.

PFF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)

	June 30, 2004		March 31, 2004

Assets
Cash and cash equivalents	$ 45,256		$ 60,151
Investment securities held-to-maturity (estimated fair value of $5,777 at June 30, 2004, and $5,979 at March 31, 2004)	5,739		5,742
Investment securities available-for-sale, at fair value	58,722		62,957
Mortgage-backed securities available-for-sale, at fair value	258,785		292,888
Loans held-for-sale	4,172		2,119
Loans and leases receivable, net	3,163,454		3,149,318
Federal Home Loan Bank (FHLB) stock, at cost	42,894		42,500
Accrued interest receivable	14,246		14,752
Assets acquired through foreclosure, net	606		683
Property and equipment, net	28,288		27,430
Prepaid expenses and other assets	22,055		19,154
Total assets	$3,644,217		$3,677,694

Liabilities and Stockholders' Equity
Liabilities:
Deposits	$2,503,941		$2,455,046
FHLB advances and other borrowings	771,000		851,600
Accrued expenses and other liabilities	46,184		54,677
Total liabilities	3,321,125		3,361,323
Commitments and contingencies	-		-
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 2,000,000 shares; none issued	-		-
Common stock, $.01 par value. Authorized 59,000,000 shares, issued 17,198,863 and 16,894,697; outstanding 16,785,063 and 16,614,997 at June 30, 2004 and March 31, 2004, respectively	171		168
Additional paid-in capital	152,485		144,585
Retained earnings, substantially restricted	176,709		173,188
Unearned stock-based compensation	(1,660	)	(2,121	)
Treasury stock (413,800 and 279,700 at June 30, 2004, and March 31, 2004, respectively)	(5	)	(3	)
Accumulated other comprehensive income (losses)	(4,608	)	554
Total stockholders' equity	323,092		316,371
Total liabilities and stockholders' equity	$3,644,217		$3,677,694

See accompanying notes to the unaudited consolidated financial statements.

PFF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
(Unaudited)

	For the Three Months Ended June 30,
	2004	2003

Interest income:
Loans and leases receivable	$44,541	$41,090
Mortgage-backed securities	2,548	1,932
Collateralized mortgage obligations	-	(294	)
Investment securities and deposits	1,034	1,076
Total interest income	48,123	43,804
Interest expense:
Deposits	8,639	10,291
Borrowings	3,566	3,465
Total interest expense	12,205	13,756
Net interest income	35,918	30,048
Provision for loan and lease losses	524	660
Net interest income after provision for loan and lease losses	35,394	29,388
Non-interest income:
Deposit and related fees	2,875	2,831
Loan and servicing fees	1,614	1,593
Trust and investment fees	755	557
Gain on sale of loans, net	43	375
Gain on sale of securities, net	1,439	117
Other non-interest income	130	134
Total non-interest income	6,856	5,607
Non-interest expense:
General and administrative:
Compensation and benefits	12,411	10,673
Occupancy and equipment	3,339	3,059
Marketing and professional services	2,315	2,088
Other non-interest expense	3,806	3,015
Total general and administrative	21,871	18,835
Foreclosed asset operations, net	76	(1	)
Total non-interest expense	21,947	18,834
Earnings before income taxes	20,303	16,161
Income taxes	9,528	6,829
Net earnings	$10,775	$9,332

Basic earnings per share	$0.66	$0.59
Weighted average shares outstanding for basic earnings per share calculation	16,306,134	15,820,220
Diluted earnings per share	$0.64	$0.57
Weighted average shares outstanding for diluted earnings per share calculation	16,885,402	16,502,133

See accompanying notes to the unaudited consolidated financial statements.

2

PFF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(Dollars in thousands)
(Unaudited)

	For the Three Months Ended June 30,
	2004		2003

Net earnings	$10,775		$9,332

Other comprehensive earnings, net of income taxes of $ (4,004) and $1,609 at June 30, 2004 and 2003, respectively:
Unrealized gains (losses) on securities available-for-sale:
U.S. Treasury and agency securities and other investment securities available-for-sale, at fair value	(890	)	2,199
Collateralized mortgage obligations available-for- sale, at fair value	-		193
Mortgage-backed securities available-for-sale, at fair value	(3,281	)	(96	)
Reclassification of realized gains (losses) included in earnings	(1,358	)	(104	)
	(5,529	)	2,192
Tax benefit on minimum pension liability	367		-
Other comprehensive gains (losses)	(5,162	)	2,192
Comprehensive earnings	$5,613		$11,524

See accompanying notes to the unaudited consolidated financial statements.

PFF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
(Unaudited)

	Number of Shares		Common Stock	Additional Paid-in Capital		Retained Earnings, Substantially Restricted		Unearned Stock-based Compensation		Treasury Stock		Accumulated Other Comprehensive Losses		Total

Balance at March 31, 2004	16,614,997		$ 168	$ 144,585		$ 173,188		$ (2,121	)	$ (3	)	$ 554		$ 316,371

Net earnings	-		-	-		10,775		-		-		-		10,775
Purchases of treasury stock	(134,100	)	-	(956	)	(3,941	)	-		(2	)	-		(4,899	)
Amortization under stock-based compensation plans	-		-	1,844		-		461		-		-		2,305
Stock options exercised	304,166		3	3,196		-		-		-		-		3,199
Dividend ($0.20 per share paid for June 2004)	-		-	-		(3,313	)	-		-		-		(3,313	)
Change in unrealized losses on securities available-for-sale, net	-		-	-		-		-		-		(5,529	)	(5,529	)
Tax benefit from stock options/minimum pension liability	-		-	3,816		-		-		-		367		4,183
Balance at June 30, 2004	16,785,063		$ 171	$ 152,485		$ 176,709		$ (1,660	)	$ (5	)	$ (4,608	)	$ 323,092

See accompanying notes to the unaudited consolidated financial statements.

PFF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

	Three Months Ended June 30,
	2004		2003

Cash flows from operating activities:
Net earnings	$ 10,775		$ 9,332
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities:
Amortization of premiums, net of discount accretion, on loans, leases and securities	447		934
Amortization of deferred loan origination fees	320		89
Loan and lease fees collected	142		253
Dividends on FHLB stock	(394	)	(314	)
Provisions for losses on:
Loans and leases	524		660
Real estate	77		-
Gains on sales of loans, securities available-for-sale, real estate and property and equipment	(1,465	)	(363	)
Depreciation and amortization of property and equipment	826		743
Loans originated for sale	(5,809	)	(12,303	)
Proceeds from sale of loans held-for-sale	3,779		14,364
Amortization of unearned stock-based compensation	2,305		1,565
Decrease in accrued expenses and other liabilities	(307	)	(26,441	)
(Increase) decrease in:
Accrued interest receivable	506		928
Prepaid expenses and other assets	(2,901	)	(967	)
Net cash provided by (used in) operating activities	8,825		(11,520	)

Cash flows from investing activities:
Loans and leases originated for investment	(660,658	)	(496,248	)
Increase in construction loans in process	16,327		18,880
Purchases of loans held-for-investment	(72,043	)	(93,262	)
Principal payments on loans and leases	701,169		573,675
Principal payments on mortgage-backed securities available-for-sale	28,089		21,921
Principal payments on collateralized mortgage obligations available-for-sale	-		14,373
Purchases of investment securities available-for-sale	-		(6	)
Purchases of mortgage-backed securities available-for-sale	-		(45,333	)
			(Continued)

PFF BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

	Three Months Ended June 30,
	2004		2003
Proceeds from sale of investment securities available-for-sale	1,795		35,968
Proceeds from sale of property and equipment	3		-
Purchases of property and equipment	(1,684	)	(984	)
Net cash provided by investing activities	12,998		28,984
Cash flows from financing activities:
Proceeds from long-term FHLB advances and other borrowings	86,000		89,000
Repayment of long-term FHLB advances and other borrowings	(189,000	)	(135,000	)
Net change in short-term FHLB advances and other borrowings	22,400		3,615
Net change in deposits	48,895		15,768
Proceeds from exercise of stock options	3,199		1,045
Cash dividends	(3,313	)	(1,142	)
Purchases of treasury stock	(4,899	)	(560	)
Net cash used in financing activities	(36,718	)	(27,274	)
Net decrease in cash and cash equivalents	(14,895	)	(9,810	)
Cash and cash equivalents, beginning of period	60,151		50,323
Cash and cash equivalents, end of period	$ 45,256		$ 40,513

Supplemental information:
Interest paid, including interest credited	$ 12,433		$ 14,332
Income taxes paid	$ 6,316		$ 1,200
Non-cash investing and financing activities:
Net transfers from loans and leases receivable to assets acquired through foreclosure	$ -		$ 634

See accompanying notes to the unaudited consolidated financial statements.

PFF BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

(1) Basis of Consolidation

The accompanying unaudited consolidated financial statements include the accounts of PFF Bancorp, Inc. and its subsidiaries PFF Bank & Trust, Glencrest Investment Advisors, Inc. and Diversified Builder Services, Inc. ("Bancorp", "we", "us" and "our"). Our business is conducted primarily through PFF Bank & Trust and its subsidiary, Pomona Financial Services, Inc. (collectively, "the Bank"). Pomona Financial Services, Inc. includes the accounts of Diversified Services, Inc. Glencrest Investment Advisors, Inc. includes the accounts of Glencrest Insurance Services, Inc. All material intercompany balances and transactions have been eliminated in consolidation.

Our unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for complete financial statements. In our opinion, all adjustments (consisting principally of normal recurring accruals) necessary for a fair presentation have been included. We have made certain reclassifications to the prior year's consolidated financial statements to conform to the current presentation.

The results of operations for the three months ended June 30, 2004 are not necessarily indicative of results that may be expected for the entire fiscal year ending March 31, 2005.

These interim consolidated financial statements should be read in conjunction with our consolidated financial statements, and the notes thereto, for the year ended March 31, 2004, which are incorporated by reference in our Form 10-K for the year ended March 31, 2004.

(2) New Accounting Pronouncements

In March 2004, the FASB issued Emerging Issues Task Force ("EITF") Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments". This EITF describes a model involving three steps: (1) determine whether an investment is impaired, (2) determine whether the impairment is other-than-temporary, and (3) to recognize the impairment loss in earnings. The EITF also requires several additional disclosures for cost-method investments. The EITF's impairment accounting guidance is effective for reporting periods beginning after June 15, 2004. The financial impact of this EITF is not expected to have a material impact on our consolidated financial statements.

                                                  PFF BANCORP, INC. AND SUBSIDIARIES
                                         Notes to Unaudited Consolidated Financial Statements
                                                                            (Continued)

(3) Stock Option Plans

We apply APB 25 in accounting for our stock options and, accordingly, under the intrinsic value method no compensation cost has been recognized for these stock options in our consolidated financial statements. Had we determined compensation cost based on the fair value at the grant date for our stock options exercisable under SFAS 123, our results of operations would have been adjusted to the pro forma amounts for the periods indicated below:

		Three Months Ended June 30,
		2004		2003
		(Dollars in thousands, except per share data)
Net earnings:
	As reported	$10,775		$ 9,332
	Add: Stock-based employee compensation expense included in reported net income, net of related tax effects	2,185		1,374
	Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	(2,249	)	(1,774	)
	Pro forma net earnings	$10,711		$ 8,932
Earnings per share
	Basic - as reported	$ 0.66		$ 0.59
	Basic - pro forma	$ 0.66		$ 0.56

	Diluted - as reported	$ 0.64		$ 0.57
	Diluted - pro forma	$ 0.63		$ 0.54

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 June 30, 2004 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 0-27404
PFF BANCORP, INC. (Exact name of registrant as specified in its charter)
DELAWARE	95-4561623
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer I.D. No.)

350 South Garey Avenue, Pomona, California 91766 (Address of principal executive offices)
(909) 623-2323 (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 required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No .
Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes X No .

The registrant had 16,815,723 shares of common stock, par value $.01 per share, outstanding as of July 31, 2004.

	For the Three Months Ended June 30,
	2004 (a)			2003 (b)
	Earnings (Numerator)	Shares (Denominator)	Per-Share Amount	Earnings (Numerator)	Shares (Denominator)	Per-Share Amount
	(Dollars in thousands, except per share data)

Net Earnings	$

PAGE

Assets

Liabilities and Stockholders' Equity