ppbi_10q-2008q3.htm
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 September 30, 2008
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 0-22193
(Exact
name of registrant as specified in its charter)
DELAWARE
|
33-0743196
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S
Employer Identification No.)
|
1600
SUNFLOWER AVENUE, 2ND
FLOOR, COSTA MESA, CALIFORNIA 92626
|
(Address
of principal executive offices and zip
code)
|
(714)
431-4000
|
(Registrant’s
telephone number, including area
code)
|
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.
(X )
Yes (
) No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “accelerated filer”, “large accelerated
filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange
Act).
Large
accelerated filer
|
[
]
|
Accelerated
filer
|
[
]
|
Non-accelerated
filer
|
[
]
|
Smaller
reporting company
|
[x
]
|
|
|
|
|
(Do
not check if a smaller reporting company)
|
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes [ ] No [X]
The
number of shares outstanding of the registrant's common stock as of September
30, 2008 was 4,903,784.
PACIFIC
PREMIER BANCORP, INC. AND SUBSIDIARIES
FORM
10-Q
FOR THE
QUARTER ENDED SEPTEMBER 30, 2008
INDEX
PART I - FINANCIAL INFORMATION
Item
1. Financial Statements
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
|
|
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
|
|
2008
|
|
|
December
31,
|
|
|
|
(Unaudited)
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
7,187 |
|
|
$ |
8,307 |
|
Federal
funds sold
|
|
|
2,325 |
|
|
|
25,714 |
|
Cash
and cash equivalents
|
|
|
9,512 |
|
|
|
34,021 |
|
Investment
securities available for sale
|
|
|
60,084 |
|
|
|
56,238 |
|
FHLB
Stock/Federal Reserve Stock, at cost
|
|
|
14,203 |
|
|
|
16,804 |
|
Loans:
|
|
|
|
|
|
|
|
|
Loans
held for sale, net
|
|
|
682 |
|
|
|
749 |
|
Loans
held for investment, net of allowance of $5,867 (2008) and $4,598
(200)
|
|
|
639,461 |
|
|
|
622,114 |
|
Accrued
interest receivable
|
|
|
3,813 |
|
|
|
3,995 |
|
Other
real estate owned
|
|
|
26 |
|
|
|
711 |
|
Premises
and equipment
|
|
|
9,298 |
|
|
|
9,470 |
|
Current
income taxes
|
|
|
- |
|
|
|
524 |
|
Deferred
income taxes
|
|
|
9,320 |
|
|
|
6,754 |
|
Bank
owned life insurance
|
|
|
11,263 |
|
|
|
10,869 |
|
Other
assets
|
|
|
935 |
|
|
|
1,171 |
|
Total
Assets
|
|
$ |
758,597 |
|
|
$ |
763,420 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Deposit
accounts
|
|
|
|
|
|
|
|
|
Noninterest
bearing
|
|
$ |
28,403 |
|
|
$ |
25,322 |
|
Interest
bearing:
|
|
|
|
|
|
|
|
|
Transaction
accounts
|
|
|
59,747 |
|
|
|
63,989 |
|
Retail
certificates of deposit
|
|
|
303,047 |
|
|
|
257,515 |
|
Wholesale/brokered
certificates of deposit
|
|
|
30,757 |
|
|
|
39,909 |
|
Total
Deposits
|
|
|
421,954 |
|
|
|
386,735 |
|
Borrowings
|
|
|
261,500 |
|
|
|
297,965 |
|
Subordinated
debentures
|
|
|
10,310 |
|
|
|
10,310 |
|
Accrued
expenses and other liabilities
|
|
|
6,817 |
|
|
|
7,660 |
|
Total
Liabilities
|
|
$ |
700,581 |
|
|
$ |
702,670 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value; 15,000,000 shares authorized; 4,903,784 (2008) and
5,163,488 (2007) shares issued and outstanding
|
|
$ |
49 |
|
|
$ |
53 |
|
Additional
paid-in capital
|
|
|
64,548 |
|
|
|
66,417 |
|
Accumulated
deficit
|
|
|
(4,409 |
) |
|
|
(5,012 |
) |
Accumulated
other comprehensive loss, net of tax of $1,518 (2008) and $494
(2007)
|
|
|
(2,172 |
) |
|
|
(708 |
) |
Total
Stockholders’ Equity
|
|
$ |
58,016 |
|
|
$ |
60,750 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$ |
758,597 |
|
|
$ |
763,420 |
|
Accompanying
notes are an integral part of these consolidated financial
statements.
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
|
|
CONSOLIDATED
STATEMENTS OF INCOME
|
|
(Dollars
in thousands, except per share data)
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months Ended
|
|
|
For
the Nine Months Ended
|
|
|
|
September
30, 2008
|
|
|
September
30, 2007
|
|
|
September
30, 2008
|
|
|
September
30, 2007
|
|
INTEREST
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$ |
10,444 |
|
|
$ |
11,758 |
|
|
$ |
31,633 |
|
|
$ |
33,890 |
|
Other
interest-earning assets
|
|
|
1,126 |
|
|
|
1,050 |
|
|
|
3,413 |
|
|
|
3,125 |
|
Total
interest income
|
|
|
11,570 |
|
|
|
12,808 |
|
|
|
35,046 |
|
|
|
37,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on transaction accounts
|
|
|
352 |
|
|
|
452 |
|
|
|
1,168 |
|
|
|
1,338 |
|
Interest
on certificates of deposit
|
|
|
3,008 |
|
|
|
3,703 |
|
|
|
9,676 |
|
|
|
10,020 |
|
Total
deposit interest expense
|
|
|
3,360 |
|
|
|
4,155 |
|
|
|
10,844 |
|
|
|
11,358 |
|
Other
borrowings
|
|
|
2,517 |
|
|
|
3,730 |
|
|
|
8,046 |
|
|
|
11,324 |
|
Subordinated
debentures
|
|
|
143 |
|
|
|
208 |
|
|
|
463 |
|
|
|
617 |
|
Total
interest expense
|
|
|
6,020 |
|
|
|
8,093 |
|
|
|
19,353 |
|
|
|
23,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME
|
|
|
5,550 |
|
|
|
4,715 |
|
|
|
15,693 |
|
|
|
13,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR LOAN LOSSES
|
|
|
664 |
|
|
|
403 |
|
|
|
1,683 |
|
|
|
917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
|
|
|
4,886 |
|
|
|
4,312 |
|
|
|
14,010 |
|
|
|
12,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST
INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
servicing fee income
|
|
|
231 |
|
|
|
167 |
|
|
|
833 |
|
|
|
856 |
|
Bank
and other fee income
|
|
|
155 |
|
|
|
155 |
|
|
|
424 |
|
|
|
463 |
|
Net
gain from loan sales
|
|
|
- |
|
|
|
970 |
|
|
|
92 |
|
|
|
3,034 |
|
Net
gain (loss) from sale of investment securities
|
|
|
45 |
|
|
|
- |
|
|
|
(3,586 |
) |
|
|
- |
|
Other
income
|
|
|
216 |
|
|
|
227 |
|
|
|
810 |
|
|
|
766 |
|
Total
noninterest (loss) income
|
|
|
647 |
|
|
|
1,519 |
|
|
|
(1,427 |
) |
|
|
5,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NONINTEREST
EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
and benefits
|
|
|
2,223 |
|
|
|
2,716 |
|
|
|
6,862 |
|
|
|
8,029 |
|
Premises
and occupancy
|
|
|
632 |
|
|
|
601 |
|
|
|
1,832 |
|
|
|
1,809 |
|
Data
processing
|
|
|
114 |
|
|
|
137 |
|
|
|
405 |
|
|
|
384 |
|
Net
loss on foreclosed real estate
|
|
|
54 |
|
|
|
35 |
|
|
|
73 |
|
|
|
59 |
|
Legal
and audit
|
|
|
144 |
|
|
|
147 |
|
|
|
465 |
|
|
|
702 |
|
Marketing
expense
|
|
|
221 |
|
|
|
220 |
|
|
|
494 |
|
|
|
566 |
|
Office
and postage expense
|
|
|
53 |
|
|
|
95 |
|
|
|
247 |
|
|
|
299 |
|
Other
expense
|
|
|
510 |
|
|
|
455 |
|
|
|
1,558 |
|
|
|
1,295 |
|
Total
noninterest expense
|
|
|
3,951 |
|
|
|
4,406 |
|
|
|
11,936 |
|
|
|
13,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
BEFORE INCOME TAXES
|
|
|
1,582 |
|
|
|
1,425 |
|
|
|
647 |
|
|
|
4,775 |
|
PROVISION
FOR INCOME TAXES
|
|
|
581 |
|
|
|
574 |
|
|
|
45 |
|
|
|
1,818 |
|
NET
INCOME
|
|
$ |
1,001 |
|
|
$ |
851 |
|
|
$ |
602 |
|
|
$ |
2,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME
PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income per share
|
|
$ |
0.20 |
|
|
$ |
0.16 |
|
|
$ |
0.12 |
|
|
$ |
0.57 |
|
Diluted
income per share
|
|
$ |
0.16 |
|
|
$ |
0.13 |
|
|
$ |
0.10 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,903,784 |
|
|
|
5,163,488 |
|
|
|
4,963,385 |
|
|
|
5,197,737 |
|
Diluted
|
|
|
6,143,646 |
|
|
|
6,491,760 |
|
|
|
6,248,787 |
|
|
|
6,554,247 |
|
Accompanying
notes are an integral part of these consolidated financial
statements.
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
|
|
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
|
|
(Dollars
in thousands)
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Comprehensive Loss
|
|
|
Comprehensive
Income (Loss)
|
|
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
5,263,488 |
|
|
$ |
54 |
|
|
$ |
67,306 |
|
|
$ |
(8,631 |
) |
|
$ |
(691 |
) |
|
|
|
|
$ |
58,038 |
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,957 |
|
|
|
- |
|
|
$ |
2,957 |
|
|
|
2,957 |
|
Unrealized
loss on investments,
net
of tax of $(101)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(145 |
) |
|
|
(145 |
) |
|
|
(145 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,812 |
|
|
|
|
|
Common
stock repurchased and retired
|
|
|
(100,000 |
) |
|
|
(3 |
) |
|
|
(1,090 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,093 |
) |
Restricted
stock vested
|
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156 |
|
Balance
at September 30, 2007
|
|
|
5,163,488 |
|
|
$ |
52 |
|
|
$ |
66,371 |
|
|
$ |
(5,674 |
) |
|
$ |
(836 |
) |
|
|
|
|
|
$ |
59,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Shares
|
|
|
Amount
|
|
|
Additional
Paid-in Capital
|
|
|
Accumulated
Deficit
|
|
|
Accumulated
Other Comprehensive Loss
|
|
|
Comprehensive
Income (Loss)
|
|
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
5,163,488 |
|
|
$ |
53 |
|
|
$ |
66,417 |
|
|
$ |
(5,011 |
) |
|
$ |
(708 |
) |
|
|
|
|
|
$ |
60,751 |
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
602 |
|
|
|
- |
|
|
|
602 |
|
|
|
602 |
|
Unrealized
gain on investments,
net
of tax of ($1,024)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,464 |
) |
|
|
(1,464 |
) |
|
|
(1,464 |
) |
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(862 |
) |
|
|
|
|
Share-based
compensation expense
|
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
196 |
|
Common
stock repurchased and retired
|
|
|
(259,704 |
) |
|
|
(4 |
) |
|
|
(2,065 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,069 |
) |
Balance
at September 30, 2008
|
|
|
4,903,784 |
|
|
$ |
49 |
|
|
$ |
64,548 |
|
|
$ |
(4,409 |
) |
|
$ |
(2,172 |
) |
|
|
|
|
|
$ |
58,016 |
|
Accompanying
notes are an integral part of these consolidated financial
statements.
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(Dollars
in thousands)
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
income
|
|
$ |
602 |
|
|
$ |
2,957 |
|
Adjustments
to net income:
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
703 |
|
|
|
599 |
|
Provision
for loan losses
|
|
|
1,683 |
|
|
|
917 |
|
Share-based
compensation
|
|
|
202 |
|
|
|
156 |
|
Gain
(loss) on sale and disposal of premises and equipment
|
|
|
3 |
|
|
|
(200 |
) |
Loss
on sale, provision, and write-down of foreclosed real
estate
|
|
|
57 |
|
|
|
95 |
|
Net
unrealized loss (gain) and amortization on investment
securities
|
|
|
2,428 |
|
|
|
(18 |
) |
Gain
on sale of loans held for sale
|
|
|
(25 |
) |
|
|
- |
|
Loss
on sale of investment securities available for sale
|
|
|
3,586 |
|
|
|
- |
|
Gain
on sale of loans held for investment
|
|
|
(67 |
) |
|
|
(3,034 |
) |
Purchase
and origination of loans held for sale
|
|
|
(408 |
) |
|
|
(2,181 |
) |
Proceeds
from the sales of, and principal payments from, loans held for
sale
|
|
|
500 |
|
|
|
825 |
|
(Increase)
decrease in current and deferred income tax receivable
|
|
|
(2,042 |
) |
|
|
107 |
|
(Decrease)
increase in accrued expenses and other liabilities
|
|
|
(843 |
) |
|
|
955 |
|
Federal
Home Loan Bank stock dividend
|
|
|
(649 |
) |
|
|
(611 |
) |
Income
from bank owned life insurance
|
|
|
(394 |
) |
|
|
(394 |
) |
Decrease
in accrued interest receivable and other assets
|
|
|
418 |
|
|
|
289 |
|
Net
cash provided by operating activities
|
|
|
5,754 |
|
|
|
462 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from sale and principal payments on loans held for
investment
|
|
|
129,146 |
|
|
|
319,845 |
|
Purchase,
origination and advances of loans held for investment
|
|
|
(149,660 |
) |
|
|
(337,423 |
) |
Principal
payments on securities available for sale
|
|
|
9,362 |
|
|
|
4,629 |
|
Proceeds
from sale of foreclosed real estate
|
|
|
710 |
|
|
|
69 |
|
Purchase
of securities available for sale
|
|
|
(33,401 |
) |
|
|
(39,980 |
) |
Proceeds
from sale or maturity of securities available for sale
|
|
|
14,179 |
|
|
|
- |
|
Proceeds
from sale of equipment
|
|
|
20 |
|
|
|
200 |
|
Increase
in premises and equipment
|
|
|
(554 |
) |
|
|
(1,623 |
) |
Redemption
(purchase) of FHLB and FRB stock
|
|
|
3,250 |
|
|
|
(663 |
) |
Net
cash used in investing activities
|
|
|
(26,948 |
) |
|
|
(54,946 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net increase
in deposit accounts
|
|
|
35,219 |
|
|
|
50,602 |
|
(Repayment
of) proceeds from FHLB advances
|
|
|
(64,965 |
) |
|
|
10,400 |
|
Proceeds
from (repayment of) other borrowings
|
|
|
28,500 |
|
|
|
(15,606 |
) |
Repurchase
of common stock
|
|
|
(2,069 |
) |
|
|
(1,093 |
) |
Net
cash (used in) provided by financing activities
|
|
|
(3,315 |
) |
|
|
44,303 |
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(24,509 |
) |
|
|
(10,181 |
) |
CASH
AND CASH EQUIVALENTS, beginning of period
|
|
|
34,021 |
|
|
|
17,040 |
|
CASH
AND CASH EQUIVALENTS, end of period
|
|
$ |
9,512 |
|
|
$ |
6,859 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW DISCLOSURES
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
15,916 |
|
|
$ |
23,498 |
|
Income
taxes paid
|
|
$ |
2,765 |
|
|
$ |
1,775 |
|
NONCASH
OPERATING ACTIVITIES DURING THE PERIOD
|
|
|
|
|
|
|
|
|
Restricted
stock vested
|
|
$ |
122 |
|
|
$ |
125 |
|
NONCASH
INVESTING ACTIVITIES DURING THE PERIOD
|
|
|
|
|
|
|
|
|
Transfers
from loans to foreclosed real estate
|
|
$ |
82 |
|
|
$ |
46 |
|
Accompanying
notes are an integral part of these consolidated financial
statements.
PACIFIC PREMIER BANCORP, INC. AND SUBSIDIARY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
(UNAUDITED)
Note 1 - Basis of
Presentation
The
consolidated financial statements include the accounts of Pacific Premier
Bancorp, Inc. (the “Corporation”) and its wholly owned subsidiary, Pacific
Premier Bank (the “Bank”) (collectively, the “Company”). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
In the
opinion of management, the unaudited consolidated financial statements contain
all adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company’s financial position as of September 30, 2008, and the
results of its operations, changes in stockholders’ equity, comprehensive income
and cash flows for the nine months ended September 30, 2008 and
2007. Operating results for the three and nine months ended September
30, 2008 are not necessarily indicative of the results that may be expected for
any other interim period or the full year ending December 31, 2008.
Certain
information and note disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission
(“SEC”). The unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company’s Annual Report on Form 10-K, as amended, for
the year ended December 31, 2007.
The
Company accounts for its investments in its wholly owned special purpose entity,
PPBI Trust I, using the equity method under which the subsidiary’s net earnings
are recognized in the Company’s statement of income.
Note 2 – Recently Issued
Accounting Pronouncements
In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative
and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”).
SFAS 161 requires enhanced disclosures about a company’s derivative and hedging
activities. These enhanced disclosures will discuss (a) how and why a company
uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under FASB Statement No. 133 and its related
interpretations and (c) how derivative instruments and related hedged items
affect a company’s financial position, results of operations and cash flows.
SFAS 161 is effective for fiscal years beginning on or after November 15, 2008,
with earlier adoption allowed. The Company is currently evaluating the impact of
adopting SFAS 161.
In May
2008, FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (“SFAS 162”). The new standard is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities. SFAS
162 is effective 60 days following the SEC's approval of the Public Company
Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting Principles. The
Company does not anticipate the adoption of SFAS 162 to have a material impact
of its financial position, results of operations or cash flow.
Note 3 – Regulatory
Matters
It is our
goal to maintain capital levels within the regulatory “well capitalized”
category. The Company’s (on a consolidated basis) and the Bank’s
capital amounts and ratios are presented in the following tables:
|
|
|
|
|
|
|
|
To
be adequately
|
|
|
To
be well
|
|
|
|
Actual
|
|
|
capitalized
|
|
|
capitalized
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(dollars
in thousands)
|
|
At September 30, 2008
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
$ |
70,660 |
|
|
|
11.34 |
% |
|
$ |
49,848 |
|
|
|
8.00 |
% |
|
$ |
62,310 |
|
|
|
10.00 |
% |
Consolidated
|
|
|
71,479 |
|
|
|
11.38 |
% |
|
|
50,229 |
|
|
|
8.00 |
% |
|
|
62,786 |
|
|
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Capital (to adjusted tangible assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
64,793 |
|
|
|
8.96 |
% |
|
|
28,935 |
|
|
|
4.00 |
% |
|
|
36,169 |
|
|
|
5.00 |
% |
Consolidated
|
|
|
65,612 |
|
|
|
9.02 |
% |
|
|
29,102 |
|
|
|
4.00 |
% |
|
|
36,378 |
|
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Risk-Based Capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
64,793 |
|
|
|
10.40 |
% |
|
|
24,924 |
|
|
|
4.00 |
% |
|
|
37,386 |
|
|
|
6.00 |
% |
Consolidated
|
|
|
65,612 |
|
|
|
10.45 |
% |
|
|
25,115 |
|
|
|
4.00 |
% |
|
|
37,672 |
|
|
|
6.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
$ |
69,873 |
|
|
|
11.44 |
% |
|
$ |
48,874 |
|
|
|
8.00 |
% |
|
$ |
61,093 |
|
|
|
10.00 |
% |
Consolidated
|
|
|
70,595 |
|
|
|
11.56 |
% |
|
|
48,855 |
|
|
|
8.00 |
% |
|
|
61,068 |
|
|
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Capital (to adjusted tangible assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
65,275 |
|
|
|
8.81 |
% |
|
|
29,639 |
|
|
|
4.00 |
% |
|
|
37,049 |
|
|
|
5.00 |
% |
Consolidated
|
|
|
65,997 |
|
|
|
8.90 |
% |
|
|
29,662 |
|
|
|
4.00 |
% |
|
|
37,077 |
|
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier
1 Risk-Based Capital (to risk-weighted assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
65,275 |
|
|
|
10.68 |
% |
|
|
24,437 |
|
|
|
4.00 |
% |
|
|
36,656 |
|
|
|
6.00 |
% |
Consolidated
|
|
|
65,997 |
|
|
|
10.81 |
% |
|
|
24,421 |
|
|
|
4.00 |
% |
|
|
36,631 |
|
|
|
6.00 |
% |
Note 4 –
Borrowings
At
September 30, 2008, total borrowings of the Company amounted to $271.8 million.
The borrowings were comprised of Federal Home Loan Bank (“FHLB”) term
and overnight borrowings of $195.0 million and $38.0 million, respectively,
$10.3 million Trust Preferred Securities at 5.54%, and three inverse putable
reverse repurchase agreements totaling $28.5 million at a average rate of 1.93%
secured by approximately $32.5 million of mortgage backed securities issued by
the Federal Home Loan Mortgage Corporation, Government National Mortgage
Association, and Federal National Mortgage Association. The Bank’s
$233.0 million in FHLB advances had a weighted average interest rate of 4.12%
and the term advances had a weighted average maturity of 0.87 year as of
September 30, 2008. As of such date, advances from the FHLB were
collateralized by pledges of certain real estate loans with an aggregate
principal balance of $531.4 million. As of September 30, 2008, the
Bank was able to borrow up to 45% of its total assets as of June 30, 2008 under
the line, which amounted to $320.9 million, a decrease of $27.5 million from the
year ended December 31, 2007. FHLB advances consisted of the
following as of September 30, 2008:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Percent
|
|
|
Average
Annual
|
|
FHLB
Advances Maturing in:
|
|
Amount
|
|
|
of
Total
|
|
|
Interest
Rate
|
|
|
|
(dollars
in thousands)
|
|
One
month or less
|
|
$ |
58,000 |
|
|
|
24.89 |
% |
|
|
1.67 |
% |
Over
one month to three months
|
|
|
37,000 |
|
|
|
15.88 |
% |
|
|
4.97 |
% |
Over
three months to six months
|
|
|
- |
|
|
|
0.00 |
% |
|
|
0.00 |
% |
Over
six months to one year
|
|
|
- |
|
|
|
0.00 |
% |
|
|
0.00 |
% |
Over
one year
|
|
|
138,000 |
|
|
|
59.23 |
% |
|
|
4.92 |
% |
Total
FHLB advances
|
|
$ |
233,000 |
|
|
|
100.00 |
% |
|
|
4.12 |
% |
Note 5 – Subordinated
Debentures
In March
2004, the Corporation issued $10.3 million of Floating Rate Junior Subordinated
Deferrable Interest Debentures (the “Subordinated Debentures”) to PPBI Trust I,
which funded the payment of $10.0 million of Floating Rate Trust Preferred
Securities issued by PPBI Trust I in March 2004. The net proceeds from the
offering of Trust Preferred Securities were contributed as capital to the Bank
to support further growth. Interest is payable quarterly on the
Subordinated Debentures at three-month LIBOR plus 2.75% per annum, for an
effective rate of 5.54% per annum as of September 30, 2008.
Under FIN
46R, “Consolidation of Variable Interest Entities, an interpretation of ARB No.
51,” the Corporation is not allowed to consolidate PPBI Trust I into the
Company’s financial statements. The resulting effect on the Company’s
consolidated financial statements is to report the Subordinated Debentures as a
component of liabilities. Prior to the issuance of FIN 46R, bank
holding companies typically consolidated these entities and reported the Trust
Preferred Securities as a component of liabilities.
Note 6 – Earnings Per
Share
Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share is computed by dividing income
available to common stockholders including common stock equivalents, such as
outstanding stock options and warrants by the weighted average number of common
shares and common stock equivalents outstanding for the period. Stock options
totaling 410,893 and 510,542 shares for the three and nine months ended
September 30, 2008, respectively and 161,862 and 190,110 shares for
the three and nine months ended September 30, 2007, respectively, were excluded
from the computations of diluted earnings per share due to their exercise price
exceeding the average market price for their respective periods.
During the
quarter ended September 30, 2008, the Company issued 135,500 options that vest
over three years with a strike price of $5.01 to the Company’s directors and
various employees pursuant to the Pacific
Premier Bancorp, Inc. 2004 Long-Term Incentive
Plan. The estimated cost of the options using the
Black-Scholes model as of the grant date is $380,530 which is to be amortized
over 36 months at $9,513 per month.
The table
below set forth the Company’s unaudited earnings per share calculations for the
three and nine months ended September 30, 2008 and 2007.
|
|
For
the Three Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Net
|
|
|
|
|
|
Per
Share
|
|
|
Net
|
|
|
|
|
|
Per
Share
|
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
|
(dollars
in thousands)
|
|
Net
Earnings
|
|
$ |
1,001 |
|
|
|
|
|
|
|
|
$ |
851 |
|
|
|
|
|
|
|
Basic
EPS Earnings available to common stockholders
|
|
|
1,001 |
|
|
|
4,903,784 |
|
|
$ |
0.20 |
|
|
|
851 |
|
|
|
5,163,488 |
|
|
$ |
0.16 |
|
Effect
of Warrants and dilutive stock options
|
|
|
- |
|
|
|
1,239,862 |
|
|
|
|
|
|
|
- |
|
|
|
1,328,272 |
|
|
|
|
|
Diluted
EPS Earnings Available to common stockholders plus assumed
conversions
|
|
$ |
1,001 |
|
|
|
6,143,646 |
|
|
$ |
0.16 |
|
|
$ |
851 |
|
|
|
6,491,760 |
|
|
$ |
0.13 |
|
|
|
For
the Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Net
|
|
|
|
|
|
Per
Share
|
|
|
Net
|
|
|
|
|
|
Per
Share
|
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
|
(dollars
in thousands)
|
|
Net
Earnings
|
|
$ |
602 |
|
|
|
|
|
|
|
|
$ |
2,957 |
|
|
|
|
|
|
|
Basic
EPS Earnings available to common stockholders
|
|
$ |
602 |
|
|
|
4,963,385 |
|
|
$ |
0.12 |
|
|
$ |
2,957 |
|
|
|
5,197,737 |
|
|
$ |
0.57 |
|
Effect
of Warrants and dilutive stock options
|
|
|
- |
|
|
|
1,285,402 |
|
|
|
|
|
|
|
- |
|
|
|
1,356,510 |
|
|
|
|
|
Diluted
EPS Earnings Available to common stockholders plus assumed
conversions
|
|
$ |
602 |
|
|
|
6,248,787 |
|
|
$ |
0.10 |
|
|
$ |
2,957 |
|
|
|
6,554,247 |
|
|
$ |
0.45 |
|
Note 7 – Fair Value of
Financial Instruments
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (“SFAS
157”). This statement defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. The
statement establishes a fair value hierarchy about the assumptions used to
measure fair value and clarifies assumptions about risk and the effect of a
restriction on the sale or use of an asset. The standard is effective
for fiscal years beginning after November 15, 2007. In February 2008, the FASB
issued FASB Staff Position (FSP) No. FAS 157-2, “Effective Date of FASB
Statement No. 157.” This FSP delays the effective date of SFAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years. Adoption of SFAS 157 did not have a material
impact on the Company.
SFAS 157
defines fair value as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. SFAS 157 establishes a three-tiered
value hierarchy that prioritizes inputs to valuation techniques used in fair
value calculations. The three levels of inputs are defined as
follows:
Level 1 –
unadjusted quoted prices for identical assets or liabilities in active markets
accessible by the Company
Level 2 – inputs that are observable in
the marketplace other than those inputs classified as Level 1
Level 3 – inputs that are unobservable
in the marketplace and significant to the valuation
SFAS 157 requires the Company to
maximize the use of observable inputs and minimize the use of unobservable
inputs. If a financial instrument uses inputs that fall in different
levels of the hierarchy, the instrument will be categorized based upon the
lowest level of input that is significant to the fair value
calculation.
The
Company’s financial assets and liabilities measured at fair value on a recurring
basis include securities available for sale, loans held for sale, and impaired
loans. Securities available for sale include mortgage-backed
securities and equity securities. Loans held for sale include the
guarantee portion of our saleable SBA loans. Impaired loans include loans that
are in a non-accrual status and where the Bank has reduced the principal to the
value of the underlying collateral less the anticipated selling
cost.
Marketable
Securities. Where possible, the Company utilizes quoted market prices
to measure debt and equity securities; such items are classified as Level 1 in
the hierarchy and include equity securities, US government bonds and securities
issued by federally sponsored agencies. When quoted market prices for
identical assets are unavailable or the market for the asset is not sufficiently
active, varying valuation techniques are used. Common inputs in
valuing these assets include, among others, benchmark yields, issuer spreads,
forward mortgage-backed securities trade prices and recently reported
trades. Such assets are classified as Level 2 in the hierarchy and
typically include private label mortgage-backed securities and corporate bonds.
Pricing on these securities are provided to the Company by a pricing service
vendor. In the Level 3 category, the Company is classifying all the
securities that our pricing service vendor cannot price due to lack of trade
activity in these securities.
Loans
held for sale. The fair value of loans held for sale is determined, when
possible, using quoted secondary-market prices. If no such quoted price exists,
the fair value of a loan is determined using quoted prices for a similar asset
or assets, adjusted for the specific attributes of that loan.
A loan is
considered impaired when it is probable that payment of interest and principal
will not be made in accordance with the contractual terms of the loan agreement.
Impairment is measured based on the fair value of the underlying collateral or
the discounted expected future cash flows. The Company measures impairment on
all non-accrual loans for which it has reduced the principal balance to the
value of the underlying collateral less the anticipated selling cost. As such,
the Company records impaired loans as non-recurring Level 2 when the fair value
of the underlying collateral is based on an observable market price or current
appraised value. When current market prices are not available or the Company
determines that the fair value of the underlying collateral is further impaired
below appraised values, the Company records impaired loans as Level 3. At
September 30, 2008, substantially all the Company’s impaired loans were
evaluated based on the fair value of their underlying collateral based upon the
most recent appraisal available to management.
The
Company’s valuation methodologies may produce a fair value calculation that may
not be indicative of net realizable value or reflective of future fair
values. While management believes the Company’s valuation
methodologies are appropriate and consistent with other market participants, the
use of different methodologies or assumptions to determine the fair value of
certain financial instruments could result in a different estimate of fair value
at the reporting date.
The
following fair value hierarchy table presents information about the Company’s
assets measured at fair value on a recurring basis:
|
|
Fair
Value Measurement as of
|
|
|
|
September
30, 2008 Using
|
|
|
|
Quoted
Prices in Active Markets For Identical Assets (Level 1)
|
|
Significant
Other Observable Inputs (Level 2)
|
|
Significant
Other Unobservable Inputs (Level 3)
|
|
As
of September 30, 2008
|
|
|
|
(in
thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$ |
38,476 |
|
|
$ |
18,913 |
|
|
$ |
2,695 |
|
|
$ |
60,084 |
|
Total
assets
|
|
$ |
38,476 |
|
|
$ |
18,913 |
|
|
$ |
2,695 |
|
|
$ |
60,084 |
|
|
|
Fair
Value Measurement Using
|
|
|
|
Significant
Other Unobservable Inputs
|
|
|
|
(Level
3)
|
|
|
|
U.S.
|
|
|
Govt.
Sponsored
|
|
|
Private
|
|
|
|
|
|
|
Treasuries
|
|
|
Agencies
|
|
|
Label
|
|
|
Total
|
|
|
|
(in
thousands)
|
|
Beginning
Balance
|
|
$ |
149 |
|
|
$ |
7,747 |
|
|
$ |
13,259 |
|
|
$ |
21,155 |
|
Total
gains or losses (realized/unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in earnings (or changes in net assets)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Included
in other comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Purchases,
issuances, and settlements
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Transfer
in and/or out of Level 3
|
|
|
(149 |
) |
|
|
(7,747 |
) |
|
|
(10,564 |
) |
|
|
(18,460 |
) |
Ending
Balance
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
2,695 |
|
|
$ |
2,695 |
|
The
following fair value hierarchy table presents information about the Company’s
assets measured at fair value on a nonrecurring basis:
|
|
Fair
Value Measurement as of
|
|
|
|
September
30, 2008 Using
|
|
|
|
Quoted
Prices in Active Markets For Identical Assets (Level 1)
|
|
Significant
Other Observable Inputs (Level 2)
|
|
Significant
Other Unobservable Inputs (Level 3)
|
|
As
of September 30, 2008
|
|
|
|
(in
thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired
loans
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Loans
held for sale
|
|
|
- |
|
|
|
682 |
|
|
|
- |
|
|
|
682 |
|
Total
assets
|
|
$ |
- |
|
|
$ |
682 |
|
|
$ |
- |
|
|
$ |
682 |
|
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115” (“SFAS 159”). The standard provides companies with an option to
report selected financial assets and liabilities at fair value and establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities. The new standard is effective for the Company on
January 1, 2008. The Company did not elect the fair value option for any
financial assets or liabilities as of January 1, 2008. Adoption of
SFAS 159 did not have a material impact on the Company.
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
FORWARD-LOOKING
STATEMENTS
The
statements contained herein that are not historical facts are forward-looking
statements based on management’s current expectations and beliefs concerning
future developments and their potential effects on the Company. There
can be no assurance that future developments affecting the Company will be the
same as those anticipated by management. Actual results may differ
from those projected in the forward-looking statements. These
forward-looking statements include, among others, statements with respect to the
Company’s beliefs, plans, objectives, goals, guidelines, expectations,
anticipations, estimates and intentions that are subject to significant risks
and uncertainties and are subject to change based on various factors (many of
which are beyond the Company’s control). The words “may”, “could”, “should”,
“would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan” and
similar expressions are intended to identify forward-looking
statements. These forward-looking statements involve risks and
uncertainties. These include, but are not limited to, the following
risks: (1) changes in the performance of the financial
markets, (2) changes in the demand for and market acceptance of the
Company’s products and services, (3) changes in general economic
conditions including interest rates, presence of competitors with greater
financial resources, and the impact of competitive products and
pricing, (4) the effect of the Company’s policies, (5) the
continued availability of adequate funding
sources, and (6) various legal, regulatory and litigation
risks.
GENERAL
The
following presents management’s discussion and analysis of the consolidated
financial condition and operating results of the Company for the three and nine
months ended September 30, 2008 and 2007. The discussion should be
read in conjunction with the Company’s Management Discussion and Analysis
included in the 2007 Annual Report on Form 10-K, as amended, plus the unaudited
consolidated financial statements and the notes thereto appearing elsewhere in
this report. The results for the three and nine months ended
September 30, 2008 are not necessarily indicative of the results expected for
the year ending December 31, 2008.
We are a
California-based bank holding company incorporated in the state of Delaware and
registered as a banking holding company under the Bank Holding
Company Act of 1956, as amended ("BHCA”), for Pacific Premier Bank, a California
state chartered commercial bank. The Bank is subject to examination
and regulation by the California Department of Financial Institutions (“DFI”),
the Board of Governors of the Federal Reserve System (the “Federal Reserve”),
and by the Federal Deposit Insurance Corporation
(“FDIC”). Additionally, the Corporation is subject to regulation and
supervision by the Federal Reserve. The primary business of the Company is
community banking.
The Bank
was founded in 1983 as a state chartered savings and loan, became a federally
chartered stock savings bank in 1991 and in March 2007, converted to a
California state chartered commercial bank. The Bank is a member of
the FHLB of San Francisco, which is a member bank of the Federal Home Loan Bank
System, and the Federal Reserve. As of September 30, 2008, the Bank’s
deposit accounts were insured up to the $100,000 maximum amount, except for
retirement accounts which were insured up to the $250,000 maximum allowable
under federal laws by the Deposit Insurance Fund, which is an insurance fund
administered by the FDIC. On October 3, 2008, the maximum deposit
insurance coverage allowable under federal law increased from $100,000 to
$250,000 per account, which expires at the end of 2009.
We
provide banking services within our targeted markets in Southern California to
businesses, including the owners and employees of those businesses,
professionals, real estate investors and non-profit organizations, as well as,
consumers in the communities we serve. The Bank operates six depository branches
in Southern California located in the cities of Costa Mesa, Huntington Beach,
Los Alamitos, Newport Beach, San Bernardino, and Seal Beach. The
Company’s corporate headquarters are located in Costa Mesa,
California. Through our branches and our web site at www.PPBI.net on
the Internet, we offer a broad array of deposit products and services for both
businesses, and consumer customers including checking, money market and savings
accounts, cash management services, electronic banking, and on-line bill
payment. We offer a wide array of loan products, such as commercial
business loans, lines of credit, commercial real estate loans, U.S. Small
Business Administration (“SBA”) loans, residential home loans, and home equity
loans. The Bank funds its lending and investment activities with
retail deposits obtained through its branches, advances from the FHLB of San
Francisco, lines of credit, and wholesale and brokered certificates of
deposits.
The
Company’s principal sources of income are the net spread between interest earned
on loans and investments and the interest costs associated with deposits and
other borrowings used to finance its loan and investment
portfolio. Additionally, the Bank generates fee income from loan
sales and various products and services offered to both depository and loan
customers.
Recent
Developments
The
global and U.S. economies are experiencing significantly reduced business
activity as a result of, among other factors, disruptions in the financial
system during the past year. Dramatic declines in the housing market during the
past year, with falling home prices and increasing foreclosures and
unemployment, have resulted in significant write-downs of asset values by
financial institutions, including government-sponsored entities and major
commercial and investment banks. These write-downs, initially of
mortgage-backed securities but spreading to credit default swaps and other
derivative securities, have caused many financial institutions to seek
additional capital, to merge with larger and stronger institutions and, in some
cases, to fail.
In
response to the financial crises affecting the banking system and financial
markets, Congress passed, and President Bush signed, the Emergency Economic
Stabilization Act of 2008 (the “EESA”) on October 3, 2008. Pursuant
to the EESA, the U.S. Department of Treasury (“Treasury”) was granted the
authority to, among others, purchase up to $700 billion of mortgages,
mortgage-backed securities and certain other financial instruments from
financial institutions for the purpose of stabilizing and providing liquidity to
the U.S. financial markets.
On
October 14, 2008, Treasury announced the Troubled Asset Relief Program Capital
Purchase Program (the “Capital Purchase Program”), under which it will purchase
equity stakes in a wide variety of banks and thrifts. Pursuant to the
Capital Purchase Program, Treasury will make $250 billion of capital available
to U.S. financial institutions in the form of preferred stock. In conjunction
with the purchase of preferred stock, Treasury will receive warrants to purchase
common stock with an aggregate market price equal to 15% of the preferred
investment. The exercise price on the warrants would be the market
price of the participating institution’s common stock at the time of issuance,
calculated on a 20-day trading day trailing average. Participating
financial institutions will be required to adopt Treasury’s standards for
executive compensation and corporate governance for the period during which
Treasury holds equity issued under the Capital Purchase Program. The Company is
currently evaluating its participation in the Capital Purchase
Program.
Additionally,
on October 14, 2008, Treasury triggered the systemic risk exception to the FDIC
Act, enabling the FDIC to temporarily provide a 100% guarantee of the senior
debt of all FDIC-insured institutions and their holding companies, as well as
deposits in non-interest bearing transaction deposit accounts under a Temporary
Liquidity Guarantee Program (“TLGP”). Coverage under the TLGP is available for
30 days without charge and thereafter at a cost of 75 basis points per annum for
senior unsecured debt and 10 basis points per annum surcharge for non-interest
bearing transaction deposits in excess of $250,000 per account. The
Company is currently evaluating its participation in the TLGP.
It is
presently unclear what impact the EESA, the Capital Purchase Program, the TLGP,
other previously announced liquidity and funding initiatives of the Federal
Reserve and other agencies and any additional programs that may be initiated in
the future will have on the financial markets and the other difficulties
described above, or on the U.S. banking and financial industries and the broader
U.S. and global economies. Further adverse effects could have an adverse impact
on the Company and its business.
In
October 2008, the FDIC announced its intention to seek an increase in deposit
insurance premiums that, beginning in 2009, would effectively double the average
insurance premiums paid by depository institutions, such as the Bank, to ensure
that the deposit insurance fund can adequately cover projected losses from
future bank failures. At this time, the Company cannot provide any
assurance as to the amount of any projected increase in its deposit insurance
premium rate, should such an increase occur, as such changes are dependent upon
a variety of factors, some of which are beyond the Company’s
control.
CRITICAL ACCOUNTING
POLICIES
Management
has established various accounting policies which govern the application of
accounting principles generally accepted in the United States of America in the
preparation of the Company’s financial statements. The Company’s
significant accounting policies are described in the Notes to the Consolidated
Financial Statements in our 2007 Annual Report on Form 10-K, as
amended. Certain accounting policies require management to make
estimates and assumptions which have a material impact on the carrying value of
certain assets and liabilities; management considers these to be critical
accounting policies. The estimates and assumptions management uses
are based on historical experience and other factors, which management believes
to be reasonable under the circumstances. Actual results could differ
significantly from these estimates and assumptions, which could have a material
impact on the carrying value of assets and liabilities at balance sheet dates
and the Company’s results of operations for future reporting
periods.
Management
believes that the allowance for loan losses is the critical accounting policy
that requires estimates and assumptions in the preparation of the Company’s
financial statements that is most susceptible to significant change. For further
information, see “Allowances for Loan Losses” discussed later in this report and
in our 2007 Annual Report on Form 10-K, as amended.
FINANCIAL
CONDITION
Total
assets of the Company were $758.6 million as of September 30, 2008, compared to
$763.4 million as of December 31, 2007. The $4.8 million, or 0.63%,
decrease in total assets is primarily due to a decrease in federal funds sold of
$23.4 million, partially offset by increases in net loans and investment
securities available for sale of $17.3 million and $3.9 million,
respectively.
Investment Securities
Available for Sale
Investment
securities available for sale totaled $60.1 million at September 30, 2008
compared to $56.2 million at December 31, 2007. The increase is
primarily due to the purchase of securities totaling $33.4 million which was
partially offset by sale of securities totaling $14.2 million and investment
principal received of approximately $9.4 million. The investment
securities consist of $152,000 in US Treasuries, $38.8 million in government
sponsor entities (“GSE”) mortgage backed securities, and $21.3 million of
private label mortgage backed securities. Twelve of the private label securities
totaling $337,000 are rated below investment grade, which is a rating of “BB” or
less. In addition, $32.5 million of the GSE securities have been pledged as
collateral for the Bank’s $28.5 million of reverse repurchase
agreements.
A summary
of the Company’s investment securities held for sale as of September 30, 2008
and December 31, 2007 is as follows:
|
|
September
30, 2008
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Market
Value
|
|
|
|
(in
thousands)
|
|
Securities
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Treasury Notes
|
|
$ |
148 |
|
|
$ |
4 |
|
|
$ |
- |
|
|
$ |
152 |
|
Mortgage-Backed
Securities (1)
|
|
|
63,626 |
|
|
|
165 |
|
|
|
(3,859 |
) |
|
|
59,932 |
|
Total
securities available for sale
|
|
$ |
63,774 |
|
|
$ |
169 |
|
|
$ |
(3,859 |
) |
|
$ |
60,084 |
|
|
|
December
31, 2007
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Market
Value
|
|
|
|
(in
thousands)
|
|
Securities
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-Backed
Securities
|
|
$ |
29,719 |
|
|
$ |
35 |
|
|
$ |
(1 |
) |
|
$ |
29,753 |
|
Mutual
Funds
|
|
|
27,719 |
|
|
|
- |
|
|
|
(1,234 |
) |
|
|
26,485 |
|
Total
securities available for sale
|
|
$ |
57,438 |
|
|
$ |
35 |
|
|
$ |
(1,235 |
) |
|
$ |
56,238 |
|
(1)
|
At
September 30, 2008, mortgage-backed securities included collateralized
mortgage obligations (“CMO”) with an aggregate carrying value of $27.6
million of which $13.8 million are private label issuances and $13.8
million are secured by the Federal Home Loan Mortgage Corporation or the
Federal National Mortgage Association.
|
|
Investment
Securities Held for Sale by Contractual Maturity as of September 30,
2008
|
|
|
|
One
Year
|
|
|
More
than One
|
|
|
More
than Five
|
|
|
More
than Ten
|
|
|
|
|
|
|
or
Less
|
|
|
to
Five Years
|
|
|
to
Ten Years
|
|
|
Years
|
|
|
Total
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
Value
|
|
|
Yield
|
|
|
|
(dollars
in thousands)
|
|
US
Treasury Notes
|
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
76 |
|
|
|
3.53 |
% |
|
$ |
76 |
|
|
|
4.15 |
% |
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
152 |
|
|
|
3.84 |
% |
Mortgage-Backed
Securities
|
|
|
- |
|
|
|
0.00 |
% |
|
$ |
4 |
|
|
|
4.77 |
% |
|
$ |
22,808 |
|
|
|
5.19 |
% |
|
$ |
37,120 |
|
|
|
6.14 |
% |
|
$ |
59,932 |
|
|
|
5.78 |
% |
Total
securities available for sale
|
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
80 |
|
|
|
3.59 |
% |
|
$ |
22,884 |
|
|
|
5.18 |
% |
|
$ |
37,120 |
|
|
|
6.14 |
% |
|
$ |
60,084 |
|
|
|
5.77 |
% |
The
Company reviewed individual securities classified as available for sale to
determine whether a decline in fair value below the amortized cost basis is
other-than-temporary. If it is probable that the Company will be
unable to collect all amounts due according to contractual terms of the debt
security not impaired at acquisition, an other-than-temporary impairment shall
be considered to have occurred. If an other-than-temporary impairment
occurs, the cost basis of the security would have been written down to its fair
value as the new cost basis and the write down accounted for as a realized
loss. Management has determined that the unrealized losses on these
securities are temporary in nature.
Loans
Gross
loans outstanding totaled $645.3 million at September 30, 2008 compared to
$626.7 million at December 31, 2007. The increase is primarily due to
loan originations and loan purchases of $88.4 million and $67.6 million,
respectively, during the period ending September 30, 2008. Partially
offsetting the loan originations and loan purchases were loan payoffs and a loan
sale, consisting primarily of multi-family loans, of $106.0 million and $6.2
million, respectively. From time to time, management utilizes loan sales or
purchases to manage its liquidity, interest rate risk, loan to deposit ratio,
diversification of the loan portfolio, and net balance sheet
growth.
A summary of the Company’s loan
originations, loan purchases, loan sales and principal repayments for the nine
months ended September 30, 2008 and 2007 are as follows:
|
|
For
the Nine Months Ended
|
|
|
|
September
30, 2008
|
|
|
September
30, 2007
|
|
|
|
(in
thousands)
|
|
Beginning
balance, gross
|
|
$ |
626,692 |
|
|
$ |
607,618 |
|
Loans
originated and purchased:
|
|
|
|
|
|
|
|
|
Real
Estate:
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
32,458 |
|
|
|
248,011 |
|
Commercial
real estate
|
|
|
53,807 |
|
|
|
21,751 |
|
One-to-four
family (1)
|
|
|
- |
|
|
|
3,191 |
|
Construction-Multi-family
|
|
|
- |
|
|
|
- |
|
Business
Loans:
|
|
|
|
|
|
|
|
|
Commercial
Owner Occupied (1)
|
|
|
51,273 |
|
|
|
13,111 |
|
Commercial
and Industrial (1)
|
|
|
16,386 |
|
|
|
30,430 |
|
SBA
(1)
|
|
|
907 |
|
|
|
12,841 |
|
Other
|
|
|
1,193 |
|
|
|
2,780 |
|
Total
loans originated and purchased
|
|
|
156,024 |
|
|
|
332,115 |
|
Total
|
|
|
782,716 |
|
|
|
939,733 |
|
Less:
|
|
|
|
|
|
|
|
|
Principal
repayments
|
|
|
123,851 |
|
|
|
133,119 |
|
Change
in undisbursed loan funds
|
|
|
5,956 |
|
|
|
(7,489 |
) |
Charge-offs
|
|
|
582 |
|
|
|
101 |
|
Loan
Sales
|
|
|
6,235 |
|
|
|
184,176 |
|
Transfers
to Real Estate Owned
|
|
|
82 |
|
|
|
46 |
|
Total
Gross loans
|
|
|
646,010 |
|
|
|
629,780 |
|
Less
ending balance loans held for sale (gross)
|
|
|
(682 |
) |
|
|
(2,134 |
) |
Ending
balance loans held for investment (gross)
|
|
$ |
645,328 |
|
|
$ |
627,646 |
|
|
|
|
|
|
|
|
|
|
(1)
Includes lines of credit
|
|
|
|
|
|
|
|
|
The
following table sets forth the composition of the Company’s loan portfolio in
dollar amounts and as a percentage of the portfolio at the dates
indicated:
|
|
September
30, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Percent
|
|
|
Average
|
|
|
|
|
|
Percent
|
|
|
Average
|
|
|
|
Amount
|
|
|
of
Total
|
|
|
Interest
Rate
|
|
|
Amount
|
|
|
of
Total
|
|
|
Interest
Rate
|
|
|
|
(dollars
in thousands)
|
|
Real
Estate Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
$ |
301,247 |
|
|
|
46.63 |
% |
|
|
6.37 |
% |
|
$ |
341,263 |
|
|
|
54.44 |
% |
|
|
6.77 |
% |
Commercial
|
|
|
169,317 |
|
|
|
26.21 |
% |
|
|
7.05 |
% |
|
|
142,134 |
|
|
|
22.67 |
% |
|
|
7.42 |
% |
Construction
|
|
|
2,661 |
|
|
|
0.41 |
% |
|
|
8.00 |
% |
|
|
2,048 |
|
|
|
0.33 |
% |
|
|
8.00 |
% |
Land
|
|
|
3,125 |
|
|
|
0.48 |
% |
|
|
14.50 |
% |
|
|
5,389 |
|
|
|
0.86 |
% |
|
|
11.95 |
% |
One-to-four
family (1)
|
|
|
10,071 |
|
|
|
1.56 |
% |
|
|
8.86 |
% |
|
|
13,080 |
|
|
|
2.09 |
% |
|
|
8.60 |
% |
Business
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Owner Occupied
|
|
|
112,280 |
|
|
|
17.38 |
% |
|
|
7.13 |
% |
|
|
57,614 |
|
|
|
9.19 |
% |
|
|
7.56 |
% |
Commercial
and Industrial
|
|
|
38,169 |
|
|
|
5.91 |
% |
|
|
6.98 |
% |
|
|
50,993 |
|
|
|
8.13 |
% |
|
|
8.13 |
% |
SBA
|
|
|
5,135 |
|
|
|
0.78 |
% |
|
|
7.16 |
% |
|
|
14,264 |
|
|
|
2.28 |
% |
|
|
8.51 |
% |
Other
Loans
|
|
|
4,005 |
|
|
|
0.62 |
% |
|
|
4.59 |
% |
|
|
64 |
|
|
|
0.01 |
% |
|
|
2.53 |
% |
Total
Gross loans
|
|
$ |
646,010 |
|
|
|
100.00 |
% |
|
|
6.80 |
% |
|
$ |
626,849 |
|
|
|
100.00 |
% |
|
|
7.19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Includes second trust deeds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table sets forth the repricing characteristics of the Company’s
multi-family, commercial real estate and commercial owner occupied loan
portfolio in dollar amounts as of September 30, 2008:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
Average
|
|
|
Months
to
|
|
|
|
of
Loans
|
|
|
Amount
|
|
|
Interest
Rate
|
|
|
Reprice
|
|
|
|
(dollars
in thousands)
|
|
1
Year and less (1)
|
|
|
204 |
|
|
$ |
156,035 |
|
|
|
6.734 |
% |
|
|
3.47 |
|
Over
1 Year to 3 Years
|
|
|
111 |
|
|
|
162,827 |
|
|
|
6.757 |
% |
|
|
25.12 |
|
Over
3 Years to 5 Years
|
|
|
133 |
|
|
|
163,070 |
|
|
|
6.705 |
% |
|
|
48.87 |
|
Over
5 Years to 7 Years
|
|
|
11 |
|
|
|
22,632 |
|
|
|
6.725 |
% |
|
|
74.70 |
|
Over
7 Years to 10 Years
|
|
|
23 |
|
|
|
23,502 |
|
|
|
7.030 |
% |
|
|
103.98 |
|
Fixed
|
|
|
54 |
|
|
|
60,565 |
|
|
|
6.909 |
% |
|
|
- |
|
Total
|
|
|
536 |
|
|
$ |
588,630 |
|
|
|
6.762 |
% |
|
|
207.96 |
|
(1)
Included three and five year hybrid loans that have reached their initial
repricing date.
Allowance for Loan
Losses
The allowance for loan losses totaled
$5.9 million as of September 30, 2008 and $4.6 million as of December 31,
2007. The increase in the allowance for loan losses was
primarily due to increases in the Bank’s loss factors for loans. Net
nonaccrual loans and other real estate owned were $4.5 million and $26,000,
respectively, at September 30, 2008, compared to $4.2 million and $711,000,
respectively, as of December 31, 2007. The allowance for loan losses
as a percent of nonaccrual loans increased to 129% as of September 30, 2008 from
110% at December 31, 2007. The ratio of nonperforming assets to total
assets at September 30, 2008 was 0.60%, compared to 0.64% at
December 31, 2007.
The
Bank’s methodology for assessing the appropriateness of the allowance consists
of several key elements, including the formula allowance. The formula
allowance is calculated by applying loss factors to all loans held for
investment. The loss factors for each segment of the loan portfolio,
except for loans secured by single family residences originated prior to 2002,
are derived by using the average of the last 10 years and 15 years historical
charge-off rates by loan types for commercial banks and savings institutions
headquartered in the state of California as collected by the FDIC as the base
rate. Then the average is adjusted for the following internal and
external risk factors:
Internal
Factors
-
|
Changes
in lending policies and procedures, including underwriting standards and
collection, charge-off, and recovery
practices;
|
-
|
Changes
in the nature and volume of the loan portfolio and in the terms of loans,
as well as new types of lending;
|
-
|
Changes
in the experience, ability, and depth of lending management and other
relevant staff that may have an impact on the Bank’s loan
portfolio;
|
-
|
Changes
in volume and severity of past due and classified loans, and in volumes of
non-accruals, troubled debt restructurings, and other loan
modifications;
|
-
|
Changes
in the quality of the Bank’s loan review system and the degree of
oversight by the Board; and
|
-
|
The
existence and effect of any concentrations of credit, and changes in the
level of such concentrations.
|
External
Factors
-
|
Changes
in national, state and local economic and business conditions and
developments that affect the collectability of the portfolio, including
the condition of various market segments (includes trends in real estate
values and the interest rate
environment);
|
-
|
Changes
in the value of the underlying collateral for collateral-dependent loans;
and
|
-
|
The
effect of external factors, such as competition, legal, regulatory
requirements on the level of estimated credit losses in the Bank’s current
loan portfolio.
|
The
factor amount for each of the nine above described risked factors are determined
by the Senior Portfolio Manager and Chief Credit Officer and approved by the
Credit and Investment Review Committee on a quarterly basis.
For the
homogeneous single-family residential loan portfolio, the ALLL loss factors for
pre-2002 originations of first and second deeds of trust loans are based upon
the Bank's historical loss experience from charge-offs and real estate owned,
and the migration history analysis. The Bank has tracked its
historical losses for the last 40 quarters. For loans secured with
single family residences made after 2001, the factor is calculated using the
average of the FDIC charge-off for 10 and 15 years plus the nine credit loss
factors mentioned above.
Given the composition of the
Company’s loan portfolio, the $5.9 million allowance for loan losses was
considered adequate to cover losses inherent in the Company’s loan portfolio at
September 30, 2008. However, no assurance can be given that the
Company will not, in any particular period, sustain loan losses that exceed the
amount reserved, or that subsequent evaluation of the loan portfolio, in light
of the prevailing factors, including economic conditions which may adversely
affect the Company’s market area or other circumstances, will not require
significant increases in the loan loss allowance. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Bank’s allowance for loan losses. Such
agencies may require the Bank to recognize additional provisions to increase the
allowance or take charge-offs in anticipation of future losses.
The table below summarizes the
activity of the Company’s allowance for loan losses for the three and nine
months ended September 30, 2008 and 2007:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in
thousands)
|
|
Balance,
beginning of period
|
|
$ |
5,267 |
|
|
$ |
4,090 |
|
|
$ |
4,598 |
|
|
$ |
3,543 |
|
ALLL
Transfer In *
|
|
|
- |
|
|
|
- |
|
|
|
8 |
|
|
|
- |
|
Provision
for loan losses
|
|
|
664 |
|
|
|
403 |
|
|
|
1,683 |
|
|
|
917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
One-to-four
family
|
|
|
(48 |
) |
|
|
(56 |
) |
|
|
(77 |
) |
|
|
(101 |
) |
Business
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Owner Occupied
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
and Industrial
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SBA
loans
|
|
|
(122 |
) |
|
|
- |
|
|
|
(505 |
) |
|
|
- |
|
Other
loans
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
charge-offs
|
|
|
(170 |
) |
|
|
(56 |
) |
|
|
(582 |
) |
|
|
(101 |
) |
Recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-family
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
real estate
|
|
|
103 |
|
|
|
- |
|
|
|
103 |
|
|
|
- |
|
One-to-four
family
|
|
|
1 |
|
|
|
10 |
|
|
|
48 |
|
|
|
86 |
|
Business
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Owner Occupied
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Commercial
and Industrial
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SBA
loans
|
|
|
(2 |
) |
|
|
- |
|
|
|
(2 |
) |
|
|
- |
|
Other
loans
|
|
|
4 |
|
|
|
- |
|
|
|
11 |
|
|
|
2 |
|
Total
recoveries
|
|
|
106 |
|
|
|
10 |
|
|
|
160 |
|
|
|
88 |
|
Net
charge-offs
|
|
|
(64 |
) |
|
|
(46 |
) |
|
|
(422 |
) |
|
|
(13 |
) |
Balance,
end of period
|
|
$ |
5,867 |
|
|
$ |
4,447 |
|
|
$ |
5,867 |
|
|
$ |
4,447 |
|
* Note: Represents the addition of valuation reservers for overdrafts that
wer previously held outside of the General Allowance.
Composition of Nonperforming
Assets
The table
below summarizes the Company’s composition of nonperforming assets as of the
dates indicated. Net nonperforming assets totaled $4.6 million at September 30,
2008 and $4.9 million as of December 31, 2007, or 0.60% and 0.64% of total
assets, respectively. The decrease in nonperforming assets is
primarily due to a reduction in other real estate owned, which was partially
offset by an increase in non-performing SBA loans during the period ending
September 30, 2008.
|
|
At
September 30,
|
|
|
At
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Nonperforming
assets:
|
|
(dollars
in thousands)
|
|
Real
Estate:
|
|
|
|
|
|
|
One-to-four
family
|
|
$ |
411 |
|
|
$ |
284 |
|
Multi-family
|
|
|
- |
|
|
|
- |
|
Commercial
|
|
|
3,125 |
|
|
|
3,125 |
|
Business
loans:
|
|
|
|
|
|
|
|
|
Commercial
owner occupied
|
|
|
- |
|
|
|
- |
|
Commercial
and industrial
|
|
|
- |
|
|
|
- |
|
SBA
|
|
|
1,001 |
|
|
|
784 |
|
Other
loans
|
|
|
- |
|
|
|
- |
|
Total
nonaccrual loans
|
|
|
4,537 |
|
|
|
4,193 |
|
Foreclosed
real estate owned ("OREO")
|
|
|
26 |
|
|
|
711 |
|
Total
nonperforming assets (1)
|
|
$ |
4,563 |
|
|
$ |
4,904 |
|
|
|
|
|
|
|
|
|
|
Restructured
Loans
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses as a percent of
|
|
|
|
|
|
|
|
|
gross
loans receivable (2)
|
|
|
0.91 |
% |
|
|
0.73 |
% |
|
|
|
|
|
|
|
|
|
Allowance
for loan losses as a percent of
|
|
|
|
|
|
|
|
|
total
nonperforming loans, gross
|
|
|
129.31 |
% |
|
|
109.66 |
% |
|
|
|
|
|
|
|
|
|
Nonperforming
loans as a
|
|
|
|
|
|
|
|
|
percent
of gross loans receivable
|
|
|
0.70 |
% |
|
|
0.67 |
% |
|
|
|
|
|
|
|
|
|
Nonperforming
assets as a
|
|
|
|
|
|
|
|
|
percent
of total assets
|
|
|
0.60 |
% |
|
|
0.64 |
% |
(1)
|
Nonperforming
assets consist of nonperforming loans and OREO. Nonperforming
loans include all loans 90 days or more past due and loans that are less
than 90 days and are classified as
non-accruing.
|
(2)
|
Gross
loans include loans receivable that are held for investment and held for
sale.
|
Liabilities and
Stockholders’ Equity
Total
liabilities of the Company decreased from $702.7 million at December
31, 2007 to $700.6 million at September 30, 2008. The decrease is
primarily due to a decrease in borrowings of $36.5 million which was partially
offset by an increase in total deposits of $35.2 million during the nine months
ended September 30, 2008.
The Company
had $261.5 million in borrowings as of September 30, 2008, compared to $298.0
million in such borrowings at December 31, 2007. Borrowings consist
primarily of advances from the FHLB which are collateralized by pledges of
certain real estate loans with an aggregate principal balance of $531.4 million
at September 30, 2008. See "Note 4 –Borrowings" above. The Bank may borrow up to
45% of its assets under the FHLB line. As of September 30, 2008, the
maximum amount that the Bank may borrow through the FHLB was $320.9 million,
based on the Bank’s assets as of June 30, 2008. The total cost of the
Company’s borrowings for the nine month period ending September 30, 2008 was
4.26%, a decrease of 95 basis points compared to the same period in
2007.
The Corporation had $10.3 million of
subordinated debentures as of September 30, 2008 which were used to fund the
issuance of trust preferred securities in 2004. The total cost of the
subordinated debentures for the nine months ending September 30, 2008 was 5.99%,
compared to 7.98% for the same period in 2007.
Total
deposits were $422.0 million as of September 30, 2008, compared to $386.7
million at December 31, 2007, an annualized increase of
12.1%. The increase in deposits was comprised of an increase of
$45.5 million in retail certificate of deposits, which were partially offset by
decreases in transaction accounts and broker certificates of deposits of $4.2
million and $9.2 million, respectively. The total average annualized cost of
deposits for the nine months ending September 30, 2008 was 3.59%, compared to
4.22% for the same period in 2007.
During
the three and nine months ended September 30, 2008, our average annualized cost
of funds was 3.64% and 3.86%, respectively, a decrease of 113 and 82
basis points compared to the same periods in 2007.
Total
equity was $58.0 million as of September 30, 2008, compared to $60.7 million at
December 31, 2007, a decrease of $2.7 million. The decrease in
equity is primarily due to the repurchase and retirement of 259,704 shares of
common stock at a cost $2.1 million, or at an average cost of $7.96 per share,
and the decrease in accumulated adjustment to stockholders’ equity of $1.5
million due to the temporary decrease in value of the Company’s investment
portfolio.
RESULTS OF
OPERATIONS
Highlights for the
three
and nine months ended September 30, 2008
and 2007
The
Company recorded a third quarter net income of $1.0 million, or $0.16 per
diluted share, compared to net income of $851,000, or $0.13 per diluted share,
for the third quarter of 2007. The net income for the nine months
ended September 30, 2008 was $602,000, or $0.10 per diluted share, compared to
net income of $3.0 million, or $0.45 per diluted share in the comparable prior
period. All diluted earnings per share amounts have been adjusted to
reflect the dilutive effect of all warrants and stock options, except for
options whose exercise price exceeds the closing market price as of September
30, 2008, outstanding. See “Item 1. Financial
Statements-Note 6 – Earnings Per Share”.
Return on
average assets (ROAA) for the three and nine months ended September 30, 2008 was
0.55% and 0.11%, respectively, compared to 0.45% and 0.54% for the same periods
in 2007, respectively. The Company's return on average equity (ROAE)
for the three and nine months ended September 30, 2008 was 6.87% and 1.35%,
respectively, compared to 5.13% and 6.61%, for the three and nine months ended
September 30, 2007, respectively. The Company’s basic book value per
share increased to $11.83, at September 30, 2008, reflecting an annualized
increase of 2.04% from December 31, 2007. The increase is primarily
due to the decrease in total equity related to the repurchase and retirement of
the Company stock at a cost below our book value during the first quarter of
2008, partially offset by the decrease in accumulated adjustment to
stockholders’ equity of $1.5 million due to the temporary decrease in value of
the Company’s investment portfolio. The Company’s diluted book value per share
decreased to $9.58, at September 30, 2008, reflecting an annualized decrease of
4.54% from December 31, 2007. Options whose exercise price
exceeds the closing market price as of September 30, 2008 are excluded from the
diluted book value calculation.
Net Interest
Income
The
Company’s earnings are derived predominately from net interest income, which is
the difference between the interest income earned on interest-earning assets,
primarily loans and securities, and the interest expense incurred on
interest-bearing liabilities, primarily deposits and borrowings. The
net interest margin is the net interest income divided by the average
interest-earning assets.
For the
three and nine months ended September 30, 2008, net interest income was $5.6
million and $15.7 million, respectively, compared to $4.7 million and $13.7
million for the same periods a year earlier, respectively. The
increase is predominately attributable to a 25.6% and 16.9% decrease in interest
expense for the three and nine months ended September 30, 2008, respectively,
compared to the same periods in 2007. For the three months ended September 30,
2008, interest expense totaled $6.0 million compared to $8.1 million for the
same period in 2007. For the nine months ended September 30, 2008,
interested expense totaled $19.4 million compared to $23.3 million for the same
period in 2007. The reduction in interest expense for the 2008
periods was primarily due to decreases in deposit expense and borrowing costs
associated with the Bank’s FHLB and other borrowings of 89 basis points and 92
basis points, respectively, over the prior year periods. Partially
offsetting the decrease in interest expense was a decrease in interest income
for the three and nine months ended September 30, 2008 of $1.2 million and $2.0
million, respectively, compared to the same periods in the prior
year. The decrease in interest income was primarily attributable to
the repricing of our adjustable rate loans downward. Our weighted average loan
yield for the quarter ended September 30, 2008 was 6.87%, a decrease of 53 basis
points from 7.40% for the same period a year earlier.
The net
interest margin for the three and nine months ended September 30, 2008 was 3.20%
and 2.97%, respectively, compared to 2.65% and 2.64% for the same periods a year
ago, respectively. The increases were primarily attributable to
decreases in the average cost of liabilities of 113 basis points and 82 basis
points for the three and nine months ended September 30, 2008, respectively,
compared to the same periods in 2007, which was partially offset by a decrease
in the average loan yield of 53 basis points and 48 basis points for the three
and nine months ended September 30, 2008, respectively. The decreases
are attributable to the Federal Reserve interest rate cuts and their affects on
the repricing of the Bank’s adjustable loan portfolio, maturing deposits, and
short-term borrowings. As of September 30, 2008, the Bank had $57.0
million in short-term FHLB advances, $68.5 million of certificate of deposits,
and $55.3 million of loans that reprice in the next quarter.
The
following tables set forth the Company’s average balance sheets and the related
weighted average yields and costs on average interest-earning assets and
interest-bearing liabilities, for the three and nine months ended September 30,
2008 and 2007. The yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods shown. Average balances are measured on a daily
basis. The yields and costs include fees that are considered
adjustments to yields.
|
|
Three
Months Ended
|
|
|
Three
Months Ended
|
|
|
|
September
30, 2008
|
|
|
September
30, 2007
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Annualized
|
|
|
Average
|
|
|
|
|
|
Annualized
|
|
Assets
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
7,460 |
|
|
$ |
7 |
|
|
|
0.38 |
% |
|
$ |
623 |
|
|
$ |
20 |
|
|
|
12.84 |
% |
Federal
funds sold
|
|
|
1,976 |
|
|
|
10 |
|
|
|
2.02 |
% |
|
|
974 |
|
|
|
13 |
|
|
|
5.34 |
% |
Investment
securities
|
|
|
76,039 |
|
|
|
1,109 |
|
|
|
5.83 |
% |
|
|
76,072 |
|
|
|
1,017 |
|
|
|
5.35 |
% |
Loans
receivable
|
|
|
608,169 |
|
|
|
10,444 |
|
|
|
6.87 |
% |
|
|
635,288 |
|
|
|
11,758 |
|
|
|
7.40 |
% |
Total
interest-earning assets
|
|
|
693,644 |
|
|
|
11,570 |
|
|
|
6.67 |
% |
|
|
712,957 |
|
|
|
12,808 |
|
|
|
7.19 |
% |
Non-interest-earning
assets
|
|
|
32,090 |
|
|
|
|
|
|
|
|
|
|
|
39,951 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
725,734 |
|
|
|
|
|
|
|
|
|
|
$ |
752,908 |
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
accounts
|
|
$ |
97,853 |
|
|
$ |
352 |
|
|
|
1.44 |
% |
|
$ |
94,503 |
|
|
$ |
453 |
|
|
|
1.92 |
% |
Retail
certificates of deposit
|
|
|
283,722 |
|
|
|
2,722 |
|
|
|
3.84 |
% |
|
|
244,942 |
|
|
|
3,225 |
|
|
|
5.27 |
% |
Wholesale/brokered
certificates of deposit
|
|
|
29,839 |
|
|
|
286 |
|
|
|
3.83 |
% |
|
|
35,441 |
|
|
|
478 |
|
|
|
5.39 |
% |
Total
interest-bearing deposits
|
|
|
411,414 |
|
|
|
3,360 |
|
|
|
3.27 |
% |
|
|
374,886 |
|
|
|
4,156 |
|
|
|
4.43 |
% |
Borrowings
|
|
|
239,367 |
|
|
|
2,517 |
|
|
|
4.21 |
% |
|
|
292,824 |
|
|
|
3,730 |
|
|
|
5.10 |
% |
Subordinated
debentures
|
|
|
10,310 |
|
|
|
143 |
|
|
|
5.55 |
% |
|
|
10,310 |
|
|
|
207 |
|
|
|
8.03 |
% |
Total
borrowings
|
|
|
249,677 |
|
|
|
2,660 |
|
|
|
4.26 |
% |
|
|
303,134 |
|
|
|
3,937 |
|
|
|
5.20 |
% |
Total
interest-bearing liabilities
|
|
|
661,091 |
|
|
|
6,020 |
|
|
|
3.64 |
% |
|
|
678,020 |
|
|
|
8,093 |
|
|
|
4.77 |
% |
Non-interest-bearing
liabilities
|
|
|
6,338 |
|
|
|
|
|
|
|
|
|
|
|
8,526 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
667,429 |
|
|
|
|
|
|
|
|
|
|
|
686,546 |
|
|
|
|
|
|
|
|
|
Equity
|
|
|
58,305 |
|
|
|
|
|
|
|
|
|
|
|
66,362 |
|
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$ |
725,734 |
|
|
|
|
|
|
|
|
|
|
$ |
752,908 |
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
5,550 |
|
|
|
|
|
|
|
|
|
|
$ |
4,715 |
|
|
|
|
|
Net
interest rate spread
|
|
|
|
|
|
|
|
|
|
|
3.03 |
% |
|
|
|
|
|
|
|
|
|
|
2.41 |
% |
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
3.20 |
% |
|
|
|
|
|
|
|
|
|
|
2.65 |
% |
Ratio
of interest-earning assets to interest-bearing liabilities
|
|
|
|
|
|
|
|
104.92 |
% |
|
|
|
|
|
|
|
|
|
|
105.15 |
% |
|
|
Nine
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30, 2008
|
|
|
September
30, 2007
|
|
|
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Annualized
|
|
|
Average
|
|
|
|
|
|
Annualized
|
|
Assets
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Yield/Cost
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
7,314 |
|
|
$ |
30 |
|
|
|
0.55 |
% |
|
$ |
497 |
|
|
$ |
61 |
|
|
|
16.36 |
% |
Federal
funds sold
|
|
|
1,143 |
|
|
|
20 |
|
|
|
2.33 |
% |
|
|
1,591 |
|
|
|
61 |
|
|
|
5.14 |
% |
Investment
securities
|
|
|
83,691 |
|
|
|
3,362 |
|
|
|
5.36 |
% |
|
|
76,439 |
|
|
|
3,003 |
|
|
|
5.24 |
% |
Loans
receivable
|
|
|
611,640 |
|
|
|
31,634 |
|
|
|
6.90 |
% |
|
|
612,911 |
|
|
|
33,890 |
|
|
|
7.37 |
% |
Total
interest-earning assets
|
|
|
703,788 |
|
|
|
35,046 |
|
|
|
6.64 |
% |
|
|
691,438 |
|
|
|
37,015 |
|
|
|
7.14 |
% |
Non-interest-earning
assets
|
|
|
32,203 |
|
|
|
|
|
|
|
|
|
|
|
39,464 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
735,991 |
|
|
|
|
|
|
|
|
|
|
$ |
730,902 |
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
accounts
|
|
$ |
99,263 |
|
|
$ |
1,168 |
|
|
|
1.57 |
% |
|
$ |
94,921 |
|
|
$ |
1,338 |
|
|
|
1.88 |
% |
Retail
certificates of deposit
|
|
|
269,455 |
|
|
|
8,829 |
|
|
|
4.37 |
% |
|
|
235,623 |
|
|
|
8,906 |
|
|
|
5.04 |
% |
Wholesale/brokered
certificates of deposit
|
|
|
34,481 |
|
|
|
847 |
|
|
|
3.28 |
% |
|
|
28,121 |
|
|
|
1,114 |
|
|
|
5.28 |
% |
Total
interest-bearing deposits
|
|
|
403,199 |
|
|
|
10,844 |
|
|
|
3.59 |
% |
|
|
358,665 |
|
|
|
11,358 |
|
|
|
4.22 |
% |
Borrowings
|
|
|
255,758 |
|
|
|
8,046 |
|
|
|
4.19 |
% |
|
|
295,162 |
|
|
|
11,324 |
|
|
|
5.12 |
% |
Subordinated
debentures
|
|
|
10,310 |
|
|
|
463 |
|
|
|
5.99 |
% |
|
|
10,310 |
|
|
|
617 |
|
|
|
7.98 |
% |
Total
borrowings
|
|
|
266,068 |
|
|
|
8,509 |
|
|
|
4.26 |
% |
|
|
305,472 |
|
|
|
11,941 |
|
|
|
5.21 |
% |
Total
interest-bearing liabilities
|
|
|
669,267 |
|
|
|
19,353 |
|
|
|
3.86 |
% |
|
|
664,137 |
|
|
|
23,299 |
|
|
|
4.68 |
% |
Non-interest-bearing
liabilities
|
|
|
7,439 |
|
|
|
|
|
|
|
|
|
|
|
7,157 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
676,706 |
|
|
|
|
|
|
|
|
|
|
|
671,294 |
|
|
|
|
|
|
|
|
|
Equity
|
|
|
59,285 |
|
|
|
|
|
|
|
|
|
|
|
59,608 |
|
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
$ |
735,991 |
|
|
|
|
|
|
|
|
|
|
$ |
730,902 |
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
15,693 |
|
|
|
|
|
|
|
|
|
|
$ |
13,716 |
|
|
|
|
|
Net
interest rate spread
|
|
|
|
|
|
|
|
|
|
|
2.78 |
% |
|
|
|
|
|
|
|
|
|
|
2.46 |
% |
Net
interest margin
|
|
|
|
|
|
|
|
|
|
|
2.97 |
% |
|
|
|
|
|
|
|
|
|
|
2.64 |
% |
Ratio
of interest-earning assets to interest-bearing liabilities
|
|
|
|
|
|
|
|
105.16 |
% |
|
|
|
|
|
|
|
|
|
|
104.11 |
% |
The
following table sets forth the effects of changing rates and volumes (changes in
the average balances) on the Company’s net interest income. Information is
provided with respect to (i) effects on interest income attributable to changes
in rate (changes in rate multiplied by prior volume); (ii) effects on interest
income attributable to changes in volume (changes in volume multiplied by prior
rate); and (iii) the net change.
|
|
Three
Months Ended September 30, 2008
|
|
|
Nine
Months Ended September 30, 2008
|
|
|
|
Compared
to
|
|
|
Compared
to
|
|
|
|
Three
Months Ended September 30, 2007
|
|
|
Nine
Months Ended September 30, 2007
|
|
|
|
Increase
(decrease) due to
|
|
|
Increase
(decrease) due to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Net
|
|
|
Rate
|
|
|
Volume
|
|
|
Net
|
|
|
|
(in
thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
131 |
|
|
$ |
(144 |
) |
|
$ |
(13 |
) |
|
$ |
118 |
|
|
$ |
(149 |
) |
|
$ |
(31 |
) |
Federal
funds sold
|
|
|
39 |
|
|
|
(42 |
) |
|
|
(3 |
) |
|
|
(14 |
) |
|
|
(28 |
) |
|
|
(42 |
) |
Investment
securities
|
|
|
(0 |
) |
|
|
(43 |
) |
|
|
(43 |
) |
|
|
290 |
|
|
|
69 |
|
|
|
359 |
|
Loans
receivable, net
|
|
|
(488 |
) |
|
|
(826 |
) |
|
|
(1,314 |
) |
|
|
(70 |
) |
|
|
(2,186 |
) |
|
|
(2,256 |
) |
Total
interest-earning assets
|
|
$ |
(319 |
) |
|
$ |
(1,054 |
) |
|
$ |
(1,373 |
) |
|
$ |
324 |
|
|
$ |
(2,294 |
) |
|
$ |
(1,970 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
accounts
|
|
$ |
100 |
|
|
$ |
(201 |
) |
|
$ |
(101 |
) |
|
$ |
91 |
|
|
$ |
(261 |
) |
|
$ |
(170 |
) |
Retail
certificates of deposit
|
|
|
2,394 |
|
|
|
(2,897 |
) |
|
|
(503 |
) |
|
|
1,601 |
|
|
|
(1,678 |
) |
|
|
(77 |
) |
Wholesale/brokered
certificates of deposit
|
|
|
(68 |
) |
|
|
(124 |
) |
|
|
(192 |
) |
|
|
322 |
|
|
|
(589 |
) |
|
|
(267 |
) |
Borrowings
|
|
|
(619 |
) |
|
|
(610 |
) |
|
|
(1,229 |
) |
|
|
(1,395 |
) |
|
|
(1,900 |
) |
|
|
(3,295 |
) |
Subordinated
debentures
|
|
|
- |
|
|
|
(64 |
) |
|
|
(64 |
) |
|
|
- |
|
|
|
(154 |
) |
|
|
(154 |
) |
Total
interest-bearing liabilities
|
|
$ |
1,807 |
|
|
$ |
(3,896 |
) |
|
$ |
(2,089 |
) |
|
$ |
618 |
|
|
$ |
(4,581 |
) |
|
$ |
(3,963 |
) |
Change
in net interest income
|
|
$ |
(2,127 |
) |
|
$ |
2,843 |
|
|
$ |
716 |
|
|
$ |
(294 |
) |
|
$ |
2,287 |
|
|
$ |
1,993 |
|
Provision for Loan
Losses
The
Bank’s provision for loan losses was $664,000 and $1.7 million, respectively,
for the three and nine months ended September 30, 2008, compared to $403,000 and
$917,000 for the same periods in 2007. The increase in the provision
for the three and nine months ended September 30, 2008 is primarily due to
increases in the Bank’s loss reserve factors due to the unfavorable business
climate and an increase in the Bank’s charge-offs compare to the same periods in
2007. Net charge-offs in the three and nine months ended September 30, 2008 were
$64,000 and $422,000, respectively, compared to $46,000 and $13,000 for the same
periods ended September 30, 2007. The increase in the Bank’s loss
reserve factors is due to management’s expectation that, with the weakening
economy, our borrowers and/or the collateral securing our loans could be
adversely impacted. The Bank’s Loss Mitigation Department continues
collection efforts on loans previously written-down and/or charged-off to
maximize potential recoveries. See “Allowance for Loan
Losses.”
Noninterest
Income
Noninterest
income for the three and nine months ended September 30, 2008 was income of
$647,000 and a loss of $1.4 million, respectively, compared to income of $1.5
million and $5.1 million for the same periods ended September 30,
2007. The decrease in the noninterest income for the three and nine
months ended September 30, 2008 is primarily due to the Company’s sale of loans
during the same periods in 2007 that generated gains of $970,000 and $3.0
million, respectively, compared to loan sales income of zero and $92,000 for the
same periods in 2008, respectively. Additionally, for the nine month period
ended September 30, 2008, the Bank sold its mutual funds which resulted in a
one-time non-cash charge of $3.6 million (pre-tax) as was previously
disclosed The decrease in loan sales
was anticipated and the Bank has taken steps in past quarters to lower its cost
structure by reducing staff and lowering other expenses.
Noninterest
Expense
Noninterest
expenses were $4.0 million and $11.9 million for the three and nine months ended
September 30, 2008, respectively, compared to $4.4 million and $13.1
million for the same periods ended September 30, 2007. The
decrease in noninterest expense for the three months was the result of a
decrease in compensation and benefits expense of $493,000 which was partially
offset by an increase in other expenses of $55,000. The decrease in noninterest
expense for the nine months was the result of decreases in compensation and
benefits and legal and audit expense of $1.2 million and $237,000, respectively.
Partially offsetting these decreases was an increase in other expense for the
three and nine months ending September 30, 2008 of $55,000 and $263,000,
respectively, compared to the same periods in the prior year. The
decrease in compensation and benefits for the quarter is attributable to
management’s staff reductions, which occurred during the fourth quarter of 2007
and in the first quarter of 2008. The number of employees with the Bank at
September 30, 2008 was 90 compared to 114 at September 30, 2007. The decrease in
legal and audit expense is primarily due to a lawsuit that was settled in June
2007 that cost the Bank a total of $250,000 in legal and settlement fees during
the first nine months of 2007 with no such expense in 2008.
Provision for Income
Taxes
The
Company had a tax provision for the three and nine months ended September 30,
2008 of $581,000 and $45,000, respectively. For the same periods in
2007, the Company had a tax provision of $574,000 and $1.8 million,
respectively. The decrease in the tax provision for the nine month ended
September 30, 2008 was primarily due to a reduction in income before taxes of
$4.1 million. The Company’s valuation allowance for deferred taxes was zero at
September 30, 2008, as the deferred tax assets based on management’s analysis
were determined, more likely than not, to be realized.
LIQUIDITY
The
Bank’s primary sources of funds are principal and interest payments on loans,
deposits and borrowings. While maturities and scheduled amortization of loans
are a predictable source of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions, and
competition. The Bank’s average liquidity ratios were 9.93% and
10.31% for the quarters ended September 30, 2008 and 2007,
respectively.
The
Company’s cash flows are comprised of three primary classifications: operating
activities, investing activities and financing activities. Cash flows
provided by operating activities were $5.8 million for the nine months ended
September 30, 2008, compared to net cash used in operating activities of
$462,000 for the nine months ended September 30, 2007. Net cash used
in investing activities was $26.9 million for the nine months ended September
30, 2008, compared to net cash used in investing activities of $54.9 million for
the nine months ended September 30, 2007. Net cash used in financing
activities was $3.3 million for the nine months ended September 30, 2008,
compared to net cash provided by financing activities of $44.3 million for the
nine months ended September 30, 2007.
The
Company’s most liquid assets are unrestricted cash and short-term
investments. The levels of these assets are dependent on the
Company’s operating, lending and investing activities during any given
period. At September 30, 2008, cash and cash equivalents totaled $9.5
million and the market-value of the Bank’s investments in mortgage-backed
securities totaled $60.1 million. The Company has other sources of
liquidity, if a need for additional funds arises, including the utilization of
FHLB advances, Federal Funds lines, credit facility with Salomon Brothers, and
loan sales.
As of
September 30, 2008, the Bank had commitments to extend credit of $18.7 million
as compared to $20.9 million at December 31, 2007. There were no
material changes to the Company’s commitments or contingent liabilities as of
September 30, 2008 compared to the period ended December 31, 2007 as discussed
in the notes to the audited consolidated financial statements of Pacific Premier
Bancorp, Inc. for the year ended December 31, 2007 included in the Company’s
Annual Report on Form 10-K, as amended, for such year.
CAPITAL
RESOURCES
The
regulatory agencies require a minimum ratio of qualifying total capital to
risk-adjusted assets of 8.0 percent and a minimum ratio of Tier 1 capital
to risk-adjusted assets of 4.0 percent. In addition to the risk-based
guidelines, regulators require banking organizations to maintain a minimum
amount of Tier 1 capital to total assets, referred to as the leverage ratio, of
4.0 percent. For a bank rated in the highest of the five categories used by
regulators to rate banks, the minimum leverage ratio is 3.0 percent. In
addition to these uniform risk-based capital guidelines that apply across the
industry, the regulators have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the minimum
guidelines and ratios.
The table
in “Item 1. Financial Statements - Note 3 - Regulatory Matters” reflects the
Company’s and Bank’s capital ratios based on the end of the period covered by
this report and the regulatory requirements to be adequately capitalized and
well capitalized. As of September 30, 2008, the Bank met the capital
ratios required to be considered well capitalized.
Item 3. Quantitative and Qualitative Disclosure About
Market Risk
Management
believes that there have been no material changes in the Company’s quantitative
and qualitative information about market risk since December 31, 2007. For a
complete discussion of the Company’s quantitative and qualitative market risk,
see “Item 7A. Quantitative and Qualitative Disclosure About Market Risk” in the
Company’s 2007 Annual Report on Form 10-K, as amended.
Item 4. Controls and Procedures
(a) Evaluation
of Disclosure Controls and Procedures
The
Company's Chief Executive Officer and its Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
as defined in Rules 13a-15(c) and 15-d-15(e) under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), as of the end of the period covered by
this report (the "Evaluation Date") have concluded that as of the Evaluation
Date, the Company's disclosure controls and procedures were adequate and
effective to ensure that material information relating to the Company and its
consolidated subsidiaries would be made known to them by others within those
entities, particularly during the period in which this quarterly report was
being prepared. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files under the Exchange
Act is accumulated and communicated to its Management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
(b) Changes
in Internal Controls
There
have not been any changes in the Company’s internal control over financial
reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
PART II. OTHER
INFORMATION
Item
1. Legal
Proceedings
The
Company is not involved in any legal proceedings other than those occurring in
the ordinary course of business, except for the “James Baker v. Century
Financial, et al” which was discussed in the Company’s Annual Report on Form
10-K, as amended, for the year ended December 31, 2007. Management
believes that none of these legal proceedings, individually or in the aggregate,
will have a material adverse impact on the results of operations or financial
condition of the Company.
There are no material changes from the
risk factors set forth under Part 1A. “Risk Factors” in the Company’s 2007
Annual Report on Form 10-K, as amended, other than the addition of the following
risk factors:
There
can be no assurance that recently enacted legislation authorizing the U.S.
government to take direct actions within the financial services industry will
help stabilize the U.S. financial system.
On
October 3, 2008, the President signed into law the Emergency Economic
Stabilization Act of 2008 (the “EESA”). The legislation was the result of a
proposal by Treasury Secretary Henry Paulson to the U.S. Congress on
September 20, 2008 in response to the financial crises affecting the
banking system and financial markets and going concern threats to investment
banks and other financial institutions. Pursuant to the EESA, the U.S. Treasury
will have the authority to, among other things, invest in financial institutions
and purchase up to $700 billion of mortgages, mortgage-backed securities and
certain other financial instruments from financial institutions for the purpose
of stabilizing and providing liquidity to the U.S. financial markets. Pursuant
to this authority, the U.S. Treasury has announced its Capital Purchase Program,
under which it has begun to purchase up to $250 billion of preferred stock in
eligible institutions to increase the flow of financing to U.S. businesses and
consumers and to support the U.S. economy. In addition, other recent regulatory
measures designed to strengthen financial market stability include actions
enabling the FDIC to temporarily guarantee the newly-issued senior debt of
FDIC-insured institutions and their holding companies, as well as deposits in
noninterest-bearing deposit transaction accounts, and the Federal Reserve’s
Commercial Paper Funding Facility, providing a backstop for the commercial paper
market of high quality issuers. There can be no assurance, however, as to the
actual impact that the EESA and these related actions will have on the financial
markets, including the extreme levels of volatility and limited credit
availability currently being experienced. The failure of the EESA and these
related actions to help stabilize the financial markets and a continuation or
worsening of current financial market conditions could materially and adversely
affect our business, financial condition, results of operations, or access to
credit.
Difficult
market conditions may adversely affect our industry, business, results of
operations and access to capital.
Dramatic
declines in the housing market over the past year, with falling home prices and
increasing foreclosures, unemployment and under-employment, have negatively
impacted the credit performance of mortgage loans and resulted in significant
write-downs of asset values by financial institutions, including
government-sponsored entities as well as major commercial and investment banks.
These write-downs, initially of mortgage-backed securities but spreading to
credit default swaps and other derivative and cash securities, in turn, have
caused many financial institutions to seek additional capital, to merge with
larger and stronger institutions and, in some cases, to fail. Reflecting concern
about the stability of the financial markets generally and the strength of
counterparties, many lenders and institutional investors have reduced or ceased
providing funding to borrowers, including to other financial institutions. This
market turmoil and tightening of credit have led to an increased level of
commercial and consumer delinquencies, lack of consumer confidence, increased
market volatility and widespread reduction of business activity
generally. The resulting lack of available credit and lack of
confidence in the financial markets could materially and adversely affect our
financial condition and results of operations and our access to
capital. In particular, we may face the following risks in connection
with these events:
·
|
Market
developments may affect consumer confidence levels and may cause adverse
changes in payment patterns, causing increases in delinquencies and
default rates on loans and other credit
facilities.
|
·
|
The
processes we use to estimate allowance for loan losses and reserves may no
longer be reliable because they rely on complex judgments, including
forecasts of economic conditions, which may no longer be capable of
accurate estimation.
|
·
|
Our
ability to borrow from other financial institutions or raise additional
capital on favorable terms or at all could be adversely affected by
further disruptions in the capital markets or other
events.
|
·
|
We
may be required to pay significantly higher FDIC premiums because market
developments have significantly depleted the insurance fund of the FDIC
and reduced the ratio of reserves to insured
deposits.
|
·
|
We
expect to face increased regulation of our industry. Compliance with such
regulation may increase our costs, limit our ability to pursue business
opportunities, and increase compliance
challenges.
|
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
None
Item
3. Defaults
Upon Senior Securities
None
Item
4. Submission
of Matters to a Vote of Security Holders
None
Item
5. Other
Information
None
Exhibit
31.1 |
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
|
|
Exhibit
31.2 |
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
|
|
Exhibit
32 |
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
PACIFIC
PREMIER BANCORP, INC.,
November 14,
2008
|
By:
|
/s/ Steven R.
Gardner
|
Date Steven R.
Gardner
President
and Chief Executive Officer
(principal
executive officer)
November 14,
2008
|
/s/ John
Shindler
|
Date John Shindler
Executive
Vice President and Chief Financial Officer
(principal
financial and accounting officer)
Exhibit
No. Description of
Exhibit
31.1 |
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
|
|
31.2 |
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
|
|
32 |
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002 |